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Below is a guest blog written by Jeff Matthews author of "Pilgrimage to Warren Buffett's Omaha: A Hedge Fund Manager's Dispatches from Inside the Berkshire Hathaway Annual Meeting"
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If our list is any indication (and to be clear, there is no guarantee our readers’ questions will be asked), we have a good idea what will be on Berkshire investors’ minds this Saturday in Omaha.
The single most-asked question we received concerned Berkshire’s bad derivatives experience last year. Essentially, Buffett wrote insurance against the stock market going down in a big way, not long before the stock market went down in a very big way.
Buffett devoted much space to the topic in his shareholder letter. He assured readers the derivatives will prove to be a low-cost source of capital, just like Berkshire’s other insurance products. After all, they only pay off if markets are still down 15-20 years hence, which is unlikely.
Nevertheless, as our readers noted, he clearly took on the derivatives at a bad time, which is unusual for Buffett, and this may have forced him to sell stocks to raise the money he invested in GE, Goldman Sachs and Wrigley—probably the first time he’s ever sold stocks when markets were declining.
The derivatives issue deserves a good airing.
Second, Buffett will almost certainly be asked about loading up on Conoco-Phillips at the peak of the oil mania.
It was just so oddly irrational of Buffett to buy, as our winning question put it, “an asset with a price chart that went straight up, rather than straight down.”
Long-time Buffett watchers will want to understand why.
A third topic that may well come up is Buffett’s seeming 180-degree switch in recent years from investing in cash-generating consumer products franchises like Coke and Gillette—the style for which he is famous—to regulated, cash-eating businesses such as pipelines and railroads.
Buffett, who hates to spend money on anything—hey, his annual meeting is a profit generator for Berkshire, what with GEICO reps selling insurance on the premises and even Clayton manufactured homes for sale—seems to be shifting Berkshire into more cyclical, capital-heavy businesses.
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CNBC.com Warren Buffett |
Our readers wanted to know why, and I suspect Berkshire shareholders will, too.
Fourth, Buffett will almost certainly be asked about the “own forever” mantra that made him the world’s richest man. That philosophy came to grief for many small investors who saw their pensions vanish in 2008 with the collapse of former “hold forever” investments such as Fannie Mae, Freddie Mac, AIG and Citibank.
Buffett, who wisely sold his Fannie Mae holdings years ago, may well be asked how he decides when “forever” is too long.
Finally, our top vote-getter—Does Berkshire have a replacement in mind for Ajit Jain, Berkshire’s insurance ace?—might seem obscure to those who don’t know much about Berkshire beyond Warren Buffett and Charlie Munger.
But it’s a great question.
After all, Jain, who operates out of a small office in Stamford, Connecticut, has been responsible for more of Berkshire profits than any individual besides Buffett himself. Shareholders should wonder who’d replace him.
The pilgrimage resumes this Friday.
Read here for all 10 questions.
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Jeff Matthews |
Questions, comments?
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