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By Jeremy Glaser and Matthew Coffina, CFA | 05-04-2013 04:00 PM

Berkshire Meeting Underscores Importance of Stewardship

Berkshire's strong culture is a reminder that good management can help widen a moat, says Morningstar StockInvestor editor Matt Coffina.

Jeremy Glaser: For Morningstar, I’m Jeremy Glaser. I am here at the 2013 Berkshire Hathaway Annual Meeting. I am joined with Matt Coffina he is the editor of Morningstar StockInvestor. We are going to get his take on the meeting today.

Matt thanks for joining me.

Matt Coffina: Thanks for having me, Jeremy.

Glaser: So what are the big themes that kind of permeated the meeting’s idea of culture and how much Buffett values that unique Berkshire culture? When you are thinking about investing in either Berkshire or any other stock for that matter, how do you think about something as intangible as the company's culture?

Coffina: I think management is really important in general and we’ve been trying to get at this more at Morningstar with our new Stewardship Ratings. So now we assign every company a rating of exemplary, standard, or poor. We're really trying to get at this idea of whether management is focused on strategic execution and if they have appropriate capital-allocation policies. But I think Warren Buffett really emphasizes it, so he gave the example of Iscar for example. Someone asked, what is Iscar’s competitive advantage? And his answer was basically there is no structural advantage to the business, but they've outperformed all their competitors over the last 25 years just through consistent day-to-day operational execution.

There is a similar message with Berkshire itself. Somebody asked what’s going to happen after Buffett's no longer the CEO. He said that he thinks that the culture of Berkshire is so deeply engrained at all the different levels of management that that culture is going to persist even without him there. It’s something that’s very hard to get your fingers on, but it can be very, very important. It can be a source of competitive advantage. We wouldn’t give a company a moat just based on management because managers do change over time. It’s not necessarily as sustainable an advantage as a structural business characteristic like a network effect. But it is extremely important and to the extent that I can buy companies with exemplary stewardship, I want to do that.

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