Print and broadcast media headline stories say Warren Buffett Bought This or Warren Buffett Bought That. What is meant isn’t that Mr. Buffett bought it for his own account; instead, Berkshire Hathaway acquired 50 percent of Heinz, 100 percent of Burlington Northern Sante Fe or whatever.
Warren Buffett is the chairman of Berkshire, and Berkshire is the buyer. With a merry band of 25 souls in Omaha, Neb., and Vice Chairman Charlie Munger in California, Berkshire runs one of the largest conglomerates in America, one that owns unexpected household names like Dairy Queen and Benjamin Moore. His name is so synonymous with the company that the words Buffett and Berkshire are practically interchangeable. Of course, the conglomerate has hundreds of thousands of employees; the question is this: how do 25 people (26, if you count Munger, the perfect counter to Buffett) manage hundreds of thousands of employees? The answer is this: they don’t.
It’s true that Mr. Buffett has his own private investments, but those are rarely discussed. The bulk of his wealth is in the value of his Berkshire stock; he owns a great deal of the stock, and the balance is owned by his partners, the shareowners.
Since my wife and I (both shareholders) are back from the May 4th meeting in Omaha, I thought it would be a good idea to explain why I like Berkshire. (Any person with $111.82 [Friday’s close] to invest may be a Berkshire B shareholder. The A shares were $167,668.18 more than the B shares on Friday, May 10th. But either A or B gets you to the meeting, and both share classes enjoy stunning performance. B shares are pegged to A by 1500/1; A shares are convertible to B but not vice-versa).
Here are some of the reasons Berkshire is my favorite company and one of my favorite investments:
(1) Transparency — Warren and Charlie explain everything they do in print and at the annual Q and A.
(2) Fair compensation — All subsidiaries have clear and fair executive compensation plans.
(3) Open and aboveboard communications — For example, there are few footnotes in Berkshire’s annual reports, very few. The ones that exist are explanatory or to credit a source, and they are printed in typeface large enough to read and worded in ways that are supremely rational and understandable.
(4) A culture of honesty — When an executive even slightly varies from the Berkshire line of commonsense morality, he or she is on the curb with his or her suitcase within a few days or hours.
(5) Shareowner bliss — Berkshire is one of the only companies I know that treats shareholders right, like owners. Berkshire is accountable to shareholders, whereas, with other companies, the feeling is often that shareowners are a subclass and the executives have all the power (and a lot of the money).
(6) The annual meeting — Can you imagine 35,000 people at a shareholder meeting?
There are more reasons I like Berkshire, of course; this list just discusses a few of them. They come to mind easily — for example, I had mentioned DQ Dilly Bars in a previous blog.
Contrast Berkshire with any hedge fund. It has performance of about 19.7 percent yearly from 1965 through 2012’s year end. It does not charge 2 percent and then an additional 20 percent of profits like most hedge funds, and each and every shareowner is treated like a partner in the enterprise. Berkshire does not seem to go out of business or have its managers led away in handcuffs to a symphony of flashbulbs. It buys great companies, most in the United States and some global, and manages them superbly. It has a succession plan in place and two excellent investment professionals working with Mr. Buffett.
There are no dividends. So what? If one wanted to buy a bunch of B shares and slowly sell them over time, the result could even be better than dividends — witness the blog from two weeks ago, which delineates such a scenario.
Have a sensational spring week and do good work for customers. (By the way, the weather in Omaha for the annual meeting was horrible. It was so bad that my wife and I came home a day early. But we still had great fun and food, as we always do; Omaha is a wonderful city.)
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