Warren Watch:
Buffett lunch still racks up hefty tab

Warren Buffett took advantage of his annual charity lunch last week to do live interviews in New York City and to promote the auction for next year's fundraiser.

His comments generated a spate of news stories, including his criticism of Apple founder Steven Jobs for not telling people about his liver transplant earlier this year.

If an illness interferes with a CEO's ability to work, Buffett said, that's a “material fact” that shareholders should know. Securities laws are intended to give investors equal access to information that would influence their decisions.

Buffett also mentioned the issue during the annual Berkshire Hathaway Inc. shareholders' weekend last May in Omaha, saying he didn't disclose his recent cataract surgery because it didn't interfere with his work.

But in 2000 he did announce that surgeons removed several benign polyps from his colon. The next day Berkshire stock dropped 4 percent. Apple's stock price dropped 1.5 percent on Monday, the first trading day after the disclosure of Jobs' liver transplant.

Jobs, 54, has been on medical leave since January, and news reports at that time had said he was considering a liver transplant.

Buffett, who turns 79 in August, said in one of the interviews last week: “If I have any serious illness, or something coming up of an important nature, an operation or anything like that, I think the thing to do is just tell ... the Berkshire shareholders about it. I work for 'em.

“Some people might think I'm important to the company. Certainly Steve Jobs is important to Apple. So it's a material fact. Whether he is facing serious surgery or not is a material fact. Whether I'm facing serious surgery is a material fact. Whether (General Electric CEO) Jeff Immelt is, I mean, so I think that's important to get out.

“They're going to find out about it anyway, so I don't see a big privacy issue or anything of the sort.”

Manager

Buffett was interviewed separately by Liz Claman of Fox Business Network, Betty Liu of Bloomberg and Becky Quick of CNBC at the bar of the Smith & Wollensky's steakhouse in New York City.

Then he ate lunch there with Hong Kong investment fund manager Zhao Danyang, who donated $2.1 million last year to the Glide Foundation in return for the three-hour meal with Buffett. Normally, Buffett told Claman, he could get about 425,000 of his normal $5 meals for the same amount.

During the week some had speculated that the downturn in the economy would hurt the proceeds from this year's auction. The winning bid Friday was $1.68 million, the second-highest since Buffett began the charity auction a decade ago.

The winning bidder declined to be identified publicly, but he or she was pre-qualified to bid in the auction by the Glide Foundation. The San Francisco social service charity is affiliated with Glide Memorial Church, which serves meals and conducts programs to help the needy.

Zhao's $2.1 million bid last year was a charity-auction record for eBay and more than three times the highest winning bid in previous years. Other winning bids in recent years: 2003, $250,100; 2004, $250,000; 2005, $351,100; 2006, $620,100; and 2007, $650,100.

Also ...

Among Buffett's other comments:

— Regular reports from Berkshire subsidiaries indicate that the economic recovery hasn't started. He expects a turnaround but doesn't know when.

— Federal Reserve Chairman Ben Bernanke, Treasury Secretary Timothy Geithner and presidential economic adviser Larry Summers are doing their jobs well. Bernanke is up for reappointment after his term as chairman expires Jan. 31. “I think he is absolutely the right man,” Buffett said. “When you have somebody that good, I think you keep him in the lineup.”

— The government's actions over the past several months to help the economy were appropriate but will lead to inflation later on.

— It takes time to resolve complex economic issues. “You can't produce a baby in one month by getting nine women pregnant, you know,” he said. “It just doesn't work that way.”

— The United States will keep its AAA credit rating and solve its problems, although human nature drives people to excess and will cause new problems.

— Debt is at the root of many problems. “There's really only one way that a smart person can get in trouble and that's leverage. ... You can't go broke if you don't owe money. And we had these incentives built into many institutions to just pile on leverage like you can't imagine.”

Goldman

Buffett has no plans to sell Berkshire's holdings in Goldman Sachs Inc., especially since the investment pays dividends of $500 million a year.

Goldman, a leading investment bank, repaid the $10 billion it borrowed in the government's capital program, but Berkshire still holds its $5 billion worth of preferred shares plus warrants to buy common stock. The deal happened last fall when Goldman needed cash and the nation's financial system was teetering.

The warrants entitle Berkshire to buy $5 billion of common stock at $115 per share, or 43,478,260 shares, any time in the coming five years. At Friday's closing price of $146.74, the shares would be worth $6.38 billion and yield a profit of $1.38 billion.

Some observers had criticized Buffett's investment when Goldman's share price fell as low as $47.44 in November. At that price, the warrants weren't worth exercising. But the higher Goldman's stock price rises, the more valuable the warrants are. Buffett said he expects to hold them.

Trott

The Daily Mail of London, the Wall Street Journal and the Financial Times reported that Byron Trott, who handled many of Buffett's investments while at Goldman, has raised about $2 billion for his investment firm, BDT Capital Partners in Chicago.

Berkshire holds a “modest partnership interest” in BDT, the Times said. Joining Trott is Don McLellan, former head of mergers and acquisitions at Motorola.

Trott has been mentioned as a possible future chief investment officer at Berkshire. Buffett has said he mistrusts some investment bankers, but in his 2003 letter to shareholders he wrote of Trott:

“He understands Berkshire far better than any investment banker with whom we have talked and — it hurts me to say this — earns his fee.”

Living Today

News outlets, including the Living Today magazine in India, are still discussing Buffett's annual shareholders meeting in Omaha last May.

Rachna M. Koppikar wrote that the annual meeting is to Berkshire shareholders what the Kumbh Mela is to pilgrims in India. (The Kumbh Mela is a mass Hindu pilgrimage that occurs every three years.)

Koppikar tracked down Indians who made the trip, including the “visibly awestruck” Shiv Puri, managing director of the Voyager Capital Advisors of Mumbai, who believes the trip is worth every rupee spent.

“You have to be there to understand what a difference it makes,” Puri said.

Vivek Shah, a 25-year-old investor from Mumbai, persuaded his shareholder relatives in the United States to attend. Lined up at 6 a.m. for the meeting were Tarbir Shahpuri of Edelweiss Capital and Chetan Shah of Religare Securities.

“When there is so much of an information overload around us, (Buffett's advice) helps us see things through the clutter and with clarity,” Shah said.

Other value investors who have been part of the “congregation in Omaha” include Raamdeo Agrawal of Motilal Oswal Securities and Bharat Shah of Ask Investment Managers.

Koppikar wrote that the question-and-answer session with Buffett and Berkshire Vice Chairman Charlie Munger is “infotainment at its best. ... The answers invariably were insightful and in-depth.”

Contact the writer:

444-1080, steve.jordon@owh.com