Warren Buffett: Questions for Sage of Omaha

Thousands of people will file into the giant CenturyLink convention centre and sports arena in the city of Omaha, Nebraska, today. Usually the venue for basketball tournaments, baseball games or concerts – Justin Bieber is due to perform there in July – it is this weekend playing host to a very different spectacle: the annual meeting of a large corporation.

But the men and women packing the seats this afternoon could probably rival the teenage “Beliebers” who idolise the Canadian pop star with their devotion to the company and to the man who over the past half century has transformed what was a dying textile business into a mega-conglomerate with more than 50 subsidiaries.

The man in question is Warren Buffett, whose stewardship of Omaha-based Berkshire Hathaway has made him the world’s fourth-richest man, with a net worth of $53.5bn (£34.5bn), according to Forbes magazine.

His success in enriching himself and those who backed him by buying Berkshire shares has made him an international business figure, and the highlight of the annual meeting is a question-and-answer session where the man and his longtime number two, Berkshire vice-chairman Charlie Munger, field questions submitted by shareholders.

Selecting the questions will be three American financial journalists. A second panel of two analysts and a hedge fund trader called Doug Kass, who is bearish about Berkshire’s prospects, will also be on hand to quiz Mr Buffett and Mr Munger.

Products made by various Berkshire companies will, meanwhile, be on sale in the 194,300 sq ft hall next to the meeting area. At last year’s meeting, shareholders snapped up 1,090 pairs of footwear produced by Berkshire-owned Justin Boots in the span of nine hours. They also bought more than 10,000lbs of sweets produced by See’s Candies, another Berkshire business.

If it all sounds like a bit of show, it is. While Mr Buffett is often called the Sage of Omaha for his investing nous, the meeting has been likened to a sort of Woodstock for capitalists.

But there is a serious side, given the financial stakes involved. Two questions, in particular, are set to dominate this year’s meeting. The first has to do with Berkshire’s size, and whether it is becoming too big – with investments in everything from railroads and insurance to large stakes in companies like Coca-Cola and Wells Fargo – to generate the kind of share-price returns that shareholders have become accustomed to over the years.

And the second has to do with succession, a topic that keeps coming up, given the advancing years of both Mr Buffett, who is 82, and Mr Munger, who is 89.

Mr Kass, who runs the Seabreeze Partners hedge fund, raised the issue of size in 2011 when Berkshire announced that it was investing more than $10bn in IBM. At the time, he was quoted by The Wall Street Journal as saying that while he continued to “worship at the altar of Warren Buffett,” the IBM deal was a reflection of the fact that, as Berkshire became bigger and bigger with a market value back then of close to $190bn, “larger deals are needed to move the needle”.

Earlier this year, Mr Buffett himself lamented his “inability to make a major acquisition” in 2012. “I pursued a couple of elephants, but came up empty-handed,” he wrote in a letter to shareholders.

In terms of performance, 2012 was, as he put it, “subpar”. “For the ninth time in 48 years, Berkshire’s percentage increase in book value was less than the S&P’s percentage gain,” he noted, adding: “To date, we’ve never had a five-year period of underperformance, having managed 43 times to surpass the S&P over such a stretch … But the S&P has now had gains in each of the last four years, outpacing us over that period. If the market continues to advance in 2012, our streak of five-year wins will end.”

This year has begun more positively, with Mr Buffett bagging a very large elephant called Heinz, which Berkshire bought for more than $23bn in a joint bid with the investment firm 3G Capital. But there are only so many blockbuster deals to be done.

Mr Buffett, for his part, remains focused on his long-standing yardstick. “It’s our job to increase intrinsic business value – for which we use book value as a significantly understated proxy – at a faster rate than the market gains of the S&P. If we do so, Berkshire’s share price, though unpredictable from year to year, will itself outpace the S&P over time,” he wrote in his letter.

On the succession question, while Berkshire does have a plan in place, the identity of Mr Buffett’s successor as chief executive has been kept under wraps (when he eventually leaves, the company is likely to appoint his son Howard, currently a director, as non-executive chairman, while the investment managers Todd Combs and Ted Weschler are likely to continue overseeing the company’s many investments).

The secrecy has led to much speculation about who the next boss might be. Last year, in his letter to shareholders about the company’s performance in 2011, Mr Buffett said only that the board was enthusiastic about “my successor as CEO, an individual whom they have had a great deal of exposure to and whose managerial and human qualities they admire”. He added that “we have two superb back-up candidates as well”.

Among those seen as possible runners are Ajit Jain, who runs Berkshire’s reinsurance division. He is widely considered the leading candidate to replace Mr Buffett. Another possible CEO is Matt Rose, who runs Berkshire’s Burlington Northern Santa Fe railroad. Thus far, Mr Buffett hasn’t given much away about when he might leave. Everyone will be listening to see if he drops any hints today.

Tweet success: Buffett makes twitter debut

Warren Buffett’s fame was underlined when he joined Twitter and accumulated hundreds of thousands of followers within a few hours. According to one estimate, he was accumulating followers at a rate of roughly 1,000 per minute when he signed up on Thursday. By yesterday, the Berkshire Hathaway chief had around 300,000 followers. “Warren is in the house,” was his first tweet. The second linked to an essay he wrote for Fortune magazine on “why women are key to America’s prosperity”. Among those who welcomed the Omaha native’s arrival on the social platform was former US President Bill Clinton, who tweeted: “@WarrenBuffett Welcome to @Twitter. What took you so long?”