Premium ContentMouse over Home then click on Premium Content for information.Meyer Shields has a question for Warren Buffett: Why is Berkshire Hathaway keeping secrets?
It's not likely that Shields, an analyst with Stifel Nicolaus & Co., will get his answer at the 2012 annual meeting of Berkshire shareholders. He isn't one of the insurance industry analysts invited to ask Buffett questions at the meeting.
Buffett invited three others — Jay Gelb of Barclays Capital, Cliff Gallant of Keefe, Bruyette & Woods and Gary Ransom of Dowling & Partners — to join three journalists who will ask questions at the meeting, according to the Wall Street Journal. At the May 5 meeting in Omaha, they will alternate with ordinary shareholders during a five-hour question-and-answer session with Buffett and Berkshire Vice Chairman Charlie Munger.
Shields' exclusion from the list caught some attention because out of the four such analysts who follow Berkshire Hathaway, only Shields does not recommend buying Berkshire shares. In a tongue-in-cheek research note, Shields said, "We've been progressing through Elisabeth Kübler-Ross' five stages of grief" because of the rejection.
In an interview, Shields said he isn't upset about not being included, although he thinks his "hold" rating on Berkshire stock might have been a factor. In April he raised his Berkshire rating from "sell." Today, he believes investors could do better with other investments, such as mutual funds mirroring the Standard & Poor's index of 500 stocks.
That said, he predicts that Berkshire's Class A stock price, which closed last week at $116,530 per share, will reach $126,000 sometime in the coming year.
What prompts that question about Berkshire secrets?
Shields, a Toronto native who lives in Baltimore, said Berkshire has been disclosing less specific information in its recent quarterly reports.
For example, he said, Berkshire doesn't tell enough about its derivative contracts for observers to accurately estimate the financial risks involved. "We really don't have a good sense in terms of the size and the scope of the various derivatives," he said. "More disclosure would be very helpful."
And Geico, the Berkshire auto insurer, used to put a figure, such as 3 percent, on one of its financial trends and now says something like "in the mid-single digits."
Shields, by the way, doubts that Buffett is buying back Berkshire stock these days. On Sept. 26, Buffett announced that the company would begin buying the shares because the price had fallen significantly below its value. By Sept. 30, Berkshire had bought $17,878,875.10 worth of its own shares.
Since then, Shields said, the price has risen above the level listed in the buyback announcement, and Berkshire has disclosed its $10.7 billion investment in IBM. "We're at a point now where, clearly, even Warren Buffett sees IBM as being a better investment than Berkshire Hathaway," Shields said.
He said one of the factors in his "hold" recommendation is Berkshire's succession plan for Buffett, who hasn't publicly named his successor but has said Berkshire's board has agreed on a person, if needed.
Calling succession "a huge issue," Shields said, "I don't think that Warren Buffett's job is so easy that anyone can do it." It will be difficult to find the right person and unreasonable to expect the new CEO to perform just as well right away, he said.
Shields said he has visited Omaha to talk with clients but hasn't attended a Berkshire meeting. And he said he wouldn't let his missing invitation deter him from upgrading Berkshire's stock to "buy" status, if it's deserved.
Big refund from Geico
Berkshire auto insurer Geico was fined $100,000 and will refund $7.5 million plus 8 percent interest to customers in Washington state for overcharges, the state's insurance department said.
Geico, based in Maryland, will make the payments to 25,267 customers by the year's end, said Washington State Insurance Commissioner Mike Kreidler. A computer error caused the problem, and the company reported it to the state promptly, he said.
An additional $50,000 fine was suspended on condition that the company abides by a two-year compliance plan that includes extra audits.
The error caused 7 percent of the company's Washington customers to be overcharged between Aug. 24, 2009, and June 2011.
Tax hike for schools
Molly Munger, daughter of Berkshire Vice Chairman Munger, is leading a ballot initiative in California for a sliding-scale income tax hike to raise $10 billion for schools in the state. It's one of several education-related issues up for votes in November, the Associated Press reported.
"We're going to continue to press forward and wait and see how this all shakes out," she said. "We don't know how the voters are going to start reacting to these (different) proposals yet."
Munger said polls are showing that Californians now believe education cuts have been so deep that they would consider raising taxes for schools. Further budget cuts are prompting the state to consider reducing its 175-day school calendar by seven days, on top of five days trimmed earlier.
The Omaha World-Herald Co. is owned by Berkshire Hathaway Inc.
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402-444-1080, steve.jordon@owh.com
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