Friday, May 27, 2011

Berkshire 2011: Munger’s Revenge

Well, some things have certainly changed here in Omaha at the Berkshire Hathaway annual shareholder meeting.

Most striking, the crowd seems a trifle thinner than last year—not by a lot, and maybe not at all, but certainly the growth in attendance has stalled from the 15% compound rate of the last five years.

Perhaps this is one reason Warren Buffett did not announce the attendance figures at the start of the meeting, as he has always done; the other obvious reason being that he forgot. But Buffett doesn’t forget too many things, and he takes inordinate and deserved pride in the army of loyal Berkshire shareholders…

Whatever the reason, there’s another thing that’s different: the shareholders asking the questions are almost entirely Americans. That’s a big shift, coming as it does after years of a growing international presence. Two years ago, for example, 15 questions came from non-US shareholders, while last year there were six. This year there’s been one shareholder from Kashmir, and that’s about it.

I’ll ascribe this to Buffett’s switch to a lottery system for determining the shareholder questions, which was intended to eliminated the spleen-venting activists that began to appear at the microphones in recent years, not to mention the Buffett Adoration Society-types who were more interested in Buffett’s view on Life, Liberty and the Pursuit of Happiness—but has had the side-effect of eliminating the European shareholders’ key advantage: getting up at 4 a.m. Central Standard Time to be first in line was easy for them.

Of course, another thing keeping the international contingent at bay is the fact that once again, three reporters—Fortune’s Carol Loomis, The New York Times’ Andrew Ross Sorkin, and CNBC’s Becky Quick—are alternating with shareholders. Altogether, this has kept the “What Would Warren Do?”-type questions to a minimum, and put the spotlight on Berkshire and its businesses, which is where it belongs.

(Side note: an unusually high number of excellent questions are being posed by bright young financial analysts from the Greater Boston Area, which suggests somebody figured out how to game the “lottery” system anyway. Who says America has lost its competitive edge?)

But of all the differences between this year and others, the happiest is that Berkshire’s canny and sharp-tongued Vice-Chairman, and Buffett’s longtime business partner, 87 year-old Charlie Munger, is being unusually talkative. Indeed, by day’s end, Munger will have added his dry, acerbic commentary to all but two or three questions out of the 52 being asked. (In years past, Munger declined to answer, on average, a third of the questions.)

I’ll chalk this up to the presence of all the bright young analysts asking questions about Berkshire’s businesses and Buffett’s investing style—but another reason might well be the recent eruption of the David Sokol Affair and the attendant sharp focus on Buffett’s judgment in the matter, raising Munger’s rather substantial hackles and giving him the opportunity to rise, more than once, to his longtime business partner’s defense.

Indeed, my favorite moment thus far came when Munger practically grabbed the microphone from Buffett and—

But before we get to that, let’s say that the one thing that hasn’t changed is this: Buffett and Munger’s unique determination to spend six hours answering questions—some flattering, some not—without ducking, dodging, hesitating, or turning it over to the lawyers.

Now, back to the meeting…

(To be continued)



Jeff Matthews
Author “Secrets in Plain Sight: Business and Investing Secrets of Warren Buffett”
(eBooks on Investing, 2011) Available now at Amazon.com



© 2011 NotMakingThisUp, LLC

The content contained in this blog represents only the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever. Also, this blog is not a solicitation of business by Mr. Matthews: all inquiries will be ignored. The content herein is intended solely for the entertainment of the reader, and the author.

Tuesday, May 17, 2011

Shooting Leo the Messenger

We here at NotMakingThisUp have long noted in these virtual pages that Hewlett-Packard was about as good at manipulating Wall Street's Finest as it was in manipulating printing ink, thanks to the wonders of the type of aggressive "Non-GAAP" accounting that supposedly went out of style along with the demise of Non-GAAP masters such as WorldCom, Enron and other scams, but was revived and perfected under the reign of Mark Hurd at HP.

Thus the fact that HP's quarterly-earnings-obsessed past finally caught up with it is, as far as we're concerned, notable only for the timing, coming as it does during a rip-roaring technology spending cycle. All bad things must, eventually, come to an end sometime.

Still, what's happening today in the aftermath of this morning's HP earnings call is what always happens when a company comes clean and WSF find themselves off-base: they get embarrassed by their own lack of intellectual honesty; the scales fall from their eyes; and the knives come out. Indeed, one of WSF is going to far as to declare (to what purpose we haven't a clue, except to shift the blame for a bad stock pick to the company) "the Tomfoolery must end."

We would argue the "Tomfoolery" has indeed ended at HP; that it began to end when Mark Hurd got booted; and that anyone looking to blame Hurd's replacement, Leo Apotheker, simply because he had the guts to deliver the bad news that HP has been ginning up margins in the service business at the expense of the long-term health of that business strictly to hit Wall Street expectations and make the $13 billion Mark Hurd spent on EDS not look so goofy (something Wall Street's Finest should have seen coming) would be shooting the messenger and missing the message.

Now, as always, we here at NotMakingThisUp express no opinion of HP stock, to the good or bad. And who knows if future results will match today's guidance. But, at a bare minimum, we'd take Leo's honesty over Mark's beat-the-numbers management style any day.

Meantime, our reflections on Berkshire's annual shareholder meeting, which we're calling "Munger's Revenge," need attending to. Whether we'll have them up here before Leo's turnaround strategy takes effect at HP is not clear.

JM


© 2011 NotMakingThisUp, LLC

The content contained in this blog represents only the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever. Also, this blog is not a solicitation of business by Mr. Matthews: all inquiries will be ignored. The content herein is intended solely for the entertainment of the reader, and the author.

Tuesday, May 10, 2011

A Very Un-Buffett-Like Acquisition

The Microsoft acquisition of Skype, in which Microsoft reportedly outbid the supposedly free-spending folks at Google by 100%, may prove an act of exquisite genius.

But we have our doubts.

Compare the $8.5 billion Microsoft is spending for Skype's $860 million of 2010 revenue (and negative income) with the $10 billion Warren Buffett is spending for Lubrizol's $5.4 billion of 2010 revenue (and three-quarter-billion income), and then ask yourself "Which has a better shot at paying off?"

Of course, one of the arguments in favor of the Skype deal--synergies and users and eyeballs aside--is that Microsoft gets a chance to use some of its offshore cash to buy the Luxembourg-based telephony business. In a sense, it's "free money," say the admirers...which is always a dangerous way to justify a deal. (Just ask the AOL shareholders who paid for Time-Warner with inflated AOL stock...)

Indeed, as big and splashy as this deal seems, we'll bet dollars to donuts the write-off will be just as big and splashy.

In the meantime, we're working on an update here from the Berkshire shareholder meeting, now that the dust has settled.

Whether we get it out before the Skype write-off is a bet we wouldn't take.



JM