I am starting a new thread on Warren Buffett, who is widely regarded as the best investor the world has ever seen. I will add to the posts here gradually.
Ladies and Gentlemen, I present to you "The Oracle from Omaha".
As a start, from the internet, I gathered the following:
"THE CROWD began gathering at 6am last Saturday outside the Qwest Centre arena in Omaha, Nebraska. Billboards advertised gigs by U2 and Paul McCartney. Motley Crue had just played Qwest, accompanied by leashed dwarves and PVC-clad trapeze artistes. This crowd was more soberly attired. Shivering on an unseasonably cold morning, they were here to see Warren Buffett, the world’s most successful investor. But he, too, would sing.
After the 17,000 Buffett fans had taken their seats, giant video screens came to life above a small stage. Buffett appeared wearing dungarees, a wooden shack in the background. “Somewhere over the rainbow. Way up high. There’s a land that I heard of. Once in a lullaby...” Buffett loves to sing. He does it every year, sometimes accompanying himself on a ukulele.
Before he can get to the song’s tricky bit a tornado destroys the house and whisks Buffett off to Oz on a cartoon adventure, accompanied by his caustic sidekick Charlie Munger as the Tin Man and friends Bill Gates, Microsoft’s co-founder, as the Scarecrow and Arnold Schwarzenegger as the cowardly Lion.
It’s the start of the Berkshire Hathaway annual shareholder meeting. It is a strange amalgam of shopping trip, county fair, weekend MBA, history lecture and social club. The meeting always starts with a film, made by Buffett’s daughter, Susie.
Shareholders give the film rapturous applause, but there is trouble in Oz. Buffett is now 74, Munger 81. Both have sharper minds than most men half their age but neither is immortal. Buffett’s wife, Susie, died this year and mortality and succession seem to be much on his mind.
Like many conglomerates, Berkshire is a bizarre collection of businesses. Among other assets, it owns 8% of Coca-Cola, 12.1% of American Express, 18.1% of The Washington Post, Fruit of the Loom leisurewear, Acme building products and the insurers General Re and Geico.
What these investments have in common is Buffett. For the long-term investor there have been few opportunities as rich as Berkshire. Since 1965, its Class A stock has returned an average of 26% a year. It now sells for $84,950 (£44,767) a share, valuing Buffett’s 29% stake at $42 billion.
Buffett has become a hero to the wider business community. Valuing his integrity above all, he has survived the wave of corporate scandals unscathed. Malpractice in the insurance industry has led to regulators in Australia and America probing his companies, and late on Friday Berkshire disclosed that the Securities and Exchange Commission planned to file a fraud complaint against an unnamed executive at General Re, one of its largest insurance businesses. But not even Eliot Spitzer, New York ’s crusading attorney- general, believes Buffett has sinned. He is almost untouchable — the patron saint of American capitalism.
Buffett invited Gates on to Berkshire’s board this year. He described Gates, the only man who is richer than him, as “a trustee of the will”, who can ensure the company is run as Buffett would want it to be.
But not even Gates and Buffett’s combined wealth and brainpower can halt Buffett’s slide to the high-risk end of the actuarial tables. Investors are worrying about the future. Fitch, a credit-rating agency, recently downgraded its outlook on Berkshire from “stable” to “negative”, noting in its report that Fitch “does not believe Mr Buffett’s talents can be easily replaced, or that Berkshire’s strategies would be sustainable in his absence”.
BUFFETT and Munger are quite a double act. The two have worked together since the 1960s. Buffett is chatty, cordial, a joker. Munger is patrician and severe — Buffett calls him “the abominable no man”. Buffett is a liberal Democrat, Munger a right-wing Republican. They adore each other — rarely does one miss an opportunity to praise the other.
Asked about his best investment, Buffett named Munger, adding “he works cheap, too”.
The pair spent nine hours last weekend answering questions from shareholders and the press. The topics included Adam Smith; rap music; hedge funds; marriage; the future of newspapers; Coca-Cola; envy; integrity; temperament versus intelligence; social security; hurricanes and Schwarzenegger.
Buffett opened the meeting: “Good morning. I’m Warren, he’s Charlie. We work together. We really don’t have any choice because he can hear and I can see.”
Some questions, like how he started investing, Buffett must have been asked a thousand times but are still answered in good cheer. “I got interested when I was seven. I wasted my time before that,” he joked. Buffett and Munger believe you don’t have to be smart — well not too smart — to be a successful investor: “If you have an IQ of more than 130, you can give the rest of the points away,” said Munger. But for all Buffett’s cheery demeanour, Munger’s mood is a better guide to Buffett’s thinking. Both believe the economy is at a turning point. Berkshire has more than $40 billion it would like to spend. But, because of what they see as the inflated prices businesses are attracting, there are no bargains to be had. “For the first 30 years my ideas outran my capital,” said Buffett. “Now my capital outruns my ideas.”
We are at a peak, warn the Berkshire boys, and they are looking down into the trough.
A number of shareholders ask the “Sage of Omaha” about house prices — clearly overvalued in some areas, he said. Buffett recently sold a house in Laguna, California, for $3.5m. “It was on 2,000 sq ft of land, maybe one twentieth of an acre, and the house might cost about $500,000 if you wanted to replace it. So the land sold for something like $60m an acre.”
The housing market is not the worst excess Berkshire’s bosses see. They are also concerned about America’s trade deficit.
Buffett compared America to “an incredibly rich family” that was “consuming more than we bring in. So we sell off a piece of the farm, or mortgage it. We can’t see what’s being sold. We trade away a bit of the farm every day and the rest of the world is happy to buy it. That can go on for a long time but our children will be paying for it one way or another.”
Munger is more blunt. He said America had reached the apex of western civilisation and that today society reminded him of “Sodom and Gomorrah”.
Excesses in the market could trigger a catastrophe at any time, said Buffett. The speed with which money could now be moved by what Munger called “the electronic herd” of hedge-fund managers meant a financial crisis could spiral out of control very quickly.
“The last 60 years have been the best years for western civilisation. My generation has been very favoured. It is unlikely that the next 60 years will be so favourable,” said Munger.
Both men said China was bound to be the next great world power. “It’s quite conceivable that China will end up being the most important nation in the world,” said Munger. The scale of the country plus the Chinese work ethic and enthusiasm would make them hard to beat, said Munger. “When I look at a modern symphony orchestra, every instrument that is difficult to play has an oriental face over it,” he said. The West, by contrast, was lazy and decadent “ living in extreme affluence with all these people running hedge funds,” he said.
PERHAPS it was the warnings of doom, perhaps it was the discount — either way at the Berkshire-owned Borsheim’s jewellery store the next day shareholders were shopping like there was no tomorrow. Buffett’s magic was still paying off.
Jack Fitzpatrick, 26, had come from Reno, Nevada, with his father, Frank, 61. It was junior’s first visit; his father had been coming for 10 years and met his wife in Omaha.
“When we were kids we never got sports stories, we got Warren’s investment stories. It’s like seeing a part of history,” said Frank. Would he come if Buffett wasn’t here? “No.” What if Gates was speaking? “He’s no Warren Buffett.”