Warren Buffett reassured the tens of thousands of Berkshire Hathaway shareholders attending its annual meeting in Omaha today that his health is good and the next CEO will do a good job.
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Warren Buffett
With neither the question nor the answer containing the word 'cancer,' Buffett said he feels "terrific" when he was asked by CNBC Squawk Box co-anchor Andrew Ross Sorkin how he's feeling.
Buffett referred to his recent diagnosisof early prostate cancer and his decision to have radiation treatment as a "non-event."
He says he's listening to his four doctors and joked that he's eating well, pointing to the assortment of See's Candies and Coca-Cola products on the table in front of him.
He suggested that while he could be killed by a "jealous husband," there is almost no chance he'll die from the prostate cancer.
Buffett's partner Charlie Munger had his own joke, saying he "resents" all the attention Buffett is getting, especially since he probably has more prostate cancer that Buffett does.
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Warren Buffett enjoys a Dilly Bar from Berkshire Hathaway subsidiary Dairy Queen before starting today's Q&A session with shareholders.
But, Munger notes, he doesn't know for sure because he doesn't have himself tested.
Buffett added to Munger's joke, saying he sought attention because he thought his secretary was getting too much for her role in his "Buffett Rule" tax argument.
CEO Succession
Buffett also reassured shareholders on succession, telling them whomever eventually replaces him as Berkshire's CEO will be able to manage risk and make good business deals. "We're not going to have an arts major in charge of Berkshire."
Asked if anyone else could have negotiated Berkshire's multi-billion dollar preferred stock and warrant deals with General Electric, Goldman Sachs, and Bank of America at such favorable terms, Buffett acknowledges that he had special skills in those instances. But he says the next CEO will be able to make deals and will bring his own skills to the job.
Asked who will be managing Berkshire's derivatives position after he's gone, Buffett replied the company won't have much of a derivatives book after, or even while, he's still around.
He doesn't expect new portfolio managers Todd Combs and Ted Weschler will do much with derivatives, but he wouldn't stop them if they saw attractive prices.
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Warren Buffett visits the exhibition hall before answering shareholders' questions at Berkshire annual meeting.
Buffett also told shareholders that at the end of March he increased the portfolios managed by Combs and Weschler by $1 billion each to $2.75 billion.
"With both Todd and Ted, Charlie and I were struck not only by a good record but by intellectual integrity, quality of character, a real commitment to Berkshire." He also noted that Combs did a lot better than the benchmark S&P 500 stock index last year.
Motivating Managers
Asked if Berkshire managers might be more likely to leave under a new CEO, Buffett said, "I virtually know that the successor we have in mind will not be the kind who will turn off our managers because the successor in mind has the culture and the people embedded as I do."
Part of that culture, says Buffett, is to give managers a "brush" and let them "paint their own painting" without interference. That allows them to retain their passion for what they do, a passion that helps them be good at what they do.
It's not a matter of money. "A majority could retire and wouldn't need to work at all. They're only going to work if it's more fun for them to work than anything else in the world."
Berkshire has never hired a compensation consultant, and "never will" because they simply tell their employers what they want to hear. Says Munger, for "compensation consultants, prostitution would be a step up."
Even though money isn't the main factor for Berkshire managers, Buffett says they are indeed paid very well.
Big Acquisitions
Buffett says Berkshire is still looking for a big acquisition, revealing that he recently considered a $22 billion dealfor an unnamed target but couldn't get it done. He liked the potential buy so much he was ready to sell some stock that he would have preferred to keep.
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Warren Buffett participates in his "Newspaper Toss Challenge" before today's Q&A session with shareholders. Buffett delivered newspapers as a boy and prides himself on his accurate tosses.
Buffett, however, says he's still ready to make a $20 billion deal if he can find the right one. And next year, if he doesn't done a big deal, he'll be saying he's ready to make a $30 billion purchase if he likes it. But, as always, he says he won't let Berkshire's cash drop below a minimum comfort level, currently in the area of $20 billion.
Google and Apple
Responding to a shareholder's question on whether Google or Apple will be "inevitable" winners in the long run due to their competitive advantages, Buffett said he wouldn't be surprised if the two stocks were "worth a lot more" in ten years but he doesn't know enough about them and future technology developments for him to buy shares.
He sees Berkshire's decision to buy a massive stake in IBM as a much safer bet, but he wouldn't sell Google or Apple short either.
Buffett on Banks
Buffett says the U.S. banking system is in "fine shape," giving a lot of the credit to Washington for forcing some banks to raise capital during the crisis when they didn't want to. He acknowledged that shareholders might not have liked it, but he thinks society as a whole benefited.
Buffett is not as optimistic on European banks, saying they were "gasping for air" just a few months ago before the European Central Bank took action. "I would put European banks and American banks in two very different categories."
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Bill Gates, Microsoft's Chairman and a Berkshire director, gives the newspaper toss challenge a try.
Asked why he revealed in a CNBC interview that he had bought shares of JP Morgan for his own account and not for Berkshire, Buffett replied that "all my best ideas are in Berkshire" and pointed out that he likes Wells Fargo even better, in part because it is easier to understand, and has bought a lot of that stock for the company's portfolio.
Buffett Rule and Berkshire Stock
A shareholder question suggested that Buffett is discouraging some people from buying or holding Berkshire shares because they don't agree with his support of the "Buffett Rule" that would raise taxes on some very wealthy Americans.
The question got some applause, suggesting some in the crowd agreed that Buffett should keep his politics to himself.
His response, however, that neither he nor Charlie are willing to put their "citizenship in a trust," was also applauded.
As for the questioner's 84-year-old father who doesn't want Berkshire stock due to Buffett's tax views, Buffett suggested that he might feel more comfortable owning shares of "Fox."
Buffett and Gold
After one shareholder pointedly noted that gold had outperformed Berkshire's stock recently and questioned why Buffett has avoid the metal, Buffett replied that if you go all the way back to when he first started running Berkshire the stock was at $15 and gold was at $20. Now, gold is at $1600, but Berkshire is at $120,000.
Buffett says he finds that many gold supporters are more emotional than rational about the metal and don't like it when he criticizes it as an investment that doesn't generate any real wealth.
Wal-Mart's Bribery Problem
In light of Berkshire's $2.3 billion stake in Wal-Mart, Buffett was asked about allegations the retailer bribed Mexican officials and then moved to bury an internal investigation. Buffett replied that he doesn't think Wal-Mart's "fundamental dynamic" has been changed and doubts there will be any long-term impact on its earnings power.
After Munger noted that when you're as big as Wal-Mart you're going to have an "occaisional glitch," Buffett agreed and acknowledged that someone, somewhere in Berkshire, might also be breaking some rules. The important thing, he says, is to find and stop wrongdoing and make it clear it won't be tolerated.
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