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Berkshire Hathaway Shareholder Meeting

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By Rozanovitch
May 4, 2004

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Berkshire Hathaway Meeting

The new Quest Auditorium where Mr. Buffett and Mr. Munger held court is not exactly easy to get to if someone is dropping you off. Wear walking shoes, not your cute little slippers or moccasins, you are going to walk a great distance on cement floors. Doors open at 7:00 a.m., I plan to arrive about 7:20, mon dieu, it was already full of folks. Had a hard time finding a seat to reserve so I could explore the exhibits without being in third balcony.

Got a seat, draped it with newspapers (they give you a Financial Times and local rag Omaha World Herald as you walk in, also a free Morningstar newsletter. Left my brown bag lunch, (hey, I am too old to stand in line to overpay for a soda, chips, and sandwich.) You should have seen the lines for the Gyros at lunchtime, now I would have liked one of those. Yogurt and apple work fine.

Oh, yeah, this is a Woodstock for Capitalists and it is just getting started after a night at Borsheim Jewelry (they do 8% of annual business with BRK meeting, bring in special jewelry $930,000 diamond necklace for one) and then over to Buffett's Dairy Queen, the main man will be there and glad to talk to you.

Now out to the exhibits that are a great distance to double back from the auditorium. I get there and am gawking around, trying to decide where I should start, those damn TV cameras are all over with microphone folk getting in my way, wonder what the hell . . . .good grief, the main attraction Mr. Buffett talking away is led by two men right there less than two feet from me. Lights, camera, action.

All of the subsidiaries have exhibits, buy shoes, cowboy boots, working boots, Berkshire tee shirts, caps, etc., Fruit of the Loom undies � get your picture taken with men dressed in fruit costumes (bunch of grapes, etc.), singing off key, as you get 'clicked.'

Half of Nebraska Furniture Mart merchandise on display (so it seems), Kirby vacuum, and Larson Juhl picture frames, Shaw carpets. Big Geico lines for insurance.

Three NASCAR racing cars all duded up with advertising decals. You could get your picture taken with that cute Geico 'gecko' by one of the cars #4, driven by Mike Wallace. Fruit of the Loom's #55 driven by Robby Gordon. Out front of the Auditorium is the John Mansville car.

You think the display space for these products is not huge? How about a Clayton Home, 1,782 square-feet furnished with BRK company products or built with BRK products. Acme Brick built the foundation, Shaw carpeting, Johns Manville insulation, Benjamin Moor paints, window shaded by Carefree awnings. Bookshelf with Worldbooks, Pampered Chef throughout the kitchen, Delivered price of manufactured home, sans furnishings, $89,000.

Sea's Candies is busy handing out samples but you have to buy your 'Dilly' Dairy Cream bar for a buck. New this year was a 'Bookstore" featuring Buffett and investing books, 20% off, of course Ben Graham's book there in paperback.

Movie before the Meeting
Movie from 8:30 to 9:30 is sheer entertainment and delightful. Vignettes to include a full cartoon make of Buffet and Munger motorcycling away from a big semi-truck.

Judge Judy hears from Mr. Buffett trying to collect the $2.00 bet with Bill Gates over a bridge game on the internet, which Buffett claims Bill pulled the plug on his computer because he was taking a shellacking. Donald Trump and his 'Apprentice' taking a shot at merchandising JetSet.

Jimmie Buffett does some shtick and a cute Berky song, "I'm a very happy guy," sang the entertainer, who invested in Berkshire 20 years ago and, those close to the family say, may be a very distant cousin to the Berkshire boss. "I bought Berkshire way back when it was cheap."

Terminator'Ahhnold' Schwarzenegger takes a bit of movie time making Buffett do sit ups, treadmill, lift weights, in his cute fishing hat and sweats, penance for California advice.

Business meeting this year took about a half hour. They had four slides of points to discuss of which I could not read a word. Then the one shareholder "groupie against abortion" had a bone to pick, quickly voted down.

A few introductory comments.
Well, Mr. Buffett referred to Google several times and the partners with great respect for their business ability. He said something to the effect that they had no need for lawyers or all the other "merchandising" folks wanting their business. In his opinion, they were smart enough to handle the coming event by themselves and gave them a great deal of credit. Surprised me.

Buffett said he's not interested in buying shares in Google Inc.'s initial public offering because the price may be too rich for him. ``It's a fabulous business but my guess is that it comes at a fabulous price,' he said of the company that runs the world's most-used Internet search engine. ``We'd never buy a public offering. The chances of buying something undervalued in a public offering, it's not our game.' Munger, said: ``The average person buying IPOs is going to get creamed.'

Company founders Sergey Brin and Larry Page cited Buffett as their inspiration when they announced the offering, quoting Buffett (with his permission) in saying they don't intend to "smooth earnings to satisfy Wall Street analysts." Buffett said he was impressed with the letter. "I thought their owners manual was absolutely terrific."

Asset Allocation
Ouch! Buffett and Munger are quite negative about Asset Allocation as offered by brokers. All it takes is the ability to think for yourself to minimize risk and that it is pure nonsense to look at 60-40%, then 65-35% to then rearrange stocks and bonds only to pay a broker for fees. Don't rely on financial consultants, he was especially critical of those who advise some sort of specified 60-40 percent split between stocks and bonds. "It's nonsense," instead seek out bargains no matter what type of investments they are.

Buffett admits to making his share, Walmart comes to mind where he would be ahead about $10B if he had not been reluctant to buy large amounts several years ago. "If every shot was a hole in one it wouldn't make the game very interesting, you have to hit balls in the woods a few times."

Business culture is as important as it has always been to both Buffett and Munger. And that is why not to worry when the time comes for someone else to manage BRK. Giving no names but citing that four individuals at BRK who are perfectly capable of running the company deeply ingrained with BRK culture. His succession strategy is to split his job, with a chief executive officer running the overall company and a chief investment officer managing its portfolio of securities. "There will be somebody in charge of investments. There will be one CEO of Berkshire," he said. "Actually my son will be chairman if anything happened to me."

Q&A starts at 9:00 promptly, where the twosome take questions from shareholders for six hours. This year Buffett requested only one question from each person, before many parts were in one question. Twelve microphones placed about auditorium on all three levels in different sections with spotlights on each questioner. This is so individuals can step up to microphone and ask a question which is answered by the duo. Buffett does by far the most talking, Munger lets loose with a one liner now and then. A bit on the questioners: global representation like India, England, Australia, US, etc. Taking notes in the dark is a PIA.

First question is about Coke's bruhaha over Buffett being on the Board and owning large percentage (8%) of Coke. "They are doing it by checklists and I don't believe in checklists." His response: integrity is the main point. He plans to remain on Coca-Cola Co.'s audit committee amid demands from shareholders that he step down.

He goes on to blast auditors in the 90's.

Suggesting a new approach for corporate America on accounting, Mr. Buffett said Berkshire's audit committee had acted to increase its independence from management. Instead of awaiting the rare questions from outside auditors, Berkshire's audit panel this year raised its own questions. "The trick is to have the auditors worry more about the audit committee than about management."

Value Investing
Value investors would have loved to have heard Mr. Buffett run down future growth and margin of safety as he advised to be conservative in estimates, not too much on each variable, AHEM! Don't need 'high math' figuring to infinity, just will get you in trouble going that route.

Derivatives are still bothering Buffett. "Some time in the next 10 years, you will have a huge problem that will either be caused by or accentuated by people's activities in derivatives."

He said that despite Freddie Mac having intelligent board members, being chartered by the U.S. Congress, and being followed by dozens of Wall Street analysts, it couldn't get a hold on the complexity of derivatives transactions.

Many investors ignored common sense several years ago when the stock market was surging at an unrealistic pace, led by the boom in tech stocks. It's an era Buffett referred to as "when the world went mad." A Buffett quote, "What we learn from history is that people don't learn from history."

Foreign currencies represent Buffett's biggest purchase in the last two years, he increased his bet against the U.S. dollar on concern that the country's trade deficit will weaken the currency.

Independence of Directors
One shareholder questioned the presence of Buffett's wife, Susan, and son, Howard, on the board and suggested that shareholders instead nominate managers of Berkshire's subsidiaries, who may have more business experience and ability to challenge Buffett. Munger dismissed the suggestion: "I have known for some time the members of Buffett's family who would take over. Don't worry about it. You should be so lucky."

Buffett said that the U.S. Federal Reserve may be keeping interest rates too low as the economy expands and inflation picks up. "They've perhaps been a little slow in terms of moving up because the economy has heated up considerably," he said.

Buffett said he was seeing inflation 'heat up' in the United States. Berkshire owns dozens of businesses including insurer GEICO, apparel maker Fruit of the Loom and ice cream chain Dairy Queen. Companies that will be best suited for this environment will be ones that either have unique products and services or are less dependent on purchasing inflation sensitive goods.

Hedge Funds
Buffett called hedge funds a "fad" that was more about Wall Street marketing than sound investing. "People that are now investing in hedge funds in aggregate are going to be disappointed."

19,500 people attended the annual meeting, up from 12,000 last year. A group of 31 Australians chartered a plane to fly to the meeting. Several business school professors brought their entire classes to the meeting.

I am too tired to go to the Bar-b-que at NFM where some Fools will meet. What I want each of you to do who have a warm spot in your heart for Warren and Charlie, is to make plans to attend a BRK meeting. The boys are getting up there in years, their witty and wisdom of words are worth the trip to Woodstock for Capitalists. I can help you find reasonable rate accommodations and I do know the poshy places to stay. It is about 14 miles straightaway for the most part from Quest Auditorium to the Dairy Queen, Borsheims Jewelry and Nebraska Furniture Mart between the two, lots of places to hang your hat. If you want to just do the meeting, come in Friday night and catch a flight out Saturday late afternoon, airport is 15 minutes from Quest Auditorium. Of course, that won't leave time for us to sit down and trade lies over a libation. (;^)


PS My horse, Smarty Jones, won the Kentucky Derby handily. I pick horses better than stocks! Of course, I mixed myself a Mint Julep in honor of the day, fresh mint from the garden.

PPS Munger's Annual Book Recommendation
From Mr. Munger: Charlie always has a book to recommend, this year it is Deep Simplicity. He said he doesn't have his own copy as yet, it is only available in London, but expects it soon to be available here. LeBean, it is on complexity!

"The world around us is a complex, confusing place. In spite of huge developments in modern technology, we still seem to be at the mercy of dramatic changes that occur out of the blue: earthquakes happen at random, stock markets go from boom to bust without warning � and we all know that weather forecasters can't always get it right. Life itself seems to be the most complex phenomenon in the Universe.

In this brilliantly enlightening book, John Gribbin, the man who made quantum theory clear with In Search of Schrodinger's Cat, now shows that complexity is simple, and explains how life has emerged from simple systems. Deep Simplicity is the first book to synthesize all the various ideas about chaos and complexity � from the butterfly effect to the intriguing concept of Gaia. It reveals that at the root of even what seems to be the most random behavior there are actually simple laws of cause and effect � essentially the same ones discovered by Newton more than 300 years ago. But the sensitive way in which systems respond to those basic laws, combined with feedback, can explain why, for example, just one vehicle braking on a motorway can cause a traffic jam; how a tiny genetic mutation or environmental change may make a species develop in a wholly different way; or why wild weather fluctuations can result from a slight change in atmospheric pressure. It can even explain people, the most complex systems of all, showing how we evolved from the most widely available raw materials in the Universe.

Like a zen painting, a fractal image or the intricate pattern on a butterfly's wings, the universe is built on simple elements, which interact and organize themselves to create a highly sophisticated whole. Simplicity, Gribbin shows, is the bedrock of our existence, the deep structure and harmony underlying everything.

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