11:42 a.m. EDT

Much anticipation has built since Doug Kass was appointed the "credentialed bear" on Berkshire Hathaway ( BRK.A)/ ( BRK.B) two months ago by Warren Buffett. This is the first time a bear has been invited to the Woodstock of Capitalism. Today our anticipation is put to rest.

Kass, President of Seabreeze Partners, had warned us that he planned to throw Buffett at least one curveball, and we are betting he won't disappoint. He stepped up to the plate and kicked off the bear case with a question about size and growth prospects.

Kass asked about Berkshire's recent acquisitions, which have been pricier than acquisitions they have done in the past at much more attractive valuations.

Kass said, you were "hunting gazelles before, but now you are hunting elephants." He points out that Burlington Northern and Lubrizol have been made at high historical valuations. Richer prices paid will lead to lower returns on acquisitions than in the past, driving slower growth for the company. Does this mean Berkshire is becoming more like a sleepy index than a stock?

Warren immediately responded that "there's no question about it we are seeing slower growth. It's tougher as we get bigger; we always knew that would be the case."

On prices paid, he pointed to Geico saying they paid 20x earnings and a fair size above book value for the company. In fact, Berkshire owns eight different businesses that would be on the Fortune 500 list if they didn't own them.

Buffett explains, "We have paid up for good business. There are companies we should have bought 30 years ago that looked expensive then but have done very well. We have now realized that paying up for an extraordinary business is not a mistake." They are trying to avoid missing good opportunities like the ones they passed on previously.

Charlie Munger added, "Looking at all the companies out there that got really big, the record isn't that good. However, we think we'll do pretty well despite getting big. We'll do better than the giants of the past. We have a better system than most other people." Warren wasn't fully in agreement with the last part of that statement.

Warren closed the conversation by saying "You haven't convinced me to sell the stock yet, Doug."
At the time of publication, Bell had no positions in any stocks mentioned.

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