Berkshire Hathaway takeaways: Buffett on managers, commodities, Coca-Cola

OMAHA — Berkshire Hathaway Chairman and CEO Warren Buffett held court alongside vice chairman Charlie Munger Saturday at the company’s annual shareholders meeting. Now in its 51st year, the event drew thousands to hear Buffett, 85, and Munger, 92, answer questions from journalists, analysts and shareholders.

Over the course of seven hours, the pair fielded inquiries about everything from the upcoming election to their favorite soft drinks.

Here are some of the key takeaways from the question-and-answer session with the famed investors.

Management key to Precision acquisition

Speaking about Berkshire’s $37.2 billion acquisition of Precision Castparts in January, Buffet described Precision CEO Mark Donegan as “the most important asset” in the decision to purchase the aerospace manufacturing company.

Buffet explained that as a privately owned company, Precision would enjoy benefits it couldn’t have imagined as a publicly traded entity, namely in terms of its purchasing power. “Being a part of Berkshire, there’s really no limitation on what can be done,” Buffett said. “His canvas has been broadened, I see no downside whatsoever. If he needs capital, I’ve got an eight-hundred number.”

Buffett added that he believed Precision would be more financially successful under Berkshire than it would have been as a publicly traded company, even though it would have done “very, very well independently.”

Reservations about reinsurance

When asked why Berkshire elected to sell its shares of Munich Re while maintaining its stake in General Re, a wholly owned subsidiary of Berkshire, Buffet said the reinsurance business is less appealing than it once was. “I think it is very likely that the reinsurance business will not be as good in the next 10 years as it has been in the last 10 years,” Buffett said.

Buffett’s prediction on the future of reinsurance is based on poor interest rates that many companies encounter when investing their “float,” or money they have collected in the form of premiums but have not paid out for claims.

“A significant portion of what you earn in insurance comes from investment of the float,” Buffett said. “Both of those companies — and for that matter most of the reinsurance industry — (are) somewhat more restricted in what they can do with their float, because they don’t have this huge capital cushion that Berkshire has.”

Coca-Cola comes under scrutiny

The Berkshire chairman fielded one question that cited the findings of a Tufts University study linking soda and sugary drinks to more than 184,000 adult deaths each year. Buffett said it was a “spurious” assertion that Coca-Cola, a company in which Berkshire has a stake, caused obesity-related illnesses.

“You have the choice of consuming more than you use. I make a choice to get 700 calories from fudge and peanut brittle and I am a very, very, very happy guy,” Buffett said. “I’m serious about this, I think if you were happy everyday, it may be hard to measure, but I think you’re going to live longer as well.”

Buffett joked that he wished he’d had a twin to compare results with, who had only consumed broccoli and water his entire life. “I know I’d have been happier,” he said, “and I think the odds are fairly good I would have lived longer.”

Even “The Oracle” avoids commodities predictions

In the past year, Berkshire’s bottom line has been negatively affected by oil markets, namely the company’s interests in railways and manufacturing. Despite these losses, Berkshire has invested in several oil companies, including Philips 66.

Journalists and shareholders at the convention were curious whether Buffett was making these moves based on some insight into the oil market. The answer was a resounding no.

“We haven’t the faintest idea on what the long-term price of oil would be,” Buffett said. “There’s always a better system available, you can buy oil for delivery a year from now, or two, or three years from now.”

Buffett said that while he has tried this strategy as well, he cashed in too early and didn’t make nearly the amount he could have. That served as evidence for him that there is nothing for Berkshire to gain gambling on commodity prices. “Basically, we are not two fellows who think we can predict the price of soybeans or corn or oil or anything else,” Buffett said of himself and Munger.

Berkshire’s diversity not a concern

The issue of diversity arose when a shareholder asked Buffett whether the company was missing out on any investment opportunities due to its lack of diversity. Buffett largely ignored the racial component of the question as he reinforced the values he looks for when considering board members.

“We are looking for people who are business savvy, shareholder oriented and have a special interest in Berkshire, and we found people like that,” he said. “I think we’ve got the best board that we could have.”

Buffett went on to essentially say that results were more important than appearances saying, “I’ve seen the other kind of operation, and I like ours better, I’ll put it that way.”

#BRK2016 on social media

A group of Missouri Business Alert staffers attended the conference and shared some of the sights, sounds and insights on social media.

Setting the scene:

Energy was a hot topic:

Benefits of the float were addressed:

Buffett touched on acquisitions and subsidiaries

And Munger served up his fair share of zingers:

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