Billionaire investor required reading
Posted on Sunday, May 11, 2008
Three finance students at the University of Arkansas at Little Rock have conducted an intensive study this semester of Warren Buffett, the man Forbes magazine calls the richest person in the world.
Buffett, 77, is chairman of Berkshire Hathaway Inc. of Omaha, Neb. He owns about $ 62 billion of the conglomerate, about a third of the company’s stock.
Berkshire Hathaway Independent Study, the class the students are taking, requires reading at least six books about Buffett, not including four others that were optional. The material covered more than 2, 000 pages. The class was taught by Larry Holland, a UALR professor of finance.
“This is not an easy A,” Holland said. “If that’s what you want, go somewhere else. We had some really strong candidates apply for it.”
From the beginning, the incentive to spend the extra hours of work for the three-credit-hour class was the opportunity to attend Berkshire Hathaway’s annual meeting. For the second straight year, Delta Trust & Bank in Little Rock and its chairman, French Hill, took students from the class to the meeting, which was held May 3.
This year, Sloan Scroggin, 23, of Little Rock; Moustapha Abdul, 28, from Cameroon; and Vladi- mir Findra, 23, from Slovakia were chosen for the class. There was an extensive interview of seven students before the three were selected, Holland said.
Preference was given to students who also took a parallel investments class, which is a partnership with Little Rock investment firm Stephens Inc.; and students who plan to take the Chartered Financial Analyst exam, Holland said. Scroggin, Abdul and Findra, who are finance majors, all met those qualifications.
“Working with Delta Trust and Stephens showed us how the real world works,” Findra said. “It was not just a dry class and lecture.”
Buffett was 34 when he took over Berkshire Hathaway in 1965. It was a textile manufacturer whose stock sold for $ 18 a share. Buffett never split the stock and it now trades at about $ 130, 000 per share on the New York Stock Exchange. There is a Class B stock in the company that sells for about $ 4, 350 a share.
Hill and the three students were joined by Sean Barron, a portfolio manager at Delta Trust, and a contingent of seven others connected with Delta Trust on a flight to Omaha the day before the annual meeting.
On May 2, the group attended a reception for Berkshire Hathaway stockholders at Borsheims Fine Jewelry in Omaha, an annual event for investors. After the annual meeting the next day, the group visited a Dairy Queen — a Berkshire Hathaway company — to mingle with more company investors.
But the focus of the weekend was the annual meeting. The group was in line at the Qwest Center in Omaha by about 5 a. m. on Saturday, the day of the meeting. Doors opened at 7 a. m. even though the official, 15-minute annual meeting didn’t begin until 3: 15 p. m.
They weren’t the first in line. The students estimated more than 300 people were there when they arrived.
Artist Michael Israel arrived at 6 a. m. to entertain the crowd by “fast-painting” a portrait of Buffett with Benjamin Moore paints. Dozens of people were hawking newspapers, from the Omaha World-Herald to The Wall Street Journal.
Every year, the people waiting in line are a diverse group, said Hill, who has attended the Berkshire Hathaway meeting for several years.
“You have people who live in Nebraska who knew Warren’s dad,” Hill said. “So they bought Berkshire Hathaway years ago and now they’re worth $ 100 million. They’re just dressed normally and may have a little business somewhere.”
Also waiting were professional investors, college students, people from foreign countries and plenty of vendors working the crowd, Hill said.
“It’s a very family-oriented group,” Hill said. “It’s not all 50-year-old money managers in blue blazers and khaki pants. Although that’s a big part of it.”
The minute the doors opened at 7 a. m., the thousands of people in line sprinted to find the best seats.
“I call it the running of the billionaires,” Scroggin joked.
“It’s the only large event you’ll go to where you’re going to get trampled by old people,” Hill said.
Scroggin said he was impressed with the spectacle of the event: 31, 000 people in the arena and 40, 000 square feet of space displaying products from all of Berkshire Hathaway’s companies.
Berkshire Hathaway owns or has a large investment in about 80 companies, including Coca-Cola, Procter & Gamble, See’s Candy, Johnson & Johnson, Tesco, Justin Boots, American Express, Wells Fargo & Co., Geico Insurance and The Washington Post. It also is investing $ 6. 5 billion to help Mars Inc. buy chewing gum maker William Wrigley Jr. Co. “You could probably live off all the items they had there,” Scroggin said. “There are not a whole lot of things that you would consider a need that he doesn’t sell one way or another.”
For about six hours at the annual meeting, Buffett, dubbed the Sage of Omaha, and Charlie Munger, the 84-year-old vice chairman of Berkshire Hathaway, answered questions from the crowd. There were about 15 microphones situated throughout the arena. “You didn’t have a chance to be bored,” Moustapha said. “It was fun, it was instructive. They demonstrated a very good knowledge on a wide range of topics, which was quite impressive. There was pretty much no question that wasn’t asked, about investments, finance, industry, the economy, personal life. Some people even asked questions like, what can you do with your life.” Buffett talked about a common theory of investing — diversifying your portfolio. “He and Charlie Munger said when you are not a professional investor, it may be good for you to buy a low-cost index fund and just hold it, because in the long term the stock market will go up,” Moustapha said. “But he said if you are a professional and you know what you are doing, it’s not smart to diversify.”
A professional investor should pick a few good stocks — not 100 — and watch them carefully, Scroggin quoted Buffett as saying.
“He said it’s better to put your eggs in one good basket than in a bunch that you don’t know about,” Scroggin said.
The questioners in Omaha were not all businessmen interested in how to make more money.
One 9-year-old boy from Chicago, wearing a tie and a blue blazer, asked Buffett if he would buy the Chicago Cubs, Hill said.
“Buffett gave the business answer on why you should or shouldn’t own a sports team,” Hill said. “And then he directly answered the boy’s question by saying he’d had that opportunity [to buy the Cubs ] and he passed.”
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