By Jonathan Stempel and Jennifer Ablan
OMAHA, Nebraska (Reuters) - Short-seller Douglas Kass, Warren Buffett's handpicked bear, raised a concern on the minds of many shareholders at the "Woodstock for capitalists" this weekend: Has Berkshire Hathaway Inc become so big that it will find it hard to grow?
Many retail investors who converged on Omaha, Nebraska, for Berkshire's annual meeting on Saturday acknowledged that its fastest growth days are likely behind it. But they said Berkshire is still a good long-term bet as faith remains in Buffett and his management team's more than 4-decade-long record of stellar returns, and the company's tentacles into many sectors of the U.S. economy.
"Yes, it is a concern, but I have to get my expectations in line," said Julie Fehrnstrom, a mother of three from Orinda, California, attending her fifth meeting. "They are not driven by short-term decision making and they have really smart management. You really don't always find that."
Sherrie Palmer, a social worker from Portage la Prairie, Manitoba, was attending her first Berkshire meeting, one of 35,000 or so investors.
"The steepness of the growth is leveling off, but it's not a concern," Palmer said. "We like the manner in which decisions are made and I don't worry about this being an organization jumping to a fad that won't pan out."
Patience has served Berkshire shareholders well. Investing in companies with dependable businesses and sound management has helped Berkshire as an investment trounce major competitors since Buffett took it over in 1965. Berkshire is now one of the largest U.S. companies by market value, with more than 288,000 employees in dozens of businesses, covering everything from ice cream to underwear and insurance to railroads.
But its massive size - currently around $268 billion in market value - has made it hard for Berkshire to grow as fast as it once did. While Berkshire performs well in down markets, it can lag in rising markets.
Buffett reminded shareholders that 2009-2013 may prove to be the first five-year period ever when the company's growth in book value per share will lag the Standard & Poor's 500 index including dividends.
"People who buy stocks now and hold stocks for 20 years will make money," Buffett told Reuters Insider in an interview on Saturday evening. "Those who hold for 20 days, I don't know what will happen."
It has also become harder for the company to find deals that are large enough to move the needle. In February, Berkshire, along with Brazilian investment firm 3G Capital, struck a deal to buy ketchup maker H.J. Heinz Co, and Buffett said he was looking for more big acquisitions.
But in an interview on Friday, Berkshire Vice Chairman Charlie Munger said high prices have made attractive deals scarce. "With interest rates at zero, the prices being paid for businesses are very high," Berkshire's second-in-command said.
Still, size has advantages. Berkshire's quarterly profit rose nearly 51 percent on solid performance in insurance and many of its other units. The results showed that its more than 80 businesses are benefiting from a strengthening economy, as illustrated by increased traffic on its Burlington Northern railroad unit, new customers for its McLane food distribution business and stepped-up demand for its Forest River recreational vehicles, to name just a few.
"In the 1990s, Warren was criticized for not being 'state of the art,'" said Arthur Cohen, a financial adviser from Highland Park, Illinois, who was attending his 15th meeting. "I'm not critical of his performance since."
Investors have also worried about what will happen to Berkshire after Buffett, 82, and Munger, 89, leave. In his most extensive comments to date about the future of Berkshire after he is gone, Buffett said he still expects the conglomerate to be a partner of choice for distressed companies.
Buffett said he and his board are "solidly in agreement" on who should be the next chief executive - but offered no names - and said his son, Howard, would become chairman to ensure that Berkshire had the right CEO in place.
"The key is preserving a culture and having a successor, a CEO that will have more brains, more energy, more passion for it than even I have," Buffett said in response to a shareholder question at the meeting.
As Berkshire has grown, so has the yearly extravaganza, now Omaha's second-biggest annual tourism event behind the College World Series baseball tournament. The event attracted many well-known investors, including Mario Gabelli, Leon Cooperman and Chris Davis, as well as mom-and-pop investors.
Missy Krasso, a driver for Happy Cab in Omaha, makes as much as $3,000 in fares during the Berkshire weekend. Wall Street tips well, she said.
Before the meeting began, Buffett roamed an exhibit hall at the arena featuring Berkshire-owned companies. Cherry Coke in hand, he dipped coconut bon-bons in a fondant coating at See's Candies, admired a model Burlington Northern railroad and tossed newspapers. Berkshire owns the Omaha World-Herald and others.
A new addition to the series of events around the meeting this year was an "Invest in Yourself" five-kilometer run through downtown Omaha, with Buffett starting it off, if not necessarily setting the pace.
The real mad sprint began at 6:30 a.m. on Saturday, when dozens of shareholders rushed for the best seats directly in front of Buffett and Munger on the arena floor, large enough to be suitable for a rock-star concert.
Sherman Silber, a fertility doctor who has attended the meetings for 15 years, said he misses the "old format" where he could just go to the podium and ask a question. "Now you have to do all this lottery stuff," he said.
But Rosie Smith, a finance executive for a Baltimore book printer, said she keeps coming back for more.
"We came out here, and it was the wildest thing we've ever seen," she said, referring to the first of her 10 visits to the meeting. "Every year, it keeps snowballing."
(Reporting by Jennifer Ablan and Jonathan Stempel in Omaha; Additional reporting by Rhonda Schaffler; Editing by Ben Berkowitz, Paritosh Bansal, Tiffany Wu and Maureen Bavdek)