Dividend, Buyback Queries Dominate Start of Meeting

Jeremy Glaser: For Morningstar, I am Jeremy Glaser. We're at the midway point of the 2012 Berkshire Hathaway Annual Meeting. I'm here with insurance analyst Drew Woodbury and Morningstar's chief equity strategist and editor of Morningstar StockInvestor, Paul Larson, to get their take on the first few hours of the question-and-answer session. Gentlemen, thanks for joining me.

Drew Woodbury: Thanks.

Paul Larson: Thanks.

Glaser: So, one other things we talked about before the meeting was that the dividend will be on the lot of people's minds and certainly was. Did we learn anything new from Warren Buffett this morning?

Woodbury: I think the dividend came up multiple times, probably about four times by our count. In general, he avoided the question for the most part. There is a lot of discussion about the share buybacks, and he gave details about that. But when it came to the dividend, I think he was trying to for the most part avoid answering it directly.

Larson: Yes, I would just echo what Drew said in that, it came up a lot, but [Buffett and Charlie Munger] didn't really directly address it. But they did spend a whole lot of time talking about the stock buybacks and the prices at which they would and would not buyback stock. They're basically sticking to that 1.1 times price that they're going to buy stock at or maybe below that price.

Glaser: So, another topic that came up was energy. Charlie Munger said that he thought that it was really not a great thing that so much natural gas has been pumped out at such cheap prices. What's your take on Berkshire's stance on the energy sector? Do you see more investments there for the firm? What's happening in that area?

Woodbury: I think one of things that was talked about today is the use of renewable energies and how that was maybe going to be something that was going to be more in the future. There were some comments about the lack of subsidies that are being provided by the government and that those projects may not exist. But as those projects are increasingly able to be funded independently of the government, maybe that's the plan for the future.

Larson: One of the things that Charlie Munger pointed out is that he thought that we should be using coal instead of natural gas, even though natural gas is very inexpensive right now. He thought that it was a precious resource that we should be saving for the future and not burning at will like we are today.

Glaser: I'm sure they wouldn't mind having BNSF transport that coal to all of the different power plants. Now, one of the things today and something that obviously Buffett has talked about for years is that he really prefers opportunities in United States versus abroad. Do you think this is something that's ever going to change in his lifetime? Do you think he just really always finds an opportunity set here in America? Do you see any kind of big changes when thinking about foreign markets?

Larson: I think that Buffett is always going to stay within his core competency, and the United States is his core competency. Whenever he goes to foreign countries, he has to learn more than perhaps he's comfortable with and that might be one of the reasons why he doesn't go to other countries all that often.

Glaser: One other things that maybe was somewhat surprising for me was a very lengthy discussion of the newspaper industry and why Warren Buffett is still putting money to work there and how he says in the future he may be buying even more newspapers. Are these comments are sort of surprising given that he even admitted there aren't a ton of competitive advantages in the industry?

Woodbury: Yes, I would say that they are a little bit surprising. He spent a long time discussing the competitive disadvantages of the newspapers, but he feels at the local level they do still serve a purpose. That's why he is looking at the Omaha local newspaper, as he talked about, as kind of a community gathering place for people in the area.

Larson: I'd just echo those comments. He thought the newspapers had lost their primacy in information flow in a great number of areas, but one area where they are still very relevant is in that local news, that local information. He didn't think that that particular competitive advantage was necessarily going to be competed away by other media like, say, sports news and stock news and so on and so forth have.

Glaser: Let's talk a little bit about tone. Generally speaking, do you think that Buffett and Munger seem kind of upbeat about the economy and upbeat about the prospects of Berkshire? Do you sense any differences between this year and maybe some meetings past?

Woodbury: Yes. Compared with last year at least, I would say it's a lot more relaxed atmosphere especially in the morning. Last year there was a David Sokol controversy which had just come out beforehand. So, I would say my impression of last year is a lot more contentious in terms of the questions and the tone of the questions. This morning it's been more typical.

Larson: I would say that they're optimistic but not wildly so, just mildly optimistic at this point in time and that they see the economy recovering, but not at a robust pace.

Glaser: Well, Drew and Paul, thanks so much for your thoughts here at midday. I will look forward to catching up with you after the meeting is over.