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What We Learned at This Year's Berkshire Meeting

Jeremy Glaser: For Morningstar, I'm Jeremy Glaser. The Berkshire Hathaway Annual Meeting just wrapped up. I'm here with Gregg Warren. He was on a panel of analysts asking questions of Charlie and Warren, and we are here for his take on the meeting.

Gregg, thanks for joining me.

Gregg Warren: Thanks for having me.

Glaser: You asked a lot of quick questions and sometimes the answers can be a little bit evasive, but this year you seemed to get more responses from Warren and Charlie. What was your take on that?

Warren: Overall, it's generally our forum asking questions to these guys, because they have a tendency to deflect or figure out a way not to answer something they don't want to. I came into this meeting this year wanting to have at least some specific answers about what they thought about a one-time special dividend, and what we should think about as far as how much capital they could actually commit to share repurchases. I got some pretty good answers along those lines. I think, overall, a lot of the questions I did ask I got the sort of answers I was looking for. For us as analysts that's really important because it helps us sort of frame our opinions about where the company is going.

Glaser: Sometimes at the end of the meeting there's no big change to your thesis or thinking about Berkshire. Is that true again this year?

Warren: The overall thesis isn't going to change. It's just sort of how we are going to reallocate the capital. We already built in a large special one-time dividend into our model. We'll go back, and we'll adjust that and rework it as either a share repurchase or an acquisition. I think Buffett sort of boxed themselves into a little bit of a corner here. He has got a ton of cash on the books. He said if he gets to $150 billion he has to do something. With valuations at all-time highs for most stocks and the company itself not trading at a discount to its own share repurchase threshold, the only outlook was really dividend, which is why we went with the one-time dividend. But it sounds like they'd probably would be willing to raise that threshold to get the deal done.

Glaser: This does seem to be a bit of a quandary for them. They are kind of hoping that maybe private equity players will be less aggressive, that pricing will come down. But if that doesn't happen, do you see them chasing a deal at a higher multiple?

Warren: That always worries me. Because when you've got $110 billion in the bank, $80 billion, $85 billion of which you can actually use for a deal, it can sometimes lead to rash decisions. These guys are good. They are traditionally very disciplined. I don't think Warren wants to go out on a career basis having his last big deal being a bad deal. I think that they will be patient and cautious, but at the same time, I just think there's that concern about how much more cash can we really have building on the books.

Glaser: Was there anything else surprising, maybe some of the discussion of the insurance business that is going to be a big takeaway for you here?

Warren: No, I don't think there's a whole lot of discussion there. I would think the interesting thing is, we didn't really get a whole lot of chance to run through the Q this morning because it came out about an hour before the meeting started. But it looks like Geico has really turned the corner back on the loss ratio problem they have been running into. Combined ratio was low-90s which we haven't seen for a very long time. I'm not so sure it's sustainable. It was at least a good market over what has been probably seven or eight quarters of bad returns on the combined ratio basis for them.

Glaser: Overall though, you don't expect any big changes to your fair value estimate or the big picture thinking on Berkshire?

Warren: No, I don't think there would be a big change on the fair value. Like I said, it's more a matter of just moving things around.

Glaser: Gregg, I appreciate your take and thanks for joining me.

Warren: Thanks for having me.

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