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Market Intelligence

Back From Omaha!

Seaver Wang | May 2, 2011

We’re back from the Berkshire Hathaway meeting in Omaha Nebraska. I have to admit, we were not one of the first people to walk through the doors of the Quest Center at 7:00 am. We arrived at 8:00 am on the dot and went straight to the auditorium where we got seats in the nose-bleed section. The place was totally packed. They showed a movie, as usual, that included an animated skit which included Ahhhhnoold, the Governator, and Warren Buffet. But the most entertaining part of the movie was a skit with the characters from “The Office”, where Buffet was introduced as Michael Scott’s replacement.

When going over some of the preliminary numbers for Berkshire, Buffet did give a good lesson on the affects of an accounting rule on earnings. Berkshire’s earnings would be negatively affected by some stock in Wells Fargo that was under water. Apparently if you have an investment that is at a loss for a while, and its undefined by accountants what the time frame is, the company has to mark it down on the income statement as a loss. Whats interesting is that Berkshire bought these shares over a period of time and, in aggregate, has made money on the stock but accounting standards don’t allow them to offset the loss with the gains. Anyway, long-story short, by taking the non-cash hit now, they can save money on taxes later even though it looks bad for the company. This is a perfect example of how the P&L (Profit & Loss) statement does not always give a true story of a company’s performance.

Next came the Q&A section. The first few questions were mostly about David Sokol, who resigned recently for buying stock in Lubrizol shortly before recommending Berkshire buy it. This in the securities field is known as front-running which is a big no no. Why did he do it? He didn’t make that much relative to his net worth?!?! He did disclose that he owned the stock but neglected to give details that he had bought it only 10 days earlier. I don’t think there was any scheme intended. He simply found a good stock to buy and then became convinced that Berkshire should also buy it too, not thinking of the compliance and ethics of the move. One could tell that Buffet continues to think highly of David Sokol and his abilities. He praised him during the annual meeting on Saturday and even gave an example of how self-less Sokol was by telling Buffet to re-write a long-term compensation agreement so his junior partner would make as much as him. As Buffet said, Sokol’s behavior was inexplicable and inexcusable. Anyway, as I started listening to following questions I started to realize that these questions in some form or another had mostly been asked before in the previous 40 or 50 past annual meetings and that the answers Buffet gave were the same old answers. His philosophy and opinions have remained consistent throughout the decades and are a great foundation for any business person. I stayed until about the half-way mark and then went to the convention area to check out the displays. One of the great things about this annual meeting is that they sell some of their items at the meeting too. We bought ice cream bars from Dairy Queen and my wife bought a pair of cowboy boots at a very reasonable price from Justin Brands. We passed on the NetJets shares and Geico insurance, and I already have a policy with Geico.

I drove by Warren Buffet’s house in Omaha. Almost everyone in Omaha knows where he lives. Its a very nice house but utterly unimpressive. The lights were out as we drove by as Buffet was likely still in meetings or entertaining that night. No security that I saw, and no gates. There was nothing that would indicate that one of the richest people in the world lived there. I should note that Buffet does own a house in Laguna Beach California worth several million dollars, so he isn’t always in Nebraska and doesn’t live a totally miserly life.

Our trip to Omaha was really short. We were there for a total of 1 day and 9 hours, I believe, but I had a great time. Its nice to see other parts of the country and get away from the congestion of New York City. Even with a huge influx of people at the Omaha airport, it was still pretty empty compared to Laguardia airport. There was a 200 person line for a taxi when we got home; none, when we were in Omaha. Remember, Warren Buffet went to school at Columbia for graduate school and worked for Benjamin Graham at Graham Newman for two years, so he knows NYC, but he left to go back to Omaha where there is less financial chatter. Maybe thats not a bad way to go?

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