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Warren Buffett hands out a Girl Scout Thin Mint Cookie Blizzard at a Dairy Queen in Omaha, Neb. (Nati Harnik/Nati Harnik/AP)
Warren Buffett hands out a Girl Scout Thin Mint Cookie Blizzard at a Dairy Queen in Omaha, Neb. (Nati Harnik/Nati Harnik/AP)

Buffett's magic touch begins to wear off Add to ...

Aside from maybe the odd cheeseburger stain on his tie, nothing much sticks to Warren Buffett.

Whether his underlings are convicted of helping insurance companies inflate results or a major company he helps oversee is sanctioned for accounting shenanigans, his admirers don't seem to care. Or at least, they haven't historically.

But with a key Buffett lieutenant resigning under a cloud recently, some sophisticated investors are no longer willing to overlook the obvious. For all the shareholders who still consider Mr. Buffett the epitome of American capitalism, there are others who wonder whether the time may be near for Mr. Buffett to take a graceful bow and exit the stage.

Some will clamor for that this weekend, when 40,000 of his shareholders prepare to descend on Nebraska for the annual meeting of Berkshire Hathaway , the ice-cream-to-insurance conglomerate he runs with absolute authority.

"I want to hear more about Sokol, I want to hear more about how they're going to outperform the markets. I want to hear about what (Buffett's recent) trip to India leads us to believe about how the money is going to be invested in the future," said Michael Yoshikami, chief executive of wealth management firm YCMNET Advisors and a widely quoted Berkshire shareholder.

Investor disappointment reflects not just the revelation that David Sokol, once Mr. Buffett's presumed successor as chief executive, bought stock in a company he then pushed Mr. Buffett to acquire. It is also because of Berkshire's lackluster performance recently, and questions about the firm's ability to thrive after its octogenarian chairman and chief executive moves on.

Berkshire Hathaway has grown exponentially over decades, but many investors question how it can possibly do as well in the future. With the dozens of companies that Berkshire Hathaway owns having had relatively little oversight for years (by Mr. Buffett's own proud admission), some wonder how much earnings power Berkshire actually has and whether future earnings can be as strong as past.

"Obviously Berkshire has intrinsic value but now I have to question that intrinsic value," said Janet Tavakoli, an expert on derivatives and author of "Dear Mr. Buffett," a 2009 book laden with fulsome praise for the legendary investor. Ms. Tavakoli, like many others, has revised her thinking sharply in the intervening years.

Yet she, like so many others, added an important caveat about Mr. Buffett: "(His) brand is so powerful you are reluctant to question."


By now the details of Sokol affair have been told many times. Citigroup bankers pitched a long list of companies to Mr. Buffett's presumed successor, and he told them he thought Lubrizol Corp, which makes lubricants and other chemicals, might make a good acquisition target. He started buying up shares for his own account, and after building up a $10-million position he pushed Mr. Buffett to buy the company.

As Mr. Buffett put it, Mr. Sokol made only a "passing" mention that he owned some Lubrizol shares.

Mr. Sokol made about $3-million on the trade, perhaps at Mr. Buffett's expense. Mr. Buffett has been called to task for how he handled the matter. In a letter to investors, he announced Mr. Sokol's resignation, explained the stock issue and offered a grant of absolution: "Neither Dave nor I feel his Lubrizol purchases were in any way unlawful," he wrote.

Less than three weeks later, the first shareholder suit was filed, accusing Berkshire's board of breaching its fiduciary responsibility. More are expected, particularly from bigger firms with a track record of winning large settlements for shareholders.

Governance experts say Mr. Buffett blamed the sin but not the sinner.

"The response wasn't as strident as ... I would have hoped for in suggesting that personal stock transactions that are related to corporate stock transactions are problematic and not the sort of thing that the company thinks is a good idea," said Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware.

"And I would hope in these situations that you would be pretty tough on that in your response."

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