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A Trip to Omaha

Tim Medley

IF PAST YEARS ARE any guide, about 40,000 shareholders will be in Omaha, Nebraska, today for Berkshire Hathaway’s 2022 annual meeting. I first went 35 years ago.

While working as a financial advisor in the mid-1980s, I began to read about the investment success of Warren Buffett and Charlie Munger. At the time, Berkshire’s stock sold for around $2,700 a share. Yesterday, it closed at $484,340.

I bought one share—and then booked a flight to Omaha for the 1987 stockholder’s meeting. It was held on a Monday morning and I’m guessing around 600 shareholders were in attendance. Like me, many were there to hear Buffett and Munger talk. We weren’t disappointed. For almost three hours, they answered shareholders’ questions. I wrote about the meeting for my quarterly client newsletter. Below is my (slightly edited) account of that 1987 meeting.

*   *   *

I had decided last year that it was time to become a stockholder of Berkshire Hathaway and to go meet this hero of sorts, Warren Buffett, Berkshire’s chairman, at his annual meeting in Omaha, Nebraska.

There was so much about him I admired from my readings. The unusual policy of his corporation on contributions to charities whereby shareholders were given an option, based on pro-rata stock interest, as to what charity should receive a contribution. The corporate annual report which had no glossy photos of executives, was published on cheap paper, and owned up to management mistakes. His Midwestern heritage. How can America’s most sage investor not live in New York or Boston or some other glamorous city? The man Forbes said is the only individual to make $1 billion investing in stocks lives in Omaha, Nebraska? Impossible.

And so there I was, riding around Omaha on a Sunday in May 1987, seeing large signs for ConAgra, Boys Town and Creighton University, so that the next day I could sit and listen to this man. My wife’s practical nature had surfaced the week before. “You mean you’re spending $1,000 to go all the way to Nebraska just to hear a man speak for an hour? Can’t you get a tape of it?” I wondered myself. But it seemed important to see the man and hear his thoughts in person.

After checking in at the Days Inn (I can be practical), I immediately headed for the Nebraska Furniture Mart. This unlikely business seems to symbolize Mr. Buffett’s and Charlie’s (more on him later) investment style, and today is an integral part of Berkshire Hathaway’s many corporate holdings. The store was started in the 1930s by a Russian immigrant, Mrs. Rose Blumkin. Today Mrs. B is chairman of the board and still going strong at age 93. I sought her out but was told she had gone home about five for supper but “she’ll be back.” Indeed, about six, she came riding down the aisle in her Cushman golf cart.

I asked her about selling the store to Mr. Buffett. “Warren is a delightful man. Came in one day a few years back to buy a television. He’d been pestering me about buying the store. ‘Today’s my birthday, Mrs. B.,’ he said. ‘Why don’t you sell me your furniture store?’ Took me 10 minutes and I sold it for $55 million. He never even took inventory or checked the receivables. Just took my word for it and brought me a check.”

The Nebraska Furniture Mart’s sales in 1986 make it the largest single home furnishing store in the U.S. In 1984, its operating expenses compared to that of Levitz Furniture were 16.5% of sales, versus 35.6% for Levitz. The store contributed $17 million to Berkshire Hathaway’s earnings in 1986.

A little bit about Berkshire Hathaway. Warren Buffett raised some money from individuals back in the 1950s to run an investment partnership which made stock purchases in companies that met his investment criteria. His rules for investing had been formulated earlier in life when he worked under the legendary Ben Graham, the author of the book, The Intelligent Investor. Today, the company either owns outright or has a substantial interest in The Washington Post, The Buffalo News, Geico Insurance, National Indemnity Insurance Company, World Book Encyclopedia, Capital Cities/ABC and others. Berkshire Hathaway stock recently traded for around $4,000 per share.

The annual meeting was held the next day at the Joslyn Art Museum, and I was there early. I first saw Mr. Buffett in an archway of the reception area, and I was struck by the plainness of the man. A simple blue blazer and gray slacks, unstylish glasses, unruly hair—he just did not seem like a billionaire at a corporate annual meeting. He could easily have passed for a high school basketball coach waiting for the game to start at the gym. I immediately liked him.

In a few minutes, this plain man, and his friend and fellow officer, Charlie Munger, ambled up to the stage and, as they did, an awe fell on the audience. I could feel it and I guess I was part of it. Respect seemed to swell up and nobody had said a word yet. Now understand that while Warren and Charlie looked like the rural Midwest personified, the audience didn’t. Plenty of pinstriped suits, Boston brogues and, in my opinion, old money.

The two men brought along a quart of Cherry Coke, the official drink of Berkshire Hathaway. The meeting began shortly after nine, the appropriate legal motions were taken care of, and the meeting was adjourned at 9:50 a.m.

“Charlie and I will be happy to answer any questions now and we’ll stay here as long as is necessary.”

As always at this type of gathering, the questions were slow coming. But once things got going, I didn’t think there would be an end. Here is a sampling of some of the questions and Mr. Buffett’s answers.

His philosophy on shareholders and management? “Berkshire Hathaway is a corporation in form, but we are a partnership in spirit with our shareholders.”

Are there any plans to split the stock? “We might issue more stock for acquisitions, but we see no good reason to split the stock otherwise. We seem to have a very intelligent group of shareholders now and, if the stock was split, that might change. When a friend of mine turned 60 a while back, I sent him a telegram which said, ‘May you live until Berkshire Hathaway splits’.”

The effectiveness of his full-page ad in The Wall Street Journal last year soliciting businesses for sale with a minimum of $10 million or more of after-tax earnings? “If you put an ad in the paper trying to buy a chihuahua, you get a lot of calls from collie owners. We got a lot of calls, but it probably wasn’t worth it.”

What is the company’s acquisition policy? “We wait for the phone to ring.”

Your view on inflation? “I really don’t know what inflation will do. I only have an observation based on what I see politically, and it seems that at some point we will see lots of inflation. Maybe more than we had four or five years ago.”

The casualty insurance industry and their new reserving techniques for potential losses? “The word technique dignifies it. It is a guess.”

Strategic planning in American business? “False precision is a real problem for American management. Computers make predictions look precise. When we were thinking of buying Scott Fetzer, they gave us a book prepared by their investment bankers about the company. We handed it back. Told them it would probably confuse us. Some of the worst mistakes I have seen have come from analyzing charts.”

What type of companies are you trying to buy? “We would like to buy companies that sell a product that costs a penny, is worth a dollar, and is habit forming. We don’t like businesses that are susceptible to change because we hold our businesses forever. That eliminates a lot of businesses. We are looking for disguised newspapers…  companies that have a franchise.”

John Kenneth Galbraith has written that we may have a crash in the stock market. What do you think it’s going to do? Are you investing in stocks? “Smart men make fools of themselves when they predict markets. John wrote a book in the 1950s saying the market was about to crash and then the Dow Jones Average was around 400. Look where it is now. I was working for Ben Graham at the time, and he testified before a congressional hearing and one of the things he said was: ‘It [the market] looks high, it is high, but it’s not as high as it looks.’ I have never met a man who could forecast the market. Buy stocks that you can own forever so that, if they go down 50%, you wouldn’t be bothered because you don’t intend to sell. We do not see any stocks that make sense to us to buy. We are buying eight- to 10-year municipal bonds. My feelings about investing in stocks are still contained in chapters 8 and 20 of Ben Graham’s book.”

Berkshire Hathaway has $3.5 billion of marketable securities. Would you consider using this to pay a dividend or buy in some of your own stock? “No. You will see everything in markets if you live long enough, and when the markets are right, I want to have a loaded gun.”

You’re not as young as you used to be. Would you ever consider a merger with another company? “Not really. I suppose if Exxon approached us, we might be interested, but we would have to ask who would be the surviving managers.”

The questions ended around 12:30 that afternoon and very, very few people had left early. Mr. Buffett then invited everyone to board the buses for the Nebraska Furniture Mart. He writes in the annual report: “Last year one shareholder from New Jersey and another from New York went to the Furniture Mart, where each purchased a $5,000 Oriental rug from Mrs. B. (To be precise, they purchased rugs that might be $10,000 elsewhere for which they were charged about $5,000.) Mrs. B was pleased—but not satisfied—and she will be looking for you at the store after this year’s meeting. Unless our shareholders top last year’s record, I’ll be in trouble. So do me (and yourself) a favor and go see her.”

Wow. What a guy!

Tim Medley retired in 2020 after selling his investment management firm, Medley & Brown. Today, he lives in Jackson, Mississippi, with his wife Jean. He still owns Berkshire Hathaway. Tim can be contacted at 1tcmedley@gmail.com.

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