At the latest shareholder meeting of Berkshire Hathaway Inc., Warren Buffett expressed confidence that the company's success would continue for decades to come, in part because of the company’s culture.
Once he and Charlie Munger are no longer in charge, Buffett predicted that it would become clear that “it’s not the force of personality” that’s driving Berkshire or setting the tone.
“Berkshire’s culture runs as deep as any large company.... it is a vital part of Berkshire to have a clearly defined and a deeply embedded culture.”
Morningstar's analysts attended the meeting and shared their views. Click on the links below to watch the videos.
Morningstar's Matt Coffina discusses Buffett's view of stock valuations, cost cutting, and why interest rates are key to understanding valuations.
Analyst Gregg Warren gives his take on Berkshire's culture, crisis management, and four pressing topics at the Berkshire meeting.
Josh Peters, editor of Morningstar Dividend Investor newsletter and director of equity-income strategy, shares his views on Buffett's approach to capital allocation. His views appeared on Morningstar.uk and are reproduced below.
A couple of years ago, Buffett actually devoted a chunk of one of his annual letters to talking about dividend policy and suggesting that shareholders, if they wanted income or something that would function like income, they could just sell off a few shares in order to achieve that end, some cash flow for their portfolio.
Now, the way I view Berkshire Hathaway is very different from how I would view almost any other company with any other operating business. I might like the business; I might like the management. I might trust them as capital allocators, but I still don't want all of the cash flow produced by the business bottled up in that entity because, for example, General Mills, they generate a lot of free cash flow, but it's important for them to pay that as a dividend.
If they were trying to reinvest all that internally in the business, then they would have the capacity to produce way too many Cheerios – way more than they can actually sell. Or they would go on an acquisition spree into all sorts of other businesses that they probably wouldn't know how to run.
So, I have tremendous respect for General Mills; it's one of my top holdings. I love the company, but I want them to stick to their knitting, and that's the packaged-food business.
Berkshire is a very rare creature where it's been able to thrive as a collection of very disparate businesses because it has the world's best capital allocator at the top. So, there, the formula is different. If you are thinking about Berkshire paying a dividend, then you have to compare that with what Buffett could do if the money was retained internally.
And even now that Berkshire is huge, there is still a better-than-average chance that Buffett can do better with that capital than the average shareholder stands to in, say, an index fund or something like that. That's essentially what I would think of as the hurdle rate.
But there are other ways to learn from Buffett's approach to capital allocation, as opposed to trying to buy Berkshire for a dividend, and that is to look at the kinds of companies that he actually owns and what those companies do within the Berkshire shell.
