OMAHA — Warren Buffett shrugged off concerns about his Berkshire Hathaway conglomerate, which has trailed the overall market, and told shareholders Saturday to remain optimistic about his company and the U.S. economy.
More than 30,000 people attended the company’s annual gathering to listen to Buffett and Berkshire Vice Chairman Charlie Munger, who faced tough questions about Berkshire’s prospects for growth and acquisitions, and about how Buffett came to handle a vote on pay packages crafted for executives of Coca-Cola, a company in which Berkshire holds a major stake.
Buffett abstained from voting Berkshire’s 400 million shares against the compensation plan last week, although he has long spoken against exorbitant executive pay — and after he described Coca-Cola’s package as excessive.
“I thought this was the most effective way of behaving at Berkshire,” Buffett said Saturday.
Buffett said he told Coke’s chief executive privately that he opposed the compensation plan but did not want to criticize the company publicly or join another Coke investor’s very public campaign to curtail that pay.
“We made a clear statement about the excessiveness of the plan, but we didn’t go to war with Coke in any way,” Buffett said.
Shareholder Jake Kamm said the explanation Buffett offered initially for not voting against the pay package was not convincing.
“It’s a little bit of spin,” said Kamm, who teaches finance at Baldwin Wallace University near Cleveland.
Buffett said the true test will come when Coke reveals its pay packages over the next year.
Buffett’s son Howard Buffett serves on Coke’s board and supported the compensation plan, a fact that raised some hackles among Berkshire shareholders because Howard Buffett is on the shortlist to take a powerful position at Berkshire on his father’s departure. But Buffett said Berkshire shareholders should not worry about his preference that his son one day become Berkshire’s chairman.
Buffett also defended joining with investment firm 3G Capital last year to buy H.J. Heinz. That $23.3 billion deal represents a shift in Buffett’s investing style: Berkshire usually operates alone and leaves the companies it acquires largely unchanged.
“I do think 3G does a magnificent job running a business,” Buffett said.
Since the acquisition, 3G has announced plans to eliminate roughly 2,000 jobs and close three manufacturing plants to improve efficiency. Buffett said that he does not expect Berkshire to use 3G’s approach but that the two may pair up on future deals. He said he expects Heinz profits to improve significantly.
Inevitably, there were rumblings about Berkshire’s failure to beat the stock market in four of the past five years. Buffett said investors should not have been surprised that Berkshire’s results trailed the S&P 500 last year.
“We will underperform in very strong up years,” Buffett said.
Buffett and Munger have said for several years that Berkshire’s immense size makes it impossible to match the investment gains that the company delivered decades ago.
“It’s not a tragedy that you succeed so much that future returns go down,” Munger said. “That’s success.”
Investors were told that Berkshire will keep looking for possible acquisitions, preferably large ones, to boost profits and use some of its roughly $49 billion in cash. Buffett reiterated Saturday that he would be willing to sell stock or even take on more debt if he needed more resources for a high-quality acquisition.
“If we see a really good $50 billion acquisition, we’ll find a way to do it,” Buffett said.
He said that U.S. businesses are doing well and that he sees no signs that a bubble is forming in bonds or any other assets, even after years of interest rates near zero.