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Warren Buffett and Charlie Munger both dole out a number of quotable responses at every Berkshire Hathaway (NYSE: BRK-A ) (NYSE: BRK-B ) annual shareholder meeting -- some funny, and a few deeply surprising.
On the amusing side, Warren Buffett's analysis of Harley Davidson (NYSE: HOG ) -- "[I like] the kind of business where your customers tattoo your name on their chests" -- caught the 35,000-plus attendees at the Qwest Center off-guard. However, Buffett and Munger are better known for their in-depth responses to questions of all kinds, many going well beyond the broad discussions in the company's fabled annual reports.
Below are four areas of conversation that either provided new understandings of the pair's thought process, or just plain shocked the Fool analysts in attendance:
1. Buffet defends Goldman? -- Philip Durell, Inside Value advisor
I expected Warren Buffett to be on the defensive over the SEC's civil charge and subsequent Manhattan U.S. Attorney's Office criminal investigation, both of which accuse Goldman Sachs (NYSE: GS ) of fraud. So I was stunned by his response, which I've paraphrased below:
I think the transaction has been somewhat misrepresented by the media. There were four losers in the Abacus deal, including Goldman, who lost about $100 million ... We are often brought business and asked to insure bonds, but we don't care who is on the other side of the trade. It could be Ben Bernanke or John Paulson for all we care. It's up to us to decide whether we want to insure the bonds, and what premium we'll accept. ... No one should care who is on the other side of the deal.
(Those are my notes -- not a direct transcript.)
At the press conference, Buffett and Munger went further, saying they had no problem with Abacus deal as laid out in the SEC's complaint. Charlie Munger stated that Goldman had the greatest ability and morality among investment banks (faint praise!), and that jumping all over Wall Street's best was stupid. Munger laid the blame for the derivatives mess squarely at the feet of the regulators, whose lax rules led to a dysfunctional system. He said it's insane to blame an escaped tiger for its actions, when its poorly made cage and neglectful keeper are the real culprits.
I don't think Goldman is as pure as Munger and Buffett's comments suggest. True, Goldman wasn't acting in a fiduciary capacity in the deal in question. And I agree that government and regulators' constant railing against the banks is just an easy way to deflect public opinion away from their own culpability. Still, Goldman knew it was selling toxic waste. If the bank won't hold itself to a higher standard, we should.
2. Buffett explains why he hated chocolate and loved pizza -- Andy Louis-Charles, Inside Value analyst
During the meeting, Buffett once again railed against a specific portion of the Kraft-Cadbury deal that still appears to irk him: Kraft's (NYSE: KFT ) sale of its frozen pizza business to Nestle. Buffett pointed out that while Kraft claims to have sold the business for $3.7 billion, the company really only pocketed approximately $2.5 billion after taxes. He further dinged Kraft for not completing a much more efficient sale, citing the company's ability to do so in the past, as when it sold Post Cereal to Ralcorp (NYSE: RAH ) .
Buffett pointed out that the frozen pizza business had approximately $340 million in pre-tax earnings in 2009. Furthermore, it was growing at a healthier clip than the chocolate business. Given Buffett's lack of enthusiasm about the Cadbury sale in the first place, his cold shoulder about Kraft's decision to toss out its frozen pizzas probably won't thaw anytime soon.
3. Berkshire's new investing future? -- Eric Bleeker, Fool.com editor
Berkshire's stake in rechargeable-battery maker BYD came up several times during the meeting. Given their past aversion to the sector, many investors wondered what caused Buffett and Munger's change in heart regarding investments in advanced technology.
In response, Munger said it's fair to say that he "bragged about avoiding cutting-edge new technology," but that he and Buffett are still learning, and that the BYD buy-in is not the "last unusual thing Berkshire will do." The most important aspect of BYD for Munger is that in the company's leadership, they'd "found their own kind, except better."
An interesting subplot of Munger's answer was the emphasis he placed on David Sokol's involvement in the deal. Sokol runs MidAmerican Energy (the Berkshire company that made the BYD investment), but he's also considered a top candidate to lead Berkshire once Charlie and Warren are gone. Could Sokol's influence lead Berkshire to push the envelope a little more into advanced technologies, especially in the energy sector? Munger expressed approval for solar's long-term prospects; in the years ahead, he said Berkshire could invest in some "unlikely plays" in energy. With more capital to use, and an increasingly need to buy into capital-intensive companies with lower returns, Buffett and Munger might be looking to increase their investing horizons.
4. Recharging the value-investing battery -- Jim Mueller, Fool.com editor
I was most surprised by the gentle ribbing between Buffett and Munger during the question-and-answer period. These two weren't running a dry business meeting; they were having fun! And that's what investing should be: serious, but fun.
The lessons the two were sharing were nothing new. You don't have to travel to Omaha to learn them. Buffett and Munger's own writings and talks, as well as those of many others, contain all you need to know about the techniques and psychology of value investing.
So why did I and 35,000-plus others travel to Omaha? Well, we went partly to see these two famous men, and partly to hobnob with other investors, forming and renewing contacts with others of like mind. But mostly, as my colleague Andy Louis-Charles put it, I think we went to recharge our value-investing batteries.
Get your full Warren Buffett fix with our archive of Berkshire 2010 coverage.