His homespun investment strategy has made him $10bn profit from the credit crunch
* Andrew Clark in Omaha
* The Guardian,
* Monday May 5 2008
Warren Buffett
If there is anything more satisfying than being rich, it must be basking in the glow of being proved right. The world's wealthiest man, Warren Buffett, was lauded by 31,000 devotees in his home town this weekend for eclipsing the biggest brains on Wall Street through his homespun approach to business.
The so-called Sage of Omaha has warned for years that financial innovations such as derivatives, credit swaps and repackaged debt were a disaster waiting to happen.
Buffett favours a more straightforward perspective on investment. "If you're going to buy a farm somewhere near Omaha, you wouldn't get a different price set every day," Buffett told the annual meeting of his Berkshire Hathaway empire. "You'd look at the yield, the cost of the assets, the price of fertiliser. You'd decide what it was worth on the basis of what its earnings will be."
When Buffett wants to invest in a business, he has little time for hedging his way in through "long" or "short" options: "If we want to buy something, we'll just buy it. If we want to exit, we'll sell it. We won't get involved in these fancy techniques."
In a year that has proved catastrophic for Wall Street, the Nebraskan billionaire's fortune has increased by $10bn (£5bn) to $62bn. In Forbes's annual rankings, Buffett overtook Microsoft's Bill Gates and held off the Mexican telecoms magnate Carlos Slim to claim top spot as the richest individual on the planet. Shares in his insurance-based empire soared 29% last year as profits rose 20% to $13.2bn.
This has boosted Buffett's kudos as America's favourite capitalist. The number of people at Buffett's annual shareholder weekend was up 15% on last year's record turnout, in spite of storms pounding the midwest and throwing flight schedules into chaos. Some investors hastily rented cars with strangers to drive through the night from far-flung cities.
At Omaha's Qwest conference centre, Buffett posed patiently as an artist "speed-painted" him at six o'clock in the morning. Crowds flocked to stands promoting Buffett's NetJets private planes, Justin Brands cowboy boots and Dairy Queen cafes. On a hastily arranged Wrigley stand, staff handed out chewing gum to mark Buffett's co-purchase of the $22bn firm with Mars last week. Investors queued to buy Buffett watches, playing cards and T-shirts.
As the meeting began, the congregation roared with laughter at a film featuring Jamie Lee Curtis flirting with "all-you-can-eat Buffett". The country singer Jimmy Buffett even adapted his classic hit Margaritaville with a version entitled Berkshire Hathawayville.
Then, for six hours, Buffett, 77, and his right-hand man, Charlie Munger, 83, munched sweets and swigged Cherry Coke as they fielded non-stop questions with a mixture of banter, scholarly lecturing and philosophy. Many queries centred on the credit crunch and the ensuing financial slowdown in the US.
"There are these primeval urges in wanting to get rich and wanting to believe in the tooth fairy," said Buffett. "Some stupid things were done which won't be done again soon and won't be done the same again."
Mass destruction
He was scathing about the management of Wall Street banks after billions were written off investments in derivatives - which he described as "weapons of financial mass destruction".
"You need a guy at the top whose DNA is very, very much programmed against risk," said Buffett. "The big investment banks, a number of them, are almost too big to manage effectively from a risk standpoint."
Mortgage companies' haphazard lending to inappropriate, sub-prime customers came in for particular flack. Munger told the crowd that "bums were swept off skid row and given mortgages", adding: "The idea of turning the financial markets into gambling parlours so that the croupiers can make more money has never been very attractive to us."
Buffett feels that business schools have encouraged overly complicated financial engineering by spending too much time on "nonsense" such as the pricing of options rather than the fundamental attributes of companies.
The crowd lapped it up. Marv Johnson, a vet from Iowa, said: "He's disciplined, conservative and he doesn't believe in trends."
Many had travelled long distances. A Peruvian clothes company executive, Dante Albertini, had flown in from Lima to hear Buffett for the fourth year: "There are so many fakes in the world: he's authentic."
A note of dissent came from a group of native Americans who live on the Klamath river in California and Oregon. They protested that dams controlled by a Buffett-owned firm, PacifiCorp, are polluting waterways and killing wildlife. Buffett rejected their criticism, saying the issue was for regulators to resolve.
The Nebraskan billionaire's priorities for this year include looking at European opportunities. He is shortly to visit four countries in Europe and is particularly interested in Germany's plethora of family-owned companies: "We're more on the radar screen in the US than we are in Europe. We want to correct that."
Buffett has sought to take advantage of the financial turmoil; a new Berkshire Hathaway venture insuring municipal bonds has got off to a swift start, taking $400m in premiums in the first quarter. But Berkshire is not totally immune: the group's earnings fell 64% in the three months to March and its insurance arm wrote down $1.6bn in liabilities.
Addressing concerns about his age, Buffett recently announced that he had identified four people who could succeed him. But he made it clear at the meeting that he was in no hurry to step aside. Gesturing to Munger, Buffett quipped: "With our average age of 80, we're only ageing at a rate of 1.25% per year. That's the lowest rate of ageing in corporate America. Some of these companies have chief executives who are 50: they're ageing at 2% per year."
Buffett-speak: Sayings of the Sage
On what he would do if he were elected president
"Change things so the super-rich pay a little more and the middle class pays a little less"
On the future of the planet
"The great problem for mankind is that the genie is out of the bottle on nuclear knowledge. More and more people are going to know how to do enormous damage to the rest of the world as the years go by"
On risk
"Risk comes from not knowing what you're doing"
On timing
"We attempt to be fearful when others are greedy and greedy when others are fearful"
On his appearance
"I buy expensive suits - they just look cheap on me"
On his disdain for the legal profession
"I've asked my lawyer to ensure my estate survives for quite some time after my death but that's like asking your teenage son to have a normal sex life"
On his pledge to hand much of his wealth to the Gates Foundation
"I've never given up anything in my life that's made a difference in the way I live"
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