10 lessons from Warren Buffett’s latest shareholder meeting

More than 20,000 people flocked to the small American town of Omaha this weekend to hear investment legend Warren Buffett address the annual shareholders meeting of his company Berkshire Hathaway.

But it wasn’t all beer and skittles for Buffett. The so-called ‘Woodstock for capitalists’ was soured by a scandal involving Warren Buffett’s heir-apparent, and a 60% fall in first-quarter earnings.

Here are 10 things we learnt from the six-hour meeting.

Former heir-apparent David Sokol broke rules with “inexplicable and inexcusable” behaviour

Berkshire Hathaway had already said executive David Sokol had violated the “duty of candour” he owned by the company by purchasing millions of dollars’ worth of Lubrizol shares before recommending Berkshire buy the chemicals maker, but was criticised for emphasising Sokol’s achievements while announcing his departure in March.

On the weekend, Buffett went further, saying Sokol’s actions were “inexplicable and inexcusable”.

“He violated our insider trading rules and he violated the principles I lay out every two years to our managers.”

But questioned on the scandal’s long-term impact, Buffett replied: “I don’t think it will change a record of 80 years.”

This contrasts with a previous statement that he would “be ruthless” if an employee lost a shred of reputation for the investment firm.

Meanwhile, Sokol has struck back, with his lawyer insisting after the AGM that his client had not broken any law or company policy.

Buffett didn’t handle the scandal well

But while Buffett is confident Berkshire can withstand the controversy, he admitted on the weekend he could have handled the matter better.

“I made a big mistake by not saying, ‘Well, when did you buy it?'” Buffett said.

Some shareholders agree, saying the biggest damage was Buffett’s trust in his key lieutenants.

We still know very little about Buffett’s succession plans

An 80-year-old chief and chairman is sure to attract succession speculation, and this weekend delivered precious few hints. Buffett told shareholders that the frontrunner was “straight as an arrow”, while his son Howard – a Berkshire director and favourite to take over his father’s role of chairman – has highlighted that railroad chief Matthew Rose will join an inner circle of managers, alongside Tony Nicely and Ajit Jain. Greg Abel, president and CEO of MidAmerican Energy is another common name.

“A lot of these CEOS are close to my dad,” Howard Buffett told Bloomberg.

But the son is keeping mum on the final name, saying: “Candidates change. People often want him to come out and say, ‘Here’s the person’, but that would be foolish because that person can change.”

In February, Berkshire said it had four people in mind for the top job.

Berkshire could buyback

Buybacks aren’t a dirty word for the company’s $US83 billion in cash. Like BHP Billiton, Berkshire Hathaway is prepared to put its money on the line to repurchase its shares.

There could be a market where it wouldn’t be self-defeating to do a share buyback, Buffett told a press conference.

“We would love to buy it back under those circumstances.”

But shareholders shouldn’t expect dividends

A buyback might be possible, but dividends aren’t on the agenda. Unlike other companies, which have increased dividends to compensate and reward shareholders for their faith during the GFC, Buffett and vice-chairman Charlie Munger are confident they can do better things with shareholder cash than return it, and reckon announcing a dividend would push the company’s share price south. “Every dollar that’s invested in Berkshire has created much more than a dollar in market value,” Buffett said.

Australian dollar punt pays off

It’s not just Asian central banks that have taken a punt on the soaring Australian dollar. The world’s most successful investor hasn’t let the opportunity pass, saying he had made $US100 million on investments in the local currency.

But even Buffett can’t guess where the currencies are headed over the next decade, saying Government movements are unpredictable.

Buffett still backing the US of A

While Inflation in the US is likely, Buffett is still effusive about the US economy.

“If I had a choice, I’d rather be born in the US today than in any other place at any other time in history. I don’t see how anybody can be other than enthused about this country.”

He also told Reuters the world’s biggest economy was “not going to default on any obligation”, after ratings agency S&P put the Government’s AAA credit rating on a negative credit watch earlier this year.

“We are not a credit risk, believe me”.

But its politicians are on notice, with calls for no change to the US debt ceiling holding no sway with the billionaire.

“We’re a growing country, and we’re going to have a growing debt capacity,” Buffett said. “In my view, there’s no chance that they won’t increase the debt ceiling.”

The banks are facing lower profits

Buffett’s enthusiasm is more muted about US banks, despite enthusiasm over its investments in the “decent businesses” of Wells Fargo & Co and U.S. Bancorp.

“US banking profitability will be considerably less in my view in the period ahead than it was in the early part of this century,” Buffett said.

“A very important reason is that the leverage will be reduced. That’s probably a good thing for society. That may be a bad thing for banks who can use leverage intelligently.”

Separately, Buffett delivered some confidence in the Washington Post board, saying he’s getting off the board, but won’t sell out. “I’ll be unequivocal about that,” he said, adding he would also be open to advising management if asked.

Disasters can’t be dodged

Berkshire was not immune to the natural disasters in Australia, New Zealand and Japan. It reported a $US821 million quarterly loss for its insurance operations, versus a $226 million gain in the previous period.

“We had probably the second-worst quarter for the insurance industry in terms of disasters around the globe,” Buffett said.

Everyone wants to be seen with Buffett

And finally, when it comes to publicity shots, nothing beats some snaps with cheerleaders.