Dear Value Investors,

This was my fourth trip to the so-called Woodstock for Value Investors and my latest attempt to capture the majority of the comments made by Warren Buffett and Charlie Munger. Over that time, what hasn’t materially changed is the amusing back and forth between Charlie and Warren or the number of people who come to Omaha to glean words of wisdom from the leaders of Berkshire Hathaway (BRK).

Unfortunately, what has changed is the format of the meeting. While I actually appreciate the questions from the media company moderators, the addition of the questions from the insurance analysts was certainly not positive. If these fine gentlemen wanted to better understand the nuances of the quarterly insurance numbers, they probably should have attempted to set up a private meeting with someone from the company. However, given this specific audience, their detailed questions about the insurance businesses were likely above the heads of the vast majority of attendees and it was patently obvious that the Century Link arena was emptier during the Q&A session than in previous years. My advice to Warren and Charlie is to keep the same format but to replace the analysts with a few carefully selected BRK shareholders who can focus more on the long-term prospects for the company.

In any case, there were a few themes that stood out to me. I thought the conversation about wind and solar power, oil, natural gas and coal was very interesting. Regardless of one’s views on the US’s current energy policy, advances in hydraulic fracking have changed this country’s position when it comes to energy production and I was intrigued by Munger’s contrarian perspective on that matter. There was a lot of discussion of share buybacks and returning capital to shareholders in general. It sounded to me like a lot of the questions were tailored to make Buffett suggest that the stock was extraordinarily cheap. While Buffett did mention that the price at which they would buy shares is far below intrinsic value, he would not commit to buying shares back at the current price. BRK apparently just passed on a $22-23 billion deal and, as a shareholder, I see the hesitancy to buy back shares as a positive signal that BRK still has a better use for the cash.

Finally, another major topic of conversation had to do with the Buffett Rule and Warren’s involvement in politics. I personally have mixed views about Warren being so involved with a single Presidential candidate’s attempt to re-distribute wealth. There is no question in my mind that the tax code needs to be simplified and that we would all benefit if the tax base were broadened. I also appreciate Warren’s belief that everyone should pay his or her fair share. However, my concern is that he has become a centerpiece of a heavily partisan dispute and has clearly aligned himself with a candidate who may or may not be in office next year. Given the size of the deals BRK will have the capacity to do and the inevitable possibility of Justice Department investigations on anti-trust grounds, I sure hope Warren has not antagonized those on the other side.

With that, the following are my notes from the 2012 Berkshire Annual Meeting. As usual, these were taken in real time without the use of a recording device. As such, what is written includes my personal interpretation of what was said and I apologize for any errors or omissions. I hope you enjoy the notes and please feel free to forward them to anyone who would enjoy them.

Sincerely,

Ben Claremon
Research Analyst, Cove Street Capital
The Inoculated Investor

DOWNLOAD the 2012 Berkshire Hathaway Annual Meeting Notes.