In Focus

An education in Warren Buffett and Berkshire Hathaway

A woman emailed me last week and wrote, "I really enjoy your Gazette articles, but why don't you use your column to educate readers instead of always just using the space to make people laugh."

True be told, I can't think of anything that I could possibly educate people about. Ten ways to get through Driver's Training with your teenager? How to sniff out the warmest bleacher in any ice arena in the country? Best online shoe deals? Sticking to humor is smarter than opening myself up to I.Q. comparisons.

Wait, I do know something! I spent this past weekend in Omaha, Nebraska at the Berkshire Hathaway Annual Shareholders Meeting. Berkshire Hathaway is a company run by Warren Buffett that I was sure everyone had heard of and understood. Who doesn't know what BRK-A and BRK-B are? Who doesn't know that Dairy Queen, Coca-Cola and Geico Insurance are Buffett companies? Who doesn't know that Warren Buffett is the greatest investor of our lifetime?

A lot of people. When I came back, and saw the confusion on people's faces when I told them where I was, "You were where?" they asked. "What's Berkshire Hathaway and why would you go to Omaha?"

For the past ten years I've been in an all women investment club. One of the companies that we own stock in is Berkshire Hathaway. This past weekend, eight of us made the trek to Omaha to check in on our company and it's CEO. We wanted to see just what Warren was up to and what his plans were for the future. So just who is Warren Buffett and what is Berkshire Hathaway? Let me use my Gazette column to educate -

Years ago, forty-one to be exact, Warren Buffett was so frustrated with the investment community and their enormous fees for selling mutual funds, that he decided that he would create his own. He pooled together a group of companies, and re-sold shares of it to the public through his own company, Berkshire Hathaway.

To even be considered as a company that Warren would be interested in, you'd have to have strong earnings, good fundamentals, smart and ethical management, and an easy to understand product. It's that simple. When he finds one of these companies, and if they are at an attractive price, he buys them, or percentages of them, and holds on to them forever.

Our investment club studied Berkshire and thought we'd buy a few shares. Worst case scenario, we could go to the shareholders meeting and get some discounts on the products of the companies in Berkshire. It's been our most successful stock to date, up 30% since we bought five years ago.

Just what companies are held under the umbrella of Berkshire Hathaway? You might have heard of Geico, American Express, Anheuser Busch, Wal-Mart, Borsheims, Helzberg Diamonds, Acme Brick Company, Fruit of the Loom, MidAmerican Energy, Justin Industries, Larson-Juhl, Wells Fargo, Proctor & Gamble, The Pampered Chef, Shaw Industries, Benjamin Moore, Dairy Queen, Coca-Cola, See's Candies, and Scott Fetzer (a diversified company that owns World Book, Kirby vacuum, and 19 other companies).

With 50% discounts being offered at this year's shareholder meeting on some of the above companies, you can see how the trip was worth the drive. (DQ Dilly Bars were free all day.)

If you take a closer look, there's one thing missing - technology. Why?

Warren has been criticized for steering clear of buying technology stocks even though Bill Gates is on his Board of Directors, (yes, he was there too.) If Warren can't understand what the company's main product or service will be in five years, he stays away, as their business plan could easily fail in the ever-changing tech market.

In the year 2000, people were saying that Warren was too old (75 today) to understand the new world of dot-coms and the computer, and that he was passing up huge growth stocks. That same year, Berkshire's stock rose 26% while the S&P 500 fell 11% and the tech-heavy Nasdaq felt the biggest burn, losing more than 34%. So who's the one not understanding?

Of course, buying shares of Berkshire (ticker symbols BRK-A and BRK-B) is no bargain. One share of BRK-A is $90,000. Uh-huh, $90,000. Warren has never split his stock, and he never will. The amazing thing is that the stock started out at only $12 per share. Translation - if you had put $1,000 into Berkshire in 1965, today it would be worth almost eight million dollars.

But who can afford to dish out ninety thousand bucks? Enter, BRK-B. It's the same stock at the core, but 1/30th the price of BRK-A. Warren spun it off so more people could afford to get a piece of the pie. Today BRK-B is going for $3,000 a share.

There ya have it. An educational column. Funny thing is, I was sure I was dumbest person at the whole shareholder's meeting. I couldn't even understand some of the questions people were asking. My solution? I'd sneak out of the meeting and console myself with some See's fudge. Now that was smart.