Berkshire 2010: Goldman, Tattoos, and Sissies

Follow the Inside Value team's real-time coverage of the Berkshire Hathaway meeting weekend at www.Berkshire2010.fool.com!

40,000 investors, dozens of questions, and two old billionaires. Welcome to the 2010 edition of the Woodstock for Capitalists: the Berkshire Hathaway (NYSE: BRK-A  ) (NYSE: BRK-B  ) annual meeting.

The meeting is best known as a forum for the dynamic duo of Warren Buffett and Charlie Munger to field a barrage of investors' questions. This year's meeting didn't disappoint, with questions ranging from driver safety to the story du jour: Berkshire's investment in troubled Goldman Sachs (NYSE: GS  ) .

Warren and Charlie spent hours answering these questions. For your viewing pleasure, though, I've condensed the key topics of the day as we witnessed them live from our view in the press box. Enjoy!

On Goldman: Goldman Sachs was the focus on numerous questions, starting with the first. They all ultimately boiled down to this: Did Buffett think Goldman was in the wrong, and he did regret his $5 billion investment in the company?

Many folks thought Buffett would take Goldman out to the woodshed. Think again. After laying out a detailed case that essentially argued that Paulson's counterparties weren't duped, just dupes, Buffett went on to say that, "we love the investment." He also expressed a great deal of confidence in Goldman CEO Lloyd Blankfein.

Frankly, Buffett's ambivalence was surprising considering his track record of holding his managers to the highest of ethical standards. Throwing a bone to those of us who aren't enchanted with investment bankers who pride themselves on ripping their clients' faces off, though, Munger commented that just because Goldman's actions were legal doesn't make them ethical.

On inflation: The outlook isn't great. Buffett commented that, "the prospects for significant inflation have increased. Not only here, but around the world."

Sure, the guys both think inflation poses a serious threat to investors. But keep some context. As Munger added, "If I can be optimistic when I'm almost dead, surely the rest of you can handle a little inflation."

Argue with that. Go ahead, just try.

On derivatives: There was a lot of buzz last week over Berkshire's supposed jockeying to prevent a clause from sliding into the financial reform plan that would have resulted in Berkshire's having to present more collateral against its derivative positions. But while Buffett did criticize such legislation, to Buffett, the bill currently reads such that Berkshire won't have to put up a dime. Buffett mentioned Coca-Cola (NYSE: KO  ) as an example of a long-term equity position that he could easily put up as collateral if need be.

On financial reform: Munger believes we need a new version of Glass-Steagall. As for how he'd go after financial reform, Munger said, "I'd like to make Paul Volcker look like a sissy." Do I smell a geriatric cage match?

On Greece: Munger described Greece as just the start of a very interesting situation. That's a whopper of an understatement. Neither of the guys knows how this movie ends, as Buffett put it.

On succession: Buffett's unnamed candidates to replace him all had bounce-back years in 2009 after disappointing results in 2008. Interestingly, Buffett commented that the current group of candidates has evolved since the original four were hinted at.

As for the next CEO of Berkshire, the smart money is on David Sokol. Sokol has been positioned publicly as a right-hand man for Buffett, who has recently stepped in and done a phenomenal job of helping right the NetJets airship. Another nugget: The scuttlebutt in Omaha echoes our read.

On debt vs. equity: One questioner with a wicked case of hindsight bias asked if Buffett regretted rolling with debt investments back in 2008 rather than equity, citing Harley Davidson (NYSE: HOG  ) . Buffett rightly pointed out that those fixed-income investments were made in a risk-adjusted context. Buffett also added that he likes "the kind of business where your customers tattoo your name on their chests."

On municipal defaults: Lots of folks are concerned about tight budgets and liquidity on the state level. Here's lookin' at you, Cali. Buffett, though, observed that it seems improbable that a Federal government that would bail out a General Motors or Chrysler would leave a state to dangle in the wind.

On market efficiency: Buffett believes that finding bargains is tougher today than in the past because of easier access to information. No matter how tough the competition among like-minded value investors becomes, though, Buffett believes "there will always be opportunities if you're not working with large amounts of money."

On Kraft: Buffett was pretty blunt on the subject of Kraft's (NYSE: KFT  ) recent wheeling and dealing: "We've made our share of dumb deals at Berkshire, so I've gotten more tolerant of other people." He still maintains that Kraft's shares are undervalued, joking that they are especially so if you use the same kind of valuation assumptions that Kraft used in valuing Cadbury.

Looking forward
Yesterday's session with Warren and Charlie is only the beginning -- we'll be attending their special press-only Q&A session this afternoon, along with a special investor presentation from a company widely dubbed as a mini-Berkshire: Markel.

You can follow our ongoing coverage of the rest of the Woodstock for Capitalists at www.Berkshire2010.Fool.com. It also isn't too late to join the thousands who've signed up to receive our trip dispatches delivered straight to your inbox. Registration is free.

Joe Magyer doesn't own shares of any companies mentioned in this article. Coca-Cola and Markel are both Inside Value recommendations. Berkshire Hathaway is a recommendation of both Stock Advisor and Inside Value. The Motley Fool owns shares of Berkshire Hathaway and Markel. The Motley Fool has a disclosure policy.


Read/Post Comments (11) | Recommend This Article (50)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 02, 2010, at 2:53 PM, BlackshearFund wrote:

    Buffett's reputation is unaffected.

    The majority of people will assail or assign some notoriety for one of buffett's many characteristics just because their is a disagreement on a particular issue. They expected Goldman to be 'taken to the woodshed' and are indignant at having anything less than their expectations met.

    I think it speaks volumes that buffett is willing to put his 'beyond reproach' persona at stake to represent what he really believes the situation to be.

    It's not like he needs more money. He's not building a dynasty - he's giving it all away. He lives modestly, and has shown a remarkable ability to distinguish his business dealings with his ethical standards.

    I salute you Mr. Buffett.

  • Report this Comment On May 02, 2010, at 6:29 PM, TMFJoeInvestor wrote:

    Buffett was just as emphatic today in reiterating his support and confidence today at an exclusive press Q&A that we attended as he was yesterday, btw. More to come on that in our final dispatch delivered in the next couple of days!

    http://www.fool.com/events/berkshire2010/

  • Report this Comment On May 02, 2010, at 8:53 PM, lutey wrote:

    I’ve been going to these Ann’l Meetings since the late ‘90s (when did the “B” shares come out?) and still am surprised to always learn something new. Warren must have the ability to hold conflicting ideas – his love for Obama and his distaste for big budget deficits.

    There were many Germans and Austrians around – I sat next to one. He went nuts when the subject of the Euro and the Greeks came up. I was in Germany in 1970 -- and the DeutchMark was 4.05 to the $US. (I had a friend who bought a NEW Mercedes 190SL for $7000) That changed in a hurry. Warren’s statements about “countries that can print money and borrow in their own currency” being better off (than Greece) and his warning about inflation both should worry the heck out of any BOND investors.

    Thanks for the Diet Coke, Warren!

  • Report this Comment On May 02, 2010, at 10:05 PM, susan400 wrote:

    :holding his managers to the highest of ethical standards. Throwing "

    absurd, goldman sells investments it doesn't know which will work out and which won't to think so is so off teh wall,you shouldn't be an investor.

    Something s wqork some don't.

    Susan400

  • Report this Comment On May 03, 2010, at 2:51 PM, plange01 wrote:

    this will be the last meeting with either buffett or munger present...

  • Report this Comment On May 03, 2010, at 7:30 PM, ATI2DE wrote:

    @ susan400

    Susan, would you mind repeating what you typed, but this time would you mind proofing it so that it might actually make some sense?

  • Report this Comment On May 04, 2010, at 8:05 AM, giacomo41 wrote:

    I get the feeling that Buffet's political affiliation is his private choice and he wants to keep it this way. In yesterday's interview by CNBC he avoided any comments directed against or for the administration while he totally sided with Goldman and its CEO.

  • Report this Comment On May 08, 2010, at 6:04 PM, gnorton100 wrote:

    I will argue with the article's line:

    'As Munger added, "If I can be optimistic when I'm almost dead, surely the rest of you can handle a little inflation."'

    Munger is a multi Billionaire.

    If he's "almost dead", why should he worry?

    If inflation goes up to 1200%, it will mean nothing to him.

    He can't spend all his money in a lifetime, let alone when he's "almost dead".

    And once he's dead, nothing will matter to him.

    I used to believe that BRK would take me down the road to financial happiness based on the theories the Buffett followed.

    The theory that I remember most is "Don't invest in anything that you don't understand".

    With that theory in mind and BRK having $5 Billion sunk into Goldman, I think I understand.

    Buffett knew exactly what Goldman was doing and worked with his big money friends to make a killing at the expense of everyone else.

    I had planned on buying a bunch of BRK-B, but from the comments of Buffett and Munger, it seems like their insight on business dealings and ethics might be getting a bit ...

    to be kind, shall we say "blurred"?

  • Report this Comment On May 12, 2010, at 4:15 PM, JAlexandratos wrote:

    @Blackshear Fund: You said that Mr. Buffett "has shown a remarkable ability to distinguish his business dealings with his ethical standards."

    Your statement is written in an unclear manner. Are you saying that Mr. Buffett separates his business dealings from his ethical standards? Or are you saying that both his ethics and his business dealings are "distinguished" i.e. positive. I assume you mean the first, not the second.

    If you must draw a line between your personal and business ethics, that means your ethics are for sale. In that case, I would not trust such a person personally or professionally.

    I understand that Mr. Buffett is a skilled negotiator, and such a businessman does not disclose information to the other party in a deal unless legally required. That is different from actively telling a lie.

    Goldman Sachs marketed as a growth investment some items which it believed to be ready to drop in value. They were specifically selected to be overvalued and ready to fall. Goldman Sachs' defense is, essentially, "caveat emptor". While the language used in the marketing and contracts technically may not be fraudulent, the total lack of ethics inherent in the situation makes the firm unethical. What is worse from their point of view, is that they now appear to be unethical in public.

    The major companies in the financial industry spend a lot of money marketing themselves as being trustworthy and reliable because they want a good reputation... so people trust them with our money. No, thank you. That expensive ad-driven reputation is now clearly revealed to be undeserved, even to the most gullible of people.

    Mr. Buffett is not gullible, but he does have a conflict of interest. If Goldman Sachs loses reputation and then money, then he loses both as well. In this case, I agree with Mr. Munger but not Mr. Buffett. They are both exemplary investors and businessmen, but they never said they were ethics experts (just fallible human beings like everyone else). In Mr. Buffett's case, perhaps he needs an... umm, administrative assistant who whispers in his ear "Remember that you are human".

  • Report this Comment On December 23, 2010, at 5:28 PM, Merton123 wrote:

    We are projecting our own definitions of good and bad on poor Warren Buffet. He has done a spetacular job in asset allocation and is now giving away most of his money through the Gates Foundation. His lessons to us are - do your own research; have fun in what you do; and remember that friendship is the most precious of commodities. Mert

  • Report this Comment On February 28, 2012, at 10:45 AM, BarneyRubbel wrote:

    How quickly we forget... the Democrats left a budget Surplus and the republicans ran up a huge war tab that we, and our children, will be dealing with for years. I'm sick and tired of people blaming Obama for the debt problem, its just not true.

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