Sage of Omaha gets earful from skeptics for a change

INVESTING

May 07, 2000|By BILL ATKINSON

Even the man known as the world's greatest investor can't dodge the tough questions. And these days, some of them are coming from shareholders of Berkshire Hathaway Inc.

Thousands of shareholders descended on Omaha, Neb., April 29 to listen to company Chairman Warren Buffett talk about investing, and explain why Berkshire had such a bad year - its worst performance in 35 years.

While most investors still support Buffett, he was roughed up by a shareholder who wondered if the guru of investing had lost touch with current trends. In a six-hour question-and-answer period, the shareholder asked if Buffett would consider investing a small percentage of Berkshire's portfolio in technology companies. After all, the shareholder said, he himself had made up for heavy losses in Berkshire's stock with keen investments in technology companies.

"We've got an expert here," Buffett said, according to the Wall Street Journal. "You can always invest with him."

Buffett wasn't dubbed the "Oracle of Omaha" for nothing. He has made countless investors wealthy. Berkshire's stock has zoomed to unimaginable levels - more than $80,000 a share two years ago. And year in and year out, Berkshire has beaten the Standard & Poor's 500 stock index.

But Buffett had a tough 1999, with shares falling 20 percent, compared with a 20 percent gain for the S&P. He's off to a slow start this year. Berkshire shares are flat since the year began at $56,000, despite recovering some from a March 10 low of $41,300.

In a refreshing admission, Buffett blames no one for the dismal performance but himself.

"Even Inspector Clouseau could find last year's guilty party: your Chairman," he wrote in the company's 1999 annual report.

But the shareholder's point is well taken, experts say. Berkshire Hathaway is chock full of "old economy" stocks, including Coca-Cola Co., American Express Co. and Gillette Co. These companies have served him well until Internet, biotechnology and dot.com stocks became the rage among investors.

Berkshire has virtually no technology holdings, not even household names, such as Cisco Systems, Intel and Microsoft.

"Has he lost it? I don't think so," says Preston G. Athey, manager of the T. Rowe Price Small-Cap Value Fund. "He is allowed to have one bad year. I am not throwing in the towel. I am not selling my [Berkshire] stock."

Many others agree.

Robert G. Hagstrom, who has written two books on Buffett and runs the Legg Mason Focus Trust Fund, says Buffett's approach is as relevant today as it was in the 1960s when he managed money for a small group of investors.

Buffett invests in companies whose stock prices have been punished. The companies also have brand name, loyal customers and immense potential. Buffett scoops them up cheaply and hangs on until their stock price rises.

But Hagstrom acknowledges that some investors are wondering whether Buffett will return to form.

"They are concerned whether Warren will be able to participate as meaningfully in the new economy as he has done in the last 20 years. That is admittedly suspect," he says.

Berkshire's sagging performance lies partly in Buffett's decision to shun technology, experts say. Technology has helped propel the stock market to its lofty heights, and so far Berkshire has missed out on the run.

Buffett has ignored technology because it is difficult for him to predict how companies will perform in the future, he says.

"Clearly, he is not as greatly advantaged today as he was in the 1980s," Hagstrom says. "I don't expect from the year 2000 to the year 2020 ... that we [Berkshire shareholders] are going to get the same rate of return on our investment, but I do think we will get better than the market."

Hagstrom is still a fan of Berkshire's stock. His fund, which has $237.5 million in assets under management, owns it. When the stock recently tumbled below $50,000 a share, Hagstrom snapped it up, doubling his position in the company, which now represents 12 percent of the fund."You just had to buy it," he says.

Hagstrom says he was deluged with calls from panicked investors when the stock was sliding. Some of them wanted to know whether Buffett was "out for the count."

"A lot of people were scared," he says. Still, Hagstrom believes investors will flock to Buffett when the stock market stalls. He says he can prove his claim. When the stock market slumps, sales of his Buffett books surge.

"When the market gets really ugly and difficult, they will go back to Warren to learn how to block and tackle. These principles are timeless," Hagstrom says.

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