DECEMBER 29, 2011
Q: What Does It
Take to Get to the Oracle?
Buffett Plans Fix After Fidelity
Staffers 'Game the System'
there are few prizes more coveted than the opportunity to ask
Warren Buffett a question at
Berkshire Hathaway's annual shareholders meeting. But this year,
Fidelity Investments mysteriously claimed more than its fair share.
Turns out, it was no
accident—and the Oracle of Omaha is none too pleased about being outfoxed on
his own turf. Now he is turning the tables.
Jeffrey Mangiat for The Wall Street
"There's no question they
figured out how to game the system," Mr. Buffett says. He said he didn't
like Fidelity's ploy because "it's not in the spirit of the meeting."
Mr. Buffett says he is still
formulating his countermove and is likely to detail a new questioning system
before the next meeting on May 5.
For years, thousands of people
have flocked to Omaha, Neb., to attend the annual meeting of Berkshire
Hathaway Inc. It is one of the few occasions where investors can hear
directly from Mr. Buffett, Berkshire's chairman and chief executive, who
shuns conference calls and private meetings with individual shareholders or
analysts. Attendance has been above 30,000 in recent years at the so-called
Woodstock for Capitalists, with many aspiring to ask one of the 50 or more
audience questions allowed each year.
Three years ago, Mr. Buffett
tried to put an end to footraces to the microphones that at times became
scrums. He set rules to pick questioners at random, through drawings held
next to 13 microphones in different parts of the auditorium. Shareholders
could alternatively send questions to a panel of journalists that would
alternate with the crowd in asking them.
Fidelity, one of Berkshire's
largest outside shareholders, typically sends a large contingent to the
event. The trip is viewed within the firm as a learning experience for
younger analysts and even experienced managers who want to glean investing
insights, according to people familiar with the matter.
Over the years, some Fidelity
employees grew frustrated by the quality of questioning, which often drifted
to Mr. Buffett's personal habits, recommended reading, and his advice for
students. Others were exasperated by fruitless sprints to auditorium
microphones in the old system. "It was a strain on the legs, and a lot of
wasted effort," recalls a Fidelity portfolio manager who previously took
part in the event.
After the raffle system was
introduced, a group of Fidelity analysts and money managers began plotting
ways to get more face-time with Mr. Buffett. In 2010, they tried to increase
their chances of being picked by having multiple people take part in a small
number of raffles.
That effort was only
moderately successful, so they began plotting what was known internally as
the "enhanced version" of the strategy, according to people familiar with
This year, more than 40
Fidelity representatives went to the meeting, fanning out and entering
raffles held all over the auditorium. Roughly 500 to 800 people entered the
drawings, according to the company.
It wasn't rocket science, but
Fidelity's plan worked: Representatives from the Boston-based firm got to
ask six out of 27 questions allocated to the crowd, or more than one out of
five questions. Following the custom of past meetings, those that took the
microphone identified themselves by their name and hometown, without
mentioning their employer. Two more questions were asked on the firm's
behalf by the journalists, getting Fidelity a total of eight out of 54
Mr. Buffett didn't learn that
Fidelity was so prominently featured until later, and termed it "an
unusually high hit rate."
A Fidelity spokeswoman
declined to comment on Berkshire and Mr. Buffett, but said the objective of
Fidelity's investment staff when meeting any company is to "ask the right
questions so they can obtain the best information to analyze and evaluate
that company." Fidelity holds about $4 billion of Berkshire shares, or a
roughly 2% stake in the company.
At the April
meeting, Fidelity representatives asked Mr. Buffett and his business partner
Charlie Munger about the outlook for banks Berkshire had stakes in and
how they estimate a company's growth. Joel Tillinghast, a longtime Fidelity
stock fund manager who is writing a book about investing, asked how they
think about companies' returns on capital.
Other regular pilgrims to
Omaha say the meeting's dirty little secret is that, with a little planning,
it is not that hard to get microphone time. Whitney Tilson and Glenn Tongue,
managing partners of New York investment firm T2 Partners LLC, both asked
questions this year after taking part in a drawing held in an "overflow
room," a ballroom with a video link that accommodates hundreds of attendees
who arrive late or can't find seats in the main auditorium.
Mr. Tilson, who has also asked
questions in previous years, says he noticed some time back that few people
in the overflow room signed up for the opportunity. He says he has long
watched the meeting from that location simply "because it's less chaotic and
more comfortable." ("He figured out the weak link," observes Mr. Buffett.)
For next year's meeting, Mr.
Buffett has so far decided the crowd will get roughly a third fewer
questions because a panel of Wall Street analysts will be added to the
lineup. He also says Berkshire will "take steps to make sure that the
questions from the audience are really by chance."
Whatever system Mr. Buffett
comes up with, some Fidelity insiders say they will look for a way around
it—within the rules, of course. Mr. Buffett says he doesn't fault them for
trying. "I might have done the same thing when I was that age," he says.
Serena Ng at
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