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Questions for Buffett

Jeremy Glaser
Greggory Warren, CFA

Note: This video is part of Morningstar's coverage of the 2015 Berkshire Hathaway Annual Meeting.

Jeremy Glaser: For Morningstar, I'm Jeremy Glaser. [One of our senior stock analysts,] Gregg Warren, will be one of three analysts asking Warren Buffett and Charlie Munger questions at this year's Berkshire Hathaway Annual Meeting. I'm here with Gregg to talk about his thought process in picking these questions.

Gregg, thanks for joining me.

Gregg Warren: Thanks for having me.

Glaser: First off, how do you narrow down the universe of potential things you could ask Warren Buffett or ask Charlie Munger and just focus on what you think are going to be the best questions to ask?

Warren: Berkshire has actually made it easier for us because Jonathan Brandt--who was on the panel with me last year--he and I have been sort of tasked with the job of asking non-insurance-related questions. Jay Gelb from Barclays was on the panel last year asking insurance questions, and this year Gary Ransom is going to be up there. Overall, the insurance analysts have asked insurance-related questions, and we've been sort of tasked with looking at the different businesses that are not insurance related. Those would be the Burlington Northern, Berkshire Hathaway Energy, all of the companies that are in the MSR, and then the finance and financial-products businesses.

Glaser: So, if you've narrowed it down to non-insurance questions, how many do you think you are going to try to come up with before heading to Omaha?

Warren: That's actually a really good question. Last year was our first year on the panel. We actually went out to Omaha with more than 50 questions in hand. When you look at the panels and the way they are set up, you've got three journalists and then three analysts, each asking six questions during the course of the Q&A session. Plus, you have shareholders, who are actually allowed to start asking the questions, I believe, in the afternoon session. So, at base, you're looking at at least 64 questions out there, so you are hoping that one of the other guys or gals on the panels or one of the shareholders doesn't take one of your questions away. You can't just walk into the room with six questions in front you and expect to have those be your questions during the course of the meeting.

It does make it a little bit tougher. You sort of have to tier things down. You have your top-tier questions. You have your second tier and your third tier. I think, last year, most of our questions were sort of in our top-tier realm. As we look at the meeting this year, we're pretty much going to focus on the bigger businesses, on the Burlington Northern piece, on Berkshire Hathaway Energy; but we also may pull a few things out on the investment side of things as well as some of what's been going on within the manufacturing, service, and retail.

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Glaser: Given the enormous volume of questions that Buffett's been asked at the meetings and elsewhere over the years, what new information is there to gain for investors from following the meeting, from asking new questions of Buffett and of Munger as well?

Warren: I think that's probably one of the biggest challenges of being on the panel is trying to come up with good questions that hopefully elicit something of value from Warren and Charlie. They are very good at deflecting. They are very good at not giving detailed answers on specific things. So, you've got to sort of nibble around the edges and try to find questions that bring out something valuable or try to tint on something that maybe investors weren't thinking about or weren't aware of.

One of the big questions we had from last year that went over well was we asked them about the fact that Burlington Northern is still paying them an annual dividend whereas Berkshire Hathaway Energy is not. Both are spending heavily on [capital expenditures]. Both are taking on additional debt to fund this capital spending. So, we really wanted to get Buffett's take on why that was the case.

Glaser: And what was his take on that?

Warren: Well, his reasoning behind it was that Berkshire Hathaway Energy had more acquisition opportunities over the long run and that the opportunities for Burlington Northern were rather limited. We did sort of hint at another question about whether or not they'd be interested in Kansas City Southern (KSU)--which we think would be a good fit for Burlington Northern--but it seems like acquisitions are kind of off the table for Burlington Northern, so that's the rationale behind them funneling the capital up into Berkshire.

With Berkshire Hathaway Energy, they've been using the cash to do acquisitions, and we'd expect them to keep doing that going forward.

Glaser: Gregg, we're looking forward to hearing your questions on May 2. Thanks for joining me today.

Warren: Thanks for having me.

Glaser: For Morningstar, I'm Jeremy Glaser. Thanks for watching.