Berkshire Hathaway AGM preaches value investing to the converted

“This year’s Annual General Meeting could not have mirrored today’s real-life world and stock markets better. What a template! Talk about proven – and inspirational – value investing.”

So enthused Michael Graham, president of Michael Graham Investment Services, a Toronto-based investment counseling firm, after attending his 19th Berkshire Hathaway (NYSE—BRK.B) AGM in the past 21 years and reporting to The MoneyLetter readers.

One attendee likened it to going to church: “They don’t really say anything new every year, but it’s reaffirming.” 38,000 others and I would heartily agree, said Mr. Graham.

Especially reaffirming for me was hearing yet again of the benefits of investment based on long-term partnership as opposed to the more conventional portfolio- and market-related approach.

Given the difference between a bargain purchase in day-to-day investment terms or buying into a great long-term business founded and run by passionate entrepreneurs, Messrs. Buffett and Munger would opt for the latter every time.

If this approach has a weakness, it is over-trust, but much better a culture of “deserved trust” than modern accounting systems and controls, which can do more harm than good.

Now that Berkshire has grown through $300 billion to rank fifth in the FORTUNE 500 list in market capitalization terms, Mr. Buffett wishes he had Archimedes’ lever, as size becomes a growth-slowing  anchor to future performance.

At the same time, Mr. Munger reminded shareholders that Berkshire measures its performance against indexes which aren’t paying any taxes, whereas Berkshire pays its fair share of taxes.

He added, “If this is failure, I want more of it. It is not a tragedy to do so well that future returns go down – that’s winning.”

Talking of winning, their ever-increasing focus on energy now includes growing investments in energy development and transmission in Alberta.

Much was made of Berkshire’s just announced $3.2 billion purchase of AltaLink, Alberta’s largest electrical transmission company. (“We love it when we buy transmission lines in Alberta. We don’t think anything bad is going to happen in Alberta.”)

Mid-American Energy, now renamed Berkshire Hathaway Energy, with over $70 billion of assets, has become one of Berkshire’s “Powerhouse Five”.

A multi-billion-dollar partnership with TransAlta to facilitate the conversion from coal-burning to natural gas is already in place.

Furthermore, Greg Abel, the Berkshire Hathaway Energy president (very much a Buffett confidant and perhaps even a potential successor), hails from Edmonton, where he graduated from the University of Alberta in 1984.

Mr. Abel’s reference to the AltaLink acquisition being a beach head and his reported eyeing of future Alberta expansion can only augur well.

A question looming ever larger is what happens at Berkshire Hathaway when its iconic leaders are gone.

Mr. Munger wryly observed that most 90-year-old men are gone “soon enough”.  Mr. Buffett, 84 on his next birthday, countered that Rose Blumkin, the founder-owner of the huge Nebraska Furniture Mart, had worked until age 102, and he himself intended to challenge Methuselah’s record.

More seriously, we were assured that the succession plans are in place and that the Berkshire culture will live on.

Their thoughts about Berkshire’s future are to be the focus of the letter to shareholders that will precede the 2015 annual report and what will be their fiftieth anniversary AGM.

I once again returned from Omaha with “reaffirmed” conviction about an understated treasure chest and a conglomerate of some 80 companies like no other. So much so that I’ve added another board lot of Berkshire Hathaway Class “B” (NYSE─BRK.B) to a personal holding on which I’ve all but doubled my cumulative cost of investment.

In the final instance, I hope you didn’t sell in May and that you’re not going away at a stage when, with Berkshire Hathaway as a template, the bottom line must be to stay fully invested.



The MoneyLetter, MPL Communications Inc.
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