Berkshire Hathaway 2014 Annual Shareholder Meeting

Warren Buffett opens the meeting with humor, introduces special guests including singer Paul Anka, and recognizes Carrie Silva for organizing the event. He then introduces all members of the Berkshire Hathaway Board of Directors including Charlie Munger, Bill Gates, and other distinguished members.

Buffett reveals the remarkable results of a shareholder vote on paying dividends. Even excluding his own shares, Class A shareholders voted 40-to-1 against dividends, while the million or so Class B shareholders voted 45-to-1 against dividends. This demonstrates extraordinary alignment between management and shareholders on capital allocation.

Buffett explains Berkshire's policy of only repurchasing shares at prices below 120% of book value. He emphasizes that this threshold is a loud signal that management believes the stock is significantly undervalued. Unlike companies that buy back shares just to offset option dilution, Berkshire only repurchases when it benefits shareholders.

Buffett and Munger dismiss traditional cost of capital calculations as largely meaningless. They explain that their real cost of capital is the opportunity cost of their second-best idea. Buffett notes he's never seen an intelligent cost of capital discussion in boardrooms, and that CFOs always find ways to justify deals CEOs want to do.

Buffett and Munger argue that mandatory compensation disclosure has actually driven CEO pay higher, not lower. They explain that executives naturally compare themselves to the highest-paid peers in proxy statements, leading to an upward spiral. Munger calls it a 'culture of envy' that harms shareholders.

Discussion of Berkshire's $3.5 billion investment in NV Energy and the different capital allocation strategies for Berkshire Hathaway Energy (which retains all earnings) versus Burlington Northern (which pays dividends to Berkshire while also taking on debt for capital expenditures).

Buffett explains that while Berkshire has been successful with marketable securities, what really excites him and Munger is acquiring entire businesses that will earn money for decades. He emphasizes that Berkshire is fundamentally about building earning power through business acquisitions, not stock trading.

Buffett provides the annual update on his famous 10-year bet that a low-cost S&P 500 index fund would outperform a collection of hedge funds. Six years into the bet, the index fund is significantly ahead despite the hedge fund managers having every incentive to pick the best funds from among 200+ underlying hedge funds.

Buffett reflects on Berkshire's actions during the financial crisis, noting that while the timing could have been better on some investments, they were able to acquire BNSF railroad in late 2009 when the economy was still in the dumps, which will be an enormous part of Berkshire's future.

Munger explains how Berkshire has evolved from being primarily a portfolio of common stocks with businesses as extras, to a company where private operating businesses are now worth far more than the stock portfolio. This represents a fundamental shift in how value accrues to shareholders.

Buffett addresses the perennial hotel shortage problem for the annual meeting. He explains that Omaha cannot economically build enough hotel capacity for a single weekend event, and expresses hope that services like Airbnb will provide flexible supply to help attendees find accommodations without the three-day minimums some hotels were imposing.

Discussion of GEICO's continued market share gains among large auto insurers and the structural cost advantages that allow it to compete effectively while maintaining profitability.

Buffett explains why sports equipment has generally not been a good business, using helmet manufacturing as an extreme example. He argues that businesses with high liability exposure should be owned by people with minimal net worth, not by a super-wealthy target like Berkshire.

Gregg Abel describes Berkshire Hathaway Energy's $1.9 billion investment in a 1,000 megawatt wind project in Iowa that will earn an 11.5% return. He explains how the combination of low rates and renewable energy is attracting major tech companies like Google to build massive data centers in the state.

In response to a question about education markets in the US and China, Charlie Munger delivers a blunt assessment that America made a huge mistake allowing public schools to deteriorate, and suggests Asian cultures are less likely to make this mistake.

The formal business portion of the annual meeting where Warren Buffett conducts the official shareholder meeting procedures, including the election of directors and other required corporate governance matters.