Streetwise for Sunday, May 14, 2017
They came by the hundreds, by the thousands, by the tens of thousands, about 40,000 in all, to the Mecca of the financial world, Omaha, Nebraska, to hear the Oracle of Omaha preach to them of financial wisdom. And this year I joined in.
Yes, I made this year’s annual pilgrimage to hear Warren Buffett and Charlie Munger spend nearly seven hours answering countless questions as to both the philosophy and decision processes that drive them as they steer Berkshire Hathaway to ever greater success.
While ostensibly the Berkshire Hathaway annual stockholders meeting, the first 6Ω hours was devoted to answering questions, of which neither Warren or Charlie had any prior knowledge. The actual business part, which entailed the reelection of the board of directors, was left to the last half hour.
With the meeting covered in detail by virtually every major news outlet, I will not regurgitate what has already been said and written, rather I will supply some anecdotes of what impressed me the most.
This was the first time I had an opportunity to attend what the locals refer to as, “The Meeting,” and what can best be described as a financial convention dedicated to one company and two people, with a definite celebratory atmosphere comparable in some ways to a carnival or your average state fair.
If asked what impressed me the most, it would have to be a statement made by Buffett resulting from a discussion about the Wells Fargo debacle. Berkshire Hathaway is the single largest Wells Fargo shareholder.
To paraphrase from the movie, The Godfather, Buffett said that if a person or division loses money that he can forgive. Not every investment or undertaking will always be a winner.
However, tarnish the sterling reputation of Berkshire Hathaway and that he cannot forgive. From Buffett’s perspective, as I interpret it, Wells Fargo’s missteps were inexcusable. Moreover, the blame should fall squarely on the shoulders of the bank’s executive management.
Yes, Buffett made it clear that in any large organization there will always be employees who put their personal interest ahead of the organization they work for. In fact, Buffett said that while he was discussing the issue there was probably someone within the Berkshire Hathaway family who was guilty of it at that very instant.
My suggestion to that individual would be to never let Buffett find out about it. My impression was that such actions would mean immediate dismissal and that if Wells Fargo had been a wholly owned division of Berkshire Hathaway, Buffett would be recruiting a new management team after firing those he felt were directly responsible. To Buffett, loyalty cannot be questioned.
Another interesting point, and one that has been bothering me for some time is the seemingly conflicting statements between Buffett’s passion for index funds versus his investment strategy. It is a question I would have asked given the opportunity.
Buffett explained it this way. Yes, the wealth he will leave to his wife upon his passing is to be invested in an S&P 500 index fund. His reasoning is that it would provide her with ample funds for the rest of her life without her having to worry about the what and whys of Berkshire Hathaway shares.
Buffett also believes that many in the investment world are guilty of charging exorbitant fees with considerably less than commensurate returns.
This was followed up by John Bogle, founder of the Vanguard funds, as to the question; if everyone owned index funds there would be no financial markets.
Yes, this is true Bogle said. However, index funds currently represent less than 25 percent of the equity markets and the danger point would only come if that number climbed to 75 percent, which Bogle did not see happening for many years, if ever. Bogle thought that there would always be a demand for individual securities, particularly by large investors.
Mere words cannot do justice to ìThe Meeting.î My suggestion would be to purchase a class B share (BRK.B), recent price $164.86, attend next year’s festivities and immerse yourself in Buffett’s wisdom.
Lauren Rudd is a financial writer and columnist. You can write to him at LVERudd@aol.com. Phone calls accepted between 9 AM and 3 PM at (941) 706-3449. For back columns please go to www.RuddReport.com.