Reflections on Omaha
Research for Online Investors

by John Dalt

5/02/11

The market has gapped up this morning on news that Osama Bin Laden was killed over the weekend in Pakistan.  News ignited some impromptu patriotic public demonstrations.  It seemed traders and investors soon looked around and realized economic drivers may not have changed that much with the death of a terrorist.  The market fell back later in the morning.

My impressions of the Berkshire Hathawy shareholder meeting.

Warren Buffett has built a reputation as an astute investor. It is well deserved. He is an observer of conditions and recognizes scalable investment opportunities. I was asked about the acquisition of Burlington Northern Santa Fe railroad. The big picture was the U.S. economy would recover, as economic activity increased shipping will pick up for commodities. Railroads have a tremendous operating cost advantage as energy prices increase. BRK has excess funds to invest in a capital intensive business whose rates are guaranteed a return on assets. It really is pretty simple when you break it down.

Buffett made much of his money through insurance companies.  Geico was one of his earliest purchases.  The name stands for Government Employees Insurance Co. (GEICO).  This group was identified as low risk and Buffett started acquiring shares in it early in his career.  When the opportunity came, he bought it all.  I would encourage you to read his biography “Snowball.”

Omaha was a trip that was well worth the time and expense. My thanks to Long-Term portfolio subscriber D.M. for the shareholder pass to the meeting. As I explained before, this is the first year I didn’t have a high school or college graduation to attend and I didn’t own any shares in some time. D.M. was kind enough to invite me.

I recommend you make the trek to Omaha next year.  The meeting is really a tour of the history and desires of the company.  The shareholder meeting is one part rock concert, another part capitalist gathering.  The first two hours of questions seemed to keep coming back to the David Sokol case.  Warren Buffet would answer each question fully, and then defer to Mr. Munger for additional thoughts.  Charlie never said much. Once, after Warren had talked about having difficulty understanding why David Sokol would try to ‘front run’ the stock of Lubrizol, Charlie said “A certain amount hubris.”  Charlie is a man of few words.

Answers like that made Charlie Munger the most refreshing part of the meeting. He is the real deal!  Buffett has built an almost “cult” following around his persona, Charlie is the quite guy that couldn’t quit eating cookies while Warren talked.  Oh, he also occasionally nodded off!

The doors opened at 7:00 am.  Crowds started gathering at 6:00 as the arena held 17,000 and 30,000 credentials had been requested.  There were overflow rooms with big screen TV’s, but if you made the effort to get to Omaha, you would want to be in the room….even if you were a long ways away from the stage.

Buffett and Munger took a break at noon, then came back to answer more questions until mid-afternoon.  A short business meeting was held, and the day was over.  We visited the adjoining exhibition hall that was filled with displays and booths for every BRK company.  You could by Justin Boots, Geico Insurance, Sees Candy, and Fruit of the Loom underwear, and on and on.  We settled for a Dilly Bar from Dairy Queen!

On the topic of the eurozone credit problems, Charlie had plenty to say.  I picked these quotes up from Moneynews, and a press conference after the shareholder meeting.  Charlie made some news with, “Wall Street to some extent is deliberately trying to profit from sin, and I think it’s a mistake.  Why should an investment banker go to Greece to teach them how to pretend their finances are different from what they really are?  Why isn’t that a perfectly disgusting bit of human behavior?”

Charlie holds back, but when you get him going you better watch out!  He told the reporters, “Greece cheated on the accounting and the investment banks helped them cheat.  I don’t see why a bunch of Dutch and Germans should save them.”

Not one to mince words, remember that the ‘investment bank’ Munger was talking about was Goldman Sachs (GS).  Berkshire Hathaway has warrants on $5 billion in stock at $115 that are exercisable until 2013.  These warrants were part of the deal Buffett made with Goldman in 2008.  Berkshire bought $5 billion in preferred shares to help the bank shore up their balance sheet during the credit crisis.  GS recently bought the preferred shares back, profiting BRK more than one billion dollars.

I had a chance to talk to investors and money managers from all over the world, what a great time.  I visited with one man who spent 15 years in China, doing automation work as a subcontractor consultant.  He retired five years ago to Connecticut.  He is going back to China in the near future, just to see how it has changed, and look for investment opportunities.

One of the great benefits of operating galtstock.com is meeting our subscribers and spending time with other capitalists.  D.M. and I had a great time in Omaha.  Talking stocks over dinners (and hassling the watresses).  I referred to D.M as my rich hippie friend!  Attending the Berkshire Hathaway shareholder meeting is not a waste of time, and an experience you should try to check off on your list.

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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