Warren Buffett’s Bluster <br> Bumps Up Against Reality <br> At Annual Meet in Omaha

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That clanging sound you heard coming from Omaha this weekend was the noise of Warren Buffett’s comments at the 50th anniversary Berkshire Hathaway shareholder meeting colliding with reality. “We think any company that has an economist has one employee too many,” Mr. Buffett reportedly said. Funny, I haven’t seen anyone point out that the Burlington, Northern, and Santa Fe railroad, which Mr. Buffett’s Berkshire owns, employs a chief economist named Sam Kyei.

Nor has anyone pointed out that at least two of Mr. Buffett’s “big four” investments — IBM and Wells Fargo — also employ economists. These are companies in which Berkshire has invested billions of dollars, and that Mr. Buffett praised in his recent annual letter as “run by managers who are both talented and shareholder-oriented.” Wells Fargo’s website, under the headline “Meet our economists,” lists 15 individuals, including a chief economist and four senior economists. IBM’s chief economist is named Martin Fleming. (Disclosure: I own some IBM stock.)

Mr. Buffett may have been trying to be provocative in making the point that businesses should avoid trying to time big-picture macroeconomic developments. But unless he is going to fire all these economists, he is a hypocrite, saying one thing while doing another. Then there was Mr. Buffett’s comment, about the risks to his investments of changing consumer attitudes toward sugar, that, “I don’t see smiles on the faces of people at Whole Foods.”

That is just nonsense for many reasons.

First of all, Whole Foods sells sugar, not just broccoli and Brussels sprouts. The one near me sells not only refined sugar, but also gelato and two-bite brownies and chocolate bars. The store also sells beer, wine, marshmallows, and pretzels, potato chips, and plenty of other foods that would put a smile on the face of even non-broccoli-lovers such as Mr. Buffett. I even smile sometimes when I’m in there shopping, and I’m well known as a grouch.

Second, Whole Foods turns out to be pretty good at keeping its customers, employees, and shareholders happy, notwithstanding Mr. Buffett’s aspersions. If you look at the Whole Foods Market stock price versus the Berkshire stock price over the period since Whole Foods went public in 1992, Whole Foods increased about 36 times while Berkshire Hathaway increased about 25 times. Both are impressive, and some of the Whole Foods appreciation is based on assumptions about dividends being reinvested.

(I can hear people asking what happened to the dollar and to gold over the same period. Short answer: you were better off buying either Berkshire or Whole Foods stock than either one, though the slide of the dollar against gold makes the appreciation of both companies less dramatic.)

To longtime Buffett-watchers, these latest departures from reality pale beside the biggest Buffett phoniness of all, his claim on taxes. This was put most starkly in a New York Times op-ed piece a few years back in which Mr. Buffett called for increased taxes and claimed that investors who turn down opportunities because taxes are too high exist “only in Grover Norquist’s imagination.”

Since that piece appeared, Mr. Buffett has been involved in a series of highly tax-efficient deals, ranging from the Burger King-Tim Hortons inversion to Canada (before which Mr. Buffett called Senator Orrin Hatch to check on Congress’s plan to curb such maneuvers) to the trade of appreciated Procter & Gamble stock for Procter’s Duracell battery brand.

At Berkshire’s annual meeting, Mr. Buffett reportedly expressed support for tax simplification but dismissed concerns that corporate rates were too high. Berkshire’s vice chairman, Charles Munger, had a more emphatic view. According to a New York Times account, Mr. Munger “derided California’s policies as ‘really stupid,’ contending that they imposed such a high tax that they were driving businesses out of the state. Florida, Mr. Munger said, is ‘much smarter’ by adopting a lower tax regime that draws new businesses to the state.”

Why, now Mr. Buffett’s own vice chairman, of all people, sounds like someone the sage of Omaha would dismiss as a figment of Grover Norquist’s imagination. He also sounds like he’s making sense.

It’s great that tens of thousands of shareholders, reporters, and analysts gather each year in Omaha for the annual meeting that Mr. Buffett describes as the Woodstock of capitalism. Mr. Buffett’s business and investment achievements have been impressive. But his pronouncements deserve to be subjected to skepticism that is often lacking.

Mr. Stoll is editor of FutureOfCapitalism.com.


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