May 4, 1999

Pilgrimage to Omaha:
Dispatches From the "Woodstock for Capitalists"
Part 2

by Yi-Hsin Chang (TMF Puck)

OMAHA, NEBRASKA (May 4, 1999) -- A fun and eventful 1999 Berkshire Hathaway (NYSE: BRK.A) annual shareholders meeting weekend has come to a close, and even though I've only spent 2 1/2 days in Omaha, I feel like I've been here for at least a week. I guess that's what happens when you compress so much activity and so much brain food into a short period of time.

I've had a great time and learned a great deal about Berkshire and its shareholders, and about Warren Buffett and Charlie Munger and their philosophies on investing. I'll now pick up where I left off in my first dispatch from Omaha...

Mega Mart

On Sunday, May 2, around 10:15 a.m. I drove down to the Nebraska Furniture Mart on 72nd Street. While I had marveled at its size driving by on Saturday, I had no idea that I had only seen one of the several huge buildings on the sprawling 75-acre site, with more than half a million square feet of retail space. It was easy to see how this was easily the largest home-furnishings store in North America. Imagine the size of three Costco stores all in one location, just counting the retail area.

The parking lot itself is big -- it's marked with signs lettered A through L like some amusement park. I could make out at least four distinct warehouse buildings, including a large warehouse in back with some 60 loading docks and another smaller warehouse connected to Mrs. B's Clearance & Factory Outlet (Mrs. B founded the Furniture Mart in 1937) and the Outdoor Living Superstore.

The main building of the Furniture Mart looks modern, like it has been recently painted and renovated. This is the building with a wide selection of traditional home furnishings -- everything from living room sets, to recliners, dining room sets, carpets and bedding sets. "Nobody Sells More for Less! Guaranteed," the price tags touted, and I believe it. There were lots of high-quality leather couches for $1,100-$1,200, for instance.

I saw an art deco chair I liked that cost $784 at retail and was regularly priced at $399.99 marked down to $359 on sale. Throw in the 10% shareholder discount (same as the employee pricing) during the annual meeting weekend, and it's practically a steal.

Mega Mart!!
Naively, I was surprised to find a gigantic yellow warehouse separate from the main building that featured nothing but electronics and appliances. It's called the NFM Mega Mart. It was like Best Buy except with a wider range of products and incredibly bold and creative signs and decorations hanging from the ceiling -- like gigantic glimmering CDs marking the music area, a Mario Brothers figure in the games area, and dozens of TV screens with moving images.

There was a theater featuring a huge HDTV on display, a large music listening bar, a computer training lab and an Internet service station sponsored by Cox Communications where you could surf the World Wide Web for free. The Mega Mart felt more like a well-designed electronics convention show than just a regular store. I wondered how the Circuit City across the street stayed in business. I mean, this takes the term category-killer to a whole new dimension.

As I was leaving -- I didn't even have enough time to browse through the entire store or the factory outlet -- I noticed signs that said Warren's son, Peter, a musician, would be in the music department between 3 p.m. and 4 p.m., presumably to autograph CDs, including his latest, just-released album called "Spirit."

Putting on the Ritz

Around noon, I headed over to Borsheim's, Berkshire's high-end jewelry store. Normally closed on Sundays, the store and the mall it's in were basically open only to Berkshire shareholders. The place was packed. Borsheim's hosted a day-long reception with plenty of food for all -- a small gesture considering that this one day every year right before the shareholders' meeting is by far Borsheim's busiest and highest-revenue day, garnering at least 5% of the store's annual revenues.

It was strange to see a high-end jewelry store so crowded with people. There were three models in black evening gowns lounging on various display counters wearing Borsheim's jewelry. It was like Breakfast at Tiffany's meets your local state fair. You could barely move through the 45,000-square-foot store, the same place where Bill Gates had bought an engagement ring for his wife Melinda several years back.

The most popular items had to be the Berkshire-related products, namely the Berkshire watches and a glittery green Christmas ornament shaped like the company's symbol, a fist full of dollars. Also available were gold or silver fist full of dollars cuff links, and a silk scarf and tie more reminiscent of Hermes than Berkshire Hathaway -- I just can't picture the notoriously rumpled and conservatively dressed Warren Buffett wearing one of these stylish ties, nor Charlie Munger for that matter.

Here at Borsheim's, it was obvious that the shareholder meeting was a family event. Many shareholders brought their young kids. One woman whose husband was carrying their sleeping nearly newborn baby claimed that the baby was Berkshire's youngest shareholder. At the other end of the spectrum, there were plenty of older, retired folks milling around the store and mall.

Warren popped in for a quick appearance, playing his favorite game of Bridge for all to see. Throughout the weekend, Warren made a clear effort to at least show up at all the planned events and activities. After all, he, too, is a shareholder -- the company's biggest, in fact.

Borsheim's passed out catalogs as well as mouse pads featuring a large diamond and ruby floral pin and, more importantly, the store's new website address: www.borsheims.com. The site will open for business sometime in May.

Up Close With Warren & Charlie

Around 1:30 p.m., I made my way over to the Marriott hotel adjacent to Regency Court to grab a good seat for the 2 o'clock press conference with Warren and Charlie. There were about 50 to 60 journalists representing publications from as far as Japan, Germany, and the U.K. Not surprisingly, the refreshments table featured only Coca-Cola products, including Warren's favorite, Cherry Coke, which he later drank straight from the can during the press conference and Monday's annual meeting.

After Warren and Charlie took their seats behind a table on a raised dais, we all began snapping pictures. Warren joked, "If you can make him smile, you get a prize." The remark itself actually did the trick and made the usually stone-faced Charlie crack a smile. Believe it or not, Warren opened the press conference by introducing himself, "I'm Warren Buffett, chairman of Berkshire Hathaway, and this hyperactive fellow is Charlie Munger, the vice chairman..." In my mind, it's as if President Clinton started a press conference by saying, "I'm Bill Clinton, president of the United States of America..."

I'll mention more about Warren and Charlie's comments in a follow-up piece on what all was said, but they -- and when I say "they," I primarily mean Buffett because Charlie is famous for his short and often nonexistent remarks -- they graciously answered questions for 2 1/2 hours. Each reporter essentially got to ask one question.

Not surprisingly, Buffett gave no real, concrete answers to questions about the economy, about the valuation of the stock market, and about specific investments -- such as his decision last year to sell Berkshire's stake in McDonald's (NYSE: MCD) and possible investments here or abroad. He and Munger reiterated their aversion to high-tech companies, which they believe are outside of their "circle of competence," or area of expertise, though Buffett did stress the importance of the Internet and its impact on businesses today and in the future.

I asked Buffett about one of my favorite companies, Costco (Nasdaq: COST). I asked why Berkshire had not made a bigger investment in the discount warehouse club especially considering Charlie's involvement on Costco's board of directors. I mean, was it a mistake of omission? Warren's response: "Yeah, you hit on a good one here. We should've owned more Costco, and probably if Charlie had been sitting in Omaha, we would've owned more Costco.... Charlie was constantly telling me about this terrific method of distribution, and after 10 years or so I started catching on to what he was saying, and we bought a little bit of Costco at Berkshire.

"We actually negotiated to buy more. I made there the most common mistake that I make.... We started buying it, and the price went up, and instead of following it up and continuing to buy more -- if Costco had stayed at $15 a share or so, where we were buying it, we would've bought a lot more. But instead it went to $15 1/8, and who could pay $15 1/8 and when they'd been paying $15 -- it wasn't quite that bad. I have made that mistake a lot of times, and it's very irritating."

Charlie added: "I'm such an admirer of the Costco culture and the Costco system that I'm not sure I'm totally rational. I love the place. That isn't so bad in life, to find a couple of things you love."

Next -- Dinner and the Meeting