OMAHA, Neb. -- Through nearly six hours of shareholder questioning, punctuated only by a short lunch break,
and his sidekick, vice chairman
, stuck closely to the themes they know so well. These include how great brands like
build value; the hidden beauty of the insurance business (and thus Berkshire holdings
); and their wariness over the high valuations of the stock market.
But amid the patient question-and-answer session in front of some 15,000 fans in
, the team of Buffett and Munger provided some surprising comments on how even two non-technologists have had to change their thinking in light of the unprecedented spread of the Internet.
Buffett the Net analyst?
It's a well-known fact that Buffett continues to avoid investments in technology companies. But while allowing that he doesn't know what technology companies will look like in ten years, he did admit that the ramifications are far-reaching. "We realize that in many businesses the Internet is going to pose such a threat that we won't get into them."
"If I were buying into any retailing business I'd be thinking about the impact the Internet will have," he said. "It will have a huge impact on certain retailers. It will revolutionize them."
But he disagrees with those who maintain that the Internet will reduce all competitors to the same level. "I don't see people going to Brand X.
Trust becomes especially important when everyone is out there
, for example, holds an unbeatable advantage in e-tailing. "People who like the blue box will go to Tiffany and pay a lot more money."
Munger, seemingly proud of his lack of technological prowess, reminded Buffett that not all of Berkshire's businesses are thriving in the electronic age. "Our
business has been hurt by the personal computer and the CD-rom. It's a big risk, and its not easy to make predictions about big changes."
Buffett also sounded a warning to retail property owners, saying the Internet could pressure the value of their holdings. "
Electronic commerce affects real estate that is dedicated to retailing," he said. "If you move 5% of the
retail volume to the Internet -- where real estate is essentially free -- it will have an impact. I would give a lot of thought to that if I owned a lot of retail rental space."
Standard and Poor's Take Note
Buffett also had to field a question regarding Berkshire's potential inclusion in the
. While he thinks the company would make a good addition, the illiquidity of the shares remains a serious shortcoming. "Berkshire certainly qualifies in every way except in what they might term the liquidity standpoint," he said.
It is the huge amount of money that passively mimics the S&P 500 which Buffett thinks is the reason they have yet to be invited to the party. "If Berkshire was put into the S&P 500, you would have a market order to buy 6% of Berkshire stock, roughly 100,000 shares of 'A' shares," he said. "That would not be good. Our stock is tightly held and most people don't want to sell."
Buffett's biggest concern is the short-term price impact on some recent additions to the index. "No one benefits from that -- except the people who sell in the very short term, and that is not the group that I primarily worry about," he said.
Munger, as is often true, had the last word. "My guess is that Berkshire will eventually be in the S&P index. Somebody will figure out how to do that," he said. "Maybe not soon, but eventually."
Love Our Businesses, But Not the Price
In a year when two of Berkshire Hathaway's major holdings have faced an uphill battle -- both Coca-Cola and Gillette are off some 8% over the past 12 months -- the valuation of Berkshire's big stockholdings are at forefront of many shareholders' minds. Both Buffett and Munger say they continue to love the long-term prospects for all their major holdings, including Coca-Cola, Gillette,
. "If you're looking at the prospects for Coke 10 years from now, you're not worried about the short-term issues," said Munger.
Buffett agreed, saying he continues to be enamoured with all of these investments, but wouldn't add to the positions at current levels. "It does mean our enthusiasm for buying more of these wonderful companies has decreased," Buffett said. "We don't like the P/E ratios generally. That doesn't mean they're going down
in price. It just means we got spoiled." Buffett did say there was a reasonable chance they would purchase more Coke and Gillette sometime in the next decade, just not now.
Tomorrow we'll take a look back at the unique aspects of this annual meeting and look ahead to Berkshire Hathaway 2000 with two issues in mind. First, will the Berkshire meeting ever outgrow its utility? And, second -- with Warren Buffett turning 69 this year -- what happens when he retires?