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Warren Buffett Explains Why Berkshire Does Not Give Analysts Special Treatment

Most large blue-chip companies openly engage with Wall Street analysts to try and get across their stories to shareholders.

Most big companies, that is, apart from Berkshire Hathaway (BKR.A) (NYSE:BRK.B).

Warren Buffett (Trades, Portfolio) has explained in the past that the reason why he does not like to entertain analysts is that it gives some investors an unfair advantage over others.


Speaking at the 2004 Berkshire annual meeting, the Oracle of Omaha said:


"I have some problem with having meetings with subgroups of investors, such as institutional investors. If we had something like that, I think we would want it to be open to everybody. And, you know, that gets to be quite a production."



At the time, he was responding to a question from an audience member who asked why Berkshire didn't engage with analysts in the same way that many other blue-chip companies did.

Buffett explained that he believes it is the CEO's responsibility to convey as much information about the business as possible in its annual report and at the annual meeting. The CEO should be able to give investors as much information as they need in these two interactions without having to have analysts dissect the business on a monthly or daily basis.

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This view is all part of Buffett's long-term mentality. One of the reasons why Buffett does not like Wall Street is its short term outlook. This is only perpetuated by analysts continually producing reports on businesses and sectors based on minute changes in the operating environment.

Buffett went on to give his whole view on the situation at the meeting in 2004:


"But I really think if we spend six hours here answering your questions about the business and we do a half-way decent job of writing the annual report, we should get across the essential information. And we're really not trying to get across -- we're not trying to talk to an audience that is trying to get some special insight into what next quarter or next year is going to look like.

We're really looking for owners who join us in what we regard as kind of a lifelong investment. And I would say that certainly analysts, like your group, have precisely the same objective we do and want to understand the business that way.

But my experience, you know, in talking to hundreds of them, is that there are relatively few that are actually thinking about, "What do we buy and put away forever?" Like, we'd buy a farm or an apartment house or something. So we'll consider it, but I don't want to make any promises."



Universal ideas

This shouldn't be applicable to just Berkshire. There is a more important lesson for investors here. Something Buffett has always tried to make clear is that as a manager, he wants to give shareholders as much information as possible to let them make an informed investment decision. He believes that every single company should be doing this. If they aren't, then that is a cause for concern.

Investors need to be sure that they can trust a company's management to give them as much information as possible about a firm's operations. If we have to rely on analysts to do the legwork, then that's something to be worried about. It means management might not have the shareholders' best interests in mind. That is a big red flag.

If managers are trying to withhold or mislead shareholders with information in the annual report, we have to ask ourselves, what else are they holding back?

Buffett's approach might not be conventional, but if all company managers were as honest with their investors as Buffett is with his, there might be no need for Wall Street analysts at all.

Disclosure: The author owns shares in Berkshire Hathaway.

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This article first appeared on GuruFocus.