Good management key: Buffett

21/05/2009 - 00:00

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THE world's second richest man, Warren Buffett, told shareholders early this month that good, skilful management was a key attribute he looked for in a potential investment.

Good management key: Buffett

THE world's second richest man, Warren Buffett, told shareholders early this month that good, skilful management was a key attribute he looked for in a potential investment.

Australian fund managers, including Perth stock pickers Romano Sala Tenna and Brad Shallard, were among the 35,000 to attend the annual Berkshire Hathaway conference in Omaha, Nebraska, commonly referred to as 'Woodstock for capitalists'.

Mr Sala Tenna said he was surprised by how emphatic Mr Buffett was on the importance of good management.

"In books I have read about his investing style, this aspect has consistently been downplayed," Mr Sala Tenna told WA Business News.

"However after listening to him for six hours, I am of the view that above all else, Buffett looks for skilful, passionate, committed management with a demonstrable track record."

Messrs Sala Tenna and Shallard run the ASX-listed investment company Katana Capital and are equities dealers for broker Bell Potter. A handful of Australian fund managers, including small company specialist David Paradice and former investment banker, turned investment manager, Chris Mackay, also attended.

Demand to hear the views of Mr Buffett, 78, and investment partner Charlie Munger, 85, on the state of the market were at an all-time high despite their investment company suffering its worst year on record.

Berkshire posted its biggest decline in net worth since Mr Buffett took the reins more than 40 years ago, with the company shedding almost 10 per cent of its value. By his own admission, Mr Buffett made some errors, including the decision to buy oil company ConocoPhillips just before the price of oil dived.

Some shareholders at the annual conference felt bitterly let-down by Mr Buffett's inability to predict and prepare for the credit crisis, according to media reports, while others dismissed the tough year as part of the natural cycle of share markets.

Mr Buffett has an estimated net worth of $US37 billion, according to Forbes, and is the second wealthiest man in the world after Microsoft founder Bill Gates.

Mr Shallard said he arrived at 5 o'clock in the morning for the conference only to be greeted by thousands of people who had arrived earlier.

"It was like a Myer stock-take sale," Mr Shallard said.

In all, 100,000 people applied for conference tickets.

Mr Buffett told attendees at the conference that he looked for companies to invest in which had enthusiastic management, a sustainable competitive advantage, and were good value.

Mr Buffett, who is also known for his thriftiness, said having a very high IQ was a hindrance to investors.

"If you are in the investment business and you have a high IQ, sell 30 points to the next person. You do not have to be a genius at all. But you do have to have emotional stability, and you have to have some peace about your decisions," he said.

"I don't know how much is innate and how much can be taught. If you have that quality you will do very well. As I have said many times it is simple, but not easy."

Mr Buffett said emotional stability was the most essential requirement for successful investing, and that many had wrongly believed that they could predict the future and were too reliant on complicated financial models to make their investment decisions. He said spread sheets were dangerous because they could lead to a false sense of security.

"The world depends on calculators instead of people sitting down with actual arithmetic. If you need to use a computer or calculator you shouldn't buy it," Mr Buffett told the conference.

Messrs Sala Tenna and Shallard were able to secure tickets to the conference without holding shares in Berkshire Hathaway, which is the usual prerequisite.

The price tag to attend the conference and invest alongside the second richest man in the world through Berkshire has historically been the purchase of one single Berkshire share.

Stock in Berkshire Hathaway is trading at around $US90,000.

Investors can now, however, access a cheaper class of Berkshire stock for a few thousand dollars.

 

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