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Berkshire Hathaway and the Buffetteers

The Return of the Buffetteers

by John Price

A friend told me that on a recent exam she was asked to explain why Warren Buffett says that diversification is a protection against ignorance and that it makes very little sense for those who know what they are doing. Based on a discussion she had with a stock analyst a few days prior to the exam, she answered roughly as follows. Buffett could buy in such large amounts and had such a following that what ever he bought would go up in price. Then he would sell and take a huge profit. What grade would you give that answer?

None of the 11,000 people crowding into the Aksarben Stadium in Omaha Nebraska on May 4, 1998, for the annual meeting of Berkshire Hathaway, the company led by Warren Buffett, would have committed such a blunder. To a person, they knew that Buffett patiently waits until Mr. Market offers to sell a great company with predictable earnings growth at a discount price. Then Buffett buys all that he can afford with the assumption that he will hold it for life.

Can such a simple-minded strategy really give worthwhile returns? Once again, ask those who attended the meeting. Many would know that when Buffett took over Berkshire Hathaway in 1965, it was trading at $18 per share. Using it as a vehicle for purchasing and investing in other companies, he has guided it to the level where it is now trading at $70,000 per share, an annual return of 28 percent. Others would know simply that since they bought stock in this former New England textile company, it has been going up like clockwork in both share price and equity per share.

No one else comes close to Buffett’s record over such an extended period covering every type of bull and bear market. He is also unique in that this has been accomplished without the use of derivatives, hostile takeovers and leveraged buyouts.

After dealing with the business in five minutes, Buffett opened the meeting to questions. For almost six hours he told stories, joked and munched on See’s Candies, while answering question after question with care, relevance and wisdom. Many questions were also dealt with by Charlie Munger, the Vice Chairman of Berkshire Hathaway. The following is a selection of the answers given by this twosome fairly much taken straight from my notes. Enjoy!

(Reprinted with permission from Investor Journal, August, 1998)