OtherIn an op-ed out this morning in the Wall Street Journal, business roundtable chairman Jamie Diamond announcing the group's support of companies moving away from guidance on quarterly earnings. While this isn't a new idea from the JP Morgan chief executive, the backing of the business roundtable and big financial names like Warren Buffett brings a new twist to all of this and a lot more heft too. Joining us right now is Berkshire Hathaway's chairman and CEO Warren Buffett. And J.P. Morgan Chase, chairman and CEO Jamie Diamond, who is also the chairman of the business roundtable. And gentlemen, welcome to both of you. I believe this is the first time that the two of you have ever done a television interview. Is that correct, Jamie?
OtherI think it is. And I'm thrilled to be on with you, Becky, and with you Warren. And Warren and I have been on stage a couple of times, but not on TV.
OtherYeah, right. This is big news, and it's something that both of you have been very interested in for a long time. But I just wonder, I mean, you all have very few things that you can really throw your weight behind, that you can really say that this is important to us, this is what we want to be. be doing. Jamie, why the subject matter? Why is this such an important move?
OtherYeah, so, you know, America, the largest companies in America are owned by literally 100 million people, including veterans, retirees, teachers. You know, we all feel a tremendous obligation to deliver in the long run to build great companies and that therefore corporate governance is important. And one important step, and I actually really learned this by listening to Warren, is some of the ills and problems of people making short-term forecasts, particularly quarterly earnings forecast, earnings forecast, not transparency, not openness, not having quarterly reporting. And it can often put a company in a position where management, you know, from the CEO down, feels obligated to deliver earnings and therefore may do things that they wouldn't otherwise have done. So if you have a good board, you know, the board will say, if you have a great investment opportunity and you say it's going to cost me another couple hundred million dollars this quarter, you know, someone like Warren would say, absolutely do it. That's good, that's future earnings. Don't hurt your company because you're trying to meet a short-term thing. So we've been pushing on it.
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OtherAnd, you know, Warren's been part of the, one of the person making a real thing. So we think it's just a good thing to give people an umbrella to move away from it. I'm hoping a bunch of companies drop it right away. Warren, this is something you've been preaching about for a long time, too. What's an example of where you've seen it gone wrong?
WarrenWell, I've seen it when companies get where they're sort of living by so-called making the numbers, they do a lot of things that really are counter to the long. term interests of the business. And I've never seen a company whose performance has been improved by having some forecast out there by the CEO that we're going to earn X because it's sending, it's not only sending the wrong message and delivering the wrong results to the company and to the country, it's also teaching the people that work under him or her that quarterly performances is the end game. I tell our managers, just pretend you're going to own, is the only business you and your family are going to own for 50 years and you can't sell it, and you'll make the right decisions. Have you seen this kind of play out the wrong way, either in the boards that you've sat in or the companies that you've owned, other friends that you've known?
QuestionerBecky, I've been on 20 boards of publicly owned companies, not counting Berkshires, and I have seen, I have seen managements that I really think well. of personally. I'd be glad if they married my daughter or were named as executives of my will or moved in next door. But they get tempted by this, the predictions they've been made, their ego gets involved, and when they find they can't make the numbers, sometimes they make up the numbers. And it's a bad, it's a very, very bad practice. And once it gets going, it feeds on itself. Because if you're in better, it's a bad practice, it's a very, it's a very bad practice. And once it gets going, it feeds on itself. because if your investor relations department tells you, you know, we put out you're going to earn a dollar rate and you get this reputation for, you know, making your numbers or beating your numbers, you're going to do some very stupid things at some point because business just doesn't work that way. And for 53 years at Berkshire, you know, I consider Berkshire an unfinished painting all the time and the horizon really is. is infinity as far as I'm concerned. Jamie, what does this mean from a real perspective? Are the companies in the
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OtherBusiness Roundtable, I think there are 200 companies, are they going to not be issuing quarterly guidance at this point?
OtherYeah, so let me just comment on what Warren said. So first of all, remember, this goes down in a company. So there could be pressure at the divisional level, the sales level, that they should go do something different they might otherwise do. And very often, it's very easy for a CEO to change a short-term profit number by not doing marketing they should do, by not opening the branches they should owe. or by, you know, selling more product at a cheaper price, they can hit a revenue number or something like that. So it just increases to disincentives. And like Warren said, it feeds in itself. If you start meeting that and you have to meet it and you have to meet it, you know, years later, you'd find that it corrupted. And so I think it's a good thing that people really careful about how and when they use earnings guidance in particular. And so the BRT, you know, I think of the BRT, something like 60% of our members do annual earnings guidance. You know, I would personally eliminate that to one day. and something like only 20% plus and minus do quarterly. But this is the first step to try to get people to focus in the long run. I should also say, by most of these companies, they're pretty good at focusing in the long run, too, in terms of R&D and capital expenditures. This is just one case that we think we should go another step to improve the governance of corporate America.
OtherWell, Jamie, let me ask you. You know, you mentioned that it's up to a CEO's discretion to be able to do this. If you wanted to, how could you change the numbers at JP Morgan to try and do this if you were more focused on short term.
OtherWell, you can change interest rate exposure by making a phone call and do some swaps and add hundreds of million dollars of revenue. You can cut marketing. A lot of people cut marketing because that's one of the easiest things to cut. You can reduce, you can pay people left. I say it's like airplane maintenance. You can reduce airplane maintenance, but that's a really bad idea. And so, you know, people shouldn't be doing those things. Tell me if you're doing that any place.
OtherWell, that's kind of what it is. You're doing, you don't have to build a new data center. You should build the new systems you need. You should build the new systems you need. You should do
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Questionerthe R&D you need and explain it to your shareholders and your board. And you know, of course, you know, some of the CEOs will say it's the buy side. I mean, the sell side that we put pressure, but I'm trying to say to people, be free to drop it. You'll be okay. Companies have done it. The good smart shareholders don't mind. You have the best shareholder of the world sitting right on this TV telling you it's better. He prefers it. He does want to hear how you're doing, how you're thinking about the future, what you're investing in. But, you know, he knows that quarterly earnings, they're a function of the weather, commodity prices, you know, volumes, competitor pricing. And we don't, you don't really control there as a CEO. Sometimes you're just kind of like, you're the cork in the ocean, but do the right thing anyway, and you're going to be fine in the long run. Warren, what do you want to hear from companies in terms of guidance and what they tell you and what they don't so that it doesn't put those artificial constraints on them?
WarrenWell, I want to talk, hear from them what I would hear if I were their sole partner in a business. And they were the operating partner. And I was a person that did not spend day to day at the business, but had a significant part of my net worth in it. And they would tell me periodically the things that were important to me. And they would tell me the upside possibilities, the downside possibilities, where they were investing ahead of time and things that might pay off in a few years. And I would want them do, I would want them to run it like we were going to be partners for 50 years and either one of us could sell. And keep me informed. And don't worry about what we earned today or in the next week. I mean, what's magic about a quarter? We're in businesses for a very long period of time. And we happen to be in the insurance business. And believe me, you can report any number you want in an insurance company for a while. So if you tell me I'm going to be shot, unless I come up with earnings of X carried out to eight decimal places in the next quarter, believe me, I can come up with that. And the auditors will stamp it as okay. I know better than to ask either of you for any sort of quarterly earnings guidance from your companies. But I will ask you to forecast this, the economy, because you both have a pretty good idea of what's been happening.
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QuestionerJamie, just this week, you said that you think we're only in the sixth inning when it comes to the economy. What does that mean and what are you saying?
OtherYeah. So if you look at how the table set, consumers are in very good shape. Their balance sheet, their incomes, wages are going up. Their debt levels are low. All the credit written since the Great Recession is pristine, whether it's mortgage credit, other than student lending, which is done by the government, but it's mortgage credit, small business credit, large corporate credit. Business sentiment is almost the highest level has ever been. Consumer centers are the highest levels. Markets are wide open. Housing's in short supply. And my guess is mortgage credit. it will expand a little bit, not going back to subprime. So it looks pretty good. And the way I look at it, there is nothing that's a real pothole there. We don't have the leverage we had in 2007. So it may be, while it's been a nine-year recovery, it's been only 20%. And an average recovery would have been like 40% growth over more like a seven or eight year period. So the slack is being pulled up. And it may very well be. It's just a very long kind of delayed cycle. You know, sentiment grows, recovery from the great recession, that you may very well have years of growth. And I mean, I hate the forecast the future because I don't know. But it seems to me that's a logical possibility. And in fact, I think growth is getting stronger today, not weaker. If we are nine years into this recovery and we're only in the sixth inning, I mean, just doing the math on that, you're talking about another three years of recovery. Is that something that you say, yeah, that's not out of the realm of the possible? It's definitely in the realm of the possible. And, you know, of course, we'll climb the wall of worry if it gets longer and long. And of course, one day we'll have a recession. And like I said, I don't like to predict that. And I don't, I don't, I don't, But the fact is, things look pretty good. And also, we have the also additional stimulus coming from, you know, tax reform and other budget issues. So I think, yes, you can have growth. And it's people don't want to see it. It's been a long time. So it's almost like we're too afraid to say it out loud.
QuestionerWarren, how about you? What's the economy look like from where you said?
WarrenWell, right now, there's no question that it's feeling strong. I mean, if we're in the sixth inning, we have our we have our sluggers coming to bat right now, number three, four.
[10:47]
Warrenand five in the lineup. Business is good. I'm no good at predicting out, you know, two or three or five years from now, although I will say this, there's no question in my mind that America is going to be far ahead of where we are now 10, 20, and 30 years from now. But right now, business is good. There's no question about it.
QuestionerAnd as a result, you think the stock market looks affordable, Warren?
WarrenWell, not as a result. The decision on the stock market should be made independent of the current business outlook. I mean, When you should buy stocks is when you think you're getting a lot for your money, not when you think business is not necessarily when you think business is going to be good next year. The time to buy stocks in America generally has been always with a few exceptions, because the long-term outlook is exceptionally good. And I don't think you should buy stocks based on what you think the next six months or years are going to bring.
QuestionerYou had been buying stocks pretty actively in the first quarter. Fair to say that you still are buying stocks?
WarrenI like buying stocks, yeah. I'm a net buyer. And Jamie, I've been that all my, you know, I bought my first stock on March 11th of 1942, and we've had seven Republican presidents and seven Democratic presidents, and I've bought stock under every one of them.
QuestionerJamie, let me ask you, the market wobbled a bit last week because of the issues with Italian politics, real concerns about what people are calling quiddily or Italy, Italy. How big of a problem do you think that that is? and is it something that potentially we could face some contagion over here?
QuestionerSo one of the things that we'll point out to the viewers that, you know, Warren is speaking about this thing about the long-term trends, but obviously we've had problems, but it's amazing the ability of this country, the ability of this country to continue to grow, and even the worst 10 to 20-year periods, we've used as in rather well. And Bill Gates talks about a book called factfulness out there, Stephen Pinker about the better angel of our nature, how mankind is being better and better and stronger and stronger, healthier and healthier, healthier, living longer. And that is reflected in, you know, markets and valuations and things like that. And obviously, there's always something to go wrong. I think the biggest threat to mankind is nuclear. Nothing other than, you know, nuclear proliferation and things like that.
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OtherAnd then, you know, you have things like Italy. That just is kind of one of those things that remind you that there is risk out there. And you're always going to have that. You can open up the newspaper almost any day, and you'd be reminded of another risk. That might be Argentina, though I think that president is doing great things there. And so this just remind us that it's not resolved. The Eurozone will have some issues. And you saw this wobble because people question again all of a sudden, you know, Italy's day in the Eurozone, which obviously I hope they do. The monetary union is the most important thing. They hope that they do, and I do expect they will. It'd be very hard for them to leave. I was going to say, do you expect that the Euro will still be here in five years and in 10 years? I'm going to say, again, I hate to predict the future. I say yes, exiting the Euro, the monetary, the monetary union will be catastrophic for anyone who exits. And there is no way out of that. And so I think that when people see that and they don't want to do it. I think the EU is making progress with Merkel and Macron, who are the lynch pins. You know, Britain was never part of the monetary union. And if they continue to make proper reforms, yes, it can be a union that strengthened over time. But it takes exactly what they're talking about. It takes fiscal reform, the ability for the banks to do pan-European banking, you know, some regulatory reform and certainty. some common, they have to deal with certain issues, how they deal with the budget issues among the countries, but it's in everyone's interest that the European Union continue on that path, because the other path is really not a good one. Warren, if you had to pick aside, if you were forced to take a bet on this, would you bet that the euro is here in 10 years?
WarrenYeah, I would bet it, but I don't consider myself an expert on it by any means, but sure I'd bet on it. And I would point out one thing in, I was just doing a little mental calculation while you were talking, And I've been investing over a period of probably over 25,000 days. And I would say if you took the headlines from the paper of those 25,000 days, I'll bet a majority of those headlines. They certainly wouldn't be good news or optimistic. I mean, you know, you can start with 1942 when we were losing the war when I was made the first investment. So the news is usually, well, well, you know, you know, you can start with 1942 when we were losing the war when I was, made the first investment.
[15:11]
WarrenSo the news is usually, well, Well, it's more often I think the headlines are bad than good, but the Dow was 1001 at that time, and the Dow is, you know, whatever it is now, 25,000. So America works, but the headlines are frequently going to be kind of alarmist. The headlines lately here in the United States have been pretty good. I'm thinking about last Friday when we got that unemployment rate of 3.8 percent, and the new headlines this week that show that the number of job postings outnumber the number of people who are looking for jobs, the number of workers. out there.
QuestionerJamie, I wonder, have you had any trouble trying to find workers at this point? What's it like in terms of trying to find employees?
OtherYeah, we're not, but this number is the lowest has been in like 40 or 50 years. Yeah. And I think sometime later this year, it'll be the lowest ever. An amazing other number, if you take global unemployment, it will also probably this year at the lowest ever. And that's a good thing. We all want wages to go up. So at the BRT, where I just was, you are having a lot of conversations. They've seen wages going up. They're seeing pressure to get people. But I look at that as a good thing. That's sharing the wealth that's being created. We want wages to go up. You know, we'll probably be sitting here in a year worried about inflation and wages going too high. But right now, God bless it, it's bringing more people back into the system, back to work. Work is dignity. Work is great. Once people start in that ladder of work, they tend to move up a little bit. They tend to have household formation. So, you know, we should do everything as a nation. You know, both Warren and I support this thing called the earn income tax credit, which helps, it's kind of a little bit of a negative income tax, which helps pay, you know, people, basically minimum wages, more money. And I just think it's so much better for society to have people working and having household formation and it's better for social outcomes. And so this is a wonderful thing. We should be celebrating it. And of course, we're going to start worrying about the downside of it soon, but so far, so good.
QuestionerAll right, is it? We always worry even with the positive headlines. Warren?
WarrenYeah, Becky, and when you raise the question about whether we have trouble finding people, We have six or so home building operations in various places, Kansas City and Denver and Austin, Texas,
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Otherand there is a shortage of the labor required in home building throughout the country. And we have home furnishing stores and carpet installers, certainly, and truck drivers. There's plenty of places where there are. a lot of jobs that are unfilled right now. Can you solve that problem just by paying more? Well, the people that are thinking about going into those jobs that want to get it solved probably by higher wages. But the market system works towards solving problems like that. But it is absolutely true now that there are shortages of people in some fairly important type jobs.
QuestionerLet me ask you both about trade, because that's been an issue that both of you had said could create a little of a problem could weigh on sentiment. Jamie, I know you've heard from the business roundtable. Optimism levels kind of off the charts when you're talking to all of those CEOs, but it did pull back a little bit and you think it's because of trade. Why?
OtherProbably. It's hard to tell, but we did ask about trade. We did another special survey. I would say like 80 to 90 percent are worried about if trade goes south, prices will go up, they'll invest less and things like that. So we're trying to be very clear about this. We think the president has raised some very critical issues about trade, particularly with China, around state-owned enterprises, fair competition, market access, the ability to own 100% of a company. And these things should be negotiated out. And the business round-tail supports the fact those are issues. The business round-tail has been very quite clear that we don't think tariffs is the way to do it. Tariff has unpredictable outcomes. You hurt your allies, maybe more than heard anyone else. People tend to retaliate. You can incite nationalism in in countries because it's not the same thing if you and I negotiating and being tough at each other than, you know, if you put a country in a very tough position, how they might have to react. So it just has, it can create these potential negative outcomes. And, you know, so we're just very cautious about doing it that way. But want to support trade. We want to get NAFTA done. We think that you can make great progress with China, and that China will be very responsive to some those issues. So that's what we're pushing on for trade. Very quickly. The latest coming from the White House is that they are looking for bilateral talks
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Questionerinstead of a NAFTA between Canada, Mexico, and the United States, bilateral talks with us. Mexico and with us in Canada. What do you think about that, Jamie?
OtherWell, I've disagreed. You know, we're stuck here on two issues, okay? The Sun, for NAFTA, the sunset provision, which basically the president has today. You can rip it up whenever he wants. So why we're negotiating for? I don't know. You know, it just creates more uncertainty for everybody else. You can argue that uncertainty is there anyway, but the fact is you want more consistency. And this other one called various forms of arbitration that you can go to an effective arbitrate as opposed to courts in Mexico, Canada, the United States, creates a little more certainty. Everyone wants that. And, you know, you can make an argument why it might be better for the United States, not to have it. It's better for our friendship with our neighbors. It's better for the companies. It's better for certainty. And I think, personally, we should give it up and finish NAFTA. There are a lot of things that they have already negotiated and modernized NAFTA. So I'm quite in favor of doing that. And so it's just important to get these things done. Personally, I would have done TPP. And in trade, it gets very complicated. When you start to do bilateral things, it also very much could be used against you. So what we're doing in some of these places, you know, has now opened the door for much more complicated trade negotiations. We're their allies. But we, you know, and I just think we should be working with their allies, because we have a common interest. And not against China, but to set global standards that may not be exactly we want, but those global standards, you know, eventually China will have to adhere to to, including around reciprocity, investment treaties, et cetera. And so, you know, but look, the president's doing his way. I hope it works. We're going to try to support to as much as we can. But, you know, my person would be doing some of these things differently.
QuestionerLet me ask you both about a big problem that you've been trying to tackle here at home. That's the rising cost for health care. The two of you, along with Jeff Bezos, have announced an initiative where you're going to be working together with this joint venture to really try and tackle some of those issues to help your employees and maybe even the rest of the country, too. Warren, when we spoke with you last month in Omaha, you said
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Questionerthat maybe within the next two months you had hoped that you'd be naming a new CEO. Have you made progress on that front?
WarrenYeah, we have. And the three of us and the new CEO are, we've basically reached agreement. So we're just tidying up a couple of things. But we should have, we should have an announcement on that matter within maybe two weeks of the outside. But the work has been done and we have the right CEO and we're, I'm very enthused about it. I know Jamie. and Jeff are too.
QuestionerJamie, you've met this new CEO, too?
OtherYes, I have. The heavy lifting was done by Todd Combs. I want to give him full credit. And he went through a thorough process. But I think, like Warren, we have an outstanding individual. Character, culture, capability, heart, mind, the whole thing. And, you know, this is a long-term thing. We're not looking for immediate success. But there are a lot of ideas out there. There are a lot of things can be done better. We know the fraud, the administrative costs. We know overuse and underuse of of various drugs and specialized procedures. We know the end of life is often cost far more and it's far more painful than it should be. So there's so many, and with big data, there's so many things to do. But the goal is better satisfaction for employees. And, you know, eventually we can learn a lot of things and maybe help inform America how we can improve some of these things.
QuestionerJamie, have you heard back from your employees about this? Warren, have you? And we'll start with Jamie.
OtherA little bit. You know, there was a little bit, what does it mean for us? But it means the same thing. effectively do this every year for our employees. Every year we look at me, we use a lot of very good companies to help us do things in terms of claims and structure and payments and choice and wellness. And we just want to do that better. And so what I told them is we're just going to try to do it better. And you should expect that we're going to do it the right way of the same kind of heart we've had before, but to improve your lives, improve your wellness, improve the outcomes, give you more choice, which I believe in do all the things that it will effectively be cheaper. And you'll have healthy, much healthier employees.
Questionerfrom your employees?
WarrenYeah, I addressed a group of about 130 or so of the various CFOs from all our subs just a couple of days ago. And they're very interested in the subject.
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WarrenAnd the interesting thing is, as we went around interviewing a large number of prospective CEOs, we didn't run into one that didn't think that improvement was both, significant improvement, was both possible and important. So it isn't like there's anybody out there that's connected with the system that thinks we've already arrived at Nirvana. And they know how difficult the job will be to make major changes, but they're all cheering for us to succeed. They, the number of might have wanted to be the one to help us succeed. We settled a lot on, but nobody disagreed with the mission, the importance of it, or the feasibility. It's also a very, very tough nut to crack, and it's going to take significant time. We've got the right person. So you guys are working on everything from problems facing American businesses with the long-termism versus the short-termism to this huge problem for the country itself, and that's health care. And it has all kinds of people starting to wonder, Jamie, if you're going to run for president.
OtherI have no intention of running for president.
QuestionerWarren, are you going to run for president?
WarrenAnd I'm not running for vice president either.
QuestionerLet me ask you, this week we spoke with Howard Schultz. He announced that he's stepping down as chairman. of Starbucks. He spoke with us on Squawk Box and said, yeah, he may be considering public office. He doesn't know exactly what that would be at this point. But we also spoke with Ken Langone, who was our guest host while we were speaking with Howard Shultz. He said, look, the idea that Donald Trump when the presidency and people are saying this expands, this means a business leader could come in and run the country, and that expands the town pool as far as he's concerned. He thinks that's a good thing. Jamie, what do you think about that?
OtherLook, first I think business should collaborate with government and be involved in the business people need to learn what the issues are in government. You can't just walk into government officials and say, here's what I need for my company and my profits, et cetera. You know, governments have huge issues to dealing with in terms of, you know, of the poverty and incarceration and education. We should help them do that. That's why I'm at helping to do this job of the BRT, and all the BRT members are deeply involved in that. So therefore, getting involved in politics, I think it's a great thing for
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Otheranybody. So if you want to do it, I applaud it. I think it's hard. I'm not sure being the CEO naturally translates to that. You know, I saw how. and I think the world to Howard, and he'd be a great chief executive or governor or senator or mayor, whatever he wants to do. But it's hard, you know, and you've got to be in, you've got to want it. This is, this is not, you're not going to be ordained to be the President of the United States. You've got to get out there and fight for it. And so, you know, CEOs aren't used to doing that. And I don't think all COs translate to that. So we'll see, but I think it's, I think Ken is absolutely right. Getting people involved in government is a good thing. Collaboration with government is a good thing. And even having people like Ken, having Warren help focus on health care is a good thing for America. And we, you know, government can't do all these things itself, particularly anymore, this rapidly changing, highly technological world. So I completely applaud it. I wish Howard, you know, the best. Warren, your thoughts?
WarrenWell, I totally agree. We, we, most business people would have trouble starting out a year early in Iowa and going from motel to motel to motel and repeating themselves six or seven times a day saying the same thing and listening with great interest to every possible voter as to what their suggestions might be. So I'm not recommending it to any of my friends, but I do think it's very important that business be a handmaiden of government. Business has done wonderful things for America and America's done wonderful things for business.
QuestionerYou both have said some pretty nasty things about Bitcoin recently. Which one of you hates Bitcoin more?
OtherWell, that would, I set a high standard. I don't know whether Jamie can top me or not. I don't want to be the Bitcoin spokesman. You know, just beware. Beware.
QuestionerAnd Warren, very quickly before we let you go, we've made a lot about, we'd heard about the Uber deal. We talked with Darra Kosher Skawi about that. And I know you had said that that that report was correct out there. Just wanted if there's anything you could add to that.
WarrenThe talks came and went. Dara said he'd love to have you involved with something down the road. that? Well, I think it's very unlikely, but I don't say zero to anything. And it's true that we did have a conversation a few months back. And certainly, as I said earlier, I'm impressed with Darra and the, we just didn't quite come to terms. But that's not a unique experience at Berkshire.
QuestionerYeah. Warren, Jamie, I just want to thank you both very much for your telling you. We appreciate the efforts of what you're doing, both with health care, and with the long-term approach that you'd like people to be taking with companies. We really appreciate your time talking about this today.
OtherBecky, Warren, thank you, enjoyed it.
QuestionerGreat. Thank you both.