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Berkshire 2011: Sokol, Insults, and Everything in Between

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Grandma's cooking, Night Court reruns, and old fashioneds never seem to disappoint. Neither do Warren Buffett and Charlie Munger. Berkshire Hathaway's (NYSE: BRK-A  ) (NYSE: BRK-B  ) dynamic duo captivate tens of thousands each year at their annual meeting's marathon question-and-answer sessions. This year's meeting was no exception, with Buffett and Munger fielding questions on everything from gold to inflation to succession planning.

You can read along with our coverage of the Berkshire annual meeting. Or, if you're just plain lazy, you can read the highlights right here.

  • On Sokolgate: Berkshire's audit committee threw ex-exec David Sokol under a train late last week. Buffett didn't mince words, either, saying that Sokol violated Berkshire's insider-trading rules and the principles Buffett lays out every two years to his managers. For his part, Munger summed up Sokol's actions with one word: hubris.
  • On tech: Buffett and Munger would both invest considerable time learning more about technology companies if they had many more years ahead of them. A bit surprising to hear from Buffett, but that's hardly a plot twist coming from the broader-minded and more growth-oriented Munger. Munger, who once described Google (Nasdaq: GOOG  ) as having the widest moat he's ever seen, also recommended reading Steven Levy's new book on Google, In the Plex.
  • On Costco: Charlie waxed poetic on Costco (Nasdaq: COST  ) a couple of times during the meeting, leading Buffett to give him a good razzing. Fun fact: Costco CEO Jim Sinegal once told us the only stock he owned other than Costco's is that of Berkshire Hathaway.
  • On Berkshire's valuation: Buffett was cagey, as always, when it comes to talking about Berkshire's valuation. He did say, perhaps coyly, "We do not think that Berkshire is overpriced."
  • On issuing shares: Buffett is really, really not a fan of using shares as currency in an acquisition. He's reluctant to do so with Berkshire's and doesn't care for it when a company he has a stake in pulls that card. Asked about Johnson & Johnson's (NYSE: JNJ  ) move to use its own beaten-down shares to help fund its latest acquisition, Buffett said he'd like the deal a whole lot better if they weren't using stock.
  • On dividends: Buffett flatly shot down the idea of Berkshire's paying a dividend anytime soon. Not just that, but he believes that Berkshire's stock would drop if the company announced a dividend, because that would be Berkshire's way of admitting that the compounding machine is running out of steam. Maybe so, but Buffett's eventual successor probably won't waste any time in beginning a quarterly dividend payment.
  • On gold: Buffett and Munger are still pretty bearish on commodity investing at large. They view the general premise like this: You buy and hope that someone else is willing to pay more for it later. Buffett recommends buying productive assets instead of speculating in commodities. Munger captured the gold thesis nicely: "There's something peculiar about an asset that will only go up if the world goes to hell."
  • On other forms of hard-asset investing: Munger: "There's another class of people who think they can protect themselves by buying paintings of soup cans. I don't recommend that, either."
  • On great expectations: Buffett: "Charlie is big on lowering expectations." Munger: "That's how I got married." Buffett: "And he lived up to them."
  • On unrealistic compliance concerns: Buffett: "We have 260,000 employees. At Berkshire, there are presently three people that can execute trades."
  • On hating the game: Munger: "I hate the idea that 25% of our engineers are going into the financial sector."
  • On dementia: Munger: "The hedge fund managers of America are getting lower tax rates than professors of physics or cab drivers. That is demented."
  • On bailouts: It's one thing to bail out an institution that has social value, but another thing entirely to bail out its shareholders and managers. Said Buffett: "I think that any institution that requires bailing out by society should see its CEO and its spouse left dead broke." Tell us how you really feel, Warren.
  • On Ajit Jain: Buffett was asked about Ajit Jain, the apparent new front-runner for the role of Berkshire's next CEO. He makes no secret of his adoration of Jain. Buffett throws superlatives at him like a high school yearbook editor.
  • On the debt ceiling: Per Buffett, not raising the debt ceiling would be the most asinine act of Congress. There's no chance they won't raise it.
  • On nuclear: Buffett still believes nuclear power is an important part of the equation in solving our challenges. I agree.
  • On growth: Many investors think Buffett and Munger aren't growth guys, but that's false. To them, growth is part of the investment equation. They especially love companies that can earn high returns on incremental capital. The classic example? See's Candies.
  • On wind power: Great, but not a realistic solution. Not only is it uneconomic without subsidies, but the fact that wind blows only 35% of the time nixes the chance for wind to be a contributor to our base load power needs.
  • On Todd Combs: Buffett says to check back in another four years. You can't judge an investor over six months.
  • On climate change: Numerous shareholders spoke during the business portion of the meeting regarding a Berkshire position on climate change. An exhausted Munger literally fell asleep after being subjected to a couple of speakers. Being a billionaire must be awesome.
  • On 100 years: A woman asked Buffett what would like to be remembered for in 100 years. "Old age." Munger: "Warren wants people to say at his funeral, 'That's the oldest-looking corpse I ever saw.'"
  • On insulting people: Buffett: "If there's anybody we've forgotten to insult, pass a note up and we'll get to you."

Want to read more about Berkshire Hathaway? Add it to My Watchlist, which will find all of our Foolish analysis on this stock.

Joe Magyer owns shares of Google, Berkshire Hathaway, and Johnson & Johnson. All three, along with Costco, are Motley Fool Inside Value recommendations and Motley Fool holdings. Google is a Motley Fool Rule Breakers recommendation. Berkshire Hathaway and Costco are Motley Fool Stock Advisor selections, too. Motley Fool Options has recommended a diagonal call position on Johnson & Johnson, and Alpha Newsletter Account, LLC, owns shares of Johnson & Johnson, which is also a Motley Fool Income Investor pick. And the road goes on forever. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.

Read/Post Comments (19) | Recommend This Article (81)

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 01, 2011, at 12:40 PM, JeanDavid wrote:

    If wind is not economic without subsidies, what about oil that requires most of our military budget to protect it? Who pays for the environmental destruction caused by burning fossil fuels? What about nuclear that requires even greater subsidies to overcome the impossibility of purchasing nuclear accident insurance, and to store, guard, and repair the storage facilities for thousands of years? If we really believed in free-market capitalism, we would require all the other subsidies to be terminated and the industries affected to purchase annuities that would cover the costs of nuclear waste storage and protection in perpetuity, etc. Let the various modes of energy production be compared on the true cost basis.

  • Report this Comment On May 01, 2011, at 2:12 PM, Notwage wrote:

    Oil is heavily subsidized. See: tax breaks; oil company profits; campaign contributions; lobbyists.

    Wind will likely remain a small portion of overall energy output. Solar is the real game in town, benefiting from the accelerating pace of technological change.

    Or fusion reactors. Keep the dream alive!

  • Report this Comment On May 01, 2011, at 2:39 PM, crca99 wrote:

    Ditto JeanDavid. At least WB went to railroads which save some energy.

  • Report this Comment On May 01, 2011, at 2:53 PM, CaptainWidget wrote:

    <<If wind is not economic without subsidies, what about oil that requires most of our military budget to protect it?>>The US buys most of it's oil from Canada......

  • Report this Comment On May 01, 2011, at 6:06 PM, midnightmoney wrote:

    An ageless number, this one:

    "Numerous shareholders spoke during the business portion of the meeting regarding a Berkshire position on climate change. An exhausted Munger literally fell asleep after being subjected to a couple of speakers. Being a billionaire must be awesome."

    Change the definition of CLUELESS in dictionaries the world over. You'd need a golden hammer to nail it any better than that.

  • Report this Comment On May 01, 2011, at 6:39 PM, MartinSamuelson wrote:

    Who is Todd Combs?

  • Report this Comment On May 01, 2011, at 6:45 PM, midnightmoney wrote:

    He's a future billionaire.

  • Report this Comment On May 02, 2011, at 1:47 PM, ryanalexanderson wrote:

    +1 Rec for the "Night Court" reference in particular.

  • Report this Comment On May 02, 2011, at 2:08 PM, whyaduck1128 wrote:

    Why are there no wind turbines in DC? I'm sure there's big wind blowing there 24/7.

    And another +1 for the "Night Court" reference. It would be +2 if "Barney Miller" had been added. Great comedy without much of the now-seemingly-mandatory utter stupidity.

  • Report this Comment On May 02, 2011, at 2:22 PM, VeritasMGO wrote:
  • Report this Comment On May 02, 2011, at 5:53 PM, ladevinie wrote:

    Spot on JeanDavid. Regarding that we get most oil from Canada: true enough but still big military expenditure on our back due to mid-East oil.

  • Report this Comment On May 02, 2011, at 6:01 PM, donnyz wrote:

    to those of you that think Burlington Norhtern is a green play, recognize that those cars and cars and endless cars are filled mostly with coal!


  • Report this Comment On May 03, 2011, at 3:19 PM, husj5 wrote:

    "If wind is not economic without subsidies, what about oil that requires most of our military budget to protect it?"

    I think its important to separate your "Green"-views and your investment philosophies. It's fine to lobby for Green initiatives like wind power. Betting your financial future on these technologies is another matter. Especially when Berkshire has doubts. I assume their opinions are all with respect to long-term investment and not saving the world. I would not put much weight in David Suzuki's stock recommendations just as I don't believe Buffet has looked as the energy crisis from an environmentalist's perspective.

    Invest in wind power at your peril. Maybe just donate your money!

  • Report this Comment On May 03, 2011, at 8:20 PM, SunDevilDon wrote:

    Nuclear is the primary electrical source in France. What do they do with their waste? They simply sink it to the bottom of the ocean. Paying to "...

    store, guard, and repair the storage facilities for thousands of years?" Not the French.

    Of course, none of us should be surprised if when Godzilla next appears climbing out of the ocean, he isn't wearing a beret and growling in French!

    Fool on ... not sure if that should be upper or lower case 'f'. :-)

  • Report this Comment On May 04, 2011, at 11:02 AM, ayalara wrote:

    Regarding climate change ...

    Most if not all geologists agree that the western US was once covered by glaciers. What could humans have done to prevent their melting?

  • Report this Comment On May 04, 2011, at 6:34 PM, mcsinkford wrote:

    Where can I find the "The 2011 Market Crash is Coming" video that was in my email from Joe Magyer on May 1, 2011, but doesn't show up any more when I open his email. Thanks.

  • Report this Comment On May 07, 2011, at 10:29 AM, UFOFred wrote:

    Two comments on Joe's interesting synopsis:

    (1) I'd be more willing to believe we really need nuclear power (or other energy) if we did not waste so much. Just one little example -- my employer (US gov't agency) has ice melting heaters over the doors of a building. They were on 24/7 from Dec to Apr except twice when I complained and they were turned off for a few days. And one entrance was fenced of because of construction but the heaters were still on.

    Before the gov't bashers get too excited, industry wastes at least as much as gov't.

    (2) Regarding dividends -- I've gotten to appreciate div. yield but except for a company that pays a really significant dividend, I'd rather see 1 or 2x per year. Paying the div. costs money in addition to the dividend itself.

  • Report this Comment On May 11, 2011, at 9:28 PM, busterbuddy wrote:

    The most interesting thought I've come up with is this. And is related more to the comments. Everyone has opinions and they are free. But you know its the person who builds and make things work who's opinion that counts.

    And not the opinionated.

    Some of us forgot that we don't understand how things work.

  • Report this Comment On June 20, 2011, at 1:31 AM, failosopher wrote:

    "If wind is not economic without subsidies, what about oil that requires most of our military budget to protect it?"

    I don't think subsidy is the correct word for it. say if the government needs to fund the SEC and other regulatory and law enforcing institutions to maintain the integrity of the capital, does that make the financial industry a "subsidized" industry? and the funding the FDA making the drug industry subsidized also???

    by economics, i think, buffett meant whether the methods of producing energy is able to turn a profit, or even give investors a reasonable return on capital.oil can be delivered reasonably cheap for consumption and how the industry turned good profits(especially @ today's prices), i think oil passes the test as an energy source with good economics.

    military expenditure is an added cost, due to political reasons and other factors, on top of cost to produce it. to validate ur point, u might want to get some numbers, comparing the military cost in securing foreign oil since the united states started buying from them, versus the value the country is able to extract from it. besides, the US can still tap its own oil fields if foreign oil becomes too much of a problem.

    Some quick googling reveals wind power takes about 20 years for investors see their entire capital returned to them. if you throw in uncertainty(disasters or other technical problems that may turn their investment less desirable than treasury) the investment would look even less appealing.

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