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Students pitch Oracle of Omaha
Monday, January 30, 2006
MONTREAL -- Lots of people get to study at the feet of a master, but not many get to pitch him on a billion-dollar deal.
About 100 students from McGill University's Desautels Faculty of Management and the University of Toronto's Rotman School of Management were invited to meet billionaire Warren Buffett, perhaps the world's greatest investor. "Truly an investment banker's wildest dream," said Harsha Rajamani, of his role with a McGill team aiming to pitch the Oracle of Omaha on a Canadian company.
Mr. Buffett will hold about 35 of these sessions this year. Apart from an annual shareholder meeting, they are about the only occasions he speaks at. He devotes up to four hours answering questions and taking the students and professors to lunch. The idea is to encourage the students and pass along something of his wisdom. He will also hear proposals for deals, if the students put them together.
If he decides to invest in a company they recommend, Mr. Buffett told us he would give every member of the school's class two class B shares in Berkshire Hathaway Inc., the company that serves as a vehicle for his investing. The stock trades at just under $3,000 (U.S.). The class's professor gets one Berkshire class A share, which currently trades at just under $90,000.
The McGill contingent decided to make some proposals, and I was one of eight Bachelor of Commerce students who spent two months brainstorming, picking a company and drafting and rehearsing a pitch.
Whatever else would come of it, I would at least meet face-to-face with the man who inspired my own interest in the capital markets. For an 8th grade English class book report, I had read The Warren Buffett Way. The first company that I, as a preteen, was introduced to by my investment banker father was Omaha-based Berkshire, whose shares were then worth a mere $50,000 a share.
Our team looked at dozens of Canadian public and private companies as possible Buffett-worthy investments. Such names as Shoppers Drug Mart Corp., M&M Meat Shops Ltd., Gildan Activewear Inc., among many others, were discussed and eventually neglected for not perfectly fitting the Berkshire Hathaway model, as we saw it.
Essentially, Mr. Buffett bases his investment decisions on nine factors, of which the most important are an identifiable consumer monopoly, strong management, strong and upward-trending profits, little debt and a high rate of return. We thought our candidate nicely fit the bill, and fell into the $2-billion to $5-billion market capitalization range he looks for.
On Friday, we toured one of Berkshire holdings, Nebraska Furniture Mart, and then assembled at 1440 Kiewit Plaza, Berkshire headquarters in one floor of a modest, white 15-storey building. There are only 17 head office employees.
During a two-hour session, Mr. Buffett fielded about 10 questions on topics ranging from U.S. monetary policy, his understanding of the technology sector, his philanthropic mission and why he still chooses to go to work every day.
He said "it is vital to find things that make sense for you, and then stick with them." He observed that he can buy whatever he wants or do anything he wants except for one thing -- roll back the clock. "You've got to do something that turns you on . . . don't strive for the 'perfect résumé' -- do what you like."
There was no time at the formal audience to present our carefully crafted pitch, so we made our proposal over lunch.
Team member Aaron Stern wangled a seat beside Mr. Buffett during lunch, and when the Oracle looked his way, launched off: "Mr. Buffett, I know you hear a lot of pitches, but we found a company that is a sure winner!" Not waiting for a response, he forged ahead, ending by handing over our carefully crafted pitch book. Mr. Buffett seemed impressed.
Time will tell if Mr. Buffett was persuaded. He said during the question-and-answer session that, "We'll [Berkshire Hathaway] be buying a couple of businesses in the next few weeks." Our team will wait a few months for these transactions to occur, watching for a press release about our candidate.
Our last look at the master investor came as he hopped into his Lincoln Town Car and headed off into the streets of Omaha -- no chase car, no security, no pretension other than a licence plate that read THRIFTY.
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