Load up the station wagon and point it toward middle America; it's time once again for Berkshire Hathaway's (BRK.A) annual meeting! Breakout is going to be there along with self-proclaimed devotees of the value investing religion as preached by Warren Buffett.
Like all things related to the Oracle of Omaha, it's tough to separate the genuine capitalist genius from the hype. Buffett has done more to help individual investors put their money to work wisely than any living American. He's a bit like Ben Franklin: a massively wealthy American original with a gift for doling out timeless wisdom he himself only occasionally follows.
If Buffett feels conflicted about being the man who first characterized derivatives as "financial weapons of mass destruction" while at the same time being one of the largest and most successful derivatives traders in history, he doesn't show it. Being the best long-term investor in history means never having to say your sorry.
None of which says much about the merits of attending the annual meeting. In the attached video Lee Munson of Portfolio, LLC says investors shouldn't confuse the spectacle with the substance of Buffett's message. "One of the biggest mistakes I see from clients of my firm is that they'll go through the annual report from Berkshire Hathaway, they'll take a look at his largest positions, and they'll buy them."It's a silly way to invest for a bunch of different reasons. First, Buffett doesn't buy stock like you and me anymore and hasn't for years. Berkshire's stock investment decisions are increasingly made by Todd Combs and Ted Weschler. Even if buying their stock picks months after the fact seems appealing, there's the uncomfortable fact that Berkshire isn't really in the business of stock picking anymore. Buffett is now in the business of scooping up companies whole. Buffett bought Burlington Northern in 2009, and it was a brilliant move that only Buffett himself could have made. Berkshire Hathaway kept all the profits for itself because that's what capitalists do.
Back to those derivatives. In Q4 of last year Berkshire earned $4.55 billion compared to $3.05 billion a year earlier. More than 80% of that year-over-year improvement — or $1.23 billion — came from Berkshire's derivatives portfolio.
Suffice it to say the Berkshire Meeting isn't likely to feature an in-depth discussion of how to put $33 billion of notional value paper to work in global index options. If such conversations do take place, they won't be over Dilly Bars and Cherry Coke.
None of which does anything to reduce the man's accomplishments or the event itself. Going to the "Woodstock of Capitalism" to learn about investing will be as successful as those who went to the original Woodstock for guitar lessons.
Munson says anyone even remotely interested in stocks should go back and read every single one of Buffett's Annual Shareholder Letters. At the very least they make for great airplane reading on the way to the party.
- Warren Buffett
- Berkshire Hathaway