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Perception Problem Looms Large Over Buffett and Berkshire Meeting

Every year, thousands of Warren Buffett fans visit Omaha, Neb., for the annual Berkshire Hathaway (NYSE:BRK.A, BRK.B) lovefest. The shareholder meeting is often called “Woodstock for Capitalists” and is full of hokum and hysterics that are sure to entertain any lucky investors.

But does the event help Berkshire stock in the long run? Or is this just the most obvious sign that Berkshire is mainly a sentiment play for those who believe in the mythos of Buffett — and not really a company that trades based on its balance sheet?

This may sound sacrilegious, asking whether Berkshire is actually a well-run company or just an over-inflated cult stock. But more people are starting to ask this question lately.

Take hedge fund manager and investing icon Doug Kass, who is short the stock. Kass has been given an invitation to ask hard questions of Buffett at this annual shareholder event, and doesn’t plan to pull any punches.

“My challenge is to ask some original questions, some that have never been asked, that might divulge new news and give people some insight,” Kass told MarketWatch. “If he answers a couple of these honestly, people will have learned more about Berkshire when they leave the annual meeting than they knew before.”

But is that really what Berkshire shareholders want, to look at the company in the cold light of day?

Seems to me many prefer to simply buy a necklace at Borsheim’s while Buffett mans the counter, or watch the bridge games, or listen to the Oracle of Omaha and his No. 2 Charlie Munger wax philosophical about holding stocks for decades.

To Berkshire’s credit, inviting an unapologetically bearish investor is a rare bit of openness. There’s a six-hour Q&A session with analysts and journalists planned, including the time allotted to Kass.

But the bigger question remains how Berkshire is doing right now — and how its investing philosophy has been steadily changing over the years.

Consider the role in a massive $28 billion buyout of Heinz (NYSE:HNZ), featuring junk bonds that Warren Buffett has openly derided in the past.

Think about how relative newcomers Todd Combs and Ted Weschler are making their marks by moving beyond financials and consumer staples. Combs’ and Weschler’s fingerprints are all over picks like mid-cap healthcare stock DaVita (NYSE:DVA), DirecTV (NASDAQ:DTV) and Liberty Media (NASDAQ:LMCA) which all saw an increased stake in the latest Berkshire holdings report.

And more important, think about what happens in five or 10 years when Warren Buffett isn’t around anymore.

There are big changes afoot at Berkshire, both with its strategy and with how investor perceptions will change.

I’m very interested to see what kind of questions Doug Kass asks and how financial media dig into the company. But the sad reality for some investors is that this is just a big party, Berkshire stock is their ticket and Buffett is their affable host.

That’s a fine mindset for a vacation, but a poor way to plan for your retirement.

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Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.

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