[0:10]
OtherOkay, if you're ready, we are. We're going to keep going in the same order because there's people in the other rooms that have been waiting, so we will go to number 11.
QuestionerHi, my name is Christian Baja from Superfund. I have a question for you, Mr. Buffett. What do you think about managed futures funds?
WarrenI didn't quite get that. What kind of fund?
QuestionerManaged futures funds, like a very well-diversified portfolio in stocks and bonds going long and short, all the different markets based on the most natural human behavior, trend following or hurt behavior. Managed futures funds.
WarrenWell, I would say that we think the most logical fund is the one we have at Berkshire where essentially we can do anything that makes sense and are not compelled to do anything that we don't think makes sense. So any entity that is devoted to a limited segment of the financial market we would regard as being at a disadvantage to one that has total authority if you have the right person in charge. But that's an assumption you're going to make under any fund. So we would not want to devote our funds to something that was only going to buy bonds, something that was only going to buy futures or anything of the sort. We would, we would, we would, we buy funds. We buy futures at Berkshire, we buy bonds at Berkshire, we buy currencies, we buy businesses. So I think it's a mistake to shrink the universe of possibilities. Ours is shrunk simply by size, but we don't try to, we don't set out to circumscribe our actions in any way. But in the end, there's no form that produces investment results. hedge funds don't produce investment results, private equity doesn't produce investment results, mutual funds don't produce it. If it was simply a matter of form, we'd all call ourselves, you know, whatever that form happened to be. What really makes the difference is whether the person that's running it knows what their limitations are, knows where their strengths are, plays when they have the opportunity to play advantageously, and stays out when they don't see any opportunities. Charlie?
CharlieI'd go further, I'd say averaged out. I would expect that the return per dollar per year in managed futures funds would be somewhere between lousy and negative.
WarrenAnd I would agree with that.
CharlieYeah.
WarrenYeah. Usually those are sales tools. I mean, people find out something that will sell, and it can be, you know, it can be bond funds
[3:23]
Warrenat some point, it can be, but when they find something that can sell, it'll get sold. to the public. It will sell till it stops selling. And that means lots of money comes in and lots of competition for a limited number of opportunities. And I think it's a mistake to get sold something on the basis that here is a great area of opportunity. Areas don't make opportunities, brains make opportunities, basically.
OtherNumber 12. Matthew Monaghan from Palo Alto, California. Mr. Buffett, Mr. Mr. Munger. First of First of all, I want to thank both of you for so freely sharing your wisdom and knowledge over the years. Even though we've never met in person, I consider you both to be close personal mentors and attribute your teachings and philosophies to any success I've had in business so far. So thank you. Here's my question. For a 23-year-old with high ambitions, some initial working capital, and a genetic wiring, as you call it, for disciplines like investments, mathematics, and technology, what do you foresee as the significant significant areas of opportunity over the next 50, even 100 years. And if you were in my shoes, what would be your approach and methodology for really learning, tackling, and mastering these areas of opportunity for the purpose of massive value creation?
WarrenWell, I remain very big on the idea of reading everything in sight. And frankly, when you get the chance to talk to somebody like Lorimer Davidson, as I did, when I was 20 years old. I probably learned more from Lorimer Davidson in those four or five hours than I learned in college with the, you know, the exception of learning some accounting or one or two subjects like that. So you just want to soak it up. If you have those qualities you talked about, you'll see the areas as you go along. I mean, we have, Charlie and I probably, you know, we've made money in a lot of different ways, some of which we didn't anticipate, you know, when we were 30 or 40 years ago. But we did have the ability to recognize some. We didn't have the ability to recognize others. But we did know when we knew what we were doing and when we didn't. And we just kept looking. We had a curiosity about things. You would know at a time like the long-term capital management crisis, for example, that there were going to be ways to make money. I mean, they were going to be out there, and all you had to do was just read and think eight or 10 hours a day, and you were going to cover a lot of possibilities, probably a very
[6:06]
Warrenhigh percentage of them good, and some of them sensational. So you can't really lay it out ahead of time. You can't have a defined roadmap, but you can't have a reservoir of thinking, looking at different kinds of businesses, looking at different kinds of securities, looking at markets in different places and you will then spot a reasonable number of things that come along. You won't spot every one of them. We've missed all kinds of things. But the biggest thing, too, is to have something in the way you're programmed so that you don't ever do anything where you can lose a lot. I mean, our best ideas have not been better than other people's best ideas, but we've never had a lot of things that pulled us way back. So we never went two steps forward and one step back. probably went two steps forward and a fraction of a step back. But avoiding the catastrophes is a very important thing, and it will be important in the future. I mean, you will have your chance to participate in catastrophes. Charlie?
CharlieYeah, and of course, the place to look when you're young is in the inefficient markets. You shouldn't be trying to guess whether, you know, one drug company has a better drug pipeline than another. You want to go when you're young someplace that's very inefficient. inefficient. And you shouldn't be trying to guess whether the stock market is going to go up or whether long-term bonds are going to change in yield. I mean, you don't have anything to going in that kind of a game. But you can have a lot going in games that very few people are playing and maybe where they're even got their heads screwed on wrong in terms of how they're thinking about the subject. The RTC was a great example of a chance to make a lot of money. I mean, here was a seller of $100,000. hundreds of billions of dollars worth of real estate, where the people that were selling it had no economic interest in it, were eager to wind up the thing, you know, and they were selling it a terrible time when the people who had been venturesome in lending were no longer lending. The people who had been venturesome in the equity end of real estate had gotten cleaned out. So you had a great background of environment, and then you had an imbalance of intensity in terms of analyzing situations between the seller, which was the government, with a bunch of people had no economic interest in it and were probably eager to wind up the job and buyers on the other side
[8:35]
Warrenwho were of the generally cautious type because the more venturesome time had taken themselves out of action. So, and there were huge amounts of property. So you get these opportunities and you'll get more. I mean, there won't be any scarcity of opportunities in your life, although there would be days when you feel that way. Okay, let's go to the other rooms now. They've been waiting. Number 13. John Goss, Key West, Florida. Katrina created litigation that resulted in some rulings that combined flood damage and wind damage, where the insurance companies thought they covered wind only. As a result, some insurance companies are significantly reducing coverage in those states. Florida recently empowered their insurance company, called citizens, to be more aggressive not only with windstorm but also with homeowners, while at the same time not allowing requested rating of other insurance companies. The result is that some solid insurance companies have announced reducing their coverage or pulling out of Florida. Is this type of government interference, a random fluctuation in insurance, or a major cause of concern for the future? That's an easy one to understand both sides of the question on. I mean, the average homeowner is not going to sit there and read line by line what is in an insurance policy, and a lot of times the agent is not going to explain it carefully him. So when something comes along and he thinks it's insured, and it turns out that he bought a policy where it wasn't insured, he's going to feel very unhappy about it, and when tens of thousands of people feel unhappy about it, you're very likely to get some kind of governmental inferring, and probably an inflation by judicial degree or by threats of the government to, in effect, extend the terms of the policy beyond what the insurance company thought it was insuring. Now, an insurance company that's had that kind of experience is going to be very reluctant to write insurance policies in the future if they don't think that the words will be adhered to. And on the other hand, I can fully understand some guy who's had his house blown away in a storm, and a lot of it was water damage and a lot of it was wind damage, thinking that, you know, that he's been wiped out, and the insurance company comes around waving a policy that's got a lot of small print in it, you know, he's going to be unhappy. So it's a real tussle on.
[10:59]
Warrenthat. And, you know, I guess I would, if I were writing policies, I would put the exclusions in very big, very big type and very easy to understand, but I still would expect that if thousands of people suffered losses, that courts and legislators would probably seek to stretch the terms or even abrogate the terms of the contract in order to take care of their own constituents and figure that guys like me or institutional investors who own insurance companies can afford it better than their homeowner. When you get into the question of whether you should, in effect, have all of the people in the country pay premiums for, we'll say, hurricanes, in a way, subsidize it through policies in Nebraska or Minnesota or someplace for hurricanes in Florida, that gets very tough. I mean, can be very expensive to ensure hurricanes if hurricanes become more frequent and more intense. In fact, it can become so expensive that people really will not want to bear the cost of insurance and don't want to socialize it some way. And of course, the guy in Nebraska says, look at you, you went down there to live on the ocean and, you know, you thought it was wonderful, and we're back here with these terrible winters, but why should we pay a portion of your insurance? So you're going to have that tussle go on, and you'll really have that tussle go on. If you get $100 billion or $150 billion insured loss in a Florida because that will mean a huge change in taxation if the government, if the state of Florida steps in to compensate people, there'll be calls for Washington to pay for it. But, you know, it's how much people who are not exposed to a risk should pay for the people who have elected to be exposed to the risk is, you know, it becomes a political question. And my guess is that sometime in the next five or 10 years, you'll see a struggle on that subject that exceeds, far exceeds what we saw on Katrina. Charlie?
CharlieI've got nothing to add.
OtherNumber 14.
QuestionerHi. My name is Glenn Tung, and I'm a shareholder from New York. I'd like to congratulate you on Berkshire's newest director, Sue, is a terrific addition. My question is...
WarrenWe agree with you.
QuestionerMy question is, according to the 10Q filed yesterday, you purchase... you purchased about $5.3 billion in chairs in the first quarter. This acceleration in activities occurring while the general market levels are getting more expensive. Does this indicate
[13:42]
Questionersome shift in your thinking about hurdle rates of return for your ever-growing asset base and or your prospects for an elephant-sized acquisition?
WarrenWell, that's a good question. I would, and I would say in the first quarter, actually, stocks didn't rise, but they've risen a lot in April. But they didn't have risen a lot in April. But they didn't go down either. I mean, they were pretty much flat. And we did invest $5 billion or so in equities. Did we change our standards? You know, I don't think so, but, you know, you can't be 100% sure that you haven't, you know, if you haven't had a date for a month, you know, you may say that was a girl you would have dated the first day, but who knows? So, I don't know, I don't know. I don't know. Well, for sure, yes. But I think we would have dated that girl the first day. And the second question, in terms, does it reflect giving up on finding an elephant to acquire in terms of a business? The answer to that is no. We've got plenty of money available. And we would sell stocks if we really, I mean, that would not be a problem if we really needed to to buy a really big business. So we're as prepared as we've ever been prepared. to buy a big business outright. We hope we do. We hope we buy relatively small ones if they're attractive. We bought a very attractive business, a TTI run by Paul Andrews, terrific business in the first quarter. And, you know, I wish it was five times the size, but maybe it will be someday. But we know that we're in with the kind of person we want and the kind of business we want. And if we find larger ones, one way or another, we'll swing them.
CharlieYeah, the one thing I think we can. promise you is that we won't make returns on average and the kind of stuff we're buying now like those that we made 10 or 15 years ago. We won't come close. No. No. It's a different world with more modest expectations. And we hope you share them.
OtherLet's go to number one. Hello, Charlie. Warren.
QuestionerBill Paparalla from St. James, New York. Warren, I brought my 10-year-old daughter, Gina with me. She asked me last summer, how do I get rich? So I gave her your letters, writings, even gave her Charlie's Almanac. So she's been reading ever since, asking me a lot of questions. So I said, maybe we'll go to our first meeting together.
WarrenIs she married? I mean, she's the kind of girl that I want my granddaughter, her grandson to me.
[16:41]
QuestionerSo we're learning together. Warren, my question for you, in regards to your recent charitable gifts. And if I could start by saying that I mean no disrespect, you am I a hero, so, and nor is it political. You're doing fine so far. I am as a father of five daughters, perplexed and upset, that one, one or I've read that one or more of these foundations is a big supporter of Planned Parenthood and Abortion Rights. If you were to go on the Planned Parenthood website, you would see a website that promotes promiscuity, it goes out of it. way to support internet porn. Now, let's get to the question, please. You have a question? The question is, Warren, I was hoping that you could speak to the billions of dollars that's been allocated with an agency as Planned Parenthood that is very well funded. It just doesn't seem to jive with the hero that I study that I study. And I was hoping that you could speak to it.
WarrenYeah, well, I'll be glad to speak to it. I think it's a terrific organization. And I really think it's too bad that for millennia, you know, women not only the United States, but all over the world, you know, have had involuntary bearing of babies forced upon them, and usually by a government run by men. So I don't think we want to get into a, we don't want to get into a cheering contest here. But, you know, I, I think that it's a very important issue. I think it tends to have a small natural funding constituency because it isn't a popular type thing where it's like sticking your name on a hospital or something like that. But I would say that if we'd had a Supreme Court with nine women on it, starting when the country became the United States that by now, I don't think a question like yours would even be being raised. You know, men set the rules for a lot of years, and I think it's wonderful that a woman can make reproductive choices. But, you know, we've got a lot of people to disagree with me on it. I've got a lot of people to agree with me on it, and I hope you'll respect my opinion as I do yours. Thank you.
OtherNumber two, please.
QuestionerHi, I'm Bob Klein from Los Angeles. Pursuing your earlier comments on Sigma's from a different angle, the conventional wisdom in the investment world is that an investment risk can be measured by the volatility of the price of the investment in the marketplace. To me, this approach has it backwards, since changes in price are determined by the changes
[20:54]
Questionerin the opinions of investors in the marketplace, why would a rational investor substitute the opinions of the marketplace as reflected in the volatility of the price for his own assessment of the risk of the investment? And consultants take this idea further by tracking the volatility of a portfolio manager's results in an attempt to measure risk. So could you guys expand on your thoughts on this?
WarrenYes, volatility does not measure risk, and the problem is that the people who have written and taught about volatility do not know how to measure, or taught about risk, do not know how to measure risk. And the nice thing about data, which is a measure of volatility, is that it's nice and mathematical and wrong in terms of measuring risk. It's a good, it's a measure of volatility. But past volatility does not determine the risk of investing. I mean, actually, take it with farmland here in 1980, in the early 1980s, farms that sold for $2,000 an acre, went to $600 an acre. I bought one of them when the banking and farm crash took place. And the beta of farms shot way up. And according to standard. Economic theory, market theory, I was buying a much more risky asset at $600 an acre than the same farm was at $2,000 an acre. Now, people because farmland doesn't trade often and prices don't get recorded, you know, they would regard that as nonsense. That it might purchase at $600 an acre of the same farm that sold for $2,000 an acre a few years ago was riskier. But in socks, because the prices jiggle around every minute, and because it lets the people who teach finance use the mathematics they've learned, they have, in effect, they would explain this away a little more technically, but they have effect, in effect, translated volatility into all kinds of past volatility in terms of all kinds of measures of risk. And it's nonsense. Risk comes from the nature of certain kinds of businesses. It can be risky to be in some businesses. just by the simple economics of the type of business you're in. And it comes from not knowing what you're doing. And, you know, it is, if you understand the economics of the business in which you are engaged and you know the people with whom you're doing business and you know the price you pay and is sensible, you don't run any real risk. And I don't think Charlie and I, certainly at Berkshire, I don't think we've ever had a permanent loss in marketable securities that was, what,
[24:08]
Warren1% maybe, half a percent of net worth. I made a terrible mistake in buying Dexter's shoe, which cost us a significantly more than 1% of net worth, where I bought an entire business then. But I was wrong about the business. It had nothing to do with the volatility of net worth. shoe prices or leather or anything else just was wrong. But in terms of marketable securities, I cannot recall a case where we've lost that coming. We've done a lot of things in securities that had a very high beta. We've done a lot of things in securities at a low beta. It's just the whole development of volatility as a measure of risk. It's really occurred in my lifetime, and it's been very useful. for people that wanted a career in teaching. But it is not, we've never found a way for it to be useful to us. Charlie?
CharlieWell, it's been amazing that both corporate finance and investment management courses as taught in the major universities, we would argue it's at least 50% twaddle. And yet these people have very high IQs. One of the reasons we've been able to do pretty well is that we early recognized that very smart people do very dumb things, and we tried to figure out why. And I also wanted to know who so we could avoid them. We will not run big risks at Berkshire. Now, we will be willing to lose, as I put in the annual report, $6 billion in a given catastrophe, but our catastrophe business run over many years is not risky. You know, a roulette wheel will occasionally pay off at 35 to 1. And that sounds like you're paying out an awful lot of money compared to the amount bet on one number. But I would love to own a lot of roulette wheels. Number three.
QuestionerHi. My name is Stuart Kaye, and I'm from New York City. Warren and Charlie, you spend a lot of time evaluating the management quality and integrity of the companies that you may invest in. In my current job, I do not have the opportunity to do that. As I read through annual reports and financial statements, what do you suggest I focus on to help me to determine the quality and integrity of management?
WarrenWell, you can, we've spent many, many years, and we've bought many things. I mean, without meeting managements at all, having any entree to them, the stocks, the five billion of stocks that we may have bought in the first quarter, most of those were companies I've never met the management, never talked to them. We read a lot. We read annual reports.
[27:27]
WarrenWe read about competitors. We read about the industries they're in. In terms of sizing up managements, obviously. Obviously, if we're going to buy the whole business, that's a different question. Because we're going to buy it, be in bed with them, they're going to run them, and we care very much about whether they're going to behave in the future as they have in the past once we own the business, and we've had very good luck on that. But in terms of marketable securities, we read the reports. Now, Charlie and I were just talking about one the other day, where we read an annual report of a large oil company, and the company, you know, 100 pages, public relations people, lots of pictures, spent a fortune on it, and you can't find in that report what their finding costs per MCF or per barrel of oil was last year. That's the most important figure in an oil and gas company over a period of years, but every year counts. The fact it wouldn't even be discussed, the reason it wasn't discussed, it was absolutely terrible, terrible, but the fact it wouldn't even be discussed, and to the extent it was touched on, it was done on in a dishonest manner. When we read things where we basically are getting dishonest messages from the management, it makes a difference to us. You know, like I say, in marketable securities, we can solve that by selling the stock, and it's not the same thing as buying the entire business. But I think you can learn a lot by reading the annual letters. I mean, for one thing, if it's clear. It's clearly the product of some investor relations department or outside consultant or something of the sort, you know, that tells you something about the individual. If he's not willing to talk once a year through a few pages to the people that gave them their money to invest, I mean, I've really got, I've got some questions about people like that. So I like that feeling that I'm hearing directly from someone. who regards me as a partner, and you may not get it all the way, but when I get it 0% of the way, I don't like it. I've still bought, we've still bought into some, in marketable securities, we've bought into some extremely good businesses where we thought they were run by people we didn't really like very well, because we didn't feel they could screw them up. Charlie?
CharlieYeah, well, I think that's exactly right, but there are two things, the quality of the business and the quality of the management.
[30:09]
CharlieAnd if the business is good enough, it will carry a lousy manager. And the Converse case, where a really good manager gets in a really lousy business, you'll ordinarily have a very imperfect record. In other words, it's a rare person that can take over a textile business, totally doomed, which was what Warren did in his youthful folly, right? And turn it into what's happened here. You should not be looking for... other warrants on the theory they're under every bush. I figured it out in 20 years, though. I'll have to say that for myself. 20 years and I finally figured out, I was in the wrong business. But there are business. If you gave me first draft pick of all the CEOs in America and said it's your job to run Ford Motor now or, you know, pick a company that's in a terribly tough business, and I wouldn't do it. I mean, it's just too tough. tough. They may get it solved. You know, they get cooperation from unions and a whole bunch of things. But it will not be solely in the control of the CEO who has that job. He's got, he is dependent on too many good things happening outside to say that he alone can get the job, even if he's the best in the world.
QuestionerNumber four. Hi, Warren. Hi, Charlie. I'm Walter Chain from San Jose, California. My wife and I are expecting our first baby boy in July. going to name him Warren after you.
WarrenYou're trying to get into my role again. I'm rooting for you for the next one. I'd move him further down the line, maybe number five.
QuestionerWarren and Charlie. Warren, if you were writing a follow-up to the very pristine Forbes, I'm sorry, Fortune magazine article from November 1999, in which you were talking about the lean and fat 17-year periods, What would you be writing, and since we're halfway through this third 17-year period, how is it turning out based on your expectations from back in 1999?
WarrenYeah, the 17 years, of course, I had a little fun with because of the fact that there were two 17-year periods and there are also 17-year locust, so I stretched it a little from a literary standpoint, but there's nothing magic about giving us. spans of time, there was something very different between the first 17 years of that 34-year period and the second 17, and I used that for kind of a dramatic contrast. If I were writing something now, I would say what I said just a little earlier in response to Frank Martin's question, that it is, if I had to own long bonds or long-term position, I'd rather
[33:13]
Warrenhave equities, but I would not have high expectations for them, but I would have expectations beyond four and three-quarters percent. How much beyond, I'm not sure, but something enough beyond four and three-quarters percent that I would rather own equities than bonds. I did not feel, I felt in 1999 that people were extrapolating the experience of the previous 17 years and assuming there was something magic about owning equities. and expectations of the people were bound to be, they were, the people were bound to be disappointed. They simply had an unrealistic view by extrapolation, and that was the main purpose of that article. But if I were writing something now, I would not, I would not have high expectations for equities, but I would have better expectations for equities than for bonds. Charlie?
CharlieYeah, and I would say that since that article was written, the results from owning equities have been pretty lean, at least compared to what happened in the glorious 17 years that proceeded. So Warren has been right so far, and he's probably right now when he says modest expectations. You really don't have, in markets, you can't say something terribly important or or intelligent every day or every week or every month. That's one of the problems of, if you went on television too often or had to write weekly letters or something of the sort. Every now and then you get something extreme. I mean, I did, I did close down the partnership in 1969 and an article appeared. I did give an interview in 74. I gave another interview in 81 or 2. I mean, every now and then things really get out of whack. And, but the gradations in between, they're too tough. But the nice thing about it is you don't have to have an opinion every day or every week or every month. You know, if you own some good businesses and you bought them at the right price, if they get to a silly price, you probably should sell them. And if you find that everything is extremely cheap, like in 74, you should put every available dime in the equities, and that's what we've tried to do.
QuestionerNumber five. Yes, thank you, gentlemen, and for this opportunity. I want to need to ask you a question. My name is Ronnie Pellegrine, and this is my 14-year-old daughter, Michaela. We are here representing hundreds of ocean commercial hook and line salmon fishermen and their families from the west coast. They are barely hanging on to their livelihoods because of the Klamath River crisis.
[36:11]
QuestionerMy husband is a fourth generation hook and line commercial fishermen from Eureka, California. His family has fished for the last 100 years. Last year, our commercial salmon season was completely shut down because of the crisis in the Klamath River. It is caused by the four lower hydroelectric dams owned by your subsidiary Pacific Corps. We personally took a 95% hit in our income, excuse me, and we had no way to to make up that loss. We have used our savings and were forced to take out a small business administration disaster loan to meet our financial needs. Our daughters were so upset after overhearing my husband and I last Christmas, they came to us wanting to give us all the money in their bank accounts. I am telling you this, gentlemen, and shareholders, because you and the shareholders, because you and the shareholders can help. Under Klamath Dam re-licensing, it is shown that this dam removal makes economic sense for Pacific Corps and Mid-American. You are a great businessman who have built an incredible empire. We sure could use your creativity and expertise in solving this crisis situation, so the Indian people along the river and we in the coastal communities can continue our long and proud heritage. People back home are eagerly waiting for me to bring a response back from you. My question is, what can I tell them is your position on removing the outdated Klamath dams?
Greg AbelYes. Our position on it is quite simple. The FERC and And several of the regulatory commissions have before them 27 different proposals or positions by various interest groups. Some want, some like hydro power, which is what comes from the dams, because it does not generate the emissions that comes from coal or gas-fired generation. Some, like the fact that hydro power is cheaper, several hundred thousand consumers. Some people have been hurt by what you describe in terms of the fish. And you have a public policy question which will not be determined by Pacific Corp. It will be determined by FERC because they represent the public. The fact, the Secretary of Interior has advised FERC that it's a very tough question. FERC will be have hearing, that they will listen to the positions. The Oregon and Utah, California, perhaps, public utility commissions will be listening to the arguments. And in the end, we are a public utility responding to public policy, public policy weighing both your interests and the interests of others in the matter, will come to a determination, and
[39:39]
Greg AbelPacific Court will do exactly what they say. We are responsive to the people that regulate us, just as people have been in that position since the first damn was put in 1907. So that is entirely a question for FERC and the state commissions.
QuestionerNumber six. Good afternoon, Mr. Buffett and Mr. Munger. Thank you for taking my question. This is my second time at the Berkshire Hathaway meeting that I have attended. My name is Cameron Sparrow. I am 13 years old and from Boulder, Colorado. My question is for Mr. Buffett. Mr. Buffett. What is your opinion about the merger of the New York Stock Exchange with the Euro next? Do you think that the merger will have a positive or negative effect on the market?
WarrenWell, I really don't know the answer to that. My guess is that, I mean, both of those institutions were very large institutions beforehand, and we would judge a positive effect in terms of narrowness of spreads as an investor. as an investor in terms of cost of execution and that sort of thing. Both places have been very efficient in the past. I mean, we pay quite low payments, although my broker is here. We probably should be paying even less. But the New York Stock Exchange has gotten far more efficient in terms of costs from the days of fixed commissions back in the early 70s and before that. and before that, I mean, it's a fraction of the cost. And the real test from our standpoint is, you know, do we get better executions and less costly executions? And like I say, both institutions were big, big effective institutions before. If they get a little more efficient, I hope it gets passed onto the customers, but it may just result in larger profit. But we're pretty satisfied, quite satisfied, actually, with the functioning. And the New York Stock Exchange is where we do most of our business. But we've done business. We've been buying. international stocks and we've had generally good executions throughout the world. So it's not a source of either concern or enthusiasm to me. Charlie?
CharlieI don't know anything about it.
WarrenI don't either, but I took longer to say so.
OtherNumber seven, please.
QuestionerMr. Buffett and Mr. Bunger, thanks for hosting this wonderful meeting. I'm, my name is Chander Chavla. And I'm visiting. from Seattle, Washington. And I think Berkshire Hathway can contribute to the reduction of global warming if for next year's shareholder meeting, Mr. Gates and I fly on the same plane.
[42:44]
QuestionerMy question is, I have made a few mistakes in business by trusting the wrong people. So in, and I don't know where to learn how to trust the right people. They don't teach. you that in business school and the people who are supposed to teach you in the corporate world sometimes betray you. So how can I learn who to trust and who not to trust?
WarrenIt's a great question, but you probably have about as good a chance of getting a good answer for me on that as you have of getting on Bill Gates' play next year. But I get letters all the time and I hear from people who have been taken advantage of in financial transactions. financial transactions. And, you know, it really is, it's sad. And a lot of it isn't even, it's not fraud or anything. For one thing, I mean, just the charges involved, the frictional costs, and the bologna that is presented is tough. Charlie and I have had very good luck in terms of buying businesses and putting our trust in people. It's been just overwhelmingly good. Good, but we filter out a lot of people. And then they say, well, how do you filter them out? I would say, and I think Charlie will agree with this, people give themselves away fairly often, and maybe it does help to have been around as long as we have, in seeing the various ways they give themselves away. They, when somebody comes to me with a business, then I probably shouldn't tell this publicly because they'll probably tailor their approach subsequently. But when they come, just the very things they talk about, what they regard as important and not important. There are a lot of clues that come as the subsequent behavior. And like I say, we've really had a batting average I wouldn't have thought we would have had in the people that we've joined with. But it hasn't been 100 percent. It's been well above 90. And I get asked that, you know, I mean, how do you make those judgments? And I don't know, Charlie, can you articulate the way we do it?
CharlieWell, partly, we're deeply suspicious when the proposition is too good to be true. Warren once introduced me to a gentleman promoter who wanted to inveigle us into an insurance program, and he said, we only write fire insurance on concrete bridges that are coming covered by water. He says it's like taking candy from babies. We are able to filter out propositions like that. Yeah, anybody that, anybody that implicit in their comments or what they kind of laugh about
[46:01]
Warrenor all kinds of things in terms of the fact, you know, it's so easy and it ain't that easy, you know. We get suspicious very quickly. And the truth is, we get suspicious very quickly. And the truth is, we We rule out 90% of the times, and we may be wrong about a fair number that we're ruling out. The important thing is whether the ones we're ruling in we're right about. And so we don't mind, we're looking for the obvious cases of people you can trust. I mean, go back to 1969 again, when I was thinking about who to turn my partners over to, all kinds of people with great records. That was a hedge fund, that was the first heyday of hedge funds. There were books written about it. a new breed in Wall Street and some ways. You can look them up. And dozens and dozens and dozens of people with good records. And when I sat down and thought about it, I'm going to write my partners and tell them who to turn over all their money to, because most of them had 100% or something close to it with me. You know, Charlie, Sandy, Bill Rowan. I couldn't have told you which of the three was going to do the best. And I couldn't even tell you that those three would have done better than five others that somebody else might pick. But the one thing I was sure of, have, it was, it was that they were going to be sensational stewards of money. They were going to care more about those people, people that were turned over to them, and getting the best result possible, then they were going to care about, you know, whether they made X or 2X this year in terms of commissions or fees or any of that sort of thing. Anytime I find somebody with what I regard as an unfair fee structure and saying, well, I can get it, you know, I rule them out. And I may rule out some of the wrong people, but the ones that are left in, I feel very good about it. And I wish I could give you better advice than that, but that's all I can do.
QuestionerEight. Yes, Mr. Buffett, Mr. Munger, thank you again for being so generous with your time with us every year. I'd like to follow up on the question from the gentleman from Australia and from Munich on valuation. The gentleman from Australia asked about margin of safety. margin of safety and you replied that a superior business may not require that much of a margin of safety and my follow-up would be is does that suggest market rate of returns going forward for superior businesses and then on the Munich
[48:34]
Questionervaluation in which you cited a farm example on discounted cash flows I'm very curious how you come up with your discount rate and how you might adjust that discount rate based upon various businesses, you might want to discuss your discount rates used for Coca-Cola, J&J, or some of your past investments. Thank you.
WarrenWe don't formally have discount rates. I mean, every time I start talking about all this stuff, Charlie reminds me that I've never prepared a spreadsheet, but I do, in effect, in my mind, I do. But we are going to want to get a significantly higher return, obviously, in terms of cash produced, relative to the amount we're outlaying now, for a business than we are from a government bond. I mean, we, you know, we're going to, that, that has to be the yardstick at a base. Then how much more do we want? Well, if government bond rates were 2%, we're not going to buy a business to earn three or three and a half percent expectancy over the years. We just don't want to commit our money that way. We'd rather sit around and wait a little while. If they're four and three quarters percent, you know, what do we hope to get over time? Well, we want to get a fair amount more than that. But I can't tell you that we sit down every morning and I call Charlie in Los Angeles and say, what's our hurdle rate today? I mean, we have never used the term. You know, it's a little bit of the, we want enough so that we feel very comfortable if they close on the stock market for a couple of years, if interest rates go up another 100 basis points or two 200 basis points, we're still happy with what we've bought. And above that, I really, you know, I know it sounds kind of fuzzy, but it is fuzzy.
WarrenCharlie?
CharlieYeah, the concept of a hurdle rate makes nothing but sense, and yet a lot of terrible errors are made by people who are talking about hurdle rates. Just because you can measure something and guess it doesn't mean that it's the controlling variable and what you're dealing with in a messy world. And I don't think there's any substitute for thinking about a whole lot of investment options and thinking about why one is better than another and what the likely returns are from each, et cetera, et cetera, and the trouble with a hurdle rate concept, not that we don't have one in a sense, is that it doesn't work as well as a system as a system of comparing things. In other words, if I have something available that I think will give me 8% for sure and I can buy all I want of it and you've got a perfectly good investment that I think will earn seven, I don't have to waste five minutes with you.
[51:42]
CharlieYou're like the mail order service offering the bride through the mail and she's got AIDS. You know, I can go on to some different subject. And so this, the concept of opportunity opportunity cost is it's so little taught in investment. They teach it in the freshman course in economics and all the major universities, but when you get to the corporate finance departments and so forth, it doesn't lend itself to the kind of mathematics they want to use, so they ignore it. But in the real world, your opportunity costs are what you want to make your decisions based on.
WarrenYeah. And even if you had something that you were really familiar with and were very sure on the 8 percent, eight and a half wouldn't tempt you if somebody came along, that's a practical matter of Sure.
CharlieI've been on, as I've mentioned, I've been on 19 corporate boards. I would say that of the presentations I've seen, and I've seen a lot of them, and every one of them had a calculation of internal rate of return, if they'd burned them all, the boards would have been better off. I mean, there is so much nonsense presented because the presenters essentially know what the listeners are desires of hearing and what is needed in order. order to get through something that the CEO wants to do anyway, that you just, it's just, you just, you just get nonsense figures. And, you know, we may get nonsense figures, too, but they're ours. You know, and we let me give you an example of that. I have a young friend who sells private partnership interests to investors, and he's in a really tough field where it's hard to get decent returns. And I said, what return do you tell them you're aiming for? And he said 20%. And he said, how did you pick that number? He said, if I chose any lower number, they wouldn't give me the money. And there's no one in the world, we think, can earn 20% with big money. I mean, it just, so anybody making a promise like that, basically, we're going to write off immediately. It's amazing to me what, you know, in a sense, how gullible big investors are, pension funds, and so on, and that they have people come around. and promise them the Holy Grail. And they want it so badly, you know, that they're willing to believe things that just have to be nonsense.
QuestionerLet's go to number nine. Good afternoon, Mr. Buffett, Mr. Munger. My name is Robert Pytton, and I'm from Chicago, Illinois. Over your careers, has there been any question,
[54:25]
Questionereither personally or professionally, that you haven't been able to get a comfortable answer to, that you cannot simply put? simply put in your too difficult pile. Thank you.
CharlieWell, sure you get problems. You may have just asked one. Yeah. Sure, if you've got a child dying of some horrible disease, you have a problem. You can't just put in a too difficult pile. So there are lots of things in life that come to you, that you, where you have no option to not consider the issue. But where it's voluntary, Like choosing one investment for many, from many. Then the too difficult file is a marvelous way of sifting your daily grist.
WarrenYeah, I have a file on my desk. Laura Graham gave it to me. It's entitled, too hard. And as Charlie said, if something is optional and it's too hard, you just throw it in there. If you've got the problems of weapons of mass destruction, it is too hard, but you have to keep wrestling with it, because if you even reduce the probability, reduce the probabilities a tiny bit. You know, you're doing something. But you're never going to solve it. You just have to keep working at certain types of problems. And you hope you don't have too many like that.
QuestionerTen. Another many greetings from Germany. I am Bernard Jaden from Florin, a little town close to the Black Forest. And I am, I'm the mayor of it. My question to Mr. Buffett and Mr. Bangor is, how often do you review each single position in your portfolio? Some look at their stocks every day, sometimes more, some only once a year. What is your frequency? Thank you.
WarrenWell, that sort of breaks down into two periods of my life. When I had more ideas than money, I was thinking about everyone all the time because I was thinking about buying the next one and which one I would have to sell in order to buy something even more attractive. So my opportunity cost, as Charlie would put it, then was the least attractive stock, which I would give up to buy something more attractive. So I literally, if I had... If I had $100,000 and it was all invested and I wanted to put $10,000 or $20,000 and something I felt was more attractive, I would be thinking all the time of which one of these do I unload. Now our situation is such that we have more money than ideas, and that means that we really aren't reexamining something every minute because the option is cash and not doing something that we really are excited about.
[57:44]
WarrenWe still think about the businesses we're in, whether they're wholly owned or whether they're partially owned through stocks. We think about them all the time. I mean, you know, we've got a lot of information filed away in our minds, and you keep getting little incremental bits about that company or the competition or other things going on. So it's, you know, it is a continuous process, but it's not a continuous process with the idea that daily activity or weekly activity or monthly activity. activity is going to result. It's just we want to just keep adding to our thinking and knowledge refining it further about every business that we're in. If we needed some money for a very big deal, for example, let's say we needed 20 or 30 or 40 billion dollars and we had to decide to sell 10 billion of equities just to pick a figure, you know, we would use the information we've been collecting daily, which hasn't really meant much as we've gone along, and then we would come to a decision about where we raise that $10 billion.
CharlieYeah, but even in Warren's salad days when he had way more ideas than he had money, he did not spend a lot of time thinking about his number one choice. He could put that aside and devote his efforts to other subjects.
QuestionerNumber 11. Good afternoon, Charles Frischer from New York. In the last 18 months, the company has allocated at least $1 billion to four or five publicly traded companies. Berkshire has an abundance of capital and a scarcity of ideas. Since these stocks' investments were made in large-cap companies in which we could have probably made $5 billion investments, have you thought about allocating more cap capital to each stock in to each stock investment.
WarrenYeah, we do think about that, obviously. And there are certain ones that we have added billions of dollars to that we already had substantial positions in a couple years, a couple years ago. Obviously, when we add to the present list, we think we're adding to the ones either that look the most attractive to us or to the ones that we can just buy. I mean, there are some things where we can't put that much money in, or where we will hit reporting thresholds that we'll call a problem. If we own over 10% of a company, you know, if we can't sell a share of it then for six months without it being, if there's a profit, it's being recaptured pursuing suit to a short swing rule. So there's some technical things that enter into whether we cross
[1:00:39]
Warrencertain thresholds of ownership size. But if you look at, you know, if you look at the portfolio at the end of 2007, you're going to see that certain positions. and they're from 2006 have probably been increased by billions of dollars. And that's always something that I'm considering, and Charlie's considering. We like to add to present positions. I mean, those are companies we know, understand, obviously like to some degree. And if the price gets reasonably attractive, if we got money around, we will add. If we can find a good business to buy, you know, we will sell the least attractive.
WarrenCharlie?
CharlieYeah, it isn't as easy as it looks to buy these big positions. When we were buying Coca-Cola, we were buying every share we could with, what, 30 or 40 percent of the daily trading? Yeah. And it took us a long, long time to get our position. And so there are huge difficulties to managing great big common stock portfolios. We like it way better when we have. those problems now than we liked it when we didn't have them early. But it does make it much harder. We have no easy way of moving these elephants around. In general, we think we usually can buy something like 20% of the daily trading volume and feel that we're not causing the price to be violently different than it would have been if we hadn't been participating in the market. So that means if we're going to buy $5 billion worth of something, $25 billion worth of it's going to have to trade. And that's a lot for many stocks. So it's, it's, it, we are a big ocean liner. And that has its disadvantages compared to being a smaller boat.
OtherNumber 12. Hey, young, Hamaleo. My name is Wendy George and I am from the Hoopa Indian Reservation in Northern California. I'm here with the Yurok and Karuk indigenous people who live along I don't know whether the microphone isn't working or not, but we want to make sure it is working. Who live along the Klamath River. My people are river people. Our entire culture, religion, and subsistence is centered around the river. Your subsidiary company, Pacific Corps, owns dance on our river. Mr. Buffett, I know you care very much about humanity and ethical business. We also understand that you cannot exercise direct control over Pacific Corps operations. However, there are things you can do to help us. So we are here to ask you if you would be willing to meet with the tribal representatives,
[1:04:14]
Greg Abellearn more about our issues, and explore ways to help save our salmon. Are you complete or just take your time here? Complete. Complete. As I said earlier, we will not make the determination in the end. It will be made by FERC. It's the same way as if we're going to put in a coal generation plant or a gas generation plant or more wind powered. For example, we put in a lot of wind power in Iowa. But that was decided essentially by the Utility Commission in Iowa that they wished to make that decision. decision. And incidentally, sometimes people are unhappy when we put in wind because they don't want the transmission lines that are going to be involved. They're usually happy to give us the plots on which to put the wind turbines because they get paid very well for it. But they're not happy to have the transmission lines. And any time you get into the public utility field, there are people happy and unhappy with decisions. Nobody wants a generating plant building near them, and that's the nature of it. The world does want electricity, because it wants electricity, and it wants more electricity, it essentially has to decide the public policy issues through regulatory authorities. And we will do exactly what FERC finally, and with the consent of the state commissions, what they finally decide on it, and all of the arguments will be presented to them. As I say, there are 27 groups, I believe, and then they go and then they get the opinion of the Secretary of the Interior and so on, and a lot of other groups. And somehow they come out with a decision on public policy, and we will follow it. It takes a lot of time, too, I must say. Anytime you've got an issue that's got 27 different views and more than one authority, it's going to take significant time. I'm in a peculiar position on this because when we bought Pacific Corp, we had to, to Walter Scott and I both signed affidavits as part of the acquisition of Pacific Corp. The Oregon Public Utility Commission required that we submit these affidavits, and I'll read you from this. I don't want you to think I'm ducking behind us, but this was executed several years ago, and it says, I agree, I will not exercise any control directly or indirectly on matters that pertain to Pacific Corp, except for relating to Pacific Corp that are ministerial in nature. And then I agree as a mid-American holding company and Berkshire-Hathaway directors, I will recuse myself
[1:07:12]
Otherfrom voting on on Mid-American Holding Corp or Berkshire-Hathway Board of Director matters concerning Pacific Corporate activities or operations. This is part of the order that came down that allowed Mid-American to buy Pacific Corp. I must say, too, that in terms of the Oregon Commission and the five other states that our application went through an almost record time because mid-American does have such a good record in terms of being responsive to the public utility commissions under which it's operated and we will continue to be responsive but I appreciate your point thank you number 13 please
QuestionerPeter Vandenbrook Cleveland Ohio Mr. Buffett and Mr. Munger thank you for so eloquently answering some of these tough questions I know of no other public company that would allow a form such as this, you're doing a great job. My question is a follow-up question to the Katrina aftermath situation regarding policyholders with insurance companies and the tussle between coverage and what's the proper remedy for those that suffered after such a storm. Part of that tussle, one of the results of that tussle was some legislation. legislation that was passed in the state of Florida. Could you please explain that legislation, as you understand it, to shareholders and what effect, if any, does that have on Berkshire's insurance subsidiaries? Thank you.
WarrenYeah, I can't tell you with precision with the Florida. I don't know whether Joe, Brandon, or Ajit or Tad Montross, if they're in the manager's group, if somebody could pass a microphone over to them. over to them. Essentially, I should let them explain it, but the state of Florida has gotten more into the business of insuring the citizens by a considerable margin that it did before, but there are some significant limitations on that. And I think if we've got a microphone with one of the three of them, they could answer that question better than I. Do we have somebody over there? Are they all outriding insurance? Sure. More likely buying jewelry. Okay. One, two. Who do we have? It's impossible for me to see over there with the lights. I'm getting a mic. Hello? Warren, it's Joe.
OtherOh, okay. Took me a little time to get here. I was looking for a sheet. What was this specific question?
WarrenI think the questioner wanted to know what has really happened in Florida in the last three or four months in terms of the state getting involved in the insurance.
[1:10:28]
Questionerin the homeowner's insurance business?
WarrenWell, back in mid-January, the Florida legislature met in a special session and passed legislation at the urging of the governor that expanded the reinsurance fund and ultimately is moving a lot of risk, both personal lines, commercial lines, from the private market to the public market. And, you know, this is going, and has manifested itself in lower prices for wind risks in Florida and has freed up capacity that was dedicated to Florida for other markets. So ultimately, it's going to have a depressing effect on the insurance industry. Longer term, you know, there is no free launch, and the state and the citizens of Florida are taking a tremendous amount of risk, and it will all work out if the wind doesn't blow, but the odds are eventually it will, and Florida is going to have a large public policy issue to deal with.
Joe KernenAre they, Joe, they explicitly taking out about 30 billion and then sort of leaving it in the laps of the gods above that? I'm not sure myself, but...
WarrenYeah, I believe they take out about 30 billion. It's about the increase. The increase was 12 to 16 billion. So they previously had taken about 18 billion out, and they took an additional 12 to 16. Yeah, the real problem will be if there turns out to be a $100 billion insured loss. And then, you know, the state may decide to issue 60 or 70 billion of bonds. They may decide to go to the federal government. go to the federal government and say, this really isn't our fault, and therefore, the entire country should pay in some form. Who knows what will happen? And the truth is, you know, it's very unlikely that a $100 billion storm occurs. The biggest one was Hurricane Andrew, which trended through inflation to present day probably wouldn't quite hit $30 billion. But if that same storm had come through as a category 5, about 20 miles north of where it came, where it hit, you would have. Or you could easily have something like $100 billion storm. So, you know, you're going to have to stay tuned on that. And if they don't have any hurricanes in the next couple of years, the whole matter will die down in bigger hurricanes. And if they have a $100 billion storm, they will probably go to Washington. And we will find out whether the whole country has been ensuring hurricanes in Florida or whether the federal government will throw it back to the state of of Florida and the state of Florida will presumably issue a lot of bonds and taxes would go up.
[1:13:34]
QuestionerAnd in effect, you would distribute insurance, what might have insured losses in relation to the proportion people pay of the general tax revenues of a state like Florida. It's tough to be where the wind blows a lot, but it's also a very nice place to live apparently. So we will find out how it plays out. Number 14, please. Steve Rosenberg, originally from Michigan. Thank you very much for continuing to serve as excellent role models and for the values that you continue to teach by example. I'm curious to know who are your present-day role models, and I know that your prior heroes included your father, Ben Graham, and Davy, but would be curious to know who in addition to those three. those three. Thank you.
WarrenWell, I've had a number of them, and I'm not sure I want to name them because the ones you don't name, they might feel a little left out. But the one thing I've been very lucky on is that the ones I've had have never let me down. So I have never had that experience where you've looked up enormously to somebody and then had that person let you down in some way, which would be a terrible experience and very hard to get over it. You know, I'm sure some people have had that in marriage, and they've had it in business. And the worst situation, of course, is if you have it with your parents, but that did not happen. In fact, the reverse happened. Happened with me, so I can just tell you that choosing your heroes is very important. I tell that to the students when they come, because you are going to gravitate toward the behavior of those around you. I tell people to be sure and associate with people that are better. than you are. Marry up, you know, and hope you find somebody who doesn't mind marrying down. And it will do wonders for you, for you. It was a huge help to me, I can tell you that. Charlie?
CharlieYeah, I would say that you're not restricted to living people in picking your mentors. Some of the very best people are dead. Well, with that, we better go to number one.
QuestionerHello, everyone. My name is Kendall Burbrewaker. I'm a senior. I'm a senior from Purdue University in West Lafayette, Indiana. I have my resume screen printed on my shirt. Charlie and Warren, I brought a shirt for each of you, as well as one for Deb Ray, who is responsible for my presence today. Additionally, I have a strong interest in social entrepreneurship and the Gates Foundation, and would love to offer a shirt to Bill if he is willing to accept.
[1:16:42]
QuestionerNow, I had an overly technical question about the historic rate of economic growth and why it's 3% as opposed to 2 or 5. However, given my circumstances, I feel it is more appropriate to ask if I made a sound economic decision to make this trip to Omaha to display my own intrinsic value, and to turn down the $500 that the man just offered me for my spot in line to $12, 27,000 people and to learn from you, or if I had been better off, charging the equivalent amount to my American Express card on Seas Candy and Coca-Cola. Thank you, and again, my name is Kendall Brewer. Thank you.
WarrenI thought your question was going to be what shirt size we wore, but... Mine is small. I think we'll move on to number two. Tom Nelson. North Oaks, Minnesota. This one is for Charlie.
QuestionerWhat are your current views on the costs and benefits of ethanol production in this country?
CharlieWell, you know, even McCain has had a counter-revelation lately. He's decided that ethanol is wonderful now that he realizes that's the way they think in Iowa. I'm somewhat in his position here, but I won't allow that to stop me. I think the idea of running automobiles on corn is one of the dumbest ideas that has gotten widespread acceptance that I have ever seen. But in a government with a lot of political pressures, weird decisions get made, but that has to be about as crazy a decision as was ever made. The, you want a social safety net under people and the most basic safety net. out of all is food and you're going to raise the cost of food so you can run these automobiles around and you use up just about as much hydrocarbons making the corn as you get out of the ethanol. I would say that and you don't count in the cost of the ethanol, the cost of the topsoil that goes away forever when you, it's a, I love Nebraska. I'm on Nebraska to my core, but this was not my home state's finest moment.
WarrenWe're going to try and smuggle him out of town tonight. I should make one announcement. In terms of the books at the bookworm outside, Jerry Goodman, a friend of mine from way back, wrote a book many years ago called Super Money, which he just brought out a new edition. They actually flew those in. They arrived here at the auditorium about 9 or 10 or 11 o'clock, I guess, this morning. And the new revised issue of Super Money is not out there in addition to all the other titles, and I would feel remiss after all the trouble
[1:20:19]
Warrenthey went to if I didn't mention that to this group. It's a very good book. Jerry was a great writer. He wrote The Money Game, which was the classic, and Super Money is a good book, too.
OtherLet's go to number three. Good afternoon, gentlemen. Paul Wigdor from Montclair, New Jersey. What are you doing to protect our company's portfolio against the perils of inflation? Specifically, are you looking at further currency investing and metals investing?
WarrenWell, we would not necessarily look at metals investing as being any protection against inflation at all. But we're, the best protection for inflation is your own earning power. I mean, somebody that is a first-class surgeon or lawyer or teacher or salesperson or anything else, whether the currency is seashells or paper money or whatever. we'll do all right in terms of commanding the resources of other people. So your own earning power is your best, is the best hedge against inflation. The second best hedge is to own a wonderful business, not a metals business necessarily, not a raw material business, not a minerals business, but a wonderful business. And the truth is, if you own Coca-Cola, if you own Snickers bars, if you own Hershey buyers, if you own anything that people are going to want to give a portion of their current income to keep getting, and it has relatively low capital investment attached to it, so that you don't have to keep plowing tremendous amounts of money in just to meet inflationary demands, that's the best investment you can probably have in an inflationary world. But inflation is bad news for investors under almost any circumstances. You can argue that if you owned – you own some business required very little capital investment and had real flexibility of price during an inflationary period so that people will continue to give up a half an hour or work of their own work every month to buy your product. And you leveraged it, then you might even beat inflation to some extent. But leverage is not our game. But we try to own good businesses. I think that Berkshire would not do as well during high rates of inflation at all as it does in real terms, as it does in periods of low inflation, but I think we would do better than a good many companies.
WarrenCharlie?
CharlieI've got nothing to add.
OtherNumber four. Hello, Warren, and Charlie. My name is Felton Jenkins. I'm from Savannah, Georgia. I've been a shareholder for a number of years, and this is my third annual meeting.
[1:23:11]
QuestionerThanks to you guys and thanks to your managers and all your employees for the great job. Just briefly follow up on one thing. It's been published in the Washington Post, LA Times, a number of media outlets that the FERC, the California Regulatory Commission, the Department of Interior have determined that it would save between $100 to $200 million to decommission the dams and find alternative power versus doing the capital retrofit. But anyway, my question is, what can you tell us about your views? on the future profitability of the railroad industry and what might make that more exciting going forward versus what it's done historically. Thank you.
WarrenYeah, thank you. I don't think it'll be a lot more exciting, but the relative, the competitive position of the rails has improved somewhat from really not a very good competitive position 20 or 25 years ago. There have been a lot of progress made on the labor front. They benefit in their competitive position vis-a-vis trucking as oil prices go up. Higher diesel fuel, obviously, raises costs for rails, but it raises costs for their competitors, the truckers, by probably a factor of close to four, compared to how it hurts them. And there isn't a whole of new capacity being created in the rail industry. So what was a terrible business 30 years ago and it was operating under regulation, it still operates under the threat of re-regulation, which has a tempering effect on their pricing power. But it's a better business now. It'll never be a sensational business. It's a very capital-intensive business. And when you put tons of capital out every year. It's very hard to earn really extraordinary returns on capital. But if they earn a decent return on capital, it'll be a, it can be a good business over time. And it could be a lot better business than it was in the past.
WarrenCharlie?
CharlieI've got nothing to add to that one either.
QuestionerNumber five. Mr. Buffett and Mr. Munger, my name is Murray Blevins, and I am from Barge Town, Kentucky. This is my first shareholder meeting. My question is, what do you think are the best ways a 10-year-old can earn money?
WarrenI must say that was a, that was a subject I gave a lot of thought to when I was 10, more than I gave to school as of other things. You know, you have to probably a little young to deliver papers. That was always my favorite. And I got about half, half the capital I started with by delivering papers. And I always liked it because I could sort
[1:26:35]
Warrenof do it by myself. I don't know the situation in the town in which you live, but like I say, 10 is probably a little young, but 12 or 13 would not be. And almost any, there can be a lot a little bit. I tried to, I must have tried 20 different businesses by the time I got out of high school. The best one was a pinball machine business, but I'm not sure I want to recommend that that you get into that. When I did it was a much purer business where you put a nickel in and that was about it. But it is interesting. I've read a study a long time ago. I wish I get my hands on it because I've quoted it a lot, but I've never quoted it as authoritatively as I would be able to if I could actually find the damn thing that I read 30 years ago. But it correlated business success with certain variables. And You know, they tried grades in school and they tried what your parents did and they tried whether you went to business school, all those kind of things. And they found it correlated best with the age at which you started your first business, got into business, that the younger you were when you did your first piece of business that seemed to correlate best with later business success. And to some extent that's sort of natural. It's probably true that when you see it in athletics, you see it in music and that sort of thing. So whatever you can figure out that other people will pay you to do that they don't want to do themselves or that they were like done for them, I advise you to look around the neighborhood and talk to your parents, talk to your friends, see what other people have done that have been 10 or 11 or 12 years old that's worked for them and copy it. But if you can get a good paper out when you're 12 or 13, That's a sure way to save some money. I've often wondered about people that are having trouble being in debt, you know, that have a normal eight-hour job. If they added a route in the morning and just put that aside, you know, it could be the way out of being behind the game instead of being and getting ahead of the game and take another hour and a half out of their day, but not too many people seem to do it. Charlie used to sell. Didn't you used to sell yourself the best hour of the day or something, earlier in the morning.
CharlieYou bet.
WarrenYeah. Tell them what you did.
CharlieWell, when I was young, I read that savings bank thing, the richest man in Babylon, which taught the joys
[1:29:15]
Warrenof underspending your income and investing the difference and how wonderfully it would work over time. And lo and behold, I did exactly what this little pamphlet suggested and it worked. And the other idea, and so I got the idea that I had the idea that I had a member. compound interest thing too. And so I finally decided I was going to give the best hour day of the day to improving my own mind. And then the world could buy the rest of the time. And that may have been a very selfish thing to do, but it worked. Charlie was selling his time. What were you getting per hour as a lawyer in those days?
CharlieNot much.
WarrenYeah, he just decided to sell himself the best hour. And not a crazy thing to do. But I would tell that little girl that if you make yourself of a very reliable person and stay reliable all your life. Faithfully doing whatever you engage to do, it would be very hard for you to fail at anything you want.
QuestionerNumber six. Good afternoon, everyone. My name is Dennis Petrowski. My hometown is West Point, Nebraska. And I now live in Omaha with my family. As you may know, my mother came from West Point. Yes. Thank you, Warren and Charlie, for your incredible education. education, generosity in this great meeting. I've attended every meeting since 1994. Warren and Charlie, assuming a necessary margin of safety in the future cash flow estimates and proper adjustments in the discount rates, would you discuss which trends of global economic growth that you think will be sustainable given our holdings in railroads, steel, materials, and energy, with our modest economic expectations, enormous trade deficit, tight credit spreads, low-risk premiums, and explosive growth in emerging economies. Thank you.
WarrenYeah, we think we're in a pretty good group of businesses for the world we face. You know, we don't know which ones will turn out to be the best. There's a few that we think we're a real super winners. And we think a significant number of more will do okay. we'll do okay. And we don't we don't try to buy our businesses with the thoughts, much of world trends. We certainly think in terms of international, foreign competition. I mean, we do not want to buy into a business that has a very high labor content and that has a product that can be shipped in from abroad very easily because sooner or later that will probably be just like Charlie and I, really, I bought into an airline. He came along and tried to rescue me.
[1:32:28]
WarrenSome years ago that had very high seat mile costs, and it had protected routes, U.S. Airways, so it was able to operate with 12 cents a seat mile of cost because Southwest hadn't gotten there yet with their $0.8. But they get there. And you do not want to have something whose competitive position is going to road over time. But I think most of our businesses have got pretty strong competitive conditions. And really, the variables you name don't bother us. You know, we will play the hand as well as we can, and we're playing it with terrific people in very good businesses. And we're dealing from strength all the time. You know, we've always got a loaded gun. And we think we've got the the right values with our managers, the people. I think we've got a culture that's owner-oriented. And we got a lot of things going for us. And they won't, they won't produce huge returns, but they're likely to work okay. Charlie.
CharlieWell, we learned about foreign labor competition in our shoe business. And in that, it reminds me of Will Rogers, who didn't think man should have to learn these easy lessons in such a hard fashion. Will Rogers believe that you should learn not to pee on an electrified fence without actually trying it. Will told Charlie a lot of things he didn't tell me.
QuestionerNumber seven. Hello, Mr. Buffett and Mr. Mungal. This, I'm Shriniwa's Ganayewal from Fort Laudel, Florida. First of all, I want to thank you for your effort. in making investors aware of the, you know, high transaction costs involved with several investments. And I got a lot of personal benefit by reading your articles. My question today is in reference to the declining value of dollars compared to all other major currencies. In last three years, dollar declined as high as 25 to 30 percent. So I want to understand how it is going to impact as to individual investors and how big is the threat? Thank you.
OtherThe question is about the declining dollar, but I didn't get all the... Yes, you were, you know, what do we think about it? What are we going to do about it?
WarrenWe think the dollar over time is like less policies are changed in a major way, is likely to decline somewhat more against most major currencies. And... And we've, we originally backed that opinion up with transactions that got as high as $21 or $2 billion in the ownership of foreign currencies. And then the carry on that, the difference between interest rates in the various countries, made
[1:35:54]
Warrenthat quite an expensive way to express that belief. So we have focused much more on buying into companies that have, that earn lots of of money and other currencies on the thought that they will be somewhat favored over companies earning just U.S. But that's not, as I mentioned the report, that is not a huge determination of what we buy. It's a factor, but it's not 50% of the decision or anything like that. We are following policies in this country that are likely to cause the dollar to decline in value against many major currencies. And who knows what speed, whether it happens this year or next year, we don't have any idea on that sort of thing. But the fundamental forces are fairly strong. We actually only own one currency now trade, which would surprise you actually. We'll tell you about it next year. Charlie?
CharlieYeah. So far, something peculiar has happened. During this exact period of maximum dollar decline in value versus other currencies, the dollar prices at Costco have showed an inflation factor of approximately zero. So what really matters, of course, is how things are working in your own country. And it's been perfectly important. amazing how well we've gotten by so far with the decline of the dollar.
WarrenYeah, as Charlie says, you know, we reference everything in terms of our own country. If you look at oil, for example, which we'll say has gone from roughly $30 a barrel to $60 a barrel over the last few years, you know, during that same time, the euro has gone from like 83 cents to $1.35. So the price of oil, if you're a European, has gone up very little. I mean, we think oil's run wild, but in terms of the, anybody that's using the euro, the price of oil has gone up about 25 percent, and we think, and we feel the price has gone up 100 percent. So you do have this anchoring of thought to your own currency, which is understandable. We do, we, I do think you'll need to think about currency matters more than Americans traditionally have. I was struck 20, 30, 40 years ago when I would travel elsewhere, how much more sophisticated most people in Europe, in the U.K., wherever, were about currency than in the United States. We never had to really think about it because everything, everything was dollar-based and an American didn't have to be smart about currency or even think too much about it in terms of their business. But that world has changed. Number eight,
[1:39:09]
QuestionerJohn Norwood from Des Moines, Iowa. I have a quick question, a quick comment, and a question, a comment following on Charlie's comments on ethanol, I would ask him at least to look at the environmental benefits of ethanol as a fuel blend, octane boosters, superior to other types of chemical additives such as MTBE, which has been so damaging to groundwater. groundwater. My question is for Mr. Buffett, and I'm hoping you might be able to tell us a little bit more about your interactions with the Board of Directors and the types of ideas and idea exchange and perhaps a model for how you believe a Board of Directors is supposed to function with management. Thank you.
WarrenYeah. I would say that most writers and most shareholders probably have a little bit of a distorted version, at least how most corporations, large corporations, have operated over the years. Usually for a long time, I would say that directors generally were sort of potted plants. I mean, you sat there and the management had its own. agenda and didn't really want input on major matters. And Charlie and I can certainly testify the fact that we have had great lack of success, even when we were the largest shareholder of a company, in terms of talking about the things that really count. I mean, if somebody spends their whole lifetime 25, 30 years rising to the position of CEO, you know, they want to be boss, and you can't blame them. And the only thing in their way is the Board of Directors. So they look for people who are big names, and they look for ways to keep them happy. But they don't really want them getting into the business very much. There's a lot more process now that's been imposed by the recent rules. But I would say still, in terms of the reality of the guts of business and the discussions that take place and all that, I think you might be surprised that the level over all of that throughout corporate America. As I've written in the report, you know, overwhelmingly the job of the board of directors is to have the right CEO. I mean, if you've got the right CEO, you know, 90% of it takes care of itself. If you were a director of Cap Cities and you had Tom Murphy as the CEO, you know, case closed. It was all you needed. And if you have that CEO, I think you have an obligation on the board to make sure that there's not overreaching by the CEO. Because the CEO, can have different interests. And I think the third thing that the board does, should do, is they really should bring some independent
[1:42:15]
Warrenjudgment in on major acquisitions, because there is a natural tendency for people with usually big egos, big motors, who get to be CEOs to like to do big things and to become bigger spending other people's money. And normally when big people's money, and normally when big people's money, deals come along, you know, the management. By the time it gets there, they've made the deal anyway. They have investment bankers there who go through a little ritual. I've never seen one come in and make a presentation that says it's a dumb idea. I mean, they know what the answer is supposed to be, and it just becomes kind of a little game. And I think in those three respects, a good director will first make an affirmative decision. You've got a very good CEO, not the best in the whole world, not everybody can do that, but a very good CEO, that that CEO is not overreaching. And when significant deals come along that they get a chance to weigh in and that you really get a balanced discussion about the real economics of what you're doing. And I would say in that latter point, what I've seen over the years, has really been pretty bad, but I can understand it because the CEO wouldn't bring in the deal unless he wants it done and once he brings it in, he's going to stack the deck and make the presentation in such a way that it's almost impossible to exercise independent judgment. Charlie, do you have any thoughts on that?
CharlieI think big, big deals on average in America are contrary to the shareholders' interest. That's the way to bet. On the acquirer's side, usually the shareholders are worse off. Most stock deals, they think about what they're getting and they don't think about what they're giving. I mean, I've had been involved time after time where people are giving a significant percentage of the business, which they wouldn't sell at the current market price. If somebody came along with a tender offer 20% higher, they would say that's inadequate. But they hand away a piece of the business because they want to own something else. And there's nothing wrong with that, but you just have to be sure that you're getting as much as you're giving. I have very seldom heard a discussion. In fact, I don't think I've virtually ever heard of a discussion of weighing what you were actually giving away on a stock deal versus what you're what you're getting. I've heard a lot of discussion about dilution and when dilution will be overcome and all that sort of thing. But that is not the
[1:44:54]
WarrenYou know, the real question is, if more value is being created, how is it being whacked up between the two companies and if not extra values being created, what are you getting more than you're giving? When I gave away 2% of Berkshire Hathaway to acquire Dexter's shoe, that was one of the dumbest deals in the history of the world. I did it all by myself. Charlie didn't participate in that one. I wish he had. But, you know, it was, it was dumb. I mean, it wasn't 2% of what I had then at Berkshire. It's 2% of the present Berkshire Hathaway company, you'd all be 2% richer, a little more than 2% richer, but you'd be a full 2% richer if I hadn't done that. Fortunately, you made some better decisions. Yeah, well, I'd have to, or we wouldn't be here. But, you know, the point is that doesn't show up under conventional accounting at all. You know, it gets brushed under the rug. At Gillette, literally, we had 10 deals in a row that never met, came close to meeting the case that was presented at the time they were presented to the board. Was that ever mentioned to shareholders? Did it show up in our financial? Never, you know, and never will. And that goes on all the time in corporate America. And unfortunately, shareholders, to the extent they got unhappy with management or complaining about, you know, whether they've got diversity on the board or something like that. But it's when they're, when you're blowing away the company, I mean, that to me is a whole lot more important. Charlie, you want to.
CharlieYeah, the self-serving delusional nature of Even some very good minds in terms of IQ points is amazing. I had a friend who sold a business to a government-controlled business in a socialized Scandinavian country. And my friend had a very nice business, and the people on the other side after they had bought it for stock in their government corporations had, this was such a marvelous deal. We got your whole business and we didn't have to give anything. Well, we... We own stock in the third national bank one time down in Nashville, and they got the ability, and they're wonderful people, really wonderful people, but they got the ability to acquire other banks where they formerly had been limited in that ability, and they went out to some very small bank, and the guy at the very small bank said, I want stock. And he says, my stock is worth private market value, and your stock is worth market price.
[1:47:29]
WarrenWell, market price happened to be half of them. But he says, you know, all I'm getting is whatever the money. market is. So I want you to value your stock at the market and value mine at this huge premium. And he said, and then there's one other condition. He said, since I'm going to be putting my whole net worth in your stock, he said, I want your promise she'll never do a deal this dumb in the future. And you remember that one?
QuestionerYeah, I remember. Yeah.
WarrenAnd that fellow was just being a little, it was just getting a little more out in the open than is typically the case. I've been on some terrific parts. There was a local one here. called data documents that really functioned with everybody on the board, thinking about the business, understanding the business, making decisions as owners. Every one of them had a significant percentage of their net worth in the business and probably the best board I've ever been on. I mean, every decision there was made for business reasons. The worst decisions, at least they have the potential for any worst, but it's standard procedure now when an acquisition comes up to trot in, you know, investment bankers and the lawyers, and the momentum is just totally to get the deal done. And like I say, there will be a lot of slides presented and believe, I can, I don't need to look at the slides. I know what the answer is going to be at the end. They're going to say it's a great deal, you know, but, and there will be no, nobody arguing the other side. They're just, you know, it is not like something where you would make a decision and you'd have somebody get pro and con. It just doesn't work that one. I don't know how to improve that a lot. I think we've got a sensational group at Berkshire. You have a group with a almost everybody on the board having a significant percentage of their net worth. Bills is so big we can't get him to a significant percentage, but he's got hundreds of millions of dollars in it. We've got a board that is in exactly the same position as the shareholders. They don't have directors and officers insurance. They've got the downside as well as the upside. They bought their stock in the open market, so it hasn't been given to them. It is a real owner's board. And I like it that way. I think it's a terrific group, and I'm glad I can get them to work cheap.
OtherNumber nine, please. My name is Eid, and I'm from Kuwait. In response to earlier
[1:49:59]
Questionercomment about borrowing from Kuwait, I can tell you that after 40 years, we now lend in dollars and you are always welcome in Kuwait. My question is, if you would pick a partner to invest with you in big deals, what would be your criteria for choosing partners?
WarrenWe normally, are you complete on that? I'm complete. Yeah. We normally don't want to do deals with partners. If we like a deal, we want to own it all, you know, and we usually have the money to do it. all. So we, there would mean, in very few cases, would there be a need for a money partner? And then is there a question for a knowledge partner? And we really wouldn't want to be going into something, in most cases, where we were reclying on somebody else to be the brains of the deal. We've made exceptions on that, but not very seldom. So, we, by our nature, we would like to have 100% of any deal with the benefit of our shareholders. We're going to spend, if we're going to spend our time on it, we just assume get 100% of the rewards. We don't mind taking 100% of the downside. And we ought to understand it well enough so we don't need a partner. Charlie?
CharlieI've got nothing to add to that one either.
QuestionerNumber 10. I'm just trying to think, have we done any big partnership deals?
WarrenWell, you made that partnership deal with Lucadia, but they brought you the deal.
QuestionerThat is true.
WarrenWe made a very good partnership deal with Lucadia. They did way more than their share, but they brought us the deal. And so they asked us to participate in their deal. Now, in effect, we own less than 100% of some of our businesses and were in partnership with the management, but that's perfect. I mean, we've had some great experiences with that, and we'll continue to have great experiences. But, you know, and they came, they're in on the same terms as we are, and they're owners. All of our managers think like owners, but in certain cases they are real owners directly in those businesses as well. But just some outside party as a partner, we really haven't done. Although I would do another deal with Locati if they came to me and I liked the deal. I mean, that was a very, a very good experience.
QuestionerNumber 10. Good afternoon, ladies and gentlemen. My name is R.E. Jaja. I'm a junior from Brew College, New York City. And on behalf of the Portfolio Management Club, I would like to thank you, Mr. Buffett, for inviting us to this wonderful event. And my question is that.
[1:52:41]
Questionerthat, no, first of all, speaking about the Berkshire portfolio, there's an increasing exposure of your investments towards commodities, such as to oil through Prato China, to steel, through Pascoe, and to coal and agriculture through the rail stocks that you recently purchased. So my question is that, what is your long-term view on commodities, and how does it impact your view on the geopolitical state of the world in the future? Thank you.
WarrenYeah, I, and to my knowledge, Charlie, we'll hear from him, but we have no opinion on commodities. We, if we're in an oil stock, it's because we think it offers a lot of value at this price, but it does not mean that we think the price of oil is going up. If we thought oil was going up, we could buy oil futures, which we actually did once. But very seldom, very, very, very seldom, would we have any opinion on what any given commodity would do. Owning POSCO, we just think it's one of the, well, it is probably the best steel company in the world. Remarkable record. When we bought that stock, we were buying it four or five times earnings with a debt-free balance sheet, one of the lowest cost producers around. I mean, it's fabulous company. And on addition, it was a play on the Korean wand, and we made 20% on the wand by being invested through through a Wanda-nominated security. So we may occasionally be in those kind of businesses. We basically like best the businesses that require very little capital because they're the only ones that have a chance of earning really high returns on capital. You can't have a business that has huge capital expenditures year after year and end up with a high-returned business. It just doesn't work in this world. But you can find some businesses that really require relatively minimal capital investment. Here's the case. This is a small one, but sees candy, is not going to require a huge capital investment. It requires some capital investment. But it's a wonderful business. It's a small business, but it's a wonderful business. And it's far better business relative to size, adjusted for size. It's a far better business than any steel business is going to be or any oil business is going to be. It's just that it's not very big. We'd love to have it bigger. And we'll do our share in every way we can, as you may have noticed up here. But we do not have any, we do not have a bias at all toward businesses involved in commodities. And if we had any bias, it would
[1:55:24]
CharlieYeah, we're going to be investors in businesses, not commodities by and large. And that has to work better over time.
QuestionerNumber 11. Good afternoon. My name is Andy Peek from Weston, Connecticut. Recently, the The newspapers have been in the news. Their Murdoch bid for Dow Jones, Morgan Stanley's, Hassan Al-Mossary's push to eliminate the New York Times dual class share. Given you are both experts in the dual class share and newspapers, what advice would you give to the long-suffering New York Times shareholders, and what advice do you have for Arthur Solzberger, the besieged CEO of the New York Times and head of the family that owns the newspaper?
WarrenYeah, well, I think the long-suffering is a lot of the newspaper. You put a shareholder of the New York Times, it's probably made a mistake. I mean, I don't think I'd necessarily blame the Salzburgers for the woes of the newspaper business. I mean, we have said for a good many years that we thought, in effect, we thought newspapers were overpriced because they reflected a valuation based on looking in the rear view mirror rather than through the window. And we, it's interesting. dual class structure at Berkshire, but because I converted a whole bunch of shares to B, I own about the same percentage of the B as the A, because I converted about six or seven times as much as I needed for present gifts. I only go down on my safe deposit box when I have to, and I didn't want to go down every year to convert stock, so I just converted a bunch of stock early on, and now I own about 30 percent of each. So it has no effect in terms of the voting power of Berkshire. But the woes of the newspaper business are not connected. with the difference in voting structure at the Times or other places. The newspaper business has just gotten a lot tougher. And if you think about it, I mean, let's assume that Mr. Gutenberg back there in the 15th century, instead of wasting his time developing movable type and all of those kind of things, it decided to become a day trader or a hedge fund operator and really made something himself. So that we never had print. But along came the internet, long came cable, TV, all kinds of other things. And then now this year, you know, Johannes Gutenberg, the 28th or something, came along and said, I've got this wonderful idea. We're going to chop trees down. We're going to haul them great distances.
[1:58:09]
WarrenAnd then we're going to put them through expensive newsprint machines. And then we're going to send them down to some place where they've got expensive presses. And we'll run these things all night. And then we'll send delivery trucks. out for the snow to get to see these little pieces of paper out to people where they can read about what happened yesterday. Well, I don't think we would be backing him, you know. Now, it happened, you know, that the other one came along first, and people's habits don't change immediately, and, you know, the world, the world doesn't turn over. But in effect, you know, the position of newspapers today still reflects. the fact that they have inertia and momentum on their side from the past. And I don't care how smart you are. You know, there was a fellow that came into the L.A. Times a few years back, he was going to take the circulation up to a million five, as I remember, Shirley. And the circulation is now 800 and some thousand of the L.A. Times, and it's going to go down every week. And I don't know that, you know, I don't know that Joseph Pulitzer or William Randolph Hearst or E.W. Scripps Everybody who were geniuses in their day, maybe at building circulation, can do much about that. The truth is that the world has changed in a significant way. We used to sell 300,000 world books a year. It was a good value, you know, and we sell 22,000 sets or something like that now. And it isn't because the world book isn't worth what it sells for. It's just not worth what it sells for to most people who can go on the Internet and get an awful lot of that information. free. So I don't think I would blame the dual-class structure on anybody's investment losses in the New York Times. The companies that have not had dual-class structures, I mean, we own the Buffalo News. And the Buffalo News, earnings have been certainly down over 40 percent from the peak. We have terrific management. We've got a paper that has among the highest penetration in circulation of any large metropolitan paper in the country, but we are, our earnings are going down. And it's a fact of life, Charlie.
CharlieYeah, he was talking about that dual-class structure as being intrinsically wrong. But I would argue that the Salzberger set it up that way when they went public. And so that was in the basic contract. And once a contract has been made, the idea that you can just stamp your foot.
[2:00:55]
Charlieand take away the contract, strikes me as a kind of an immature idea. I would add, too, that the Solzburgers from the start, anybody that bought in the New York Times knew that they would not try to maximize earnings in a given quarter or try to minimize the downturn by slashing costs or something of the sort. They didn't build the New York Times by doing that. It did not have a reputation, which it allows it perhaps to have a decent future on the Internet. it did not get to where it is by a policy of, you know, management 101 is taught at some business school. And yet, following that differing course, you know, I don't know how many papers in New York disappeared, but whether it's the Herald Tribune or the Sun or the World Telegram, or you name it, the world, they had a different management approach and they all fell by the wayside. and the Times is still around. So I don't, I'm not sure 10 years from now or 15 years from now that people regard the Times as playing of their hand as being necessarily an inferior one. They may have a better position going into the Internet than, well, almost any newspaper around. Certainly a lot better than, you know, the Philadelphia Enquirer, the L.A. Times has. You know, the L.A. Times has, you know, the L. will have more trouble monetizing their reputation on the Internet than a New York Times will, if there's a national game to be played in that. So we'll see how it plays out.
QuestionerNumber 12. My name is Betty Stewart, Rogers, Jeffries, in Hill, Illinois, 35 miles northwest of Chicago. This is the first time I've ever been to your annual meeting. your annual meeting. And I want to thank you both for giving us so much time to answer our questions and give us such words of wisdom. I would also like to thank you for giving us a wonderful weekend of lunches, brunches, cocktail parties, time at Gorats, and Borsheims. The problem is that when I told my two adult daughters that I would was going to have such a wonderful weekend. They both made me promise to bring them next year. And if 25,000 people bring two people next year, where are we going to meet?
WarrenWell, I would, if you get the answer to that, I'm really waiting to hear it, because we, we, it's about 27, and we are just about maxed out here. We're just about maxed out in terms of hotel rooms. We're going to have a, I think we're going to have four new hotels in Omaha before next year. But, you know, that's a couple thousand.
[2:03:54]
Otherpeople. And, you know, based on the growth, at some point, we sort of hit the wall. And I haven't figured out how to handle that. If anybody has any suggestions, I'll appreciate hearing about them. But I'm delighted you're having a good time here. I hope you've all had a good time here. Thank you.
OtherWe're now going to take a 10-minute recess and then we'll reconvene. Thank you.
WarrenOkay. If you'll please take your seats, we want to finish by four. So we'd like to move quickly through the rest of the business. And we'll get on to the PIPP or China question. And let's see. The meeting will now come to order. I'm Warren Buffett, Chairman, the Board of Directors. With the company, I welcome you to this 2007 annual meeting of shareholders. I will first introduce Berkshire directors. I've already done that. So also today with us are partners in the firm of Deloitte and Tuchar auditors. They are available to respond to appropriate questions you might have concerning the firm's audit of the Council of Berkshire. Mr. Forrest, Cudder, Secretary of Berkshire. You will make a written record of the proceedings. Ms. Becky Amick has been appointed an inspector of elections at this meeting. She will certify to the count of votes cast in the election for directors. The name proxy holders for this meeting at Walters Scott and Mark Hamburg. Does the Secretary of a report of the number of Berkshire shares outstanding entitled to vote and representative of the meeting?
OtherOkay. Forrest?
OtherYes, I do. As indicated in the proxy statement that accompanied the notice of of this meeting that was sent to all shareholders of record on March 6, 2007, being the record date of this meeting. There were 1,113,240 shares of Class A, Berkshire stock outstanding, with each share until to one vote on motions considered at the meeting, and 12,888,424 shares of Class B, Berkshire Hathaway Common Stock Outstanding, with each share in tell to 1,200th of one vote on motions considered at the meeting. That number, 955,276 Class A shares, and enough share. 11,301,274 Class B shares are represented at this meeting by proxies returned through Thursday, May 3rd.
WarrenThank you. That number represents a quorum and we will therefore directly proceed with the meeting. The first order of business will be a reading of the minutes of the last meeting of shareholders. I recognize Mr. Walter Scotto will place the motion before the meeting.
[2:06:45]
OtherI move that the reading of the meeting. minutes of the last meeting of the shareholders be dispensed with and the minutes be approved.
OtherDo I hear a second?
OtherI guess I heard a second.
OtherThe motion has been moved in second.
OtherAre there any comments or questions?
OtherWe will vote on this question by voice vote.
OtherAll those in favor say aye.
OtherOpposed?
OtherThe motions carry.
OtherThe first item of business is to elect directors.
OtherIf the shareholders present who wishes to withdraw a proxy previously sent in and vote in person on the election directors, he or she may do so.
OtherAlso, if any shareholders is present has not turned in a proxy and does a ballot in order to vote in person, you may do so.
OtherIf you wish to do this, please identify yourself to meeting officials in the aisles that will furnish a ballot to you.
OtherWith those persons desiring ballots, please identify themselves so that we may distribute them.
OtherI now recognize Mr. Walter Scott to place a motion before the meeting with respect to election of directors.
OtherI move the Warren Buffett, Charles Munger, Howard Buffett, Susan Decker, William Gates, David Goddisman, Charlotte Geiman, Don Keough, Tom Murphy, Tom Murphy, Ron Olson, and Walter Scott be elected as directors.
OtherIs there's a second?
OtherIt's been moved and second on the Warren, Buffett, Charles, Munger, Howard, Buffett, Susan Decker, William Gates, David Goddism, Charlotte, Guyman, Donald Keill, Thomas Murphy, Ronald Olson, and Walter Scott be elected as directors.
OtherAre there any other nominations?
OtherIs there any discussion?
OtherThe nominations are ready to be acted upon.
OtherIf there are any shareholders voting in person, they should now mark their ballots on the election of directors and allow the ballots to be delivered to the inspector of elections.
OtherWith the proxy, Please also submit to the inspectors of elections, a ballot on the election of directors voting the proxies in accordance with the instructions they have received.
OtherMs. Zamick, when you're ready, you may give your report.
OtherMy report is ready.
OtherThe ballot of the proxy holders in response to proxies that were received through last Thursday evening cast not less than 1,8,8,564 votes for each nominee.
OtherThat number far exceeds the majority of the number of the total votes related to all Class A and Class B shares outstanding.
OtherThe certification required by Delaware law of the precise count of the votes, including the additional votes to be cast by the proxy holders
[2:09:03]
Otherin response to proxies delivered at this meeting, as well as any cast in person at this meeting, will be given to the Secretary to be placed with the minutes of this meeting. Thank you, Ms. Amick, Warren, Buffett, Charles Munger, Howard, Buffett, Susan, Decker, William, Gates, David, Godism, and Charlotte, Guyman, Donald Keill, Thomas Murphy, Ronald Olson, Walter Scott, have been elected as directors. Now, the next item of business will spend more time on, and that is a proposal put forth by Berkshire shareholder, Judith Porter, the owner of 10 Class B shares. Ms. Porter's motion is set forth in the proxy statement provides that Berkshire Hathway not invest in the securities of any foreign corporation or subsidiary thereof that engages in activities that would be prohibited for U.S. corporations by executive order of the President of the United States. The directors have recommended that the shareholders have recommended that the shareholders vote against the proposal. The microphones at Zone 1 and 7 are available for those wishing to speak for or against Ms. Porter's motion. These are the only microphone zones in operation, so I ask that you go to either one or seven if you'd like to talk on this. I ask that you can find your remarks solely to Ms. Porter's motion. Now, we have a number of shareholders who want to talk about this, and we will let shareholders speak if there's sufficient time at the end of that, and we're willing to, certainly willing to have them speak for a half an hour, and Charlie and I will give maybe a couple minutes a response after that. But you've got a half an hour, different shareholders can speak. I hope you tailored the length of your remarks, the early ones, so that it gives other people a chance. And if we have time after the shareholders have spoken, and there are other people that are in attendance as visitors that wish to speak, we'll have them also, but if the shareholders use up the full time until almost 4 o'clock, then we'll have to finish at that time. So, Ms. Porter, if you're available, if we can turn a light on there at the station one to speak, you have the floor. Thank you. Mr. Buffett, my name is Judith Porter, and I'm the shareholder who introduced the proxy resolution involving Berkshire pathways divestment of PetroChina. PetroChina is implicated in the genocide in Darfur, Sudan. I want to thank you for allowing us to speak to this resolution.
[2:11:37]
OtherIn many countries, it would be impossible for us to do so, but we are indeed fortunate to live in a country where we can express our opinion without fear or without recrimination. Before my husband formally presents the resolution, I want to explain to you why I have introduced it. My family is no stranger to genocide. My grandparents were murdered in 1941 in the Nazi genocide, as were other members of my family. I will never forget the despair my father expressed when my aunt, who was released from Bergen-Belsen concentration, camp sent him a letter telling him what happened to his family. It deeply affected him for the rest of his life, and I was raised to believe that genocide should never, ever again happen. Never again. The world was silent when my grandparents were murdered, but genocide has continued. In the genocide in Cambodia, the world was silent. In the genocide in Cambodia, the world was silent. In the genocide in Cambodia, In Bosnia, the world was silent until late in the slaughter. The world was again silent in the horrible genocide in Rwanda. How many times must we say never again? Now there is the first genocide of the 21st century in Darfur. Two and a half million civilians have been driven from their homes. More than 400,000 have been killed, and 1,600 villages have been destroyed. have been destroyed. Berkshire Hathaway can play a role in ending this slaughter by divesting in PetroChina, as we'll shortly describe. As an exemplar of both business ethics and personal integrity, your support of divestment will send a signal to China and to the Sudan that there are costs to continuing this destruction, and it will lead other corporations to follow your ethical actions, actions. Genocide is never a good investment. I can think of no greater tribute to my grandparents than introducing this resolution. As Elie Wiesel said in his Nobel Peace Prize speech, we must take sides. Neutrality helps the oppressor, never the victim. Silence encourages the tormentor, never the tormented. Sometimes, sometimes we must interfere. My husband will now present the proxy resolution. He will be followed by Jason Miller, who will speak about the relationship between CNPC and PetroChina. Abdul Majid, who is from Sudan, will speak about the genocide taking place, and Bob Edgar, Secretary General of the National Council of Churches, will conclude our discussion of this resolution.
[2:14:45]
QuestionerThank you. Thank you, Mr. Buffett. it, since you've read the resolution, I will not repeat the resolution. I will speak about the resolution, though. On November 3, 1997, President Bill Clinton issued Executive Order 13067, which imposed a trade embargo, prohibiting most American businesses from operating in the Sudan. This executive order was expanded on April 27, 2006 by President George W. Bush. While it is true that American companies cannot do business in the Sudan, Americans can invest in Asian and European companies that do business in the Sudan. Such investments do not violate the letter of this law, but they certainly do violate the spirit of the law and are counter to the stated policy of the United States. We believe there is general agreement that the Chinese National Petroleum Company, CNPC, plays a major role in funding the genocide, in providing weapons to the Sudanese, in cooperating with the Sudanese military, in forcibly displacing local populations, and in myriad other ways facilitating the killing of hundreds of thousands of Darfuris. CNPC is the largest foreign investor in Sudan's oil industry, and fully 70% of the revenues Khartoum generates from CNP's operations go to its military, which in turn conducts the genocide in Darfur. We are here today because Berkshire Hathaway is the major non-Chinese investor in CNPC's subsidiary, PetroChina. You, Mr. Mr. Buffett have stated that you believe that we are wrong, both in our analysis of PetroChina's connection to the genocide, and the belief that divesting the company's PetroChina holdings would in any way have a beneficial effect on Sudanese behavior. We disagree. You are correct in stating that PetroChina does not do business in the Sudan. However, as you agree, its parents' company, CNPC is a major investor in the Sudan, and funds from that relationship help provide the instrumentalities of genocide. Management's claim that the relationship between PetroChina and CNPC is similar to that between Fannie Mae and the U.S. government. That argument is fallacious. The Harvard University Advisory Committee on Social Responsibility examined the management examined the management of the two companies. The results of that review was striking. There was almost total management overlap between the two companies. Andrew Leonard, writing for salon.com, commented, to declare that a subsidiary has no ability to control the policies of the parent,
[2:18:16]
Questionerwhen the two entities are run by exactly the same people, is an exercise in specious opfascist In short, PetroChina is an artifact created for the sole purpose of allowing some shareholders to distance themselves from the action of its parents, CNPC. In China, the companies share the same brand name and the same logo. If you look at a coin, the images on the two sides are different, but the coin is a unity. You cannot spend one side of a dime or own one side of a quarter. It's the same with PetroChina and with CNPC. They look different, but they are simply two faces of the same corporation. Two U.S. presidents have stated clearly that it's against the national interests of the United States for U.S. companies to do business in the Sudan. in the Sudan. It is the position of the U.S. government that a targeted economic boycott of the Sudan will help end the genocide in Darfur. For a U.S. company to invest in a subsidiary of a foreign company, such as PetroChina, that engages in business in the Sudan, is a circumvention of executive order 13067 and weakens the U.S. sanctions. Economic sanctions against the Sudan have worked in the past. For example, talisman oil's sale of its assets in the Sudan helped bring about the end of the civil war in the Sudan. Sudan's main protector in the United Nations is the government of China. China will be hosting the 2008 Olympics and is very sensitive about negative publicity that could be aimed at that event. In response to the recent criticism of the Chinese support of Sudan by Mia Farrow and Steven Spielberg, a senior Chinese official traveled to Sudan to push the Sudanese government to accept the United Nations peacekeeping force. You and the company are viewed as exemplars of ethical behavior. If Berkshire were to take the lead and divest, others would follow. If Mia Farrow can cause change, to occur, then so too can Warren Buffett. No one divestment in South Africa brought about the end of apartheid. But if we all act together, we have tremendous power to bring pressure on the Sudanese government to stop the killing of innocent people. During the last two decades, beginning with the tearing down of the Berlin Wall in October 1989, we have seen events that no person could ever have anticipated. The breakup of the Soviet Union, the democratization of Eastern Europe, and an unbelievable transition in South Africa. What we have learned is that all things are possible.
[2:21:33]
QuestionerThere are important issues in our society that desperately need our attention. Remember the words of Hillow. If I am not for myself, who we are important issues in our society, will be for me. If I am for myself alone, what am I? If not now, when? Thank you. And I'm pleased to introduce Jason Miller. I'm Jason Miller, the National Policy Director for the Sudan Devestment Task Force and also an owner of three shares of Berkshire Class B Stock. I'd like to echo the Porter's comments that CMPC is by far in a way most irresponsible and abusive oil operator in Sudan. They've participated with the government in force displacement and other human rights violations, and 70% of the revenue that they provide to Sudan gets funneled into the military that prosecutes the genocide Darfur. But what does that have to do with PetroChina? Currently, the chairman of PetroChina's board is the immediate past president of CMPC. The president of CMPC is the president of PetroChina and vice chair of the PetroChina Board. The CFO of CNPC is the CFO of PetroChina. The chairman of the PetroChina Supervisory Board is the chief of discipline and inspection at CNPC. Eight of the nine PetroChina directors have a current or immediate past connection to CMPC, four of the five PetroChina's supervisors have a current or immediate past connection to CMPC. All PetroChina's senior executives are currently or formally connected to CMPC. We've also documented a slew of other management irregularities. Furthermore, asset transfers between the two are fluid and often cross-subsidized. After PetroChina's IPO, it took on $15 billion. dollars in debt from CMPC, which freed up cash flows for CMPC to spend on Sudan. 10% of IPO revenue from PetroChina went to CMP's operations in Sudan. 50% of CMPC's profits come from PetroChina dividends. PetroChina in 2005 provided $3.15 billion in cash for CMPC's finance arm to provide to other CMPC subituaries like those in Sudan, and 64% of CMPC's assets are represented by PetroChina stock. If this isn't management overlap and two manifestations of the same entity, I would challenge people to find one that is more overlapping. As a result, and because of the huge magnitude of the atrocities in Darfur, even a whiff of this type of overlap between PetroChina and CMPC and the lack of strong corporate governance structures there would suggest that engagement with PetroChina by Berkshire
[2:25:04]
QuestionerHathaway is a minimum requirement in order to investigate these connections and their potential contributions to the dollar for genocide. I'd very quickly also like to mention the important question that Berkshire Hathaway was asked, which is, what's not? Next, if we engage PetroChina, ask them about these questions, what happens? The answer, by unanimous consent with all foreign policy experts we interact with and those international organizations working in Sudan, is that China would change its behavior in Sudan. Sudan is too important to China as an energy policy for China for it to abdicate those assets. And as a result, we've already seen changes in China's behavior. and taking leadership from the cues of Berkshire Hathaway would be one more in the line of Mia Farrow's and Steven Spielbergs that could help catalyze the important sea change that's necessary to bring an end to the genocide. I'd now like to introduce a Darfurian who's from Des Moines and would like to speak...
OtherIs he a shareholder or not? I want to be sure all the shareholders have it...
QuestionerYes. He has the proxy of Eta and James friend who are the shareholders of three shares.
OtherI just want to make sure, are there other shareholders at seven that want to talk to or not? I want to make sure that all the time isn't taken.
QuestionerWe will not take all the time.
OtherOkay, that's fine. I just want to make sure that the shareholders aren't shut up.
QuestionerGood afternoon and thank you for inviting me to speak about Darfur. My name is Abdulmaid Yusuf, and I'm speaking today as a proxy of Eta, for Eta and Jamie's friend, who are the holder of four shares of class fee stocks. I am from Western Darfur and my parents still live in Darfur. I fled from Sudan to Egypt in September 2002 after being explet from Sudan University in Khartoum for speaking out in the situation of Darfur. We are detained for a few weeks and we suffered from abuse, physical and physiology every day until they released and told us we are not allowed to go to go to any university and we had to stay away from any activity for the Student Association. I gained a refugee status in the United States and I moved to the Emoan, Iowa on March 2005. The Janjewit attacked my family's home in Darfur, in January 8, 2007. Four armed men from the Janjavid attack our home in the early morning. At that time, there was a guest in my family home. The Janjavid left him without attention, so he ran away to get help from our neighbors.
[2:28:22]
QuestionerThe Janjavid started by taking all the money and jewelry from my family. When the Janjavei left him, found out that someone had run to get help. They left my family, but they promised them they were going to come back. Even thought my family escaped injury, my neighbor, Atayb Hassan, and his entire family of five, were murdered by the Janjavid. The Janjavid also took their horses and their activities activities were ongoing in my town for a while. And everybody in my community or someone was murdered, have someone was murdered and raped by the Genjavid. And my mom told me, everybody wake up every day and the fairest thing they do is check the neighbor and the relative to see if there are a lot of them. if they are alive or not. And so do I. The Jinjewit are still in my town. Now they work as the gangs who kill and rape. Every family is affected and nobody can stop them. Even thought I live in safety and peace here in the United States. I still worry about my family back home in Darfur. Please try to do anything. to help my family and all people in Darfur. I need your help. If you do the simple thing like tell your friend about the genocide in Darfur or join an organization for talk or talk or send letter to your member of Congress or don't invite in any companies, thus help genocide in Darfur. Please, Mr. Buffett and Berkshire Hathaway shareholders. shareholders get involved to bring the hope and peace to the children and women and all of us in Darfur. Whatever you do to stop the genocide in Darfur is a saving life of human being. Thank you for listening. And now I would like to introduce Bob Edgar, the General Secretary of the National Council of the Church. Thank you.
OtherAs we close, I'm Bob Edgar. General Secretary of the National Council of Churches, and a former member of the United States Congress. I am here in support of the resolution and a proxy for Doris Gluck who holds 10 shares in the company Class B Stock. In February of 1968, I had the privilege of meeting Dr. Martin Luther King five weeks before he was assassinated. Later, as a member of Congress, I served on the Select Committee on assassinations, looking into both the death of Dr. King and John F. Kennedy. I come here today in honor of the kind of dream that Dr. King had. He said this, our lives begin and end the day we have become silent about the things that matter. We will not be silent. I am here today representing millions of faithful Americans,
[2:32:03]
QuestionerAmericans, Christians, Jews, Muslims, and others, who have stood up and said no to this genocide. Just 11 or 12 or 13 years ago, 800,000 people were killed in Rwanda in 90 days, and we were silent. We will be silent no more. Mr. Buffett, this morning, you said a great thing, and I quote, I find it reprehensible when a government preys on the weaknesses of its citizens rather than protecting them. I wholeheartedly agree. You were talking about gambling. We urge you to think the same way about genocide. On the document in opposition to this resolution, you said this, proponents of the Chinese government's governments divesting should ask the most important question in economics. And then what? We are prepared to answer that question. And then what? And then what? Then the world will finally focus on the issue of genocide in Darfur. Then the international investors all over the world in many companies would follow the ethical actions of Berkshire Hathaway's moral leadership, moral leadership, and call for all governments of the world to stop the genocide. And then what? Children would be saved, women would not be raped, fathers would not be killed, and we would find our way in this human family to care for one another. Jesus said, we should love our neighbors, as ourselves. I think he meant we should probably try every means available to stop those neighbors from being killed. This is just one way we can follow those words of Jesus. And finally, the former Pope, John Paul, said, I dream of a world where none will be so poor, they have nothing to give, and none will be so rich, they have nothing to give. they have nothing to receive. I urge support of this resolution. Are there other shareholders that would like to talk before we respond?
QuestionerMr. Buffett, my name is Aaron Frank. Thank you for hearing us on this matter. From Atlanta, Georgia, and along with being a Berkshire share, I also independently owned shares of PetroChina. And this issue is something I've struggled with for years in terms of whether to divest or not. What I've done personally is given the dividends that I received from PetroChina to organizations that help in Darfur, but this is mostly symbolic. What is clear to me is if I had the opportunity to engage the management of PetroChina in a meaningful way, as I do with you here today, that I would be compelled to do so ethically. As owners of Berkshire Hathaway, we have a unique opportunity to engage
[2:35:37]
Questionerthe management of PetroChina in a way that will be heard not only by the management of PetroChina, but by CNPC, China, and the international community due to your standing. That's a unique opportunity, and this is an incredibly, this is an incredibly important matter. And I think we have an ethical obligation to do so. Thank you for listening.
OtherOkay, thank you. Is there anyone? Yes. Yes. My name is Bill Rosenfeld from Lexington, Massachusetts.
QuestionerIn your web posting, you claim that a subsidiary can't control the actions of its parent, so actions against PetroChina will have no impact on CNPC. Suppose that millions of Americans boycotted GEICO insurance or other Berkshire companies because of a policy of Berkshire Hathaway. Wouldn't that make you reconsider that policy, even though your subsidiaries are voiceless in Berkshire Hathaway management? How does targeting PetroChina to influence CNPC differ from this situation? differ from this situation?
WarrenWell, I actually would say it's quite different. If a shareholder of Westco, you might, Mark, you might put up the chart that shows the flow of ownership both with China and with... With some. Okay. Westco does not control Berkshire Hathaway. We can have all the, we can have lots of overlap of management, everything. Berkshire Hathaway controls Westco. If a shareholder of Westco were to complain to the management of Westco, which is analogous to PetroChina, about the fact that, let's say, that Berkshire bought his car or any other activity or anything I was doing personally, they would have no ability to control me. If somebody complained to Berkshire about something that was going on at Westco, we could certainly introduce action. So it flows downward. The overlap means nothing. I mean, obviously the Chinese government controls PetroChina. They own 88% of the stock. We control MyTech. We own 90% of the stock. We control Westco. We own 80% of the stock. We can tell Mytec what to do. We can tell Westco what to do. But Michael, Mytec and Westco cannot tell Berkshire what to do. I think there's a fundamental misunderstanding on that. The Chinese government controls 32 of the largest 33 publicly owned companies in China. And the Chinese government, in effect, is in charge of all of those companies. The Chinese government does business with the Sudan. PetroChina does not. PetroChina in no way tells the Chinese government what to do.
[2:38:31]
WarrenAnd we've seen evidence of that in a lot of ways. So it seems to me it's backwards. If it was PetroChina following a policy that the Chinese government disagreed with me, believe me, there would be a change in a hurry. We have no disagreement at all about what's going on in our further. There's two questions. One, is PetroChina influence the Chinese government. And secondly, if we don't agree with what the Chinese government is doing, should we sell our stock in PetroChina? The people here who have come, who own stock in Berkshire Hathaway, have obviously made the choice, even though they disagree with what our policy is, to continue shareholders. And I agree with them with that 100%. And we, in turn, elected... to continue to hold our shares in PetroChina because we have no disagreement with what PetroChina is doing. If there's a disagreement, it may be with what the Chinese government is doing. Now, in terms of what the Chinese government is doing, you know, we've heard talk about divestiture by China, the Chinese left the Sudan tomorrow. 400,000 barrels of oil would be being produced, a good bit with the money that China has invested into Sudan. You can't take the assets. You can't take the refinery. You can't take pipelines. You can't take oil out of it. They can sell their interest. They could sell it to other people who are doing business in the Sudan. They could sell it to the Sudanese government. But believe me, they would probably sell it very cheap. The Sudanese government would get a bargain. Or the Sudanese government might very well renegotiate terms in their favor if they allowed a third party to buy. Believe me, you know, they would be in a position if they, assuming they could affect the transfer. And I think there's a lack of understanding of what really would happen if China said tomorrow we're going to get, we're going to take our interest away from our activities in Sudan. They would have to sell them or they'd have to give them up one way or the other. And like I say, I think the Sudanese government would probably end up better off financially if they had a half decent advisor in the question than they are presently. I might mention one other thing which is kind of interesting in this, we buy about, currently about $250 billion worth more of goods from China than we sell to them. And we give them little pieces of paper in exchange. And we say to them, we want your goods and you should work hard and send us your
[2:41:04]
Warrengoods and we'll send you these little pieces of paper called American dollars. Two years ago, China wanted to use some of those American dollars. We used their goods to want to buy a a company called UNICAL. UnicAL was a low-tier U.S. company. The majority of their production of oil and gas came from outside the United States, a substantial majority. It came from places like Thailand, Indonesia, and the Chinese wanted to buy that company. And by a vote of 395 to 18, the U.S. House of Representatives sent their message to President Bush that it would be against the national interest to let this company be. be sold, which, as I say, produced very little oil and gas in the United States, got most of it from the rest of the world. So in effect, we thubbed the Chinese in a big way on something important of them, energy. And I might mention that we import perhaps four times as much energy from all the countries around the world as the Chinese do, even though they have four times the population. So we have, in a sense, told the Chinese, a couple of years ago, don't even think about buying this small U.S. company with a lot of production, a fair amount of production abroad, to satisfy your energy needs. And I think it's understandable to some extent that the Chinese are looking for energy around the world just as we have for the last century. They are buying significant amounts of oil from Sudan. They put money in there and the Sudan. They are going to buy four or five. They're going to buy that four or five. 400,000, they're not taking the whole 400,000 barrels a day from the Sudan, but they're taking significant amounts. They're going to buy that oil in the world market. That oil is going to get produced. Revenue is going to flow to the Sudan. The question is how much the Sudan needs to keep themselves and how much gets dispersed to the Chinese because of the investment they've made. So I see no effect whatsoever in Berkshire Hathaway trying to tell the Chinese government how to conduct their business. I agree 100 percent with the fact that what is happening in the Sudan should not be happening. And there are other parts of the world where that same situation may exist, although not to the same degree. But I don't think it's proper for us to divest our shares in PetroChina. They would be sold to somebody else. I think the proponents of the motion probably would like the idea that the price of the stock would go down.
[2:43:43]
WarrenWell, we don't sell stocks, you know, basically to try and drop. them down in price. We might sell PetroChina if it went up enough, but we would not be selling it to try and drive down the price because all that would be doing would be giving a bargain to somebody else who is buying the stock of PetroChina. It doesn't change the funds available to them at all. One of the speakers mentioned the amount of money that goes from PetroChina up to its parent. Well, money from Westco comes up to Berkshire from our subsidiaries. You know, that's the nature of having a major ownership in a subsidiary. You get money from my tech. You get money from the Nebraska Furniture Mark, which we own 80% of. But that really has nothing to do, in my view at least, it has nothing to do with the fact that it is China that has a policy in respect to being partners in Sudan, and it is not PetroChina at all. Selling our stock would not change one thing. If we would have any communications, it's a practical matter of the communications should be with the Chinese government, and actually people here have had a chance because we have a lot of media here. They've had a chance to express their views to the Chinese government. Believe me, unless the opinions get expressed to the Chinese government, expressing with PetroChina means nothing. I mean, the PetroChina is controlled by the Chinese government, and they are not, if you were an official of PetroChina, you are not going to tell the Chinese government what to do. They are going to tell you what to do. Charlie?
CharlieThe issue also is, China is a rapidly rising nuclear power, and who should decide how the federal government or how the Americans should react to China. There's a lot to be said for letting the policy flow through the U.S. government instead of a sort of a vigilante effort of various citizens. And I would also point out that there's a lot wrong all over the earth, and there's a lot of cruelty, and they're all always has been and there'll always be a lot of oil produced in a lot of lands with a lot of cruelty. And nobody's in favor of cruelty, but there's a limit to how much you can fix. And so I'm very skeptical of the idea that Berkshire should become an instrument of telling, of setting United States policies vis-a-vis China. Charlie and I have our own views, for example, on reproductive freedom. But we don't have a Berkshire-Hathaway policy on reproductive freedom, nor do we finance from Berkshire Hathaway funds, the funds of our shareholders.
[2:46:35]
WarrenWe do not finance any activities that relate to our personal beliefs, although we may obviously fund them by ourselves or speak out on them by themselves. But we do not have a Berkshire-Hathaway funding just because we believe that women should have the right to choose or questions of that sort. minds can disagree on these subjects. At Berkshire, there are all kinds of businesses. We won't buy and control individually, but we're willing to own stock in the same businesses. Is that the correct moral line to draw? I don't know. We do our best and we make the decisions and we make the calls. I would say, I wonder really whether when the UNICAL question was being determined, here were the Chinese to whom we'd given lots of little tickets in exchange for taking their goods, and they came along with a perfectly decent offer to the shareholders of UNICAL $18.5 billion. They wanted to buy a little more oil and gas production around the world. And the U.S. Congress overwhelmingly said, this is a terrible thing, and we want the United States to oppose it, and we want it sold the Chevron for less money. And I really don't recall a lot of people speaking up on behalf of the Chinese right to buy oil companies over here, just like we bought oil companies around the world for many decades. So to the extent that they may feel themselves somewhat alienated from the rest of the world in this respect, I think we've actually contributed our share. Charlie?
CharlieThe thing in the complexity of life, the woman who lost her family to the Holocaust, we clobbered the people that committed that genocide. by joining genocidal Joe Stalin. These issues are complicated.
WarrenOkay. If there are any shareholders that want to vote in person on this matter or to change their proxies, we have monitors to just raise your hand. And if there are none of those, Ms. Emick, are you ready to give your report?
OtherMy report is ready. The ballot of the proxy holders in response to proxies that were received through last Thursday evening cast 15,740 votes for the motion and 830,598 votes against the motion. As a number of votes against the motion exceeds the majority of the number of votes related to all Class A and Class B shares outstanding, the motion has failed. The certification required by Delaware law of the precise count of the votes will be given to the Secretary to be placed with the minutes of this meeting.
WarrenThank you, Ms. Amick. the proposal fails. Does anyone have any further business to come before this meeting before we adjourn? If not, I recognize Mr. Scott to place a motion before the meeting.
QuestionerI move this meeting be adjourned.
QuestionerTheir second?
WarrenAll those in favor say aye. I oppose no. Thank you and I'll see you next year.