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Tuesday, December 4, 2012

Value Oriented Active Strategy Service


Indian Equity Portfolio Average Net Return of 45%+ in last 7 Months*. 

Out-Performed Indian Equity Index Benchmark by 30%.

Performance: Our Value Oriented Indian Equity Portfolio using Active Strategy is up by 45%+ during May 2012 to Dec 2012. We have out-performed the benchmark Index during this period by 30%+.

Overview: In the year 2012, we saw several global and local issues affecting market sentiment negatively. Despite all the gloom and doom reports, markets throughout the globe saw light at the end of tunnel and rallied. Warren Buffett has said, there are 3 things to master to do well in investing field. First one is learn how to value a company, second is to know how the market works and thirdly to have an even temperament through thick and thin. Due to our focus on finding high quality undervalued companies, we stick to our investment tenets and what we can find out more about these companies. Only thing which we may look time to time is the overall market P/E, presently around 17 which is moderate. 

Highlights: On May 23rd 2012, we came out with 20 investment ideas and created an equally weighted portfolio. Out of these top 20 companies, some performed very well like PVR, Bannariamman Sugars, Symphony Ltd., Manappuram Finance. One investment idea specifically didn't performed during the next 3 months was Torrent Power. Overall portfolio was up 20%+ in little over 3 months. On Sep 3rd 2012, we came out with total 16 stocks portfolio where 12 new ideas and 4 old ideas from May 23rd were considered. Portfolio was again equally weighted and till Dec 2012 provided returns around 20%+. PVR, Mangalam Cement, Persistent Systems, JB Chemicals & Pharmaceuticals did excellent. Foseco India didn't performed to our expectation.

Overall since May 2012, in less than 7 months, portfolio is up 45%+ out-performing the market by 30%.

Outlook for 2013: Downside risk is limited as we move into 2013 with better earnings forecast, more liquidity in the system and improved market sentiments. Irrespective, we don't worry much about things which are not in our hands, on the contrary there are few things which are in our hands, like to review the companies we invest in on the most stringent valuation criteria, management quality, strength of economic moats to make sure there is not much downside risk, upside is taken care of when the market realizes inherent intrinsic value.

Value Investing is a life long humbling learning process where we try to gain more when we get it right than we lose when we get it wrong.

Happy Investing in 2013!

Century Partners

For more information in this regard, kindly contact us, thanks.

Disclaimers: This summary is for generic information purpose only and express our views and not an offer to buy or sell. 
*Past performance is not a guarantee of future results.

Monday, November 19, 2012


EQUITY RESEARCH REPORT: Kirloskar Oil Engines Limited

NSE: KIRLOSENG; BSE: 533293; ISIN: INE146L01010; 
Reuters: KIRO.NS; Bloomberg Ticker: KOEL:IN

Rating: Buy; Originally Recommended on May 23rd 2012 at Quote: Rs. 152

Equity Research Report

Disclaimer: This Report is for information purpose only and express our views about the company, not an offer to buy or sell. Risks involved in investing is not suitable for all kinds of investors. Seek professional advice if this research is suitable for you.

Saturday, October 20, 2012

Portfolio Valuation Service

Portfolio Valuation Service

We provide customized equity Portfolio Valuation Service (PVS) to Institutional Investors, PMS's, and Brokerage Houses. 

Under this segment, we provide thorough diagnosis on client's portfolio with actionable recommendations. 

We advise big client's on several of their existing customer's portfolio with a detailed analysis of present portfolio health and it's monitoring. 

As per client's requirement, we can add value with our expertise and as per the need evaluate the portfolio on a monthly/quarterly basis. 

Client's benefit by receiving our expert opinion on their existing portfolio's, manage risks along with getting new stocks ideas with good return potential. 

For more information, kindly contact us, thanks


Tuesday, October 2, 2012

The $10 Trillion Dollar Prize: Captivating the New Affluent in China and India

BCG Executive Summary of The $10 Trillion Prize Link

October 1, 2012 12:24 am

Cashing in on the middle class revolution

Culturally they are poles apart, but as consumer markets, China and India share more similarities than at first appears
The $10 Trillion Dollar Prize: Captivating the New Affluent in China and India, by Michael Silversteen, Abheek Singhi, Carol Liao and David Michael, Harvard Business Review Press, RRP$30
It is no secret that Asia’s two emerging superpowers are giving birth to a vast new middle class. But just what is meant by that term is rather less clear. Take India, a nation of about 1.2bn people. Are its middle classes those 5 per cent who live in car-owning households? Or are they the 21 per cent with motorbikes, or those roughly two-thirds who have a mobile phone or access to electricity?

That said, the authors, all of whom work for the Boston Consulting Group, make a convincing case for the importance of this eastward shift in global spending. Their book is engagingly written too – notwithstanding an unfortunate habit of dotting the text with bullet points and management jargon.Such distinctions may be imponderable; Britain and America still can’t quite decide on what it means to be middle class either. But one fact is not in doubt: about 2.5bn Chinese and Indians are becoming wealthier at historically unprecedented rates, and the more prosperous among them are spending more. Much more, in fact: hence what Michael Silverstein and his trio of co-authors call the “$10tn prize”, or total consumption in both countries in a decade or so.
This titular figure is suspiciously neat and relies on assumptions of continued 8 per cent annual growth, which, in India at least, currently looks unlikely. The expansion will not be shared evenly either: China is already much the richer of the two, and its consumption rate will still be roughly double that of its southern neighbour by 2020.
Most pleasing, however, are their many insights into changing customer habits. Some of this involves what the quartet grandly call moving up “the consumption curve”. One example of this is the fact that people tend to spend much more on their skin than their hair as they get richer – a crucial insight for luxury goods companies.
Equally intriguing are the stories of companies that have succeeded in China and India by adapting to local tastes. LG, the electronics group, chanced upon the idea of selling a television with extra loud volume controls and an automatic brightness setting, winning favour from Indians who often watch in noisy family living rooms, or even outside. Their microwaves have regional autocook settings too: rice-based idlis for the south, Bengali fish curry in the east.
This need to tailor products is one of the book’s main arguments, and one the authors use to rebut an obvious criticism: namely that there are such large differences between the two countries that comparing them makes little sense.
It is a fair point. Culturally, the two could hardly be less alike and there are obvious demographic differences as well: Indians have large families; China has a one-child policy. But they are more similar than they at first appear in other ways: India’s economy is smaller, but proportionally more orientated towards consumption, while China has a vast export sector.
More important is the fact that India lags behind its larger neighbour by about a decade, a legacy of its later opening up to globalisation. Yet this makes the comparison more instructive, not less, as is the case with luxury cars. Here China is already the world’s largest market, after an enormous growth spurt in the early 2000s that caught the likes of Audi and BMW flat-footed. But those manufacturers learnt their lesson and are now investing heavily in India, in anticipation of the same take-off occurring there.
Even so, the authors are right to stress that the emergence of a new Indian and Chinese consumption class is a long-term phenomenon that should be understood as part of the broader economic development of each nation, not just a story of companies selling knick-knacks in ever greater numbers.
Air conditioning is a good example. Only 2 per cent of Indians now own a cooling unit despite their nation’s oppressive heat. But few will be able to buy one until their country is able to produce inexpensive, reliable electricity; a trickier problem that it currently shows few signs of solving.
The same is true globally: consumable durables heading off to aspirational Asian homes will significantly increase demand for inputs such as steel and iron ore, pushing up costs for western consumers and putting untold new pressures on the world’s natural resources.
How this journey ends is unclear. Both India and China are poor countries: it will take a generation or two before either comes close to western per capita income and living standards. But their direction is clear enough, as are the aspirations of their peoples. This is a middle class revolution from which very few will emerge untouched.
The writer is Mumbai correspondent for the Financial Times

Value Walk: 8th Annual NY Value Investing Congress 2012: All Speaker Presentations

Value Walk: 8th Annual New York Value Investing Congress 2012

Investment Ideas Presentations from Bill Ackman, Barry Rosenstein, David EinhornAlex Roepers, John Mauldin, Zack Buckley, Mick McGuire’s, Whitney Tilson, Kian Ghazi, Glenn Tongue :-


Monday, September 24, 2012

Ten Companies

Ten Companies We Like On Value Basis:

Disclaimer: This is for information purpose only and express our views, not an offer to buy or sell. Risks involved in investing is not suitable for all kinds of investors. Past performance is no guarantee of future performance. Seek professional advice if this research is suitable for you.

Saturday, August 11, 2012

My Message to Veritas Investment Research Firm

My Message to Veritas Investment Research Firm: 

Don't you see any hope among the Indian Companies and when will you issue a Buy Recommendation to them!

In the last few years, a research firm based out of Canada, Veritas has only come up with scathing reports for Indian companies. They have openly challenged BRICs growth prospects and investment returns by calling it a world's imagination. As per them the riches can be made only in North American region. They have openly disputed the real returns which investor have made by investing in BRICs in the last one decade and more.

Veritas has recklessley provided few poster child examples where as per them everything is questionable. My contention with Veritas is why every company they cover has to be a short idea, can't they find one well run company in BRICs, that they have to paint everything with one same brush. This is not reporting then, it's called biased reporting which is not good for the people who read those reports. Most of the investors and hedge funds make money by both going long and short, so why is this outcry against BRICs in terms of corporate governance. I am sure in the past they must have found enough short candidates in the North America but are they painting everything there with one brush.

Legendary investors like Warren Buffett have invested in PetroChina and made billions of dollars, there are many more examples like that of major institutional investors making ton of money by investing in emerging markets. I think when investors have practically made money and not just coming up with theoritical research reports, entire world knows who is right. Veritas needs to broaden their mindset for emerging countries by digging in further and also start covering companies where the company is world class, stay rest assured, if they know where to look at they will find plenty of them.

Veritas has a genuine concern when they talk about corporate governance, accounting standards and disclosure practices among BRICs. Their financial standards need complete overhaul, there is no question about it but do they need to come up with all the negative side of the emerging countries, what about the positives. Returns made in BRICs specially China and India despite all the issues in the last decade have been outstanding compared to the developed world. Investors too know about this so no matter how much a research firm can trumpet the horns of their advanced knowledge of corporate governance and accounting standards, the fact of the matter is investors need Alpha and there are not many places nowadays where they can find that.

So as long as BRICs keep on providing the extra yield, no amount of malign from research firms like Veritas is going to down play the role of emerging markets in this century. Denying the fact that riches are not going to be made in the emerging markets is in fact denying the truth (Veritas a Roman word meaning Truth).

There is no question as mentioned earlier that sooner the emerging countries adopt world class financial reporting framework the better it is for the country. One point though which one needs to keep in perspective despite any amount of criticism against any emerging economy is that some time earlier even the developed markets have faced these same problems. Despite that when these countries were growing, investors have made real money by investing in the companies of that era. So how-come we are expecting everything to be same from the economies who are in the development stage now. This is not fair to say the least. As far as advanced financial regulations are concerned we all know even with that in place what happened in the last decade with Enron, WorldCom, and so many other developed country companies.

I have written considerably in the past on why economies like China and India are going to deliver better returns despite all the monumental issues which these countries face today. Main reason is the demographics which play a huge role when a country is in growth phase, this has happened through out the history, there is lot of hard evidence to prove the same so why is it going to be different this time. Close to one third of the world population lives in China and India and the largest work force is there so what is coming in the way for them to become the next superpower. China has already shown remarkable growth in the past 3 decades and India is going to continue the same path for decades ahead. Someone telling that corporate governance and financial regulations are going to stop that have no connection with the reality of what is actually happening on the ground level.

Veritas needs to come to emerging countries and then write reports, good or bad but but need to be in touch with the reality before making claims like that the investors investing in BRICs don't know what they are doing. At the end of the day, it is investor's money, if they will not get the returns they will move to a new destination, they are not going to wait for any research firm like Veritas to tell them what they are suppose to do with their money. This is free market, if the investors don't make money, they just leave. 

Veritas needs to do some soul searching and come up with a balanced approach towards covering companies from BRICs and not just give Sell recommendations but come up with some Buy recommendation as well. The past decade data showed investors investing in BRICs made money and making money is what investing is all about. This is not just economies of forecasting but a real money making machine, so invest in emerging markets and be a part of the constructive growth.

Wednesday, August 8, 2012

Coverage on PVR & Astra Microwave Products

In our series of researching under valued and high growth companies, we have now started covering following companies.

1. PVR


2. Astra Microwave Products Ltd.

Originally recommended on 23rd May 2012

For more information on the companies we are covering and their reports, kindly contact us at century.partners03@gmail.com

Disclaimer: This is for information purpose only and express our views, not an offer to buy or sell.

Sunday, August 5, 2012

Equity Research and Advisory Services

Equity Research and Advisory Services: Based on two decades of Capital Market experience, we provide excellent investment research and analysis reports for global secondary markets. 

We possess valuable equity analysis/valuations/stock picking skills based upon leading global value investors investment principles. 

To know more about our Equity & Research Advisory services where we provide our recommendations for listed companies, kindly email us at century.partners03@gmail.com

Disclaimer: This is for information purpose only and express our views, not an offer to buy or sell.

Monday, June 25, 2012

Century Partners Has Partnered With Rel-Integral Based In India And UK

Century Partners Has Partnered With Rel-Integral Based In India And UK

We take this opportunity to kindly let you know that during May 2012, Century Partners have partnered with Rel-Integral, a Corporate Consultants Private Limited firm based in India and UK.

Century Partners has joined hands with Rel-Integral to provide excellent Equity Advisory and Financial Services to people around the world.

We can collaborate with companies in several ways such as providing them with Financial Services, Legal Services, Regulatory Compliances Tax Advisory Services, Audits and Accounts, Equity Advisory and Risk Management.

  • Rel-Integral with it's highly qualified and experienced team members provides specialized services in corporate and commercial fields.

  • Assist its clients with a full spectrum of services to facilitate growth of business establishments.

  • Builds enduring relationship with its clients based on trust, innovation and by rendering customized and value added corporate practices.

  • Help its clients in taking critical decision making process.

For more information, kindly check our Corporate Profile Presentation.

Contact us via email/phone or visit our offices in all the major cities in India and London, UK.

Saturday, May 5, 2012

CenturyLink Center Omaha Live Blog Berkshire’s 2012 Annual Meeting: WSJ

CenturyLink Center, Omaha, Live Blog, Berkshire’s 2012 Annual Meeting

WSJ Notes:
OMAHA, Neb. — Berkshire Hathaway Inc. Chief Executive Warren Buffett will address shareholders here at 10:30 Eastern time Saturday, in his first appearance at the company’s annual meeting since his announcement 18 days ago that he has early-stage prostate cancer. Deal Journal will be there soaking in every minute.
Warren Buffett, chairman and CEO of Berkshire Hathaway sings with University of Nebraska cheerleaders prior to his annual shareholders meeting.
  • The meeting starts on a weighty note, with 35,000 or so people opening their lollipops (See's Candies, of course) simultaneously so as to be photographed for a Facebook posting.
  • The meeting starts on a weighty note, with 35,000 or so people opening their lollipops (See's Candies, of course) simultaneously so as to be photographed for a Facebook posting.
  • The meeting starts on a weighty note, with 35,000 or so people opening their lollipops (See's Candies, of course) simultaneously so as to be photographed for a Facebook posting.
  • Applause for Berkshire board members. Questions starting now.
  • Carol Loomis of Fortune says the three-journalist panel got 'hundreds if not thousands' of questions. She asks whether the successor candidate is qualified to be the company's chief risk officer, and whether the recent Berkshire investments in Goldman Sachs, General Electric and Bank of America could have taken place without his involvement.

  • Mr. Buffett responds that the company wouldn't choose a CEO who couldn't fill the risk-manager role. "It's not an impossible job," he says. Basic risks could include excessive leverage or insurance risk, he says.
  • Berkshire Vice Chairman Charlie Munger says companies that have found themselves on the wrong end of the risk spectrum typically did so as a result of "silly mistakes."
  • Mr. Buffett says Berkshire is "well equipped" to deal with risk management. "We're not going to have an arts major" run the company, he says.
    He says the company's $5 billion preferred-stock investment in Bank of America last August "made sense" for both sides, attributable in large measure to the company's strong capital position and ability to move quickly.
    The successor "can do a lot of things much, much better" than Mr. Buffett, he says. "Those deals have not really been key to Berkshire," he says of the financial crisis deals with Goldman and GE. They are not as important as purchases in the market of Coca-Cola Co. and International Business Machines Corp., he adds. The Goldman, GE, BofA deals are "really just peanuts" by comparison.

  • Berkshire directors are terrific risk analyzers, Mr. Munger says, pointing to Peter Kiewit & Sons' engineering efforts and director Sandy Gottesman's decision to fire someone because "you make me nervous."
  • Analyst Cliff Galant of KBW says the subject is mortality. He goes on to ask a question about insurance accounting assumptions.
  • Buffett discusses the mortality figures he saw quarterly from Swiss Re, and a reserve the company set up that's tied to a stop-loss provision. He talks about repricing reinsurance business. "The one overriding priniciple is that we hope and our plan is to reserve conservatively," he says.
  • Mr. Buffett says he feels "very good" about how Tad Montross, CEO of GeneralRe, reserves for future losses.
  • Audience question from Weston, Conn.: What advice would you give the new Chinese leadership and corporate CEOs?
  • Mr. Munger says "we're not spending our time giving advice to China,"  which he says is doing well. Mr. Buffett says it is "almost useless" to give advice in business. Mr. Munger says it's "amazing how little influence we have" over Berkshire's investments; Mr. Buffett says the goal is to find investments over which it isn't necessary to have influence.
  • Shareholder question on share buybacks: Why didn't you warn us before when the stock was higher?
  • "If we could have our way, we would have the stock trade once a year and Charlie and I would try to come up with the intrinsic value," Mr. Buffett says. Public markets don't work that way, alas, he says.
  • Mr. Buffett notes that in selling shares in the mid-1990s, Berkshire said in a prospectus filed with regulators that neither Mr. Buffett nor Mr. Munger would buy the stock at its price then, an unusual statement that Mr. Buffett says makes the paperwork "a collector's item."
    Mr. Munger has his first "nothing to add" answer.
  • Jay Gelb of Barclays asks how much stock Berkshire might buy back, how the company weighs investment alternatives and whether the company might pay a dividend.
  • "We have a terrific group of businesses," Mr. Buffett says. "We willl buy very aggressively" buying back shares at the right price, which he defines as 110% of book value, a measure of net worth. Berkshire said last fall for the first time it would repurchase shares and bought more than $60 million worth in September, the company said in regulatory filings.
  • Mr. Buffett doesn't answer the dividend question.
  • Asked about the banks, Mr. Buffett says U.S. banks are in a "far, far better position" than they were a few years ago. They have taken most of the unusual losses that were facing them in the crisis and have built up capital, have "liquidity coming out their ears," are in fine shape, etc.
    The European banking system is not in as fine shape, he adds. He calls the European Central Bank's Long Term Refinancing Operation a "huge act" to provide liquidity to the banking system, with loans to banks for three years at 1%. "I'd like to get three years at 1%," he says. But he suggests there are still issues to be worked through.
  • "Europe has a lot of problems," Mr. Munger says, pointing to structural issues within the European Union such as the lack of a fiscal union in which stronger states transfer funds to support weaker ones. "When you get 17 countries that surrendered their sovereignty as far as currency is concerned," Mr. Buffett says, you have a recipe for a lot of indecision.
  • Question: Can you discuss coal and natural gas as investments?
    Berkshire's Mid-American Energy is a regulated public utility and therefore isn't likely to benefit or be harmed by changes in energy prices, Mr. Buffett says. Coal traffic is important to Berkshire's Burlington Northern Santa Fe, he adds. Electricity use nationwide fell 4.7% in the first quarter, Mr. Buffett says, in a decline he calls "remarkable." He expresses surprise at the 50-1 ratio in the oil price to the coal price, calling it "wild."
  • Correction: Previous post ratio references oil price to natural gas price, not coal price.
  • The ratio "has changed everyone's  thinking," Mr. Buffett says. "It will be interesting to see how it plays  out."
  • Analyst Gary Ransom of Dowling asks about telematics, an auto-insurance pricing method. The crowd is utterly capitvated. Mr. Buffett says Berkshire's Geico always seeks to use the best pricing methods.
  • Question is about business school. It is "astounding" how schools have focused on "one fad after another in finance theory, usually very mathematically based," Mr. Buffett says in a comment that offers at every meeting and in many annual letters to shareholders. "Investing is not really that complicated," he adds.
  • Question on Buffett rule: Could you clarify what your rule actually is?
    Mr. Buffett says his proposal is that those who make "very large incomes" should pay a rate commensurate with a rate that people believe is paid by those people, "at least in the 30% area." But in the most recent year, counting payroll and income taxes, the 400 largest incomes in the U.S. average $270 million each and 131 of those incomes were taxed at less than 15%, the standard payroll tax, he says. "Under the Buffett rule we would have a minimum tax, only for these very, very high earners," he says. "When we are asking for shared sacrifice ... I would at least make sure that the people with these huge incomes get taxed at a rate that is commensurate with how they used to get taxed."
  • Mr. Buffett says 31 of the 400 highest incomes were taxed at a rate below 10%.
  • Question on the economics of insurance and the art and science of reserve setting. Mr. Buffett says trends like global warming complicate an already crowded picture but emphasizes that conservative reserving insulates an insurer against those sorts of surprises.
  • Question on sustainable energy policy. Mr. Buffett says MidAmerican Energy has been doing wind power for some time, and that the federal subsidy "makes wind projects work" where they otherwise wouldn't. "If there had been no subsidy, I don't think any of our projects would make sense," he says.
  • "I don't think any solar or wind would be working without subsidies," says Mr. Buffett. Just because the wind isn't blowing "doesn't mean everybody wants to have their lights off," he adds, pointing to one of windpower's minuses, economics aside.
  • "The future is subsidizing oil and natural gas production right now, in a sense," Mr. Buffett adds, suggesting we aren't paying the full freight on fossil fuel use now given its side effects (pollution for one) and the high cost of replacement methods.
  • Shouldn't Mr. Buffett keep his political views "muted"? No, he says, unsurprisingly. "When Charlie and I took this job we didn't put our citizenship in a blind trust," he says. He says someone who thinks otherwise "should own Fox" rather than Berkshire Hathaway. Fox, as it happens, is a unit of the News Corporation, which publishes this blog and something called The Wall Street Journal.
  • A question from KBW’s Cliff Gallant on natural disasters gives Mr. Buffett a chance to crow about the amount of business Berkshire is now selling in New Zealand, Australia, Japan and Thailand following the catastrophes that have struck those countries in the past year and a half.
    Swooping in after disasters is what Berkshire is famous for in the insurance arena. It’s after a major catastrophe that insurers lose some of their ability to back policies and re-evaluate their assumptions about the potential for future losses. Both can cause prices to soar.
    Customers in those four countries “are looking for more capacity, and we are there to do that,” Mr. Buffett says.
    But he said it’s hard to determine if the increase in catastrophe claims over the past several years is tied to climate change. “Separating out the random from new trends is not easy to do,” Mr. Buffett says. Berkshire’s solution: “We tend to assume the worst.”
  • Question is on Berkshire's hunt for a big acquisition to put its massive cash hoard to work. Mr. Buffett says the company, which had $33.5 billion in cash on hand at year-end,  prefers not to go below $20 billion in cash on hand -- at that level he "starts squirming a little bit." But cash is going up as insurance premiums and other sources of flow come in, and he would gladly do "the right $20 billion deal."
  • Question is on Berkshire's hunt for a big acquisition to put its massive cash hoard to work. Mr. Buffett says the company, which had $33.5 billion in cash on hand at year-end,  prefers not to go below $20 billion in cash on hand -- at that level he "starts squirming a little bit." But cash is going up as insurance premiums and other sources of flow come in, and he would gladly do "the right $20 billion deal."
  • Question: How do you feel? "I feel terrific. I love what I do. I work with people I love. It's more fun every day."
  • "I have four doctors. At least a few of them own Berkshire Hathaway, though I don't screen them."
    He and his family listened to doctors a few weeks ago. His plan says survival rate is above 99%. "Maybe I will get shot by a jealous husband," Mr. Buffett says. Mr. Munger says he doesn't know if he has prostate cancer "because I don't let them test for it."
    Mr. Buffett calls the cancer a non-event, saying the medical center is a few minutes from his office and the procedure will take part of a day. "I'll have a little less energy" that day, he concedes.
  • A 26-year-old who works in private equity asks what Mr. Buffett would do in his shoes if he were to start over. Mr. Buffett says he would do what he did in life but would have done it faster. Develop an audited record of performance as early as possible, he says.
  • Mr. Buffett says patience is the key virtue in investing, and that those who understand the market is a tool rather than an adviser will do well over time. The market is often wrong for a variety of reasons, he says, and those who bear that in mind can take advantage of the market's pluses, such as transparent prices and liquidity.
  • Carol Loomis presents a question from a shareholder who asks why Berkshire shares have been undervalued for so long. Mr. Buffett responds by taking an even longer view.
    “We’ve run Berkshire for 47 years. There have been four or five times where we thought it was significantly undervalued,” he says. “The beauty of stocks is they do sell for silly prices from time to time. That’s how Charlie and I have gotten rich.”
    Then he turns to his usual speech about investing in stocks, giving a shout-out to Ben Graham’s idea of Mr. Market, which he says investors should think of as their partner.
    The beauty of having Mr. Market as a partner, he says, is that sometimes Mr. Market behaves like “a psychotic drunk.”
  • Question: Who will manage Berkshire's derivatives book when you go?
    "I don't think there will be much of a derivatives book when I go," Mr. Buffett says. He says managing it "is not a big deal." Most of the company's ongoing derivatives activities are in the energy business.
    He adds that the company "hit a home run" with its investment managers, Todd Combs and Ted Weschler, who would be among those managing derivatives after Mr. Buffett leaves. But "the rules have changed" regarding collateral presentation for derivatives -- Berkshire has in the past written contracts that don't force it to post collateral to its trading partner, but now doing so is mandatory -- and so the company is unlikely to dabble in derivatives.
  • Question is about insurance-business valuations, which Mr. Buffett turns into a discussion of the high worth of the company's car-insurance unit. "Geico has an intrinsic value that is significantly greater than its net worth and its float," Mr. Buffett says, referring to the premiums the company has received and is free to invest while it awaits claims. "I wouldn't say that about all our insurance businesses.
    Valuing businesses based on Ebitda, a cash flow measure, "is nonsense," Mr. Buffett says. "I don't even like hearing the word," Mr. Munger adds.
  • I don't own your stock for the glamour, a questioner says, pointing to the outperfomance of gold in recent years. Mr. Buffett replies that Berkshire Hathaway stock has vastly outpaced gold, as have common stocks as a group, over longer time periods. He urges people not to give in to the urge to "caress" gold even though it has gone up for the past 12 years.
  • Asked why he bought J.P. Morgan Chase stock for his personal account but not for Berkshire Hathaway, Mr. Buffett explains that he prefers Wells Fargo -- of which the company owns 400 million shares worth $11 billion or so at year-end -- better. "My best ideas are all in Berkshire," he says. "That I can promise you."
    "I know Wells better and it's easier to understand," he says, adding that he bought Wells Fargo in the first quarter.
  • Questioner asks if Berkshire shouldn't be more aggressively buying back shares, paying dividends and using its richer stock for acquisitions. A run-up in the stock "is likely to occur in the future," Mr. Buffett says. But he doesn't "think the dividend would be a plus ... and might be just the opposite," unless the company finds it can't invest the funds profitably.
  • "What you've suggested is a very conventional approach," Mr. Munger tells the questioner, making it clear that he views that approach as nonsensical.
  • Why buy the Omaha World-Herald, as Berkshire did last year? Mr. Buffett says newspapers "have lost primacy" in many areas, such as stock-price listings and classified advertising, but continue to offer information that readers can't find elsewhere. A bigger problem is how to make money online at a time when many are tempted to give the product away for free. The business "isn't bulletproof" the way it was 30 or 40 years ago but can work if a paper can give members of a local community a reason to tune in.
  • Mr. Buffett says Berkshire may buy newspapers and will go where "there's a strong sense of community."
  • How does Berkshire vote its shares in public companies? The company has voted against management in a few instances, Mr. Buffett says, though Berkshire tends not to try to change people.
  • Has your opinion of Berkshire holding Wal-Mart Stores Inc. changed as a result of the Mexican bribery scandal? No, Mr. Buffett says.  Low prices "work in retailing," he says.
  • "I don't think there's something fundamentally dishonorable about Wal-Mart," Mr. Munger says. At companies of the scale of Wal-Mart or Berkshire, with 270,000 workers, "I guarantee someone is doing something wrong right now," Mr. Buffett says. "I guarantee 20 people are doing something wrong."
    But what matters, he adds, is that management acts honorably and promptly when learning of problems.
  • Mr. Buffett's bet that an index fund tracking the S&P 500 could beat hedge funds trying to beat the market is still in the red, though less so. The hedge fund index has lost 5.9% since 2008, vs. a 6.3% loss in the S&P over the same period. The S&P has beaten the hedge funds in each of the past three years, but the broad stock index's 36% loss in 2008 put in a deep hole against the hedge funds, which lost 23% that year.
  • Hedge-fund manager Whitney Tilson, who has perfected the trick of getting a question in by going to an overflow room, asks if Mr. Buffett would ever raise the price at which he’s willing to buy back shares. Mr. Tilson says he’d rather Mr. Buffett had bought Berkshire shares in the first quarter at 115% of book value (Buffett’s buyback price is 110%) instead of investing in other companies' stocks.
    Buffett starts his answer by saying he would have preferred to buy Berkshire shares too. But he disputes a hypothesis from Mr. Tilson that the buyback price might also serve to limit the upside on the shares.
    Nor does it set a solid floor, Mr. Buffett says.
    “There could be circumstances under which we would buy a lot of stock but I don’t think they are highly likely,” he says. One thing the buyback price indicates, according to Mr. Buffett: “I do think it signals to a lot of people that don’t have a lot to lose” by investing at the current price.
  • Lunchtime. Q&A will  resume in an hour.
  • Lunch is over.
  • Question on importance of Berkshire's culture. Most top managers at the company aren't doing it for the money, Mr. Buffett says. "I get to paint my own painting," he says. It's the same for execs at Berkshire subsidiaries, he adds.
  • Question on managing declining businesses such as encyclopedia sales. "They're not worth nearly as much as growing businesses," Mr. Munger says. Generally better to stay away, says Mr. Buffett.
  • Question on investing fads. "We try to stay away from things we don't understand," Mr. Buffett says, saying he needs to have "some notion" of what a business' earning power will be in five or 10 years. "You end up looking at a pretty small universe" when you rule out businesses that you don't understand, he adds.
  • The chances on being "way wrong" in IBM are "probably less" than the chances of being way wrong on Apple Inc., says Mr. Buffett. "We wouldn't have predicted" what happened at Apple, he said, and he didn't buy the stock -- which has been one of the market's strongest performers -- because he couldn't "get to a level of conviction" about the value of the business.
  • Question on how Berkshire manages risk by sharing information. "We're the most uncoordinated" company around, Mr. Buffett jokes. But "there is nothing like an organized way of doing that," he adds, saying he believes it most important for individual businesses to act in their own interest. "We have no system that coordinates two units to give the same quotes."
  • Question on Swiss Re, whose multibillion-dollar reinsurance contract with Berkshire ends this year. Mr. Buffett says the company would like to do similar deals but isn't willing to do "a dumb deal" for the sake of keeping premiums coming in.
  • Long, multipart, loaded question about Fannie Mae, Freddie Mac and the state of U.S. mortgage finance, which the questioner seems to find unacceptable. There is a bit of a mess there, Mr. Buffett concedes. "Congress hasn't sorted that out yet," he says. "The interesting thing is that Canada, right to the north, kept sound mortgage lending standards and had basically no problems," says Mr. Munger. The U.S., by contrast, has suffered from a lack of standards, a lapse into deplorable behavior and the fact that Alan Greenspan "overdosed on Ayn Rand when he was younger."
  • "Everybody did it," Mr. Buffett concludes, as he often does, in summing up how housing came to be such a disaster for the U.S. economy. He points to lenders, borrowers, regulators, Congress, you name it. "Except us," says Mr. Munger.
  • Asked about investment managers Todd Combs and Ted Weschler, Mr. Buffett says they are "perfect" for Berkshire. Each makes $1 million in annual salary plus 10% of the sum by which their portfolios beat the S&P 500, on a three-year rolling basis. Each one gets paid 80% based on their performance and 20% on each other's. "I don't think you can have a better structure," Mr. Buffett says, likening it to the one he used to pay Geico's Lou Simpson, who recently retired after several decades of investing for the auto insurer. Each has $2.75 billion under management and little oversight from Mr. Buffett, he says, adding that when they buy a new stock he likes to know what stock it is.
  • The investment managers have a "much bigger universe" of stocks to pick, Mr. Buffett says, because of the sums they manage, which pale next to the $150 billion or so that Mr. Buffett oversees. "I think we've got a good system," he says.
  • How to motivate people? Find people who love what they do, the billionaire investor says. "We get the opportunity to paint our own painting every day," says Mr. Buffett. "We give them the paintbrush and don't tell them to use more red paint or something."
  • The nerding-out about insurance continues. In the last question from the analysts, Mr. Ransom got Mr.Buffett to discuss a surprise fourth-quarter underwriting loss of $34 million at Geico. Berkshire didn’t explain the loss in its annual report, but Mr. Buffett said today the loss stemmed from a reserve it established because of rising claims in Florida. Other car insurers have done the same.
    Mr. Buffett says customer retention levels and profit margins returned to normal in the state in the first quarter.
    “That Florida decision cost us significant money,” Mr. Buffett says. But Geico, he adds, “is an extraordinary asset for Berkshire.”
  • Asked about sluggish U.S. growth, Mr. Buffett notes that over the course of his lifetime per capita gross domestic product has increased sixfold. That fact, and the fact that inflation-adjusted GDP continues to advance at around 2.5% annually in a country that is "already very rich," should inform criticism of U.S.  economic performance. "Our economy is not a mess," he says. "Our politics may be a mess, but not our economy."
  • Even if inflation-adjusted GDP growth were just 1%, Mr. Buffett says, you'd end up with each generation being a quarter richer than the previous. "The system still works," says Mr. Munger, who cautions as always against "the foolish things people do," as in the U.S. housing bubble, to meet unrealistic expectations.
  • Question about Berkshire's stock-market valuation. Why, boohoo, hasn't the stock gone up this year? Is the market acting nuts? "No," says Mr. Munger, who "wouldn't worry too much about it" anyway.
  • MidAmerican Energy may have an opportunity to deploy as much as $100 billion over the next 10 to 15 years at "very reasonable rates," Mr. Munger says, which is reason No. 234,731 as to why Berkshire won't be paying a dividend any time soon.
  • Question about the car business in China. The auto-battery company BYD, which Berkshire owns a stake in, is likely to focus on that market before the U.S., says Mr. Munger, though he adds that there may be some business in California because of its tighter environmental restrictions.
  • Question on U.S. finances. Will increasing U.S. energy production ease pressure on America's trade deficit? Yes, Mr. Buffett says, the energy picture "has changed for the better" in recent years, though "we still have a ways to go."
    Energy independence is "the most ridiculous idea I've ever heard grown people discuss," Mr. Munger says. He says the U.S. should use others' energy supplies and conserve its own.
  • Question on executive compensation. What to do about execs who make too much money when most of the nation isn't participating in economic gains, a questioner from Boston asks. Mr. Buffett again points to changes over the past two decades in the tax code, which has meant those at the very top of the income distribution pay much less in taxes than they did in the early 1990s. "There may be a natural trend toward plutocracy," Mr. Buffett says, pointing to the "effect of money in politics" in a democracy.
  • Question on the European debt crisis. "I don't know how it plays out," Mr. Buffett says. He wonders about the long-term effect of the European Central Bank's decision at the end of last year to extend 1 trillion euros in refinancing loans to banks. He would rather see "a world that is putting its fiscal house in order," Mr. Buffett says, but it's clear that weak economies around the globe cannot afford that sort of pullback right now.
  • At the low current rates, "I would totally avoid buying" government bonds other than short-term bills, Mr. Buffett says.
    Mr. Munger wonders at what point government stimulus and loose monetary policy lose their effect. "No one knows when the Keynesian stuff will stop working," he says, but warns that it could happen if deficit spending continues unabated.
  • "Everybody wants fiscal virtue but not quite yet," Mr. Munger says in the obligatory paraphrase of Saint Augustine's comment about chastity. "We need more sacrifice ... and more civilized politics."
  • Asked about what the right corporate tax rate is to  get the economy going, Mr. Buffett says corporate profits and balance sheets "aren't the problem." He adds that "it's not a lack of capital or tax rates, in my view, that are holding back investment." He says a bigger problem is the share of economic output consumed by medical costs.
  • Q&A ends. Berkshire annual meeting, featuring director elections and auditor ratification, now under way. "If you want to leave now you won't miss much," Mr. Buffett says, surely tongue in cheek.
  • Shareholder proposal advocating more succession-plan disclosure prompts Mr. Buffett to say, "We are on the same page." He says directors spend more time on succession planning than anything else. "Certainly more often than once a year, I get asked questions that you want me to address," he says. "I think that will continue in the future. We haven't built it into any formal item on the proxy statement ... I don't think anything would be gained by putting it in some other form, but I'm glad you take it seriously." The proposal is defeated, roughly 672,000-32,000.
  • Directors re-elected. Meeting adjourned. As they say on the scoreboard after major sporting events, Arrive home safely.