By Jonathan Stempel and Jennifer Ablan
OMAHA, Neb. May 5 Short-seller Douglas Kass,
Warren Buffett's handpicked bear, raised a concern on the minds
of many shareholders at the "Woodstock for capitalists" this
weekend: Has Berkshire Hathaway Inc become so big that it will
find it hard to grow?
Many retail investors who converged on Omaha, Nebraska, for
Berkshire's annual meeting on Saturday
acknowledged that its fastest growth days are likely behind it.
But they said Berkshire is still a good long-term bet as faith
remains in Buffett and his management team's more than
4-decade-long record of stellar returns, and the company's
tentacles into many sectors of the U.S. economy.
"Yes, it is a concern, but I have to get my expectations in
line," said Julie Fehrnstrom, a mother of three from Orinda,
California, attending her fifth meeting. "They are not driven by
short-term decision making and they have really smart
management. You really don't always find that."
Sherrie Palmer, a social worker from Portage la Prairie,
Manitoba, was attending her first Berkshire meeting, one of
35,000 or so investors.
"The steepness of the growth is leveling off, but it's not a
concern," Palmer said. "We like the manner in which decisions
are made and I don't worry about this being an organization
jumping to a fad that won't pan out."
Patience has served Berkshire shareholders well. Investing
in companies with dependable businesses and sound management has
helped Berkshire as an investment trounce major competitors
since Buffett took it over in 1965. Berkshire is now one of the
largest U.S. companies by market value, with more than 288,000
employees in dozens of businesses, covering everything from ice
cream to underwear and insurance to railroads.
But its massive size - currently around $268 billion in
market value - has made it hard for Berkshire to grow as fast as
it once did. While Berkshire performs well in down markets, it
can lag in rising markets.
Buffett reminded shareholders that 2009-2013 may prove to be
the first five-year period ever when the company's growth in
book value per share will lag the Standard & Poor's 500
index including dividends.
"People who buy stocks now and hold stocks for 20 years will
make money," Buffett told Reuters Insider in an interview on
Saturday evening. "Those who hold for 20 days, I don't know what
It has also become harder for the company to find deals that
are large enough to move the needle. In February, Berkshire,
along with Brazilian investment firm 3G Capital, struck a deal
to buy ketchup maker H.J. Heinz Co, and Buffett said he
was looking for more big acquisitions.
But in an interview on Friday, Berkshire Vice Chairman
Charlie Munger said high prices have made attractive deals
scarce. "With interest rates at zero, the prices being paid for
businesses are very high," Berkshire's second-in-command said.
Still, size has advantages. Berkshire's quarterly profit
rose nearly 51 percent on solid performance in insurance and
many of its other units. The results showed that its more than
80 businesses are benefiting from a strengthening economy, as
illustrated by increased traffic on its Burlington Northern
railroad unit, new customers for its McLane food distribution
business and stepped-up demand for its Forest River recreational
vehicles, to name just a few.
"In the 1990s, Warren was criticized for not being 'state of
the art,'" said Arthur Cohen, a financial adviser from Highland
Park, Illinois, who was attending his 15th meeting. "I'm not
critical of his performance since."
Investors have also worried about what will happen to
Berkshire after Buffett, 82, and Munger, 89, leave. In his most
extensive comments to date about the future of Berkshire after
he is gone, Buffett said he still expects the conglomerate to be
a partner of choice for distressed companies.
Buffett said he and his board are "solidly in agreement" on
who should be the next chief executive - but offered no names -
and said his son, Howard, would become chairman to ensure that
Berkshire had the right CEO in place.
"The key is preserving a culture and having a successor, a
CEO that will have more brains, more energy, more passion for it
than even I have," Buffett said in response to a shareholder
question at the meeting.
As Berkshire has grown, so has the yearly extravaganza, now
Omaha's second-biggest annual tourism event behind the College
World Series baseball tournament. The event attracted many
well-known investors, including Mario Gabelli, Leon Cooperman
and Chris Davis, as well as mom-and-pop investors.
Missy Krasso, a driver for Happy Cab in Omaha, makes as much
as $3,000 in fares during the Berkshire weekend. Wall Street
tips well, she said.
Before the meeting began, Buffett roamed an exhibit hall at
the arena featuring Berkshire-owned companies. Cherry Coke in
hand, he dipped coconut bon-bons in a fondant coating at See's
Candies, admired a model Burlington Northern railroad and tossed
newspapers. Berkshire owns the Omaha World-Herald and others.
A new addition to the series of events around the meeting
this year was an "Invest in Yourself" five-kilometer run through
downtown Omaha, with Buffett starting it off, if not necessarily
setting the pace.
The real mad sprint began at 6:30 a.m. on Saturday, when
dozens of shareholders rushed for the best seats directly in
front of Buffett and Munger on the arena floor, large enough to
be suitable for a rock-star concert.
Sherman Silber, a fertility doctor who has attended the
meetings for 15 years, said he misses the "old format" where he
could just go to the podium and ask a question. "Now you have to
do all this lottery stuff," he said.
But Rosie Smith, a finance executive for a Baltimore book
printer, said she keeps coming back for more.
"We came out here, and it was the wildest thing we've ever
seen," she said, referring to the first of her 10 visits to the
meeting. "Every year, it keeps snowballing."