Buffett faces a grilling from investors

Buffett faces a grilling from investors
By Francesco Guerrera and Justin Baer in New York
Copyright The Financial Times Limited 2009
Published: April 30 2009 19:21 | Last updated: April 30 2009 19:21
http://www.ft.com/cms/s/0/5cfe7cb2-35b0-11de-a997-00144feabdc0.html


Warren Buffett will be under pressure at Saturday’s annual gathering of faithful shareholders to explain his worst year ever, with the usually adoring crowd set to probe the legendary investor on his bargain-hunting strategy, succession plans and views of the crisis.

Buffett-watchers say this year’s meeting of shareholders in Berkshire Hathaway, his candies-to-insurance group, will depart from the usual pattern of deferential questions and folksy answers and witness some criticism of the billionaire investor.

“The hard questions will be asked this year,” said James Altucher, a hedge fund manager and author of Trade Like Warren Buffett. “There will be people who always stand by him and others who will ask: ‘Have you lost your way?’”.

Berkshire was unavailable for comment. But people close to Mr Buffett say he has been preparing for tough questions from some of the 25,000-plus investors expected to converge on his native Omaha to attend an event he once called “the Woodstock for capitalists”.

Mr Buffett’s supporters say his long-term record remains stellar and vastly superior to the stock market and that, even during a tough 2008, Berkshire’s shares outperformed major indices and most fund managers.

But criticism of the “Sage of Omaha” would be particularly unwelcome at a time when the 78-year-old investor is looking to preserve his legacy and pick a successor for the roles of both chief executive and chief investment officer.

As the financial crisis and the global economic slowdown raged, Mr Buffett stayed true to his “value investing” credo, buying stakes in blue chips such as Goldman Sachs and General Electric whose shares had slumped. But his motto of being “fearful when others are greedy, and greedy when others are fearful” could not prevent Berkshire from losing 9.6 per cent in book value per share – the metric that Mr Buffett uses to measure his performance – in 2008. That was Berkshire’s worst performance since 1965 when Mr Buffett bought a struggling textile-maker and turned it into a wildly successful investment vehicle.

“I think he took his eye off the ball a bit,” said Douglas Kass, a general partner at the hedge fund Seabreeze Partners Management, who reversed his short position on Berkshire recently and began buying the stock. “He was encumbered by a buy-and-hold strategy which to some degree ignored the carnage that was going on.”

Mr Buffett has admitted doing “some dumb things” last year, such as buying shares in the oil group ConocoPhillips when crude prices were at a peak and purchasing stock in two small Irish banks whose price later plummeted.

His call to retail investors to buy shares in US companies, made in a New York Times editorial in October, has also not worked out. The S&P 500 is about 6 per cent below levels seen when Mr Buffett wrote the article. But he has always maintained he is unconcerned by short-term market movements because of his long-term outlook.

His performance in 2008, for example, was hit by his large exposure to the ailing US financial sector, which includes stakes in American Express and Wells Fargo. Yet the recent rally in banking stocks appears to have helped Berkshire, whose shares have risen more than 30 per cent since their lows in March.

Additional reporting by John Authers