Berkshire Hathaway 2009 Meeting Notes

May 4, 2009 · 3 Comments

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Buffett Loves WFC and USB

Warren Buffett tells shareholders that “I would love to buy all of US Bancorp or I would love to buy all of Wells Fargo, if we were allowed to do it.” The problem, he says, is that Berkshire Hathaway would have to become a bank holding company.  Berkshire already owns substantial stakes in the two banks. Buffett’s bullish statement came in response to a question on whether shareholders should get wiped out when the government steps in. Buffett again singled out Wells Fargo for particular praise, calling it a “fabulous” bank that “will be a lot better off in a couple of years than if none of this had happened.” Recalling that Wells shares fell below $9 earlier in the year, he said at that price, “If I had put all my net worth in one stock, that would be the stock.”

BRK still “AAA rated” in Buffett’s Mind

Warren Buffett tells shareholders today that Berkshire Hathaway is “still triple-A” in his mind, but admits he’s irritated the company has lost its top credit rating from Fitch and Moody’s.He doesn’t, however, think the downgrades will materially hurt the company. Buffett says no matter how Berkshire is rated, there “can be no stronger credit” for any other company.

Buffett: Intrinsic Value for Most Newspapers Is Zero

Warren Buffett says Berkshire Hathaway would not buy most of the newspapers in the United States “at any price.” He says the changing media environment now means newspapers “have the possibility of unending losses” and he does not “see anything on the horizon that causes that erosion to end.” Buffett says the days when a newspaper could have a monopoly in a large city and make a lot of money are over. But he promises Berkshire will not sell the Buffalo News, even though it had opportunities to do so in the past at higher prices than it would bring now: “On an economic basis you should sell this business.  I agree 100 percent but I am not going to do it.”  Buffett says the union at the Buffalo newspaper has been cooperating on building a model that will generate “a little bit of money” for Berkshire.” Berkshire also has a stake in The Washington Post Company that it bought in the 1970s.

Moats Rare and Eroding

In response to a question, Munger warned that businesses with truly sustainable competitive advantages are increasingly rare and noted, “Unfortunately, a lot of moats are filling up with sand, such as daily newspapers and network television stations.”

Berkshire Purchased Cheap Corporate Bonds

Warren Buffett revealed the company had “got a chance to buy some corporate bonds very, very cheaply a few months back.” He also says he bought some bonds for his own personal account. Buffett’s partner Charlie Munger added that some of the corporate bonds purchased by Berkshire are already up between 20 and 25 percent.

No Buybacks for Now

Warren Buffett says there are no plans for a buyback of Berkshire Hathaway stock right now, although he did not rule out the possibility in the future. He did, however, set a very high bar.  The stock price would have to be “demonstrably below” a conservative estimate of the company’s intrinsic value. That implies Buffett does not think the stock is clearly undervalued at its current level of $92,511 a share.  It’s down about 30 percent over the last twelve months. He also said that shareholders would be informed in advance if the company did decide to go ahead with a buyback. Buffett says he think many companies make a mistake when they buy back shares, by paying too much.  He pledged that Berkshire would never make that particular mistake, although it might err by not buying when the price is low.

Berkshire Will Not Be Spinning Off Any Subsidiaries

Warren Buffett promises that Berkshire Hathaway won’t be “spinning off any companies” in the future.He joked that anytime someone suggests the company could get a short-term gain from a spin-off, he throws them out of the office. “We’ve listened to presentation after presentation” over the years from bankers proposing various deals, and “there’s always a fee” involved. Buffett says it’s important the companies bought by Berkshire can trust they will remain with Berkshire.

Berkshire Succession Plan

The four candidates to potentially succeed Buffett as chief investment officer did not “cover themselves in glory” last year, failing to outperform the benchmark S&P 500 stock index.  But Buffett remains confident in their long-term track records. As Munger said, “they got creamed”. But he adds, “I did not either.  I am very tolerant in that respect… But their average over 10 years has been modestly to significantly better than average, and I would say that would be the case over the next 10 years.” None of the four, some Berkshire insiders and some outsiders, beat the S&P 500 last year. The three CEO candidates previously identified, but not revealed publicly, are all Berkshire insiders.

Buffett says there are still three internal candidates to take over his CEO role, including one who would step in immediately if he died suddenly. “If I drop dead tonight … the board knows who … and they would feel very good about that (person). Not too good I hope.”

Buffett also praised Ajit Jain, chief of insurance operations. We think Ajin is a top contender to replace Buffett.

Buffett told shareholders today that “it would be impossible” to replace Ajit Jain as the chief of Berkshire Hathaway’s insurance operations. Buffett says he wouldn’t give the same latitude on risk to any other executive. “Ajit is needed, and we won’t find a substitute for him”, Buffett emphasized.

Why won’t Buffett or Berkshire disclose the candidates’ names?  Buffett cities General Electric’s experience, when Jeff Immelt was named the next CEO and the other two candidates left the company.  “I don’t see any advantage in having some crown prince around.”

Preview of Q1 Results


Warren Buffett started during the meeting’s question-and-answer session with shareholders by giving them a preview of next Friday’s earnings report for the first quarter.

Buffett says operating earnings will be about $1.7 billion, after taxes.  That compares to around $1.9 billion last year, and works out to a decline of almost 11 percent. He partially attributes the drop to losses in Berkshire’s investing portfolio and to losses on credit default swaps.Book value fell about six percent during the period. Berkshire’s float has increased by about $2 billion due to a Swiss Re transaction.

Utility earnings are “reported down” a bit, partially due to a prior benefit from Berkshire’s now discarded deal with Constellation Energy Group.  Buffett says he was disappointed that deal didn’t work out. He expects Berkshire’s utility and insurance businesses will do “quite well” unless there is some “huge natural catastrophe.” Aside from insurance and utilities, all of Berkshire’s other businesses “are basically down.”

Buffett reports that Berkshire ended the first quarter with about $22.7 billion in cash, but it spent $3 billion the very next day on its Dow Chemical transaction. Buffett also notes that Berkshire’s credit default swaps have gotten worse since he wrote his annual letter to shareholders earlier this year.

IQ is Irrelevant


Buffett commented that “Picking bottoms isn’t our game. Pricing is our game. It’s not so difficult, whereas picking bottoms is impossible.To be a successful investor, you don’t need to understand higher math or law. It’s simple, but not easy. You do have to have an emotional stability that will take you through almost anything. If you have 150 IQ, sell 30 points to someone else. You need to be smart, but not a genius. What’s most important is inner peace; you have to be able to think for yourself. It’s not a complicated game.”


Munger added: “There is so much that is false and nutty in modern investment practice. If you just reduce the nonsense, you’ll do well. If you think your IQ is 160 but it’s 150, you’re a disaster. It’s much better to have a 130 IQ and think it’s 120.”

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Tagged: berkshire hathaway meeting, Charles Munger, Value Investing, Warren Buffett

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