We're now moving into the meat of the Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) shareholder-meeting weekend -- the Q&A session with Warren Buffett and Charlie Munger. If capitalism were to spawn a rock band, and that band were to perform a concert, it would look a lot like the way Buffett and Munger looked on the riser here in Omaha's Qwest Center as they took questions from the audience.
On private equity (again!)
I figured there'd be more on private equity in addition to the question that I posed to Buffett early this morning, but I didn't figure it'd be the very first question! I guess that just goes to show the amount of mindshare that private equity is gobbling up these days.
The questioner, noting that private-equity managers are chasing all kinds of deals -- some of questionable quality -- and using a lot of leverage, asked Buffett what he thought could burst this bubble and what will happen when it does pop.
Buffett quipped that the scenario presented in the question nearly brought him to tears and pointed out, just as he did to me, that Berkshire has to compete with many of these firms to secure the large acquisitions that it wants to get done. But he added that the private-equity phenomenon really doesn't lend itself to the bubble-bursting analogy. Because the money is tied up for long periods of time and there's no easy scorecard with which to check in on the value of the acquisitions, he said, it could take quite a while before investors become disillusioned with the private-equity industry.
Buffett, though, does seem to think that disillusionment will eventually come and that the money spigot will get twisted at least a couple of turns downward. He also pointed out that spreads on junk bonds versus high-grade bonds are very low, and if that spread widens, it will likely slow down the rate of private-equity activity we see now.
On investing overseas
Another shareholder wanted to address Berkshire's overseas investing record. This speaker argued that are plenty of great stocks and businesses outside the U.S. and that they can typically be had for a discount versus what a similar business would cost here.
To illustrate that he doesn't have anything against investing internationally, Buffett began his reply by saying he bought his first overseas stock 50 years ago. He then said that while the company hasn't marketed itself as an acquirer in other nations as much as it has here in the States, that approach is changing.
Berkshire, of course, recently acquired Israel's Iscar. And in terms of publicly traded stocks, Buffett pointed out that his company does own shares of overseas companies. He specifically pointed out POSCO (NYSE: PKX), a South Korean steelmaker, though PetroChina (NYSE: PTR), the stock that's been causing Berkshire some grief in regard to the Sudan situation lately, is another example. Buffett also said that Berkshire owns a good deal of overseas stocks that it isn't required to disclose. As always with his holdings, Buffett prefers not to show his cards unless required to do so.
While Buffett and Munger play their overseas stocks close to the vest, Bill Mann, a Berkshire shareholder who unfortunately couldn't be at the meeting today, doesn't. He heads up The Motley Fool's Global Gains service and recommends some of the world's best international stocks for his subscribers.
Go back to Matt's original report to keep up with the news as it unfolds from the annual meeting.
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Fool contributor Matt Koppenheffer does not own shares of any of the companies mentioned. You can visit Matt on the Fool's CAPS service, or check out his CAPS blog. The Fool's disclosure policy always enjoys a good Omaha steak.
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