The annual auction of a lunch with investment guru Warren Buffett has taken on a life of its own in recent years.
While the event is primarily designed to raise money for a San Francisco charity called Glide (which the Wall Street Journal reported served almost one million meals to the homeless last year, up 18% on the previous year for those keeping score) it has also become a little window into the state of the economy.
Back in 2007, a hedge fund manager paid just $US650,100, while a Chinese entrepreneur named Zhao Danyang of Pureheart Asset Management in Hong Kong won with a bid of $2.11 million in 2008. With the US economy in the toilet, the 2009 auction price fell to $1.68 million, with a Canadian hedge fund manager taking the prize.
This year, it appears things are much be better than they seem – an anonymous bidder stumped up $US2.6 million.
It’s an expensive meal (Fortune magazine even joked that a Warren Buffett bubble has formed) but it’s not a bad little package. The winner gets lunch at Smith & Wollensky, a New York steakhouse owned by Buffett, the chance to be on CNBC and the opportunity to invite seven guests.
And best of all, you get to hear some pearls of wisdom from perhaps the biggest name in capitalism. But what exactly would you ask Warren Buffett?
Previous winners have asked Buffett about everything from business ethics and parenting, through to charity work, management and, of course, investing.
How is the US economic recovery progressing?
Went Buffet bought railway company Burlington Northern last November in a $US44 billion deal, he described it as an “all-in wager on the economic future of the United States”. The question for Buffett now is: does that future still look as bright as he seemed to believe back then. Stubbornly high unemployment, low business confidence and talk of a second housing crash have investors nervous. While Buffett takes a notoriously long-term view of investments, a frank assessment of the economy through the prism of Berkshire Hathaway’s operating businesses would be invaluable.
Is Buffett worried about sovereign debt?
Following on from the question about the US economy, you’d have to ask Buffett what he thinks the fallout will be from the huge levels of government debt held around the world. Earlier this month, Buffett said the European debt crisis wasn’t affecting Berkshire Hathaway, but what are the longer-term impacts? If more governments – including the US government – are forced to look at ways to cut debt by cutting spending and increases taxes, could the global economy face a rocky period for a longer-than-expected stretch? And what happens if the US government doesn’t cut its debt levels?
How will Buffett get a bigger slice of China’s growth?
At this year’s Berkshire annual meeting, Buffett lauded China’s “amazing economy” and predicted big things ahead. “People in India and China will be living better lives in 20 years than today”. But how will Buffett and Berkshire get a bigger slice of this action? Yes, Buffett does have a stake in Chinese electric car company BYD, but this could be seen as a “green” play as much as a “China” play. Does Buffett see any other ways to get a more direct stake in the China story, or is this still too risky?
What are the keys to managing the Berkshire empire?
While Buffett is best known for his stock-picking abilities, Berkshire is actually a sprawling conglomerate, with operations in sectors including transport, retail, insurance, aviation, manufacturing, food, energy, financial services, clothing and construction. In this year’s annual report, Buffett described a very laid back operating style: “We tend to let our many subsidiaries operate on their own, without our supervising and monitoring them to any degree. Most managers use the independence we grant them magnificently, by maintaining an owner-oriented attitude”.
Sounds so easy, but how does it actually work in practice? How often does Buffett speak to the various managers of these businesses? Does he specifically look for mangers who share his style and values? How often does he check the sales reports? This would be fascinating for anyone who manages a business with multiple divisions.
Could Buffett ever become an activist shareholder?
Buffett’s charity work and philosophical musings on business ethics suggest he is a man with strong principles, but when it comes to investing he is known for his distinctly hands-off stance in terms of interfering with management. However, we saw a slight change to this earlier this year when Buffett loudly protested Kraft’s takeover of Cadbury (he later sold his Kraft stake) and it would be interesting to find out if he may flex some of this muscle in the future. Shouldn’t someone who is going around telling billionaires to give away half their fortunes use their considerable clout to protest when companies demonstrate poor ethics, or environmental problems? Or should protecting the investment of Berkshire Hathaway’s shareholders be Buffett’s only concern?
Should Berkshire be broken up?
As discussed above, Berkshire is a sprawling conglomerate with countless operational businesses housed under the corporate shell. The conglomerate model works in some cases, but commentators often argue that by breaking up this sort of empire you can unlock more value within each business. And you can just imagine the rush of investors flocking to take part in the float of Buffett’s energy business, or his insurance business, or his retail business. The break up idea is probably not Buffett’s style, but it would be interesting to know if it is something that he could see happening when he is no longer at the helm.
What is Berkshire Hathaway’s succession plan?
Warren Buffett has repeatedly answered queries about succession by saying Berkshire has three internal candidates to potentially replace him as chief executive, but further details have not been forthcoming. Indeed, he usually answers the questions with nice anecdote about dancing to work or his latest doctor’s check-up. Commentators are increasingly seeing this as a problem, for the simple reasons that no one is exactly sure how Buffett can ever be replaced.
How much cash does one man need?
Back in 2006, Buffett announced plans to give away a substantial chunk of his fortune to charity, in the style (and with the help of) Bill Gates. More recently, he has started to urge other billionaires to do the same. Buffett seems to relish his role as one of the richest people in the world, and yet money doesn’t really seem to matter than much to him. He has lived a notoriously frugal life, and even claimed he should be paying more tax. So how does he actually see money? Is it just a good way of keeping score, or does he recent charity gestures show that he has developed a deeper appreciation of the power his fortune has? Deep questions, but a fascinating subject.
Is there a Buffett bubble?
The price of a lunch with Buffett suggests Buffett-mania might have officially become a bit over-the-top, as do the stories of Buffett disciples flocking from around the world to attend the Berkshire annual general meeting. But what does Buffett make of all this? As someone who has always said that investors need to find their own style and philosophy, does Buffett find it ironic that so many people simply want to copy his style? And further, has the never-ending analysis of Buffett’s strategies made things harder for him to do things differently, and perhaps forced to make big billion-dollar bets to really get clear of the pack?
Where are the next big opportunities?
The obvious question, and the one everyone wants to know the answer to. Buffett has unloaded a number of shares in the last few months (notably in the areas of insurance, defensive stocks such as Procter & Gamble and Johnson & Johnson, and Kraft) with some commentators surmising that he is building cash for a big deal. But Warren, where are you looking?
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
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