Warren Buffett's 50th Anniversary Letter to Berkshire Shareholders and Some Thoughts on the Early Years

We've been following the Omaha insurance salesman since passing on BKHT at $800.
Ahem....

One of the things to note about the partnership and early Berkshire days is that Warren was a bit wilder than subsequent hagiography would have one believe. Some of our posts after the Financial Times links.
From FT Alphaville:

A portrait of the takeover artist as a young man: Warren Buffett’s 1965 letter

No doubt readers have set aside a few hours this coming Saturday to digest Warren Buffett’s annual letter to Berkshire Hathaway shareholders, which this year weighs in at a record 20,000 words.

It is the Golden Anniversary edition, with musings not just on the past year but also on what the next 50 might hold. We are promised a little reminiscing, too — which prompted us to look back to the time when Mr Buffett assumed control of an ailing New England textile manufacturer and set out on his most extraordinary journey.

Fifty years ago, the Omaha oracle was running an investment fund, the Buffett Parternship, for which Berkshire was just the latest in a number of positions. The annual letter covering 1965 is recognisably Buffett; you can tell from the LBJ joke at the very beginning.

The partnership had been buying shares in Berkshire for more than two years before the 34-year-old Mr Buffett resolved to take control of the company, getting himself elected to the board on May 10, 1965 and installing new management. This is how he first described Berkshire to his investors (there are points for identifying the “West Coast philosopher” mentioned below)....MORE

Some of our posts on the early Warren:
Oct. 2010
"Warren Buffett: Buying Berkshire Hathaway Was $200 Billion Blunder" (BRK.B; BRK.A)
Oct. 2010
"Warren Buffett, Mr. Market and the Buffett Partnership Letters, 1959-1969 (BRK.A; BRK.B)"

We first posted the partnership letters in September 2007 when it was one of our most popular offerings.
This is a repost from Sept. 2008 with the special bonus feature of a few of the early Berkshire Letters to Shareholders.
But Wait, there's more! The link to Warren's Mr. Market quote....

Nov. 2012
Buffett Redux: How Would the Oracle Do It If He Was Starting Over Today? (BRK)

Buffet's partnership days were more akin to hedge fund behavior than they were to deep value investing.
So, for that matter, were some of the Graham-Newman trades. See for example the cocoa bean/common stock arbitrage in "Living La Vida Cocoa: Warren Buffett, Berkshire Hathaway and the Chocolate Wars (BRK.A; BRK.B; CBY; KFT; HSY)", it pretty much puts the lie to the Efficient Market Hypothesis.

Feb. 2013
Warren Buffet's Columbia University Talk Upon the 50th Anniversary of 'Security Analysis' (he doesn't seem to have much use for EMH)

May 2013
The Question Most Asked of Warren Buffett in 1961 (Warren Buffett, Mr. Market and the Buffett Partnership Letters, 1959-1969 )

July 2014
"Warren Buffett’s Early Investments" (BRK.b)

Much closer to gunslinger than the current iteration.

And a slightly different take:
Warren Buffet: The King of Leveraged Low Beta (BRK.B)

In addition we have around 500 other Buffett and/or Berkshire posts, use the search blog box, top left, if interested.

Linkfest: Early Reaction to Warren Buffet's Chairman's Letter to the Shareholders of Berkshire Hathaway 2009, Part I

UPDATE: part III, blog reactions, is here.
Original post:
I'll be commenting on the letter on Monday (I know, "Alert the media"*), in the meantime, here's a roundup of initial stories from the major news outlets. See also our post from yesterday "Warren Buffett's Letter to the Shareholders of Berkshire Hathaway 2009 (BRK.A)", there's a treat for those who follow the links.
We'll be back later with blog reaction.

From the Wall Street Journal, an in-depth look:
Berkshire Hathaway Reports Worst Year Ever
Insurance, Stock Holdings Are Hit; Buffett Warns of Bubble in Treasurys

From the Journal's Real Time Economics blog:
Warren Buffett on the Economy

From Bloomberg:
Berkshire Results May Be Worst Ever, by Buffett Gauge

From Mr. Buffett's own Washington Post, Economy Watch blog:
Buffett: 'I Did Some Dumb Things' in 2008
(speaking of dumb, the WaPo gated a half dozen Warren stories)

From the New York Times:
In Letter, Buffett Is Frank but Optimistic

From their The Lede blog:
As Warren Buffett Goes, So Goes …

and from their DealBook blog:
Ask Warren Buffett a Question

From the Omaha World-Herald, first a home grown story, then their AP coverage (which are the same headlines as the NYT's):
Good calls, bad calls: Buffett's past predictions
Buffett says derivative values can be misleading
Buffett says economy to remain in shambles in 2009

From Reuters:

Berkshire net sinks; Buffett says economy in shambles

NEW YORK - Berkshire Hathaway Inc, Warren Buffett's insurance and investment company, barely broke even in the fourth quarter because of losses on derivatives ...

Feb 28, 2009

Buffett defends using derivatives at Berkshire

NEW YORK - Saying "derivatives are dangerous," Warren Buffett defended his use of them after they played the main role in driving Berkshire Hathaway Inc annual ...

Feb 28, 2009

FACTBOX: Highlights of Warren Buffett's annual investors' letter

- Berkshire Hathaway Inc, Warren Buffett's insurance and investment company, barely broke even in the fourth quarter because of losses on derivatives contracts ...

*That's a quote from the 1981's double Oscar winner "Arthur"
The set-up, Arthur (Dudley Moore, nominated Best Actor) and his butler Hobson (Sir John Gielgud, winner Best Supporting Actor):

Arthur: Do you know what I'm going to do? I'm going to take a bath.
Hobson: I'll alert the media.
Arthur: Do you want to run my bath for me?
Hobson: It's what I live for.
[Arthur exits]
Hobson: Perhaps you would like me to wash your dick for you, too, you little shit.

"Warren Buffett’s Early Investments" (BRK.b)

Much closer to gunslinger than the current iteration.

From ValueWalk:

“The highest rates of return I’ve ever achieved were in the 1950?s. I killed the Dow. You ought to see the numbers. But I was investing peanuts then. It’s a huge structural advantage not to have a lot of money. I think I could make you 50% a year on $1 million. No, I know I could. I guarantee that.” – Warren Buffett, 1999

Most Warren Buffett fans have seen that quote. I recently had a few questions and comments that I’ve been meaning to address regarding Buffett’s early strategy. In fact, my own thoughts on how Buffett really generated those 50-60% annual returns in the 50?s have changed as I’ve really researched his past holdings. In my opinion, there are two things regarding Buffett’s early investment style that most people don’t fully weight:

• Warren Buffett understood the power of compounding at an early age, and cared about the quality of a business and its long term earning power, even in the early days
• Buffett’s portfolio management strategy, and specifically the level of concentration he put on the compounders

There is a perception out there that Warren Buffett made his huge returns in the early years by buying a bunch of cheap Graham style cigar butts and flipping them for profits. At the annual meeting a few years ago, he mentioned that the majority of his returns—even in the early years—were due to just a select few decisions. The rest were largely average results. I think he mentioned he owned over 400 securities during the time of his partnership (not at once—400 over the entire time period of 13 years).

It’s hard to say exactly how he made these 50% returns in his pre-partnership years, but we do know about a few of the investments he made. From studying his early letters and the two main biographies, I believe that he made his returns largely through the higher quality businesses that could compound value (in some cases good businesses with profitable histories that were also ridiculously cheap), and not the cigar butts that everyone talks about. In fact, you can piece together a few of his early investments from reading Snowball and a few other biographies.

Some Early Buffett Investments

Buffett made 75% in 1951, mostly because of a large position in GEICO, that proceeded to double in the first 18 months he owned it. He sold it too soon (it would rise 100x over the coming decades), but he replaced it with another insurer in 1953 that was a profitable business trading at around 1 time earnings and a fraction of book value. Most are familiar with a column Warren Buffett wrote called “The Security I Like Best”, which was an excellent writeup on GEICO. Fewer people know about the next insurance stock he invested in called Western Insurance. Buffett referenced Western Insurance at a talk at Columbia in 1993, using it as an example of stocks he found by flipping through Moody’s manuals:

“I found Western Insurance in Fort Scott, Kansas. The price range in Moody’s financial manual was $12 to $20. Earnings were $16 per share.”

Warren Buffett also wrote up a column on this stock, demonstrating how remarkably cheap the stock was. The interesting thing about looking at the old Moody’s manuals is that the company was profitable, and had a stable operating history with rising premium volume and consistent earnings. As a side note, this stock actually traded as a low as $1 in 1949, and appreciated up to $95 in 1955, a 95-bagger for those fortunate souls who bought the stock six years earlier!

Buffett was buying Western in 1952 and 1953, and although I’m not sure where he sold, it’s likely he at least doubled his money on this stock as well. He said he was buying between $12 and $20, and wrote his analysis write-up in early 1953 when the stock was at $40–later that year it traded to $65 and then to as high as $95 two years later.

We know how good of a company GEICO was, but Western Insurance–despite being incredibly cheap–was also a quality business. Of course, the attraction was not just that it was a good business, but it was cheap: When Warren Buffett wrote the column, it was trading at $40, and had made $24 per share of earnings the previous year in 1952, a year Buffett called a poor year for auto insurers. Buffett felt the company had “normal earning power” of $30 per share, which gave this stock a P/E of around 1.3 at that price....MUCH MORE

Bloomberg Special Report: "Buffett Buys Burlington" BRK.A; BRK.B; BNI

I didn't link to Bloomberg yesterday during our Buffet-a-palooza. (Groovin' and Behoovin' at WBRK, All Berkshire, All the Time (Berkshire- Burlington Roundup) BRK.a; BNI)
That was deliberate.
Bloomberg was reporting news while I was looking to post some of the backround, instanalysis etc.
I was pretty sure the folks at Bloomberg would have something today, I mean their lead BRK/BNI story was updated five times!
This is such a big story, the only question was what hooks would they use to get at the myriad angles.
Lo and behold, they come slammin' home with this compilation:

Berkshire's Reduced Burlington Breakup Fee Shows Buffett Confident in Deal Berkshire Hathaway Inc., the holding company that agreed to buy Burlington Northern Santa Fe Corp., accepted a lower-than-usual breakup fee in a sign Warren Buffett expects to complete his biggest takeover.

Buffett Takes 10 Days to Seal Biggest Deal in 44-Year Career at Berkshire Warren Buffett put together the biggest deal in his 44-year career at Berkshire Hathaway Inc. in 10 days.

Splitting Berkshire's B Stock 50-1 Will Boost Stake of `Inferior' Owners Berkshire Hathaway Inc.’s planned 50- for-1 stock split will put its Class B shares within reach of investors Warren Buffett once called an “inferior” class.

Railroad Takeover Reduces Buffett Successor's Need for `Amazing Insight' Warren Buffett’s takeover of Burlington Northern Santa Fe Corp. may reduce his successor’s need for “amazing insight” to lead Berkshire Hathaway Inc.

Buffett's $26 Billion Burlington Wager on Economy May Boost Obama Policies Warren Buffett’s takeover of Burlington Northern Santa Fe Corp. today is a $26 billion bet on President Barack Obama’s economic policies at a time when the administration may need the help.

Buffett Railroad Deal Is a Survivalist Bet: Commentary by Alice Schroeder Warren Buffett called Berkshire Hathaway Inc.’s deal to buy the part of Burlington Northern Santa Fe Corp. that it doesn’t already own an “all-in wager on the economic future of the United States.”

The market looks to be opening up today, I'm going to leave Warren, Charlie and Matthew to figure out their next move.
For new visitors, we have dozens, maybe hundreds of posts on Warren and his empire, we are fans.
Use the 'Search Blog' box; keywords Buffet or Berkshire or BRK.A, there is some very good stuff here. For example, "Warren Buffett, Mr. Market and the Buffett Partnership Letters, 1959-1969 (BRK.A)".
Have at it.

BYD: "Warren Buffett dumps stake in Chinese Tesla rival amid £31bn exodus"

Charlie Munger done good when he pitched Warren to buy BYD.

From The Telegraph, September 22:

Berkshire Hathaway’s sell-off leaves car giant BYD’s shares down 29pc from May high 

Warren Buffett’s investment giant has sold off its entire stake in BYD as investors lose faith in China’s Tesla rival.

Berkshire Hathaway revealed in its latest filings that its shareholding in BYD fell to zero in the second quarter, down from $415m (£308m) at the end of last year.

Mr Buffett’s exit led to the carmaker’s shares falling by 3.4pc in Hong Kong on Monday, fuelling a £31bn drop in BYD’s valuation since May.

Nicknamed the Oracle of Omaha, Mr Buffett first bought shares in BYD in September 2008 after the company was recommended by Charlie Munger, his long-term business partner, who died in 2023.

The company’s share price has since risen by more than 4,500pc, although it has been losing steam over the past six months.

Mr Buffett has been selling down his stake since 2022, a move that other Western investors have followed in recent months.

The carmaker’s top five stakeholders – Vanguard, BlackRock, JP Morgan, Fidelity and Citigroup – sold a combined 222m Hong Kong-listed shares in the second quarter, worth around £2.6bn....

....MUCH MORE 

Over the last few months:
"China's top leaders vow crackdown on price wars as deflation risks mount"

...As pointed out introducing June 24's Dear Europe: "China’s BYD expands car-carrier fleet to bolster EV exports amid furious domestic competition"it was the auto sector that caught our attention most recently:

BYD doesn't sell in the U.S. and there aren't very many markets that can absorb the overproduction.

And the government does not want the price war for the domestic market to get any more cut throat:

May 28 - "Chinese EV Stocks Tumble After BYD Slashes Prices Up to 35%"

Nay 29 - Whoa!—Chinese Electric Vehicles: "The Evergrande of the automotive industry already exists; it just hasn't collapsed yet."

June 3 - Chinese Government Warns Against Electric Vehicle Price War

But since the covid reopening it has been apparent what is going on in the wider economy...

Whoa!—Chinese Electric Vehicles: "The Evergrande of the automotive industry already exists; it just hasn't collapsed yet.": 

"BYD’s shares sharply lower after China EV maker’s earnings miss" 

"BYD’s $45 Billion Stock Wipeout Raises Doubts on China Outlook"

 And on Charlie+BYD:

April 2009 - Better Batteries: General Electric, A123 and the Power Grid. Plus Warren Buffett Does a Drive-by (Charlie too!)

Here's Fortune on Mr. Buffett and BYD:
Warren Buffett takes charge

Warren Buffett hasn't just seen the car of the future, he's sitting in the driver's seat. Why he's banking on an obscure Chinese electric car company and a CEO who - no joke - drinks his own battery fluid.

Warren Buffett with BYD's E6.
The car came straight to Omaha from the Detroit auto show.

Warren Buffett is famous for his rules of investing: When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is usually the reputation of the business that remains intact. You should invest in a business that even a fool can run, because someday a fool will. And perhaps most famously, Never invest in a business you cannot understand.

So when Buffett's friend and longtime partner in Berkshire Hathaway (BRKB), Charlie Munger, suggested early last year that they invest in BYD, an obscure Chinese battery, mobile phone, and electric car company, one might have predicted Buffett would cite rule No. 3 above. He is, after all, a man who shunned the booming U.S. tech industry during the 1990s.

But Buffett, who is 78, was intrigued by Munger's description of the entrepreneur behind BYD, a man named Wang Chuan-Fu, whom he had met through a mutual friend. "This guy," Munger tells Fortune, "is a combination of Thomas Edison and Jack Welch - something like Edison in solving technical problems, and something like Welch in getting done what he needs to do. I have never seen anything like it.">>>MORE

May 2009 - Here's the Story on Berkshire's Munger (BRK.A)

....The two men, Mr. Munger, 85 years old, and Mr. Buffett, 78, speak frequently and confer about most deals, but there are differences. Mr. Munger is laconic; Mr. Buffett loquacious. Mr. Munger leans Republican; Mr. Buffett tilts Democratic. Mr. Munger will pay hefty price tags for businesses; Mr. Buffett likes safe, dirt-cheap stocks.

Mr. Munger's views have pushed Berkshire into some surprising directions. Several years ago, Mr. Munger learned of an obscure Chinese maker of batteries and automobiles called BYD Inc., which hopes to create a cheap, functional electric car....MORE

August 2009 - China's BYD says Buffett wants to raise stake (BRK.A: 1211.HK)

[this comment did not please Buffet or Munger - Don't be tellin' people to go frontrun our buying] 

May 2023 - Berkshire Hathaway Cut Stake In China's BYD Because The Don't Want To Compete Against Elon Musk (TSLA)

January 2024 - "China could be on track to dominate the world’s EV market, even if not in the U.S."

Elon Musk, who seems to have some insight into the industry, says there will be 10 surviving manufacturers, 9 of them Chinese....

***** 

....In the case of BYD, its manufacturing prowess had long impressed Berkshire Hathaway vice chairman Charlie Munger, who passed away this week. While Berkshire generally steers clear of the auto industry—it declined to invest in Tesla—Munger led an enormously successful investment in BYD. He called the carmaker’s founder and CEO Wang Chuanfu a “natural engineer,” adding that “the guy at BYD is better at actually making things than Elon is.”....

And many, many more. It was an important story and we just happened to bookend it. 

"Buffett’s advice on making big money"

That's the title that CNBC slapped on a video clip of the 1999 Berkshire Hathaway annual meeting. Their sub-head was "Warren Buffett explains the process he would go through if he were getting out of school today with $10,000 to invest.". There are quite a few additional snippets should one follow the link.

Here's the story from CNBC, June 23, 2021:

In 1999, Warren Buffett was asked what you should do to get as rich as him—his advice still applies today

If you want to be as rich as Warren Buffett, don’t wait to get started. That’s the advice that the investing titan shared in 1999 at Berkshire Hathaway’s annual shareholders meeting when asked how to make $30 billion, which was roughly his net worth at the time.

The then-68-year-old Buffett — whose fortune has since grown to more than $120 billion — said that compound interest is an investor’s best friend and compared building wealth through interest to rolling a snowball down a hill.

“Start early,” Buffett said. “I started building this little snowball at the top of a very long hill. The trick to have a very long hill is either starting very young or living to be very old.”

The Oracle of Omaha said that if he were graduating from college in 1999 and had $10,000 to invest, he would be strategic about choosing where to put his money. “I probably would focus on smaller companies because I would be working with smaller sums and there’s more chance that something is overlooked in that arena,” Buffett explained, saying he would start examining companies alphabetically and work his way from there.

Investors, Buffett explained, need to fend for themselves and rely on their own knowledge and intuition when searching for promising businesses to invest in. He added that savvy investors would do best to “learn what you know and what you don’t” and act “very vigorously” when they see something they consider to be a good opportunity.

“You can’t look around for people to agree with you,” Buffett said of putting money into an investment. “You can’t look around for people to even know what you’re talking about.”....

....MUCH MORE

Now all that is true, and Warren covered both ends of the temporal spectrum, starting young and living old, allowing the compounding snowball a really, really long time to build mass and momentum.

But there will never again be a Warren Buffett. Or on lesser scales a George Soros or a Jim Simons making their moolah from portfolio investing..

If interested see 2016's "Why we'll never see another Warren Buffett or George Soros ever again" along with some of the links embedded therein:

• Warren Buffet: The King of Leveraged Low Beta (BRK.B)
• Buffett's Alpha Redux (BRK.b)
• The Last Word On Asness' Alpha, Buffet's Beta and The Failure of Commodity Quants (and how to turn hyperlinks into footnotes) 
• Warren Buffett's 50th Anniversary Letter to Berkshire Shareholders and Some Thoughts on the Early Years
• Buffett's Alpha or How To Generate Better Risk Adjusted Returns Than Anyone Else in the Biz (BRK)
•  Is Alpha Dead? Beating the Market Has Become Nearly Impossible

UPDATED--(Bonus) Better than a Transcript: Three Live-blogs of the Berkshire Hathaway Annual Meeting Pt. IV (BRK.B; BRK.A)

UPDATE here.
Original post:
Okay, there were actually six live blogs. We've linked to four and may get to the other two on Monday.
From the Wall Street Journal's Deal Journal:

LIVE BLOG: The Berkshire Hathaway Annual Meeting

The Berkshire Hathaway annual meeting, known as the “Woodstock for capitalists,” convenes today just one month after the surprise resignation of David Sokol, one of Warren Buffett’s top lieutenants.
Nearly 40,000 people are expected to pack into the Omaha, Neb., Qwest Center to hear Buffett and investing partner Charlie Munger talk about Sokol, the economy, the health of Berkshire Hathaway and everything else under the sun. People have flown in from as far away as Australia to take in the words of the Oracle of Omaha.

The Sokol scandal hangs over what tends to be a raucous, light-hearted affair. Buffett hasn’t commented on the matter since announcing Sokol's resignation on March 30 but pledged he will answer any and all questions today. Your Deal Journal team will be live-blogging the day-long event in real time. You’ll almost be able to taste the See’s Candies....

...Time to Retire This Joke:
Buffett, in talking about Berkshire keeping its cash in very safe places, says he wants assurance just in case Ben Bernanke runs off to South America with Paris Hilton. Where have we heard this joke before? Oh, pretty much everywhere Buffett shows up. Also, Warren, you need a new celebrity ingenue reference. Megan Fox, maybe?

Berkshire Is Cash Conservative
A shareholder wants to know what Berkshire does with its billions of dollars in cash, given the low yields for cash right now. "He's certainly right that all the choices are lousy for short term money right now," Buffett replies.

He says most of Berkshire's cash is parked in Treasurys. It's not a great return, Buffett concedes, but at least we know well get our car back.

In Berkshire's latest annual report, Buffett said he was glad Berkshire didn't invest in commercial paper when that typically safe market imploded during the financial crisis. He also relayed a story about his grandfather, who owned an Omaha grocery store and urged his children to keep at least $1,000 in cash in a safe deposit box just in case.

Berkshire's version of a $1,000 in a safe deposit box? The $34.8 billion in cash and cash equivalents the company had on its books, as of Dec. 31.

And now, for another dig at bankers.

Yes, Warren Buffett doesn't like Wall Street bankers. Buffett says he's never seen an investment bankerâs financial predictions for a company that didn't show earnings going higher. I don't pay attention, he says, and compares it to asking the barber if you need a haircut. This is a frequent Buffett trope.

Buffett says that he and Munger keep financial projections in their heads, rather than rely on the bankers' spreadsheets. Munger's advice for those in business school: At least until you're out of school you have to pretend to do it their way.

Treats!
If we could find areas of growth for See's Candies, it would be very, very profitable, Buffett says. I've lost count how many times Buffett has mentioned See's and its profits today.
Meanwhile, Buffett and Munger have picked up their pace of eating and drinking post-lunch. Munger has a box of treats right in front of him. The box is orange, like his fetching tie. These guys clearly didn't coordinate their wardrobes today. Buffett's cravat is bright pink, very clashing.

Buffett on Nukes
There have been question marks about the future of nuclear power since the crisis in Japan. "I think nuclear power is safe," Buffett said. "Nuclear power is an important part of the world's equation in dealing with problems of harmful emissions from traditional energy sources, he said.
(Buffett does admit there is and will be public resistance to nuclear power after the Japan crisis.)
Buffett has long feared nuclear war, and has lavished charitable contributions on anti-nuke programs. So it's interesting to hear him defend nuclear energy so firmly.

Buffett: Don't Worry About the U.S. Debt
"The United States is not going to have a debt crisis as long as the country issues notes in its own currency, Buffett says. He also proclaimed to have little patience for the bare-knuckle debates in Washington over whether to raise the ceiling on U.S. debt levels.

It seems such a waste of time," Buffett said. In the end, he says, theres no chance that they don't increase the debt ceiling. And Buffett said he'd like to see Washington eliminate the ceiling altogether because it leads to periodic political showdowns that can cripple the federal government.

Speed Isn't Everything:
A shareholder asks Buffett for advice to young people on how to read quickly. (Buffett is a voracious reader. He has said he reads five newspapers a day and lots of the voluminous corporate annual reports.) Buffett does admit now that he doesn't read as quickly as he once did, a rare admission of age-related weakness from the Oracle of Omaha.

It's a huge advantage to be able to read fast," Buffett says, but says he doesn't really believe in speed reading courses or techniques.

Then the Oracle relays a joke from Woody Allen Buffett's second reference today to the film director  about how he speed read War and Peace," leading to a not-great recall of the book. It's about Russia," Allen jokes.

Does Buffett Have an Unfair Advantage?
Berkshire Hathaway doesn't muck about fighting over nickels and dimes with companies Buffett wants to buy. If an acquisition target wants to open itself up to multiple possible buyers, Buffett says no thanks. That's why Berkshire was the only suitor for Lubrizol before Berkshire reached a $9 billion acquisition agreement. Typically, to ensure shareholders the best price possible, a company will offer itself for sale to multiple bidders.

Does this mean Lubrizol abdicated its duties to get the best deal for its shareholders?
Buffett and Munger say an emphatic NO.

Buffett said Lubrizol got a rich sale price, and Berkshire simply would have walked away from the acquisition if the company sought to auction itself. Munger is clearly annoyed at this question.
"Anybody else have an easy question?" Munger snapped.

Say Goodbye to $100k
Warren Buffett makes a salary of $100,000 a year. Whoever takes over for him as Berkshire’s CEO is going to make a whole lot more, he says.
I think the next CEO will make a lot of money."

Is Buffett Getting Impatient?
Munger was giving a lengthy answer in response to a request for a case study of a company that did something right, and a cautionary corporate tale of imprudent action. Munger, as Buffett predicted, begins with praise of Costco. After a few more examples, Buffett interrupts with a dark joke about a recent hijacking attempt of him and Munger.

Buffett digs in: When asked for last requests before they are executed, Munger says;Â "Id like to give one more speech on the virtues of Costo, with illustrations."And what's your last request, Mr. Buffett? "I said, 'Shoot Me First.'"

Sorry, AOL
Oh, Warren way to kick a company when it's already dead. In response to a question about the accounting treatment of goodwill, he takes a potshot at AOL Time Warner, perhaps the worst acquisition in corporate America....

...MUCH MORE

Earlier:

Motley Fool
Better than a Transcript: Three Live-blogs of the Berkshire Hathaway Annual Meeting Pt. III (BRK.B; BRK.A)

Morningstar
Better than a Transcript: Three Live-blogs of the Berkshire Hathaway Annual Meeting Pt. II (BRK.B; BRK.A)

DealBook
Better than a Transcript: Three Live-blogs of the Berkshire Hathaway Annual Meeting Pt. I (BRK.B; BRK.A)

LA Times Roundup: Buffett and Munger share wit and wisdom with Berkshire Hathaway shareholders at annual meeting (BRK.A)

From the Los Angeles Times:

Berkshire Hathaway chairman and CEO Warren Buffett and vice chairman Charlie Munger spent more than five hours Saturday answering questions from shareholders.

Here is a sample of their wit and wisdom on a variety of topics:
NEWSPAPERS' DWINDLING VALUE

Berkshire owns the Buffalo News and it has a sizable investment in the Washington Post Co. Buffett reiterated Saturday that Berkshire won't be adding to those newspaper investments.

"For most newspapers in the United States, we would not buy them at any price," Buffett said.

He said most newspapers face the possibility of unending losses because the industry has lost its essential nature.

"They were only essential to advertisers as long as they were essential to the reader, and that is changing," Buffett said.

___

CREDIT RATING PROBLEMS

Buffett said he doesn't think the conflicts of interest at credit rating agencies caused their problems, or the problems with the complicated collateralized debt obligations that turned out to be worth much less than ratings agencies estimated.

Buffett said Moody's, Standard & Poor's, Fitch Ratings and other credit rating agencies all seemed to buy into the faulty notion that house prices would continue increasing indefinitely and based their ratings models on that.

"They made a major mistake in analyzing the instruments," Buffett said. "But they made a mistake a great many people made."

Berkshire does own 48 million shares of Moody's, comprising a stake of more than 20 percent. But Buffett said he never tried to influence the way Moody's developed its ratings because Berkshire generally doesn't do that.

"When we own stock, we are not there to change them," Buffett said....MORE

I have to run. Here are this weekend's posts on the annual meeting:

Warren Buffett/Berkshire Hathaway 2009 Annual Meeting Links (BRK.A)
Update: Warren Buffett/Berkshire Hathaway 2009 Annual Meeting Links (BRK.A)
The 2009 Berkshire Hathaway Annual Meeting Has Ended
Twitter's Realtime Results for Berkshire Hathaway (BRK.A)
Here's the Story on Berkshire's Munger (BRK.A)
Up Close And Personal With Berkshire Hathaway (BRK)
Insurance still pillar of Berkshire empire. And: Buffett Says Bets May Cost His Company Money (BRK.A)

We are fans of Warren and have been since passing on BKHT at $800. For other junkies, here's a treat, bookmark the link:

Warren Buffett, Mr. Market and the Buffett Partnership Letters, 1959-1969 (BRK.A)

You might also be interested in (talk about an "If you're like me [and I know I am]" moment) using the Search Blog box, keyword Berkshire, we have a lot of stuff on Warren and Charlie.
Back Monday.

UPDATE-See also:As Close to a Transcript of the 2009 Berkshire Hathaway Annual Meeting as You're Going to Find* (BRK.A)

Gartman: Warren Buffett Isn't An "Idiot" .. But He Allowed "Inexcusable" Losses (BRK.A)

UPDATE: A big hello to MarketBeat readers, some of whom I know by your noms de comment.
If there are any technical analysts in the crowd I could use some help here: "First Solar: Chicken Trader Pulling the Plug (FSLR)". Thanks for the Hat-Tip, Matt & staff.
Original post:
Last week MarketBeat had a post "Gartman: ‘Warren Buffett Is an Idiot’" that relayed Mr. Gartman's radio comment. I had a comment [of course you did -ed] as did 57 other MarketBeat readers. The post is still at the top of their most read list. 10:47 am June 19, 2009

• • Climateer wrote:

  Mr. Gartman is a lightweight.
  As donzoab points out, free cash flow is key. It allows you to play in the big leagues.
  That and being able to cut opportunistic deals with a single phone call to Charlie or Sokol.
  When Gartman takes Goldman as deep as Warren did, 10% money and warrents! (in the money $1.1 Bil.) I’ll pay attention to his comments on BRK.

Today CNBC relays:

Newsletter writer and frequent CNBC guest Dennis Gartman isn't standing behind his reported "Warren Buffett is an idiot" quote.

But Gartman does tell CNBC it's "inexcusable" that Berkshire Hathaway fell roughly 45 percent in one year because Buffett didn't do enough to "mitigate" his losses in a tough market environment.

(At its early-March closing low of $72,400, Berkshire was down over 48 percent from where it was 12 months before. For the 2008 calendar year, Berkshire was down 32 percent, outperforming the benchmark S&P's drop of over 38 percent.)

And Gartman says he has a short position on Berkshire, betting the stock will fall some more.

The Wall Street Journal's MarketBeat blog recently headlined this paragraph from a report in the Oregonian newspaper on a talk Gartman delivered earlier in the month at a country club near Portland:

He scoffs at value-oriented, buy-and-hold stock investors who incurred deep losses last year. "Warren Buffett is an idiot," he said, emphatically, in a short interview after the speech. "Shame on Warren Buffett. That'll be a good quote for your article."

At the tail end of a live telephone interview on CNBC's Fast Money last night, host Melissa Lee asked him about the quote.

Melissa: There have been reports that you have been quoted as calling Warren Buffett an idiot. (Gartman laughs.) And we want to just clarify that. Did you call him an idiot?

Gartman: No... (Laughs).

Melissa: ... and if so, in what context?

Gartman: I think Mr. Buffett made some terrible mistakes last year. We all made some mistakes. And the fact that Mr. Buffett was down, what, 45 percent, that Berkshire was down 45 percent, and that not enough action was taken to mitigate those losses, I thought was disconcerting and poor trading. I am short Berkshire Hathaway right now for that reason. It continues to sell at a huge premium to net asset value, so I'm short of it and I'm long of Goldman Sachs. I'm short of Berkshire, and I'm long of Lowe's because they sell at discounts. But I think that Mr. Buffett made some terrible mistakes last year and when you're down 45 percent for a year, I'm sorry, that's inexcusable.

Melissa: Right. OK. So maybe not an idiot but maybe some idiotic trading moves. (Laughs).

Gartman: Not an idiot. Clearly he's not. He's a genius trader ....MORE

"Bevy of Questions Await Buffett at Berkshire Meeting" (BRK.B; BRK.A)

Long time readers know we are fans of Warren.
From MarketBeat:

Shareholders heading to Omaha, Neb. for the Berkshire Hathaway annual meeting this weekend should be spoiled for choice in terms of juicy questions to throw at Warren Buffett, perhaps the world’s most celebrated stock picker.

Here are some of the things to watch for at this year’s meeting. See full coverage Saturday on WSJ.com

Goldman Sachs:

Warren Buffett is expected to comment at length on Goldman Sachs Group Inc., the embattled bank charged with fraud by the Securities and Exchange Commission and the subject of a criminal investigation by the Department of Justice. Several Goldman executives, including CEO Lloyd Blankfein, were grilled before a Congressional panel this week for their actions related to shaky mortgage securities the bank peddled before the credit crisis. Goldman denies the charges, but outraged Congressman seemed unconvinced. Berkshire Vice Chairman Charlie Munger recently told the Wall Street Journal that Goldman was engaged in “socially undesirable” activities. Look to see whether Mr. Buffett agrees with his cantankerous sidekick or offers up a defense of Goldman. See this WSJ story for more.

Derivatives:

At last year’s meeting, Mr. Buffett had to defend several huge derivative contracts that had plunged in value during the credit crisis. The deals, essentially insurance contracts on several stock indexes around the world, helped cause Berkshire’s book-value per share decline in 2008. This year, Mr. Buffett is facing a new headache tied to derivatives: A Congressional proposal that would retroactively force Berkshire and other companies to put up collateral against the contracts....MORE

A Google search of our site returns 6000 hits, feel free to browse.
One of my favorites:

"Living La Vida Cocoa: Warren Buffett, Berkshire Hathaway and the Chocolate Wars (BRK.A; BRK.B; CBY; KFT; HSY)"

Or, trying to stir up some trouble, "Oh Berkshire Hathaway Fans: "'Black Swan' Author Nassim Taleb: Warren Buffett May Just Be Lucky" (BRK.B; BRK.A)"

See also:
MarketBeat's "Gartman: ‘Warren Buffett Is an Idiot’" was followed by "Gartman: Warren Buffett Isn't An "Idiot" .. But He Allowed "Inexcusable" Losses (BRK.A)"

And many, many more.

"Warren Buffett, Robber Baron" (BRK.B; BRK.A)

This bit o'drivel deserves a proper Fisking but I don't have time. I will have some comments after the jump.

From American Thinker:

I know that we are all supposed to love Warren Buffett as the Sage of Omaha, businessman and all-around good guy, but I keep reading stories that make me wonder. Here's a story about Warren Buffett, the estate tax, and the life insurance industry.

Did you know that the life insurance lobby is actively lobbying to restore the estate tax? 

Why would the life insurance industry care about that? It turns out that ten percent of life insurance industry revenue is related to the estate tax. Wealthy people take out life insurance in order to reduce estate taxes because when you die, your life insurance payout doesn't count as part of your estate.

Did you know that Warren Buffett owns six life insurance companies? Did you know he supports the estate tax? You do now.

Warren Buffett isn't just noted as an owner of life insurance companies and a supporter of the estate tax. He's also noted as a buyer of family businesses. As Dick Patten shows, these two business strategies support each other.

A family business owner or farmer takes out a large life insurance policy which he sinks tens or hundreds of thousands of dollars into each year. When he finally passes away, the life insurance pays out his policy to his family--tax free...

Even as Mr. Buffett's insurance companies are "protecting" family businesses from the IRS, he is buying companies that are forced to sell themselves to pay the death tax. Mr. Buffett's ability to buy family businesses at bargain basement prices depends on families being desperate to sell-and nothing produces family businesses desperate to sell quickly like a 55% bill from the IRS on all of the businesses' assets.

Estate taxes must be paid to the U.S. Treasury within a year of the testator's death. In cash.

 Back in 1931, the liberal son of an immigrant banker knew what to call this kind of business. Matthew Josephson wrote The Robber Barons to argue that the industrial giants of the 19^th century had not created wealth in the right way. They had acted like the feudal barons who for centuries had dominated the mountain passes through the Alps. The great corporations of the Gilded Age "monopolized strategic valley roads or mountain passes through which commerce flowed" just like the old barons-of-the-crags. 

Hello, Warren? Isn't your business model exactly the one that so offended young Matthew back in the Great Depression after he got back from a decade living la vie bohème as an ex-pat in Paris? Aren't your businesses sitting at an economic choke-point, exploiting the unintended consequences of bad government economic policy, gouging successful family businesses both coming and going, and exploiting grieving widows?

Matthew Josephson inaugurated the arch, knowing style that liberal John Kenneth Galbraith picked up in the 1950s and that Noam Chomsky does so well today. These writers all appeal to the liberal reader who wants to believe that America is unjust and crude but who doesn't want to be enlightened much by actual knowledge about business and the economy. 

That's OK. Let our liberal friends spin their fantasies of conspiratorial robber barons and corporate greed. We have Hernando De Soto with The Other Path and The Mystery of Capital. He shows us how the real robber barons are the leaders of "redistributive combines" of special interests competing for privileges from favor-dispensing politicians and bureaucrats....MORE

In the Patten piece that the writer links to we read:

...Mr. Buffett has bought numerous companies who were forced to sell because of the death tax including: Dairy Queen, Jordan’s, Justin Industries, Star Furniture, Borsheim, Ben Bridge Jewelers, U.S. Liability, NetJets, R.C. Wiley, Flight Safety and Nebraska Furniture Mart....

I'm a pretty [you're not pretty -ed] close follower of Berkshire and there are some egregious mistakes in this telling. 

According to Roger Lowenstein in chapter 13 of "Buffett: The Making of an American Capitalist" Warren practically hounded Rose Blumkin into selling Nebraska Furniture Mart.

 After numerous attempts he finally walked in and asked what price it would take.

You can read the story of the Borsheim purchase in chapter 18 of "The Warren Buffett CEO: Secrets from the Berkshire Hathaway Managers", again completely misrepresented by these writers.

In the case of Dairy Queen, it was a publicly held corporation. Jeez.

I'll come back to the others another time.

For now I'll recommend that anyone executing an estate containing a closely held business call a very good tax attorney and go over the pros and cons of a section 6166 election.


As for Warren?
He's an insurance salesman from Omaha.
He knows the rules and pushes them to the limit.
I'll talk about that some other time too.

"Live Analysis: Warren Buffett’s Annual Berkshire Letter" (BRK)

As I note the early AM timestamps I am reminded of a 2008 post from MoneyBeat's predecessor, MarketBeat:

The 5 a.m. Buffett Breakfast Club
They’re rich. They’re cheerful. They’re morning people.

An awesome piece from MoneyBeat:

The annual missives that billionaire investor Warren Buffett writes to shareholders of his Berkshire Hathaway Inc. are always carefully scrutinized by big-name investors and small-time stock-pickers alike. But this year’s letter promises to get even more attention.
That’s because this year’s letter has been five decades in the making.

It was in 1965 that Mr. Buffett and his vice chairman, Charlie Munger, took over a troubled textile company called Berkshire Hathaway and began transforming it into the massive conglomerate it is today. Along the way, the “Oracle of Omaha” has amassed a fortune, built a following, and become a celebrated figure in many corners of the world. Mr. Buffett has promised that this year’s letter would look back on the past five decades, and speculate on the next five.

The MoneyBeat team is providing analysis on the letter in real time as we read it Saturday morning. Join us as we dive in.

• • 6:07 am
  • 
  • Welcome
  • by Erik Holm
  Welcome aboard. The Berkshire letter due out in about an hour has been 50 years in the making, but it’s also been many months in the writing.
  In the very last paragraph of last year’s letter, Warren Buffett piqued the interest of his most ardent followers—the ones who read all the way to the end of his annual missives—with this line:
  

  Next year’s letter will review our 50 years at Berkshire and speculate a bit about the next 50.
  

  It wasn’t a promise Mr. Buffett took lightly. In December, Mr. Buffett told the Journal that he’s already written 20,000 words of the upcoming letter. In normal years, the letter runs about 15,000. We’re going to have a lot of reading to do today.
  

• • 6:11 am
  • 
  • Hearing from Munger
  • by Anupreeta Das

  

  Berkshire shareholders and those who follow the conglomerate’s activities will get a bonus this time around: Berkshire Vice Chairman Charlie Munger is also writing down his vision for Berkshire for the next 50 years. Shareholders love Mr. Munger’s sometimes bruising wit and deadpan delivery, but his voice has been absent from last letters.
  Mr. Buffett said in December that he and Mr. Munger had agreed not to read each other’s accounts until shortly before today’s publication. The letter will contain a note from Mr. Buffett stating that neither he nor Mr. Munger changed a word of commentary after reading the other’s piece.
  

• • 6:16 am
  • 
  • What to Expect
  • by Erik Holm
  So now that the letter is finally arriving this weekend, what can Berkshire shareholders and Buffett acolytes expect? We covered that in detail in this post on Friday, but we’ll hit some of the key point as we wait for the letter to land.
  (And don’t think we didn’t try to find the letter on Berkshire’s website already . It’s not there yet, but it should be at this link when it goes live.)
  

• • 6:19 am
  • 
  • Together or Apart?
  • by Erik Holm

  As he looks 50 years into the future, we expect Mr. Buffett will address the question of whether Berkshire should stay together–and perhaps, how it could be organized under his successor.
  At a time when more and more companies are spinning off operations to narrow their focus and make their operations easier to value, Mr. Buffett will likely say Berkshire works better as a conglomerate. Berkshire’s insurance units, including car insurer Geico Corp., fueled Berkshire’s growth over the past five decades by giving Mr. Buffett funds to invest elsewhere. Barclays analyst Jay Gelb said in a research note this week that Mr. Buffett is likely to argue that “excess cash from Insurance and other operations can be effectively and tax-efficiently deployed” to grow other parts of the company.
  That’s not unalloyed good news for all Berkshire shareholders. Some of them think the company is so massive that some crown jewels of the company aren’t being fully appreciated by the market. Mr. Gelb says that “means substantial value could remain unlocked for several major units.”
  
  

  • • 6:25 am
    • 
    • About that Dividend
    • by Erik Holm

    

    How will Berkshire use its capital in the future? Mr. Buffett has made it clear that Berkshire is very unlikely to pay a dividend in his lifetime. He argues that he can use the money that would be spent on a dividend to grow Berkshire instead–and he has the track record to prove it.
    A small but vocal group of shareholders has long tried to push Mr. Buffett to pay one, but a vote on the topic at last year’s annual meeting was roundly defeated. In fact, it attracted so little support that it likely set back the cause.
    Yet at that same meeting, when asked what Berkshire will look like in 20 years, Mr. Buffett acknowledged that there would come a time when the company has more capital than it knows what to do with.
    “What I do know is that we will have more cash than we can intelligently invest in the future,” he said. “It’s not on a distant horizon. The number is getting up to where we can’t intelligently deploy the amounts coming in.”
    Does that mean Mr. Buffett could revisit the dividend question this weekend as he peers into his crystal ball? Perhaps. But he may instead focus on the topic of share repurchases. Berkshire has already instituted a program of buying back stock when shares fall below a specific target (which is adjusted each quarter). There’s a chance he could discuss Berkshire’s target and argue for making it less restrictive.
    

  • • 6:34 am
    • 
    • The Next Buffett
    • by Erik Holm

    Mr. Buffett likes to joke that he’ll continue to run Berkshire via seance after he’s gone. Joking aside, though, the question of who will take over the role of chief executive is the biggest topic hanging over the company and its shareholders. Mr. Buffett has said it’s the most important thing that Berkshire’s board discusses when it meets.
    That said, the chances that Mr. Buffett will name his successor in the CEO role today are essentially zero. I’m confident making that prediction even though I could be proven horrible wrong in under half an hour. It’s just not going to happen....

  ...MUCH MORE
  
  In case you missed the link:
  Warren Buffett's Letters to Berkshire Shareholders
  Updated February 28, 2015
  

Better Batteries: General Electric, A123 and the Power Grid. Plus Warren Buffett Does a Drive-by (Charlie too!)

From Environmental Capital:

General Electric is pouring another $15 million into battery maker A123 Systems, the seventh time GE has put money into the MIT offshoot. The investment, part of a spate of recent activity by GE Energy Financial Services, has as much to do with the future of electricity as with the future of automation.

A123 has been in the news lately because it makes batteries for hybrid and electric cars—Chrysler, for instance, just picked A123 as its battery supplier for its slate of electric vehicles. The $69 million invested by GE and others will let A123 expand factories to ramp up production of auto batteries....
...The quest for energy-storage solutions is one reason that Warren Buffet invested $230 million last year in Chinese battery maker BYD; the investment was made by MidAmerican Energy Holdings, a power company in the Berkshire Hathaway stable....MORE

Here's Fortune on Mr. Buffett and BYD:
Warren Buffett takes charge

Warren Buffett hasn't just seen the car of the future, he's sitting in the driver's seat. Why he's banking on an obscure Chinese electric car company and a CEO who - no joke - drinks his own battery fluid.

Warren Buffett with BYD's E6.
The car came straight to Omaha from the Detroit auto show.

Warren Buffett is famous for his rules of investing: When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is usually the reputation of the business that remains intact. You should invest in a business that even a fool can run, because someday a fool will. And perhaps most famously, Never invest in a business you cannot understand.

So when Buffett's friend and longtime partner in Berkshire Hathaway (BRKB), Charlie Munger, suggested early last year that they invest in BYD, an obscure Chinese battery, mobile phone, and electric car company, one might have predicted Buffett would cite rule No. 3 above. He is, after all, a man who shunned the booming U.S. tech industry during the 1990s.

But Buffett, who is 78, was intrigued by Munger's description of the entrepreneur behind BYD, a man named Wang Chuan-Fu, whom he had met through a mutual friend. "This guy," Munger tells Fortune, "is a combination of Thomas Edison and Jack Welch - something like Edison in solving technical problems, and something like Welch in getting done what he needs to do. I have never seen anything like it.">>>MORE

That is high praise from Mr. Munger. We are fans. From a post on Berkshire's investment in Goldman:

...In the meantime, use of the 'Search Blog' box for Buffett or Berkshire is good fun. Possibly rewarding too.
Or try 'Munger', not nearly as many results but not bad. The first hit is:

The 5 a.m. Buffett Breakfast Club
They’re rich. They’re cheerful. They’re morning people.

a few results later, the best senior management 'all purpose turn-around' I've ever seen:

"Think about it a little more and you will agree with me because you're smart and I'm right."
-Charlie Munger, Vice-Chairman, Berkshire Hathaway

Warren Buffett's Letter to the Shareholders of Berkshire Hathaway 2009 (BRK.A)

UPDATE below.
Regular readers know that we are fans of Warren. I've got most of the annual reports, going back to the BKHT days. Whether it's the insurance operations, MidAmerican Energy and their largest utility-owned wind operations or just the wit and wisdom of Warren (and Charlie), I've found a lot of reasons to post on Mr. Buffett. Some of our links are below.
From MarketBeat:

Waiting for Warren

Berkshire Hathaway’s annual report, slated for release at 8 a.m. Eastern time Saturday, is expected to detail one of the worst years on record for the widely watched company, led by legendary investor Warren Buffett. The market tsunami wreaked havoc on Berkshire holdings such as Coca-Cola, US Bancorp, Wells Fargo, Moody’s and Washington Post, among others.

It was also a challenging year for Berkshire’s insurance outfits. Two major hurricanes, Ike and Gustav, caused significant damage to the Gulf Coast. It was the second costliest hurricane season on record, with damage estimated at $54 billion, according to the National Climatic Data Center. In 2005, massive storms such as Hurricanes Katrina and Rita caused $128 billion in damage, resulting in a loss of more than $3 billion for Berkshire....MORE

If you are impatient, here's one of my favorite Warren posts:

Warren Buffett, Mr. Market and the Buffett Partnership Letters, 1959-1969 (BRK.A)

You might also be interested in (talk about an "If you're like me [and I know I am]" moment):

SEC Pressed on Climate-Change Disclosures and When will Warren Buffett get on Board the Love Train?*
Warren Buffett and the Chocolate Wars
How Buffett Made a Killing in Chocolate, And Warren's Letters to Shareholders

or use the 'Search Blog' box, keyword Warren.
UPDATE: Here is the major media coverage, I'll have the blog coverage later and my comment on Monday.

Berkshire Annual Meeting: Buffett Didn't Buy the Dip and That Has ZeroHedge Worried (BRK)

And with good reason.
I've mentioned how fast the old boy can move when he spots an opportunity.
In September 2008, two days after the Lehman collapse, his then heir apparent David Sokol pitched Mr. B. on buying Constellation Energy. Warren looked at it for an hour, sent Sokol to Baltimore to pitch the Constellation board who liked Warren's idea and signed on.

The stock had traded as low as $13 and change—a price it had not seen in 25 years, and it traded there for all of about 90 minutes before news of the deal at $26.50 was announced.
ya snooze ya lose.
Constellation subsequently backed out of the deal but the $1.2 billion break-up fee was pretty good pay for Warren's hour of analysis.

But, contrary to some speculation going into today's meeting and earnings release, he's not buying now.

From ZeroHedge: 

Brace For A Monday Massacre: Buffett Liquidates All Airline Holdings As Berkshire Sees Another Leg Lower

Well, it's official: there won't be any "Buy American" op-eds by the Oracle of Omaha this time around. In fact, if anything, they will be titled simply "Sell."

Warren Buffett, who turns 90 in 4 months, had an unpleasant surprise for the permabullish Berkshire faithful during their annual pilgrimage to Omaha live-stream of Berkshire's annual meeting: one month after Berkshire surprised investors by selling parts of its Delta and Southwest Airlines stakes - both of which had previously been above a 10% ownership level and speculation was rife that Berkshire could purchase an airline outright in the near future - the Oracle of Omaha said that, 4 years after Berkshire took major stakes in the four largest US airlines, he had liquidated the sold the entirety of its equity position in the U.S. airline industry which included $6.5 billion worth of stock in United, American, Southwest and Delta Airlines.

Assuring that Monday will be a bloodbath for Trannies (that would be the transportation stocks you perverts), Buffett justified his decision as follows: "The world has changed for the airlines. And I don’t know how it’s changed and I hope it corrects itself in a reasonably prompt way,” he said. “I don’t know if Americans have now changed their habits or will change their habits because of the extended period."

But "I think there are certain industries, and unfortunately, I think that the airline industry, among others, that are really hurt by a forced shutdown by events that are far beyond our control."

"When we bought [airlines], we were getting an attractive amount for our money when investing across the airlines,” he said. “It turned out I was wrong about that business because of something that was not in any way the fault of four excellent CEOs. Believe me. No joy of being a CEO of an airline."
"“I don’t know that 3-4 years from now people will fly as many passenger miles as they did last year .... you’ve got too many planes."

Realizing that he won't be alive by the time a turnaround eventually happens, he clarified that he made the decision and that he lost money on his investments. “That was my mistake.”
Asked by CNBC’s Becky Quick to clarify if Berkshire had sold all of its airline holdings, Buffett answered "yes" and explained: “When we sell something, very often it’s going to be our entire stake: We don’t trim positions. That’s just not the way we approach it any more than if we buy 100% of a business. We’re going to sell it down to 90% or 80%."

“The airline business -- and I may be wrong and I hope I’m wrong -- but I think it’s changed in a very major way,” Buffett said. “The future is much less clear to me.”

As Bloomberg reminds us, Buffett has had a complicated relationship with the airline industry over the years. After a troublesome investment in USAir, Buffett joked that he would call an 800 number to declare he was an “air-o-holic” if he ever got the urge to invest in airlines again. Then in 2016, Berkshire dove into the industry again, amassing stakes in the four largest airlines. His renewed faith in the industry prompted speculation that he might one day own one of the carriers.

There is a more simplistic explanation of Buffett's style of investing at least in recent years: he will buy the stock of companies that engage in massive buybacks, such as Apple, even though his annual letter bashes companies that buybacks stocks, and he will dump all companies that halt buybacks, of which IBM is the most famous example. And since the quasi-bailed out airlines won't be repurchasing stock for years and years to come, it was only a matter of time before Buffett dumped them.

It also means that Buffett may soon liquidate many more sector holdings, starting with the banks which have also suspended buybacks for the near future and may be forced to extend said suspension indefinitely unless there is a V-shaped recovery in the global economy. The banks will then be followed by consumer discretionary, railroads, and many more. In fact, it would explain why unlike 2008, Buffett has not only not been buying any stocks despite major "bargains" but has actually been aggressive in liquidating his holdings, hardly an endorsement of the broader market....

....MUCH MORE

Recently on Buffett and the airlines:
March 13
"Warren Buffett: ‘I won’t be selling airline stocks’" 
Warren, noooo....
Here's what Mr. Buffet  told Fortune magazine: in 1999:
April 4 
Transportation: "Warren Buffett’s Berkshire Hathaway sells part of Delta, Southwest airline stakes" (DAL; LUV; BRK)

And going back to when he was amassing the stakes:
February 2017
Has Warren Buffett Lost His Mind? (asking for a friend) BRK
November 2016
What the Heck? "Warren Buffett is bullish on airline stocks" (BRK; AAL; DAL; UAL; LUV) 

***

And the reason we were so concerned about his interest in planes?
(I mean the choo-choo was one thing, you couldn't recreate Burlington Northern Santa Fe for three times what he paid but planes?)

Here's what Mr. Buffet  told Fortune magazine: in 1999

...Move on to failures of airlines. Here’s a list of 129 airlines that in the past 20 years filed for bankruptcy. Continental was smart enough to make that list twice. As of 1992, in fact--though the picture would have improved since then--the money that had been made since the dawn of aviation by all of this country’s airline companies was zero.

Absolutely zero.

I like to think that if I’d been at Kitty Hawk in 1903 when Orville Wright took off, I would have been farsighted enough, and public-spirited enough--I owed this to future capitalists--to shoot him down. I mean, Karl Marx couldn’t have done as much damage to capitalists as Orville did.

Mr. Buffett repeated the sentiment on the 2003 centenary of Orville's first flight.

Then in the 2007 Chairman's letter to the shareholders of Berkshire Hathaway he wrote (pp 8):

...Now let’s move to the gruesome. The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money. Think airlines. Here a durable competitive advantage has proven elusive ever since the days of the Wright Brothers. Indeed, if a farsighted capitalist had been present at Kitty Hawk , he would have done his successors a huge favor by shooting Orville down. The airline industry’s demand for capital ever since that first flight has been insatiable. Investors have poured money into a bottomless pit, attracted by growth when they should have been repelled by it.

And I, to my shame, participated in this foolishness when I had Berkshire buy U.S. Air preferred stock in 1989. As the ink was drying on our check, the company went into a tailspin, and before long our preferred dividend was no longer being paid. But we then got very lucky. In one of the recurrent, but always misguided, bursts of optimism for airlines, we were actually able to sell our shares in 1998 for a hefty gain. In the decade following our sale, the company went bankrupt. Twice.

 To sum up, think of three types of “savings accounts.” The great one pays an extraordinarily high interest rate that will rise as the years pass. The good one pays an attractive rate of interest that will be earned also on deposits that are added. Finally, the gruesome account both pays an inadequate interest rate and requires you to keep adding money at those disappointing returns....