The World’s Best AGM

It is the world’s best annual general meeting and, before this institution disappears, I wanted to be there. I wanted to be in Omaha, Nebraska, on Saturday May 3.
This relatively small – population 750,000 – and unlikely United States mid-western city is headquarters to Berkshire Hathaway Inc and home to its legendary 72-year-old chairman and chief executive Warren Buffet. I joined 10,000 other shareholder fans to watch him and his slightly older septuagenarian sidekick, vice-chairman Charlie Munger, in action. I wasn’t disappointed.
Buffet is, for my money, the world’s most successful value investor. His personal wealth exceeds $50 billion and Berkshire’s market capitalisation of $180 billion is 4.5 times greater than the entire New Zealand Stock Exchange.
We came from every corner of America and the globe to hear the best in the business speak. trip to Berkshire’s AGM had become priority for me since founding Aquiline Holdings, our Hawkes Bay-based management and investment company, which focuses on value investing. And besides, Buffet and Munger, despite their obvious energy, aren’t getting any younger.
Aquiline has now invested in 10 small to medium size enterprises (SMEs) with aggregate sales of $100 million this coming year. It was time to make the pilgrimage to see if we could emulate the model created by Buffet and Munger, right through to the way they ran their AGM. An AGM should, after all, be time to celebrate. And that’s what 10,000 of us who squeezed into Omaha’s downtown Civic Auditorium came to do. We came to listen, to watch, to ask questions and to burst into applause at the frank and honest answers delivered by these two high-profile leaders.
Buffet and Munger were born in Omaha. As youngsters they both worked at the same grocery store, though never got to meet each other then. Buffet bought his first listed shares as 12-year-old. Twenty years later he became chairman of Berkshire Hathaway, poor-performing textile company. Munger teamed up with him soon after and one of the most amazing investment stories of all time began.
Forty years ago Berkshire share traded at $9. It recently peaked at more than $145,000 share. Some shareholders at the AGM were predicting that it would “break US$100,000” ($180,000) before the next AGM. Optimistic I thought, but when Buffet told the meeting Berkshire’s first quarter 2003 result would hit US$1.7 billion before tax, even I began to think it was possible.
Buffet’s reputation as the best in value investors came under attack during the US stock market and dotcom boom. He steadfastly refused to buy high tech stocks and the investment media wrote him off. That’s when I took real interest in his style.
Over the past three years I’ve read the books and articles on Berkshire, Buffet and Munger. I have watched the spectacular recovery and the re-rating of Berkshire since the dotcom bubble burst. The followers and faithful shareholders at the AGM saluted this success story at every opportunity.
I arrived in Omaha late on Thursday evening, 24 hours after boarding the first leg of my journey at Napier. The next day I went in search of Berkshire’s head office and the workplace of the just 13 employees that oversee this enormously successful investment empire.
I found it, finally, in plain 14-storey brick building 25 blocks from downtown Omaha. The top floor might be occupied by the most successful investment company in the world, but there is nothing to indicate it. No boastful signage. No extravagant statements of success, like those that bedeck nearly every other top 500 company in the US.
I entered the ground floor foyer, passed disinterested security guard watching television screens and pressed the lift button for the 14th floor. Light brown papered walls greet arrivals to the top. Down narrow corridor to the left small sign on the wall announced Berkshire Hathaway Inc. press button voice box delivered female voice advising me that the information I needed would be available at function that evening or at the AGM the next day. I thanked her and left thinking that, apart from the few left-hand-drive cars passing by, this could be Napier.
Friday night at 6pm I, and thousands like me, arrived at the first official shareholder function. Cocktails at Borsheim’s, large jewellery, watch and fine gifts store owned, of course, 100 percent by Berkshire. The tempo of anticipation was rising.
I was awoken at 5am on Saturday by doors slamming as shareholders exited the hotel and headed downtown to join the queues for the 7am door opening at the auditorium. When I arrived at 7.30 I joined the tail of 400-metre long queue that had, previously, been much longer, swollen by thousands of early risers.
Shareholders jostled for seats in the auditorium’s lower area. I settled for perch higher up, in the back corner where the large broadcast monitors on either side of the head table were clearly visible.
At 8.30 they screened 50-minute “company movie” to packed house of 10,000 seats. At 9.30 Warren Buffet and Charlie Munger walked casually on stage to the tumultuous applause of truly devoted shareholder audience.
Almost 46,000 security passes were granted to shareholders for the AGM and associated functions. I never found out how many who wanted to attend failed to get into the auditorium or witness the event on large screen in an adjacent complex. Next year the new Omaha Convention Centre, with seating for 17,000, will be completed and the Berkshire AGM will move there.
It took just 30 minutes to complete the formal AGM. It included shareholder motion which, once Buffet expressed contra view, failed to attract seconder and was immediately lost. These shareholders were in no mood to upset their hero of 40 years standing.
Then the “real” programme began. It lasted until 3.30pm, with just short break for lunch. Shareholders invaded 10 separate speaking podiums to ask questions of the two-man head table. The other board members sat in the audience’s front row.
Buffet opened the session with brief statement about recent acquisitions and particularly the purchase of McLanes, $40-billion turnover and Texas-based wholesale/distributor, announced just the day before. I was particularly interested because this, in part, is the sector of the New Zealand economy that Aquiline Holdings concentrates on. Berkshire paid almost $3 billion for this acquisition from Wal-Mart, owners for the previous 10 years, even though Buffet only expected to make one cent after tax for every dollar invested in the new business.
Berkshire has $30 billion free cash available for new acquisitions. The company doesn’t pay dividends so, with 2002 after-tax profit of $7.6 billion it’s major challenge to spend $20 million day to stop the cash surplus rising.
Accountants, auditors, stockbrokers, analysts, the stock exchanges and other pillars of America’s business community were criticised and lambasted during nearly five hours of questions from the floor.
Buffet challenged the excessive levels of senior executive salaries and incentives that now pervade the corporate world. They were not, he said, in the best interests of the shareholder owners. He subsequently confessed to the media that he had, in the past, been too slow to challenge pay levels at companies in which Berkshire held shares or on whose boards he sat. Nevertheless, company CEOs were being paid large bonuses when they had destroyed shareholders’ funds and the practice “is continuing blight on the business community”, he said. Truly conscientious business leaders don’t feel comfortable with highly incentivised bonus structures, added Munger.
Shareholders bombarded the two with questions on everything from business philosophy to making donations to various national and international causes.
Buffet and Munger never listen to the existing management’s view about company’s future potential during the buying process. They only buy businesses they feel comfortable they understand an

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