Berkshire holders trust Buffett on health outlook
Warren Buffett, chairman and CEO of Berkshire Hathaway, eats an ice cream bar made by Berkshire subsidiary Dairy Queen prior to the annual shareholders meeting in Omaha, Neb., Saturday, May 5, 2012. Berkshire Hathaway is holding it's annual shareholders meeting this weekend. (AP Photo/Dave Weaver)
OMAHA, Neb. - Warren Buffett worked to reassure shareholders that he's feeling good after his recent prostate cancer diagnosis, and that Berkshire Hathaway is ready to replace the revered 81-year-old investor when the need arises.
Based on the questions Buffett got from the crowd of more than 30,000 at the company's annual meeting in Omaha on Saturday, Berkshire shareholders are taking him at his word.
Despite the fact that Buffett just disclosed the condition last month, he didn't face the first question about his health until well into Saturday's questioning. Many of the questions at the meeting either focused in on technical aspects of Berkshire's many businesses or dealt with general economic or political topics. One highlight of the discussion was the revelation that he recently attempted to make a more than $20 billion acquisition.
"I feel terrific. I love what I do," he said. Buffett told shareholders that the survival rates for prostate cancer look so good that he thinks the diagnosis is a "non-event."
It would hardly be the first time that Buffett's assessment would be trusted. Widely known as the Oracle of Omaha, Buffett, 81, is considered the greatest celebrity in investing because of his many profitable decisions. Buffett has said his four doctors caught his cancer early, and it doesn't represent a serious threat to his health. He plans to undergo radiation treatment in July, but the treatment should have little effect on his daily routine.
"I may have a little less energy, but that may mean I do fewer dumb things," Buffett said jokingly.
Still, the diagnosis is forcing shareholders to confront the fact that one day Buffett will no longer be at the helm of the conglomerate, which includes an eclectic mix of companies such as Geico insurance, MidAmerican Energy, the Burlington Northern Santa Fe railroad, Shaw carpet, Helzberg Diamonds, the Nebraska Furniture Mart and Pampered Chef. Several questions dealt with related topics, such as who will replace Buffett when the time comes.
Buffett told shareholders in this year's annual letter that the board has picked someone to succeed him as CEO if the need arises immediately, and it has two backup candidates. But Buffett hasn't publicly identified his successor. During the business portion of the meeting, Berkshire shareholders overwhelmingly rejected a proposal that would have required annual updates on how the company is preparing to replace Buffett.
However, Buffett did address a challenge that his successor may face and talked about the way his successor will approach the job.
One of the first questions of the day was about whether his successor will be able to make the same kind of deals he has, such as the $8 billion Berkshire invested in preferred shares of Goldman Sachs Group Inc. and General Electric Co. during the crisis of 2008. Goldman and GE both wanted Buffett's stamp of approval along with Berkshire's money.
"I don't think that every deal I have made could be makeable by a successor," Buffett said.
But Buffett said his successor will still be able to make big deals because Berkshire has nearly $40 billion in cash on hand and is willing to invest large amounts quickly.
Buffett said deals like the ones with Goldman and GE haven't been as important to Berkshire as investing in Coca-Cola Co. or IBM stock or buying entire businesses such as Iscar metalworking and Burlington Northern.
Buffett said his eventual successor will maintain the company's culture and continue to let key managers run Berkshire subsidiaries with little interference. Buffett is known for his hands-off, decentralized management style.
"You do not need to worry about my successor," he said.
Shareholder John Zerngast, of Olathe, Kan., said the stock market might be uneasy about Buffett's age and that of 88-year-old Munger, but it shouldn't be because of how much Berkshire's 80-odd subsidiaries and investments are worth.
"I don't worry about Warren and Charlie because the underlying value is there," Zerngast said.
Besides all the companies Berkshire owns outright, it has major investments in such companies as Coca-Cola Co., IBM and Wells Fargo & Co. On Friday, Berkshire said its first-quarter profit more than doubled to $3.2 billion from last year's $1.5 billion because this year's results weren't hurt by major disaster losses in Berkshire's insurance units.
Buffett says the growth in the stock's book value — the company's assets minus liabilities — has outpaced the Standard & Poor's 500 index in all but eight years since 1965 while delivering a compounded annual return of almost 20 per cent. In recent years, Buffett has repeatedly warned investors not to expect that type of return in the future because Berkshire's size makes it nearly impossible to keep growing at that rate.
That's fine with George Jensen and his wife, Setara Jensen, who bought Berkshire stock as a stable option in retirement. The Jensens travelled from Hong Kong to attend the shareholder meeting and visit friends from when Jensen worked for Union Pacific railroad before retiring.
"We bought it because it's a good value," Jensen said. "There are certainly things that might have a higher rate of return, but at this stage, we wanted something safe and stable."
Buffett said that he recently was negotiating a $22 billion acquisition that didn't work out. He wouldn't disclose the details, but he used the transaction as an example of the biggest acquisition Berkshire would make right now. The company acquired Burlington Northern railroad in 2010 in a deal valued at $26.7 billion.
Buffett also defended Berkshire's purchase last year of the Omaha World-Herald Co. He said even though he has highlighted the challenges newspapers face, the deal still made sense for Berkshire, which already owned the Buffalo News and a large stake in the Washington Post Co. Newspapers are usually still the primary source of local information, and that's an advantage in places where community is important, he said.
Buffett also defended political comments he has made while supporting President Barack Obama and lobbying for higher taxes on wealthy investors like him.
"When Charlie and I took this job, we did not agree to put our citizenship in a blind trust," Buffett said.
Buffett always plays the role of Berkshire's chief marketing officer at the annual meeting by showcasing products made by the company that are on display in the 200,000-square-foot exhibit hall. On Saturday, he revived the newspaper tossing skills of his youth, promising anyone who can throw a folded Omaha World-Herald — one of Berkshire's latest acquisitions — closer to the porch than him, a Dilly bar from Dairy Queen.
As Buffett roamed the exhibit hall, shareholders mobbed him, trying to take pictures with their cellphones. He spent time singing "There is No Place Like Nebraska" with the University of Nebraska's cheerleaders at the Justin Boots stage before checking out the Burlington Northern Santa Fe railroad and BYD electric car displays.
The resolution submitted by the AFL-CIO to require updates on how the company would replace Buffett attracted about 32,000 votes while 672,000 votes were cast against the idea. The board and Buffett had opposed the idea.
The labour union's Ken Maas said the group didn't want Berkshire to publicly identify the 81-year-old Buffett's successor. It just wanted an annual update on the planning.
Buffett said he doesn't see any need to create a formal report on succession planning because he talks about it in his annual letter to shareholders and in interviews. Plus, the subject regularly comes up at the annual meetings.
"We spend more time on that subject than any other subject that might come before the board," Buffett said.
Buffett has said Berkshire plans to split his chairman and CEO job into three parts with a chief executive, a chairman and several investment managers.
Buffett has said he believes his son Howard, who already serves on Berkshire's board, would make an ideal chairman.
And Berkshire has hired two hedge fund managers, Todd Combs and Ted Weschler, over the past two years who Buffett says eventually will be capable of running the company's entire portfolio.
Buffett has said he remains in good health, and has no plans to retire because he enjoys running the conglomerate he built.
Berkshire Hathaway Inc.: www.berkshirehathaway.com
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