QuestionerYou've spent a fair amount of time talking about low probability transformative events. I'd like you to address how you conceive of the portfolio of businesses in the context of these possible transformative events, especially given that over this same time period of maybe the next 50 years, at some point you're not going to be able to personally revise the portfolio.
WarrenYeah, I think it's a fair statement that over the next 50 years at some point, Charlie and I will not personally be able to participate in portfolio revisions. We are quite correct that people tend to underestimate low probability events when they haven't happened recently and overestimate them when they have happened recently. In terms of our businesses, I think Charlie and I are I mean, we think about low probability events. In fact, in insurance, we probably think about low probability events more than most people who have been insurance executives throughout their year. It's just our nature to think about that sort of thing. But I would say if you talk about transforming events or really talk about major events that could have huge consequences that are low probability, they're more likely to be in the financial arena than in the natural phenomena arena. And financial markets are, they have vulnerabilities to that that, you know, we try to think of, and we try to build in ways to protect us against it and perhaps even build in some capabilities that where we think we might profit in a huge way from it.
CharlieYeah, that temporary collapse in the junk bonds, where they got down many of them to 35 and 40 percent yields, that's a strange thing. And to have all those things pop back, you know, quadrupling in a short time. There was absolute chaos at the bottom tick of that. And that isn't as much chaos as you could have. And of course, it can happen in common stocks instead of junk bonds. bonds. So I think if you're talking about the next 50 years, we all have to conduct ourselves so that it won't be all that awful of a real financial crunch of some kinds could come along. Either inflationary or a typical deflationary crunch at the time that people used to have a great many decades ago. Probably the most dramatic way in which we are cognizant. our cognitive, give evidence of our, of your worries. We just don't believe in a lot of leverage. I mean, you could have thought junk bonds were wonderful at 15 percent because they eventually did go to 6 percent. You would have made a lot of money. But if you owed a lot of money against them in between, you know, you wouldn't have been around for the party at the end. So we believe almost anything can happen in financial markets, and the only way smart people can get clobbered really is. through leverage. If you can hold them, you have no real problems. So we have a great aversion to leverage, and we would predict that a very high percentage of the smart people operating in Wall Street at one time or another are likely to get clobbered through the use of leverage.