Secrets Of Success: The sage of Omaha is as wise as ever

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The Independent Online

Making the 8,000-mile round trip to Omaha to catch up with Warren Buffett's annual meeting is rarely a waste of time, I have found. This year's event was the fifth that I have been to in the past 15 years, and provided the customary rich vein of material for those of us who like to keep up to date with what one of the most impressive minds in investment is currently thinking.

Making the 8,000-mile round trip to Omaha to catch up with Warren Buffett's annual meeting is rarely a waste of time, I have found. This year's event was the fifth that I have been to in the past 15 years, and provided the customary rich vein of material for those of us who like to keep up to date with what one of the most impressive minds in investment is currently thinking.

It is true that the gathering is not quite as much fun as it once used to be. The first time I went, the meeting was held in Omaha's small downtown theatre, and I doubt there were more than 250 people there. The chairman of Coca-Cola sat in the front row, and it was easy to mingle and share some gossip with a powerful cast of hotshots from corporate America and Wall Street.

The audience also included some of the lucky local residents who had been sweet-talked into becoming a client of Buffett's original investment partnership 50-odd years ago.

Anyone who gave $10,000 to the untried young investment hopeful in the 1950s, when Buffett still worked out of a small room in his house, today has - unbelievably - a portfolio worth more than $300m. It is no wonder that Buffett remains a big hero in his home town.

A few years ago Buffett reluctantly bowed to pressure from Wall Street and created a new class of share in his company Berkshire Hathaway that was designed to be attractive to smaller investors. It has always been his preferred policy to keep the unit price of his shares high. (The A shares currently trade at $80,000 each.)

But when one of the big investment banks threatened to buy a big block of Berkshire Hathaway shares and offer units in the holding as a mutual fund, Buffett felt obliged to take on the job of broadening the shareholder base himself. He therefore issued more affordable B shares.

Since then, the character of the annual meeting has changed considerably. More than 20,000 shareholders turned up for this year's meeting, which was held in a vast new convention centre that, like a number of other striking new buildings in the downtown area, had not even been built when I first attended the meeting in 1991.

Omaha itself has become a very prosperous place, which now stretches out, seemingly interminably, into the Midwest plains. To take a trip to the newest and biggest shopping mall in the city now requires a cab journey of some 15 miles.

Most of those who come these days are what can only be described as modern investment pilgrims. What they lack in sophistication they more than make up for in enthusiasm.

As a result, the annual meeting weekend has become a sales fest for some of the local businesses that Buffett has bought and made famous over the years, such as the jewellery store Borsheims and the Nebraska Furniture Mart.

You cannot travel far these days without bumping into a queue of hopefuls looking to shake Buffett's hand, or have him sign their copy of the annual report. At the airport this year, scores of departing shareholders could be seen listing badly as they staggered towards their flights with this year's star prize, a signed copy of a hefty tome containing Charlie Munger's collected wit and wisdom. (Munger is the vice chairman of Berkshire Hathaway, and Buffett's long-standing business partner).

One thing that has not changed much over the years, thank goodness, is the nature of the annual meeting itself. True, there are video screens and microphones galore these days, but the essence of the meeting remains what it always has been. Buffett and Munger sit at a table, sipping Coke (it used to be Pepsi before Buffett bought his 8 per cent stake in Coca-Cola in the 1980s) and answer questions from the audience for the best part of five hours.

The following day there is a press conference at which the two men field more questions, this time for two and a half hours. It has to be said that few are of the hardball variety. ("Why are your results so much better than everyone else's?" was the gist of one of this year's offerings.) But Buffett - who does 75 per cent of the talking - and Munger show no sign of losing their enthusiasm for discussing whatever is thrown at them, and there is always plenty of meat in their often lengthy answers.

This year, alongside such predictable subjects as the price of bonds, the outlook for gold and the future of the beer industry, Buffett gave a serious and heartfelt plea for more attention to be given to the threat of nuclear proliferation.

The contrast with the standard corporate annual meeting, where bland company chairmen give carefully scripted answers to shareholders whom, so their body language suggests, they would prefer not to have to speak to, could not be more marked.

As the second richest man in the world after his mate Bill Gates (who this week joined the Berkshire Hathaway board as an independent director), Buffett has no need to spend his time this way. He does it, unquestionably, because he loves his business and loves sharing his ideas (and his jokes) with anyone prepared to listen.

Reading the headlines in the media in recent weeks, incidentally, may have given you the impression that Buffett is in some kind of trouble over the unfolding accounting scandal at the insurance company AIG, and that it may not be long before he steps down from running his company.

My advice, as a long-standing Buffett-watcher, is: don't believe a word of it. He may be 74 but he is far from being ready (or willing) to take a back seat just yet.

Sitting with $43bn in cash in his balance sheet, he is having trouble finding good things to buy right now. But that is hardly a novelty. One of the secrets of his long and sustained success as an investor has been having the patience to wait for "no brainer" money-making opportunities to come along, rather than trying to force the pace when (as now) markets are not throwing up many attractive opportunities.

As for the chances of his being found to have been personally involved in any accounting malpractices affecting AIG, it is about as likely, to quote one US money manager this week, as "finding a McDonald's on Mars".

'What Warren Buffett Thinks Now', Jonathan Davis's extended first-hand report on Buffett's annual meeting, will be published next week. www.intelligent-investor.co.uk has more details.

jd@intelligent-investor.co.uk

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