First, The Forecast, Then An Intimate Little Lunch At Dairy Queen

"When fortune smiles, be doubly cautious." - Sophocles

When Warren Buffett's annual comments about stock investing ripped through the Internet on March 14, 6 a.m. Seattle time, analysis was quick, if not even.

Most said Buffett believed stocks weren't overvalued.

A few noted that each time he advanced such a conclusion, he also said, "but . . . "

You be the judge. We're talking about the billionaire chairman of Berkshire Hathaway, an Omaha, Neb., company that owns See's Candies, Dexter Shoes, World Book encyclopedias, Kirby vacuum cleaners and numerous other businesses. Berkshire also owns mammouth stakes in such corporate giants as Disney, Gillette, American Express, Coca-Cola and others.

Each year, Buffett authors a chairman's message of about 20 pages that, besides being enormously entertaining, contains a great deal of investment philosophy. The report, and a separate file containing his 1997 Chairman's Letter, is available on the Internet at http://www.berkshirehathaway.com.

The more entertaining stuff awaits, but let's get to the quasi-market forecast material first.

"We are not pleased with our prospects for committing incoming funds," Buffett wrote. "Prices are high for both businesses and stocks. That does not mean that the prices of either will fall - we have absolutely no view on that matter - but it does mean that we get relatively little in prospective earnings when we commit fresh money."

So, were those comments a plus for the market or a negative?

Elsewhere, Buffett said that although Berkshire always looks for ways to invest, "it may be some time before we find opportunities that get us truly excited."

Is that a plus or minus?

Later, he wrote that with interest rates low and stock returns high, "there is no reason to think of stocks as generally overvalued. On the other hand, returns on equity are not a sure thing to remain at, or even near, their present levels."

Plus or minus?

A cheery consensus, he suggested, makes one leery. Yet, "that does not necessarily mean this is the wrong time to buy stocks."

Plus or minus?

Then, immediately, he added, "Today's price levels, though, have materially eroded the `margin of safety' that Ben Graham identified as the cornerstone of intelligent investing."

Buffett delineated three nontraditional investments. For the first time, even though he began buying the contracts in 1994, he detailed Berkshire's investment in oil. He also wrote about the previously disclosed position in silver. Berkshire owns one-fifth of the world's marketable silver. He also mentioned a $4.6 billion investment in zero-coupon bonds (the kind bought at a discount that grow to their face value).

Oil, silver, bonds. Plus or minus for the stock market?

Buffett lists all stock positions worth more than $750 million. For example, Berkshire's position in Coke is worth $13.3 billion. He did not increase any of his stock positions. He cut by relatively small amounts stakes in Disney, Freddie Mac and Wells Fargo. A name on the list last year at $1.4 billion, McDonald's, disappeared, meaning the position was eliminated or, at the least, cut in half, to below $750 million.

Plus or minus?

Yours truly has misinterpreted Buffett's moves before. But if someone held a gun at this pinhead, the weight of evidence suggests Buffett is uncomfortable with stocks. Obviously not a screaming sell, but quite cautious, despite headlines to the contrary earlier in the week.

But read it yourself. Get the letter through the Web site, or call Berkshire Hathaway at 402-346-1400.

The report featured much of Buffett's well-known humor. Here are a few instances:

-- About Berkshire's year-in, year-out great results, Buffett wrote, "We will not ask you to adopt the philosophy of the Chicago Cubs fan who had reacted to a string of lackluster seasons by saying, `Why get upset? Everyone has a bad century now and then.' "

-- Last year, Berkshire bought International Dairy Queen, owner of 5,792 Dairy Queen franchises, 409 Orange Julius shops and 43 Karmelkorn operations. Buffett said he and Vice Chairman Charles Munger frequent Dairy Queens. "We have put our money where our mouth is."

-- It's tough for Berkshire to "trade up" for new businesses: "Our situation is the opposite of Camelot's Mordred, of whom Guenevere commented, `The one thing I can say for him is that he is bound to marry well. Everybody is above him.' Marrying well is extremely difficult for Berkshire."

-- Regarding Buffett's near life-and-death struggle to save Salomon Brothers, he wrote, "Looking back, I think of my Salomon experience as having been both fascinating and instructional, though for a time in 1991-92 I felt like the drama critic who wrote: `I would have enjoyed the play except that I had an unfortunate seat. It faced the stage.' "

-- The big bash known as Berkshire Hathaway's annual meeting will be May 2-4. Buffett calls it Woodstock Weekend. As usual, he said his favorite restaurant will be open Sunday, May 3, the only Sunday opening of the year. Buffett will have his usual "rare T-bone and double order of hash browns."

Afterward, all shareholders are invited to the Dairy Queen on 114th, where they can partake of the Dusty Sundae: "This item is a personal specialty - the Dairy Queen will furnish you a copy of my recipe - and will be offered only on Shareholder Sunday."

-- And, as usual, Buffett will throw out the first pitch at the Omaha Royals game. Buffett owns 25 percent of the Royals. But he promises to substitute a curve for his eight-mile-an-hour fastball: "Visit the park on Saturday night and marvel as the majestic arc of my breaking ball."

Vintage stuff, all around.

Stocks and bonds

The Dow Jones industrial average of 30 blue-chip stocks hit a record each day and ended at 8,906.43, up 303.91 points.

The Murphey Favre Northwest 50, 50 stocks weighted by their regional economic impact, rose 51.90 points to a record 5,747.78.

The U.S. Treasury's 30-year bellwether bond ended the week up only a few pennies at $1,033.75. That was priced to yield 5.88 percent, said Mark Rodgers, Seattle-Northwest Securities vice president. It was a quiet week, Rodgers said, with most economic data being interpreted as positive for bonds.

Short term, what will the Japanese do as their fiscal year ends in nine days? The fear? They might sell U.S. bonds to cover other shortages.

With a break in new supply, municipal bonds made progress, reported Judith Cochrane, Seafirst Bank municipal trader. The Seafirst Northwesrt Muni Bond index fell 0.05 to 5.30 percent, she said.

Wall Street Recap appears Sunday in the Business section of The Seattle Times. Greg Heberlein's phone message number is 206-464-2267. His e-mail address is: gheberlein@seatimes.com

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. READERS PORTFOLIO . 10 NW STOCKS PREFERRED BY READERS .

.

. Alaska Air +46.9 . Boeing +9.2 . Costco +30.4 . Eagle Hardware -7.7 . Icos -21.2 . Micron Technology +17.3 . Microsoft +26.7 . Nike +12.6 . Starbucks +8.5 . Washington Mutual +15.9 .

. Average: +13.9%.

. What $1,000 invested in those stocks would be today: $1,139.

.

. READERS' NON-PORTFOLIO . 10 NW STOCKS PICKED RANDOMLY, EXCLUDING READERS' TOP 10.

. Columbia Banking +15.7 . Emeritus -2.5 . GST Telecom +39.5 . Labor Ready +66.2 . Paccar +21.2 . Puget Sound Energy -7.9 . RadiSys -2.0 . Riverview Bancorp -4.2 . Schnitzer Steel -5.1 . SeaMed -8.8 .

. Average: +11.2%.

. What $1,000 invested in those stocks would be today: $1,112.