WARREN BUFFETT used the annual gathering of Berkshire Hathaway shareholders to attempt to put to rest concerns about his judgment in a stock deal proposed by a former executive.
In a mea culpa to the thousands of investors at the Qwest Centre in Omaha, Nebraska, Mr Buffett described the events surrounding David Sokol’s purchase of stock in Lubrizol ahead of its acquisition by Berkshire.
“I obviously made a big mistake not saying, ‘well, when did you buy it?’” said Mr Buffett, who had failed to press Mr Sokol, a man long tipped as the potential future head of Berkshire, on the timing of his purchases when discussing the potential for a deal in January.
The initial letter to investors on the subject published last month prompted rare criticism of Mr Buffett, known as the “Sage of Omaha” for the investment success that has made him one of the world’s richest men.
In the letter, Mr Buffett had described Mr Sokol’s actions merely as not “unlawful”, and failed to robustly condemn Sokol, a potential successor who resigned in March. However, on Saturday Mr Buffett called the purchases “inexcusable and inexplicable”.
The tone for Mr Buffett’s mea culpa had been set by the video played to shareholders before the question-and-answer session began. Normally light-hearted, this year it featured a cartoon spoof of the Terminator, with Mr Buffett forced to enlist the help of Arnold Schwarzenegger, the “Governator”, to defeat a robot trader from the future.
But the laughter of the hall was silenced by film of the 1991 testimony to Congress when Mr Buffett was chairman of Salomon Brothers, the investment bank. It concluded with Mr Buffett’s famous statement: “Lose money for the firm, and I will be understanding; lose a shred of reputation for the firm, and I will be ruthless.”
Mr Buffett gave no hint, as usual, as to the identity of his successor other than to say, “the leading candidate now I would lay a lot of money on the fact that he is straight as an arrow”.
Yet he did lavish praise on Ajit Jain, head of Berkshire’s reinsurance business, describing him as a genius workaholic who travels to London at Thanksgiving “because they don’t celebrate the holiday there”, and who could have become instantly rich by setting up on his own.
Mr Buffett reflected on catastrophes both corporate and natural at the annual gathering.
He announced an initial estimate of $1.67 billion for losses in the reinsurance division due to the Christchurch earthquake in New Zealand, flooding in Northern Australia, and the earthquake and tsunami that hit Japan.
Mr Buffett estimated that the natural disasters had cost the reinsurance industry, which provides coverage to regular insurers of homes, cars and property, about $50 billion.
Berkshire’s insurance arm lost $821 million, compared to an underwriting gain of $226 million in the same period last year. If the rest of the year is catastrophe free, then it is conceivable that the insurance business may break even, Mr Buffett said, but he predicted a loss for the full year.
– (Copyright The Financial Times Limited 2011)
