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Kerry wins the counsel of the Sage of Omaha

By ROBERT TRIGAUX
Published May 7, 2004

Warren Buffett is called a lot of different things other than rich. The Sage of Omaha. The world's second wealthiest man (at $42-billion or so, and closing fast on Bill Gates). Adviser to Republican Arnold Schwarzenegger in his successful campaign to become the governor of California.

Now, at 73, the influential Buffett has signed on to provide his economic counsel to Democratic presidential candidate John Kerry. Buffett has a remarkable track record of seeing value where other investors do not. Is that also true in politics?

Buffett is chairman and CEO of Omaha's Berkshire Hathaway, a holding company of eclectic businesses. Berkshire has prospered consistently, to the delight of investors who are only too happy to pay the steep price for Berkshire stock: currently priced at more than $91,000 per share.

Berkshire mostly owns insurance businesses, including widely known Geico and the less visible General Re. Berkshire also controls a power business called MidAmerican Energy Holdings; NetJets, which sells fractional ownerships in corporate aircraft; the Pampered Chef, which sells kitchen goods; and Benjamin Moore Paint.

In a country gone berserk with excessive corporate pay and lifestyles, Buffett has chosen a simpler and less bombastic path. As Berkshire's chief, he is paid $100,000 in salary. He is awarded no stock options and has built his wealth over a lifetime of accumulating stock. Buffett and his wife live in the same home they bought in the 1960s for $31,500.

No wonder so many people, including Kerry, want to hear what this folksy guy has to say. Maybe that's what Kerry is counting on.

Each year in Omaha, Buffett hosts a special multiday meeting for Berkshire shareholders. They are fed well, encouraged to shop at Borsheim's jewelry store and the Nebraska Furniture Mart (Berkshire Hathaway owns both of them) and, most of all, get ample opportunity to listen to Buffett's investment wisdom.

Buffett and his wife live in the same home they bought in the 1960s for $31,500.

Last weekend, nearly 20,000 appreciative Berkshire shareholders, many of them millionaires courtesy of Buffett, gathered in Omaha to bask in Buffett's glow. How appreciative were they? Berkshire's stock is up nearly a third from its price at last year's annual meeting.

Buffett has plenty of sound economic lessons to share. Now that he is advising Kerry, more than Berkshire's shareholders might get a chance to benefit. Some of his wisdom is sure to become part of Kerry's economic agenda. Here's a Top 10 sampler from Buffett's plate:

10. Beware hedge funds. Once the domain of rich investors, hedge funds - risky investment funds that typically short stock, use leverage, options and futures - are going mainstream. He warned that most investors in such funds will be sorely disappointed in the coming decade.

9. Stop runaway executive compensation. Corporate boards have compensation committees that set CEO pay. "They don't look for Dobermans on that committee," Buffett told his amused shareholders. "They look for chihuahuas. ... Chihuahuas that have been sedated."

8. Treat stock options as corporate expenses. What happened after Congress pressured regulators to change the rules and no longer treat stock options as an expense? We got the "anything-goes mentality" of the 1990s. Buffett's advice: Tell your congressman - and your president - that options should be expensed.

7. Watch out for mutual funds managers. Investors in those funds are the last people most mutual funds managers care about.

6. Thumbs up on Google's IPO. Those Google entrepreneurs - Larry Page and Sergey Brin - know what they are doing.

5. Listen to sharper people. How can a young person be successful in business? "Hang out" with people better than you, he urged.

4. Derivatives are dangerous. Too many businesses use these arcane financial instruments. Too few businesses understand them. Within 10 years, there will be a "huge problem," Buffett warned.

3. Stop tax cuts for wealthy. The rich are favored too much by recent tax cuts, he said.

2. Sell, sell, sell. How does Buffett cover the costs of hosting an annual meeting the size of a small town? "Easy," he told attending reporters. "Get them to shop in my stores."

1. Newspapers face big challenges. U.S. newspapers face stiff advertising competition in the next 10 to 20 years, especially from the Internet, Buffett said. But returns are still good at newspapers. (Berkshire owns 18.1 percent of the Washington Post Co., where Buffett is a director. Berkshire also owns The Buffalo News.)

Ouch, Warren. You could have skipped that last bit of insight.

Will the added clout of Buffett to Team Kerry make the Democratic candidate look more attractive to the U.S. business community? Absolutely.

Can Buffett alone shift a largely pro-Bush Corporate America to Kerry? No way.

But Buffett might get folks who know a business winner when they see one to sit up straight and listen. It worked like a charm last week in Omaha.

- Information from Times wires was used in this column. Robert Trigaux can be reached at trigaux@sptimes.com or 727893-8405.

[Last modified May 7, 2004, 01:03:18]


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