Overseas talent stars at Buffett's festival of investment

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The Independent Online

Warren Buffett, the US investment guru known as the Sage of Omaha, plans to buy more businesses overseas in order to protect his investors against a collapse in the dollar.

The billionaire was setting out his latest predictions in front of 24,000 members of the faithful at the annual shareholder meeting of Berkshire Hathaway, his investment company.

Mr Buffett used the weekend meeting to introduce shareholders to Iscar Metalworks, an Israeli toolmaker which Berkshire bought for $4bn late on Friday. The acquisition is its first outside the US. "I think you'll look back at this in five, ten years as a very significant event in Berkshire history," he said.

Mr Buffett has been betting Berkshire's cash against the dollar since 2002, and at one point had $21bn invested in the currency markets. But he has scaled back that bet to $5.4bn, its latest results show.

He told shareholders that a better way to mitigate dollar weakness is to have investments in companies which earn profits in other currencies. The change of strategy did not mean he had abandoned his view that the dollar will eventually be forced down, to rectify the US trade deficits with countries such as China. "My views are as strong as ever, perhaps stronger," he said.

The annual meeting attracts shareholders from all over the world to Omaha, Nebraska, where a funfair atmosphere prevails. Attendees can tuck in to the traditional Berkshire barbecue and stock up on discounted products from the company's portfolio of subsidiaries, from jewellery to furniture to ice cream.

Mr Buffett and Charlie Munger - his sidekick, vice-chairman and long time business partner - also star in a comic video. This year it featured cameos from the Desperate Housewives cast discussing 75-year-old Mr Buffett's likely sexual prowess, and a spoof talent contest for inventors starring Bill Gates - the only man in the world richer than Mr Buffett - and the rapper Snoop Dogg.

The centrepiece of the event is a question and answer session with Messrs Buffett and Munger, whose investment wisdom and latest thinking are examined far beyond the conference centre in downtown Omaha.

Also looming larger this year was the question of the succession. The board has anointed a successor to take over if he should die, Mr Buffett revealed last year, but the name will be kept secret. None of the attendees would have truck with the idea that Mr Buffett should plan his retirement, and he looked as sprightly as ever. But some pressed him to go further than he has to date, and to promote his successor to chief operating officer, to give Wall Street time to get used to him or her.

It was an idea Mr Buffett dismissed. "I don't think it would work well to have some half-and-half arrangement," he said. "You could say that I could handle the deals and somebody else could be the operating guy, but the truth is we don't need an operating guy. I'm not sure what a chief operating officer would do at Berkshire except expose that I wasn't doing anything.

"I don't think there's any question that my successor will go through sort of a media probation-type affair for a year or so and people will understandably wonder whether the culture is going to be different under the successor. It will become evident that the culture is the same, that the yardstick, the metrics, the attitude toward shareholders will not change."

Many questions centred on how Mr Buffett will spend Berkshire's $43bn cash, which he said he planned to cut to $10bn in three years. He dismissed the media sector, Russian businesses and alternative fuels such as ethanol, but held out the prospect of a giant acquisition in the $15bn range, stoking speculation that he could bid for PG&E, a California utility group. Berkshire has been looking for additional deals in the energy sector since buying ScottishPower's US business, PacifiCorp, for $5.1bn last year.

He and Mr Munger also complained about the competition for deals, and warned that a bubble had inflated in private equity.

Private equity is awash with cash, because debt is cheap and institutional investors are desperate for above-market returns. Mr Munger said that there were too many "deal flippers", who planned to turn a fast profit from buying and quickly selling a business, and they are getting in each other's way.

How will they continue to make money just by "flipping and flipping and flipping and flipping?" Mr Munger wondered. "They'll make it on fees, fees, fees," Mr Buffett responded. Berkshire will not deal with private equity sellers, Mr Buffett said. "They invariably auction the business and are looking for strategic buyers," he said. "A strategic buyer is just someone who pays too much."

Warren's wit and wisdom

* On the idea of promoting his anointed successor: "I'm not sure what a chief operating officer would do at Berkshire except expose that I wasn't doing anything."

* On alternative energy investments: "Generally speaking, the agricultural processing business has not earned high returns on capital. Ethanol could prove an exception but I'm not sure how you gain a competitive advantage over time."

* On trade buyers who acquire a business from private equity: "A strategic buyer is just someone who pays too much."

* On Russia: "It's a little hard to develop a lot of confidence that the world has changed permanently there toward capital and particularly toward outside capital."

* On why his 82-year-old vice-chairman Charlie Munger always gets the girl in the corporate movie: "It's something called the Anna Nicole Smith rule. When choosing between two old rich guys, pick the older one."

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