[0:00]
OtherOkay, we're going to go back to work here. We broke off at Area 7 last time. I have asked, just so everybody's aware of it, we've had three questions relating to the climate situation, and I think that's more than proportional to the interest of the crowd. So we'll skip any more like that, I think the position is known, and we'll go on to number Aiden.
QuestionerMy name is O'le Larsen. I live in Salt Lake City. And I think on Rue Lukizer, Wall Street Week, 1981 or something, so you must really have impressed me, Warren. What I, what I like to ask you is that looking at the future, have the business practices of the investment banks become so complex that it is not possible for the head or the investment bank to be aware of the exposures to financial risks day to day or week to week?
WarrenYeah, that's an exceptionally good question. And I think the answer, I think the answer probably is yes, at least in some places. Although there's a few investment bank heads, I've got enormous respect for their ability to sort of get their minds around risk. But I decided, for example, when we bought Genree, it had about 23,000 derivative contracts, and I think I could have spent full time on that and not really been able to get my mind around how much risk we could, we were running under some fairly extreme conditions that I did not think were impossible, but that the people who were running the operation might have thought were impossible, or that might not have cared about it that much because their own incentive compensation was such that if they made a lot of money one year on something that would work 99 years out of 100, they would feel the chances of something going wrong big were very slim, but I don't want to have it slim, I want to have it none. So I regard myself as the chief risk officer at Berkshire. If something goes wrong at Berkshire because of – in terms of risk of the way we run the place, there's no way I can assign that to a risk committee or have some mathematicians come in and make a bunch of calculations and tell me that. I'm only running a risk that will happen once in the history of the universe or something of the sort. I think the big investment banks, a number of them, and big commercial banks, I think they're almost too big to manage effectively from a risk standpoint in the way they've elected to conduct their business. And it's going to work most of the time.
[3:03]
WarrenSo you don't see – you don't see – you don't see – you don't see – you don't see – the risk in a way that, I mean, you don't, you know, if you have a one in 50-year risk that a place will go broke, it may not be in the interest of a 62-year-old executive that's going to retire at 65 to worry too much about that. I worry about everything at Berkshire. So I would say they're too, they're very hard to manage, very hard to have your mind around. I mean, clearly, you've seen cases in the last. last year, where very big institutions, if the CEO knew what was going on, he certainly hasn't admitted it subsequent to what's happened because it's embarrassing either way, but it's less embarrassing to say I didn't know what was going on than to acknowledge that you knew these kind of activities were going on, and you let them go on. It's – I've been asked for advice on regulation sometime, and we have seen an extraordinary – example, which somehow the press really hasn't picked up on much, but you had an organization called O'Faio, whose sole job was to supervise two big companies. And these big companies were Fannie Mae and Freddie Mac, and they had a large element of public purpose in them, and they were chartered by the federal government, and they had their activities had overtones for the whole mortgage and securities markets. So Congress said, if we're going to give you all this. too-big-to-fail type protection in terms of the federal government stepping in and give you special privileges, we want to keep an eye on you. So they formed Ophail, and they had 200 people going to work, I presume, at 9 o'clock every morning, and going home at 5, and their sole job was to see what these two places were doing. And they turned out to be two of the biggest accounting misrepresentations in the history of the world. So they were two-for-two with the only things they had to examine. And I fear that if you tried to do the same thing with the biggest commercial banks or the biggest investment banks, I'm not sure you can keep track of it. What you need is somebody at the top whose DNA is very, very much programmed against risk. And he is going to have to resist the entreaties of those who work beneath him who say everybody else is doing it. And if they can do it over there and make all this money doing it, why can't we be doing it here? And that's not easy to do. I mean, when you've got a bunch of high-powered people who are used to making in seven figures every year,
[5:43]
Warrenand they want to do things, and they say, if you don't do them here, we're going to go elsewhere. It's a very tough system to be. So I would say that in many ways, there are firms that in terms of risk, simply they are conducting themselves in a way that they're too big to manage. And if at the same time the government says they're too big to fail, that has some very interesting policy implications.
CharlieWell, I would argue that you say that very well. It does have interesting policy implications. It's crazy to have people get so big and so important that you can't allow them to fail and allow them to be run with as much neighbory and stupidity as permeated the major investment banks. It's not that Berkshire hasn't had wonderful service from investment banking all these years because we have. It's just that as an industry, this crazy culture of greed and overreaching and overconfidence in trading algorithms and so on creeps in. And I would argue it's quite counterproductive for the country, and it ought to be reigned way back. These institutions are too big to fail. And it was demented to allow derivative trading to end up the way it has ended up and with the clear. risks that are embedded in the present system. And it's amazing how few people spoke against it as it was happening. There was just so much easy money to be reported. A lot of the money that was reported as being earned wasn't really being earned. It was in that wonderful category of assets that I call good until reached for. They sit there on the balance sheet, and when you reach for it, it just fades away like...
WarrenHe's not kidding. He's not kidding. He's not kidding. We have 400 million of that. good until reached four assets we got with General Ree. And they were behaving honorably.
CharlieYes. But at any rate, people pushed it way too far. In the drug business, they say prove that this works before they certify the drug. On Wall Street, they start leaving in the tooth fairy, and one guy's reporting a lot of money why everybody else is asking, why aren't we betting on the tooth fairy? It's a crazy culture, and to some extent it's an evil. culture and it needs a huge raining in and the accounting profession utterly failed us the worst behaving were the people who set the accounting practice standards and they're very bureaucratic and take forever and they don't want to do anything real difficult that displeases people this is not a
[8:31]
Warrencombination of wonderful qualities when your job is to set accounting standards which ought to be dealt with sort of like engineering standards and they don't even have the right approach so there's a lot wrong When Charlie and I first got to Solomon, we noticed that they were trading with Mark Rich who had flood the country, and we suggest, well, we told them, we wanted to quit trading with Mark, and they said, well, they were making money doing it in one way or another, and they said, what the hell did we know about crude oil trading, and they wanted to keep trading with them, and only by just total directive, could we do that? stop our own employees from trading with Mark Rich. Now, if you can't stop your trading, people trading with Mark Rich, you know, when you're focusing on it, just imagine what goes on, you know, in those trading rooms elsewhere. It's, if Bear Stearns, I think the Fed did the right thing by stepping in on Bear Stearns, if Bear Stearns had failed on Sunday night, and it would have, they would have walked over to a federal judge and handed him a bankruptcy petition, I guess, a little after six o'clock, Midwest, because that's when Tokyo opened. They had failed. The next day, as I understand it, they had about $14.5 trillion, which isn't as bad as it sounds, but $14.5 trillion of derivative contracts. Now, the parties that had those contracts that had a claim against Bear Stearns would have been required, I think almost by the contracts they signed, but they would have been required to undo those contracts very promptly to establish the damages they would have against the bankrupt state. Just imagine thousands of counterparties around the world, you know, trying to undo contracts, everybody knowing they had to undo contracts in a very, very short period of time. The 400 million we tried to reach for and didn't find, we had the luxury of spending about four or five years unwinding those contracts. These people would have had four or five hours to do the same thing with everybody else doing it simultaneously. It would have been a spectacle that would have been, I think, of unprecedented proportions, and of course, it would have resulted, in my view, of another investment bank or two going down, you know, within a matter of days, because nobody has to leave, nobody has to lend you money. And in fact, that was one of the interesting things that was said at the testimony when they
[11:02]
Warrencalled them down to the Senate Finance Committee. I think two of the witnesses said, we didn't understand, we understood we couldn't borrow money unsecured if people started looking at us with the scantz. But they said, we didn't dream we couldn't borrow money secured. Well, we'd found that out at Solomon that we were having trouble borrowing money secured 17 years earlier. When the world doesn't want to lend you money, 10 basis points doesn't do much, you know, or 20 basis points or 50 basis points much, or a bigger haircut on collateral. They don't want to lend you money. They don't want to lend you money. And if you're dependent on borrowed money every day, you have to wake up in the morning, hoping the world thinks well of you. And there was a period there a few months ago when I think every investment bank in the United States was plenty worried about whether people are going to think well of them the next morning.
OtherWell, let's go on the number nine. Harry Begai, San Francisco.
QuestionerMr. Buffett, I was reading recently in Fortune magazine that when you invested $500 million in Petro China back in 2001 or 2002, all you did was read the annual report. Now, I was thinking that most professional investors with the kind of resources that you have would have liked to have done a lot more research and talk to management, maybe regulators, et cetera, et cetera. The question I have is, what is it that you look for when you're reading an annual report like that? How is it that you were able to and did make an investment purely on the back of reading that report?
WarrenYeah. 2002 and 2003, and the report came out in the spring, and I read it. And that's the only thing I ever did. I never contacted any management. I never got a brokerage report. I never asked for anybody's opinion. But what I did do was I came to a conclusion that the company, and it's not hard to understand crude oil production and refining and marketing and the chemical operation they have. I mean, you can do the same thing with Exxon or BP or any of them, and I do that with all I look at them. And I came to conclusion is worth $100 billion. And then I checked the price and it was selling for $35 billion roughly. What's the sense of talking to management? I mean, basically, if you talk to the management of almost every company, they'll say they think their stocks are a wonderful buy, and they'll give you all the good stuff
[13:30]
Warrenand skip over things that – it just doesn't make any difference. Now, if I thought the company was worth $40 billion and had been selling for $35 billion, you know, then at that point you have to start trying to refine your analysis more. But there's no reason to refine your analysis. I mean, I didn't need to know whether it was worth $97 billion or $103 billion if I was buying it at $35 billion. So any further refining of analysis would be a waste of time when what I should be doing is buying the stock. So we really like things that you don't have to carry out the three decimal places, you know. If you have to carry it out to three decimal places, it's not a good idea. And, you know, it was something like PetroChina, it's like if somebody walked in the door here and they wait somewhere between 300 and 350 pounds, I might not know how much they weigh, but I would know they were fat, you know. And that's all I'm looking for is something that's financially fat. And whether Petra China weigh $95 billion or $105 billion didn't make much difference if it was selling for $35 billion, if it's been selling for $90, it would have made it ever. So if you can't make a decision on something like Petrochina off the figures, forget about going further. And that's basically what we did. It's a straightforward report, just like reading another, just like reading chevrons or conical Phillips or anything like that, just as informative. And you weren't going to learn more, you know, by going out and deciding whether you thought they've got one huge field in China, whether the life of it was 13 years or 14 years or something of the sort. They should hit you between the eyes, Charlie. I would argue that we have lower due diligence expenses than anybody else in America. And that we have had less trouble because we had less expense. I know of an investment operation in America that pays over $200 billion a year to its... A million. $200 million. Yes, $200 million, pardon me, every year to its accountants. A lot to help them with due diligence. And I think our operation is safer because we think like engineers. We want these margins of reliability. And they're trying to do something really difficult, which is to have fine-grained judgments in very complex areas and rely on other people to do it who are getting paid fees. It's a very dicey process to do that. I think it's much safer to do our way.
CharlieThey should hit you between the eyes, Charlie.
[16:06]
WarrenDo you think the auditors know more about making an acquisition you do, you know, you ought to take up auditing and let them run the business as far as we're concerned. We are not, I mean, when we get a call on something like the margin, Riggily situation. If we don't know enough about Mars and Riggily by this point, so that we have to go out, I still like to go out, of course, and sample all the bars, so we have a 15, I mean, I feel I owe that to the Berkshire shareholders, but I'm not going to look at their labor contracts or their leases or anything like that. If the value of Rigley depends on a specific lease someplace or a specific commitment to this or that, you know, or a given environmental problem, Forget it. You know, there's these overriding considerations that are enormously important, and then there's a whole lot of trivia that doesn't mean anything. That we have never made a – we've made plenty of big investment. I've made plenty of big investment mistakes. I've never made one, in my view, that would have been avoided by conventional due diligence. And we would have spent a lot of money, and we would have wasted a lot of time, and in some cases we would have missed deals simply because we wouldn't have committed fast enough. We have a significant advantage, and it gets bigger as we get bigger, because in terms of big deals, people rely more and more often on process, in that when people want to get a deal done, and they want to know what's going to be done, they will come to us. I mean, the Mars people wanted to deal in terms of this financing aspect of the Wrigley situation. They only wanted to deal with Berkshire. And because they knew we didn't have any lawyers involved. I admit to this group, we didn't even have any directors involved. We just, you know, we got a call and made sense, and we said yes. And when we say yes, we don't say yes with a material adverse change clause. We don't say yes if financing is available. We just say yes. So I can tell people when we make a deal that if we're going to have $6.5 billion available, It's going to be available, you know, whether there's a nuclear bomb goes off in New York City or whether there's a flu epidemic or whether Ben Bernanke runs off to South America with Paris Hilton, you know, the check is going to clear. And if you're making a deal, you know, the guy that wants the $6.5 billion, that assurance
[18:47]
Warrenis worth something. And you really can't get anyplace. So you say, well, I'll do it, but I've got to have my – I have a due diligence team check this out and do all of that. So it's a real advantage to us, and I don't think there's any disadvantage to us.
QuestionerNumber 10. Hi, Mr. Buffett. My name is Matthew Millard. I'm from Norman, Oklahoma. And just one —
WarrenWe'll forgive that as Nebraska. That's okay.
QuestionerThank you. I've been a longtime Berkshire shareholder since I was 16. Really like the company, really like your investment style, buy and hold forever, kind of beyond the grave. But my question. actually had to do with, do you know and believe in Jesus Christ and have a personal relationship with him?
WarrenNo, I'm an agnostic, and I grew up in a religious household, and if you'd ask that question of my mother or father, you'd have gotten a different answer, but – and I'm a true agnostic. I'm not closer to either a theist or an atheist. I simply don't know, and maybe someday I'll know, and maybe someday I won't, but that's the nature of being an agnostic. Charlie?
Charlieto talk about my religion. Okay, well. Being an agnostic, I don't have to talk about a religion. Very simple. I don't, I obviously, I have no opinion on anybody else's religion because that's the nature of being an agnostic. I wish everybody well in their own.
QuestionerNumber 11. Hello, good afternoon, Warren, Charlie. I want to thank you for hosting this annual meeting. My name is James Yeom from East Brunswick, New Jersey. I don't want to sound morbid, but my question is once you two are gone, and Warren's stock is placed in trust and slowly forced to be sold over the years, what safeguards are in place to prevent a hedge fund or LBO shops from joining together and acquiring Berkshire Hathaway and putting in play and breaking up this wonderful company and endangering the culture of this company?
WarrenWell, my stock would be sold over about a 12-year period after my death. And during the time of settling the estate gets disposed of in the same manner as presently, and then it gets on a time clock. So that takes a lot of time. I may live a little longer even than now, but even if that started now, you wouldn't be dealing, I hope, with a company that had a market value much larger than even we presently have. And you'd still have large blocks of stock held by institutions or people that certainly had a similar philosophy. There's no guarantee that if
[21:41]
Warrensomebody wanted to try a $6 or $700 billion takeover, it might be a lot larger than that if you go out of ways, that it can't be done. But I think it would be about as unlikely to happen in the case of Berkshire as any company I can think of in the world. It can't happen at all, in effect, until some time after I died. There'll be a lot of votes concentrated till that period. And like Charlie says, I've told there's this period after I die before this 10-year distribution period kicks in. So I've told my lawyer to make sure that my estate lasts for quite a while. And he says, that's like telling your teenage son to have a normal sex life when you tell a lawyer that. But it'll be a law long time. And like I say, if we do anything in the way of decent rates of compounding, you're really talking, you know, one of the very largest companies in the United States. And I don't think anybody's going, I don't think there's going to be the ALBO of General Electric or Exxon. And I think that it would be equally difficult with Berkshire. There's no 100% guarantee, however. Charlie?
CharlieYeah. And besides, Warren doesn't plan to leave very early. I've heard him say, several times when people ask him what he once said at his funeral. And he always gives the same answer. He says he wants people to say that's the oldest looking corpse I ever saw. And I'm unlikely to change my views on that subject. But thanks for asking.
QuestionerNumber 12. Hello, my name is Harold Eulene. I'm from Chicago, Illinois. I'd like you to describe the economic characteristics of the craft corporation why you feel this is a good business?
WarrenWell, I would say most of the big food companies are good businesses in that they earn good returns on tangible assets. And I don't want to get into particularly in the specifics on kraft. But if you own important branded products in this country, what is Rigley's or Mars or Coca-Cola or a number of the kraft brands or seizes candy, you have good. good assets. It's not easy to take on those products. Just imagine, you know, taking on it. Coca-Cola will sell a billion and a half eight-ounce servings of its product around the world today. There's something in every person's mind virtually in the globe about Coca-Cola. That's a product of since 1886 has been associated with happiness and good value in terms of refreshment and all that. It's just about impossible, you know. to, in my mind, anyway, to take on a product like that.
[24:51]
WarrenIt clearly satisfies people in a huge way, you know, everywhere on the globe. And, you know, it may not be the same craft, for example, as Kool-Aid in the powdered soft drink business. You know, I don't think I'd want to try and take on Kool-Aid. I'd rather have Coca-Cola, but it's a tough product. And to get implanted, just think of, to get implanted in people's mind, R.C. Cola around the world. And R.C. Cola's been around a long, long time. You know, it isn't going to go anyplace. I mean, that is very, very difficult. And actually, Richard Branson came over to this country. You know, they say that a brand is a promise. I mean, there's a promise involved in picking up a Milky Way or picking up a Coca-Cola. So what it's going to deliver to you. Richard Branson came over seven or eight years ago, 10 years ago, you know, a fellow with a famous airline and all of that. And he came out with a lot of that. something called virgin cola. Now, I thought that was kind of an unusual promise to have in a product. Never could quite figure that one out what the promise was. But whatever it was, it didn't work. And the, you know, there have been, I don't know how many Don Keill would know, but there have been hundreds of colas over the years. But in the end, who is going to, you know, buy some substitute cola for a penny a can less or two cents a can less than Coca-Cola, or the same thing with Seas Candy or the same thing with Kool-Aid or whatever it may be. So we feel pretty good about branded products when they're runaway leaders in their field. And there's nothing unusual about Kraft in their position versus Kellogg or some other people like that. So the specifics of which one we buy may depend a little bit of how we feel about the price. It certainly will make a difference how we feel about the price, the management, and some other factors. But if you buy in with good brand of products and you don't pay too much, you're probably going to do okay. On the other hand, you're not going to get super rich because the attributes that I've just laid out are pretty well recognized. Charlie?
CharlieI've got nothing to add.
WarrenOkay. I don't, do we need to go to the other room or not? Well, let's just go to number one. If I'm skipping the other room and there are still people in there, somebody can let me know and we'll go back for him. Number one.
QuestionerHello, Mr. Buffett. Mr. Munger. My name is Kevin Truer from Chicago, Illinois.
[27:26]
QuestionerMy question is this. You have identified four investment professionals who will at some point in time be running the portfolio for Berkshire Hathaway. What was the criteria that you used to select the four people? And what will be the criteria that you used to select the four people? And what will be the criteria for evaluating them going forward.
WarrenYeah, the criteria for selecting, I think we laid out pretty well in the 2006 annual report. We obviously look for people that have had pretty good records, but that that's criteria alone is nowhere near sufficient to come up with the candidates we want. I mean, we care enormously about human qualities, and we think we can make that judgment in some cases. and in some cases we can't. I mean, and it's no negative vote on people we skipped over. We just decided we didn't, we didn't know whether they would be the right kind of person. We made an affirmative judgment on four as to both their ability and their integrity. And I would like to, there was one other item in here, I believe, which I think achieved a little added relevance in the last year. I said, we therefore need someone genetically programmed to recognize and avoid serious risks, and then I put in italics, including those never before experienced. And then I said, certain perils that lurk in investment strategies cannot be spotted by one of the models, by use of the models commonly employed today by financial institutions. Well, I think that proved to be somewhat prophetic of what happened last year. All of these places had models. I mean, the major banks, the major investment banks, and they would meet weekly at a risk committee probably and go over their models and all of the statistics would be printed in nice columns and everything. And they didn't have the faintest idea what risk they were involved. You really need in the investment world someone very solid, someone you trust, reasonable analytical skills, but you also need someone that actually can contemplate problems that haven't popped up yet, but which are starting to become possibilities in terms of new financial instruments or new behaviors in markets and that sort of thing. And that's the rare quality. I mean, that inability to envision something that doesn't show up in your past model, you know, can be fatal. And Charlie and I spend a lot of time thinking about things that could hit us out of the blue that other people don't
[30:31]
Warreninclude in their thinking. And we may miss some opportunities because of that, but we feel it's essential when managing other people's money or, for that matter, managing our own money. So I would say that you might go back and read the 2006 annual report again, but those are the criteria we're looking for. And we have identified. as being met by the four people we're thinking about.
WarrenCharlie.
CharlieYou can see how risk-averse Berkshire is. In the first place, we try and behave in a way, so that no rational person is going to worry about our credit. And after we've done that and done it for many years, we also behave in a way that if the world suddenly didn't like our credit, we wouldn't even notice it for months because we have such liquidity in our sense. liquidity and are so unlikely to be unable to be pressured by anybody. That double layering of protection against risk is like breathing around Berkshire. It's just part of the culture. And the alternative culture is just the opposite. You call the man the chief risk officer, but often he is functioning as a guy that makes you feel good while you do dumb things. So he's like the delpic oral. the Delphic oracle that convinced the Persian king to attack somebody or other. I mean, he's just a dumb soothsayer. And how can a guy be dumb? He's got a PhD and he can do all this advanced math? Easy. You can. But you can. All you've got to do is crave system and computation so much that you torture reality into fitting some model, mathematical model, which really doesn't match particularly under extreme conditions. And then because of this work that you're putting into everything and these computations about daily trading risks and so forth, you feel confident that you've clobbered the risk, but you haven't. You've just clobbered up your own head.
WarrenYeah, we really want to run Berkshire. I'll even applaud that one. We really want to run Berkshire so that if we really want to run Berkshire so that if the If the world isn't working tomorrow the way it's working today and it's working in a way nobody expected, that we don't have a problem. We do not want to be dependent on anybody or anything else, and yet we want to keep doing things. So we think we found a way to do that. It may give up some of them. Well, obviously gives up earning higher returns 99% of the time and maybe 99.9% of the time. time. Obviously, we could have run Berkshire with more leverage over the years than we have.
[33:38]
WarrenBut we wouldn't have slept as well and we wouldn't feel comfortable. We have a lot of people in this room that have almost all their net worth in Berkshire, including me, and we wouldn't feel comfortable running a business that way. Why do it? I mean, it just doesn't make any sense to us to be exposed to ruin and disgrace and embarrassment and for something that's not that meaningful. If we can earn a decent return on capital, you know, what's an extra percentage point? It just isn't that important. So we will always try to behave in a way that A is not dependent on anybody else evaluating the risk except for us. It cannot be farmed out. And you've seen what happened to some institutions where the management thought they were farming it out. And, you know, if that means a reasonable return, instead of a slightly unreasonable return, we just accept it.
QuestionerNumber two. Hello, Mr. Buffett. Hello, Mr. Munger. My name is Burkart Wittek, and I'm from Munich, Germany. I would like to get back to your point that as a professional investor, one should be able to act quickly and decisively. That means being able to know what the intrinsic value is and to act within a day or within an hour if the market offers an opportunity. The question is, how large is the universe of companies which you have in your head whose intrinsic value you know, where you would be able to act within a day or two if the market offered an attractive price to you? And secondly, how come you suddenly invest in Southern Korea or China?
WarrenYeah, we can act. Our immediate decision is whether we can figure what's being offered out to us or not. I mean, there's a go-no-go signal, and Charlie and our are often thought to be rude when we think we're just being polite and not wasting the other person's time. So as they start mid-sentence in their first conversation with us, we just say, forget it. And Charlie's pretty good at that, and I'm picking it up. The, it's, we know very, very, very, very early in the conversation whether somebody's talking about something that there's any chance is actually. actionable by us. And we don't worry about the ones we miss. We want to make sure that we don't waste any time thinking about things that when we got all through thinking about them, we're not going to know enough to make the decision on. So we just rule those out. And that rules a lot of things out. Then if it gets through a couple of these filters and makes it in to an area
[36:32]
Warrenwhere it says this is something that we know enough about to make it a sort of decision on, we're ready to move right then. So we make decisions, we can make a decision in five minutes very easily. I mean, it just is not that complicated. Now, we know about a number of businesses and industries, and there's a lot of businesses and industries we don't know anything about. We know about a lot of things about certain kinds of bonds, and we know some. There's a variety of things we know about, and it's nice if we can expand that universe of knowledge. But the most important thing is that anything that gets through is in an area of knowledge. And the truth is, if we can't make a decision in five minutes, we can't make it in five months. You know, we're not going to learn enough in the following five months to make up for the fact that we went in deficient in the first place. So it's just not a problem around Berkshire. If we get a call and somebody says, either they've got a business for sale or, well, that's what we're going to get on the calls. Or if I'm reading a paper or a magazine or an annual report or a 10K and I look at a price and there's a significant differential between price and value. We move right then. And Charlie and I don't need to talk to each other about it. I mean, we both think the same way, and we have generally similar spheres of knowledge. Charlie?
CharlieThe answer to your question is we can make a lot of decisions about a lot of things very fast and very easily. And we're unusual in that respect. And the reason we're able to do that is there's such an enormous other lot of things that we won't allow ourselves to think about at all. It's just that simple. I mean, I have a little phrase when people make pictures to me, and about halfway through the first sentence, I say, we don't do startups. They don't exist. Well, if you blot out startups, there's a whole layer of complexity that goes out of your life. And we've got other little blotter out systems. And using those, we finally, we finally, finally find out that what remains is still a pretty large territory that we can't handle. I think that's a fair one.
WarrenYeah. And there are an awful lot of giveaways that people in the first sentence or two throw out that, you know, we just know we aren't, you know, it isn't going to work. And we waste very, I would say, we waste a lot of time, but we wasted on things we want to waste our time on.
[39:07]
WarrenAnd we're very selective about that. we're good at it. We waste a lot of time. But we're not going to waste it on things we don't want to waste it up.
QuestionerNumber three. Mr. Buffett, Mr. Munger, thank you very much for this wonderful ride. Coming, my name is Jorge Garza, and I'm coming from Mexico City. Coming from there, you have been occasionally compared to, or rather Carlos Slim has been occasionally compared to you. you for other reasons than your love of the game of baseball. Can you please share your thoughts on him?
WarrenWell, he came up once with two of his boys and we had lunch, but that was probably 15 years ago. So I really have no special, I mean, you probably know a lot more about Carlos Sim than I do. I read the news stories and all of that. And we had a perfectly pleasant lunch, but that was a long time ago. And Charlie, do you have anything again?
CharlieNo, I think you speak for the total knowledge of both of us about Carlos Slim. We'll go down the rest of the Forbes 400 for you, too, if you would like.
QuestionerOkay. Number four. Hello. My name is Andre Stalty. I came from New York City, and I'm thrilled to be here. I'm greatly inspired by you. We follow you in our analyzed business class in New York City, a small group of small investors. And my... There are human rights violations in the climate. My question is, would you, would you or have you considered asking Coca-Cola to withdraw sponsorship from the Beijing Olympics in light of the immense human rights violations in Tibet, possibly inspiring a new business model that would value humanitarian interest as well as monetary. interest.
WarrenYeah. I personally, you know, I personally think that the Olympics, and I hope they are, you know, conducted forever with everybody participating. I think that personally it's a mistake to start deciding where this country should be allowed and this country shouldn't be allowed. Now, I've read, you know, I think it's very hard to grade a couple hundred countries that might be participating according to how their behavior was. I mean, we didn't let women vote. in this, the United States, you know, until 1920, so we went 140 or so 130 years. And I would say that was a great human rights violation, but I would have hated to see the United States banned from the Olympics, you know, in years prior to that because of that. So I just think it's a terrible mistake to try and get into something.
[42:17]
WarrenThe Olympics are a wonderful event. I think the more people participate in them, the better, and I think that on balance, they contribute to a better world over time. So I would not start getting it. punitive about it. But I understand your motives on it. Thank you.
CharlieWell, Warren understates my position. I usually understate his position. This is a man of strong opinion. And I would say to you people who are distressed by imperfections in China. Ask yourself your question. The question, is China more or less imperfect as the decades have gone by? And the answer is China is moving in the right direction? And as long as that's happening, I think it's a great mistake to just pick the worst thing about somebody you don't like and obsess about it. The U.S. has moved in the right direction over here. Our Constitution said blacks were three-fifths of a person, you know. I mean, we've moved a long way, and we're far from perfection. But I think you do better with people that you're working with to, if they're going in the right direction, largely to encourage him. You may want to nudge him a bit, but I don't think the Olympics is the right way to do it.
QuestionerLet's go to number five. Hi. My name is Jessica Helmers, and I'm from Scottsdale, Arizona. My question is, what future trends do you see in the coal industry? Do you think its cost advantage will outweigh its environmental impact?
WarrenWell, I think in the short term, the world's going to use more coal. And I think that there's no question that there's an environmental disadvantage to it. And as the, I think the world will slowly, maybe more rapidly than that, but we will figure out better ways to do the things that coal does. That will be more environmentally friendly over time, but it isn't going to happen fast. I mean, if you shut down the coal-generated utilities in the United States, you know, this, we would not be able to hold this meeting in a room. with the lights on. And so it's a very tough problem to solve or to even make big inroads on in a short period of time. Now, at Mid-American, we've put in a lot of wind capacity in the last five years or so, probably about as much as anybody has. But we are dependent a lot on coal. It's cleaner coal than it was 20 years ago. But, and we will be dependent on it for a long time. And, you know, it's a worldwide problem, obviously. And the Chinese are building coal plants at a very rapid rate.
[45:21]
WarrenIt's going to require cooperation and leadership on a worldwide scale. And frankly, the United States is not in a great position in terms of leadership, because, you know, per capita, we've done as much to this planet of the negative nature as, as, you know, you know, per capita we've done as much to this planet of a negative nature as any country in the world. So it's a little tough for us to go around preaching to people, but we will need a leader, in my view, that can sort of transcend our record of the past and get cooperation from major countries around the world. I don't think it's going to be, but I don't think it's going to be fast. Charlie is less pessimistic on this than I am. Charlie?
CharlieWell, I think the people who are very against the use of coal should reflect which one they'd rather use up fast, the hydrocarbons, the oil and natural gas, or the coal. I would rather use up the coal because it's less desirable as a chemical feedstock for what we need to feedstock. for what we need to feed the world. And so I would argue that there's an environmental reason in terms of humankind for being very pro-cold use. Most people don't think that way. But I do.
OtherCharlie does not find comfort in numbers. No. No.
QuestionerNumber six. My name is Reza, Boston. I live in Sacramento, California. The stock prices of most small regional banks have become more attractive in the past one year. Do you have any opinions about regional banks as investments, and if you were going to purchase shares? What are the areas that you would carefully examine?
WarrenYeah, I don't think you should make a categorical decision about something like, however you define them small, mid-cap, whatever regional or national banks, for that matter. So much depends on the character of the institution, which will probably be a reflection to a great degree of the type of CEO you have. And I, a bank can mean anything. It can, you know, it can mean an institution that's doing all kinds of crazy things. There was one called the Bank of the Commonwealth up in Detroit many years ago that went to extremes, and it was very popular in Wall Street for a while. It could mean the soundest of institutions. We had one, we owned a bank, the only bank Berkshire's ever owned in its entirety here in Rockford, Illinois, run by a fellow named Gene Abeg. And, you know, it wouldn't make any difference whether it was a super regional or a regional or a small
[48:27]
Warrenor a mid-city, mid-cap bank. There's no way Gene Abeg could run on anything other than a super-sound bank. So I don't think you should, I think you should know something about the cultural of the management and the institution to make a firm by decision on a bank. And that's hard to do for 99% of the banks. We own stock, as you know, in our report Wells Fargo and U.S. Bank and M&T up in Buffalo. And in all three cases, I think I understand quite well the DNA of the institution in terms of how it behaves. That doesn't mean those places are immune for problems because they'll have problems. But it means, but it does mean they're immune, in my view, from what I would call institutional stupidity. And I would not say that all banks are immune from that. As a matter of fact, there was a very wise man named, I think it was Morris Cohen, that said there are more banks than bankers. And if you think about that a while, you'll get my point. Charlie?
CharlieWell, I think the... Well, I think the... questioner is onto something. So many of our very large banks, both here and in Europe, have sort of cast a pall of disgrace over the whole industry. And that is undoubtedly pounded down the stocks of some small banks that there's nothing at all wrong with. So I think you're prospecting in a likely territory.
WarrenYeah, but you can find a few big banks.
CharlieYes, big banks too.
WarrenYeah. And I don't know if you took the 20 smallest banks in Florida and the 20. largest banks in Florida, which group would be in better shape in terms of the Florida real estate situation? It's a territory that has some promise.
OtherThat is a wildly bullish statement from Charlie. Number seven. I'm going to go out and buy that stuff as soon as we get out of here. Good afternoon. My name is Matt Thurman, Chicago, Illinois.
QuestionerMr. Buffett, Mr. Munger, what are your thoughts on preventing further nuclear proliferation, given recent events in Syria? and events in Syria, Iran, North Korea, and other countries. Thank you.
WarrenWell, it's the great problem of mankind, along with proliferation or the spread of other weapons of mass destruction in the chemical and biological field. The genie is out of a bottle on nuclear knowledge, and more and more people are going to know how to do enormous damage to the rest of the human race as the years go by. go by, you'll have a given percentage of the population that are psychotics or megalomaniacs or
[51:29]
Warrenreligious fanatics or whatever and will wish ill on their neighbors. And the choke point will be, presumably, will be materials and to a degree deliverability. I think there are people generally associate weapons of mass destruction threats these days with terrorists. and rogue organizations of some sort, and not so much with nations. But I regard both as being enormous threats to the future of mankind. And we have not made much progress in that respect. We should be doing everything possible to reduce access to materials. And I've even had a few thoughts on that. A few thoughts on that, which you can look up on the Nuclear Threat Initiative, probably on the website. And we've got a proposal, actually, that might reduce by a tiny bit the rationale, at least, for all kinds of nations having highly enriched uranium and that sort of thing. But it is the primary problem of mankind. If you've got 6.5 billion people, you're probably going to have, on the world, you're probably going to have, going to have close to twice the number of people who wish you ill on their neighbor than you had when you had 3 billion people. And for a long time, if you were a psychotic or something, you could pick up a stone and throw it up the guy in the next cave, and you moved on to bows and arrows and rifles and cannon. But for millennia, the ability to inflict massive damage was quite limited, no matter how crazy you were. And since 1945, when Einstein said to this, that the atomic bomb, as they called it then, has changed everything in the world except how men think. That was a comment made shortly after Hiroshima. We live in a world where exponentially, as experienced exponential growth in the ability to afflict harm on somebody else, and we haven't gotten rid of of the nuts or the people who want to do it. And it is, whether it's, you know, Iran or you name it, or whether it's terrorist organizations or whatever, you know, we live in a very, very, very, very dangerous world on that that is getting more dangerous as we go along. And we've been very lucky since 1945, you know, when the Cuban Missile Crisis came along in the 60s, you know, it might have been 50-50. And I think we were lucky we were dealing with Crews and we were lucky that Kennedy behaved the way he did. But we were lucky. And Charlie and I talked a lot about it in the 60s at the time. But it's, it won't go away. And you would hope, at least in the United States,
[54:32]
Warrenthat we have an administration, whether it's Republican or Democrat, where that's at the top of the agenda, trying to figure out a way to minimize that risk. You can't eliminate it. It is out of the bottle, but we've got to, it should be paramount to minimize the risk that, we've got to we really get into something that involves, you know, deaths on a scale that nobody's ever contemplated before.
WarrenCharlie?
CharlieYeah. Well, you talk about deaths on a scale that people have never contemplated before. People have recently figured out that the population of Mexico probably had a population decline in 95 percent caused by European man bringing in his pathogens. And it was a pretty big civilization. civilization that went through that little not hole. These things can happen and have happened and look at Mexico today. I don't think it's going to wipe out the species.
WarrenWell, that's the good news. I hope that chairs you up. The cockroaches will survive. It's a very good question. I wish I knew a better answer.
OtherNumber eight. Good afternoon. I'm Elizabeth from Apocca, Florida. I would like to thank you for this wonderful opportunity to learn so much more about finances and at the same time, have a wonderful time. It's been fun.
WarrenThat's great.
QuestionerI teach at Valencia Community College in Orlando, Florida. I teach office administration and business. I applaud my students for investing in themselves. in themselves by enrolling in college. I also want to stress financial independence and financial freedom. I do this by telling them that slow and steady wins the race. Also, good sound financial management, and then the law of I have them track every expense over a period of time. Also, they buy theoretically, one stock and track that too over a period of time. We keep track of the current financial news, current news, and also they have research, research papers. Thank you. The research FICO scores, the credit reports, Clark Howard, Susie Orman, the top 10 billionaires, not because. I think...
OtherCould you move on to your question then please?
QuestionerYes. But thank you. Okay. What else should I be doing to leave them to make sound financial decisions and to have a happy sound financial life.
WarrenI'm ready to hire your entire class right now. I think you're telling you're giving you some very good advice. I think that the most important investment you can make is in yourself. I mean, very, very, very, very few people get anything like their potential horsepower translated
[58:42]
Warreninto the actual horsepower of their output in life. And potential exceeds realization to just an enormous factor with so many people. And one illustration you might try with your class, I tell them this, when I talk to high school groups. I just imagine that you're 16 and I was going to give you a car of your choice today, any car you wanted to pick. And... But there was one catch attached to it. It was the only car you were going to get in the rest of your life. So you had to make it last there. You can pick out the fanciest one you want a mazri, whatever it might be. How would you treat it? Well, of course, you would read the owner's manual about five times before you turn the key and the ignition. You'd keep it garaged. Any little rust you would get taken care of immediately. You'd change the oil twice as often as you were supposed to. Because you know it has to last a lifetime. And then I tell the students, and you get one body. one mind and it's going to have to last your lifetime and you better treat it the same way and you better start treating it right now because it doesn't do you any good to start worrying about that when you're 50 or 60 and the rust, that little speck of rust has turned into something big. So anything your students do to invest in their mind and body, particularly your mind, we didn't work too hard on the bodies around here, but, you know, it pays off in an extraordinary way. Your best asset is your own self. And you can become, to an enormous degree, the person you want to be. When I get classes in universities, I just ask them to imagine they were going to buy one of their classmates to own 10 percent up for the rest of their life. Which one would they pick? They wouldn't pick the one with the highest IQ or necessarily the one with the highest grades. They pick the person that's going to be effective. And the reason people are effective is because other people want to work with them. They want to be around them. And other people they don't want to be around. And those are qualities that an individual picks up, being generous, being humorous, being on time, doing and not claiming credit for more than you do, but rather than less than you're helping out other people, all kinds of human qualities that turn other people on, and then there's things to turn on people off. And those are habits, and they're the habits that you pick up when they're the age of your students. The habits they have today
[1:01:12]
Charliewill follow them throughout life, so why not have good ones? So that's the only message I would give your students. Well, I've got a specific suggestion that answers your specific question. I would add to that extensive repertoire of yours by teaching them to avoid being manipulated to their disadvantage by vendors and by the standard tricks of the vendor and lender trade, and you couldn't start with a better book than Seildini's influence. And I think Bob Sealdini, who's a shareholder, is here somewhere in this audience. And so I have a new textbook that I suggest you add to your class, which is Sealdini's influence, and he's just got a new book that's coming out in First Sale in Omaha today, I think, for the first time. And that's called Yes. So here's two books that I suggest you add to your class.
OtherOkay. Let's go to number nine. I'm Andrew Gould Gordon from Chicago, Illinois, and I'm nine years old, and I'm a big baseball fan. I know you like baseball, and my favorite team is the Chicago Cubs. Would you like to buy the Chicago Cubs from Zanzil? And my question is, do you like to buy the Chicago Cubs from Zanzil? And my question is, do you think?
QuestionerI think buying baseball teams is a good investment.
WarrenWell, it's been a good investment. It's been a good investment. It's not been a good investment necessarily because the earnings have gone up so much, although cable television multiplied the value in a big way. In effect, television expanded the stadium. Rigley Field, I think, probably seats less than 40,000 maybe. So you had 40,000 seats available when I went there for. my first Major League Baseball game in 1939. But then along came television, and then cable television, and pay, in effect, pay cable television for baseball and the sports networks, and that multiplied the seats in a huge way. Now, a lot of that went to the players, but some of it stuck to the owners. I am not a – when I was your age, I would have thought if I made a lot of money, I would have bought a team. But there were a lot of things I thought I would do then. I haven't done subsequently. So I don't think – if the Cubs sell for 700 million, and you've got a percentage of that in your bank account now, I don't think I would buy in at that price. There's a psychic income to many people in owning sports teams. I mean, it makes them famous, maybe not in the way they anticipated when they bought the team.
[1:04:23]
WarrenBut the – you know, it is a way to instant celebrity and recognition and all that. And as long as we live in a society where people have loads and loads of money, a certain percentage of people are going to want to become no one for the fact that they have done very well in life. And a sports team is certainly one way of doing it. That isn't the only reason people buy them, obviously. But I will say this, you are not the first ones to ask me about buying the cops. I've had calls from – not from Sam, but from other people. people and it's I think I'll leave that to you. Charlie, are you thinking about buying a sports team?
CharlieHe would be a tougher sell than I would. I might do something kind of stupid like that, but.
WarrenWell, you've already done it once. Tushay.
QuestionerNumber 10. Mr. Chairman, Mr. Vice Chairman, my name is Andy Peek, and I'm from Weston, Connecticut. Americans at the individual, municipal, state, and federal levels historically do not not save. On the other hand, Asians save approximately 40% of their income. Living beyond one means is an American way that obviously cannot continue. First, why is it that Americans do not save? And secondly, what can we do to correct this long-term problem? Thank you.
WarrenYeah, well, certainly the savings rate in this country has fallen significantly and may even be negative, although it does seem to me that the value of the country is – the value of the country country in real terms, I think, does increase quite significantly decade to decades. So I'm not sure exactly how it happens without savings, but it does seem to me that this country as a whole is worth considerably more than it was 10 or 20 or 30 or 40 years ago in real terms. So something good has happened. But the propensity to save, it almost seems innate in at least the great majority of cases. I mean, we've got our friend from Florida teaching children to save, and I think that has some impact. And I mean, I should have thanked Andy Hayward for that terrific cartoon this morning, and he's got a program that I'm participating in that we think in cartoon form will might influence a few younger people towards saving. If you own Berkshire stock, you're automatically saving because we retain earnings and you're in director interest in those retained earnings is a form of savings. So you can spend every dollar of your income that comes in the other way. And if you own Berkshire, you are net saving, which is a practice I've now been following
[1:07:13]
Warrenfor 43 years, sometimes in my family's consternation. The, I don't know that the, you know, the savings rate is based on calculations made on on consumption and imports and so on. And we are importing $700 billion more of goods and services than we're exporting. And that means that somebody else is doing our savings for us, basically, as we export ownership and claims against America. I think that's going to have consequences over time. But we are so rich. That it may not be really apparent. I think the average American standard of living is going to improve in real terms, although I think it may be very, very, very, very disproportionate. The extent to which the, particularly the super rich benefit compared to those in the middle class. But net, I think the country will be, even with our present policies, in net real terms, in net real terms, The value on a per capita basis of the country will increase from decade to decade. But nothing like it will in places like China or Korea, percentage-wise, where the savings rate is very high. This country may not save very much because it may not need to save very much. We have $47,000 of GDP per capita. It may not be distributed very well, but we are one very, very, very rich country. And a very rich country may not need to save as much as a country that's trying to reach its potential. Charlie?
CharlieI've got nothing to add to that.
OtherOkay, number 11. Mr. Buffett. Mr. Munger. This sounds serious. My name is...
CharlieI'm used to that.
QuestionerMy name is Uttobade from Munich, again a guy from Germany. We're going to meet in around about 14 days time again in Germany. In Frankfurt. at the Union Club. May I ask you a little bit ahead of the others, what are your reasons for coming to Germany? Thank you.
WarrenYeah, it's very simple. We want more, not that there have been hardly any so far, but we would like more family owners of German businesses, some cases in the family maybe 100 years, maybe 20 years, whatever might be. We want more owners who, when they feel some need to monetize their business. Think of Berkshire Hathaway. We want to be on their radar screen. We want to be in the same position. We want them to be in the same position that the Wertheimer family was or Paul Andrews family was here not so long ago or the Pritzker family was. When they have some reason, there would be a variety of them, that they want to convert a, the ownership of a good, very good company about which they care a great deal, translated
[1:10:50]
Warreninto money to think about calling us and if they care about their business, we are their best call. And I don't think we're anywhere near as prominent on the radar screen in Germany as we are in the United States. And that's something I probably should have done more about earlier, but now I'm going to hit four countries in Europe in a few weeks. And when we leave, I think we'll be somewhat better known what we're looking for, what we can do for those companies, why they should give us a call. I think we'll be better known a month from now than we are now.
WarrenCharlie?
CharlieYeah, and Germany is a particularly advanced civilization in terms of inventiveness and engineering. You go into an American printing plant now, and the names on the machines on the machines are all German, not all, but mostly. Now, some of the German names are Germans that came over here to America and formed printing equipment businesses. But it's just amazing the influence that the Germans have had on field after field in America. It's a very logical place for us to be looking.
QuestionerSounds like maybe Charlie should go. Number 12. My name is Len Yaffe. My wife, Ruth, and I live in Tiburon, California. I was wondering if the current economic stresses remind you of any prior period in U.S. or any other nation's history. And if so, is there anything we can learn from the prior period that might help us manage the current period better?
WarrenWell, they're all a little different, and they all have similarities. But this one obviously had more of its origins in the mortgage field than in terms of the residential real estate. estate bubble, but the troubles that begin in one area have a way of spreading to other areas. But I would say that in my lifetime, it's been, I can't remember one where this particular residential real estate bubble has sent out the shock waves and the exposure of other practices elsewhere to as to their weaknesses like this one. But I don't think there's any magic to the analysis or anything like that. I think that some stupid things were done that won't be done soon again, and they won't be done exactly the same again, but variations of them will pop up at some point because humans are what lead to stupidity and behavior. and there are these sort of primal urges that in terms of getting rich and using leverage and all of that sort of thing and wanting to believe in the tooth fairy and that pop up from time to time in human behavior and sometimes they pop up on a very big scale.
[1:14:11]
WarrenThe, in terms of giving us, having any great insights on solutions or anything of the sort, I don't have them, Charlie.
CharlieWell, no, but it was a particularly foolish man. Now, at earlier meetings, we talked about some idiot who decided that a credit delivery grocery business, like the old Buffett store, a web. Yeah, a web van, you know, internet-based delivery service for groceries. It really assonine idea. And of course, it met an ignominious failure. That was smarter than what the people did in this mortgage field. It was a lot. smarter. I just wish we had those brilliant people back that gave us webband, which, by the way, reminds me of my general attitude toward political developments. I have a rule. It's as follows. The politicians are never so bad you don't live to want them back. Polly Adam.
QuestionerNumber one. I'm Bob Klein from Los Angeles. Following up on the last question, can you speak to the accuracy of the financial statements of the world's major financial institutions. What should be done to properly value their assets like mortgages, leverage loans, CDOs, and other assets that are, as Charlie says, as good until reached for? Since the leverage at these banks and brokerage firms is generally 15 to 20 times their tangible net worth, there isn't much margin for error. So what can be done to improve the integrity of financial and statements?
WarrenWell, it's a very tough thing. I still lean strongly. There's a lot of controversy now about whether you should use fair or value, however that may be determined. In many cases, it's very hard to determine, but whether you should use that or some other figure like cost because people say that the present values are unrepresentative and so on. I think that you get more into more trouble as a society. when you start openly valuing things that, prices that make no sense in terms of what's going on, then what do you do your best to estimate them, even though those estimates may include many cases optimistic later on and certainly inaccurate in some respects. So I would stick with financial institutions at least having to attempt to report their assets on a fair value of basis. But when you get into instruments, I've used this illustration before, but when you get into a CDO squared, if you read a standard mortgage, a residential mortgage-backed certificate security, it may consist of thousands of mortgages backing up this instrument.
[1:17:35]
WarrenAnd then that instrument may be tranched into 30 or so different tranches, where each party has a different claim on the waterfall of one's received. Now, that instrument itself can be kind of difficult to understand. But then you take that and you create a CDO by taking some of the lower junior tranches of a bunch of these RMBSs, maybe 50 of them. And then you create a CDO out of this. So now you create out of a whole bunch of junior and perhaps, and very correlated and perhaps kind of lousy instruments, and then you put them in a CDO and say that because you put them all together and diversified in theory, you got a lot of AAA tranches of that was a big error to start with. And then when you took the lower tranches of a bunch of CDOs and stuck them into a CDO squared, that was nuttingness squared. And if a residential mortgage-backed security had a 300-page prospectus, and you had to read 50 of those to understand the CDO, you're up to 15,000 pages. And if you had to read 50 more CDO prospectuses of the material behind that to evaluate a CDO squared, you had to read 750,000 pages, presumably, to evaluate one's security. And that was madness. To let people value that sort of thing, because they say the market at 10 cents on the dollars on representatives, so instead of using that, I'll use the 100 cents I paid, I think would be an abomination. I think that the discipline, mild as it may be, of telling management that you're going to have to value this stuff at market, may keep them from doing things that they would otherwise do that would be very stupid if they think they can get away with valuing them at some fictitious, or at cost, which would be fictitious in terms of markets. So I lean toward the market value approach. I don't know. really complex instruments. I just don't know how you value them. Charlie was on the Audit committee at Solomon, and they would spend hours and hours and hours. And I think you found one that was mismarked by 20 million or something like that, back when 20 million was real money. It was a floating plug.
CharlieWell, we had the floating plug, too, yeah.
WarrenYeah, no, there's a lot that goes on in the bowels of American industry that is not pretty. So you can add the sausage in law. Maybe you should have accounting practices of things that people shouldn't have to witness the making of. I think that part of the trouble comes from some prominent members of my own Republican Party.
[1:20:31]
CharlieSome of these people overdosed on Ayn Rand and what they learned in Economics 101. And they sort of got to thinking that if anything happened as a natural response of human nature in a free market system, Even if it was an axe murder, it was a desirable development and part of a wise distribution of risk. I don't know why grown-ups get these silly ideas, but they do. And one of them headed the Federal Reserve. I think Alan Greenspan did a very good job averaged out, but he did overdose a little on Ayn Rand. And he had this tendency to believe that if it happened in a free market, it had to be all right. I think there's some things that should be free. forbidden. And I think that the world would have worked better if a lot of things that were described as follows. This is a financial innovation which will diversify risk. If that phrase had been banned from all discords, the country would have worked better.
OtherAre you two? I'm Larry Tudrick from Elkrove Village, Illinois. My question is really more a plea. Get out your copies of the U.S. Constitution, read over Article 1, Section 8, the enumerated powers, the 9th Amendment, the 10th Amendment, and give Roger Pilon a call at the Cato Institute. I think everything that's gone on today regarding finance and economics has to do with our Constitution, which was really based upon property rights and contract rights.
QuestionerDo you have a question, though, or not?
OtherYes, sir. Yeah, okay. Well, no, I don't. I sort of suspected that. Yeah, I made the . Okay. That's really it.
QuestionerOkay, well, thank you. We'll go on to number three. Yes, my name is Dan Schmidt from Burnsville, Minnesota. And I'd like your opinion on the future of mass transit and how it relates to railroads. And will these transit systems and railroads be expanding in the future. In terms of passenger traffic?
OtherCorrect.
WarrenYeah. The American public basically doesn't like mass transit. I mean, it endures it when it needs to, but they're, the American love affair with the car, which translates to an aversion to mass transit is sort of overwhelming. I used to be involved in bus companies, and, you know, You can make all kinds of rational arguments to people about the use of man's transit. But one person to a car seems to be an enormously popular method of moving around. And I think it's unlikely that we see a large expansion in mass transit in this country. I think the American public is, for one reason or another, whether they're trained to it,
[1:24:04]
Warrenor whether it's just something in their genetic. make up they do not like going out and waiting for buses or whatever it may be or trams and they they want to get in their car and even with gas and close to $4 a gallon they want to go someplace and pay a lot of money to park and and they don't want to double up in the cars very much and that just seems to be human nature. Maybe it'll change, but I never like to bet on something that was gone in one direction for a long time reversing unless the evidence is pretty strong. Charlie?
Charliehave a more optimistic view of it than I have.
OtherNumber four. Hi, I'm Tom Nelson from North Oaks, Minnesota. My question is for Charlie. If you were in charge of this country, how would you handle Al Gore's alleged climate crisis?
CharlieWell, of course, I'm in the awkward position of agreeing with Al Gore that we shouldn't be burning up so many hydrocarbons. I've just got a different reason. His brain doesn't work the way mine does, and you'll have to judge for yourself, which you prefer. We'll have a vote a little later.
QuestionerNumber five. Good afternoon, Warren and Charlie. This is Frank Martin from Elkhart, Indiana.
WarrenNice to have here, Frank. Thanks, Warren.
QuestionerOne of my favorite aphorisms from you is to win, first you must not lose. The excerpt that you read a few moments ago from the 2006 annual report contemporized that aphorism. And I think was both prescient and prophetic. Notice I said prophetic and not pathetic.
WarrenI noticed. Yeah, thank you.
QuestionerOn several occasions, disagreeing with Alan Greenspan, you have called derivatives weapons weapons of financial mass destruction. We both are on record as believing the country is currently in recession. If corporate default rates, which are currently benign, escalate should the recession deepen, and we get back to default rates common in 2002 or back in the early 1990s, will the credit default default swap problem materialize as a serious threat to financial stability. I respect you as one of the all-time great pricers of risk. You and Charlie must consider selling insurance without reserves, without really understanding pricing risk to be an abomination. Is there a chance in your job? judgment that the CDS market may eclipse the subprime mortgage market as the next element of the financial meltdown.
WarrenThe credit default swap market, you can see these figures, and I'm repeating them, I'm not I'm not validating them, but the last number that came out was over 60 trillion.
[1:28:04]
WarrenNow there's lots of double counting and these things and all that sort of thing, but there's no question there's a lot of money. on both sides of the credit default market. They call them credit default swaps. You can think of it as insurance against a company going back up. And actually, we have written two types of derivatives on a big scale. We explained them in the annual report. We explained them again in the press release that was issued yesterday. And we have insured in the – we have written insurance. that pays off to somebody else in the event of default by companies listed on given indices. There's a high yield two, a high yield three, and so on through high yield nine. And we've written various tranches of risk on those things. And I think we're going to make significant money, although we could lose money to it. It will depend on credit experience in the next few years. I think there's no question that the – that corporate default rate will rise. That's been cranked into the calculations I make in writing this insurance. The question of whether the credit default swap, the size of that market, will lead to any kind of chaos in the financial markets, I think probably not. Although if a Bear Stearns had failed, for example, you would have had had had a huge unwinding of contracts by counterparties who had to establish their claims and all that. So you would have had rather chaotic conditions. Anytime a credit default swap is merely a payment by one party to another, so it's a negative sum item. When somebody loses money on a subprime loan, on a mortgage loan, they've lost real money. Now, somebody may be buying the house later on cheaper than they will. would have bought it earlier on. But there is not an equivalent swap of dollars at the time that a subprime loan goes bad. With the credit of wealth swaps, there is a swap of dollars. So as long as the counterparties pay, if A is up a million dollars, B is down a million dollars, and the question is, if you get a Bear Stearns-type situation that didn't get interrupted by the Fed, whether counterparties would fail and you get a lot of trip hammer effects. I don't think that's going to happen, and I think the chances of it happening were reduced significantly by what happened, by the fact that the Fed stepped in, it bears turns. We've had enormous payments from one party to another in terms in terms of credit default swaps.
[1:31:03]
WarrenThere's a firm called Fairfax Financial that made a relatively small firm that made a relatively small firm that made, I remember well over a billion dollars in credit default swaps. Well, somebody else lost the billion, but it didn't pose a threat to the system. It posed a threat to the guy that lost the billion, but he had to keep putting up collateral, presumably, as he went along, so it wasn't like he was called overnight for the billion. So even though credit the false swaps, and they've been the most volatile of instruments in the last 18 months. There's been nothing that swung us much, maybe there's some subprime index. that has, but virtually as credit, of all swaps. And that really hasn't created a problem in the system. So I do not think, particularly if the Fed is going to step in when they see investment banks that they regard as too big to fail, or banks that are too big to fail. I don't think that that will probably be the cause of the problem. It may be a cause of enormous losses to some institutions, but those will be matched by enormous gains by their institutions. I do think there's a, there's that, the problem of the overnight disruption in the system, which Bear assurance, I think, would have produced, but maybe something else could produce. It a nuclear bomb going off in Manhattan, you know, or something of the sort. That kind of thing where there's a discontinuity where the, where the collateral posted the previous day was totally inadequate in terms of the kind of movement that occurred. Certainly at that time. something like having a large amount of CDS is out there. It could cause it, it could exacerbate the chaos to a considerable degree. Charlie?
CharlieWell, I think the answer to your question is, could we have a big time mess out of credit default swaps? Is yes, we certainly could. I think the stupidity, while it's extreme, is not as bad as swimming bums off skid red grow to give the mortgages to buy houses, but it's pretty bad. One of the things is interesting about credit default swaps, which isn't much commented on, is let's say you're insuring against the outcome that people will lose money on a $100 million bond issue, and the credit default swaps, instead of amounting to $100 million, amount to $3 billion. Now you've got people with $3 billion worth of contracts that really have a big incentive in having somebody fail. And of course, they may manipulate in some fraudulent or extreme way with belittle loss in order
[1:33:56]
Charlieto make the big collection. It was insane for the regulators to allow this outcome to occur in America. It used to be illegal for people who had no insurable interest just to buy life insurance on people they didn't know. society was afraid that people would do that and then kill the person. And that happened in Los Angeles. We had sweet little old ladies that got bums off Skid Row. They take out life insurance on them and in two years went past, they murdered them with faked hit-run accidents. And so human nature is up to this kind of banality where you have big payoffs and why we wanted these enormous bets to be made in relatively unregulated markets where the bets are 10, 20 times the size of the original bond issue. It's crazy. If I did this as a satire, you'd say I was overstating. I'm understating. We have a major nutcase, bunch of regulators and proprietors in this field. Charlie, one invisible hand, zero.
QuestionerLet's go to number six. Hi, Mr. Buffett and Mr. Munger. My name is Nehari Ganila, and I'm from Houston, Texas. 7th grade and I'm 12 years old. I was wondering why you do not believe in dividends, Mr. Buffett, when your mentor, Ben Graham, believed in dividends. He influenced you in so many ways, but why weren't you influenced into believing in dividends? Thank you.
WarrenWell, I had to show a little individuality in some respect. Well, the answer is I do believe in dividends in a great many situations, including many of the ones, companies in which we own stock, the test about whether to pay evidence is whether you can continue to create more than $1 of value for every dollar you retain. And there are many businesses, take Seas Candy, which we own. Seas Candy has paid everything virtually out to us that they've earned because they do not have the ability within Seas Candy to use large sums, which they earn. intelligently in their business. So it'd be an enormous mistake for Seas Candy to retain money. So they distributed Berkshire, and we hope that we move that around in some other area where that dollar becomes worth a $1.10 or $1.20 cents in terms of present value terms. If we do that, the shareholder, whether they're taxable or whether they're not taxable, whether they're a foundation, or whether they're living on income even, they are better off. if we retain the money, because if they were going to get a dollar in dividends and it became worth $1.10 or $1.20 in market value immediately on a present value basis, they're better
[1:37:03]
Warrenoff selling a small percentage of their stock and realizing the required amount that way, and they will have more money when they get all through doing that than if we paid it in dividends. But if the time comes, and it will come someday, when the time comes, when the time comes when we don't think we can use the money effectively to create more than a dollar of market value per dollar retained, then it should be paid out. And like I say, we do that individually within Berkshire, but because we have this ability to redistribute money in a tax-efficient way within the company, we probably had more, we had more reason to retain all of earnings. If Seas Candy were a stand-alone company, we would simply pay out a lot of the earnings, practically all of the earnings and dividends, just like we do now, except it goes to Berkshire. We like the companies in which we have investments to pay to us the money they can't use efficiently in their own business. In some cases, that's 100% of what they earn. In some cases, it's 0% of the earn. We own some stocks that don't pay any dividends. Costco paid a very small – did they pay any dividends for a while, Charlie?
CharlieAnd they, while they were growing very rapidly, they paid no dividend, and finally, they are paying one.
WarrenBerkshire's policy is much the same. Warren has always planned on paying large dividends out of Berkshire, and he does it in the mode of St. Augustine when he said, God give me chastity, but not yet.
CharlieRight. I've always admired that.
QuestionerNumber seven. Good afternoon, Mr. Warren Buffett. Chari Monger shareholders. My name is Richard Myers. I'm from Wichbeck, California. In respect to your opinion earlier, I will go down to Southern California, Arizona, and ask the question, if you have knowledge or interest of the corridor for electricity coming in from Arizona into California, or is it going from California back into Arizona? As California is known as a sunny state, we should be able to have. our own solar systems. I have one more. I have saved $20 by staying in line since 2.30 this morning, and I would like to know which one of these books that I could buy that would do me the most good and my tribe. Thank you.
WarrenWell, tell us about the books. You mean the whole list? Which one I can buy for $20? Probably the ones that haven't sold very well today. Yeah, I'm not that familiar with the prices of the books. We try to have a good selection.
[1:40:03]
WarrenI'm a little partial to Larry Cunningham's books because, Larry Cunningham's book, because it consists of a rewriting of all my own stuff. But, no, I think the whole collection is, I wouldn't want to recommend one over the other. And I know nothing about that first subject.
WarrenCharlie, do you?
CharlieWell, I know a little. You know, California did cause coal plants to be built near the Grand Canyon. because California didn't want the pollution and it needed the electricity. And they were near the coal mines. And eventually that caused huge uproar a lot like we heard about the Klamath River. And the Grand Canyon had started having some visibility problems. And I think those things are maybe decommissioned or about to be decommissioned. So it's a very complicated subject. And I'm glad to. to quit claimant back to you.
OtherOkay, number eight. Good afternoon, Mr. Buffett and Mr. Munger. My name is Arjun Rowe. I am in the eighth grade and live in Periland, Texas. I ask everybody to call me Tony after reading your 2006 annual report. My question is, do you foresee Berkshire buying any businesses in India or China in the near future.
WarrenWell, Tony, I, we would like to. The odds are somewhat against us buying in any major country, except the United States, if you name any specific one. I would hope in the next three years that we might get a chance to buy one or two companies of size. We're always buying little companies that fit in with business. that fit in with our present operations. Right now, my tech has several possibilities outside the United States. But in terms of major businesses that Berkshire would buy, you know, if we get lucky, we'll buy one or two in the next three or four years that's based outside the United States. We're trying to increase our chances of doing that. Whether it turns out to be China or India or Germany or the UK or Japan, Who knows? There's a lot of luck in that, just in terms of specific families, thinking of us specifically. But we certainly wouldn't rule it out. We've looked into developing an insurance company in some countries. Both India and China restrict the percentage ownership that Berkshire could have in any domestic insurance company. They both have laws that would keep us. I know it's 25% in China, and I think it's 20% And I think it's 25%, but it may have been changed in the last year or so in India. We do not probably want to go into a country to own 25% of a company like that.
[1:43:21]
WarrenWe would want the laws to allow us to do more than that to make it worth our while. But I hope we own something. Certainly at your age, you will see the, you will see the day that Berkshire owns businesses, in my view, you'll see the day that they own. We own businesses in both countries.
WarrenCharlie?
CharlieNothing to add.
OtherOkay, number nine.
QuestionerGentlemen, my name is Jim James from Minnesota, actually Minneapolis. And clearly you've inspired 38,000 people here today. Books have been written about you, not solely for your financial prowess, but because of the people you are. Could you share two or three influences on you? Those kinds of people. Those kinds of people. educators who have shaped your thinking on life and on investing. Thank you.
WarrenWell, I think the biggest educator. Certainly in my case, initially was my father. I think probably Charlie Wood said the same thing. And I think you, very, very, very important who you marry. And I've been lucky there. And those are great teachers. And of course, I had Ben Graham. I had Dave Dodd. I've learned from all kinds of people who've written books over the years. I've just devoured those. And you're picking up things here and there. Charlie learned a lot from Ben Franklin, obviously. Many people think Ben Franklin learned a lot from Charlie. But we both learned a few things from my grandfather at the grocery store. But your parent, I tell the students, you know, the most important job you have, you know, as a teacher, as being the teacher to your teacher, your children. I mean, they are, you're the ultimate teacher. You're this big, great big thing, you know, provide warmth and food and everything else, and they're learning about the world. And they're not going to change a lot of that when they get into graduate school or sometimes. So it's, and you don't get any rewind button. You don't get to do it twice. So you have to be, you have to do your best as a teacher, and you teach by what you do, not by what you say, with these young things. And by the time they've got the place where they're going to do, A place where they're entering a formal school, they probably learn more from you than they're ever going to learn from anybody else.
WarrenCharlie?
CharlieI would argue that differing people learn in differing ways. With me, I was put together by nature to learn from reading. Some guy's talking to me. He's telling me something I don't know.
[1:46:07]
WarrenI don't want to know. I already know. Or he's doing it too slow or too fast. In reading, I can. and learn what I want at the speed that works. So to me, reading is what works for my nature. And to all of you who are all like me, I say, welcome. It's a nice fraternity. You probably learn more from your father than you know from all the reading you did it, don't you think? In terms of actually forming you?
OtherWell, yes.
WarrenAnd my father was the type that always did more than his share of the work and took more than his share of the work. share the risk. All that kind of example was, of course, very helpful and you learn it better from a person close to you. But in terms of the conceptual stuff, I'd say I learned it from books. Now those are fathers in a different sense, the people who wrote the books.
OtherYeah, well, one book obviously changed my whole financial life. When I, you know, by happenstance, probably, I picked it up. I can't even remember why I bought it back when I was in school. But if you just keep picking up enough books, you'll find some. You'll learn a lot. And I used to go through the Omaha Public Library and just go down the shelves. It's kind of an inefficient way maybe of doing it. But if you read 20 books on a subject you've got an interest in, you're going to learn one hell of a lot. You don't know which one you're going to learn it in, though. So I would take having, if you get the right parents, you're very lucky. You're very, very lucky. And it's better than going to the right school. or anything of the sort. And to get the right spouse, you've just doubled down.
QuestionerNumber 10. Gentlemen, my name is Mark Slaby. I'm from Chicago. I probably am going to be the one of the last guys speaking today or asking a question. So on behalf of 31,000 people, I'm going to thank you for the respect and a common courtesy that you exhibited the shareholders today. Thank you. My question is this. I work for a fairly large computer company that's a competitive Mr. Gates up there. And I'm curious, as a common ordinary person and a common shareholder, what can we do, 31,000 some odd folks here do about the outrageous salaries, bonuses, perks of these enormous corporations that we will never have a chance at a shot at, you know, working with them and that amount of wealth and what would you advise us as common shareholders that we can do to get this country going the right way and get this issue going the right way.
[1:49:11]
WarrenWell, I would say that, particularly on the compensation question, you can't do much, but there are relatively few people that could do a lot. If the half a dozen or so largest institutional owners took a position on extreme cases, I don't advise them trying to go after each one, but when they see something egregious, if they would simply withhold their votes and issue a short statement as to why they're doing. That has an effect on, particularly on boards of directors. Big shots don't like to be embarrassed. They don't, that gets their attention. The press is an enormous factor. Press is more of a factor in changing corporate behavior than regulations or Sarbanes-Oxley or that sort of thing. You want a good press. But the press needs to make. material, and the material, the raw material for that, could be, I won't name the organizations, but if you take the half a dozen largest investment organizations, I think it would have a lot of impact if they would, if they could get together on short statements when they felt pay was really egregious. And I don't know what you individually can do about that, and I don't know how you create the incentives for the big institutions to do that. I mean, it doesn't really do that much for them personally. I don't think, I think the, a lot of the checklists that institutions use is determining whether they approve of corporate practices are asinine. I mean, they, you know, they get, they get sort of the issue to juror and they get, and they get people recommending how they vote their proxies, which is kind of silly. I don't know why they can't make up their minds themselves as to what they think is proper or not proper. And Ben Graham, many years ago, bemoaned investors as a bunch of sheep. And with big institutions, I haven't seen much difference, but it wouldn't take many of them. It would take just take a few of the biggest ones and the willingness to speak out. And the press would do the rest, and boards would respond to that. But they're not going to respond to you. I mean, I have to be, you know, totally candid about that. small shareholder, you can write the most persuasive arguments in the world, and I've been on the boards where they've received those kind of letters, and basically they turn them over to the corporate secretary and say take care of those and not, you know, or something of the sort. It takes real effective pressure to change behavior where the behavior is in the self-interest of that person.
[1:52:05]
WarrenPeople do not give up self-interest easily. Charlie?
CharlieIt's an old question. In England, where they had a lot of class warfare, they at one time got the income taxes up to like 90 percent. So there just wasn't any possibility of having a large earned income, except, you know, by not reporting it. The tax rate got that high. That was quite counterproductive for England. And so you can get a politics of envy that sort of ruins the economic system because of the natural resentments and jealousies and so forth involved in excessive compensation. I think the people taking the compensation have a moral duty not to take it. I would argue that when you rise high enough in American business, you've got a moral duty to be underpaid, not to get all you can, but to actually be underpaid. If people are going to be generals and archbishops and everything else at low pay, I don't see why leaders are great big enterprise. can't take less than the last dollar.
QuestionerDo you have any suggestions on how to implement those sentiments?
WarrenIt's very difficult. Charlie has always said that envy strikes him as the silliest of the seven deadly sins because when you're envious of somebody, you feel worse and they don't feel any way. They feel fine. In fact, maybe they even feel better because you're envious. So it's such a counterproductive type of thing. So we rule out envy as a... as part of your repertoire and gluttony, that has some upside to it. I mean, maybe temporary, may have some side effects, but, you know, there's something to gluttony. And so lust, of course, I'll let Charlie speak to.
QuestionerNumber 11. Hello, I'm Clement Lowe from Toronto, Canada. I would like to thank you for the wonderful meeting. And I think I've learned a lot more. here in a few hours than many, many more hours during university days. My question is, you have invested in drug companies such as Johnson and Johnson and Johnson and Zanovi. How do you evaluate the pipeline of these companies and know if their competitive advantage is indeed enduring?
WarrenWell, that's a good question, and unlike many businesses, when we invest in something like pharma, we don't know the answer on the pipeline, and it'll be a different pipeline. anyway, five years from now. So we don't know whether Pfizer or Merck, you name it, Johnson & Johnson. We don't know which of those will come up with a blockbuster commercial drug three or four years from now.
[1:55:13]
WarrenAnd we don't try to assess it. What we do feel is that we have a group of those companies bought at reasonable prices that overall, pharma will do well, maybe not quite as well as they have in the past. But they're doing something enormously important. something enormously important. They're doing something that should offer chances for decent profits over time. And we do not pick one by one. I could not tell you what's the number one potential in the pipeline of a J&J or Santa Fe or whatever you want to name. So I think in that area, actually a group approach makes sense, which is not the way we would go at the banks or something of that sort. I do think if If you buy pharma stocks at a reasonable multiple, a group of them, you know, you'll probably do okay five or ten years from now. I would not know how to pick the specific winner. Charlie?
CharlieWell, you speak from a position where you have a monopoly of our joint knowledge about pharmacology. We will move on to number 12. He gets cranky later in the day. We're just about to the end, but we can take a couple more.
QuestionerThank you. My name is Shao. I'm coming from Wushi, China. Thank you, Mr. Perfe and Ms. Mungo, for your unbiased opinion on China and Olympics. To support your opposition, we have a group of chairman and CEOs from Chinese public companies to come to Omaha and try to learn from the best of how public companies should be around. Thank you. Quick question. We observed. that you made a quick trade on PetroChina, not a typical buy and hold approach you do on investment. Our question is, when it comes to selling PetroChina, what comes to your mind? And what suggestions you may have to these group of executives? There are positive forces in China, and we welcome everyone to Olympics. Thanks.
WarrenThank you. And I met Dr. Gao from the China Investment Corp here a few months ago. I was very impressed by him. I had lunch with him here in Omaha. The Petro-China decision, just as we made it to buy it at a valuation overall of $35 or $40 billion, when we thought it was worth $100 billion, when oil was at $70,000. oil was at $70 a barrel, roughly $75. I figured the value was about $275,000 or $300 billion, and we could sell it at that price. And we no longer felt it was undervalued compared to other oil companies, so we sold our stock. Now, incidentally, right after we sold it, it went up dramatically because, as you know, they issued
[1:58:34]
Warrenage shares in China, and it became very popular. And at one time, PetroChina became the most valuable company in the world. measured by market value, which would have come as enormous surprise to investors seven or eight years earlier. So they've done a terrific job. And if it went down to a price that we thought was a discount, significant discount to its valuation, we would buy PetroChina again. The, in terms of, I'm not so sure we don't have a lot to learn from the Chinese in terms of business currently, more than they have to learn from us, I don't, I'm sure I would want some of our practices to spread to China. It's a remarkable society, what's going on there now. And I went, I did go to Dalian not long ago, and I must have traveled for 45 minutes from the center of town out to our plant there. And I just saw really hundreds of plants, factories that have developed in recent years. It's, the economy is, the Chinese people are starting to realize their potential. I mean, what it amounted to is you had for centuries. You had people of lots of ability, but a system that did not unleash their potential. And now it's starting to be unleashed, and that's why you're getting very substantial GDP growth per capita, and I think it'll continue. I would just look for the best practices in American industry as you see them and copy them, and I would discard the rest. And I think it's, you know, it's how you learn about human behavior. You try to, if you look at an effective individual, you try to figure out why they're effective, you know, why is Don Key or why are Tom Murphy, why are they so effective? Why do people want to be around them? Why are they leaders? Why do people love them? And you see certain human qualities, and you should copy those qualities. And when you see some guy that should have everything going for them and everybody in town hates them, you know, you want to make sure you don't have any of those qualities. Well, I would do the same thing, in terms of looking at businesses in this country and try and look for what I admire and emulate it and make sure that try very hard not to let the things that you find over here that are distasteful to you creep into your own system. Charlie?
CharlieWell, I hope you'll go back to China and tell them that you met at least one fellow that really approves the Confucius emphasis on reverence for elderly males.
WarrenI think you should dig yourself out of that by including females too, Charlie.
[2:01:26]
OtherThat wasn't Confucius' idea. Oh, okay. No reason why you can't modify it. Okay, we'll have one more, and then we'll take a break and come back for the business meeting in a few minutes. Number one. Mr. Buffett and Mr. Munger, my name is Cynthia Beeman, and I'm from Atherton, California. This is my question. What is your fondest hope for Berkowitz? Harkshire Hathaway moving forward in time?
WarrenWell, in a general way, I hope for two things. Obviously, I hope for decent performance. And I hope that the culture we have is maintained, which is both shareholder oriented and manager-oriented, and that we are regarded as the best home in the world for large, wonderful family businesses. And I think the performance and those two goals will be intertwined in a way. in a way. And I not only hope, but I fully expect that what we've tried to build into Berkshire lives far beyond, you know, my tenure as CEO. And I think it will because, A, we've got the right candidates to succeed me. And beyond that, we have a board. We have a bunch of managers that have all seen how well the system works. So I think that, I think we have about a stronger culture, as you can find in this country among American businesses. And if that's continued, I'm really sure it will be, for a long, long, long time, I think we will get decent results. We won't get great results because you can't get them from our size base. But that's my hope that people, 20 years from now, if they have a fine business, they've spent a couple of generations building, and they immediately think, if they have to sell it for some reason, They think Berkshire hathaway is the place where we want the ownership of this business, and we want, as managers, we want to continue working at that company for the rest of their lives. And if we achieve that, we'll have something fine for shareholders and we'll have something fine for managers and owners of the businesses we buy. Charlie?
CharlieYeah, I would say that I would like to see Berkshire even more deserved to be an exemplar. And I would like to see it have more actual influence on changes in other corporations. I think there are things that have happened here that will be useful to others. We'd also like it to have the oldest living managers, but that's a minor point.
QuestionerThank you. Thank you. Thank you. Thank you. Thank you.
OtherThanks. What we'll do is, we'll just break for five or so minutes and then we'll reconvene and have the formal business meeting
[2:05:01]
Warrenafter that at four o'clock for the international visitors, those from outside of North America. We will, Charlie and I will meet with them personally. And I thank you all for coming. I hope you come back next year and bring your friends. Thank you.
OtherTo appropriate questions you may have concerning their firms' audit or the accounts of Berkshire. Mr. Forrest credit or Secretary of Berkshire, he wants to He 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 are Walter Scott and Mark Hamburg. Does the Secretary have a report of the number of Berkshire shares outstanding entitled to vote and represented at the meeting?
OtherYes, I do. As indicated in the proxy statement that accompanied the notice of this meeting that was sent to all shareholders of record on March 5, 2008, being the record being the record date for this meeting, there were 1,081,013 shares of Class A, Berkshire Hathaway Common Stock Outstanding, with each share entitled to one vote on motions considered at the meeting, and 14,33,3,343 shares of Class B, Berkshire Hathaway, Common Stock Outstanding, with each share entitled to 1,200th of one vote on motions considered at the meeting. Of that number, 883,428 Class A shares, and 10,921,716 Class B shares are represented at this meeting by proxies returned through Thursday evening May 1.
OtherThank you. That number represents a quorum and will therefore directly proceed with the meeting. First order of business will be a reading of the minutes of the last meeting of shareholders. I recognize Mr. Walter Scott will place a motion before the meeting.
OtherI move that the reading of the minutes of the last meeting of the shareholders be dispensed with and the minutes be approved.
OtherDo I hear a second?
QuestionerSecond?
OtherBarely. I hear a second. The motion has been moved and seconded. Are there any comments or questions? We will vote on this motion by voice vote. All those in favor say aye?
QuestionerAye.
OtherOpposed? The motion is carried. First item of business is to elect directors. If a shareholder is present who wishes to withdraw a proxy previously sent in and vote in person on the election of directors, he or she may do so. Also, if any shareholders the president has not turned in a proxy and desires a ballot in order to vote in person, you may do so.
[2:07:35]
OtherIf you wish to do this, please identify yourself to meeting officials in the aisles who will furnish a ballot to you. With those persons desiring ballots, please identify themselves so that we may distribute them. I now recognize Walter, Mr. Walter Scott, to place a motion before the meeting with respect to election of directors.
QuestionerI move with Warren Buffett, Charles Munger, Howard Buffett, Susan Decker, William Gates, David Goddisman, Charlotte Gaiman, Don Keough, Tom Keough, Tom Murphy, Murphy, Ron Olson, and Walter Scott be elected as directors.
OtherIs there a second of the motion? Somebody second of the motion?
QuestionerSecond.
OtherIt has been moved in second of the Warren, Buffett, Charles, Munger, Howard, Buffett, Susan, Decker, William, Gage, David Goddustman, Charlotte, Guyman, Donald, E.O., Thomas Murphy, Ronald Olson, Walter Scott, be elected as directors. Are there any other nomination? Is there any discussion? The nominations are ready to be voted upon? If there are any shareholders of voting in person, they should now mark their balance on the election? mark their balance on the election of directors and allow the ballots to be delivered to the inspector of elections. With the proxy holders, please also submit to the inspector of elections a ballot on the election of directors voting the proxies in accordance with the instructions they've received. Ms. Amick, when you're ready, you may give you a report.
QuestionerMy report is ready. The ballot of the proxy holders in response to proxies that were received through last Thursday evening cast not less than 935,155 votes for each nominee. That number, far exceeds a majority of the number of the total votes related to all Class A and Class B shares outstanding. The certification required by Delaware law of the precise count of the votes, including the additional votes, to be cast by the proxy holders, in 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.
OtherThank you, Ms. Amick. Warren Buffett, Charles Bunker, Howard Buffett, Susan. Dekker, William Gates, David Goddustman, Charlotte, Guyman, Donald Keough, Tom Murphy, Ronald Olson, Walter Scott have been elected as directors. Does anyone have any further business to come before this meeting before we adjourned? If not, I recognize Mr. Scott to place a motion before the meeting.
QuestionerI move this meeting be adjourned.
OtherIs there a second?
QuestionerA motion to adjourn has been made in second, and we will vote by voice. Is there any discussion? Not all in favor? Say aye.
OtherAye.
QuestionerAll opposed say no.
OtherThe meeting is adjourned. Thank you.