Weeks ago Warren Buffett called on investors far and wide to be the “credentialed bear” at his Berkshire Hathaway’s massive annual shareholder blowout in Omaha.
Ultimately, Palm Beach hedge fund manager Doug Kass was selected, and as “credentialed” bear he got to ask the first question in front of thousands of onlookers today. That’s probably tough.
After Berkshire announced earnings yesterday and blew past analyst earnings by $307 a share, it was probably even more tough.
All that said, Kass opened with a valid question, and not one that isn’t unheard of when people whisper criticism of Buffett’s legendary firm — they ask if in recent years his acquisitions have become too large.
From The Street, where Kass is a contributor:
Kass said, you were “hunting gazelles before, but now you are hunting elephants.” He points out that Burlington Northern and Lubrizol have been made at high historical valuations. Richer prices paid will lead to lower returns on acquisitions than in the past, driving slower growth for the company. Does this mean Berkshire is becoming more like a sleepy index than a stock?
Buffett recognised the argument and said basically that he’s willing to pay for true value.
“We have paid up for good business. There are companies we should have bought 30 years ago that looked expensive then but have done very well. We have now realised that paying up for an extraordinary business is not a mistake.” They are trying to avoid missing good opportunities like the ones they passed on previously.
Warren also got the final word of the exchange as the conversation ended.
“You haven’t convinced me to sell the stock yet, Doug.”
Now everyone can go play bridge.