From Moneybeat:
OMAHA, Neb–The devoted shareholders of Warren Buffett’s Berkshire Hathaway Inc.BRKB -0.75% have returned.
Nearly 40,000 people have packed the CenturyLink Center, a basketball arena in downtown Omaha, Neb., to hear Mr. Buffett and his business partner, Charlie Munger, speak for hours about the economy, the stock market, and their widely celebrated approach to investing. This year, Mr. Buffett’s decision to abstain from voting on Coca-Cola'sKO +0.42% equity pay plan for senior executives is sure to be a hot topic. But there are sure to be plenty of light-hearted moments too.
We’re living blogging this year’s Buffettpalooza from the first sip of Cherry Coke to the last bite of See’s candy.
10:39 am
Rose, Abel, Jain
Along with Ajit Jain, Rose and Abel are top contenders on the speculative lists of who will replace Buffett as CEO one day. The last two questions will do nothing to dissuade anyone.10:38 am
Natural Gas
A shareholder from Omaha asks: if the price of natural gas goes up sharply, how will that affect results at the Berkshire-owned energy company. Buffett says he’s not worried about that threat, and throws it to Greg Abel, the chairman and CEO of the unit.
Abel also cites the cold winter for recent results, but says he’s “proud” of how the resources were managed. He says renewable energy sources will meet more and more needs of customers, and cost-recovery mechanisms allow pass-throughs of rising costs to customers.
Buffett says he tips his hat to the way Abel has been running the company.10:36 am
BNSF
Analyst Jonathan Brandt asks about service challenges faced by the Burlington Northern railroad and whether rival Union Pacific is doing better. Buffett says that BNSF has handled more volume than in the past, but there’s no question we’ve had a lot of service problems particularly in the northern route. Said they are spending more money than Union Pacific in terms of attempting to anticipate the kinds of problems that can occur when you can get a big increase in volume on that one route from the boom in the Bakken shale. We’ve got a lot of trains running on that line that weren’t running five years ago.
Buffett and BNSF’s Matt Rose said cold weather caused a lot of problems too. Rose said he’s never seen winter weather like this with 83 inches of snow in Chicago and over 30 days it went to zero degrees in Minnesota… “things just don’t work.” Buffett added their spending $5 billion on capital expenditures at BNSF this year, and no other railroad’s spending comes close.10:28 am
Future Plans
Buffett said in his latest annual letter that most of the money that’s gong to his wife upon his death will be invested in a low-cost S&P500 index fund. A shareholder, via Loomis, asks why the money isn’t going into Berkshire shares. Loomis said she got the question from numerous people.
On his wife’s capital allocation: “That is not a question of maximizing capital. That’s just a question of total 100% peace of mind….It is not designed for her to get even larger amounts of capital.”
He reminds shareholders that he’s giving his Berkshire shares to charity over several years after his death. (Much of it is to the Gates Foundation, in the largest charitable donation in history)
“On the part I care about maximizing, I have instructed the three trustees to not sell a single share [of Berkshire] until it has to be sold. That’s good for 12 years.”10:22 am
Furniture
A shareholder from the floor is asking about Nebraska Furniture Mart, a Berkshire-owned store. Buffett says it was “not a bargain purchase, but it was a great business.”
He says there was another company, a German firm, that was also trying to buy them at the time.
Incidentally, shareholders get discounts for shopping at the original Omaha location of the store this week. And Buffett wants people here to remember that.
“If you want to talk about bargain purchases, we should talk about going out to the Nebraska Furniture Mart.”10:15 am
Cost of Capital
Next question is from the analyst panel, from new participant Greggory Warren of Morningstar. He’s asked what Berkshire’s cost of capital is and whether future leaders of the firm will be able to exceed the cost of capital.
“We view our cost of capital as the returns we can get from our second-best idea…and we have to exceed that” with our best idea. But he also says he doesn’t really trust or believe calculations of cost of capital…and says people who talk about cost of capital often don’t know what they’re talking about.
“We think we can evaluate businesses” that are available to buy, and measure whether it’d be better to own them or the stocks already in their portfolio. That’s how he evaluates it.10:10 am
Safety Value
On Howard Buffett’s role as future chairman of Berkshire, he will be in the position to “facilitate change if the board decides a change is needed. It’s a safety value.”
“Howie is the perfect guy to carry that out,” Buffett says.- 10:07 am
- Howard Buffett and Coke
Next question, from a shareholder via Andrew Ross Sorkin: Howard Buffett is supposed to maintain Berkshire’s culture. How can we trust that will happen when he serves on the Coke board and apparently didn’t object to the pay plan?
Buffett so far is speaking generally. He says when he’s been on boards, he’s voted for comp plans and acquisitions that he thought were a mistake. And that it’s “almost unheard of” for board members who aren’t on a comp committee to oppose the comp plan.
Now he’s repeating his general thoughts on why so-called independent directors aren’t so independent. It’s because they get paid too much....
