Under the Radar: Return to Capitalist Woodstock

Berkshire Hathaway's annual meeting is here, and again <I>TheStreet.com</I> takes you there.
By Christopher Edmonds ,

OMAHA, Neb. -- Each year, thousands of devoted

Berkshire Hathaway

(BRK.A) - Get Report

shareholders make the pilgrimage to hear the sage advice of their leader, Warren Buffett. The shareholders have faith that at the annual capitalist Woodstock gathering, Buffett will impart the wisdom and values that will sustain them in the coming year, through good markets and bad.

"It's a weekend you have to experience to understand and appreciate," longtime Berkshire shareholder Howard Alter, the president of Alter Asset Management, said after last year's annual meeting. "It's difficult to describe to those who haven't been here."

This year's annual meeting will probably be no different. Buffett and Charlie Munger, the affable Berkshire vice chairman, are both a year older, but they'll keep schedules over the next three days that would tire a marathon runner. The focus, of course, is the six-hour meeting where Buffett and Munger allow shareholders to ask a myriad of questions as they munch on Dilly Bars and Sees Candy and sip Cherry Coke, all products in which Berkshire has an interest.

However, the weekend is as much about shareholder fellowship as education. Berkshire will sponsor gatherings at Borsheim's Jewelry Store and Nebraska Furniture Mart, and informal meetings will take place among cliques of longtime shareholders who use Omaha to reconnect year after year. And of course, there's Warren "the Whip," tossing out the first pitch at Saturday's Omaha Royals baseball game, another business in which Buffett has long held a stake.

The weekend is capitalism at its best. Shareholders get a chance to rub elbows with one of the most famous investors of our era, and at the same time have a chance to leave their appreciation in the cash drawers of Berkshire-controlled businesses. In a small but powerful way, the weekend's activities show the real brilliance of the Warren Buffett Way.

Market-Moving Chatter

While the weekend is a social event for many, there will be some serious talk in the coming two days that may have an impact on the markets come Monday. Everyone would be surprised if Buffett didn't say the equity markets present a very average investment opportunity over the next year -- if not longer -- and that he isn't finding much in the way of stocks that intrigue him. After all, that's been the message in at least the past five annual reports.

That message is also at least partly driven by Buffett's more recent focus on investing capital in complete businesses, as opposed to taking large stakes in the common equity of companies. Over the past three years, Buffett's major stock holdings have changed very little. The elimination of a big position in

Disney

(DIS) - Get Report

and growth in positions in

H&R Block

(HRB) - Get Report

and

Moody's

(MCO) - Get Report

are the only large, recent changes in the Buffett portfolio.

Instead, he has focused on purchasing easy-to-understand businesses like the Pampered Chef, the maker of kitchen products, and Garan, the children's clothing maker. A topic of conversation this weekend will surely be the acquisitions made in recent months and the strategy of Berkshire going forward.

Energetic

One major focus will likely be Buffett's take on the energy business. With the purchase of a controlling stake in

MidAmerican Energy Holdings

almost three years ago, it became clear that Buffett was taking an interest in the electric power and energy business.

While somewhat constrained in its acquisition path by the Public Utility Holding Company Act, or PUHCA, Berkshire has found ways to opportunistically grow the business. This year, MidAmerican purchased significant natural gas pipeline assets, and on Thursday opened the expansion of the Kern River Pipeline from the Rockies to the West Coast.

With fire-sale purchases from both

Williams

(WMB) - Get Report

and

Dynegy

(DYN)

, MidAmerican now transports more than 8% of all natural gas in the U.S.

Buffett also revealed this week that he has taken a significant stake (about 13%) in

PetroChina

(PTR) - Get Report

, the largest oil and gas producer in China. This latest move underscores Buffett's diverse interest in the energy space and is certain to be discussed over the weekend.

Governance

Finally, the scandals over the past year will make corporate governance a topic for lively conversation with both Buffett and Munger.

Munger has warned of corporate bad acts at the annual Berkshire gathering for the past five years. From accounting to greed, shareholders will certainly want to question the duo on their views regarding Wall Street's misdeeds.

One thing is for sure: Buffett and Munger have plenty of topics to choose from. Fortunately, both carry on, educating and entertaining, and pleasing the shareholders who flock to Omaha each year.

Can't make it to this year's meeting? No worries. Once again,

TheStreet.com

will bring you wall-to-wall coverage, from the first party on Friday to the closing act on Sunday, including complete coverage of Saturday's annual meeting. Look for our coverage on both

RealMoney.com

and

TheStreet.com

. And for

RealMoney

subscribers, check out the live updates from the annual meeting in the Columnist Conversation.

Christopher S. Edmonds is vice president and director of research at Pritchard Capital Partners, a New Orleans energy investment firm. He is based in Atlanta. At time of publication, neither Edmonds nor his firm held positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While Edmonds cannot provide investment advice or recommendations, he welcomes your feedback and invites you to send it to

Chris Edmonds.

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