Seeking Alpha

Buffett/Munger take questions at "Capitalist Woodstock"

  • He didn't want to "go to war" with management, says Warren Buffett, responding to the first question asked of him at the Berkshire Hathaway (BRK.A, BRK.B) annual meeting: Why did he abstain from voting on the controversial equity compensation plan for Coca-Cola (KO) executives?
  • "You keep belching at the dinner table, you'll be eating in the kitchen," says Buffett, describing the clubby culture of corporate boards where being agreeable keeps you on the inside and being confrontational gets you blackballed. "I've voted for compensation plans in various places that are far from what I would have designed myself ... That is the way boards work."
  • A shareholder proposal requesting Berkshire board consideration of a dividend received less than 2% of the vote, pleasing to Buffett who believes he and Charlie Munger can do a better job of allocating company capital than returning it to shareholders. Still, with $40B and rising in Berkshire's coffers, even Buffett concedes the day is coming when the company has "more cash than we can intelligently invest."
  • "That error that they made doesn't bother me," says Buffett of Bank of America (BAC), which had to suspend its capital return plan after miscalculating capital levels. "It doesn't change my feeling about Bank of America's risk management one iota."
  • Mungerisms: Comparing Berkshire book value to the S&P 500 is "insane" and makes it harder for Buffett to look good. "Warren sets a ridiculously high standard. The last couple of years added $60B in value ... If that's failure, then I want more of it."
Comments (66)
  • tuliptown
    , contributor
    Comments (808) | Send Message
     
    he can always sell his stock if he does not like the way the company is ran. But, I would think that any board would be looking to have Buffett on board. A board that allows buffett to abstain is one that is too far under management control.

     

    Sad.
    3 May, 08:02 PM Reply Like
  • AContrarian
    , contributor
    Comments (134) | Send Message
     
    He ended his comments with the statement "we'll see what happens next quarter." Leads me to believe Coke got the message as his abstain was his non-confrontational rejection of the plan.
    3 May, 11:42 PM Reply Like
  • The Geoffster
    , contributor
    Comments (4011) | Send Message
     
    Were Buffett and Munger holding hands? If so, all is well.
    3 May, 08:45 PM Reply Like
  • 7612841
    , contributor
    Comments (48) | Send Message
     
    Buffet and Munger, I thought they died.
    3 May, 09:30 PM Reply Like
  • soccerref
    , contributor
    Comments (25) | Send Message
     
    You could only hope so greed and avarice can attack one well run company. WB and CM praised one company not under the BH umbrella - Costco. Charlie, in particular, went to great lengths to to say that Costco's like BH looks out for the customer and doesn't ring the last nickel out of any transaction. This builds LOYALTY. Look it up but it's not in Wall Street's dictionary.
    5 May, 09:55 PM Reply Like
  • abovegod
    , contributor
    Comments (35) | Send Message
     
    Munger is now 90. Buffet is 84.
    9 May, 09:44 AM Reply Like
  • James Bjorkman
    , contributor
    Comments (662) | Send Message
     
    So $49 billion in cash is doing what for the shareholders exactly? Does he have some kind of dream of taking GE private or something? More underperformance coming.
    3 May, 10:51 PM Reply Like
  • chopchop0
    , contributor
    Comments (3228) | Send Message
     
    Be greedy when others are fearful, and fearful when others are greedy. I can't wait to see them go elephant hunting again in a few years when the Goldman's, BAC's and a GE's of the world need the cash infusion and there is blood everywhere in the street.
    4 May, 12:57 AM Reply Like
  • JMajoris
    , contributor
    Comments (764) | Send Message
     
    These dividend freaks crack me up. You know going into BRK that there is NO dividend. You know that Mr Buffett is 100x's the investor that you are.

     

    So now that we know that Mr Buffett will always do a better job then you in regards to re-investing cash, how could you possibly want a dividend?

     

    <<So $49 billion in cash is doing what for the shareholders exactly? Does he have some kind of dream of taking GE private or something? More underperformance coming. >>
    4 May, 08:49 PM Reply Like
  • James Bjorkman
    , contributor
    Comments (662) | Send Message
     
    Buffett underperforms the market consistently. I could easily have done better than him over the past four years, and so could you. How? By investing in any S&P 500 index fund.

     

    We're not "dividend freaks." We are investors looking for the best return. Our money is not there to gratify the ego of an old man who wants a deep bank account at his shareholders' expense.
    4 May, 09:08 PM Reply Like
  • Michael Bryant
    , contributor
    Comments (5420) | Send Message
     
    Eh? 1 year (BRK.B) vs. (SPY) http://yhoo.it/13ZQA9V (BRK.B) wins.

     

    2yr (BRK.B) vs. (SPY) http://yhoo.it/Rgvulv (BRK.B) wins.

     

    5yr (BRK.B) vs. (SPY) http://yhoo.it/Rgvsdq Both win.

     

    Since 1995: (BRK.B) vs. (SPY) http://yhoo.it/Rgvsds (BRK.B) wins.

     

    So if you want to look back and cherry pick 4yr and say that you could have beaten (BRK.B) by buying the (SPY), how would you have known that 4yr ago? Plus, (BRK.B) might go back to beating the (SPY) in the future.
    5 May, 06:29 AM Reply Like
  • chopchop0
    , contributor
    Comments (3228) | Send Message
     
    "I could easily have done better than him over the past four years, and so could you."

     

    Cherry pick much? Ever take a look over a longer horizon?
    5 May, 08:38 AM Reply Like
  • James Bjorkman
    , contributor
    Comments (662) | Send Message
     
    When you keep that much in cash, you're going to underperform. He's an old, scared man who sat through one of the greatest bull markets with a pile of cash. His shareholders can do better.
    5 May, 11:02 AM Reply Like
  • abujordan
    , contributor
    Comments (100) | Send Message
     
    "When you keep that much in cash..."

     

    You are going to have no problem loaning billions to companies like Goldman, GE & BAC at terms that payday loan companies dream of, but a risk level that insurance actuaries dream of.
    5 May, 04:23 PM Reply Like
  • Owen
    , contributor
    Comments (616) | Send Message
     
    Well said, abujordan.
    5 May, 05:20 PM Reply Like
  • soccerref
    , contributor
    Comments (25) | Send Message
     
    In reply to your statement, Charlie Munger clarified WB's metric for BH. He compares BH's return AFTER taxes versus the S&P 500 BEFORE taxes. Knock 30% off of the S&P number for a real comparison. Don't believe everything that comes out of Wall Street. They don't make money on buy and hold investors (one million and counting for BH).
    5 May, 09:56 PM Reply Like
  • soccerref
    , contributor
    Comments (25) | Send Message
     
    Apparently you weren't there or were shopping for your Fruit of the Loom shorts in the convention center. See my comment above. Am waiting for the full video to make U-TUBE.
    5 May, 10:01 PM Reply Like
  • soccerref
    , contributor
    Comments (25) | Send Message
     
    WILL! No might about it.
    5 May, 10:02 PM Reply Like
  • Michael Bryant
    , contributor
    Comments (5420) | Send Message
     
    "When you keep that much in cash, you're going to underperform. He's an old, scared man who sat through one of the greatest bull markets with a pile of cash. His shareholders can do better. "

     

    If a high risk environment, aren't you advised to hold cash so you can buy low. Tells me that:
    1) Buffett wants to buy something, buy is waiting for the right price
    2) Or he sees bad seas ahead, and wants enough cash to jump is at the bottom.
    5 May, 10:15 PM Reply Like
  • Mortonk
    , contributor
    Comments (163) | Send Message
     
    Maybe he wants to buy AstraZeneca...? Whatever their rationale it is what they do best, if you don't like it, don't buy the shares...!
    3 May, 11:47 PM Reply Like
  • soccerref
    , contributor
    Comments (25) | Send Message
     
    WB's reply to Pfizer buying AZ and moving to London was short and sweet. BH WILL NOT move offshore to avoid US taxes. Both he and CM believe it's wrong to do this. Pfizer won't listen because there's too much money to split among the senior management. I won't own it.
    5 May, 10:06 PM Reply Like
  • Michael Bryant
    , contributor
    Comments (5420) | Send Message
     
    I'm wondering why would anybody buy the average mutual fund. (BRK.B) by far beats the average mutual fund (or most mutual funds) and there is no management fees.
    4 May, 12:02 AM Reply Like
  • chopchop0
    , contributor
    Comments (3228) | Send Message
     
    Agreed. Loaded up big time on BRK.B in Sept 2011 when it traded less than 1.2x Book. Very pleased since then :)
    4 May, 12:58 AM Reply Like
  • Robert.from.Ct
    , contributor
    Comments (420) | Send Message
     
    What has it done in the past 5 years?
    4 May, 02:04 AM Reply Like
  • fidelity comment
    , contributor
    Comments (84) | Send Message
     
    Its doubled.
    4 May, 02:30 AM Reply Like
  • Minutemen
    , contributor
    Comments (768) | Send Message
     
    Over the past 5 years, the Vanguard S&P 500 fund has outperformed BRK.B. However, over 10 years and longer, BRK.B has far outperformed the VG S&P index.

     

    5 years:
    http://bit.ly/SocthR

     

    10 years:
    http://bit.ly/SocrGN

     

    Since 2001:
    http://bit.ly/SocrGP
    4 May, 09:11 AM Reply Like
  • Owen
    , contributor
    Comments (616) | Send Message
     
    While the implied management fees are very low, those 30 employees in Omaha do draw a salary, so there is _some_ management fee related to the running of Berkshire. Running the annual shareholder meeting/festival alone is a fairly sizeable expense, all coming out of your pocket as a shareholder.

     

    I'm not saying it's an excessive fee by any means; it's probably the lowest in the industry. But it isn't zero.
    4 May, 09:48 AM Reply Like
  • Michael Bryant
    , contributor
    Comments (5420) | Send Message
     
    I thought the salary comes from the cash flow of the companies (BRK.B) owns. (BRK.B) is more than a portfolio of stocks like a fund. It is more a holding company like (GE).
    5 May, 06:42 AM Reply Like
  • chopchop0
    , contributor
    Comments (3228) | Send Message
     
    "It is more a holding company like (GE)."

     

    Without the horrible underperformance.
    5 May, 08:39 AM Reply Like
  • Owen
    , contributor
    Comments (616) | Send Message
     
    What do you mean by "comes from"? There is no magical external infusion of money that pays the salaries of those managing Berkshire's capital. As a shareholder, you, and no one else, pay those costs.
    5 May, 08:42 AM Reply Like
  • soccerref
    , contributor
    Comments (25) | Send Message
     
    Not quite but CLOSE.
    5 May, 10:07 PM Reply Like
  • soccerref
    , contributor
    Comments (25) | Send Message
     
    BH covered their cost by selling everything from $3 million diamonds at Borsheims to Nebraska Furniture Mart electronics and furniture to $2 Heinz ketchup bottles and $1 DQ Dilly bars. You couldn't get into the Fruit of the Loom store! This meeting cost the 40,000 attending stockholders money!
    5 May, 10:13 PM Reply Like
  • Michael Bryant
    , contributor
    Comments (5420) | Send Message
     
    "What do you mean by "comes from"? There is no magical external infusion of money that pays the salaries of those managing Berkshire's capital. As a shareholder, you, and no one else, pay those costs."

     

    If (BRK.B) was a fund, yes. But as a company, I think salary is part of the expenses on the income statement.
    5 May, 10:19 PM Reply Like
  • Owen
    , contributor
    Comments (616) | Send Message
     
    That's super. But as a shareholder, the revenues from those sales are yours. Berkshire's "management fee" comes out of the company coffers, that is to say, from your pocket as a shareholder.

     

    I'm not complaining; I am pretty happy with the job they're doing. But claiming it is done for free is incorrect.
    5 May, 10:20 PM Reply Like
  • guitarlover67@yahoo.com
    , contributor
    Comments (30) | Send Message
     
    This is the typical brilliant Buffett way of solving a problem. I think the Coke looting scheme will be thwarted. Buffett handled it so deftly I can only congratulate him. The greatest mistake of my investing life is not recognizing a bargain when Berkshire was 6K per share.
    4 May, 12:59 AM Reply Like
  • soccerref
    , contributor
    Comments (25) | Send Message
     
    Remember BH had a director who self dealt on Lubrizol. WB turned over all of BH's investigation files to the SEC after firing the him. And didn't say one word in the press. WB can be ruthless!
    5 May, 10:16 PM Reply Like
  • Seekingbetaguy
    , contributor
    Comments (131) | Send Message
     
    Times are good---big payouts to management. Times are bad---gotta retain "key talent." Gordon Gee just resigned a board seat someplace. When he held it he was the President of THE Ohio State University. Wouldn't you think the OSU gig would be a full-time job and then some? How much time do these folks have to represent the interests of shareholders especially in, say, banks where no one knows what's going on?
    4 May, 10:03 AM Reply Like
  • CapVandal
    , contributor
    Comments (202) | Send Message
     
    I think the Coke compensation issue was fully worth the discussion. Especially the Carl Icahn critique. The critique essentially boiled down to how a major share holder influences management behavior. Especially because they fully agree on the issue on excessive management compensation.

     

    Icahn operates as an outsider. Part of that playbook is to demand seats on the board. Buffett is an insider. People want him on their boards. An outsider has to rely on public comments and the threat of lining up shares to vote on his positions.

     

    Buffett can pick up the phone, call the CEO and "suggest" a visit to Omaha. An invitation that won't be refused. And simply 'suggest' a course of action. Which can't and won't be ignored. And a technique that will maintain his ability to do it again on other issues.

     

    Buffett objected a prior acquisition of a sports drink acquisition by Coke, and it disappeared.

     

    I also remember Buffett complaining in public regarding a merger plan by a small REIT that he held in his personal portfolio. It disappeared. He more or less resolved it in a few hours.

     

    Buffett has said publicly that he regrets some deals that he didn't object to -- Gillette and Kraft's acquisitions that involved cash and too much stock. The first was partially corrected by merging into P&G -- but some of the loss was permanent. He simply sold Kraft.

     

    And, unless you are anxious to change management, Buffett's insider approach is highly reasonable. Icahn's approach tends to be directed at public companies that he finds fundamentally undervalued because of poor management -- and he frequently gets the job done.

     

    But ... as Icahn noted in his article -- unless an investor has unusually strong power -- it is virtually impossible to deal with management excesses. Directors tend to be lapdogs of management rather than advocates for shareholders.

     

    In general, I like Buffett's evolving succession plan. But no one thinks Howie can handle something like this. I think Howie is fully qualified for his extremely limited but also important role. But they will need someone else to pick up the phone and deal with issues like this. Buffett and Icahn alone can't do it alone -- and they both have succession issues.
    4 May, 10:04 AM Reply Like
  • Owen
    , contributor
    Comments (616) | Send Message
     
    "Buffett has said publicly that he regrets some deals that he didn't object to -- Gillette and Kraft's acquisitions"

     

    I don't remember any reservations Buffett publicly admitted to regarding the P&G purchase of Gillette. On the contrary; the takeover prompted him to dramatically increase his holdings in PG.

     

    Do you have any references to support your claim about the Gillette purchase?
    4 May, 11:36 AM Reply Like
  • randiego2
    , contributor
    Comments (17) | Send Message
     
    "But ... as Icahn noted in his article -- unless an investor has unusually strong power -- it is virtually impossible to deal with management excesses. Directors tend to be lapdogs of management rather than advocates for shareholders. "

     

    Yes, this. Hand-in-glove, corruption-by-a-differ... Executive pay in this country is ridiculously outsized compared to other successful economies, and shareholders (not to mention lower-food-chain-emplo... get crumbs.
    4 May, 05:26 PM Reply Like
  • Moon Kil Woong
    , contributor
    Comments (11058) | Send Message
     
    LOL, Buffet is criticizing the clubby insider culture in companies? He is the exact same and runs his company like a dictatorship even more than other companies. Trying to replace yourself with a guy who front runs and now his son is the epitome of cronyism and bad management. No wonder Buffet wants to keep his inheritance out of Berkshire and in index funds when he dies.
    4 May, 01:23 PM Reply Like
  • soccerref
    , contributor
    Comments (25) | Send Message
     
    Howard will be a CEO in name only and only to watch to make sure that his dad's wishes are fulfilled. From your comments, you are one of the 2-percent that we voted down. Go somewhere else and take your sandbox with you. WB's A-class share will be distributed to a number of charitable organizations and WB specified at the meeting that NONE were to be sold unless necessary until 12-YEARS after his tenure ends. We one million shareholders wish him are LONG and FRUITFUL life. He also explained the misquoted statement about 10% in government securities and 90% in index funds for his WIFE!!!!!
    5 May, 10:26 PM Reply Like
  • Owen
    , contributor
    Comments (616) | Send Message
     
    Howard will not be a CEO at all. In fact, there is no plan to even make him an employee of Berkshire, let alone the Chief Executive. The position planned for him is Chairman of the Board - an unpaid, non-executive role.

     

    With Warren gone, Howard would become the largest individual controlling shareholder, when taking into account the charities he oversees. A seat on the Board would have been his regardless of any family relationship.
    6 May, 05:43 AM Reply Like
  • Chancer
    , contributor
    Comments (2615) | Send Message
     
    Compensation is an advisory vote. It is like calling them on phone and screaming in their ear that they are greedy. Not making a vote "against" when you think compensation is too high, is wimping out by Buffett. It is akin to blaming the tax code as the reason your secretary has less take home pay. Just give her (him) a raise, Warren- at least to minimum wage.

     

    Whenever I am unhappy with management performance, for any reason, I vote against compensation, stock option plan, and any thing else that the board proposes. I only vote in favor of choosing the audit firm, because for certain they need an audit.

     

    I think Warren is gutless because he wants executives to rub his elbows and answer his phone calls. Not sure that outing Coke in public as Buffett did is any less than a secret vote when it comes to cordial relations.
    4 May, 02:41 PM Reply Like
  • Invest Rookie
    , contributor
    Comments (45) | Send Message
     
    Buffett is Coke's largest Shareholder. Of course they're going to take his call.Duh.
    4 May, 04:32 PM Reply Like
  • James Bjorkman
    , contributor
    Comments (662) | Send Message
     
    Howard, who sits on the board, voted for the compensation package. That's all you need to know. Anyone who thinks he goes against his old man's wishes is clueless.
    4 May, 04:59 PM Reply Like
  • JMajoris
    , contributor
    Comments (764) | Send Message
     
    You don't know how boards work. Mr Buffet explained this previously and it makes perfect sense to me.

     

    "Akin to" comparisons are illogical. We're not talking about taxes or secretaries or minimum wage.

     

    <<Not making a vote "against" when you think compensation is too high, is wimping out by Buffett. It is akin to blaming the tax code as the reason your secretary has less take home pay. Just give her (him) a raise, Warren- at least to minimum wage.>>
    4 May, 08:35 PM Reply Like
  • James Bjorkman
    , contributor
    Comments (662) | Send Message
     
    What, and you're the only one who knows how boards work?

     

    Appears to me that Buffett is saying one thing and doing quite the opposite.
    4 May, 09:19 PM Reply Like
  • MrVincent
    , contributor
    Comments (244) | Send Message
     
    Warren "Thanks for all the bailouts" Buffett
    4 May, 04:47 PM Reply Like
  • Owen
    , contributor
    Comments (616) | Send Message
     
    Not sure who you are talking about. Berkshire never received a penny of any TARP bailout money. In fact, Buffett saved taxpayers billions by using Berkshire funds to bail out companies that would have otherwise required Fed money to save.

     

    What I find funny is how the same idiots who whined about banks being bailed out using public money are still whining, even now that all those funds have been paid back to the taxpayers, with interest. I guess stupidity doesn't really add up on a balance sheet.
    4 May, 04:58 PM Reply Like
  • JMajoris
    , contributor
    Comments (764) | Send Message
     
    You mean Warren "thanks for letting me bail YOU out" Buffett? Sure I'll lend GE and BofA some cash. Sure my stockholders will reap the rewards.

     

    Thank you Mr Buffett!

     

    <<Warren "Thanks for all the bailouts" Buffett >>
    4 May, 08:37 PM Reply Like
  • James Bjorkman
    , contributor
    Comments (662) | Send Message
     
    Buffett underperforms the market with regularity. If that's the price to his shareholders of "bailing them out" - it's not worth it.
    4 May, 09:20 PM Reply Like
  • Owen
    , contributor
    Comments (616) | Send Message
     
    If by "with regularity" you mean, "once over the course of half a century", then yes, he underperforms the market "with regularity".

     

    You should dump your Berkshire shares and buy more Twitter.
    5 May, 10:06 PM Reply Like
  • Mark Krieger
    , contributor
    Comments (3849) | Send Message
     
    it is time for them to pass the torch...high finance is a young man's game!
    4 May, 10:17 PM Reply Like
  • James Bjorkman
    , contributor
    Comments (662) | Send Message
     
    Buffett was great in his time. Unfortunately, his time ended about 20 years ago.
    4 May, 10:25 PM Reply Like
  • chopchop0
    , contributor
    Comments (3228) | Send Message
     
    "Buffett was great in his time. Unfortunately, his time ended about 20 years ago."

     

    BRK.A up over 1000% in the last 20 years. S&P and DJIA are both up less than 350%. He obviously has been doing something right in the last 20 years.
    5 May, 08:41 AM Reply Like
  • Chancer
    , contributor
    Comments (2615) | Send Message
     
    Yes, but the last 5 years Buffett seems to be running his mouth more than his companies. Many of us are not interested in his comments on public policy- especially on those issues where country is about divided 50-50. His comments add nothing to the debate, are often misleading, and generate more controversy, which may be his purpose. He talks in "home spun sound bytes", not words of wisdom.
    5 May, 09:52 AM Reply Like
  • soccerref
    , contributor
    Comments (25) | Send Message
     
    Charlie Munger set this very straight on Saturday. WB compares BH performance after taxes versus the S&P 500 BEFORE taxes. Chop 30% off the S&P number and take a second look. He's not trying to make himself look good, he's looking out for his shareholders. He also said in an up market (after the botch job by Cheney/Bush), BH will not fair well in comparison but in a down market or sideways market BH will compare well.
    5 May, 10:33 PM Reply Like
  • Owen
    , contributor
    Comments (616) | Send Message
     
    Over the past five years, Netflix is up 600%, versus just 100% for the S&P and BRK. Clearly we should hire Reed Hastings to run Berkshire.
    5 May, 06:35 PM Reply Like
  • soccerref
    , contributor
    Comments (25) | Send Message
     
    And if you bought AOL ????? Hindsight is 20/20.
    5 May, 10:33 PM Reply Like
  • Michael Bryant
    , contributor
    Comments (5420) | Send Message
     
    On the side, does anybody know when Buffett is going to leave?
    5 May, 11:42 PM Reply Like
  • samuel_liu
    , contributor
    Comments (2799) | Send Message
     
    Buffett says he doesn't intend to retire, but Berkshire is nonetheless planning for the day when he's no longer at the helm. The company plans to split his job into three parts -- chief executive officer, chairman and several investment managers.
    http://bit.ly/1j8u5Ik
    Warren Buffett remains confident in the long-term future of his company
    6 May, 11:33 AM Reply Like
  • Michael Bryant
    , contributor
    Comments (5420) | Send Message
     
    I just want to make sure that when I buy shares and go to the annual meeting, he will be there.
    6 May, 08:20 PM Reply Like
  • JohnBinTN
    , contributor
    Comments (3621) | Send Message
     
    I wouldn't wait too long if I were you...
    6 May, 08:33 PM Reply Like
  • Brad Castro
    , contributor
    Comments (1341) | Send Message
     
    He could go another 20 years.

     

    I think it's all those Cherry Cokes - they may have unrealized healing properties.

     

    I'm seriously considering switching what I mix with my rum.
    7 May, 01:17 PM Reply Like
  • soccerref
    , contributor
    Comments (25) | Send Message
     
    Went to my first meeting on Saturday and it was everything and more than I expected. The real surprise was Nonagenarian Vice Chair Charlie Munger. He said more in 10 words or less than PhD's state in their thesis.
    Then again, he's a Chemical Engineer from Caltech with a law degree from Harvard. Half-percent-er.
    7 May, 07:46 PM Reply Like
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