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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.
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.