Buffett reassuring on future

Speaking to Berkshire investors, mogul sees `dislocation' profits

May 04, 2008|By James P. Miller | James P. Miller,Chicago Tribune

OMAHA, Neb. -- Executives at firms badly hurt by their investment in complex mortgage-related credit securities "really didn't have any idea what risks they were involved with," investor Warren Buffett told an estimated 31,000 shareholders of his Berkshire Hathaway Inc. investing company yesterday.

Berkshire's annual stockholder meetings, held every spring here in the home town of the man some people call the "Oracle of Omaha," always draw a huge crowd: Many come specifically to hear Buffett's blunt and often tart insights into the markets.

This year, however, while the trappings of the meeting were the same, the 77-year-old multi-billionaire seemed to lack the ebullience that he displays at most Berkshire meetings.

Buffett and his longtime investing partner, the octogenarian Charlie Munger, sat at a bare table on a stage in the darkened auditorium, as giant video images of them played on big screens.

In response to one question, Buffett warned shareholders that Berkshire's days of galloping growth are behind it because the conglomerate has grown so large that only mammoth acquisitions can have a significant impact on profits.

"Some deals are nice, but they don't move the needle much" on Berkshire's bottom line, he said.

Buffett is best known for a long-term, fundamentals-based investing strategy that is at odds with the get-in-and-get-out style that dominates most of Wall Street. In general, the straight-talking investor can be counted on to deliver a few zingers toward the financial world's latest excesses.

Yesterday was no exception. "I don't know of any CEO that wouldn't do the job for half the pay they get, maybe a quarter," he said.

Buffett didn't have a great deal to say about the tremors that have rattled the credit markets since last August, after supposedly safe investments in mortgage-based derivative securities turned out to be worth much less than investors thought.

He did say the government's recent backing of a bailout of investment banker Bear Stearns had been a good idea, given the financial-system disruptions that would have followed a collapse of the New York firm. "The Fed did the right thing," he said.

But Buffett indicated that the chances of a full-blown financial-market meltdown are slim, in part because of the Fed's actions regarding the tottering Bear Stearns. Buffett did discuss ways in which Berkshire was trying to profit from the "dislocations" in the markets. A venture he started a few months ago to provide insurance to municipal-bond offerers already has $400 million in policies.

With credit markets so roiled, Berkshire's rock-solid financial condition allows it to provide a haven for issuers who no longer trust the companies that have long guaranteed such bonds.

Some recent investments in relatively opaque securities, such as collateralized debt obligations, suggest that the investor, who has been sitting on more than $40 billion in cash because he hasn't been able to find good bargains, is making some opportunistic moves in a jangled credit market.

Doing so would be in keeping with Buffett's theory that volatility offers opportunity for investors.

The investments pulled Berkishire's cash level down to $31 billion at March 31, not including the $6.5 billion Buffett recently agreed to invest in Mars Inc.'s buyout of Wm. Wrigley Jr. Co.

James P. Miller writes for the Chicago Tribune.

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