Berkshire Hathaway Inc. overpaid for part of venerable food giant Kraft Heinz Co. and failed to realize the potential of Amazon.com Inc., snapping up stock in the internet retailer only after it had already risen by thousands of percent.<\/p>\n
That was the assessment by Warren Buffett and Charles Munger of two recent bets, leaving them in an unusual position on Saturday: Answering shareholder questions about whether changes are needed to an approach that has made them investing legends.<\/p>\n
At Berkshire\u2019s annual meeting in Omaha, Nebraska, holders filtered past the Kraft Heinz Co. booth featuring an inflatable ketchup bottle and a giant hot dog. The displays served as a reminder of a rough bet by Buffett, 88, and of questions about whether traditional consumer brands still carry weight in the age of internet stocks including Amazon, Berkshire\u2019s latest investment.<\/p>\n
Investors wanted to know how Berkshire\u2019s businesses are working to stave off the risk that the world is changing faster than the conglomerate can react. For some, the questions about strategy reminded them of the days before the dot-com bubble burst or the financial crisis occurred.<\/p>\n
\u201cThey\u2019ve stayed relevant through lots of upheaval in their careers,\u201d said Richard Cook, who oversees $335 million including Berkshire shares at Cook & Bynum Capital Management. \u201cHe\u2019s nimble enough and now understands that a lot of those brands have been overstretched and now are no longer as durable as they were.\u201d<\/p>\n
Buffett has long searched for businesses with \u201cmoats,\u201d or a long-term competitive advantage. Facing questions on new technology and Amazon, the billionaire investor acknowledged the shifting trends and said his managers were tasked with making sure they\u2019re staying ahead.<\/p>\n
\u201cThe world is going to change in dramatic ways,\u201d said Buffett, Berkshire\u2019s chairman and chief executive officer. \u201cJust think how much it changed in the 54 years that we\u2019ve had Berkshire — and some of those changes hurt us,” he said, citing the namesake textile business and some shoe operations.<\/p>\n
\u201cBut we do adjust and we\u2019ve got a group, overall, of very good businesses,\u201d Buffett said. \u201cWe\u2019ve got some that will be actually destroyed by what happens in this world, but I still am a card-carrying capitalist and I believe that that\u2019s a good thing.\u201d<\/p>\n
Kraft Heinz has been a headache for Berkshire. The food maker in February reported a $15.4 billion writedown and disclosed a Securities and Exchange subpoena. Berkshire, which reported first-quarter results Saturday, couldn\u2019t include results from Kraft Heinz, which is late publishing certain filings.<\/p>\n
Buffett reiterated that Berkshire and 3G Capital, which partnered on the deal to create Kraft Heinz, paid too much for the Kraft assets.<\/p>\n
\u201cThe idea of Berkshire and 3G joining to own a consumer company has always confounded the Berkshire shareholders and it continues to,\u201d said Lawrence Cunningham, a professor at George Washington University and author of the book \u201cBerkshire Beyond Buffett.\u201d The investment could still turn around, Cunningham said.<\/p>\n
The packaged-food giant was just one focus at the annual meeting of Berkshire shareholders. Amazon was another. An investment in Jeff Bezos\u2019s online retailer was announced days ago by Buffett, who said it was the idea of one of his investing deputies, Todd Combs or Ted Weschler. Combs and Weschler have helped Berkshire push into tech investments like Apple Inc., and Munger, the 95-year-old vice chairman, has credited them with having \u201c younger eyes.\u201d<\/p>\n
Shareholders on Saturday asked about buying tech shares that had already exploded in price years ago, and whether that marks a change in Buffett\u2019s well-known preference for value investing. Buffett said technology firms can be evaluated on a basis similar to other stocks. Munger, though, admitted that Berkshire missed opportunities, specifically with Alphabet Inc.\u2019s Google.<\/p>\n
\u201cWe just sat there sucking our thumbs,” Munger said of failing to invest in Google. \u201cMaybe Apple was atonement.\u201d<\/p>\n
While Buffett has long praised Bezos, it was the growing influence of his deputies that led to the Amazon bet. Buffett mostly avoided technology stocks for years, saying he didn\u2019t understand those operations. Since Combs and Weschler have joined, Berkshire piled into Apple, a holding that was valued at more than $48 billion at the end of the first quarter.<\/p>\n
Throughout Berkshire\u2019s history, Buffett favored a decentralized model. He highlighted that Saturday when confronted with a question about the impact of changing consumer habits, saying the executives who run Berkshire\u2019s diverse units are responsible for accommodating shifting markets.<\/p>\n
Jim Weber, who runs Brooks Sports, said before the meeting that fast-moving consumer and digital demands are a daily challenge as he seeks to compete with the likes of Nike Inc. and Under Armour Inc.<\/p>\n
\u201cEvery brand, typically on the premium side, has to justify its value to the customer every day,\u201d Weber said in an interview Friday. \u201cAs soon as you\u2019re not the big brand, you\u2019re a niche player.\u201d<\/p>\n
International Dairy Queen Inc.\u2019s Troy Bader said the company is working to modernize its brand, using its app to create rewards for consumers. And Benjamin Moore & Co.\u2019s new chief executive officer, Dan Calkins, said the paintmaker experiments with some brands to make sure it\u2019s staying ahead of the curve.<\/p>\n
\u201cWe can\u2019t put our head in the sand,\u201d Calkins said Friday.<\/p>\n
Two of Berkshire\u2019s managers, Greg Abel and Ajit Jain, fielded questions from shareholders Saturday in a move that allowed the new vice chairmen to have more of a public spotlight at the meeting. Abel has oversight of non-insurance operations while Jain runs the insurers. Jain explained how Geico competes with rival Progressive Corp. on certain metrics.<\/p>\n
Buffett\u2019s capital-allocation strategy has also been shifting. The billionaire investor has long favored snapping up stocks of other companies or acquiring businesses outright, but that\u2019s been hard with \u201csky-high\u201d prices.<\/p>\n
That environment has made it harder for Buffett to find ways to deploy his $114 billion cash pile. But last year, Berkshire loosened its buyback policy, leading to the repurchase of $1.7 billion in stock in the first quarter. At Saturday\u2019s meeting Buffett implied that Berkshire could become a larger repurchaser of its shares.<\/p>\n
\u201cTwenty-five years ago that would not have been part of the thinking,\u201d Cook said.<\/p>\n
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