Thoughts on the 2010 Berkshire Hathaway Annual Meeting

My Shareholder Credential

Update: (5/4/10) Here’s a comprehensive list of resources dealing with the meeting, from Ravi Nagarajan’s blog, The Rational Walk. I’m familiar with his writing on Guru Focus. It’s all the Berkshire you could ever want in one place;)

We just got back into town after spending a great weekend in Omaha, NE, attending our second consecutive Berkshire shareholders meeting. One of the big differences between this year and last was having my father-in-law and brother-in-law with us. I think we all had a great time.

I thought I would share a couple of memorable (to me) moments from the talk, but before I do…a brief story from today (Sunday). As Rachel (my wife) and I entered the terminal and took a seat to wait for our plane, I spotted Mohnish Pabrai. He was sitting next to a friend, and I approached him and introduced myself. He was a very friendly guy. I mentioned that I noticed that he had been selling HNR. He laughed and said “I’m trimming. That’s all I can say.” Meeting him added a neat element to an already great trip. Here’s the proof:

Mohnish Pabrai at Eppley Airfield

Now to the meeting. I don’t have a lot of things to say. I thought I would mention some things that I thought were significant. I really didn’t take notes, but I tried to drink in the experience as much as I could. I’m sure you could find someone on the web blogging every word. Here are some of the comments that caught my ear:

Our seats at the Qwest Center, Omaha, NE

On newspapers:

One of the questions was about what they thought of the newspaper business. Warren talked about how 20 years ago, they would have said that newspapers had one of the widest moats around. Charlie talked about the historical role of newspapers, and how important they have been as a political watchdog. He went on to say that he thought that the fall of newspaper was to all of our detriment, but that he had no idea what to do about it. I really don’t have a comment on the subject, I just think it’s significant. Who guards the guardians?

On Municipal Bond Defaults

Someone asked whether they thought municipal bonds would accelerate in the future. They very honestly responded that they did not know, but mentioned that they currently don’t feel like they are being offered attractive enough premiums to insure municipal bonds.

When asked to describe their fundamental, overarching belief:

Charlie: Pragmatism

On the Kraft/Cadbury deal:

It’s rare for Warren to publicly criticize a CEO. He’d have to adamantly oppose something to do so. With regard to this deal, he did so in the national media. He held his ground with regard to the deal at the meeting, calling it a “dumb deal.”

On Optimism

One questioner asked how they can say they’re optimistic while concurrently saying that they expect high inflation going forward and are worried about the deficit. Charlie responded with this gem:

“I can be optimistic when I’m nearly dead, surely you people can handle a little inflation.”

On Buffett’s many media appearances:

One questioner asked if frequently appearing on TV was the best use of his time for shareholders. Warren responded by saying, “probably not. Lots of things I do aren’t a good use of my time for shareholders. I play bridge on the internet 12 hours a week.”

He went on to explain that he’d rather just go on TV and explain himself in his own words, than give an hour interview that gets cherry picked for a specific quote which is then misconstrued to say something that he didn’t mean to say.

On Harley Davidson:

The question asked why they bought Harley Davidson notes instead of equity, which has appreciated significantly, when HOG was in dire need of capital. They said they didn’t know why, but now, with the benefit of hindsight, they wished they would have. Buffett, showing off that classic wit, went on to say that you have to love a company whose customers tattoo its name on their chests.

Goldman Sachs

Plenty was asked and answered about Goldman Sachs (GS). The short version – Buffett and Charlie are convinced that GS didn’t do anything wrong with regard to the Paulson trade. They did a little explanatory presentation. I am convinced as well.

On regulation

They are both for stronger financial reform. Charlie mentioned that if he were made benevolent despot, his reform would make Paul Volcker look “like a sissy.”

On posting collateral for derivative contracts

They have no objection going forward, but they strongly object to being made to post collateral retroactively on derivative contracts. Freedom of contract is an important principle. They both said that they feel that if they are made to post collateral, they are due a substantial amount of premiums, because contracts that include posting collateral pay better than ones that don’t.

Dividends

Berkshire isn’t paying a dividend. I don’t think it will as long as Buffett is around. Buffett seemed to hint that Berkshire was closer to being in a position where they would pay a dividend than ever before. At some point, there will simply be too much capital to allocate.

Bill Gates

Bill Gates, a Berkshire director, sat in the front row with the other directors. After lunch, some of the directors were slow to come back or didn’t come back at all. Gates was there the entire time, and didn’t miss a moment. From where we were sitting, we were in a good position to observe him. Not many seats in the meeting were good for this, and I found it somewhat entertaining.

Occasionally, one of the questions would involve Apple or something related, and we would immediately turn and look at Gates for a reaction. He chatted with the directors sitting around him and seemed to have a great time. He also quietly laughed at a couple of the uninformed (I won’t call them stupid) questions that were asked. Anyway, I enjoyed seeing him down there, reacting, readjusting in his seat, looking like he had a bit of extra energy most of the time.

On Stocks

Buffett has consistently said that he believes that stocks will earn a lower return in the next decade than they have historically. That being said, he said that he believes stocks are a better option than any of the alternatives. It reminded me of the Winston Churchill quote: democracy is the worst form of government except for all the others. According to Buffett, stocks are the best of a bad lot. Thanks for reading.