By Dr. David Kass
PhD, Harvard University
Department of Finance
Robert H. Smith School of Business
University of Maryland
Gates Capital Management's ECF Value Funds have a fantastic track record. The funds (full-name Excess Cash Flow Value Funds), which invest in an event-driven equity and credit strategy Read More
Last evening at a book talk in Washington, DC by Lawrence Cunningham ( Berkshire Beyond Buffett University Press, 2014), Don Graham provided numerous insights into Warren Buffett and Berkshire Hathaway. Mr. Graham noted that not only is Warren Buffett considered by many to be the world’s greatest investor, but he is also one of the top 3 or 4 CEO’s. Yesterday’s closing price of Berkshire Hathaway A at $213,000 per share was an all-time high. Berkshire is now valued at over $330 billion and is the fifth largest company by market capitalization. He noted that Berkshire’s shares have the lowest turnover of any stock on the New York Stock Exchange. Berkshire’s shareholders follow Warren Buffett’s lead and typically plan to hold their shares forever.
Don Graham also reminisced about the role Warren Buffett played in saving Salomon Brothers in 1991. Previously, in 1987, Berkshire had invested $700 million in Salomon. As a result of a Treasury bond trading scandal, its CEO was forced to resign and was replaced by Warren Buffett. At that time, Mr. Buffett had mentioned to Mr. Graham, that if Salomon had been allowed to fail it would have triggered “a world-wide financial catastrophe”. In Congressional hearings on Salomon in 1991, Warren Buffett said he told Salomon employees: “Lose money for the firm and I will be understanding, lose a shred of reputation for the firm and I will be ruthless” .
Berkshire’s board of directors each receive only $1,000 per meeting and they are not insured. However, they are each “huge shareholders” of Berkshire. Warren Buffett’s annual compensation is only $100,000, but he also owns 40% of Berkshire. Don Graham, however, expects the next CEO to be paid substantially more.
Don Graham also mentioned that it was Meg Greenfield at the Washington Post who introduced Bill Gates and Warren Buffett to each other at a party she hosted.
Currently, Warren Buffett has 80 people (80 companies owned by Berkshire) reporting to him at Berkshire. (Tracy Britt Cool also has a few Berkshire company CEO’s reporting to her.) However, the next CEO of Berkshire will reorganize the firm with fewer managers reporting directly to him.
With respect to the Berkshire annual meeting which currently attracts 40,000 shareholders, Don Graham believes that under the next Berkshire CEO, there “will not be 30,000 people” in attendance. There is no other company annual meeting that approaches that of Berkshire.
Finally, Don Graham mentioned that if someone had invested $10,000 in 1965 in good stocks such as Procter & Gamble and General Electric, that would be worth hundreds of thousands today. But, $10,000 invested in Berkshire would be worth millions.
(Note: I was an outside reviewer of the author’s book proposal and manuscript for Columbia University Press.)