Warren Buffett’s WayAlec Hogg

Reporting back from Berkshire Hathaway AGMOmaha, Nebraska

May 2009

Buffett: Nebraskan to the core, man of simple tastes...

And a close South African connection, too

Some of what 35,000 Pilgrims come for...

6:55am, May 2, 2009, Qwest Centre, Omaha

7:30am, May 2, 2009 - Qwest Centre, Omaha

7:30am, May 2, 2009 - Qwest Centre, Omaha

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Warren Buffett, media star

Buffet 38, Market 6

2008

1965 to 2008

Negative -9.6 %

Negative 37.5%

11.0 %

5.5 %

20.5 % 8.9 %

Key:Berkshire Hathaway

S & P 500

In 44 years, Berkshire Hathaway lost money only once before

2001: - 6,2%

During same period S&P was negative 11 times

2008Berkshire Hathaway: -9.6%S&P 500: -37.5%

1965 to 2008 Berkshire Hathaway: 20.3%S&P 500: 8.9%

NB 70% of active managers UNDERPERFORM index

8.9 %

BERKSHIRE’S WORST YEAR, BUT………

• Lost $11.6bn, down 9.6%

- “We do not consider this our worst year by miles. We measure what we do on a relative basis and will always do it that way…….”

- “We would love to double up on everything we own…”

• Share price fell 33% in past 12 months

- “Judging what’s going on by looking at share prices is a fool’s way of doing it”

- “We are copying Andrew Carnegie’s Playbook and we are not going to do it any other way.”

KEY CAUSES OF THE MELTDOWN

• Excessive leverage - “The most important lesson is the world needs a whole lot less leverage”

• Gross immorality … consumer credit given to perople who couldn’t handle it… derivatives traders preyed on their customers

• Stupidity… People inside institutions themselves; Regulators didn’t listen

• “Horribly failed” by accounting profession…”the people who created the principles should be removed.

CONSEQUENCES OF THE FINANCIAL CRASH…….

• Deep economic recession which “it’s going to last a very long time”

• Probably lead to increased regulation for financial services

• China, not US taxpayer is picking up the tab

• Lower US Dollar as politicians lower the value of ballooning debt

Buffett: “You can bet on inflation.”

Three stocks they love

• Buffett loves Wells Fargo: “below $9 if there was one stock into which I’d be happy to put my total net worth, it’s Wells.”

• Munger loves BYD: “I have never in my life been more privileged to be associated with something as I am with this company.”

• Both agree, Google has the widest, deepest moat: “It’s an incredible business model. I’ve looked very hard and I don’t know how to take it away from them.”

And some of their pet hates

• Buffett and Munger reads five newspapers a day, but “we would not buy a newspaper company in the US at any price. They have the possibility of going to unending losses.”

• Remuneration Committees are worthless: “They’re appointed by the CEO and he wants cocker spaniels, not doberman’s. The CEO’s salary should be determined by the whole board, not a sub-committee.”

• Share buy-backs: “Probably 90% of them are not in shareholders’ interests.”

* Lack of financial literacy: Buffett’s experience inFlamingo Bar, Las Vegas, in 1952. Munger: “A worldwhere legalised gambling is encouraged by many Statutes needs a lot more financial literacy.”

Succession

• Buffett will eventually be replaced by two people:

- Three current Berkshire executives have been identified as candidates for the CEO position : “The most important part of this job will be to manage relationships with the subsidiary companies”

• Four candidates have been identified to run the $50bn share investment portfolio as the CIO: Bu the race is wide open. None of the four performed well in 2008, all losing around 38% of the value of their portfolio last year.

Buffett believes…

1) How to value a business

2) How to think about stock market fluctuations

AND NOTHING MORE…………………..

WHAT SHOULD BE TAUGHT IN BUSINESS SCHOOLS

Finally, some recommended reading

.• From Warren on the financial meltdown…….- JP Morgan Chase CEO Jamie Dimon’s letter to shareholders (“it’s long but well worth reading” - WEB)

• On the man himself……. - Alice Schroeder’s book The Snowball – Warren Buffett and the business of life(all 838 masterful pages)

AND, NATURALLY, THE ANNUAL BERKSHIRE LETTER TO SHAREHOLDERS……..

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