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Larson: Watch for These 3 Hot Berkshire Topics

Tue, 24 Apr 2012

Expect plenty of discussion of succession, politics, and dividends at the 2012 Berkshire Hathaway Annual Meeting, says Morningstar's Paul Larson.

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Video Transcript

Jeremy Glaser: For Morningstar, I'm Jeremy Glaser. We're looking forward to Berkshire Hathaway's 2012 Annual Meeting on May 5. I'm here today with Paul Larson; he's the chief equities strategist at Morningstar. He's also the editor of Morningstar StockInvestor. We're going to take a look at some of the hot topics that we're expecting to be widely discussed at the meeting.

Paul, thanks for joining me.

Paul Larson: Thanks for having me.

Glaser: Succession is almost always at the top of the list of hot topics, and when it comes to the Berkshire meeting, do you think this year is going to be any different? What do you think we're going to hear about the succession issue?

Larson: Well, I think the one thing that has changed is that we just recently found out that that Buffett does have prostate cancer. So, I think this is going to elevate the succession issue higher than it otherwise would've been. I think that were it not for this, succession probably would've hit a multiyear low in terms of investor interest at this particular meeting because we have had quite a bit of information revealed in recent years regarding who is going to manage the investment portfolios and what the structure is going to be with the two CEOs. Really the only piece that we're still missing is who is going to be the CEO of the operating businesses.

But I think that we are going to see an increased level of interest in this issue, given the recent health concerns.

Glaser: Is this sort of intense searching for the successor going to be just more of a parlor game, or does it actually have a real impact on people who are considering investing at Berkshire Hathaway? Do you think that the company will be in good hands kind of no matter whose hands they are?

Larson: I think whoever the successor is going to be for that operating CEO role, they're going to be inheriting a business that is on very good footing. It's not like that person has to come in and do something right away. They can probably actually take a year and assess before they actually take any major actions. So, I think, whoever comes in is going to be in a good position.

Glaser: Now the Buffett Rule has kind of entered the political discourse during the last couple of months with a proposal by President Obama to tax the very wealthy or high income earners to make sure that they have a minimum tax rate. Does this make sense for Warren Buffett to kind of wade into the political arena like this, certainly more so than he has in the past? Is this going to have an impact on shareholders? What do you think we're going to hear about it at the meeting?

Larson: I think it is interesting because as a CEO, it probably does not make sense to enter in the political realm because whenever you start sharing your political opinions, you're almost automatically going to anger half of the population. And I think we've seen this with Buffett over the last year, where a year or two ago people either had no opinion of Buffett; they weren't aware of who he was. And those who knew him had a generally positive opinion. But now that he's more in the political realm, we have a more split opinion among the populace, including the investment community, regarding his opinions on taxation.

So again from a CEO role, I would personally prefer that he would be just basically agnostic and focused on adding value at the company and not necessarily being out there as a citizen of the country, trying to improve the country by sharing his opinions and such.

Glaser: Now looking at Berkshire's cash pile, certainly that's been another hot topic for years. We started to have some share buybacks this year, which was new. Do you think there will be dividends in the future? Is this something that we're going to hear any discussion about during the meeting?

Larson: I that every year that goes by and the larger that the cash pile gets and the greater the flow of cash into Omaha becomes, the more pressure there's going to be to pay out a dividend. And we've seen the number of questions about a dividend seemingly increase in frequency over the years. I think that this year we're going to hit yet another all-time high in terms of dividend questions and pressure on the board of directors to announce a dividend.

The company did a major thing during the last year in that direction of returning capital to shareholders by announcing the Berkshire share-buyback program. The firm didn't buy a whole lot back; it didn't get the opportunity. But it did cross the Rubicon, so to speak.

It's only a matter of time before the company pays the dividend. I'm not sure it's going to be this year or not, but eventually Berkshire is going to have to pay dividend because as they say "trees don't grow to the sky."

Glaser: Well, Paul, I'll be looking forward to your thoughts on Saturday at the meeting. Thanks for talking with me today.

Larson: Thanks for having me.

Glaser: For Morningstar, I'm Jeremy Glaser.

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