Berkshire 2012: Prostates, Gold, and Jealousy

Warren Buffett and Charlie Munger don't much care what you think -- and that's why we love them. Berkshire Hathaway's (NYSE: BRK-A  ) (NYSE: BRK-B  ) chairman and vice-chairman are straight shooters who, once a year, captivate 30,000-plus investors at their annual meeting's marathon question-and-answer sessions. This year's performance was a gem -- all the more impressive with the high-stakes questions surrounding Buffett's health and a post-Buffett succession strategy.

You can read along with our coverage of the Berkshire experience, including our live blog of the Q&A. Or, if you wit and snark in concentrated doses, enjoy the following highlights.

On how Warren feels: Several questions went by before Andrew Ross Sorkin muscled up and asked the question on everyone's mind: "How are you feeling?"

"I feel great," Buffett said. "I love what I do. I work with people I love." And it showed. He was full steam ahead the entire day and demonstrated the wit and passion that made him famous. Anyone walking in with doubts about how Buffett feels walked out relieved that Berkshire's chairman is going strong.

On succession: Buffett didn't budge on not showing his cards when it comes to his successors. He did give glimpses of a tell, though, when he piled on the praise for lieutenant and close confidant Ajit Jain, who was definitely the smart-money pick as the next CEO of Berkshire Hathaway. But today's hammering home of Ajit's value is as clear a signal as we'll get from the close-to-the-vest Buffett.

On Buffett's edge: Buffett was prodded on whether a post-Buffett Berkshire could keep landing sweetheart deals such as the Bank of America (NYSE: BAC  ) investment without the Buffett brand. While the perception of a Midas touch helps, Buffett pointed out, "These [sweetheart] deals were just peanuts compared to the value created by buying businesses like Geico and BNSF." He also pointed out that part of the reason Berkshire lands such deals is its fortress-like balance sheet, which should be a staple of Berkshire's culture long after he's moved on.

On tech stocks: Buffett and Munger were asked about whether they would invest in Google (Nasdaq: GOOG  ) or Apple (Nasdaq: AAPL  ) . Not surprisingly, they're passing. Both Buffett and Munger think Google is an outstanding business, but they don't believe they have any ability to project where the businesses are headed over the years. Unlike most high-minded value investors responding to tech stocks -- including me -- there was no smugness. They replied with a tone that would fit a question on whether they could predict next Friday's temperature.

On buying well and knowing limits: Buffett: "If you buy businesses for less than they are worth, you're going to make money. If you know which businesses you can and cannot value, you're going to make money."

On mindless repurchase programs: Munger: "Some people buy back their stock regardless of price. That's not our system."

On Berkshire's intrinsic value: A hot topic. Buffett echoed comments from his shareholder letter -- "Fair value is significantly above 110% of book value." With Berkshire's stock selling for about 115% of book value, suffice it to say that he thinks the stock is cheap today. Buffett even went so far to say, "If I could buy a whole lot of Berkshire stock at a slightly higher price, I'd probably do it."

On beauty: Buffett: "The beauty of stocks is they do sell at silly prices sometimes. That's how Charlie and I got rich."

On a Berkshire dividend: Buffett: "I do not think a dividend would be a plus in terms of getting the share price up to [fair] value -- in fact, it might be quite the opposite."

No joke. Buffett has an unmatched track record of capital allocation. If there's a question of who should reinvest that marginal dollar of capital -- individual Berkshire shareholders or Buffett himself -- I think the latter wins the benefit of the doubt. Berkshire shouldn't pay a dividend until its resident master investors have retired.

On tapeworms: Buffett: "Medical costs are the tapeworm of American industry."

On can-kicking: Munger: "Everyone wants fiscal virtue -- but not quite yet."

On gold: Buffett and Munger are pretty outspoken critics of investing in gold. They prefer productive assets over hunks of metal. As Buffett said: "When we took over Berkshire, gold was at $20, and Berkshire was at $15. Gold is now at $1,600 and Berkshire is $120,000." Burn.

On oil and gas: Buffett: "If you told Charlie and me that you'd have a 50:1 ratio of oil to natural gas, I think we'd have asked you what you were drinking."

On declines: An audience member asked how to value declining businesses. Munger: "They're not worth nearly as much."

On sympathizing for Warren's health: Munger: "I resent all this sympathy and attention Warren is getting."

On keeping up: Munger: "I probably have more prostate cancer."

On disagreement: Buffett was challenged by an audience member on whether his political engagement is hurting Berkshire's stock. The audience member cited his 84-year-old father who refused to invest in Berkshire because of Buffett's stance on taxes.

"It's fine if people disagree with us," Buffett says. "It sounds to me that if that an 84-year-old man is making a decision on his investment based upon his politics, he belongs on Fox." 

On causing offense: Buffett: "Anyone we haven't offended?"

Me: Thanks for another great show, fellas.

Joe Magyer owns shares of Berkshire Hathaway and Google. The Motley Fool owns shares of Google, Apple, and Berkshire Hathaway. Motley Fool newsletter services have recommended buying shares of Apple, Google, and Berkshire Hathaway and creating a bull call spread position in Apple. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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  • Report this Comment On May 06, 2012, at 3:14 AM, TMFAleph1 wrote:

    Not too many people paraphrase St. Augustine to comment on fiscal rectitude!

  • Report this Comment On May 06, 2012, at 8:44 AM, dwilh51183 wrote:

    Warren Buffett just doesn't want to admit he really blew it by not investing in AAPL. Had you put your money in his stock you gained 15% for the last 5 years! Had you bought AAPL stock for past 5 years , you made around 70 % return each year. Bottom line :Buffett has prostate cancer and probably Alzheimer's too. His mind is not even as close to sharp as it used to be. AAPL still is a great stock and a cheap stock. You mean Buffett doesn't understand a billion dollars in sales every 2 days. He doesn't understand profits of $12 per share when analysts were expecting $9 per share. He doesn't see people all over the world w iPhones in their hands. He doesn't see every motion picture w an MacBook pro in the movie. I told you, Buffett is hard headed and doesn't want to admit he's losing his mind. AAPL is a much better stock than IBM or Pepsi ,or his coal stocks or railroads. AAPL is changing the world for the better

  • Report this Comment On May 06, 2012, at 11:26 AM, DeltaGary wrote:

    You're misunderstanding Buffett's point.

    He made no claim as to whether Apple would go up, down, or sideways in the future. In fact, he did the opposite: he said he is not qualified to make that claim. And that's been the story of his investing success: if he doesn't know what a stock is worth, he doesn't invest in it, even if that means he gives up tremendous upside. This approach is a little stodgy for my own tastes, but until I start making his returns, I'll avoid criticizing his approach.

    As far as your claim that Buffett is suffering from Alzheimer's, I simply can't believe that someone who is able to sit on stage for an entire day and firing quip after quip would meet the diagnostic criteria for dementia. He is stubborn, but that stubbornness has made shareholders a boatload of money over the years. If someone tries to cure him of that, I'm selling.

  • Report this Comment On May 06, 2012, at 11:34 AM, tbonci wrote:

    You need to take a perspective of someone whose investing strategy is "buy and hold, forever."

    Tech stocks are very much in-the-moment. They live or die by continued innovation. That is, they have to forever be doing the next big thing first and/or best.

    Stocks like Pepsi are very different. They success by doing the same things over and over, and making small tweaks to a very well-worked, comfortable brand. Being able to understand and predict a market like that is very different from something like a tech market.

    Buffet only got into IBM after it had proven over many years that it can change its business model to be something more sustainable than the standard tech company. By moving in a service-oriented direction, the stability of its business shifted further away from the Apple model and more towards the Pepsi model.

    It's not hard-headed to avoid tech stocks if it doesn't fit with your investment plan. The Buffett investment plan is on a timeline of forever, which makes integrating a stock like Apple difficult, since it may lose its place as #1 innovator is 15 or 20 years.

    (That being said, I own AAPL stock, and I have it in my CAPS with an outperform call set at 5 years.)

  • Report this Comment On May 06, 2012, at 10:37 PM, SN3165 wrote:

    @dwilh51183, You sound like a cheerleader for Apple. Do yourself a favor and sell the stock at this high while you have the chance. It's been a nice run.

  • Report this Comment On May 06, 2012, at 11:05 PM, buffalonate wrote:

    I wouldn't trade my Berkshire stock for Apple stock. In 10 years Apple will be a has been and some other company will be the rage. Just ask Palm, RIMM, Motorola. I might be interested in Apple if they would purchase some businesses that would diversify their company.

  • Report this Comment On May 07, 2012, at 9:25 AM, tminister wrote:

    I find it somewhat hypocritical that Mr. Buffett continues his dialog about the rich paying more taxes when he is involved in a battle with the IRS over one billion dollars in back taxes he hasn't paid.

  • Report this Comment On May 07, 2012, at 10:58 AM, BigBadTroll wrote:

    Buffet is a brilliant guy and all, but I wish I'd bought Apple when I bought Berkshire.

  • Report this Comment On May 07, 2012, at 11:52 AM, setht23 wrote:

    @tminister

    From everything I've read the tax battle is BRK vs IRS not Buffett vs IRS. There is a big difference between the two. He has said he wants to pay a higher personal income tax, if the IRS battle was about his personal money he would be a hypocrite. However as CEO of his company it is his responsibility to protect his shareholders and create value. It is his job to keep profits as high as possible, obviously part of that entails keeping the tax bill as low as possible. If I were a BRK shareholder I would appreciate him fighting to make me money.

  • Report this Comment On May 07, 2012, at 11:54 AM, SolarInvestor wrote:

    I'd love to hear that guy's dad: "I'm not investing with the most successful investor ever because he thinks everyone should pay the same percentage of their income in taxes!" Can you say that with a straight face?

  • Report this Comment On May 07, 2012, at 12:01 PM, Gary06 wrote:

    tminister, I don't find it hypocritical at all that BERKSHIRE would battle the IRS over back taxes, as that is their fiduciary duty to their stockholders. By the way, they did this a while back on a long-standing dispute and won, so don't automatically assume the IRS is correct.

    It is quite another thing for Warren Buffett to personnally propose higher personal income taxes. That is separate from Berkshire.

  • Report this Comment On May 07, 2012, at 3:53 PM, Calimesa wrote:

    @ tminister, setht23, and Gary06

    Re: Personal taxes. I think if Mr. Buffett and President Obama really wants to pay their "fair share" of taxes they would but like everyone in the country they don't want to. I think anyone who says they should pay more taxes is FOS when they have the ability to do it right now but don't. I say they have the ability to do it right now because they don't have to claim all those income deductions when filing their taxes. Claiming income deductions thus reducing their income tax rate to less than 20% is a personal choice and both of these individuals (Mr. Buffett and President Obama) have chosen to take the deductions.

    I have BRK-B stock myself so I'm not against Mr. Buffett as a business man but when wealthy people say they should pay more personal income taxes and don't, then I think they are FOS.

    Mr. Buffett and President Obama should lead by example and amend their 2011 Income Tax filing to remove all income deductions and walk their talk by paying their "Fair Share."

  • Report this Comment On May 07, 2012, at 5:43 PM, nin4086 wrote:

    @Calimesa

    Disagree. If they believe in higher taxes, the reason is that they think there will be a positive impact on the nation's finances. Voluntary "donations" from 2 people to IRS will not change anything. It becomes useful only when it applies to everyone.

    Infact, I prefer that they donate to good charities and take deductions instead of giving the money to IRS as Uncle Sam does not have a good record of using that money well.

  • Report this Comment On May 07, 2012, at 5:59 PM, Billmcg7 wrote:

    What if the market place is shifting ,redesigning itself,so fast that Warren and Charlie can't keep up? Perhaps the current administration and social/economic enviroment is at the cusp of major change?

    Could it take wiz-bang young/bright minds to deal with all this. Change ?

  • Report this Comment On May 07, 2012, at 6:35 PM, hammer112 wrote:

    Everybody is always so enamored with Buffet yet the one year return on BRK/B is 2.93% with 1.89% of that being today's gain. Not so good considering the market gains over the last several months.

  • Report this Comment On May 07, 2012, at 7:07 PM, haysdb wrote:

    You are blaming Mr Buffet for the price of Berkshire stock?

  • Report this Comment On May 07, 2012, at 10:03 PM, DrewP921 wrote:

    For those that speak about paying a "fair share" of taxes, wouldn't it make sense that everyone begin to pay taxes? Why should someone that has more money and has worked hard to earn it, have to pay more to support the a big percentage of people who do not pay at all? Self entitlement is rampant and there should not be guarantees in life... unless you yourself pay for them.

  • Report this Comment On May 07, 2012, at 10:06 PM, zpoet wrote:

    Hammer112, I hope you are joking? Comparing BRKs stock price to the market over a period of 1 year is the most idiotic thing I could imagine. Berkshire is a powerhouse that will be around, if guided properly (I'm sure Buffet has chosen competent successors), could be around for 100 more years.

    Of course this is a long window, but Berkshire has so much in assets, let alone their investments in IBM (which will lead the next era of supercomputers), Coke (not going away anytime soon), and countless other brilliant companies. BRK in itself is a "mutual fund" per se, and even their purchase of BNSF will allow them to profit from wild upswings in gas prices as their railroads will run the country.

    Stating BRKs stock price gain for this 1 year and comparing it to Buffet's waning intelligence is the stupidest thing I have ever read.

  • Report this Comment On May 07, 2012, at 11:07 PM, BxBruce007 wrote:

    "Why should someone that has more money and has worked hard to earn it, have to pay more to support the a big percentage of people who do not pay at all?"

    Because they don't have the money to pay. Did I really have to answer that one? And, no one pays zero taxes. Even the poor have to pay sales tax, excise taxes, payroll taxes and numerous other levies.

  • Report this Comment On May 07, 2012, at 11:33 PM, Calimesa wrote:

    @ nin4086

    That's the point isn't it? People complain about the wealthy not paying their "Fair Share" when they are actually doing just that. The system we have that they (complainers) use to their full advantage is how the wealthy pay an effective rate of 20% or less. They get that "effective" rate because they donate a lot of their income thus getting a big deduction. Raising the rates could result in loss of millions of $$$ in donations that help those who need it most, a lot of them being the complainers.

    @ BxBruce007

    What DrewP921 was saying is that there are a ton of people who don't file income tax returns at all every year.

    The problem we have is not income taxes, it is the Fed, our elected officials in the White House and Congress not looking out for the country. They have become a self serving organism that cares only about themselves. They want POWER and damn all else that gets in the way.

  • Report this Comment On May 08, 2012, at 5:18 AM, miclombardo wrote:

    Today 112 years ago Benjamin Graham was born Benjamin Grossbaum in London, UK.

    It was a good day for us all.

  • Report this Comment On May 08, 2012, at 8:32 AM, SAMSCREEK wrote:

    @Calimesa

    I completely agree with you. Mr. Buffett

    may be a great investor, but i think he is full

    of B.S. He runs around the country telling

    everyone, "don't do as I do, do as I say"

    concerning income taxes. He takes full advantage

    of the tax laws, But, I don't blame him for that,

    because it's there for him to use. I do blame him for the double standard he speaks.

    @nin4086

    Buffett probably doesn't write extra checks to

    the treasury because he to, doesn't like who is spending the money, and what they spend it on.

    Our congress has become so self serving on the

    things that our tax dollars are spent on, mostly to

    insure their reelection.

    I am a conservative, unlike Buffett, and I think it's

    time for this country to take a step back, reevaluate all expenditures, cut out all wellfare

    programs, and start from scratch again.

    I know way too many people who are sitting home on their butts, drawing unemployment, SS or

    other wellfare checks.

    Well, I guess I pulled out my soap box. Just had to say it tho.

    Tom

  • Report this Comment On May 11, 2012, at 12:15 PM, PoundMutt wrote:

    I remember a study on the internet that showed CONFISCATING ALL ASSETS AND INCOME of US millionaires and billionaires would fund US Federal expenditures for LESS THAN ONE YEAR! THEN what do they do? AND what would happen to YOUR investments?

  • Report this Comment On May 11, 2012, at 1:06 PM, whyaduck1128 wrote:

    haysdb--Buffett gets all the credit for Berkshire's success and stock price (and clearly revels in all the attention), so why should he not get the blame when the stock stagnates? It cuts both ways.

  • Report this Comment On May 11, 2012, at 2:04 PM, sodaonroy wrote:

    Nobody gets it, or if they do, they are not saying it on a Berkshire dividend. He has willed the bulk of the stock to the Gates foundation. Foundations spend money. They don't just sit and accumulate assets and wealth. I am sure they don't want to have to turn around and sell all those shares. They want income generating investments. Dividend is guarnteed after the masters are gone.

  • Report this Comment On May 11, 2012, at 4:00 PM, foolishlew wrote:

    samscreek

    "people who are sitting home on their butts, drawing unemployment, SS or

    other wellfare checks"

    You completely lost all credibility when you included ss(Social Security) in the category of welfare. If you happen to survive long enough to 'grow up' and find yourself able to collect your own benefits which you pay dearly for IF you work for a living, you will no doubt change your mind. The SS system has become a means for the government with a liberal mentality to steal from the working class and give to the liberal non-working. Having gotten to the point of collecting that benefit does NOT put you in the category of those bloodsucking non-workers.

    As far as Buffett's "don't do as I do, do as I say".

    You or most others don't really KNOW what he says or does because all you look at is what is taken out of context and fed to you. The mental processes that Buffett and his team go through are too complicated to be conveyed to the public even if they were anyone's business. All you can really do is look at the bottom line numbers that show what he and his company have accumulated and how much is paid in taxes and given to charity. Those amounts can't even be comprehended by most of us.

  • Report this Comment On May 12, 2012, at 8:55 AM, SAMSCREEK wrote:

    @ foolishlew

    As far as the Social Security issue, I was referring

    to Social Security disability, which I didn't spell out

    for the comment. I did survive long enough to draw

    ss, and believe me, i'm all "grown up".

    As for the Buffett issue, I see Becky Quick interviewing Buffett on CNBC, I see news segments on American Barack Channel (ABC)

    National Barack Channel (NBC) and Continental

    Barack Channel (CBS) and they report the same statements made by Mr. Buffett. Try watching

    Fox News Network sometime for real, fair and balanced news.......

    Mr. Buffett is truely a "don't do as I do, do as I say"

    person, about his personnal income taxes.

    But, hey, everyone is entitled to his/her opinion.

  • Report this Comment On May 12, 2012, at 3:50 PM, donvesco100 wrote:

    MF is the home now of the hypocritical liberal, with hero worship for celebrity and forgiveness toward all the apologists of the present mismanagement. Let's all have a cheer for Nancy Pulosi for her sound financial policies which have allowed Buffett to apologise and remain out of prison while profiteering on crony capitalism( fascism). Whooopeeee. No new jobs. Lots of new taxes, cloth caps for all (except designated donors, over a million dollars let's say...)

  • Report this Comment On May 14, 2012, at 12:58 AM, lowmaple wrote:

    I read a comment on one of these posts that many middle income people don,t pay much total tax after loopholes. So should all those people pay all that money along with Buffet? That way the debt would not increase that quickly. Of course there goes your unemployment numbers.

  • Report this Comment On May 21, 2012, at 3:50 AM, thidmark wrote:

    Buffett and every other billionaire could turn over their entire fortunes to the government and it wouldn't make a damn dent in the federal debt.

    I'll be happy to pay more taxes when the 535 clowns in D.C. exercise some fiscal sanity. Until then, they can kiss my a--.

  • Report this Comment On April 22, 2013, at 3:59 AM, TMFJoeInvestor wrote:

    Incidentally, Berkshire's shares up are 30% since the 2012 annual meeting while Apple's have fallen by 30%.

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