Warren Buffett's Firm Experiences Profit Decline, Audience Eager to Learn from Investing Master

Warren Buffetts company reported a steep drop in earnings Saturday because the paper value of its investments fell and it sold off part of its massive Apple stake, but the tens of thousands of shareholders filling an Omaha arena to hear Buffett answer questions at the annual meeting later can take heart that Berkshire Hathaways many businesses performed well.

Warren Buffett's company reported a steep drop in earnings Saturday because the paper value of its investments fell and it sold off part of its massive Apple stake, but the tens of thousands of shareholders filling an Omaha arena to hear Buffett answer questions at the annual meeting later can take heart that Berkshire Hathaway's many businesses performed well. Berkshire reported a USD 12.7 billion profit, or USD 8.825 per Class A share, in the quarter. That's roughly one-third of the USD 35.5 billion, or USD 24,377 per A share, that Berkshire reported a year ago.

But those figures were heavily swayed by a large drop in the paper value of Berkshire's investments. That's why Buffett encourages investors to pay more attention to the conglomerate's operating earnings that exclude the investment figures. By that measure, Berkshire's operating earnings jumped 39 per cent to USD 11.222 billion from last year's USD 8.065 billion as its insurance companies led a strong performance.

The three analysts surveyed by FactSet Research had predicted operating earnings of USD 6,701.87 per Class A share.

Buffett did sell off nearly USD 6 billion in stocks during the quarter, including trimming about 13 per cent of Berkshire's massive Apple stake. The investment in the iPhone maker is still the biggest one in the USD 364 billion portfolio at USD 135.4 billion, and Buffett said he expects Apple to remain the biggest investment for years — even up to when his successor takes over.

But the estimated value of Berkshire's Apple stake suggests that Buffett sold off more than 100 million shares. Buffett has said he invested in Apple's stock because of how devoted consumers are to the iPhone and other Apple products.

Apple CEO Tim Cook, who is at the Berkshire meeting, told CNBC that he still considers it a privilege to have Berkshire as a major shareholder, and he knew about the sales before Berkshire disclosed them Saturday.

Berkshire reported a USD 2.6 billion underwriting profit at its insurers, up from USD 911 million a year ago.

BNSF railroad's profits did disappoint and drop 8 per cent to USD 1.143 billion, but most of its many other companies delivered solid results, including a 72 per cent jump in operating profits at the utility unit that added USD 717 million to Berkshire's total.

Berkshire's revenue grew 5 per cent to USD 89.87 billion in the quarter. The two analysts who reported estimates to FactSet predicted USD 87.044 billion revenue.

With no major acquisitions in sight, Berkshire's massive cash pile continued to grow to a record USD 188.993 billion in the quarter. Berkshire even spent USD 2.6 billion repurchasing shares during the first three months of the year, but its companies that include Geico insurance, BNSF railroad, several major utilities and an assortment of dozens of others keep generating mountains of cash.

“We'd love to spend it but we won't spend it unless we're doing something with very little risk that will make us a lot of money,” Buffett said.

THOUSANDS ATTEND WARREN BUFFETT'S WOODSTOCK FOR CAPITALISTS' Tens of thousands filled the arena eager to vacuum up tidbits of wisdom from billionaire Warren Buffett, who famously dubbed the meeting Woodstock for Capitalists.' But a key ingredient is missing this year: It's the first meeting since Vice Chairman Charlie Munger died.

The meeting opened with a video tribute to Munger recounting his life and highlighting some of his best known quotes from the meetings over the years that drew applause, including classic lines like “If people weren't so often wrong, we wouldn't be so rich.” The video also featured old interviews with Buffett and Munger talking about their epic friendship.

The video also featured several of the classic skits the investors made for meetings over the years with holiday stars like a “Desperate Housewives” spoof where one of the women introduced Munger as her boyfriend and another video where Jaimie Lee Curtis swooned over Munger.

As the video ended, everyone in the arena gave Munger a prolonged standing ovation to thank him for being what Buffett called ''the architect of Berkshire Hathaway.

For decades, Munger shared the stage with Buffett every year for the marathon question and answer session that is the event's centerpiece. Munger routinely let Buffett take the lead with expansive responses that went on for several minutes. Then Munger himself would cut directly to the point. He is remembered for calling cryptocurrencies stupid, telling people to “marry the best person that will have you” and comparing many unproven internet businesses in 2000 to “turds.” He and Buffett functioned as a classic comedy duo, with Buffett offering lengthy setups to Munger's witty one-liners. Together, they transformed Berkshire from a floundering textile mill into a massive conglomerate made up of a variety of interests, from insurance companies such as Geico to BNSF railroad to several major utilities and an assortment of other companies.

Munger often summed up the key Berkshire's success as “trying to be consistently not stupid, instead of trying to be very intelligent.” He and Buffett also were known for sticking to businesses they understood well. “Warren always did at least 80 per cent of the talking. But Charlie was a great foil,” said Stansberry Research analyst Whitney Tilson, who was looking forward to his 27th consecutive meeting with a bit of a heavy heart because of Munger's absence.

MEETING THE NEXT GENERATION OF BERKSHIRE LEADERS That absence, however, may well create space for shareholders to get to know better the two executives who directly oversee Berkshire's companies: Ajit Jain, who manages the insurance units, and Greg Abel, who handles everything else. Abel will one day replace the 93-year-old Buffett as CEO. Abel and Jain are sharing the main stage with Buffett for the first time this year in the spot Munger used to occupy.

The first time Buffett kicked a question to Abel, he mistakenly said “Charlie?” out of habit.

Morningstar analyst Greggory Warren said he hopes Abel will speak up more this year and let shareholders see some of the brilliance Berkshire executives talk about. Ever since Munger let it slip at the annual meeting three years ago that Abel would be the successor, Buffett has repeatedly reassured investors that he's confident in the pick.

Experts say the company has a solid culture built on integrity, trust, independence and an impressive management roster ready to take over.

“Greg's a rock star,” said Chris Bloomstran, president of Semper Augustus Investments Group. ''The bench is deep. He won't have the same humour at the meeting. But I think we all come here to get a reminder every year to be rational.”

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