One year and 35% after their last get together, Berkshire Hathaway (BRK.A) (BRK.B) shareholders have plenty to be happy about. The company posted a 51% increase in first quarter profits, earnings of nearly $3,000 a share, a 5.5% increase in book value and, most of all, a record high share price that has made Berkshire the fifth most valuable company in the world.
It’s a quarter and a trend that renowned Buffettologist Jeff Matthews says reflects the fact that Berkshire’s 80 businesses are in the right place at the right time.
"What it says is the U.S. is doing great. Companies like GE and Siemens that are worldwide are having trouble outside the U.S. Berkshire is 95% U.S. and they're knocking the cover off the ball," he states from the exhibition hall at the Century Link Center in Omaha, Nebraska.
Of course, with each passing year, the talk only grows about who will ultimately try to fill the shoes of 82-year-old chairman Warren Buffett. In fact, the first question at today's annual shareholder meeting raised the issue. Buffett confessed it's “the number one subject our board considers at every meeting.”
That said, he also assured the crowd that preserving the culture is key to future success after he’s gone, noting that if "something foreign were introduced into this system," the partners and shareholders would reject it.
His 89-year-old vice chairman, Charlie Munger, was characteristically more blunt on the matter, saying, “To all the Mungers in the audience, don’t be so stupid as to sell these shares.”
Larry Cunningham, author of The Essays of Warren Buffett, says the Oracle’s ‘’ultimate achievement’’ is that he’s made Berkshire bigger than himself.
"It's true Berkshire is massive, but each of the subsidiaries is where all the action takes place," he says. "It's not the same kind of size as you see with large financial institutions."
This year's meeting was the first time that a known "bear" was invited to challenge the Oracle’s empire in front of his followers. Famed fund manager Doug Kass of Seabreeze Partners noted that acquisitions are not only getting bigger and bigger, but they’re being done at higher prices or multiples than they have historically. He said this is resulting in a company that risks becoming an index fund rather than an efficient investment machine.
While Buffett concedes that it’s getting tougher to “move the needle” as Berkshire gets bigger, he points out that he’s “always known it would be.” But he defended the franchise by saying ‘’we own a lot of great companies...have a one-of-a-kind culture," before wryly adding that “you haven’t convinced me yet to sell the stock, keep working.”
Other key issues raised at the meeting include discussion of the Federal Reserve's quantitative easing program. Buffett said QE is a "huge experiment" into "uncharted territory" and it will be harder to unwind than it’s been to wind up.
When asked about the impact of Dodd Frank legislation on the financial sector, Buffett defended the role of regulators but also the role of lenders, saying his insurance businesses aren’t really being affected. Further, he’s happy with his bank investments and is confident that it won’t be the banks that cause the next crisis.
Ultimately, this weekend was nicknamed the Woodstock of Capitalism for good reason, as it is clearly more about adulation than criticism.
As one loyal attendee quipped, "The Berkshire annual meeting is sort of like going church. You know what you're going to get. You know what you believe in. But you still come back every week."
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