Buffett: 'Shot Heard Around the World' Coming

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Buffett: 'Shot Heard Around the World' Coming
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Lacy O'Toole | CNBC

Warren Buffett told more than 30,000 shareholders gathered for Berkshire Hathaway's annual meeting that the company will not change much when he's no longer in charge.

Buffett noted that newspapers often write stories saying Berkshire won't be the same without him, but he assured the crowd "it will be the same."

He said that Berkshire has created a strong "culture" over the years that would reject any attempt by an outsider to make changes that don't reflect his way of doing business.

Buffett also repeated that while no name has been publicly announced, he and Berkshire's board are "solidly in agreement" on who would become CEO if Buffett suddenly died or became unable to do the job. "The key is preserving a culture and having a successor, a CEO, that will have more brains, more energy, more passion for it than even I have."

(Read more: Buffett's Advice on How to Be Happy: Get Turned On )

He said his successor won't have to do everything exactly the same way he's done them, and might even do some things better. The managers of the operating units, however, will provide a lot of continuity.

Would his successor's "stamp of approval" mean as much as his own? "Berkshire is the 800 number when there is really some panic in the markets, and people need significant capital. If you come to a day when the Dow has fallen 1,000 points a day for a few days and the tide has gone out and you find some naked swimmers," they will be calling Berkshire.

Buffett's long-time business partner Charlie Munger warned the shareholders not to sell any stock because they're afraid of what might happen when Buffett is gone. "I would say to the many Mungers in the audience don't be so stupid as to sell these shares."

Buffett added, "That goes for the Buffetts, too."

'SHOT HEARD AROUND THE WORLD'

In response to a question on the Federal Reserve's massive quantitative easing program, Buffett said it will be "the shot heard around the world" when the central bank first indicates it will stop buying financial assets or start selling from their now enormous $3.4 trillion balance sheet. "we're in uncharted territory ... that's a lot of securities."

Because that liquidity has been supporting stock prices, people in the market will immediately reevaluate their positions.

Even so, he said, "the world won't end" and the market will survive. He repeated his long-held "faith" in Fed chief Ben Bernanke and said "we have benefited significantly, and the country has benefited significantly" by the Fed's actions.

Conceding the Fed's buying program is a "huge experiment," Buffett said, "This is like watching a good movie, and I do not know the end."

(Read more: Buffett Tries to Explain 'Colorful Charlie' )

He also praised President George W. Bush for coming to the financial system's rescue at the height of the credit crisis in 2008 with what Buffett called the 10 smartest words in economic history: "If money isn't loosened up, this sucker could go down."

Buffett said that while the nation's debt has been increased by the stimulus, "the amount of deficit spending in the last four years ... has been quite appropriate in relation to the threat to the economy that was posed by the greatest panic in my lifetime."

BERKSHIRE TOO BIG?

Asked by invited "bear" Doug Kass if Berkshire has been paying too much for companies, growing too large, and becoming too much like an index fund that would be good for "widows and orphans," Buffett replied that Berkshire is buying good businesses while remaining disciplined about price.

"In terms of acquisitions we've made in the last five years, we think we've done pretty well."

Still, he conceded, "size does matter," and as the company has grown bigger there's "no question we can't do as well as in the past." He later added that he's convinced breaking Berkshire into smaller parts would produce poorer results.

Munger added that even though Berkshire has become very big, "We think we are going to do a bit better than the giants of the past" because "we have a better system."

Buffett joked that Kass hadn't convinced him to sell his Berkshire shares yet.

Later in the session, Kass asked why Berkshire had designated Warren Buffett's oldest son, Howard, to eventually become non-executive chairman aside from an "accident of birth," since he has no experience running a company or making investments.

Buffett replied that Howard wouldn't be actively running Berkshire, but would be there to safeguard the company's culture in the very unlikely event a "mistake" is made choosing the new CEO. "I know of nobody that will feel that responsibility more in terms of doing that job than my son Howard."

BERKSHIRE'S NEWSPAPER BUYING

In response to question suggesting Berkshire is buying newspapers to rescue a dying industry and could find better opportunities elsewhere, Buffett said "we like" newspapers but he also expects a "decent return" of 10 percent after taxes. He added that the newspapers are being purchased at "very low" prices compared to earnings and they're "not going to move the needle at Berkshire."

But he conceded, "We wouldn't have done it in any other businesses, there's no doubt about it." Munger interpreted Buffett as saying it is an "exception and you like doing it."

Berkshire has bought more than two-dozen newspapers in small to medium-sized cities in recent years, including Buffett's home-town paper, the Omaha World-Herald . He's argued that papers in places with a strong sense of community will do well because they will continue to be the only source of local news and information.

TODD AND TED

Buffett told shareholders that Berkshire's two portfolio managers, Todd Coombs and Ted Weschler, don't consult him before they buy or sell stocks.

Sometimes, he said, they buy things he wouldn't buy just as he buys things they wouldn't buy.



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