Editor’s note: This commentary is provided by James Rutherford, a junior at the University of Arkansas at Little Rock seeking a degree in Finance. Rutherford is the Vice President of the UALR Finance and Economics Association. He also led a team to a first place win at the 2013 Donald W. Reynolds Cup business plan competition.
This past weekend, over 30,000 people traveled to Omaha, Nebraska in a pilgrimage of capitalism. They came to hear Warren Buffett and his right hand man, Charlie Munger, speak at the Berkshire Hathaway annual shareholder meeting. Shareholders, college students, money managers, and every kind of Buffett enthusiast attended the high-energy event.
I fit into the college student category. Seven years ago, Delta Trust and Bank joined with UALR to create the Berkshire Hathaway Independent Study class. Each spring semester, three finance or economics students are chosen to study Buffett’s investment style as well as the structure and history of his company. David Snowden, Jessica James, and I were the students selected this year. At the end of the semester, Delta Trust invites the students to join them in a trip to Omaha to see Buffett live.
By the time the trip rolled around, I had already spent many hours studying Buffett and was thrilled at the prospect of hearing him in person. Not surprisingly, I wasn’t the only one anxious to hear the famous investor speak. At 5:30 am on the morning of the meeting, our group arrived to the convention center to see an already significant crowd braving the cold, wind, and rain as they waited for the doors to open. We took a place in the line and it was worth the wait.
The meeting format was Q&A. Questions came from a six-person panel as well as the audience. Buffett and Munger gave responses on everything from Berkshire to the economy to taxes to the best way to leave wealth to your children.
My favorite thing about Buffett is that all of his answers are laced with this idea of American greatness. When questioned about the effects of the European economic troubles and U.S. national debt, he responded with absolute confidence in the ability of the American people to overcome any difficulties in the macro economy. His positive tone was a breath of fresh air. Buffett predicts that a few hundred politicians in Washington will not be able to hold down three hundred million hard-working American citizens.
While he had an overall optimistic view of our future, Buffett did point out some key challenges that our country faces, the greatest of those being rising healthcare costs. Buffett noted the U.S. spends more on healthcare (as a percentage of GDP) than nearly any other country in the world. These costs are born largely by companies, thereby making them less competitive globally.
In terms of investment insight, Buffet reiterated his philosophy that an investor should buy simple, stable businesses at attractive prices. Unlike Wall Street, Buffett does not use fancy valuation models or computer programs when choosing the businesses he will buy. He would rather focus on things like management quality and whether a firm has a long-term competitive advantage in its industry.
These ideas are not commonly taught in college classrooms.
One new element of this year’s meeting was that Buffett invited Doug Kass, a fund manager who is bearish on Berkshire stock, to be a part of the questioning panel. With little success, he attempted to find a crack in Buffett’s armor. Each time Kass raised a reason to doubt Berkshire, Buffett and Munger responded with clarity and wit.
All in all, I left Omaha inspired and enlightened. Buffett has a way of drawing in everyone who listens to him. Maybe it’s his appeal to common sense. Or maybe it’s his incredible track record. Either way, Warren Buffett is someone I admire and always will.