As you'll see throughout the week, the Fools were out in force at this weekend's Berkshire Hathaway
What was the biggest bomb Buffett dropped?
Morgan Housel, Motley Fool writer: Forget the biggest bomb from this year's shareholder meeting; I think Buffett dropped the biggest bomb ever this weekend when he said he would have been comfortable putting his entire net worth into Wells Fargo
Ilan Moscovitz, Motley Fool editor: At a time when nearly everyone is condemning faulty compensation practices that have come to light at major financial institutions like Merrill Lynch and AIG, Buffett went one step further, remarking that compensation procedures are "way worse than practically anyone recognizes." He said CEOs basically get to pick their own compensation committees, and since no one wants to be paid rationally, you have people being paid to do very irrational things. Boards generally function as a rubber stamp because members know that disturbing the "club-like" atmosphere could endanger their salaries and the prestige their position confers. As a start, he recommended abolishing directors' salaries, and having compensation plans be drawn up at the board level instead of in committees.
Anand Chokkavelu, Motley Fool editor: I was only a few sips into my strawberry smoothie when Buffett said the words that made me smile the rest of the weekend. Basically, he got better terms on some of his much-maligned equity puts, which I think are great. Check this out: With a strike price on the relevant S&P 500 put options in the 1500s, Berkshire incurred huge mark-to-market losses last year. But his counterparties were forced to "manage risk" by buying expensive credit default swaps on Berkshire Hathaway ... so even when they win, they kinda lose. To mitigate this quirk, they allowed Buffett to lower the strike price to the high 900s (the S&P is currently around 900). All he had to do was lower the term to 10 years from 18 years. Um, thanks for the do-over ... looking forward to the resulting mark-to-market gains.
As Morgan said, Buffett was strong on Wells below $9 a share. If you had to put your whole life savings into one company for the next 10 years, which would it be and why?
Morgan Housel, Motley Fool writer: Johnson & Johnson
Ilan Moscovitz, Motley Fool editor: Aside from Berkshire (the obvious choice), I tend to invest in small caps, so I don't have many holdings that I would feel comfortable plowing all of my money into. I don't necessarily like the price right now, but if I had to pick one strong-moated company from among my current holdings that I’' want to have all of my money in, it would probably be Google
Speaking of bombs, during our press conference with Buffett and Munger yesterday, Munger remarked: "Google has a huge new moat. I've probably never seen such a moat." Buffett explained that some keywords fetch $70 per click and their advertising machine generates its own positive feedback and momentum. To try to parse what he's talking about, Google has a few positional advantages that feed off one another: a dominant share of the search market, a strong brand, and targeted ad capabilities that produce a network effect between advertisers and end users. Advertisers get a wider market, while end users aren't pained by sightings for male enhancement products when all they wanted was to buy some flowers for Mother's Day.
Anand Chokkavelu, Motley Fool editor: The fact that we have no idea what the government will do with the banks precludes me from naming a bank. Now, Wells Fargo has tons of upside if things go right, and no one knows Wells better than Buffett, but as I watched Buffett sitting at the podium, I couldn't help noticing Coke can in front of him. Really, Warren, you'd be more comfortable holding Wells Fargo than one of your other huge holdings, Coca-Cola
All three of us are shareholders. Is your faith in Berkshire Hathaway higher or lower than it was before the meeting? Why?
Morgan Housel, Motley Fool writer: My faith is unwavered. People like to hint at Berkshire's impending collapse as soon as Buffett and Munger die, but I've always thought this argument is incredibly short-sighted. Berkshire's long-term potential will be more of a product of what Buffett and Munger have spent the last 40 years creating, not solely the product of what they can create in the future -- sort of like Sam Walton's enduring contribution to Wal-Mart
Ilan Moscovitz, Motley Fool editor: About the same. The meeting reiterated Berkshire’s moats: A sterling reputation that attracts deals, a strong financial position that gives them the ability to act quickly and boldly when opportunities present themselves, and brilliant and capable leaders with independent thought and the right incentives.
Anand Chokkavelu, Motley Fool editor: The equity put reset (see my answer to the first question) reminded me why I finally bought in a few months ago ... people are just throwing money at Buffett these days.
This roundtable article was compiled by Anand Chokkavelu. Anand owns shares of Berkshire Hathaway. Google is a Motley Fool Rule Breakers pick. Berkshire Hathaway is a Motley Fool Stock Advisor recommendation. Berkshire Hathaway, Coca-Cola, and Wal-Mart are Motley Fool Inside Value picks. Johnson & Johnson and Coca-Cola are Motley Fool Income Investor recommendations. The Fool owns shares of Berkshire Hathaway. The Motley Fool has a disclosure policy.