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Buffett may face thorny questions in Omaha

The annual meeting for shareholders of Warren Buffett’s Berkshire Hathaway Inc. is typically a lovefest for thousands of admirers of one of the world’s richest men, but this year might have a bit of an edge.
/ Source: Reuters

The annual meeting for shareholders of Warren Buffett’s Berkshire Hathaway Inc. is typically a lovefest for thousands of admirers of one of the world’s richest men, but this year might have a bit of an edge.

The 74-year-old Buffett is expected to face tough questions about regulatory investigations involving Berkshire’s General Re Corp. unit. The billionaire himself is not a target of the probes, but he will be in the spotlight even more than usual.

Buffett, with his trusted 81-year-old vice chairman, Charlie Munger, by his side, will answer questions for five hours on Saturday at the cavernous Qwest Center here, near the spruced-up warehouses and brick streets that make up Omaha’s popular Old Market.

The annual meeting, sandwiched between gigs at the arena for country star Kenny Chesney and punk rockers Green Day, is the centerpiece of a three-day “Woodstock for Capitalists” bash that includes an outdoor barbecue and the traditional Sunday steak dinner at Gorat’s.

The 17,000-seat arena will be packed. Nearby hotels have been sold out for months. Buffett is a star.

“He has a unique talent of investing in companies that are in trouble and turning them around,” said Alexandra Kiska, president of an Albuquerque, New Mexico, home-care service and member of the 13-woman Wall Street Wizards investment club. ”Warren Buffett comes across as a very honest person and not absorbed in his own personal wealth.” This is Kiska’s first Berkshire meeting.

The new Berkshire Hathaway Diamond Edition Monopoly game, featuring the likenesses of Buffett and Munger, has generated such demand that delivery takes eight weeks. Last year’s Buffett and Munger bobblehead dolls provoked a similar frenzy.

“Unlike almost every other successful manager in corporate America, Buffett and Munger have been willing to share their knowledge,” said Keith Trauner, a Short Hills, New Jersey-based portfolio manager flying on Friday to the meeting. “They like to teach. And that has resonated with a large group of sensible investors. Many go to Omaha to reinforce their approach to investments and in the hope they’ll learn something new.”

Twenty percent of the $1.5 billion invested by Trauner’s Fairholme Capital Management is in Berkshire shares.

A tough year
Nevertheless, Buffett has been under an unaccustomed cloud this year as regulators probe a controversial contract involving General Re that may have helped giant insurer American International Group Inc. make its results look better.

Regulators interviewed Buffett on April 12 but don’t view him as a target. General Re is also being probed by Australian regulators over an insurer’s collapse there. Investors like Kiska expect Buffett to provide answers to questions about AIG and General Re.

Buffett took over Berkshire in 1965 when it was a struggling textile mill, and has since generated roughly 22 percent annualized returns for investors. Forbes magazine says Buffett is worth $44 billion.

Known for its insurance holdings, such as Geico, Berkshire also owns dozens of other businesses, including paint producer Benjamin Moore, ice cream king Dairy Queen, and underwear maker Fruit of the Loom. It posted a $7.31 billion profit last year.

Berkshire also makes money through its stock holdings, including Coca-Cola Co. An investment in Gillette Co.  paid off in an eightfold gain when Procter & Gamble Co.  agreed to buy the Mach3 razor blade maker.

Investors keenly watch, and often follow, what Buffett does. Last week, Anheuser-Busch Cos. shares shot up 6 percent after the brewer of Budweiser beer said Berkshire had acquired an unspecified “significant” stake in the company.

Succession plans
At the annual meeting, investors will look for signs of how Buffett plans to deploy Berkshire’s $43.4 billion of cash, or change his $21.4 billion bet against the U.S. dollar.

Buffett has said U.S. trade policies, and a burgeoning current account deficit, will put “unremitting pressure on the dollar” for many years.

“Most meetings focus on investing,” said Matthew Sauer, who helps run the $250 million Oak Value Fund and is attending his 13th straight Berkshire meeting. “The 2005 meeting won’t be much different in tone, for example, from the 1995 meeting.”

Investors will also seek signs about when Buffett will step down. Buffett has repeatedly said Berkshire is “well prepared” for his departure.

Still, Fitch Ratings last week cut its rating outlook for Berkshire to “negative” from “stable,” saying anyone else would be hard-pressed to run Berkshire as successfully.