OMAHA, Nebraska (Reuters) - Warren Buffett told shareholders of his Berkshire Hathaway Inc BRKa.NBRKb.N not to expect the out-sized gains his insurance and investment company has historically enjoyed, but they could still sleep well owning its stock over the long haul.

Billionaire financier and Berkshire Hathaway Chief Executive Warren Buffett attends a television interview during the annual shareholders' meeting in Omaha, Nebraska May 3, 2008. REUTERS/Carlos Barria

“There is absolutely no question” that Berkshire’s returns will decline, Buffett said. “Anyone that expects us to come close to replicating the past should sell their stock. It isn’t going to happen. I think we’re going to get decent results over time, but we’re not going to get indecent results.”

The world’s richest person offered his warming on Saturday at Berkshire’s annual meeting in the Qwest Center in downtown Omaha, before what he called a record 31,000 shareholders.

Through 2007, Berkshire had grown 21.1 percent a year since Buffett took over what was a failing textile maker in 1965. That is twice the gain in the Standard & Poor's 500 .SPX, including dividends. A Berkshire share that fetched about $12 in 1965 captures $133,600 now. A Class B share costs 1/30th as much.

Berkshire has become a behemoth, with a roughly $207 billion market value and $281 billion asset base that makes it harder for any one business or investment to move the needle.

Shareholders, including new ones, seemed understanding.

“I think it’s a steady stock. That’s why I bought it,” said Jane Hoffer, 53, a middle school cafeteria worker from Lincoln, Nebraska who said she bought her 11 Class B shares in the last year. “I want something I can buy and keep and know that it’s not going to go bad.”

Buffett and Vice Chairman Charlie Munger spent five hours fielding questions from shareholders. One, a nine-year-old boy, asked if they would buy the Chicago Cubs baseball team from Sam Zell’s Tribune Co. (Buffett said, in so many words, no.)

Thomas Kamei, 18, said he was attending his 12th meeting and lined up to enter the Qwest Center at 3:50 a.m. Several shareholders were ahead of him.

“When you come back here, it’s really great to get grounded again,” said Kamei, who said he lives in San Francisco and will attend the University of Southern California in the fall.

AVOIDING CHAOS

Berkshire itself had an ordinary first quarter, as profit declined 64 percent. Insurance premiums fell by more than half and Berkshire suffered a $1.7 billion pre-tax loss on contracts tied to junk bond credit quality and stock market indexes. Buffett expects those contracts to be profitable long-term.

The billionaire said the U.S. Federal Reserve and its chairman, Ben Bernanke, did the "right thing" in coordinating the March purchase of troubled investment bank Bear Stearns Cos Inc BSC.N by JPMorgan Chase & Co JPM.N for a fire-sale price.

While acknowledging “very interesting policy implications” of a government saying a bank is too big to fail, Buffett said letting Wall Street’s fifth-largest bank go bankrupt could have thrown financial markets into “chaos.”

But he said many big investment and commercial banks may be too big to manage effectively. He distinguished three banks in which Berkshire has big stakes: Wells Fargo & Co WFC.N, U.S. Bancorp USB.N and Buffalo, New York's M&T Bank Corp MTB.N.

“In all three cases, I think I understand quite well the DNA of the institution,” he said. “It does mean they’re immune, in my view, from institutional stupidity.”

Buffett, who draws a $100,000 salary to run Berkshire, also railed against chief executives who take in millions of dollars a year. “I don’t know of any CEO that wouldn’t gladly do the job at half the price or a quarter of the price,” he said.

That resonated with many shareholders.

“The current state of corporate governance has little punishment to executives that make poor decisions,” said Nathan Dapeer, 21, who expects to graduate in June from Northwestern University with a degree in economics and political science. “They take big risks because they have huge upside.”

TWO “BOYS”

Buffett said Berkshire still has three internal candidates to succeed him eventually as chief executive and four candidates to become chief investment officer.

Peter Silberstein, a 55-year-old Omaha physician attending his third meeting, said Buffett and Munger are role models.

“We are very impressed with Warren and Charlie with their humor, intelligence and ethics,” he said. “The future is also uncertain. It’s not certain how long these two boys are going to be around.”

Buffett is 77, and Munger is 84.

A sense of propriety is what Buffett said helped lead Mars Inc, the maker of M&Ms and Snickers bars, to seek his help in agreeing last week to buy chewing gum maker Wm Wrigley Jr Co WWY.N for $23 billion. Berkshire kicked in $6.5 billion.

“They only wanted to deal with Berkshire,” Buffett said.

And Buffett said Mars wanted a sure commitment, following the recent collapse of several big mergers because of tight credit markets.

That was not a problem because Buffett believes in sticking to commitments. Even, he added, if New York City is hit with a nuclear bomb, a flu epidemic breaks out, or “Ben Bernanke runs off to South America with Paris Hilton.”