From Financial Reform to Goldman, 10 Questions for Warren Buffett

warren buffett
warren buffett

I'm unfortunately not going to be attending the Berkshire Hathaway (BRK.A) annual meeting on May 1 this year. I attended once, in 2003, and it was a great experience. I highly recommend it.

But I didn't enjoy several aspects of it: Waiting on line at 5am with thousands of other Berkshire acolytes desperate to get good seats, debating endlessly with other shareholders about what Berkshire's "intrinsic value" is, the food served mid-meeting (awful), almost getting trampled when everyone stormed the arena after it opened, feeling jealous at the various Omaha residents who happened to buy 100 shares for almost nothing back in 1976 and now have over $12 million worth of stock. My list goes on.

Nevertheless, I feel a bit anxious to be missing this event at a Dairy Queen in Omaha of authors who have written books about Warren Buffett. Apparently 67 people have written books about The Man, and I'm one of them. My worst-selling book, Trade Like Warren Buffett details how Buffett was more of a trader than people normally think. Most other books I feel take a simplistic view of Buffett as a basic value investor without exploring some of the subtleties of not only his big deals in the 1980s but some of his earlier investments in the 50s and 60s.

That said, if I were at the annual meeting, here are some of the questions I'd like to put to the Oracle of Omaha.

  • Ben Nelson, Senator from Nebraska, is supposedly holding out on bank reform because of concern over how the derivatives regulations will affect Berkshire Hathaway. Nelson, with $6 million of Berkshire stock in his portfolio, is Congress' largest investor in the company. Have you and Nelson discussed the bank-reform bill being debated?

    Since you've long stated that derivatives are "financial weapons of mass destruction," how come you're not in favor of the derivatives regulations being discussed? How will derivative reform affect the bottom line on Berkshire Hathaway? If the company has to reserve more money for losses on derivatives, specifically how much more money are we talking about?

  • If you had to do the Goldman Sachs (GS) investment again, knowing what you do now about their headline risk regarding the structuring of derivatives, would you do it or would you have picked another financial horse to ride? Has Goldman become another Salomon Brothers for you? (Buffett invested in Salomon Brothers in the early 90s and then sorely regretted it when they became embroiled in a financial scandal.)

  • What financial reforms do you favor? Should derivatives trading be on an exchange?

  • You've served as an informal economics adviser for both California Governor Arnold Schwarzenegger and President Barack Obama. Are you satisified with the way both politicians subsequently handled their respective economies? Is there any advice you now wish you had given them back then?

  • You made a big bet on housing in the early 2000s, buying everything from furniture companies and carpetmakers to paint producers and RV manufacturers. Do you see housing picking up over the next decade?

  • In your most recent letter to shareholders you state, "In 2009, we agreed with certain counterparties to amend six of the equity index put option contracts. The amendments reduced the related contract expiration dates between 3.5 and 9.5 years and reduced the strike prices of those contracts between 29% and 39%."

    Can you talk specifically about what are the indices and strike prices you used? If not, don't you think this is important in order for shareholders to understand what their risks are here?

  • Berkshire has recently been making inroads into the municipal insurance space. There's been a lot of discussion in the media about how many state budgets are currently underwater, and some cities (particularly Harrisburg, Pa.) are thinking of filing for Chapter 9 bankruptcy. What's your view on municipal finance right now? Do you still think the municipal bond insurance business is a viable one for Berkshire?

  • You've rotated in and out of oil stocks over the past three years, particularly Exxon Mobil (XOM) and ConocoPhillips (COP). Are you still bullish on the industry? What's your view on oil prices a year out?

  • Your letter to shareholders contains only one line that I consider relevant to the succession question: "If Charlie, I and Ajit are ever in a sinking boat -- and you can only save one of us -- swim to Ajit." Is this your way of saying Ajit Jain is your successor?

  • In 2002 you stated that an eventual nuclear attack on U.S. soil is a "virtual certainty". Do you still feel this is true?