Stock Trading Investing Information

Here are some highlights of Warren Buffett's and Charles Munger's remarks at the Berkshire Hathaway Inc. shareholder meeting this past weekend.

Mr. Buffett on Newspapers

Mr. Buffett has long held himself out as a newspaper man. As a child, one of his first jobs was delivering newspapers. An Omaha newspaper Berkshire owned, Sun Newspapers, won a Pulitzer Prize in 1973 based in part on a tip Mr. Buffett provided. One of Berkshire's biggest investments in the 1970s was the Buffalo News, which it still owns.

But his view on the future of the newspaper industry is dismal. "For most newspapers in the United States, we would not buy them at any price," he said. "They have the possibility of going to just unending losses."

As long as newspapers were essential to readers, they were essential to advertisers, he said. But news is now available in many other venues, he said.

Berkshire has a substantial investment in Washington Post Co. He said the company has a solid cable business, a good reason to hold on to it, but its newspaper business is in trouble.

Mr. Munger called newspapers' woes "a national tragedy....These monopoly daily newspapers have been an important sinew to our civilization, they kept government more honest than they would otherwise be."

A Washington Post Co. representative couldn't be reached for comment.

Mr. Buffett on Insurance

In response to a question about the worst possible development for Berkshire Hathaway's vast insurance operations, Mr. Buffett responded: nationalization.

If inflation jumped and insurance policies became extremely expensive, pressure could rise on the government to nationalize the insurance industry, he said. "When people get outraged, politicians respond," Mr. Buffett said. It's highly unlikely that such a development would happen, he added. But he did note the example of Social Security, which is a form of a nationalized annuity.

Mr. Buffett on Housing

"In the last few months you've seen a real pickup in activity although at much lower prices," Mr. Buffett said, citing data from Berkshire's real-estate brokerage business, HomeServices of America Inc., which is one of the largest in the U.S.

In California, medium and lower-price homes -- under $750,000 -- have been selling more, though there hasn't been a bounce back in sale prices, Mr. Buffett said. "We see something close to stability at these much-reduced prices in the medium to lower part of the market."

Mr. Buffett on Moody's

Mr. Buffett was asked about Moody's Investors Service, which gave a triple-A rating to billions of dollars of mortgage securities that subsequently lost value. Berkshire has a 20.4% stake in the company.

"Basically, four or five years ago, virtually everybody in the country had this model in their heads, formal or otherwise, that house prices could not fall significantly," Mr. Buffett said. He later added that "it was stupidity and the fact that everyone else was doing it."

He said that if Moody's had started to take a negative view on residential real estate, the ratings provider would have been hauled before Congress to testify about why it was hurting the U.S. economy with its bearish ratings. "They made a huge mistake, and the American people made a huge mistake," he said.

A Moody's representative couldn't be reached for comment.

Mr. Buffett on Treasurys

Berkshire Hathaway had only one slide at this year's annual meeting. It displayed a Dec. 19 trade ticket showing a Berkshire sale of $5 million of Treasury bills. They were coming due on April 29 this year, roughly four months after Berkshire sold them. Berkshire sold the bills for $5,000,090.70. If that buyer had instead put their money in a mattress, by April 29 they would have been $90.70 better off, he said. Negative yields on Treasury bills show how tumultuous last year was, Mr. Buffett added. "We may never see that again in our lifetimes," he noted.

Messrs. Buffett and Munger on Math and Theories

Messrs. Buffett and Munger made clear their complete disdain for the use of higher-order mathematics in finance.

"There is so much that's false and nutty in modern investing practice and modern investment banking, that if you just reduced the nonsense, that's a goal you should reasonably hope for," Mr. Buffett said. Regarding complex calculations used to value purchases, he said: "If you need to use a computer or a calculator to make the calculation, you shouldn't buy it."

Said Mr. Munger: "Some of the worst business decisions I've ever seen are those with future projections and discounts back. It seems like the higher mathematics with more false precision should help you, but it doesn't. They teach that in business schools because, well, they've got to do something."

Mr. Buffett said: "If you stand up in front of a business class and say a bird in the hand is worth two in the bush, you won't get tenure....Higher mathematics my be dangerous and lead you down pathways that are better left untrod."

Mr. Munger on the Future

"As I move close to the edge of death, I find myself getting more cheerful about the economic future," Mr. Munger said.

Mr. Munger sees "a final breakthrough that solves the main technical problem of man," he continued.

By harnessing the power of the sun, electrical power will become more available around the world. That will help humans turn sea water into fresh water and eliminate environmental problems, Mr. Munger explained. "If you have enough energy you can solve a lot of other problems."

Wall Street Journal

Write to Scott Patterson at scott.patterson@wsj.com and Alistair Barr at alistair.barr@marketwatch.com

Labels: berkshire hathaway, charles munger, stock trading investing, warren buffett

OMAHA, Neb. - Warren Buffett says the economic turmoil that contributed to a 62 percent profit drop last year at the holding company he controls is certain to continue in 2009, but the revered investor remains optimistic.

Buffett released his annual letter to Berkshire Hathaway Inc. shareholders Saturday morning, and detailed the worst of his 44 years leading the Omaha-based company. But in between the news of Berkshire's sharply lower profit and its nearly $7.5 billion investment and derivative losses, Buffett offered a hopeful view of the nation's future.

He said America has faced bigger economic challenges in the past, including two World Wars and the Great Depression.

"Though the path has not been smooth, our economic system has worked extraordinarily well over time," Buffett wrote. "It has unleashed human potential as no other system has, and it will continue to do so. America's best days lie ahead."

Within Berkshire, Buffett said the company's retail businesses, including furniture and jewelry stores, and those tied to residential construction, such as Shaw carpet and Acme Brick, were hit hard last year, and they will likely continue to perform below their potential in 2009.

But he said Berkshire's utility and insurance businesses, which includes Geico, both delivered outstanding results in 2008 that helped balance out the other businesses.

Berkshire's 2008 net income of $4.99 billion, or $3,224 per Class A share, was down from last year's $13.21 billion, or $8,548 per share, in 2007.

The two analysts surveyed by Thomson Reuters on average expected Berkshire to report a 2008 profit of $5,534.50 per share. But the estimates typically exclude one-time items.

Buffett estimates Berkshire's book value - assets minus liabilities - declined 9.6 percent to $70,530 per share in 2008. Berkshire's book value declined only one other time under Buffett, and that was a 6.2 percent decline in 2001.

But Berkshire's 9.6 percent decline still beat the S&P 500's 37 percent decline in 2008, the report said.

Buffett devoted nearly five pages of his letter to Berkshire Hathaway shareholders to explaining the role derivatives played in the company's investment losses last year.

Buffett said he initiated all of Berkshire's 251 different derivative contracts because he believes they were mispriced in Berkshire's favor.

"If we lose money on our derivatives, it will be my fault," Buffett said.

Berkshire has received $8.1 billion in payments for derivatives which can be invested until the contracts expire years from now.

But Berkshire has to estimate the value of its derivatives every quarter. Buffett says he supports that mark-to-market accounting, but the formula used to estimate that value can produce absurd results for long-term contracts.

Buffett said he made at least one major investing mistake last year by buying a large amount of ConocoPhillips stock when oil and gas prices were near their peak.

Berkshire increased its stake in ConocoPhillips from 17.5 million shares in 2007 to 84.9 million shares at the end of 2008.

Buffett said he did not anticipate last year's dramatic fall in energy prices, so his decision cost Berkshire shareholders several billion dollars.

Buffett says he also spent $244 million on stock in two Irish banks that appeared cheap. But since then, he's had to write down the value of those purchases to $27 million.

Berkshire owns a diverse mix of more than 60 companies, including insurance, furniture, carpet, jewelry, restaurants and utility businesses. And it has major investments in such companies as Wells Fargo & Co. and Coca-Cola Co.

By JOSH FUNK, AP Business Writer Josh Funk

Labels: berkshire hathaway, ConocoPhillips, stock trading investing, warren buffett