Jeremy Glaser: For Morningstar, I'm Jeremy Glaser. We're getting ready for the 2013 Berkshire Hathaway Annual Meeting. I'm here with Drew Woodbury, one of Morningstar's Berkshire analysts, to see what he is expecting the big topics of conversation will be at the meeting. Drew, thanks for joining me today.
Drew Woodbury: Thanks for having me.
Glaser: So let's start with the size of Berkshire. A lot of people have asked in the past if Berkshire has just gotten too big to manage, it’s gotten too big to really invest its cash adequately. Do you think this is something that we're going to be talking a lot about in Omaha?
Woodbury: Yeah, I think that will definitely come up as a topic, especially with Buffett touching on his thoughts on the dividend in the annual letter. And the cash keeps building, so that's an increasing issue for the company and kind of something that we're concerned about as well. So we hope at least that there is some good discussion about the capital allocation going forward, and the increasing size of the firm is a challenge.
Glaser: What do you think Buffett's thoughts on that will be?
Woodbury: Well, he laid out his dividend plan, or a lack thereof, pretty clearly in the annual letter. I think there will probably be a little bit of pushback on that from some investors. But he’ll probably remain pretty steadfast with his opinion that he laid out there.
Glaser: How about succession? What kind of questions are you expecting? What kind of discussion will there be?
Woodbury: Yeah, so that's been a popular topic over the past couple of years, especially the last year when the cancer diagnosis came up, it kind of came to the forefront. On the CEO front, probably not too much new there. We will give them credit for doing a good job on the investment portfolio side. Both Todd Combs and Ted Weschler have taken a lot more of the portfolio than we thought they would've at this point. So we give them a lot of credit there. Possibly there are some questions about how that'll evolve going forward. Will they be able to touch some of the legacy holdings, such as Coke or whatever else? Will there be discretion over that, as well?
Glaser: Buffett always takes a wide variety of questions often on some of his political stances that he has had recently or his thoughts on the U.S. economy. Do you think there'll be a lot of talk about that, or will it have died down a little bit from previous years?
Woodbury: Yeah, I think that's always a popular topic of conversation, kind of getting one of the smartest investor's opinions about the economy, different sectors, and politics more recently. Also people try and target some of those questions toward specific stocks or industries to maybe get a feel for what he's been looking at. But he is usually pretty close-lipped about that but usually willing to share his thoughts on the economy in general.
Glaser: Let's turn to maybe some more of the actual operating businesses. Are there any areas you think that there really are a lot more question marks on than others?
Woodbury: Well, I think one of the interesting topics, at least since the analysts are property/casualty based, or at least one of them is, is about the hardening insurance market and the potential there. So Berkshire, through its reinsurance operations and other operations, they are pretty disciplined about not writing business when pricing is weak, but then coming in when a catastrophe happens and pricing hardens. We've seen that the pricing market has been getting a little bit better recently. So, some of his thoughts on that would be interesting from an underwriting perspective.
Glaser: The format is changing a bit this year, where there will be an analyst who is designated a bear on Berkshire, who doesn't think the shares have a lot of value right now. What sort of questions would you be expecting from that front, and do you think this will kind of liven the discussion a bit?
Woodbury: Yeah, I think it will be helpful for the discussion in general to kind of have somebody who has maybe a contrary opinion or is a little bit more negative on the firm because by nature, obviously, the people that are there, mostly shareholders, are generally pro-Berkshire. So kind of having a skeptical voice will probably lead to a little bit more interesting discussion. I think in many years past, three or four, going back that long, some of the shareholder questions would get a little bit off-focus. I think the analysts and the reporters have really helped [to avoid that more recently]. But I think the bear [position] is kind of an additional step to kind of keep things really focused on the topics.
Glaser: If you had to guess, what are some of the areas you think he will focus on?
Woodbury: Possibly some of the things we brought up earlier, including the increasing size, the cash position, and succession. All those are potential overhangs on the stock.
Glaser: It will be very interesting to see how Buffett manages those. Drew, thanks for your thoughts on the meeting today.
Woodbury: Thank you.
Glaser: For Morningstar, I'm Jeremy Glaser.