[0:01]
OtherYeah. Okay. We're going to be ready to go in just a minute if everybody gets their seats. Sticking. One through eight. One through eight. Yeah. Mm-hmm. We've got six or seven thousand anyway. Sticking around, I think. Okay. If anyone who has questions wants to go to the microphone, we're going to start here in just a minute, and we will start. There will only be eight zones from this point forward because we have... We have everyone in attendance in the main hall, so we will rotate around eight zones. We'll stay until about 3.30, and we'll start in zone one.
QuestionerMy name is Charlie Sink. I'm from Lexington, North Carolina, as you can tell by the accent. My question relates to the general re-purchase. I wondered, I've read your letters through the years, and I've been trying to learn a little bit about investing in insurance companies. Did you buy General Reed mostly because, I know mostly because of the float, because you think you can grow the float. I know it's not growing significantly now. Or did you buy it because you felt like you could do better with the investments? I've read also that companies who seem to be trying to follow the Berkshire model are trying to get a certain amount of investments to equity. Is that something that you focus? zone and that's that's my question.
WarrenYeah, the first two parts are correct. We certainly, we don't think the float will grow rapidly in the near term future at all. The float changed actually declined very slightly in the first quarter. And at a level of 6 billion or so of premiums, the paid losses are likely to run at a rate that would cause the float to remain more or less steady. So it will take a period when premiums grow for the float to grow. And the premiums would have to grow fairly substantially to have any significant impact on the float. And like I say, that will not happen in the short term. We expect the float to grow over the long term. We expect that General Rhee will probably grow considerably faster in international markets than the domestic market. We think that their reputation, which was as good as could be found from an operational standpoint, from a technical standpoint, a managerial standpoint, will be further enhanced by Berkshire's capital strength. So we think their reputation is likely to grow over the years and we think the premium volume will follow but not in any major way at all for a few years at least and then we as dressed earlier in the meeting we think the
[4:01]
Warrenthere is the opportunity to do better with that float from time to time in the future but right now that is not it's not a plus that it's in our hands and it may not be a plus a year from now. We think at some point it will be a plus. We also pointed out, and there are some, there could be some tax advantages to be included as part of Berkshire as well. So there are some things going for it, but none of them will have it. They will not have an impact in 1999, and they may well not have an impact in 2000. We obviously think Berkshire 10 years from now will be worth more on a per-sure basis with General Re-included than if it were than if we had not made the deal. We don't necessarily think that's the case on a one-year or two-year basis, but it is our judgment on a 10-year basis. Charlie?
CharlieI would say that if we, in the future, do as one-third as well with the new float that came to us with General Re, as we've done on average in the past, it will work wonderfully. If you take our past use of float in the history of this company, it would be a good. an interesting study if anybody ever stretched it out.
QuestionerZone 2. Good afternoon. My name is Greg Kesa from Oakland County, Michigan. I'd like to thank both of you gentlemen for your hospitality this weekend. My question deals with price deflation. Could you please explain how technological advances and productivity increases are affecting our non-fixed income holdings, especially insurance?
WarrenWell, I think that to the extent your question implies the question, how does technology affected the inflation rate, the advances in technology? I've heard Alan Greensman make a lot of interesting comments on that. I think it baffles him to some extent, but he also recognizes that there's some important, very hard-to-measure factor that has caused inflation not to be in the way that most people expected with this drop of employment, general prosperity, et cetera. And I think he attributes it in some part, but again, immeasurable, to what has been happening in the information technology world. Obviously, low inflation is good for fixed-income investments, but that's been reflected to a significant degree in a long-term rate that's at about five and a half percent now. You know, it is, it does look at the moment like an almost perfect world in terms of the macroeconomic factors, and that probably is a reason why people are enthused about stocks,
[7:20]
Warrenand it's a reason, and it's a good reason in terms of price inflation, it's a good reason why bonds have behaved well over the last, really, since 1982. I don't know the answers to what it means for the future. I have to, I have to, I have to to believe that it's very good for this country to have the lead in information technology that it does on the rest of the world. I mean, we, it seems to me as a non-expert that we are so far ahead of the rest of the world in terms of the leading, having the leading companies and the money flowing into it, the brainpower flowing into it, that is hard to think of who's in second place, and I think that's helped this country in some very significant way, but I don't know how to measure. Charlie?
CharlieWell, I would say that Berkshire's businesses, on average, are less likely to be obsoleted by new technology than businesses generally. No steel-toed steel-toed work shoes. I do not anticipate a significant change in the technology. And I think we have more of the stuff that's sort of basic and hard to obsolete than many other corporations do. As we mentioned in the report, we think all of that activity is very beneficial from a societal standpoint. Our own emphasis is on trying to find businesses that are predictable in a general way as to where they'll be in 10 or 15 or 20 years. And that means we're looking for businesses that, in general, are not going to be susceptible to very much change. We view change as more of a threat into the investment process than an opportunity. That's quite contrary to the way most people are looking at equities now. But we do not get enthused about — with a few exceptions. We do not get enthused about change as a way to make a lot of money. We try to look at — we're looking for the absence of change to protect ways that are already making a lot of money and allow them to make even more in the future. So we look at change. We look at change as a threat. And whenever we look at a business and we see lots of change coming, nine times out of 10, we're going to pass on that. And when we see something we think is very likely to look the same 10 years from now or 20 years from now as it does now, we feel much more confident about predicting it. I mean, Coca-Cola is still selling a product that is very, very similar to one that was sold 110 plus years ago. And And the fundamentals of distribution and talking to the consumer and all of that sort of thing really haven't changed at all.
[10:15]
WarrenYour analysis of Coca-Cola 50 years ago can pretty well serve as an analysis now, we're more comfortable in those kind of businesses. It means we miss them a lot of very big winners, but we wouldn't know how to pick those out anyway. It doesn't mean also that we have very few big losers, and that's quite helpful over time.
CharlieYeah, the peanut brittle has very little technological change, too. They better not change it. We like it just the way it is.
QuestionerZone 3. My name is Esther Wilson. I live in South Sioux City, Nebraska. My husband and I will have some new money in the early 80s of our lifehood. We have a daughter of 50 years old who will inherit anything we have. My question is, is I also have a four-period. percent interest on a mutual fund that is non-taxable. Are there any better ways to invest our money?
WarrenWell, those are tough questions. I mean, you know, I run into friends of mine all the time where they come into a lump sum at a given time. And, you know, Charlie and I do not have great answers about investing sums of money. For people who are not really active in the process. I mean, if, as we said earlier, if we were working with small sums now, we would start looking at a whole bunch of very small situations and some things that we might know how to do on a small scale. But for the average investor who wants stone equities over a 20 or 30-year period, we think regular investment in some kind of very low-cost pool of money, which might well be an index fund, probably makes as much much more sense as anything. But it's important to keep the cost down. You know, I have close to 100% of my net worth in Berkshire. I'm comfortable with it because I like the businesses we own. And, but, you know, I didn't buy it at this price either, so I don't like to go. I never recommend anybody buy or sell it. And Charlie, do you recommend anything?
CharlieI think it's, if there's anybody in the room who thinks it would be very easy to come up with a one-liner for a great no-brainer investment tomorrow with a great slug of new money. I wish they'd come up and tell me what it is. We don't have any solution to that one. It's harder for us now than it has been at other times.
WarrenYeah, there's been a couple of times. In 1974, there was something in Forbes and 69, the reverse of that situation, and then I think I wrote an article for Forbes. I can't remember exactly when it was about how equities almost had to be more attractive than bonds
[13:27]
Warrenat that time, and bonds weren't that unattractive. I mean, I mean, Every now and then you can say you are getting a great deal for your money in equities, or sometimes you can say you're getting a great deal for your money in fixed income investments. You can't say that now, so what do you do? You know, in terms of new money, we find ourselves sitting and waiting for something, and we continue to look. But we are forced to look at bigger ideas, so if we were working with smaller funds, we'd be much more likely to find something. something than we are in our present situation. As Charlie says, we really don't have any great one-line advice on it. I wish we did. Go ahead. The real long-term rate of return from saving money and investing it has to go down from down from recent experience in America, particularly equity-related, recent experience. The wealth of the world can't increase. at the kind of rates that people are used to in the American equity markets, and the American equity markets can't hugely outperform the growth of the wealth of the world forever. We ought to have reduced expectations regarding the future generally. Yeah, dramatically reduced. Because, you know, we mentioned earlier 53% of the world's stock market value is in the U.S. Well, if U.S. GDP grows at 4%, 5% a year with one or or 2% inflation, which would be a pretty, it would be a very good result. I think it's very unlikely that corporate profits are going to grow at a greater rate than that. Corporate profits as a percent of GDP are on the high side already, and you can't constantly have corporate profits grow at a faster rate than GDP. And obviously, in the end, they'd be greater than GDP. And that's like somebody said that New York has more lawyers than people. I mean, there's certain, you've got into certain conflicts and terminologies. terminology as you go along, if you say profits can get bigger than GDP. So if you really have a situation where the best you can hope for in corporate profit growth over the years is 4 or 5 percent, how can it be reasonable to think that equities, which are a capitalization of that corporate profits, can grow at 15 percent a year? I mean, it is nonsense, frankly. And people are not going to average 15 percent or anything like it in equities. And I would almost defy them to show me mathematically how it can be done in aggregate. I looked the other day at the Fortune 500, they earned $334 billion on and had a market cap
[16:26]
Warrenof $9.9 trillion at the end of the year, which would probably be at least $10.5 trillion now. Well, the only money investors are going to make in the long run are what the businesses make. I mean, there is nothing added. The government doesn't throw in anything. You know, nobody's adding to the pot. People are taking out from the pot in terms of frictional costs, investment management fees, brokerage commissions, and all of that. But the $334 million is all the investment earns. I mean, if you own a farm, what the farm produces is all you're going to get from the farm. If it produces, you know, $50 an acre of net profit, you get $50 an acre of net profit. And there's nothing about it that transforms that in some miraculous form. If you own all of American, if you all in all of the Fortune 500, Now, if you owned 100 percent of us, you would be making $334 billion. And if you pay $10.5 trillion for that, that is not a great return on an investment. And then you say yourself, can that double in five years? It can't, the $334 billion, it can't double in five years, with GDP growing at 4 percent a year or some number like that. It would just produce things that are so out of whack in terms of experience in the American economy. me, it won't happen. So anytime you get involved in these things where if you trace out the mathematics of it, you bump into absurdities, then you better change expectations somewhat. Well, there are two great sayings. One is, if a thing can't go on forever, it will eventually stop. And the other, I borrow from my friend Fred Stanback, who I think is here. People who expect a perpetual growth in real wealth in a finite earth are either madmen or economists.
OtherZone 4, please.
QuestionerGood evening. My name is Rueh Chene. I'm from Des Moines, Iowa. While we have been discussing of how much return that the company has helped us to get in the past few years and for the future too. Though I believe there are many people are concerned about how much have we given to the society in return? And gentlemen, would you please share with us about your philosophy and the company policies and how much the Berkshire has done in terms of philanthropy and charities? Thank you.
WarrenYes, there are figures in the annual report that bear on that. One thing we did wasn't entirely voluntary is that I think we gave about $2.6 billion to the federal government last year in income taxes. I'm not sure.
[19:37]
WarrenI looked at General Electric and Microsoft in a couple of the largest government. We may have paid more in federal income tax than any other U.S. company. I'm not, don't take my word for that, because it could be Walmart paid more. I wouldn't be surprised if Walmart paid more. But there's, I did look at a couple of the biggest ones, and we did pay more than GE or Microsoft. both of which have market caps that are three times our size. And the shareholder designated contribution program was 18 or so million, as I remember. And then we detailed the contributions in the report made by the other companies. But I would argue that to the extent that GEICO, for example, is a more efficient way of delivering personal auto insurance than overwhelmingly that its competitors are. And that 15 percent is a fair indication of how much it is saving people that on a $4 billion of premium volume, that there is something more than $600 million that consumers save by a more efficient way of distribution, which has been honed to a fine art by the GEICOMM. management. And really delivering the goods and services that people want in an an economical way is a very important part, I think, of the contribution that any company makes to society as well as the taxes they pay and their actual corporate philanthropy. We are not big believers in giving away the money of the owner of Berkshire, acting as their representatives, and giving away their money to philanthropy. We think that the shareholders should, it's their money. And if we had a partnership of 10 people, if I were the managing partner, I would not feel I should make the decisions on philanthropy for the other nine people. I would let them all make their own decisions. We do not think that corporations generally should be passing out money to the pet charities of the CEO. And we don't do it. at Berkshire, but we do let the shareholders make those designations. And as I say, I think our primary country, thank you. I think that I think the best contribution, actually, we can make to society over 10 or 15 years, is finding ways to deliver goods and services that people want to them at lower cost than the alternatives that were previously available to them. Charlie?
CharlieYeah, well, I applaud the questioners. yearning for an answer to the question of, isn't there something more in this game than making and piling up money, and shouldn't we be thinking about what we owe in return
[22:50]
Warrenand what's going to go back in return? In the Munger case, I think 100% is going to go back in return for a reason different from that in the Bubbett case. You know, there's an old saying, how much did old Charlie leave? And the answer is, I believe he left at all. And in essence, it all has to go back one way or another. You can't take it with you. That's the iron rule of the game. And I do think it's important to think about what you do do for other people and what example do you set with your own life or your own corporate life. And I do think that Berkshire stacks up pretty well in that respect. and in due course when we get into gargantuan charities bearing the name Buffett, my guess is that'll be done pretty well, too. This is likely to be a pretty good run.
QuestionerZone 5. Hi, my name is Michael from New York. First, I'd like to address Mr. Munger. Mr. Munger, it's so, it's such a pleasure to be here with you as well as Mr. Buffett. And if you could just say hi to my wife for a second, her name is Jane. Next, I understand your secrecy on unconventional investments. But Mr. Buffett and Mr. Munger, could you please tell me your insight on marking conditions for oil and silver?
WarrenHe asked you, Charlie. We've already said we're not going to comment about commodity investments. I will cheat a little on that. Eventually, the price of oil has to go way up. That does not mean you can make any money from that. buying it now. Counting the interest factor.
CharlieSo, Zone 6. Fortunately, I listen carefully when he phrased his question. He said insights. I don't have any insights, so we'll go to Zone 6.
QuestionerMy name is Merritt Bell-Lyle from Austin, Texas. And the company has a large investment in the Washington Post Company, which has many cable television systems serving non-major metropolitan areas, as well as a recent investment in TCA cable. And so I was hoping to get a comment about the cable television business generally. And the other question is about your philosophy of children handling money and inheriting money.
WarrenThe first question about cable, the Washington Post company does have, and we own about, 17 or so percent of the Washington Post Company, and I believe they have 700,000 plus homes. And as you say, they're largely in smaller areas. It's been a good business. And as you know, cable prices have been galloping here in the last year thereabouts. From the standpoint of the Post, that's bad news because the Post would have been a net buyer of cable and will not be a seller.
[26:34]
WarrenAnd it's very, very much like our attitude towards stocks and stock prices. It is not good news for the Washington Post Company when cable prices go up. Because the Washington Post Company is going to be investing funds. It's going to be a generator of funds over time. And if it wants to put money in cable, it's way better off if cable prices go down than up. The TCA is not – Lou Simpson runs a separate portfolio. at GEICO, equity portfolios. So I've never read an annual report of the TCA cable. I know nothing about it. If he still has it, it's an investment of Loo's at GEICO for GEICO. And it's not something that falls under my management at all. That's a point I should mention because periodically the press picks up some item that says that Berkshire or sometimes it says that I am buying X, Y, or Z. And sometimes that's true, but sometimes it isn't true, because filings are made on behalf of various other entities that are associated with us. And I don't know anything about them. I saw one here a couple of weeks ago reporting that I was – I don't know whether it was me or – I think it was me personally. It was buying some real estate investment trust with the name Omega in it. I'd never heard of it. But that story appeared in various places. Well, I can assure you, I filed no form with the federal government that said that I was buying that stock, although you would have deduced that from certain press accounts. But various other entities, I think that there may be a subsidiary of General Rhee, New England asset management, that may have to report periodically on what they do. And since General Rhee is owned by Berkshire and New England asset management is a part of General Rhee, you know, who knows what they pick up on that. So I do caution you generally to be a little careful about reports as to what is being bought or sold by me or by Berkshire, Hathaway. Now, as I remember, there was a second question that I didn't like quite as well to answer. Charlie, you want to tackle that one?
CharlieWell, I think there was more interest in the future of cable. That is, we have demonstrated a signal lack of aptitude in correctly diagnosing the future of cable in a way that made us a lot of money. And we've done that in spite of the fact that in retrospect, it seems like a lot that was perfectly obvious was lying around. To date, cable has not, I mean, cable has been here for, what, 30 years or so.
[29:39]
WarrenCable has not made extraordinary returns on invested capital. at all. But it's always had the promise of greater returns, and it's had the promise that you wouldn't have to keep investing money in it the way you have had to date. But currently, people think that unusual returns will be made in cable relative to invested capital, not relative to purchase price of them, but relative to the invested capital in the property itself. And as I say, that has not really been the case, it's been the case with cable programming. cable programming, there have been a lot of money made in relation to capital investment. But in terms of the actual investment in cable facilities, the capital investment has been such. The expenditures in developing systems have been such that the returns so far have not been great. But the prices for cable systems now would indicate that people think that those returns are finally going to start flowing in in a big way. What was the second part of that question? Oh, inherited wealth and children. It was about kids inheriting money. Yeah. Well, we have a minority viewpoint down here in the front row. I think my views on that subject changed when I was about 18, until that point I would have been a great idea. The, no, I am quite a believer in a meritocracy, and I think a part of that part of that is not having people start way, way. ahead of other people in life based on whether they were lucky enough to come from the right womb or not. So I've never been big on the idea that either society benefited or in many cases the kids, although I think that's much more problematic, but by the fact that great transfers of wealth will go from one generation to another. I, you know, I would rather see the degree of talent possessed by individuals detainable. determine the resources they command in this world and their ability to influence other people's lives and command the labor of other people and all of that than any divine right of the womb. So that's, and Charlie has a somewhat different view on that.
CharlieYeah, I am a little more willing to let the world take the succeeding generations down. It's... I don't think they need much help.
WarrenCharlie believes in passing it a long as you're sure they're going to blow it.
QuestionerOkay, so go ahead. If you stop to think, Warren, of the great fortunes of your, if you go back to 1900, 1870, and name me the people that have vast power because they are in the fourth generation in that family.
[33:01]
WarrenSome of them are living awfully well, but they are not running the world. I would say the Rockefeller family had considerably more influence than if their name had been, you know, just plain rock. I think that's true. But you're picking. probably the strongest single family of the piece. And now that it's dispersed among 60 or 70 or 80 Rockefeller, it, I think it's true there were four or five brothers there that had an unusual share of worldly influence. I must say in that case, I think they handled it very well.
QuestionerZone 7. My name is Alan Nagin from Reston, Virginia. I know you'd like to buy into success stories, but you don't like to buy it. You don't like to buy high-tech. And it seems to me, say, in the case of Microsoft, that 10 years from now, they'll be doing software development, just like 10 years from now, Coke will be selling sugared water. And what I'm wondering is why you feel that way when it seems certain companies, high-tech companies are predictable. And it also seems. that in the early 90s, you mentioned you were going to buy a pharmaceutical company, which also seems like high-tech to me. So that's my question.
WarrenYeah, well, I think we said that with the pharmaceutical companies, we wouldn't have known how to pick out which one. We would have thought the industry as a group would do well. From those levels of 1993, you cannot buy high-tech companies at anything like at levels that are commensurate with the levels that the pharmaceutical companies were selling at in 93. You know, I would, and getting to the first part of your question, I think it's much easier to predict the relative strength that Coke will enjoy in the soft drink world than the strength, the amount of strength that Microsoft will possess in the software world. That's not to knock Microsoft at all. If I had to bet on anybody, I'd certainly bet on Microsoft, bet heavily, if I had to bet to bet, but I don't have to bet. And I don't see that world as clearly. as I see the soft rink world. Now, somebody that has a lot of familiarity with software may very well see it that way, and they're entitled to, if it's true they have superior knowledge and they act on it, they're entitled to make money from that superior knowledge. There's nothing wrong with that. I know I don't have that kind of knowledge. And I simply think, and I do think that it's, that you have a general knowledge of business over
[35:53]
Warrendecades that you would regard the industry there in as less predictable than the soft drink industry. Now, it may also be that even though it's less predictable, that there's a whole lot more money to be made, so that if you're right, that the payoff is much larger. But we are perfectly willing to trade away a big payoff for a certain payoff, and that's the way we're put together. It does not knock the ability of other people to make those decisions. I mean, I asked. First time I met Bill Gates in 1991, I said if you're going to go away on a desert island for 10 years, you had to put your stock in two companies in the high-tech business, which would they be? And he named two very good stocks. And if I'd bought both of them, we'd have made a lot more money than we made even buying Coca-Cola. But he also would have said at the same time that if he went away, he'd rather buy Coca-Cola, because he would have felt sure about that happening. It's, you know, different people understand different businesses. And the important thing is to know which ones you do understand, and when you're operating within what I call your circle of competence. And the software business is not within my circle of competence, and I don't think it's within Charlie. Charlie?
CharlieWell, I certainly agree with that. I think there are interesting questions, too, about how far the whole field can go. Take jet airplane travel below the speed of sound. It's been pretty static in terms. of the technology for a long, long time. You know, the big Boeing airliner is much the same as it was 20 or 30 years ago. And I think a lot of these businesses are quite dependent on the technology continuing to gallop and do more and more for people. Take pharmaceuticals. If they never invented any more pharmaceuticals, it would be a terrible business. And I don't know what happens. once you get unlimited bandwidth into the house and way more options. And beyond a certain point, it strikes me that there might be a surfeit of anybody's interest in the field. I don't know where that point is, whether it's 20 years out or 30 years out, but it would affect me a little. The Dilley Bar is more certain to be here in 10 years than any software application that we know. But that's maybe because we understand Dillie bars are not software. In the whole United States, which is by far the most prosperous company in the country in the world, the whole United States, there are probably around 400 companies, 400 total companies
[38:45]
Warrenthat are earning $200 million a year after tax. Of those 400, you can name them. I mean, you can start, you know, if you say bank, you can say Citigroup and Chase and Wells Fargo, and you can name 10 or 15 of it. And if you name consumer goods, you can say Procter and Gamble and Coca-Cola and Gillette, and you can name a whole bunch of them. You can almost, of those 400, you can probably name 350. If five years from now, instead of 400 being on that list, there'll probably be 450 on the list, maybe 475. A lot of those will be companies that are earning between $150 and $200 million now. So they'll probably be 20, some number like 20, that call it come from nowhere. Now, if you look at the number of companies that are selling today at a price, which implies 200, million or more of earnings right today, you will find dozens and dozens in the high-tech arena, and, you know, a very large percentage of those companies are not going to fulfill people's expectations. I can't tell you which ones. But I know there won't be dozens and dozens and dozens and dozens of those companies making a couple hundred million dollars a year, and I know they are now selling at prices that require them to be making that much money or more. It just doesn't happen that often. You know, biotech was all the rage some years back. how many of those companies are making a couple hundred million dollars a year? It just doesn't happen. It's not that easy to make lots of money in a business and a capitalistic society. People that are looking at what you're doing every day and trying to figure out a way to do it better and to, you know, underpriced you or bring out a better product or whatever it may be, and a few companies make it. But here in the United States, after all of these decades and decades and decades of wonderful economic development, we've got about 400 companies that have hit the level that would be required of a company that would have a market cap of $3 billion. And some companies are getting $3 billion a market cap the day they come out virtually. There's some, you want to think about the math of all this.
OtherZone 8. Hello, my name is Larry Widman from My Not North Dakota. You've already hinted about Coke and Gillette's current valuations and also about their great prospects for the future. But in the past year, both stocks have been down 30 to 50 percent from their high. How much farther would they have had to fall before your criteria of margin of safety
[41:11]
Questionerbeen satisfied and allowed you to purchase more shares? And two, has the Disney cap cities merger gone as well as you would have hoped, and has the future prospects of Disney changed, in your opinion?
WarrenFirst question, that's a good question on Coke and Gillette, because obviously we think about the businesses that we're the most familiar with and where we're committed. Neither one of those businesses got to the price that left us. happy putting new money in, but we're quite happy, very happy owning those businesses, and we'll be happy owning them for a very long time to come. But they, it's some evidence of where the market has been and is that even when they ran into some tougher business conditions than they anticipated that their stocks did not get down to the prices that caused us to get excited about them. Charlie, you want to comment that or the second part?
CharlieNo, but I do want to remind people. that the dilly bar is a dairy queen product. And they are good, I can tell you that. I wouldn't want the shareholders to believe that the commercial standards of this operation are faltering. The, generally speaking, trying to dance in and out of the companies you really love on a long-term basis has not been a good idea for most investors, and we're quite content to sit with our best holdings. People have tried to do that with Berkshire over the years. And I've had some friends that thought it was getting a little ahead of itself from time to time, and they thought they'd sell and buy it back cheaper and everything. It's pretty tough to do. You have to make two decisions right. You know, you have to sell it right first, and then you have to buy it right later on, and usually you have to pay some tax in between him. To get into a wonderful business, the best thing to do is usually is to stick with it.
WarrenCoke and Gillette both experienced disappointments to their management, below what they anticipated a year, a year and a half ago, or whatever it was, and below what we anticipated. But that will happen over time. It happens with some of our wholly owned businesses from time to time. Sometimes they do better than we anticipate, too. But it's not the nature that everything, things, that everything goes in a nice, straight, smooth line upward. You mentioned Cap Cities. Parts of Cap Cities have done extraordinarily well, for example. But. In the network business, if you go back 30 years and look at what network has been on top,
[44:04]
Warrenyou find that no one stays on top or on the bottom indefinitely. It's a competitive world, as I mentioned earlier. And sometimes your competitors' correct moves, your own incorrect moves, your own incorrect moves, the world environment, all of those things can interrupt trend lines. I see nothing that's happened in the last year in terms of of the long-term trend line of the blade and razor business, which is the one I've referred to as inevitable chilead. I mean, there are in other businesses that are not in the same category as the blade and razor business. Cope fortunately has virtually its entire business in soft crinks, and so it comprises almost 100% of the hole there. But I see nothing that would change my thinking about the long-term future of either the blade and razor business or coax position in the soft drink business.
QuestionerNumber one. Steve Cone from Peoria, Illinois. First of all, I just had my first dilly bar a half an hour ago, and thank you for introducing me to that.
WarrenGood. You'll sell you a second, too, if you didn't.
QuestionerYou sparked earlier about the threat of change. Can you comment on the threat of deflation, and if it were to occur, what its likely impact would be on the economy, Berkshire, Hathaway, and personal investment decisions.
WarrenWell, not displacement in what respect?
QuestionerInflation.
WarrenOh, inflation. Deflation. Oh, deflation. Oh, I'm getting there. Well, I think it's very, very unlikely, but I have been wrong consistently now for a decade or more about the degree to which inflation has at least been tamed for that period. I would have expected if you'd showed me all the other things that were going to happen in the world in the last ten. If I'd seen that ahead of time, 10 or 15 years ago, I would have thought we would have had more inflation. So I have trouble envisioning a world of where the U.S. experiences deflation, but, you know, my record is not great on that. And again, we don't, we do not spend a lot of time thinking about macro factors. I mean, if you ran into deflation, that means a, you know, capital is appreciating, so you you need much lower nominal rates of return on capital to be in the same place under deflation as would be the case if you had inflationary conditions. So deflation, everything being equal, and it isn't equal, is good for investors because it, you know, the value of money appreciates, the buying power of money appreciates, but it
[46:54]
Warrenwould have other consequences, too. I don't think it's likely, I'm not, I have no I have no great record at all in macro forecasting, and if it does happen, the truth is I don't know what the effects would be, Charlie.
CharlieWell, you've seen what deflation is doing in Japan, and it's been quite unpleasant for the people there. On the other hand, it hasn't been a catastrophe. I mean, nothing like the 30s in the United States.
WarrenNo, and actually in Japan, if you'd owned long bonds, you would have had a tremendous bonanza from deflation, because the value of your bonds would have gone up dramatically as interest rates came down, and then that money in turn would buy more. So it would, it was a very, if you happen to be the person that owned longer bonds, issued at higher coupons some years back, that's worked to your advantage. But, and presumably that would work in this country. If we actually ran into consistent deflation, my guess is the people who owned long bonds even bought at 5.5% would find their position. in the world dramatically improved compared to people who own most other asset classes.
OtherZone 2. Hello? I'm Murray Cass from Markham, Ontario. First off, Mr. Buffett, Mr. Munger, I'd like to thank you for being so generous with your time every year at these meetings. Mr. Buffett, many in the academic community call you lucky or a statistical outlier. Mr. Munger, I'm not sure what they call you.
CharlieWell, you're free to speculate.
QuestionerWell, you're free to speculate. on what they call them.
QuestionerI know you don't like to forecast the equity markets, but maybe you dare to forecast the evolution of the debate between proponents of the efficient market theory and value investors. Do you think there will ever be a reconciliation? And I'm talking especially about what's taught at the business schools. And as an addendum, are your designated successors? Are they outliers as well?
WarrenWell, we like to think they are. And they may be more outliers than we are. The market is generally, you know, to me, it's almost self-evident if you've been around markets for any length of time, that the market in is generally fairly efficient. It's fairly efficient as pricing between asset classes. It's fairly efficient in terms of evaluating specific businesses. But being fairly efficient does not make, does not suffice. to support an efficient market theory approach to investing or to all of the offshoots
[49:54]
Warrenthat have come off of that in the academic world. So if you'd believed in efficient market theory and been taught that and adopted it for your own 20 or 30 years ago or 10 years ago, I think it probably hit its peak about 20 years ago, And, you know, it would have been a terrible, terrible mistake. It would have been like learning the earth is flat. It just, you would have had, you'd have had the wrong start in life. Now, it became terribly popular in the academic world. It almost became a required belief in order to hold a position. It was what was taught in all the advanced courses. And a mathematical theory that involved other investment questions was built around it, so that if you went to the center of it and destroyed that part of it, it really meant that people who'd spent years and years and years getting PhDs found their whole world crashing around them. I would say that it's, I would say that it's been discredited in a fairly significant way over the last decade or two. I mean, you don't hear people talking the same way about it as you did 15 or 20 years ago. But the market generally is fairly efficient in most ways. I mean, it is hard to find securities that are inefficiently priced. There are times when it's relatively easy, but right now, for example, it's difficult. I don't know exactly how much it's wholly rich still in business schools. I certainly get the impression as I go around talking to business schools that it is far less regarded as as, you know, sort of unquestioned dogma like it was 15 or 20 years ago. The University of Florida now has some courses in valuing businesses, University of Missouri, is putting in one, and I think the high priests of efficient market theory are probably not in the same demand for speaking engagements and seminars and all of that. as they were a decade or two ago. It's hard, though, it's very interesting. It's hard to dislodge a belief that becomes sort of becomes the dogma of a finance department. It's so challenging to them. And, you know, they have to, at age 30 or 40, to go back and say what I've learned up to this point and what I've been teaching students and all of that is silly. That doesn't come easy to people. Charlie?
CharlieWell, you know, Max Planck, the great... physicist said that even in physics, the old guard really didn't accept the new ideas. The new ideas prevail in due course because the old guard fades away clinging to the
[53:06]
Charlieas an entities of the past. And that's what's happened to the hard form efficient market theorists. They're an embarrassment to the scene, and they will soon be gone. The people who think the market is reasonable. efficient or roughly efficient, of course, are absolutely correct. And that will stay with us for the long poll. Thinking it's roughly efficient, though, does nothing for you in academia. You can't build anything around it. I mean, what people want are what they call elegant theories, and it just, it doesn't work. You know, what investment is about is valuing businesses. I mean, that is all there is to investment. You sit around and you try to figure out what a business is. is worth, and if it's selling below that figure, you buy it. That, to my, you, you can't find a course virtually in the country on how to value businesses. You can find all kinds of courses on how to, you know, how to compute beta or whatever it may be, because that's something the instructor knows how to do, but he doesn't know how to value a business. So the important subject doesn't get taught, and it's tough to teach. I think Ben Graham did a good job of teaching it at Columbia, and I was very fortunate to run into him many decades ago. But if you take the average Ph.D. in finance and ask him to value a business, he's got a problem. And if he can't value it, I don't know how he can invest in it, so therefore, it's much easier to take up efficient market theory and say it doesn't make any difference because everybody knows everything about it anyway. And there's no sense in trying to think about valuing businesses, that the market's efficient, it's valued them all perfectly. I've never known what you talk about on the same. second day in that course. I mean, yeah, you walk in, you say, you know, everything's valued perfectly, and class dismissed. So I, it puzzles me. But I encourage you to look for the inefficiently priced. Zone 3. Berkshire, incidentally was inefficiently priced for a long time. And it wasn't on the radar screen. If you'd asked an academic how to value it, they wouldn't have known what to look at exactly.
QuestionerMy name is Ken Schuvenstein. I'm from New York City. First, thank you very much for this great educational forum. You've taught us that a key concept of Berkshire is the amount of float it has, the cost of the float, and how fast it grows. Can you please help us understand currently what amount of float Berkshire has and what the goals are in the future for that growth rate over a sort of one to two decade period, understanding that it'll be a lumpy advance.
[55:57]
QuestionerBecause looking at the historical data you've provided us for Jen Ray and Berkshire regarding the amount of float and its cost, it's grown at a great rate, high teens, low 20s. And if you could please comment on the future expectations we should have, that would be great.
WarrenWell, it's an important question, but I don't know how to give you a good answer. It's grown at a much faster rate since 1967 when we went in the insurance business than I thought it would. I did not, I didn't anticipate it would grow that way, I didn't anticipate necessarily we'd get a chance to buy GEICO, I didn't necessarily know we'd ever acquire a general rear. So it's been very hard to forecast. What we've tried to do is grow cheap float as fast as we could. And sometimes it's been easy, sometimes it's been impossible. But I don't know, if you'd ask me that question 30 years ago, I'd have given you an answer that really hasn't proven out. very well. And so I don't know how to give you the answer now, except to tell you this. It's very much a goal of Berkshire to grow that float at as fast as it can while maintaining a very low cost to it. And again, you mentioned, it'd be lumpy. Well, it'll be lumpy on cost. It'll be lumpy on growth rate. But, I mean, we are, it's something we think about all of the time in both our operating decisions and perhaps some big capital commitment decision. It's, it's, it's, it's, we know that if we can solve that problem of how to grow it at, with it costing us relatively little, that we will make Berks-Shir a whole lot more valuable in the process. And people, I mean, we always laid out the facts as to what we were doing, but people basically seem to ignore that. And we have had this growth rate, which we can't maintain. The numbers are too big. But it's something that Charlie and I think about all the time. some good vehicles for growing it, but we don't have any vehicles that will grow it in aggregate at anything like the rate that's been growing in the past. So we may have to, we may get a chance to do something that adds to our ability to do it. If we get a chance and it's at the right price, we'll add it. If we won't, we'll do as much as we can internally. But the question you ask, the growth in intrinsic value of Berkshire over the next 10 years will be determined in a very significant way by by the rate at which we do grow it and if and also the added fact of what it costs us
[58:36]
Warrento achieve that float charlie yeah if we grow very low-cost float at the same rate that's grown in the past for another 30 years you can be confident of one thing if you look to the heavens there'll be a star in the east zone four
Questioneri'm david david levy from newport beach California. Berkshire has been investing in the property and casualty and re-insurance business. I notice except for annuities, you've been avoiding the life insurance business. Do you have, you anticipate investing in the life insurance business? Also, I have a second question, and that is the relationship of Berkshire A and Berkshire B. Last year, there was a slight premium for Berkshire B over Berkshire A. About now, Berkshire B is selling at about a three to four percent discount. I also notice that certain people are shorting Berkshire A and Berkshire B. I wonder if you could comment on that.
WarrenSure. On the life business, we have no bias against the life business. We just, we are in the life reinsurance business in a fairly significant way through General Rhee. As you mentioned, we've done a little on annuities. The problem with the life business is that it isn't very profitable, and you can look at the records of the big companies on that, and that a lot of the activity in the area is in some way equity related. And Charlie and I have never wanted to get in the business of managing equities for other people. I mean, we want our sole interest on equities to be Berkshire Hathaway itself. So we do not want to wear two hats. We would never go in the mutual fund management business or any kind of investment management business, because if we were to be managing $20 or $30 billion in the investment management business, and we get in a good idea that we can put a billion in, you know, whose money do we put in it? So we'd rather than that we'd rather than that we'd rather We'd rather just be wearing one hat, and that we want that hat to be Berkshire Hathaway, and we don't want to be promising other people that for a half of 1% or 1% fee, that they're going to get our best ideas because those ideas belong to Berkshire and we'd be misleading people if we promised otherwise. So anything involves an equity component to it, and that's a big part of what's going on in the life business now. It's just something we wouldn't be, we wouldn't be comfortable. comfortable being involved with. If you look at term life insurance, we've looked at that in terms of putting it on the internet.
[1:01:53]
WarrenIt is priced at rates that we find very hard even with the absence of commissions to make sense. But it's a business we understand, so we'd be perfectly willing to be in the life insurance business if we thought there was, if we had a way of doing it where we thought there was reasonable profitability attached to it. Charlie, do you want to comment on the life business before I get to the A versus B thing?
CharlieNo, we do those structured settlements, that is sort of like the annuity business. And the life business we're doing is mostly annuities and on a very low-cost basis.
WarrenYeah, anyone that wants to buy a non-equity-related annuity should go to our website and find, in terms of the waiting for the safety of the product and everything, you will find a very, very competitive product because we, it's a low-cost operation. And if you're buying it to get paid 30 years from now, you are certain to get paid from Berkshire and you're not necessarily certain to get paid from various other entities. So we've got a very competitive product there, but it's not a big business. And the question of the A versus B, I've written something, I wrote it some months ago, and stuck it up on the website regarding my own thoughts on that. Obviously, the most the B can be worth is 1.30th of the A, because you can always convert an A into 30 shares of B. The B may sell a slight bit above that 130th price before it gets to a level where it induces arbitrage between the two. So it can theoretically sell, and it will sell, a fraction of a percent above one-thirtieth of the price of the A. But if it gets above that, you know, I'll buy the A and sell you the B. There's an arbitrage profit to be made, and probably the way markets work, most of that profit will be captured by the specialist because he's in the best position to effectuate trades of that sort. But the B can never be worth – it can never be worth more than a 30th of the A. and it can never sell for more than slightly above 1.30th of the A. On the other hand, B is not convertible in A stock, so it can sell it a discount. I put on the web some months ago that I thought that, just my opinion, but I thought that when the B is selling for less, is selling for more than a 2% discount, I personally would rather buy B than A under those circumstances. If it's selling for the same price as the A, $130,000. the price of the A, but it's selling on a parity basis. And I were buying 30 shares or more
[1:04:47]
Warrenof B, I would rather buy A because you can always go one direction and you can't go the other direction. I think, if you take in the next 10 years, I would think that a fair percentage of the time it's going to be selling right about 1.30th of the price of the A, and there'll be periods at time when it sells it at a modest discount. And I would say that when it gets into three to four percent range. I regard that as quite a wide discount. If I didn't have a tax to pay myself, I might sell A and buy B if I was getting 4% more in the economic equivalent on B. It's not practical for me to do it. I know of some tax-exempt investors that have actually done that sort of thing. And long range, we will always treat the B exactly as we laid it out in the prospectus. there are two differences between the A and B. One is in the voting power relatively and the other is in the shareholder-designated contributions program. And otherwise, in all respects, B will be treated on the same basis as the A. We have no, even though Charlie and I own a lot of A and we don't want any B to speak of, we regard the B shareholders as being 100 percent on a parity except for those two differences we laid out at the time of issuance with A shareholders. We would never – there won't be a deal ever made for Berkshire anyway, but if there would be, we would always treat the A and B on a one-for-30 basis. We would not – we've been in situations where people haven't done that, and we've never been very happy with it. So we would always treat people proportionally. Charlie?
CharlieWell, I certainly agree with all of that. The question about shorting, it doesn't make any difference whether anybody shorts any stock or not really. I mean, if you were arbitrage – between A and B, and the B was selling a little higher in the A. You might be buying some A and shorting some B, and you might delay conversion because you might figure the B might go to a discount. Then you'd unwind the whole transaction rather than convert. I mean, there's a lot of techniques that Charlie and I have engaged in over the years and other securities that apply to that sort of thing. But shorting doesn't hurt us in any way, shape, or form. I mean, it doesn't make any difference. I don't care whether the short interest in the A is 1,000 shares or 100,000 shares. you know, somebody sells it at one point and somebody buys at another point, and whether you
[1:07:19]
Warrenreverse the buying and selling doesn't make any difference. What counts is the intrinsic value of Berkshire. And if we increase the value of Berkshire at a reasonable rate, you know, the shorts will have to figure out how to eat three times a day.
OtherOkay, Zone 5, please. Good afternoon, Mr. Buffett and Mr. Munger. My name is Grant Morgan. I'm here from New York City. Early you had acknowledged that it is a more difficult investment and business environment today than it was when you first started out. My question is, if you were starting out again today in your early 30s, what would you do differently or the same in today's environment to replicate your success? In short, Mr. Buffett, how can I make $30 billion?
WarrenStart young. Charlie's always said that the The big thing about it is we started building this little snowball on top of a very long hill. So we started at a very early age in rolling the snowball down. And, of course, the nature of compound interest is it behaves like a snowball, a sticky snow. And the trick is to have a very long hill, which means either starting very young or living very, to be very old. The, you know, I would do it exactly the same way if I were doing it in the investment world. I mean, if I were getting out of school today and I had $10,000 to invest, I'd start with the A's. I would start going right through companies, and I probably would focus on smaller companies because I would be working with smaller sums and there's more chance that something is overlooked in that arena. And as Charlie has said earlier, it won't be like doing that in 1951 when you could leaf through and find all kinds of things that just leapt off the page at you. But that's the only way to do it. I mean, you have to buy businesses, or little pieces of businesses called stocks, and you have to buy them at attractive prices, and you have to buy them in, you have to buy into good businesses. And that advice will be the same 100 years from now in terms of investing. That's what it's all about. And you can't expect anybody else to do it for you. I mean, people will not, they will not tell you about wonderful little investments. It's not the way the investment business is set up. When I first visited GEICO in January of 1951, I went back to Columbia, and the rest of that year, I subsequently went down to Blythe & Company and actually to one other firm that was a leading Geyer and company that was a leading analyst in insurance.
[1:10:07]
WarrenAnd, you know, I thought I'd discovered this wonderful thing, and I'd see what these great investment houses that specialize in insurance stock set. that I didn't know what I was talking about. You know, it wasn't of any interest to them. You've got to follow your own, you know, you've got to learn what you know and what you don't know. And within the arena of what you know, you have to just, you have to, you have to pursue it very vigorously and act on it when you find it. And you can't look around for people to agree with you. You can't look around for people to even know what you're talking about. You know, you have to, you have to think for yourself. And if you do, you'll find things. Yeah, the hard part of the process for most people is the first $100,000. If you have a standing start at zero, getting together $100,000 is a long struggle for most people. And I would argue that the people who get there relatively quickly are helped if they're passionate about being rational, very eager and opportunistic. and steadily underspend their income grossly. I think those three factors are very helpful.
QuestionerSo on six. Mr. Buffett and Mr. Munger, thank you very much for your hospitality. Excuse me. My name is Yvonne Edmonds and I'm from St. Petersburg, Florida. And thank you also for being so kind as to spend all this time answering our questions. our questions. I have two related questions regarding insurance. The first is I suspect that many of us know less about insurance than about equities. And I wonder if you could please put some references for us on the Berkshire Hathaway website that might help us increase our knowledge about insurance. The second question is, perhaps related to the first, I just, and the fact that I don't understand it, but the Wall Street Journal on March 19 published an article entitled, When Insurers Pass Trash, Some Are Left Holding the Bag. And that some included Berkshire Hathaway. It focused on passing the workers' comp trash to, among other groups, to Cologne Rhee. And to make a long short, the Assistant General Counsel for General Rhee, which, as I understand now, owns most of Cologne Rhee, said this is a classic example of an insurance company seeking growth in a very competitive market by writing business outside its area of expertise, namely within workers' comp when their area of expertise is life reinsurance. Mr. Graham went on to say, and then I'll stop, don't write business, you don't understand.
[1:13:42]
QuestionerSecond, proper controls are critical in the insurance business. Lastly, if a business opportunity appears to be too good, good to be true, it probably is. If this is true, could you tell us how this came about, what measures are being taken to see that it won't happen again, and what might be the ultimate cost to Berkshire Hathaway shareholders? Because I gather that the only tip of the iceberg has been represented in the charge to Cologne Reed.
WarrenOkay. Those are good questions. And let's take the first one first about the website and having a list of reference documents or something that would help you understand insurance. You sound like you understand it pretty well already. I can't think of a good book that I've read on the subject. I got my knowledge of insurance by reading, well, I got this huge head start by having a fellow named Lorimer Davidson, who is now 96. spend four hours or so with me one Saturday morning in January, 1951, explaining to me how GEICO worked. And it was a marvelous education, and it got me so interested in not only how GEICO worked, but how its competitors worked, how the industry worked, that I just started reading a lot of other reports. I never, I guess I took one course in school on insurance. I don't remember a thing from it. I have no idea what the textbook was or anything. It had no value to me. But, so I never really had any background in insurance, you know, nobody in the family was in the insurance business. And until I talked to Davey, I really, it just hadn't been something across my mind. The only reason I was down there was because I, my hero, Ben Graham, was listed in who's who as being the chairman of government employees' insurance. That's, he'd been the chairman of, you know, he was also the chairman of the chairman of the Market Street Railway Company. in San Francisco. Fortunately, I went down to Geico and said about to see the Marcus Street Railway Company. It was closer. But my own education about insurance came from just reading lots of reports. I mean, I would say that if I started the day fresh, and I didn't know any about the insurance industry to speak of, and I wanted to develop some expertise, I would probably read the reports of every property casualty company. casualty company around, and I would go back sometime, and I would read, I would probably get the best manuals and look at them. I would just do a lot of reading. I used to go down to the Department of Insurance and Lincoln and go through the convention reports and the examination reports.
[1:16:42]
WarrenThey'd give me some little table someplace, and I keep asking for these reports. They have to go way down on the bottom of the cavil to get them out for me, but they didn't have much else to do, so they were always happy to it. And that's the way I learned about it. And it happened to be a productive feel. to learn about that way. And I really think that something akin to that is the best way now. I can't think of, you know, you can read some analysts reports. I think you can learn something, frankly, by reading the Berkshire Hathaway annuals for 20 years and reading the insurance section. I think it'll teach you something about the economics of insurance. So I would do it by reading. And if you can find somebody that knows the business well who's willing to spend some time talking to you about it, they can probably shorten the educational period and give you some help. On that. The second question about what's been called, what's the unicover affair that Cologne Rhee set up a $275 million, Colone Life, I should say, set up a $275 million reserve against, first of all, I would say, for the losses to be incurred on that business. The 275 still represents the best estimate. In other words, it may be the tip of the iceberg in terms of the loss to the industry, because no one else has acknowledged any losses. This is amazing. I mean, believe me, there are plenty of other losses out there. We've said we're going to lose $275 million. I think that's a good estimate, but I think a lot of other people are going to lose very, they have to lose significant money. Somebody has to lose some significant money besides us on that. And so what we have reported maybe the tip of the industry iceberg, I don't think it's the tip of the general re or Berkshire Hathaway iceberg. It's our best estimate today of what that loss will be. If that estimate changes, I will let you know through the quarterly reports, or if it was really material, we'd have some announcement. But I don't anticipate that. But we'll report to you faithfully, I promise to you, as to how that loss develops over time. What you read makes a great deal of sense about when something's too good to be true, it usually is, and that sort of thing. The distribution of the losses in the unicover affair will probably not be fully settled 10 years from now. I mean, I have seen these things before in insurance, and in other areas, but particularly in
[1:19:20]
Warreninsurance, where there are multitudes of parties and there are allegations of stupidity. There's allegations of fraud, there's allegations of misrepresentation, there's allegations of everything. There are so many people involved. There are so many factual matters to be determined there will be lots of litigation. It will take a long, long time to sort out the litigation. In the end, the losses will get paid by somebody, our best estimate that we put up is $275 million. But we may find out far more in coming months and years as to the involvement of other parties. We can find out a great many things because there will be lots of litigation, not necessarily involving us, but that we will, even as a viewer of, we will be learning things about what took place. Unfortunately, there have been some similar things in insurance. We were involved in something that had some similarities to this at National Indemnity 20-odd years ago, and it was very expensive to us. It didn't cost us that many millions of dollars, but it happened at exactly that the time that the stock market was down around the 600 on the Dow, and we did not know how big the losses would be, and therefore it caused us to have to be more conservative in investing in equities than would have otherwise been the case if this hadn't been hanging over our head. So a conventional accounting will never pick up the loss that we suffered in that. It was called the Omni Affair. And like I said, it had some, I'm sure it had many differences too, but it had some similarities. And, you know, it can, it's distracting to have something like this that obviously there was some mix of mistakes, there's some mix of misinformation, all of that will have to get sorted out. Our best guess right now is that when it's all done 10 years from now, 15 years from now, the 275 million will be our loss. That most certainly won't be the exact figure, but like I say, if there's any reason to revise that number upward, we'll let you know promptly. It is the nature of insurance that you get unpleasant surprises from time to time. Lowe's Corp bought CNA in the early 1970s, and just in the last few years, there was a fiberboard settlement on a policy, I believe, it was written in the late 50s. And there was a, I remember a billion and a half dollar loss on something where the premiums were a few thousand dollars. Geico has lost, as I remember, $60 million on a book of business that was
[1:22:11]
Warrenwritten in the early 1980s where the total premium was less than $200,000. You know, how much of that is stupidity, how much of it is fraud, or who knows exactly. But you get, you can get some very unpleasant surprises in insurance. And unfortunately, this will not be the last one. It won't occur in the same place and won't occur exactly the same way. But the nature of insurance is that the surprises are on the unpleasant side. It's not the kind of thing that happens when you're writing personal auto insurance or anything of the sort, but when you write business where the claims pop up 10 or 20 or 30 years later, I think we've got a claim at a small workers comp company that we have that goes back 20 odd years, 25 years or so, and it's just popped up the life in the last year or so. And it's, it's, it's, it's, It costs real money. So it's a business where the surprises can come big and they can come late. And that will happen even with good management. But with good management, she'll have fewer such surprises. Charlie?
CharlieWell, that was a marvelous question. And imagine anybody asking a question of how to get educated who knows how to educate people. It's the same way you educate the dog by rubbing his nose in it. And generally speaking, that was a dumb error. That was an amateurs mistake. It doesn't mean that General Rhee is suddenly full of amateurs. It was a rare lapse. Just as at Berkshire, we think the Omni Affair was a rare lapse. I don't think we've repeated it since, have we were? I can't think of a single one. But again, you know, we don't know that we've repeated it. These things pop up later, no, though the answer is we haven't repeated. Yes, yes, it was a dumb amateurish error. These things do happen. We don't think it reflects a sudden lowering of the intellectual standards of General Rhee, which are probably the best in the world. It's just one of those things that does happen once in a while. And there's one good side to these things. It does make you more careful. It really refreshes your attention to get banged on the nose like that.
WarrenYeah, and it remains to be seen where the costs of that will be borne because the entire set of facts in terms of what was committed to and all of that has not been resolved yet. In the Omni situation, we had significant disputes on the facts for some time, and we eventually recovered a fair amount of money that for a time that for a time it didn't look like we would
[1:25:09]
Othercover. So, you know, the final chapter on this is not going to be written for some time, but it was appropriate to set up $275 million as a reserve in terms of what we know at this time. And that number could go up. It could also go down, depending on the facts that we discover.
QuestionerZone 7. My name is Mike Thiele from Summit, New Jersey. Would you please revisit the question of share repurchase for Berkshire Hathaway. We have heard today your comment about the price of Berkshire having been inefficiently priced from time to time in the past. We know that there are now more shares outstanding, and I'm curious as to whether the buildup of cash is causing you to spend more time looking for investment situations where you're more comfortable on the 10-year outlook. Thank you.
WarrenThe question of repurchasing shares, and I made that comment about it being inefficiently priced at times, at those times it always seemed to us, and we were incorrect in some cases, it always seemed to us that there were other securities that were even less efficiently priced at times. priced. When Berkshire in 1974 sold at $50 a share, I might have thought it was cheap, but I also was looking at the whole Washington Post company selling for $80 million when I thought it was clearly worth $400 million, and I did not think that Berkshire was as underpriced then as the Washington Post company was. And that has been true at various times when There have been times when I thought Berkshire has been underpriced or even significantly underpriced, but at the same time I was finding other things, which I felt were even more attractive. And like I say, many times I was wrong. We would have been better off buying our own stock instead of buying the things that I was buying. But if we have money around and we think Berkshire is significantly underpriced and we're not finding other things to do with money, it obviously make sense for us to repurchase Berkshire shares. I think it's difficult for most companies in this market, even though repurchases are probably at close to an all-time high, if not at an all-time high. I think it's difficult for most companies to be repurchasing, have it repurchase of shares make a whole lot of sense these days. I mean, I do not think they are getting much for their money because we don't want to buy those shares ourselves, and it's, I'm talking about a stock of various companies in America. And yet companies are much more enthusiastic.
[1:28:14]
Warrenabout repurchasing shares now than they were 20 years ago when they were getting far, far greater returns from repurchasing. We will always, it's an option that we will always think about and we're unlikely to do it unless we think it's fairly dramatically underpriced because it simply, we would want a big margin for error in making that kind of a decision that we would not want to buy a dollar bill for 95 cents or 94 cents or 93 cents. But there is some level where we would start getting excited if we didn't have other uses for the money. Charlie?
CharlieI've got nothing to add to that.
QuestionerZone 8. Good afternoon. West Thurman from Stanford, California. You mentioned earlier about the power of the brands on the internet, and I really can't think of a better brand, at least in my name, as the Berkshire-Hathaway brand. And I guess going forward, have you thought about ways to use the Berkshire Hathaway name, you know, further on the internet to capitalize on the reputation you've built over the past decades?
WarrenYeah, I think that's a very good point. And it is something that could be of real value. It's already probably of some value to us with the brands that we're associated with. I mean, I do think that Executive Jeter, the NetJets program, associated with Berkshire Hathaway, that Boersheim's associated with Berkshire Hathaway, the Berkshire Hathaway, life associated with Berkshire Hathaway, I think those brands are enhanced by the association with Berkshire, as some of other brands would be. But I think that's got a long way to go. I think you're dead right on that, that the internet reinforces the necessity for trust in dealing with people. I mean, you're getting further and further removed from the face-to-face dealing where where you can go back to the store the next day or look at the person who's sold it to you the next day and get an adjustment or something of the sort. You're really having to place more and more trust in somebody you're never going to see. And I think you're right that Berkshire Hathaway, if it behaves itself properly, can get a reputation for trust that will be far greater than that possessed by the average company. and that when we properly associate that with some of our brands, that those brands will be enhanced by the association. So I, no, I've thought a lot about what you're talking about there and solve our managers, and it's something that we intend to capitalize on in the future.
[1:31:10]
WarrenIt's rather interesting. I mean, if you look at the companies that do business with people where there's no face-to-face interaction either with the company itself or some intermediary like a retailer or anything of the sort. I mean, you've got Dell computer, and now you have Amazon.com, but Geico is doing business with now 3.7 million policyholders, and it'll do, for the years out, it'll be close to 4.5 million and probably 4 billion or so of business. with people that have never met anyone from GEICO. They've talked to someone on the phone. But we are one of the largest companies in the United States in terms of doing business on a direct-to-consumer basis. We're doing it with people who on average are paying us $1,200 a year or thereabouts for a promise. So we have a connection that people that talk about the Amazons of the world where people are buying X dollars worth of books. we have a much more direct connection with people who tend to renew with this year after year. That is based on trust. I mean, it's not based on the neighbor next door who is who they can go to if they have a problem. It's based on the fact they trust this company that's back in the District of Columbia, Washington, to perform in the future. And that's a huge asset, and it's growing daily. I mean, we're adding policyholders every day who are signing up with us. who have never met anybody from the company. And that already, I mean, it's a very big asset. It will be many times bigger, in my view, 10 years from now. The Berkshire Hathaway umbrella that gets involved in one company after another like that that people trust. I mean, we can be in an awful lot of homes over the years. And as more and more business becomes done on an indirect basis, or a direct basis, or a direct basis with the consumer, the power of that, in my view, should grow. And we just have to be very smart about how we maximize that growth. Charlie?
CharlieNothing to add.
OtherOkay.
QuestionerZone 1. Hi. My name is David Zulker, and I currently live in Redmond, Washington, where I work for one of your good friends. So if I get into trouble for having taken a busy Monday off work, maybe if I give you a call, you could put in a word for me. If it's without pay, we won't complain. It's vacation, yeah. My question is about how you to assign value to certain intangibles that I know you look at when you value companies. Anyone who's read your writings knows that you look for great management and economic modes, as you call them,
[1:34:16]
Questionerthat enable companies to raise prices and margins. I'd like you to drill down with us and tell us what to you are the signs of great management. and economic modes. Furthermore, do you try to put a dollar value on those management and modes and other intangibles when you value companies? And if so, can you guide us through your thinking there? And lastly, I'm interested in how you pick your discount rate. I'm actually an alma mater of yours from business school, and I learned a bunch of junk about beta 2. But I read that you just assigned the Treasury rate. And I'm not sure if that's right, but I'd love you to talk about your discount rate. And I'd really appreciate as much detail about your thinking as you can give us.
WarrenYes. We do, we think in terms of the Treasury area, but as I said earlier, that doesn't mean we think once we've discounted something at the Treasury rate that that's the right price to pay. We use the Treasury rate just to get comparability across time and across companies. But a dollar earned from a horseshoe company is the same as a dollar earned from an Internet company in terms of the dollar. So it is not worth more based on whether somebody's, it comes from somebody named.com, you know, or somebody named the old. old-fashioned horseshoe company. The dollars are equal, and our discount rates may reflect different expectations about future streams of income, but they don't reflect any difference in terms of whether it comes from something that the market is all enthused about or otherwise. The moat in the management are part of the valuation process in that they enter into our thinking as to the degree of certainty that we attribute to the stream of income, stream of cash actually, that we expect in the future, and the amount of it. I mean, it is, you know, it is, it's an art in terms of valuation of businesses. The formulas get simple at the end, but if you and I were each looking at the chewing gum business, we own no Wrigley, so I use Rigglies fairly often in class. So, pick a figure that you would expect unit growth of chewing gum, you know, to grow in the next 10 or 20 years. Give me your expectations on how much pricing flexibility you have, how much danger there is that Wrigley's share of market is dramatically reduced. You can go through all of that. That's what we go through. That is, and in that case, we are evaluating the moat.
[1:36:55]
WarrenWe are evaluating the price elasticity, which interacts with the moat in certain. ways. We're evaluating the likelihood of unit demand changing in the future. We're evaluating the likelihood of the management being either very bright with the cash that they develop or being very stupid with it. And all of that gets into our evaluation of what that stream of money looks like over the years. But the value of how the investment works out depends on how that stream develops over the next 10 or 20 years. We had a question earlier today that that made certain suppositions about what could happen at Berkshire. And the formulation was was exactly right, the question of what numbers do you is another question, but the formulation was proper. And that formulation, the mode enters into that. If you have a, if you have a strong, big enough moat, you don't need as, you don't need as much management. You know, gets back to Peter Lynch's remark that he likes to buy a business that's so good that an idiot can run it because sooner or later one will. Well, that's, I mean, he was saying the same thing. I mean, he was saying that What he really likes is a business with a terrific moat where nothing can happen to the moat. And there aren't very many businesses like that. But then, so you get involved in evaluating all these shadings. This, not the cherry version, but the regular version, this one has a terrific moat around it. There's a moat even in this, you know, in the container. There was some study made as to what percentage of the people could identify blindfolded, what product they were holding just by grabbing the container. And there aren't many that could score like Coca-Cola in that respect. So here you've got a case where that product has a share of mind. There's six billion people in the world. I don't know what percentage of them have something in their mind that's favorable about Coca-Cola, but it would be a huge number. And the question is, 10 years from now, is that number even larger? And is the impression just a slight bit more favorable on average for those billions of people that have it. And that's what the business is all about. If that develops in that manner, you've got a great business. I think it's very likely to develop in that manner. But that's my own judgment. I think it is a huge mode at Coca-Cola, I think, it varies by different parts of the world and all of that. And I think on top of it, it has a terrific
[1:39:21]
Warrenmanagement. But that, there's no formula that gives you that precisely, you know, that says that the is 28 feet wide and 16 feet deep, you know, or anything of the sort. You have to, you have to understand the businesses. And that's what drives the academics crazy because they know how to, they know how to calculate standard deviations and all kinds of things. But that doesn't tell them anything. And what really tells you something is if you know how to figure out how wide the mode is and whether it's likely to widen further or, or shrink on you. Charlie?
CharlieWell, you aren't sufficiently critical of the academic approach. The academic approach to portfolio management, corporate finance, etc., etc., is very interesting. It's a lot like long-term capital management. How can people so smart do such silly things? And yet that's the way it is. That's the great book that needs to be written, really, is, you know, why do smart people do dumb things? And it's terribly important. Because we've got a lot of smart people working with us. And, you know, if we can just exercise all the dumb things with, you know, it's just amazing what will happen. And to some extent, the record of Berkshire, to the extent it's been good, has been because we've, not because we've done brilliant things, but we've probably done fewer dumb things than most people. But why smart people do things that are against their self-interest is really puzzling?
WarrenCharlie, tell me why.
CharlieWell, you could argue that the very worst of the academic inanity is in the liberal arts departments of the great universities. And there, if you ask the question, what one frame of mind is likely to do an individual the most damage to his happiness, to his contribution to others, what one frame of mind will be the worst? And the answer would be some sort of paranoid self-pity. Couldn't imagine a more destructive frame of mind. And I had whole departments that want everyone to feel a victim. And you pay money to send your children to places, or this is what they teach them. It's amazing how these pockets of irrationality creep into these eminent places. One of the reasons I like the Berkshire meetings is I find fewer of those silly people. He excluded the head table from that room.
OtherZone 2. My name is Gaylord Hansen. I'm from Santa Barbara, California. And I'm a rookie as an investor with Berkshire Hathaway, because I only started investing last November.
[1:42:39]
QuestionerAnd if this is a typical annual meeting, I will be here every first Monday of May the rest of my life. And we'll be glad to have you. Thanks. Now, I'm very proud to have finally uncovered Berkser Hathaway and an investor. But I may have made a slight error in which issue to buy, A or B. I watch my investments rather closely, and I do believe in buying and holding. I don't buy in trade at all. I buy, I've got things I bought 10, 15 years ago, and I still haven't, and I've made a lot of money. But I make an analysis every December 31st on my portfolio, and I looked at Hathaway A, and I looked at Hathaway B on January 1st, and again on the 23rd of April. Hathaway A was up 10% since January 1st. Hathaway B was 5.3% percent. Now, I was 5. I don't like that. Now, I must confess that I'm not inclined to buy a $77,000 stock and buy one or five or 10 shares. But in this instance, because I bought a fair little bit of it, I bought the B, and my increase in value per share is 4.7% less in B than in A. and I got to have that explained to me by Mr. Buffett. Okay. I have one further comment. You mentioned the 30 times the B being an A value, well, if I multiply the value on the 23rd of May, of April, of $2474 per share by 30, I come up with with 74,220, but the price of A was 77,000. Now, I want to know whether I'm stupid or some good intelligent answer from Mr. Buffett. Okay.
WarrenIf you'll read what we've got, both in the original offering on the, on the B, as well as on the website explaining everything, the A can always be converted into 30 shares of B. So it can can't sell for anything other than a very tiny amount less than 30 shares of B, and if it went below that arbitrage would occur. But it doesn't convert the other way. So there's no question that whereas a share of B can never be worth more than about 1.30th of A, it can be worth less because the conversion doesn't run the other way. Now, at year end, I didn't look at the prices, but obviously the A and B were at almost parity, or probably a parity from what you say. And at that level, we say that if you're buying at least 30 shares of B, you're better off buying the A, because you can always go, you can always convert it into 30 shares of B, and without having paid any premium, you can't lose money and you can gain money if the B goes to a discount. The B will periodically go to a discount against the A. It depends on the supply and demand of the two securities. The B will not go to
[1:46:34]
Warrena premium above the A of any significant amount because then conversion occurs, and we've had a lot of conversion occur. I have personally said on the website, for example, that I think when the B is it more than a 2% discount, I would rather buy the B if it was me. But if it's at less than a 2% discount, I'd probably buy the A because I just think that you've always got the right to go one direction and you don't have the right to go the other direction. I would predict, as I think I did just a little earlier, that if you take the next 10 years, you're going to find a significant number of months when they the two stocks trade at parity at 30-to-1 relationship, and you're going to find a significant number of months when the B sells at a discount. When people who are buying smaller amounts are the more aggressive buyers of the stock, they will push the B up to the point where A gets converted into B, and that means that the B is selling at a slight, very slight premium over the A. And when you find times when people are on balance preferring their larger buyers, maybe institutional buyers, then the A will tend to sell at some premium. I think that, I think you may have picked on April 23rd. My guess is it's narrowed a little bit because I think it's a three and a fraction percent discount at the moment. But I would sort of use that guideline I stuck on the website, although there's nothing magical about it. Those will be the prevailing facts. I mean, if the B is selling $2,500 and the A is selling $2,500 and the A is selling at $75,000, a 30 to one relationship, and you were buying at least $75,000 worth of stock. I advise you to buy the A because the next day, if you want it to, you could convert it into 30 shares of B. But you can't buy 30 shares of B and convert it into one share of A. So I'm not sure on the day you actually bought, if you bought B, it sounds as if you did, on the day that you actually bought B, I don't know whether you were buying it at a discount or not. Most of the time last year it did not sell of the discount. most of the time this year it has sold it a discount. There will be times when it will sell parity and there will be times when it sells it a discount. Charlie?
CharlieYeah, when you made your original decision to buy the lower price of the two stocks, you made a mistake.
WarrenWell, if he was buying at least 30 shares.
CharlieYeah, yeah. If you were buying at least 30 shares.
WarrenAnd now that the stock, the B stock is down to such a discount
[1:49:13]
Warrenversus the A. Warren is saying he would hold the B. What could be simpler? We'll try and make both the A and B work out fine. But you should understand the relationship of the two. And we tried to be extremely clear about that when we brought out. We had a page which we devoted precisely to that point. And we have put, I put this thing up on the website because I was getting some mail that was questioning. People clearly didn't understand it. So I put this up on the website. And if you click on to our homepage, you will see some reference to something else you can click that says the relative situation on the A and B. And I hope it's clear.
QuestionerZone 3. Hi, my name is John Liu from New York City. First, let me start out by thanking both of you for the incredible education that you've provided me through your annual reports and the various presentations that you've given in public and in publication. I was about to send you my tuition check last week, but instead I decided to buy more shares of your company. I hope you'll forgive me.
WarrenNo, you learned well.
QuestionerMy question basically centers around the insurance industry at present. Right now, there's excess capacity, which comes and goes, typically speaking. But there seems to be a trend towards international consolidation, and also there seems to be a trend towards demutualization in the life insurance companies in the U.S. I was wondering if you could give us your thoughts on what the future face of the insurance industry will look like.
WarrenYeah, both of those trends do exist that you talked about. I don't think that consolidation usually solves many problems. I mean, if you have two lousy businesses and you put them together, you've got a big lousy business usually. And I am not a big fan of a consolidation where the theory is that you're going to, you really have two very mediocre businesses and you're going to wring the costs out of one, and it just doesn't work that way in my experience. But the consolidation will go on, and the demutualization of life companies will go on. It's not inconceivable that we would play some part in one or the other in some way, although it's not high on our list, but I've earned in this business never to say never. because things do happen that that caused me to want to retract some earlier statements. The winners are going to be the people that have some franchise based on specialized talents,
[1:52:12]
Warrenon terrific distribution systems, managerial know-how, even the ability to use the flow to use the flow effectively. And in the case of something like GEICO, on the superior, it's combined with the franchise, a superior distribution system. I mean, we have the low-cost method of distributing personal auto insurance on an all-comers basis. USAA does a terrific job of delivering low-cost insurance. to a specialized group. Geico actually came, in a sense, came out of USAA. Leo Goodwin and his wife, Lillian, who founded the company in 1936, were both employed by USAA, and Leo, as I remember, was an officer of the company. So the idea of GEICO came out of the USAA, but they've limited to a given class. We offer it to everybody in the country, except we can't offer it in New Jersey or Massachusetts, because we can't figure out any way to make any way to make any way. money there. A 20th century has done a terrific job of becoming a low-cost operator in a given urban area in the greater Los Angeles area. But in terms of an all-comers, all geography, all occupation type operation, in my view, Geico is the best operation in the United States. And better yet, consumers around the world are agreeing around the country are agreeing with that view. So, GEICO gained last year 20.8% policyholders. This year, in the 12 months, ended March 31st. It's up 22.5% policyholders. These are on big numbers. The base and the growth has accelerated. So that kind of, that sort of advantage will make for a good insurance, a very good insurance business over time. I think the average insurance company is going to remain very average, and there is a lot of capital in the industry. as you pointed out. There's more capital in the industry than there is opportunity to use it intelligently. And nevertheless, it doesn't go away. You are not seeing consolidation that takes away a lot of the capital of the industry. You're not seeing massive repurchases or anything of the sort. So the capital is there. It's seeking an outlet and premium volume. That actually hurts a general read to an extent because it means that the primary companies want to retain more of the premium they generate just so they can show some kind of growth against the capital base. I think generally we're very well positioned in the industry. I think the industry will be tougher in the next few years by a significant margin in the personal
[1:55:03]
Warrenauto business. But frankly, I look forward to it because I think it may offers the opportunity to grow even faster. We've, you know, we have the best vehicle in a very, very big industry, the auto insurance business. And we've got incredibly good management to take advantage of that. And we've got policies available as you leave the door.
CharlieNothing to add.
QuestionerZone 4. Good afternoon and thank you. My name is Paul Worth. I'm from Wichita, Kansas. And my question is as follows. For the consumer franchise companies that Berkshire owns, Coca-Cola and Gillette in particular, in which emerging markets do you see the greatest 10-year potential for unit sales growth and what economic, political, or social change, changes are precipitating that growth. Secondly, do you believe that the U.S. market cap as a percent of the world's at 53 percent is near its zenith, and which countries do you believe will likely show the greatest percent growth in total market cap?
WarrenWell, I wish you had the answers. The first question, though, obviously, when you're dealing with something like Coke, is raw numbers. I mean, there's huge potential in a country you know, with the largest country in the world and in China where the per capita consumption is very low, but is growing very fast. So it's very easy for me to predict and probably be right, absent some tremendous uppeople or some real surprise, that China would be the fastest growth market among countries of any size in the world for Coke from this level. But that's based on on the fact that you just got a huge number of people that clearly like the product. that are starting from a very low base and where a lot more bottling infrastructure is going to be needed, but which will be supplied to facilitate that growth. With Gillette, it's a little different. People are already shaving. What you do is you upgrade the shaving experience that they have. So you have great differences in the quality of the quality of the blades available throughout the world. They call them shaving systems when you get into the more advanced ones. And what happens is as people's disposable income grows, they trade up and they get a much more enjoyable shaving experience, they get better shaves than was the case when they were forced to rely on the lowest price product. But both of those those companies have tremendous opportunities as the prosperity around the world,
[1:58:03]
Warrenas the standard of living grows. And there's just no doubt in my mind that in the blade and razor business for Gillette, which is only a third of their business, but in the and in the soft drink business for Coke, they're going to share it'll be uneven in the years that it happens and all of that sort of thing. But I would almost guarantee you that 10 or 20 years from now, both of those companies will be doing a lot more business in their, in those areas I named than currently. And, you know, we don't fine-tuned it a lot more than that. I mean, I do not sit and work out, try and work out country by country what's going to happen with a Gillette or Coke. It would be a waste of time. I wouldn't know the answer anyway. But I'm pretty sure of the conclusion that both of them will prosper a great deal. And I would hate to be competing with either one of them here or anywhere else in the world. I mean, they have the winning hand. Charlie?
CharlieWell, I'd agree with everything you said. And I'd like to add that if I knew for sure that the United States share of worldwide market capitalization was going to go from 53 percent down to 40 percent, I wouldn't know how to make money out of that insight by running around buying foreign securities. Yeah, we just don't operate on that basis. And, I mean, you know, a few years ago, emerging markets were all the rage, and every institution in the country was getting promoted by somebody who said, I'm going to run an emerging markets fund, and they felt they had to participate in it. And their advisors told them they had to participate. We regard that all those nonsense. You know, in the end, you just have to think for yourself about what you know and what you don't know and go where that leads you. And you don't do it by buying into things with names on them. or sectors or country funds or that stuff, you know, that's merchandise that's designed to sell the people and it's usually sold to people at the wrong time. Yeah. Our game is to find a few intelligent things to do. It's not to stay up on every damn thing that's going on in the whole world.
QuestionerZone 5. Hello. My name is Everett Puri. I'm from Atlanta, Georgia. And I have two questions. One is for Mr. Munger in our never-ending effort to have the Munger book club surpass the Oprah book club. I was wondering if you could make some recommendations. Yeah. The second is, it seems that with the pharmaceutical industry earlier,
[2:00:49]
Questionerthat the threat of government regulation or government appropriation of those cash flows led to a reasonable market opportunity. And the same thing with Sally Mae. And I'm wondering if you feel that that's going on with the tobacco industry. tobacco industry now, or if that is a larger threat to that industry, larger and permanent threat?
CharlieWell, number one, the books. Hagstrom sent me chapters of his latest book on Warren Buffett called the Buffett portfolio. And I didn't read them because I thought his first book was a respectable book, but didn't contribute too much to human knowledge. And anyway, he sent me the me the second book, a full version, and I read it, and I was flabbergasted to find it not only very well written, but a considerable contribution to the synthesis of human thought on the investment process. And I would recommend that all of you buy a copy of Hagstrom's second Buffett book. I noticed the airport was heavily promoting it, and it's called the Warren Buffett portfolio. It doesn't pick any stocks for you, but it does illuminate how the investment process really works if you think about it rationally. Another book that I liked very much this year was Titan, the biography of the original John D. Rockefeller. That's one of the best business biographies I have ever read. It is, and it's a very interesting family story, too. That is just a wonderful, wonderful book, and I don't know anybody who's read it who hasn't enjoyed it. So I would certainly recommend that latest biography of John D. Rockefeller I first. The third book is sort of a revisitation of the subject matter of the book. I recommended a year or two ago called Guns, Germs and Steel, which was a physiologist's view of the economic history of man. And it was a wonderful book. And much of that same territory has now been covered by an emeritus history professor from Harvard who just knows way more economics and science than is common for a history professor. And that gives him better insight. And his book is a takeoff in title on Adam Smith. And the title is The Wealth and Poverty of Nations. And the guy's name is Landis. So I would hardly recommend those three books. Now what was the third question?
QuestionerThe other question is about tobacco and pharmaceuticals.
CharlieOh, tobacco. I don't know about Warren, but I think the legislative threat to tobacco is serious. And I haven't the faintest idea of how to predict it.
[2:03:59]
WarrenYeah, I would say that there's no comparison between the threat to tobacco currently with the threat to pharmaceuticals in 1993. that the problems of the tobacco companies are of a far different order than the problems of the pharmaceutical companies. Nobody was against pharmaceuticals. They were just had different ideas about maybe pricing and distribution and all of that. But tobacco is a different story. I mean, tobacco companies, well, you can figure it out for yourself. The – in terms of – in terms of – in terms of – of books, I would recommend, many of you may have read it, but, and this goes back more than a year, but I would, if you haven't read Catherine Graham's autobiography, it is one terrific book. It's a very incredibly honest book. And it's a fascinating story. I mean, it's a life that's seen all kinds of things in politics and in business and in a government. So I – it's a great read. A book that came out in the last few months in the investment world that I would certainly recommend everybody as common sense on mutual funds by Jack Bogle. Jack is an honest guy, and he knows the business, and if mutual fund investors listen to him, they would save billions and billions of dollars a year. And he tells it exactly like it is. So I – He asked me for a blurb on the book, and I was delighted to provide it. Let's go to Zone 6, please.
QuestionerGood afternoon, Mr. Buffett, and good afternoon, Mr. Munger. My name is Monish Pabri, and I'm from the Chicago area. Mr. Buffett, I'd like to thank you for all your insights over the years. I'm especially amazed at the pace at which you answer my letters, point by point. I have a question for you related to circle of competence. I have a notion that both Mr. Munger and yourself understand the Kleiner Perkins model of early stage venture capital investing, and currently they're focused on the Internet space extremely well. My notion is that I think it is well within your circle of competence to understand what they do, they do, just like you understand what your managers that sees candy or executive jets do. So the question is that with the Internet, I think we're seeing a change that has not been seen in the last 500 years as humans. We haven't seen something that is as dramatic and as profound that's going to come upon us. If, let's say, a John Doer at Client, Perkins approached you and said that they were starting, let's say, a billion dollar
[2:07:17]
Questionerearly stage or later stage internet investment fund that Kleiner would manage. Would you consider that, would you consider participating in that investment to be within your circle of competence if it were offered at terms that looked attractive?
WarrenI agree with the first part of what you said. I mean, I'm not sure that it'll necessarily necessarily will be the most important thing in the last 500 years in the commercial world. But it could well be, and if it isn't, it's right up there. I mean, it is, it is, we talked about this last year and maybe even the year before. I mean, it is a huge development. But, and I would say that Charlie and I both understand the process of early investment slash promotion probably as well anyone. We haven't participated in it. There are certain things we don't even like about it. But we do understand it, right, Charlie? And I would say that no, we would not have an interest in investing in the fund. We do not necessarily regard the Internet. There's no question. If you're in the early stages of promotion, and you, particularly if you've got a reputation as a successful in that, but in this case, it wouldn't make much different. because the whole field has gone wild. You will make a lot of money selling to the next stage, and the next stage, and the next stage. But in terms of picking out businesses that are going to do wonderfully, as businesses, not as stocks for a while, but as businesses, I don't think it's necessarily so easy in the Internet world. And I would say that if you were to ask some very top names in the field to name the next five companies out of the shoot, or the next 10 companies out of the shoot, and predict that one of them will earn, say, the $200 million I use as a threshold six or seven years from now. I'm not so sure if they gave you a list that they would name a single one. That doesn't mean they might not make a lot of money by being early investors in them because they sell out to the next group and so on. But in the end, they have to succeed as businesses. And a few will succeed as businesses. The Internet will have a huge impact. impact on the world. But I'm not so sure that that makes it an easy investment decision. Charlie?
CharlieWell, at least it's not an easy investment decision for us. And that's what we're looking for. Yeah. We will never turn our money over to somebody else. If we're going to lose your money
[2:10:03]
Warrenas Berkshire shareholders, we're going to lose it ourselves, and we're going to come back and look you in the eye and tell you how we lost it. We are not going to say, this game is too tough, so we'll give our money to somebody else. You can give your money to somebody else. You can give your money to somebody else and you don't need the intermediaries of me and Charlie to do it for you. So we get approached all the time. I had a call, you know, within the last couple of days, on something you would know very well, about participating in some funder. They always have, you know, it's always stage one, stage two, stage three, and the idea is we get some more people to come in later at twice the price and maybe the fact that our name is involved and it will cause people to pay even more and all of that sort of thing. We're not in that game. And we're not going to. going to turn the money over to someone else to manage. It's your money. You gave it to us to manage. We'll manage it. You decide you don't want us to manage it. You decide who you give it to it. We're not going to be intermediaries on it. And if we don't understand something ourselves, we're not looking for anybody else to do it for us. The world doesn't work very well that way anyway. I mean, it usually end up in the hands of the promoters and not the hands of the people who really know how to make money. He said it. Okay, Zone 7. Peter Kenner from New York City. Good afternoon, Warren, Charlie. Hi, Peter. Good to see you. I'd like to ask you what your thought process was when you, or share with us your thoughts, when you decided to sell McDonald's That must have been Charlie's idea, Peter. Peter, incidentally, is in a family that four-generations. Four generations have essentially invested with us, and they're all terrific people, I might add. Dad was a wonderful guy. The, you know, I said it was a mistake, to sell it, and it was a mistake, and I just reported that in the interest of candor, and there were some reasons why I thought it was something we, I didn't think it was, I didn't think, obviously, that it was any great short sale or even a great sales. but I didn't think it belonged in the list of eight or ten of the businesses, of the very few businesses that we want to own in the world. And I would say that that that particular decision has cost you in the area of a billion dollars plus. Charlie?
[2:12:40]
WarrenYou want me to rub your nose in it? You're doing a pretty good job by yourself. By the way, that's a good practice around Berkshire. We do rub our own noses in it. that they don't even need the help of the counters. We believe in post-mortems at Berkshire. I mean, we really do believe, one of the things I used to do when I ran the partnership was I contrasted all sale decisions versus all purchase decisions. It wasn't enough that the purchase decisions worked out well. They had to work out better than the sale decisions. And managers tend to be reluctant to look at the results of the capital projects or the acquisitions that they proposed with great detail a year or two earlier to a board, and they don't want to actually stick the figures up there as to how the reality worked out against the projections. And that's human nature. But I think you're a better doctor if you drop by the pathology department occasionally, and I think you're a better manager or investor if you look at every one of the decisions you've made of importance and see which ones worked out and which ones didn't. And, you know, what is your batting average? And if your batting average gets too bad, you better handle the decision-making over to someone else.
WarrenCharlie, you want to rub my nose anymore?
CharlieNo. No, that's okay, okay.
OtherZone 8. Good afternoon. Ian Sags from New York City. This afternoon, through various questions and comments, we've mentioned the fact that the word trust, which Berkshire Hathaway and the brand has, we've mentioned basically health and the importance of health, and that being above everything else, with Berkshire's competencies in the insurance industry and with the health care services sector being relatively depressed, is, although the dynamics would be different in the industry, how risk is managed on an overall basis, has Berkshire looked at all in terms of taking a position or buying a health insurance business?
WarrenCharlie runs a hospital, so I'm going to let him talk about this.
CharlieSure, we've looked a little. We looked at, everything in turmoil that's important in the world. But so far, it hasn't seemed to yield our particular mental approach. Yeah, I don't know who I would want to get in with in that business at the moment. That's not, I'm not condemning the people in the business. It just means I don't know. I'm not, I haven't been able to evaluate that. And I think it would make an enormous difference in terms of the,
[2:15:34]
QuestionerYou want to get in with a quality operation and quality people and at a sensible price. And we haven't seen that, but that doesn't mean we've canvassed the whole field either. There is a significant percentage of slock operators in the field who are painting the reality different than it is. That makes it harder.
OtherZone 1. Eric Tweety from Shavertown, Pennsylvania.
QuestionerI just wanted to express our appreciation of regarding all the operating businesses that we've visited, they've been very warm and hospitable. In fact, when we visited executive jets at the airport, the tour was so impressive. My wife wanted to buy an airplane.
WarrenWhat's her name? What's your name? Well, I won't say that. Spell it out.
QuestionerAmerican Express declined the $500,000 we tried to put in my car. You can thank the chairman for me next time you see him. Just kidding. But my question was... My question was... regards basically approach to investing. I've been investing my own money in equities for about 10 years. In my results overall have been relatively good. In the process, however, I've taught myself some very painful and costly lessons. For instance, my first equity ever purchased was a share of Berkshire Hathaway for $5,500 in 1990, and I sold it three months later for something over $8,000 and congratulated myself. for the rapid and shrewd profit. And earlier this year, I repurchased the same share for $70,000. And I intend to own it for the rest of my life. So you can see I'm growing. My question is, I have no formal education in accounting and finance. And I would just like some advice from you regarding an approach to educate myself in a reading list of basic texts, obviously starting with the Berkshire Hathaway. Berkshire Hathaway annual reports. Thank you.
WarrenI thank you particularly for your comments about the people from our operating companies, because they have just been terrific. They come out here, you know, they are here at 5 in the morning. I mean, they do a tremendous amount of work over this weekend. They're cheerful. I've met with them all on Saturday at lunch, and I mean, they're just one sensational group of people, and, you know, I'm very proud of them, and the manager should be very very. proud of the people they've brought with us, and I hope you get a chance to thank as many of them as possible personally. And incidentally, at the Seeds Counter, you'll find Angelica Stoner, who's been with us for 50 years.
[2:18:27]
WarrenAnd, you know, here she comes from California to help us out and sell peanut breadel, and she's having a good time doing it. And the question you ask is a very good one about, you know, in terms of accounting and finance. What's the best way to teach yourself? I was always so interested in it from such a young age that, that I, my approach was to go to the Omaha, originally, was to go to the Omaha Public Library and just take out every book there was, um, on the subject. And I learned a lot, I learned a lot that wasn't true in the process too. I got very interested in charting and all that sort of thing and buying stocks. But, but I did it by just a tremendous amount of reading, but it was easy for me because, you know, it was like going to baseball games or something of the sort. And And in terms of naming specific texts in accounting, and I think you may want to read some of the better, even magazine articles that have appeared. I mean, there have been, or newspaper articles, there have been some good commentary about accounting there. I don't have, can you think, Charlie, of any specific texts or anything we could recommend?
CharlieI think both of us. learn more from the great business magazines than we do anywhere else. It's such an easy, shorthand way of getting a vast variety of business experience, just to riffle through issue after issue after issue, covering a great variety of businesses. And if you get the mental habit of relating what you're reading to the basic structure of the underlying ideas being demonstrated, you gradually accumulate. some wisdom about investing. I don't think you can get to be a really good investor over a broad range without doing a massive amount of reading. I don't think there's any one book that will do it for you. You might think about picking out five or ten companies where you feel quite familiar with their products, maybe, but not necessarily so familiar with their financials and all of that, but pick out something. So at least you understand what, if you understand their products, you know what's going on in the business itself. And then, you know, get lots of annual reports and through the Internet or something else, get all the magazine articles that have been written on it, on those companies for five or ten years. Just sort of immerse yourself as if you were either going to work for the company or they'd hired you as the CEO or you were
[2:21:17]
Warrengoing to buy the whole business. I mean, you could look at it in any of those ways. And what, and when you get all through, ask yourself, What do I not know that I need to know? And back many years ago, I would go around and I would talk to, I would talk to competitors always. You'd talk to employees of the company and ask those kind of questions. That's in effect what I did with my friend Lorimer Davidson when I first met, I'm at GEICO, except I started from ground zero, but I just kept asking him questions. And that's what it really is. You know, one of the questions I would ask, if I were interested in the ABC company, I would go to the XYZ company and try and learn a lot about it. Now, you know, there's spin on what you get, but you learn to discern that. Essentially, you're being a reporter. I mean, it's very much like journalism. And if you ask enough questions, Andy Grove has in his book, he talks about the silver bullet. You know, you talk to the competitor and you say, if you had a silver bullet, and you could only put it through the head of one of your competitors, which one would it be and why? Well, you'll learn a lot if you ask questions like that over time. And you ask somebody in the XYZ industry and you say, if you're going to go away for 10 years and you had to put all of your money into one of your competitors, the stock of one of your competitors, not your own, which one would it be and why? Just keep asking and asking and asking. And you'll have to discount the answers you get in certain ways, but you will be getting things poured into your head that then you can use to reformulate and do your own thinking about why you evaluate this business at this or that. The accounting, you know, you just sort of have to labor your way through that. I mean, you may be able to take some courses even in that. But the biggest thing is to find out how businesses operate. And, you know, who am I afraid of? If we're running GEICO, you know, who do we worry about? Why do we worry about them? Who would we like to put that solar bullet through? I'm not going to tell you that the, you know, you keep asking those questions. And then you go to the they want to put the silver bullet through and find out who he wants to put the silver bullet through. It's like who wakes up the bugler, you know, and the Irving Berlin song. And that's the that's the way you approach it. And you'll be learning all the time. You can talk to current employees,
[2:23:41]
Warrenex-employees, vendors, suppliers, distributors, retailers, I mean, there's customers, all kinds of people. And you'll learn. But it is a, it's an investigative process. It's a journalistic process. And In the end, you want to write the story. I mean, you're doing a journalistic enterprise, and six months later, you want to say, the XYZ company is worth this amount because, and you just start in and write the story. And some companies are easy to write stories about, and other companies are much tougher to write stories about. We try to look for the ones that are easy. Charlie?
CharlieYeah. For the histories of the thousand biggest corporations laid out and digest form, I think value line is in a class by itself. That one volume really tells a lot about the histories of our best companies.
WarrenYeah, if you just look, there's 1,700 of them. If you look at each page and you look at sort of what's happened in terms of return on equity, in terms of, in terms of sales, growth, profit, all kinds of things. And then you say, why did this happen? Who let it happen, you know? What's that chart going to look like the next 10 years? Because that's what you're really trying to figure out. Not not the price, chart, but the chart about business operation, you're trying to print the next 10 years of value line in your head. And there's some companies that you can do a reasonable job with, and there's others that are just too tough. But that's what the game is about. And it can be a lot of, I mean, if you have some predilection toward it, it can be a lot of fun. I mean, the process is as much fun as the conclusion that you come to.
CharlieOf course, what he's saying there, when he talks about why, that's the most important question ball and it doesn't apply just to investment. It applies to the whole human experience. You want to get smart. The question you've got to keep asking is why. Why, why, why, why? And you have to relate the answers to a structure of deep theory. And you've got to know the main theories. And it's mildly laborious, but it's also a lot of fun.
QuestionerZone 2. Good afternoon, Mr. Buffett and Mr. I'm Patrick Wolfe, formerly from Cambridge, Massachusetts, and soon to be from the San Francisco area. Like many people around the world who want to learn about business, I've read all of your letters to the shareholders, and like many people here in this room, I was so impressed that I bought a piece of the company. But I must admit that in studying Berkshire
[2:26:30]
QuestionerHathaway, there's one element that I didn't quite understand that I didn't quite understand. stand, and I'd love it if you could please explain it. And that is the following. How does Berkshire Hathaway add value to the various wholly owned companies in the manufacturing services and retail division? And the reason I asked this question is, as you yourself said earlier this morning, it's very difficult in negotiated purchase agreement to buy a company for anything other than what it's truly worth. So if Berkshire Hathaway is going to create value by buying such fantastic companies as the Nebraska Furniture Mart or seized candies or any of the other fantastic businesses we have, there must be some way in which Berkshire Hathaway adds to that value. Could you please explain how we do that?
WarrenIn certain specific cases, the case of General Ree being the most recent example, we actually laid out in the proximate. material why we thought there was at least a reasonable chance that the ownership by Berkshire would add value. And we got into various reasons about the ability to use the float and tax advantages and the ability to move faster around the world and that sort of thing. So we've actually spelled that in that case. I think in the case of something like Executive Jet, you might well figure that there are some reasons why association would be. Berkshire would put executive jet on the map and in the minds of people who could afford to buy fractional ownership planes faster than might otherwise be the case. But usually the situation, so there are specific cases where we bring something to the party. But the biggest thing we bring to the party on a generalized basis is what I spelled out a little bit in the annual report this year in talking about GEICO. We enable terrific managers to to spend, in many cases, to spend a greater percentage of their time and energies on what they do best and what they like to do best and what is the most productive for owners than would be the case without our ownership. In other words, we give them a very rational owner who expects them to spend all of their time focused on what counts for the business and eliminates the destruction. distractions that often come with running a business, particularly a publicly owned business. I would guess that the CEOs of most public companies waste a third of their time at least in all kinds of things they do that really don't add a thing to the business, in many cases subtract because
[2:29:24]
Warrenthey're trying to please various constituencies and waste their time with them that take the company backwards. But we eliminate all of that. So we, we simply can create an ownership, we think we can create the best ownership environment, frankly, that can exist other than maybe owning it 100% yourself for any business. And that happens to also go along with how we like to lead our lives because we don't want to run around and attend a lot of meetings and do all of these things that people do. And that can be a significant plus. I think that Geico has probably grown a fair. amount faster as a subsidiary of Berkshire than it would have if it remained an independent company, although it was a hell of an independent company and would have continued to be one. But I think billions and billions of dollars will be added to the value of GEICO over and above what would have happened if it had remained a public company. Not because, as I put in the report, we haven't taught the management one thing about the classification of insurance risks or how to run better ads or anything of the sort. We've just let them spend 100% of their time focused on what counts. And that is a rare occurrence in American business. Charlie?
CharlieYeah. Just not having a vast headquarters staff to tell the subsidiaries what to do, that helps most of the kind of subsidiaries that we buy. They are not looking for a lot of people looking over their shoulder from headquarters and a lot of unnecessary flights back and forth. and so on. So I would say most of what we do, or at least a great part of what we do, is just not interfere in a counterproductive way. And that non-interference has enormous value, at least with the kind of managers and the kind of businesses that have joined us. In a great many, you have to see it to believe it, but in a great many corporate operations, the importance of the importance of of a large group of people is tied to how much they meddle in the affairs of other people who are out there doing the work. And, you know, we stay out of the way, and we're appreciative owners, and we're knowledgeable owners. We know when somebody has done a good job, and we know when they've done a good job when industry conditions are terribly tough. So we can look at our shoe operations, for example, and, you know, they are in tough industry conditions now. We've got some absolutely terrific people, and we are knowledgeable enough about that so that we don't
[2:32:12]
Warrengo simply by a bunch of figures and make a determination whether people are doing the right thing. So we've got, we're knowledgeable owners, and we have no one whose job but at headquarters is to go around and tell our managers how to run their human relations departments or how to run their legal departments or a dozen other things. And not only do people have more time to work on the productive things, but I think they probably actually appreciate the fact that they're left alone. So I think you even get more than the proportional amount of effort out of them than would be indicated simply by the amount of time you free up, because I think you get even an added enthusiasm for the job. And I think having people on a large organization that truly are enthusiastic about what they're doing, that doesn't happen all the time. But I think it does happen to a pretty good degree at Berkshire.
WarrenCharlie?
CharlieNo more.
OtherOkay. Zone 3. Chairman
QuestionerHi, I'm David Butler from here in Omaha. A comment and then two quick questions. The comment is regarding the annual reports. I read a lot of annual reports for a living, and I sort of sort off with the assumption that I'm going to have to spend 20 to 30 hours, looking at 5 years, 10Ks, and 5 years of annuals, probably some 10 Qs and groaned through a lot of numbers to have any kind of idea how the company really is working. is working. And comparing that to Berkshire, which has basically crystal clear clarity, it's quite refreshing to read honesty, and it's quite refreshing to see accounting that's actually presented in a clear fashion, and that doesn't try to hide facts. So as a shareholder and as an investor, I'm very grateful for the effort and for the high quality of your annual report, and I think we ought to give Mr. Buffett and Mr. Buffett and Mr. Buffett and Mr. McGer a hand for that. Thank you.
OtherOkay, now that I've, now that I've brown-nosed a little bit.
QuestionerHere comes to the Zinger, huh?
OtherYeah.
QuestionerI'm nervous about the derivative operations that General Ree has. Now, right now, the balance sheet figure says that there's a $400 million net asset position, but there are also some really hairy derivatives, the swaps and the floors and caps, and knowing that in the past, you haven't used those types. use those types of leverage derivatives. I'm wondering if that's going to change now. And secondly, in terms of going through an intrinsic value calculation,
[2:34:59]
Questionerwhen you and Mr. Munger think about intrinsic value, obviously a big part of that is the marketable securities portfolio. Do you think of intrinsic value in terms of the marketable securities as what their market value is, in terms of their look-through earnings, look through earnings, or is there a separate intrinsic value calculation that you sort of roll into the overall Berkshire intrinsic calculation?
WarrenYeah, I'll answer the second part first. On the intrinsic value, we tend to use the market prices and the way we think about things, although there are times when we feel that we own securities that are worth far more than they're carried for, and we've mentioned that once or twice. There was the time in the mid-1970. mid-1970s, if you'd look back at our 1975 annual report, I may be off by a year, one direction, another, probably 1974, because I, we valued the securities at market, but I, in the body of the report, I said, we really think these things are going to be worth a hell of a lot more than they're selling for currently. That was an unusual remark for somebody, if you knew me. It would be an unusual remark for me. And at that time, I would have said that in looking at the intrinsic value of Berkshire, I would have said that I was quite comfortable marking these things up in my mind. I wouldn't have done it with the public, but I would have done it in my mind. But under most circumstances, we tend to think of the market value as being representative of it. That is the price at which we could buy or sell that day. And if we thought they were ridiculously high in relation to intrinsic value, we'd probably do something about it. And they certainly haven't been so low that we've ever felt like marking them up in recent. in our own minds in recent years. The question about the derivatives business is a good business. It's a good question because it involves big balance sheet numbers and big off balance sheet numbers in relation to the amount of money made, and particularly in terms in relation to the amount of money made in terms of the capital employed. And the credit guarantees, the long-term nature, all of that makes that makes that something that we do want to look at always very hard. It's a business that people can get in trouble in, and they can get in trouble while the accounting sales along merrily. I remember when Charlie and I were at Solomon, we found, we didn't find it.
[2:37:35]
WarrenOther people found it finally, but missed marked derivative positions that were very substantial that had gone on for a long period of time, and this was with paying a lot of money to auditors to look at them. Am I right about that, Charlie on that? Charlie was on the audit committee. anything?
CharlieThe worst glitches were the books just got so out of control, not in the derivative department, that there were just multi-million dollar errors. But we found Ms. Marks, as I remember, in the 20-odd millions on positions. Yes. Yes. Both. In some cases, because the contracts got so complicated that the people that were valuing didn't understand them. At least partially didn't understand them. understand them. I mean, there's a lot of potential for mischief when people can write down a few numbers on a piece of paper and nothing changes hands for a long time. And their compensation, you know, next month and this year depends on what numbers are attached to a bunch of things that are not really, where they don't come to fruition for a long time. And particularly when you're guaranteeing credit or anything of the sort. So you're very very good. correct in observing that when the numbers are big in relation to the amount of profits, you want to look very carefully because if anything goes wrong, it could go wrong on a fairly big scale, and you're not getting paid a lot for running that type of risk.
WarrenI very much appreciate what you said about the annual reports. We may disappoint you in how the business performs over time. I mean, that is not totally within our control. We'll try hard. We'll try hard, but we can make no promises. But we shouldn't never disappoint you in either our accounting or in the candor of the reporting. I mean, that is in our control. We may not like what we have to tell you, but there's no reason for failure. There can be no reason for failure in the accounting or candor. I mean, that is, there's, if we fail there, it's because we set out to fail. We can fail in terms of operating performance. performance for a lot of reasons, some within our control, and some without our control. But, but, and that can happen, and if so, we'll tell you about it. But we're going to try very hard to make sure that you see the business in a form exactly like we see the business, and that we don't sugarcoat things, and we don't put spin on things, and we'll judge ourselves to a significant degree by it, by how we handle that particular part of the problem. We'll also try to do a good job in operations. Charlie, do you have anything at that on that? If not, it's 3.30. I thank you all for coming. I hope every one of you come next year and thanks.