Berkshire 2014: Buffett Defends Coca-Cola Decision, Plus More From Q&A

OMAHA — The crowds keep flocking to Warren Buffett.

More than 30,000 Berkshire Hathaway shareholders, some waiting in line as early as 4 a.m. to nab a good seat, packed the CenturyLink Center here Saturday to listen to capitalism’s most-famous spokesman opine on the state of American business.

In a wide-ranging Q&A that lasted more than five hours, Buffett defended his decision to abstain from a vote on Coca-Cola’s controversial pay plan, praised former Federal Reserve chair Ben Bernanke and even reflected on what he would do if he were 23 again (the short answer: ask lots of questions).

The event had all its usual folksy charms, but some criticism lurked beneath the surface. The company’s stock has underperformed the broader Standard & Poor’s 500 index for four of the past five years, as the AP points out. Its corporate structure — a vast conglomerate with more than 50 subsidiaries — seems almost passé at a time when activist investors want to slice-and-dice companies into individual parts.

Then there’s Berkshire's longstanding aversion to technology investments — something that greatly benefited the company during the dot-com bubble — but that has more recently opened Buffett up to attacks that he is out of touch from executives like Marc Andreessen.

Even a hallmark of the Berkshire weekend, the annual newspaper toss, led some to question Buffett's skills Saturday.

Buffett and his longtime investing partner, Charlie Munger, addressed many of the complaints on stage during the meeting.

When asked whether Berkshire would outperform the S&P again, Buffett noted that it was normal for the company's performance to wane in some years. Over the long-term, he still expects the company to meet or exceed the broader stock market.

Munger also reminded the audience that Berkshire's dramatic rise over the past few decades would be hard to replicate. "It's not a tragedy to succeed so much that future returns go down. That’s success. That’s winning," he said.

A shareholder who inquired about dividing Berkshire into separate units got an even sharper response. “Owning a group of good businesses is not a terrible business plan," Buffett said. "Berkshire is worth more as presently constituted than in any other form than I can conceive of. There’s no advantage into breaking Berkshire into pieces.” As for the lack of tech investments, Buffett reiterated his interest in buying companies or stocks that had been proven winners.

Below, some of the more interesting moments of the day.

Buffett on the Coke vote:

Buffett defended his decision to abstain from voting on Coca-Cola’s controversial compensation plan, saying he preferred to discuss his feelings privately with Coke CEO Muhtar Kent rather than “going to war” against the company.

Buffett said he talked with Kent both in Omaha and over the phone to express his displeasure with the plan. Criticism about the pay deal deal initially came from activist investor David Winters, but Buffett said he was reluctant to side with Winters because of both a difference in opinion over the numbers involved and a lack of relationship.

"We did not endorse some calculations that were wildly inaccurate," Buffett said. "If you’re going to join forces in going to war with somebody, you better be certain what that alliance might be."

Still, he said he remained confident his approach would have the desired effect. "I believe the best result was achieved by our abstention," he said.

Why doesn't anyone talk about Munger’s successor?

Much has been written about Warren Buffett's succession plan, but hardly anyone talks about who will replace Munger. So, is there someone in mind?

Buffett said his eventual replacement would need to pick the person who would best complement his or her skills. But he said he wouldn't be surprised if another Munger-like figure emerged, since he had found their partnership so valuable to the company.

"Charlie is my canary in the coal mine," Buffett joked. "Charlie turned 90, and I find it very encouraging how he's handling middle age."

But so far, nobody has brought up any possible names to replace the vice chairman.

"Frankly, I have trouble thinking of anyone who could be a successor to Charlie," Buffett said.

"I don’t think the world has much to worry about," Munger retorted. "Most 90-year-old men are gone soon enough."

The problem with Omaha hotels:

One thing quickly becomes evident in Omaha: Buffett's badge-wearing acolytes are everywhere. The annual meeting overwhelms the city's hotels, and as a result, many properties have raised prices up to $1,000 a night or imposed restrictions like three-night minimums.

Buffett has said previously that he doesn't like his shareholders being gouged -- and called on home rental service Airbnb to help pick up the slack with more affordably priced options.

But a questioner asked: Isn't Buffett's interference playing with simple supply-demand economics, a principle he's long espoused? Well, no, he said.

With a large event in a city that can't reasonably support many more hotels, the supply-demand dynamic is unnaturally "out of whack" and something needs to be done to correct it, he says. Airbnb is the temporary fix.

So, if you were 23 again...

A shareholder stepped up to the microphone and told Buffett he hoped to be an entrepreneur, but didn't have an interest in tech. If Buffett was starting over again, what would he do?

Buffett relayed a story of his own young adulthood, saying he frequently popped in on coal managers unannounced to ask them questions about their business. He came up with a sure-fire question to ask: If that executive had to invest in any coal company but his own, and couldn't touch the money for 10 years, what company would he pick?

The answers were illuminating; if multiple managers picked the same company, Buffett knew he was on to something. His advice for the future entrepreneur: Start asking questions, too.

"You can really learn a lot just by asking -- that sounds like a Yogi Berra quote or something -- but it is literally true."

In praise of Ben Bernanke

Buffett got his economic assessment out of the way early: the U.S. is doing great. ("Anybody that thinks American business is not doing well should just look at corporate profits.")

But he also reflected on a much darker period in recent financial history and talked about the actions of former Federal Reserve chairman Ben Bernanke during the 2008 meltdown.

"I think Ben Bernanke was a hero, both at the time of the crash, the panic, and subsequently," Buffett said. He found the minutes of the Fed meetings during the crisis interesting because so many Fed officials did not understand the severity of the situation.

Buffett said low interest rates had a positive effect of the economy, but wondered what would happen as the Federal Reserve gradually tapered its bond purchases to nudge rates up.

"This is really an interesting movie because we haven’t seen it before, and we don’t know how it ends," he said.

The joys of being thrifty

Buffett and Munger peppered their answers with plenty of life lessons throughout the event, including their approach to living cheaply.

Both billionaires have lived in the same house for decades -- Buffett built his in 1958, Munger in 1960 -- and they're known for living cheaply. Buffett said money could buy access to better housing, food and healthcare -- but only to a point. Excessive spending could actually lower the good-living equation, Buffett said.

"My life would not be happier, in fact, it would be worse, if I had six or eight houses, or a whole bunch of things I could have," Buffett said,

Munger looked into the audience and said he saw lots of other rich folks who had also chosen to live frugally. But Buffett quickly snapped: Forget about that!

On a weekend when several Berkshire-owned retail stores, like Borsheim's jewelers, were opening their doors for special events or sales for shareholders, this was no time to conserve.

"The more you buy, the more you save at these prices, folks!” Buffett quipped.

Charlie Munger, new owner of the Los Angeles Clippers?

Berkshire owns so many different businesses, so why no sports team, an investor wondered?

Buffett and Munger didn't bite. “If you read that either one of us is buying a sports team, it might be time to talk about successors," Buffett said.

Well, what about a personal investment, then? Buffett asked Munger if he'd be up for buying the Los Angeles Clippers, the team that could be on the block if the NBA's board of governors forces a sale from embattled owner Donald Sterling.

No response. "Now I’m worried that he is!" Buffett laughed.

Munger just shook his head.

For more coverage of the Berkshire Hathaway annual shareholder meeting on LinkedIn:

• Liz Claman: The Berkshire Weekend: The Unicorn of the Business World
• Andrew Davis: What I Learned From Writing Letters to Buffett for a Year
• Alex Malley: The Four State of Warren Buffett

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