[0:01]
WarrenSales are terrific out there, so you're my kind of crowd. I've been getting reports. We're breaking all kinds of records. And we're going to start off with question number 26, which goes to station, station two.
QuestionerHi, Warren and Charlie. My name is James from Malaysia. Given the reason challenge faced by the major U.S. Bank, what is your overall outlook on the banking industry. How do you assess the risk and the opportunity in this section?
WarrenWell, anticipating a few questions on banks, I decided we should start using bank language here to describe. And Charlie, the situation in banking is very similar to what it's always been in banking, that fear is contagious. always. And historically, sometimes the fear was justified. And sometimes it wasn't. My dad lost his job in 1931 because of a bank run. And they had a bank run on state banks. And the head of the Allman National Bank said, well, we're a national bank and they didn't have a run on the national banks. And of course, they both faced the same problem. So it used to be that if you saw people lining up at a bank, the proper response was to get into the line. And you'd always leave it. And the story is that Sidney Weinberg of Goldman Sachs during one of the great bank runs back in 1907 or thereabouts, had a job as a runner at Goldman Sachs and asked us if he could take the week off. And boss said, sure, not much is going on anyway. So he got in line, whether it was the Nick or Barker Trust or wherever. And as he got toward the front of the line, he sold his place in line to somebody. He didn't have an account of the bank, but that was an asset. And the banking system has changed so much over the years. And we did something enormously sensible, in my view. When we set up the FDIC, as many as 2,000 banks have failed. in one year back after World War I, I mean, bank runs were just part of the picture. And if you have people that are worried about whether their money is safe in the bank and all trying to withdraw, you can't run an economy very well. So the FDIC was very logical. It got changed over the years some. But here we are in, you know, 2000, and we actually see the FDIC pay off at a hundred cents on the dollar to everybody or make it available on all demand deposits. And yet you still have people very worried about their, periodically, geographically, all kinds of crazy ways. And that just shouldn't happen. So the message has been very, very
[3:59]
WarrenIt's been poor by the politicians who sometimes have an interest in having it poor. It's been poor by the agencies. And I'd say it's been poor by the press. I mean, you shouldn't have so many people that misunderstand the fact that although there may be a debt ceiling, it's going to get changed. Although there's a $250,000 limit on the FDIC, the FDIC and the U.S. government and the American public have no interest in having a bank fail and have deposits actually lost by people. We had a demonstration project, the weekend of Silicon Valley Bank, and the public is still confused. So it's really, it's something to have a law that was passed in 19, or a law that became effective in 1934, although modified in some ways, not understood about something that's important. As a banking system, I don't think the American public is that dumb. And I just, well, I made that offer over in Tokyo, incidentally, that I haven't heard from anybody that wants to take up my million dollar bet on whether the public will lose money and if they have a demand deposit at a bank, no matter what the size. So that's the world we live in. It means that a light of match can turn into a conflagration or it can be blown out. And who knows what will happen. And we don't have any worry. We keep our money up to cash and treasure bills at Berkshire because we keep $128 billion or whatever it was at the end of the quarter. And we want to be there if the banking system temporarily even gets stalled in some way. It shouldn't. I don't think it will, but I think it could. And I think that the incentives in bank regulation are so messed up, and so many people have an interest in having a messed up, it's totally crazy. I mean, Fannie Mae and Freddie Mac were doing 40 or so percent of the mortgage business in the United States. That is huge. They were regulated, oh, just those two companies were regulated. regulated by some group, I forget what they called, but they had 150 people that were in charge of just figuring out whether Freddie and Fannie were doing the right thing. Well, I could have done it. You know, Charlie could have done it. You know, and I'm not sure they needed an assistant even to do it. But the incentives were all wrong. And Freddie and Fannie, which were doing fine in August, or apparently doing fine in July and August of 2008 were put into conservatorship, you know, early in September, and the things that followed
[7:08]
Charliefrom that were just incredible. So there are second order and third order and fourth order effects that are somewhat unpredictable as to what they will be and the sequence and all that. But things change. And if people think deposits are sticky anymore, they're just living in a different era. You know, you can press a button. You don't have to get in a line and wait for days and have to tell her counting out the money slowly in gold so that you hope the line goes away. You can have a run in a few seconds. So the way it hasn't been addressed properly is a problem, and who knows where it leads. But you will have to have a have to have a punishment for the people that do the wrong thing. And if you take First Republic, for example, you could look at their 10 K and you could see that they were offering non-government guaranteed mortgages to in jumbo amounts at fixed rates, sometimes for 10 years before they changed the floating. And I mean, that's a cramble amounts at fixed rates, sometimes for 10 years before they changed the floating. And that's a crazy proposition. If it's to the advantage of the bank, they get it, they get the guy coming in and says, I'll refinance at one and a half percent, and then one percent. And if it's, if it's advantage the other way, the fellow keeps it out 10 years, you don't give options like that. But, but that's what First Republic was doing. It was a plain sight. And the world ignored it until it blew up. And some of the stock and some of these banks that were held by insider was a sold and who knows whether they had a plan or whether they some plan that was innocent or whether they started sensing what was coming but but you do know that the directors are not going to be able to read some book or anything like that but they do they do have the ability to be able to read some book or anything like that but they do have the ability to hold the CEO accountable. The CEO gets the bank in trouble, both the CEO and the directors should suffer. The stockholders of the future shouldn't suffer. They didn't do anything. It doesn't teach anybody any lessons or anything. It teaches the lesson is that if you run a bank and you screw it up, you're still a rich guy and the clubs don't drop you and the charity groups don't put asking it to their benefits. The world goes on. That is not a good lesson to teach people who are holding the behavior of the economy in their hands.
[10:12]
WarrenSo I think there's some work to be done, but I don't think it's not a difficult problem. It's just we've screwed up the answer and we screwed up the communication of it. Charlie?
CharlieWell, I'm so old-fashioned that I kind of liked it better when banks didn't do investment banking. That makes me very outmoded in the modern world. And the country decided it was contrary to public interest for a while, and then the banks wanted to get back into it. Did they ever? Yeah. No, I mean, I don't think having a bunch of bankers, all of them are trying to get rich, leads to good things. But I think a banker should be more like an engineer. He's more like in avoiding trouble than he is getting rich. Yeah, and they could do fine. They can do fine that way. And I think we had a big mistake when we get a bank where everybody who joins its plans to get rich. It's a contradiction in values. And we came to that conclusion. I don't know when Glass Stiegel was passed or anything, but then they want to get back. And how many of you know, and maybe I'm wrong on this, I haven't looked lately. But the Federal Reserve actually was given the responsibility for setting margin requirements. And they changed margin requirements a lot of times because it was known that people that borrow a lot of money caused a danger to the bank system. You get too many in the picture and all of that sort of thing. And what's happened? The banks figured out a thousand different ways to get so you borrow on a hundred percent margin. I mean, through derivatives and everything, it's just totally distorted. All the lessons that were learned in the 29 crash. Imagine taking banking into derivative trading. Who in his right mind would have allowed that?
WarrenYeah. Well, there's more. money in it.
CharlieWell, that's why they're in it.
WarrenYeah. And... And... And... But it isn't necessarily a great social outcome for the rest of us.
CharlieThat's what those Senate committees decided back in 1931 and 32. And then in the late 1990s particularly, I mean, you know, very decent people, but, you know, Bob Ruman and some of the people, you know, they said, this is the modern world. And here's what the modern world has turned out to hand us. And banking can have all kinds of new inventions, but it needs to have old values. And we don't know what's going to happen, you know, because there are a lot of things that could happen out of the present situation.
[13:02]
WarrenDepositors will not lose money. Stockholders and debt holders of the holding company and all that, they should lose money. And if people borrowed out on commercial real estate, and now it isn't, the loans aren't getting extended, they should leave. It's too bad. I mean, that's part of borrowing on 100% margin, which is what people were doing, I've been doing in commercial real estate. You've got to have the penalties hit the people to cause the problems. And if they took risks that they shouldn't have, it needs to fall on them if you're going to change how people are going to behave in the future.
OtherOkay, Becky. This question comes from Davis-Hance in Houston, Texas. He writes, what do you think about the business models of the big banks as compared to the regional banks in the wake of the events at Silicon Valley Bank? And how does the perceived implicit guarantee of all deposits at all banks affect big banks and those regional banks?
WarrenYeah, well, I can say this. if you follow sound banking methods, which means you're not doing some things that other people do, a bank could be a perfectly decent investment. In fact, Charlie and I, was me originally in 1969, we bought a bank at Berkshire, and we had $19 million invested in that bank, and we had $17 million, I think, invested in our insurance companies. And if the Bank Holding Company Act of 1970, 70 hadn't been passed, we might have ended up owning a lot of banks instead of a lot of insurance companies. We were looking at more banks, and Harry Keith was taking us around Chicago, and there were other things we could do. And then bingo, they passed the 1970 Bank Holding Company Act, and we had to divest ourselves of that bank in 10 years, which we... By the way, it never had a bad debt. Oh, it never had an unnecessary cost. It made nothing but money with no risk. It never presented any divisive. an insurance risk of the government. Zero. It was a lovely, sound, constructive institution in this community, and any person who were ready to deserve credit could get credit. And we were going to buy more banks. And we were forced out of it. And we were going to buy more banks. And if we bought more banks, we probably wouldn't have expanded the insurance business. But, you know, the law changed, and so we divested, and we've done okay in insurance. But banking was more attractive to us. It was bigger and there were more targets to buy.
[15:39]
Warrenand you could run a perfectly sound bank then and no negotiables or all these things all the inventions that came later and you could still run it today and you could earn a lot you could earn good money very good money and we didn't we would have found more banks but were precluded from doing that and we sold banks and we sold banks, bank stocks in the last, well, we sold them first when the pandemic broke out, and then we sold some more in the last six months. And we don't know where the shareholders of the big banks necessarily or the regional banks or any are heading. I've got my bank. I've got my own personal money, and I'm probably above the FDIC limit, and I've got it with a local bank, and I think, I don't worry about it in the least. But in terms of owning banks, events will determine their future. And you've got politicians involved. You've got a whole lot of people don't really understand how the system works. And I would say that you've had something less than a perfect communication between various people and And the American public, so the American public is probably as confused about banking as ever. And that has consequences. And nobody knows what the consequences are because every event starts recreating a different dynamic. I mean, in physics, you know that pi is going to be 3.14, you know, infinite number of numbers after that. But no matter what happens. But you don't know what is. happened to the stickiness of deposits at all. They got changed by 2008. It's gotten changed by this. And that changes everything. And so we're very cautious in a situation like that about ownership of banks. And we do remain with one bank holding a deal. But we originated that. But we originated that deal. But we originated that deal with the Bank of American. I like Bank of America. I like the management. And I propose the deal to them. So I'm, I stick with it. But do I know how to project out what's going to happen from her? The answer is I don't because I've seen so many things in the last few months, which really weren't that unexpected to me to see. But which reconfirmed my belief that the American public doesn't understand their banking system. people in Congress perhaps don't understand it any more than I understand. I don't understand where the spaceships go up. I mean, there's all kinds of things I don't know about. But if you're in Congress, you take a position on everything.
[18:51]
CharlieAnd sometimes it's to your advantage, if you really understand it, not to say exactly what you feel. And here we are. Charlie, yeah. Well, a lot has happened in banking in my lifetime. I welcomed all that early banking of the deserving immigrants by the early Bank of America. And I think all the credit cards when they came in as original bank cards were a great contribution to civilization. But the game year it gets and the more it looks like investment banking, the less I like it as a citizen. I don't want, I am always, I am deeply distrustful of situations in which everybody wants to get rich and envies everybody else. I regard that atmosphere as utterly toxic. And the people who like one story, which is, again, a true story. And I'm not naming the name, and it wasn't Pete Jeffers because he might fit this name, but it wasn't Pete. But our hero, Gene Abeck, was going to have to retire at some point. And so we hired a future replacement. It's kind of a little problem I talked before about having the perfect business. and now we're going to bring in somebody. We actually bring in some money that went to Central High with Charlie. In my class. Yeah. And Charlie didn't know I was picking out of this guy, and he wasn't. If you asked me, we wouldn't hire him. Well, if I asked you, I probably wouldn't hire anybody, but that's another question. But this guy comes over, a perfectly decent guy, but presentable, you know, it looks like a banker and everything. And of course, the first thing he wants to do, we've got this wonderful bank. wonderful bank, but we have the crumbious looking building in Rockford. And we don't need a great building. We just need a great banker. And naturally, this guy wants to build a new building, because we were the most profitable bank, but we didn't look like we're the most profitable bank. So I told him he could have any building you wanted as long as it was not higher than, it had to be shorter than our nearest competitor. And he lost interest totally. He wanted to be on the top floor of the biggest building in town. And I told him he could horizontally do anything he wanted it, but he couldn't do it vertically. And it taught me a lot about the guy's motivations in life. And he didn't end up running the bank anyway. Anyway, that's all I know about banking, probably more.
QuestionerStation 3. Mr. Buffett and Mr. Munger. Hi. Hi. My name is Daphne.
[21:45]
QuestionerI'm 13 years old. And this is Mr. my six annual Berkshire halfway Schian children's meeting. And I've had the privilege to ask you both questions and years past. My question for you today is the following. As you know, the U.S. national debt is currently at an estimated $31 trillion, making up about 125% of the U.S. GDP. In the meantime, over the past few years, the Federal Reserve has telegraphed that they intend to monetize the debt by printing trillions of dollars, even as they insist that they're fighting inflation. Already, other major economies in the world, such as China, Saudi Arabia, and Brazil, are moving away from the dollar in anticipation of this. My question is, are we likely to face a time in the future when the U.S. dollar is no longer the global reserve currency? How is Berkshire prepared for this possibility? And what can we do, as American citizens, to attempt to shelter ourselves from what's beginning to look like the beginnings of de-dollarization?
OtherWell, I should ask you to come up here and answer some questions.
WarrenI mean, it's very interesting. I mean, we are the reserve currency, and I see no option for any other currency to be the reserve currency. And, uh, uh, uh, uh, I think that nobody understands the situation better than Jay Powell. And, uh, I, but he's not in control of, of physical policy. And every now and he drops a few hints, uh, and there was no question that when the, uh, when, when, when, when the pandemic broke out, I mean, it was a semi-warlike situation, but nobody knows how far you can go with the paper currency before it gets out of control, and particularly if you're the world's reserve currency, nobody knows the answer to that. And you don't want to try and pick out the point of where it does become a problem because then it's all over. And I think we should be very careful. I mean, you know, we all learned Keynesianism and we applied it in World War, too, to the advantage of the country. And we did every, we could to prevent inflation during the war. And then the war ended in August of 45. And I think in January 46, and I'm not giving you exact figures at all now, but in January 46, I think the rate of inflation was at, you know, something like 1% or thereabouts. And by the end of the year, I think it was at like 15%. And again, I'm doing this from long memories. But, but it's, it's, you know, it's, It's easy for America to do us a lot.
[25:09]
WarrenBut if we do too much, it's very hard to see how you recover once you let the genie out of the bottle and people lose faith in the currency. And they behave in an entirely different manner than they do when they feel, if they put some money in the bank or have a pension plan or whatever it may be. that they're going to get to out something with roughly equal purchasing power. And it just changes the economy. And all kinds of things can happen then. And I can't predict them and nobody else can predict them, but I do know they aren't good. And we will see, and I do this as, you know, I voted for both parties. And it's, it's not limited to politicians of either party or anything of the sort. People take positions. Some of them understand what they're doing. Some of them don't understand what they're doing. And, you know, if they put me on some medical board, I don't understand what I'm doing. You know, there's nothing wrong with the fact that you, that you can't master everything. It can all be Isaac Newton, but you can't go around pretending you do or making decisions on it. And we are not as well off in relation to curbing inflation expectations, which become self-fulfilling, and we are not as well off as we were earlier. And Berkshire is better prepared than most investments for that kind of a period. I said this in the annual report, but we aren't perfectly prepared because there's no way to perfectly prepare. You don't know what course of action will occur. And it's a very political decision now. It's a tribal decision to some degree. And you hope for leadership that actually will do something, recognizes the problem. And America's an incredible society. Rich, you know, we got everything going for us. But that doesn't mean we can just print money indefinitely. But that doesn't mean we can just print money indefinitely. as that, and it'll be interesting to see how it turns out, Charlie.
CharlieWell, at some point, printing money to buy votes will be counterproductive.
WarrenYeah. And we don't know exactly where that comes. And if something is going to be dangerous and unproductive, you ought to keep it a fair distance away. Now, if you have a culture that is exceptionally strong, like Japan, they have done some strange things there. But they couldn't have been the reserve currency.
CharlieNo, of course not. But Japan bought back most of the national debt and a lot of the common stocks,
[28:18]
Warrenand data, just the Federal Reserve owns practically everything in Japan, and the country's working. It's in 30 years of economic stasis, but it's not going to hell. I really admired Japan. And, but I don't think we should try and imitate it. I don't think we're as good at Japan at taking. They have a cohesive culture and we don't, Charlie.
CharlieYeah, that's exactly right. In Japan, everybody's supposed to suck out and cope. And in America, we complain.
WarrenSo I hope you come next year with a tougher question. But, and thank you. And I predict, I would love to be being born again today in the United States. I mean, we can do a, we can do a, we can do a, do a lot of dumb things and get away with it. We can't do an unlimited number. There are people who care about that. And, you know, you have to be willing to be extraordinarily unpopular. I mean, Paul Volker. There are other Federal Reserve chair people that would not have done what he did. It's just, it's too uncomfortable. And there used to be a possible. There used to be a politician in Nebraska. And if you ask them some really tough question, like, you know, how do you stand on abortion? He would look you right in the eye and he'd say, I'm all right on that one, and then he moved next door. Well, that's what people have done, basically on inflation. And they, one way or another, they say, I'm all right on that, and then they don't really think about what the consequences of their actions could be, particularly, and it's so much fun to It's fun to, if there's 435 of you to just be one of 435, instead of being the person actually responsible. Anyway, I am still next to the question of two superpowers, and when you get into really destroying a planet, destroying the reserve currency of the world, when there's really no substantive, and forget about all the toys, you know, with, with, I mean, it's a joke to think of any tokens or, you know, you know, with, with, I mean, it's a joke. or that sort of that that that that that's madness but but it's also madness to just keep printing money
Charlieyeah and we know how to do it and we actually came from a money printing money printing economy in world war two which was required and we suffered significant inflation the price level I mean there are a million ways to judge it but it's maybe ten times what it was then or something like that
Warrenwell that's That's getting close to the edge of where you don't want to, you don't want to hold dollars anymore, you want to hold something else.
[31:21]
WarrenYou want to hold real estate, you want to hold an interest in a business. There's a lot of good, your best, your best defense is your own earning power. If you're the best doctor in town, if you're the best lawyer in town, if you're the best teacher in town, or even if you're the tenth best, you're going to make a good living. I mean, you know, the economy is productive. and you will succeed with your talents, but you won't succeed by hoarding dollars. You'll just succeed by the fact that your value to the community, which is a rich community overall, is sustained. And so the best investment is always in yourself. That's the answer I would give you.
WarrenWell, we have a situation where we've learned to print money in gobs and a big chunk of our young people go right into wealth management. This is... Like we did. Like we did. Yes, we've been bad examples. And I want to say that I didn't realize wealth management was going to get so big when I went into it. And I all apologize for what's happened. Anyway, you did well.
QuestionerBecky. This question comes from Gary Gambino in Parma, Ohio who says he's been a Berkshire shareholder since 2004. He says the amount paid this year for the 41.4% stake in Pilot values the entire company at around $19 billion. That's about six times what BP is paying for travel centers of america, but Pilot's market share is just three times travel centers of Americas. Was it a big mistake to base the final price on 2022 earnings, which has unusually high fuel margins?
WarrenWell, that's a very good question. And the answer is, that we arranged to buy it in three stages, with the third stage being at the option of the owner of 20%. The first stage, we bought it what turned out to be a very attractive price. The second stage turned out to be a very good year for the diesel business, which means that the seller got a very good price. And I would say that overall, we feel very good about the fact we only 80% at the price that we do, but we would have rather oh, I'm better if we just bought the 80% to start with. And the last 20% the seller has the option, and that's always an unintelligent way of structuring something. We've had that arrangement with other, well, we've had it with the furniture mark. We bought 80% of the furniture mark on August 30th, 1983, almost 40 years ago, and it's worked out perfectly. But when you give the other person the option, they've got some advantage.
[34:14]
WarrenWe have 80% now of a business we like very much. And the comparison to Travel America is really spurious because Travel America is not only much smaller, but they run all the properties. We have hundreds and hundreds of locations on the interstate that are zoned for what we, commercial, and maybe 15 acres or 20. There's nothing like it. And they're not going to move the interstate two miles to the road. the right or something, you know, whatever or anything with sorts. So we've got a position that, you know, BP may or may not have made a fine deal. I've read the prospectus. And I can understand, I mean, it's a big, big source of output for BP, but I like the management we have had had at the pilot. I like very much the fellow that's coming in. That's the new CEO. I just have to tell you a little bit about Adam Ryan, who's taking that job on. He came from Omaha. He wasn't selected because he came from Omaha. He came from Omaha. He came from North High, a public school that my wife graduated from. I've got grandchildren that graduated from there. He went to the University of Nebraska, almost set the rushing record in football, which will never be beaten. because they'd given up football, but I think he rushed for maybe 3,600 years. He held three jobs while he went through there. He interned at Mid-American 20 years ago. His mother worked to put him through school. I mean, it's just, it's Horatio Alger squared, and we have him to manage pilot, and the haslums have given us a wonderful business. They, Big Jim, and he, he, my vintage, I mean, great people. And here we are, and I'm glad, I'm very glad we own Pilot. I just wish we bought 100% of it when I first made the deal, but that was not the deal.
QuestionerWarren, it wasn't for sale.
WarrenIt wasn't for sale, yeah. And incidentally, the last 20% of the furniture mark wasn't for sale when we bought it, so we bought 80% of it. And that's worked out, well, and we've done various deals in various ways. The best way to do it is just write people to check. and get the stock, but we did that with TTI, but you can't always make the same deal. We make, if we like the business well enough and the people well enough, we will tailor it differently, but our preference is to write a check and own the whole place and keep the management in place. Got anything on the ad? No. Yeah. I hope, it's really wonderful to watch something like Adam Wrightwork, I mean, basically,
[37:19]
WarrenYou know, I don't know what his mother was earning, but he went to North High, which is probably four or five miles from here, public school graduate, and worked his way up. Went for a short period of Pacific gas and electric, and we brought them home to run pilot. And pilot, well, pilot, the prices on diesel were way different last year. I've brought piloted close to 80 billion of sales last year, but more normal prices. It's significant, you know, it's half that or thereabouts, maybe a little more. But he is, I don't know how old Adam would be, but he's in his 40s, and he came up through, he came up through the organization that Greg Eable was involved with, and now here he is running a very major business. It's good at Berkshire to be able to do that. And somebody else may have gone to more prestigious business schools, I think. So what? You know, we've seen what Adam can do.
QuestionerOkay, station four. Good afternoon, Mr. Buffett, Mr. Munger. My name is J.C. I'm 15 years old, and I'm from Ohio. This is my fourth in-person Berkshire meeting. I have a lot of passion learning. from your speeches, interviews, and articles. Thank you for sharing your wisdom all the time. Mr. Buffett, in your annual shareholder letter this year, you said that Berkshire's journey consisted of continuous savings, the power of commanding, the American tailwind, and avoidance of major mistakes. You have humbly admitted in the past that you have made many mistakes, but this is the first time that major mistakes stood out to me. Could you please advise us on what major mistakes we should learn, we should avoid in both investing and in life? I would also like to have Mr. Munger's thoughts, too, please. Thank you very much.
WarrenWell, let me, Charlie, Charlie said the major mistake you can make, you know, you're lucky if you're in the United States. To go around the world, you don't have a lot of choices in some places, but, but you should, you should write your own. obituary and then trying to figure out how to live up to it. And, you know, that's something you get wiser on as you go along. The business mistakes, you just want to make sure you don't make any mistakes to take you out of the game or come close to taking out of your game. You should never have a night when you're worried about investing. I mean, assuming you have any money to invest at all. And you should spend a little bit less than you earn.
[40:32]
WarrenAnd you can spend a little bit more than you earn, and then you've got debt, and the chances are you'll never get out of debt. I'll make an exception in terms of a mortgage on your house. But credit card debt, we're in the credit card business big time, and the world will stay in the credit card business. But why get behind the game? And if you're effectively paying 12 or 14 or whatever percent, you're paying out a credit card, you know, you're saying I'm going to earn more than 12 or 14 percent of money. And if you can do that, come to Berkshire. Hathaway, so it, it's, it's, it's, I hate to say this when Charlie's around me, but it's straight out of Ben Franklin, I mean, and it's not, it's not, it's not, it's not that complicated, but you, well, I'll give you a couple lessons. I'll, you know, Tom Murphy, the first time I met him, said two things to me, he said, you know, always tell someone to go to hell tomorrow. Well, that was great advice then, and think of what great advice it is, when you sit down on the computer and screw your life on forever by telling somebody to go to hell or something else in 30 seconds and you can't erase it. And, you know, you haven't lost the option, you know, and then, and he said, you know, praise by name, criticized by category. Well, what makes more sense than that? I mean, who do you like to criticize you all the time? And you don't need to belify anybody to make your point on subject of discussion. And then give you another general piece of advice. I've never known anybody that was basically kind that died without friends. And I've known plenty of people with money that have died without friends, including their family. And, but I've never known anybody. And, you know, I've seen a few people, including Tom Murphy, Sr., and maybe Junior, who's here, but certainly his dad. He, I never saw him, I watched him for 50 years. I never saw him do an unkind act. I didn't seem to do very many stupid acts either. I mean, it wasn't that he was non-discriminating. He just, he just decided that there was no reason to do it. Wow, what a difference that makes in life, Charlie?
CharlieWell, it's so simple to spend less than you earn and invest shrewdly and avoid toxic people and toxic activities and try and keep learning all your life, et cetera, et cetera, and do a lot of deferred gratification because you prefer life that way. And if you do all those things, you are almost certain to succeed.
[43:34]
Warrensucceed. And if you don't, you're going to need a lot of luck, a lot of luck. And you don't want to need a lot of luck. You want to go into a game where you're very likely to win without having any unusual look. I'd add one more thought, too. You need to know how people can manipulate other people, then you need to resist the temptation to do it yourself.
CharlieOh, yes. The toxic people who are trying to fool you. or lie to you who aren't reliable in meeting their commitments. A great lesson of life is get the mail out of your life.
WarrenYeah. And do it fast. Do it fast. And I would add, Charlie wouldn't totally agree with me, do it tactfully if possible too. But do get them out of your life.
CharlieYes. Yeah, I don't mind a little tact. Or even a little financial cost. But the question is getting them a Hell out of law.
QuestionerOkay. Becky? All right, this comes from Roger Lee Tan. He says, my name is Roger from Hong Kong, a long-term shareholder of Berkshire, admirer and follower of Mr. Buffett's and monger's wisdom and principle. Both of you have said before that the most difficult problems in life are always people problems. And one of the key lessons you have learned to be able to live a happy life and a successful life is to stay away from negative people. My question is, what to do if those people? negative people are your families, the people whom you can't simply stay away from.
WarrenYeah. You minimize it. But you can't, no, I mean, there's no question about it. Charlie gave an answer, I thought, was a master of tack the other day when he says, you always ought to interact with people who behave well. He says, of course, you have to make some exceptions to your family. But it was, but it's true. And, you know, you really really, I don't know what it's like to have, you know, a drunken, you know, bullish, probably father but parents just generally. I mean, you know, how do you handle it? It's very interesting that the MacArthur family, the very famous John McArthur, the man set up the MacArthur Foundation, he had five kids. five kids, and four of them turned out to be superstars of one sort or another, and they had this crazy guy, tenorick, drunken father, but they all decided the thing to do was get the hell out of the house. And so he had this father of the MacArthur Foundation that did that along with three of the siblings out of five. So, you know, I was lucky. I mean, Charlie was lucky.
[46:47]
WarrenBut, you know, if you, if you have a, I mean, our father saw plenty of shortcomings in both of us, but, you know, it would still be there for us. And if you have one that won't be there for you, you know, it's a very tough problem. And I think one way or another, I probably would have gotten through with that, through that if I had I had that situation, but I don't think, I think my life would have been a lot different.
WarrenCharlie?
CharlieI have nothing to add, we're, we're, we're, okay, station five.
QuestionerHey, Warren, I'm Charlie. Good afternoon. My name is Sudhakar Reddy Annapredi. I'm from Bentonville, Arkansas, home of Walmart. I'm her shareholder since 2019 and my daughters are shareholders since 2020. My question is, this is my first time coming to shareholders, and my question is, Walmart and Berkshire Rathway has very great relationship with BNSF, McLean, and consumer goods like fruit of the looms and granemals, etc. My question is, granules is exclusively sold at Walmart, and fruit of the loom is sold at many other retailers. How does Berkshire Rathaway decides some items are sold at some retailers exclusively versus others are sold at many retailers?
WarrenWell, that's a good question, but obviously you'd love to control, if you have a product, you'd love to control the distribution, and you're probably going to get better gross emergence if they asked for you by name. I mean, they just had an article about Bernard Arno, who built LVMH and You know, he's got a blue box of Tiffany, and the blue box itself means something. And Coca-Cola, the bottle, meant something. In the 1920s, I think there was a study of that kind of hoop-skirt bottle and blindfolded. A very high percentage of the population could recognize it was Coca-Cola. When they can recognize not only the product, but the container, you know, you're going to have good gross margins. And if you're just another cola and there have been a... hundreds of them. And even if you have distribution through something like Walmart, who has Samskola, it just doesn't, it's not the same. I mean, here I am, you know. And 1886 or so, John Pemberton in Atlanta, created it, and they spent a very significant amount of money advertising. On the other hand, Hershey's didn't spend any money on advertising. So we have observed, Charlie and I both have observed so many products, so many methods of retail. We really think we know quite a bit about it, and we also know how much we don't know about it at the same time.
[50:09]
WarrenAnd it doesn't mean that we want to go into retailing ourselves, but it does mean we've learned to some extent what to avoid. And we've learned when somebody really has something. Granimals have something. It's just that there's only many, you know, Walmart does a great job of distribution for us, and it's a good product for Walmart. It's a good product for us. And on Fruit of the Loom, they can sell lots of types of underwear, and they can do a big volume, but we're not going to make as much money relatively to capital employed or anything with a product that has a whole bunch of competitors. And if the kid wants the grandmas or something, it's not the sort of product that causes people to drive 20 miles out of their way to buy it or anything of the sort. But if you're in the Walmart and you're picking out pajamas or something for the kid, and he or she wants a particular product, and it's not, and it's reasonably priced in everything. everything and wears well and you know we will we're happy to have it distributed through somebody with the distribution power of Walmart and their design they're very happy to have the product on balance it's obviously better if you own seizes candy than if you own the no-name candy company you know particularly when people buy it as gifts a couple times a year I mean they they know that if they give if they give a their girlfriend, if they give somebody in the hospital, if they give a gift to Christmas or going to a dinner, they know if they hand the box of candy to somebody. They don't say at the same time, here, I got a wonderful deal on this candy. I mean, it's just a kill to the moment, right? What they really want to see is a smile on the other person's face that they're receiving it, and they get it. So, uh, knowing what customer, and sees box chocolates, A, or not remotely in the market that soft drinks are, and the product does not travel particularly. Hershey's chocolate and travel. I mean, if you look at candy bars, what's popular in the UK isn't that popular in the U.S. and all kinds of things. Coca-Cola travels. There's 200 countries and roughly in probably 180 of them. It's the nominal product. And how do you do it? Well, it helps if you started in 1886. six and go from that point forward. So we've learned a lot. We got a lot to learn, but we did learn that something like our animals, we understood. When it came around, nobody ever heard of it.
[53:10]
WarrenWe bought it for a very low price, as it turned out in 20 years ago, and still nobody knows that we own it, and that's fine, but they know what our animals are. And, uh, and it has legs. It just keeps going year after year and some things are like pet rocks. And we're learning all the time. Charlie?
CharlieI have nothing to add.
WarrenOh, you probably never bought any good animals.
CharlieNo, I never have. I don't even wear them. It wouldn't fit.
WarrenOkay, Becky.
QuestionerThis question comes from Barry Laffer in New York City. Berkshire owns about 94 million shares of Paramount Global as of the last published data. This asset-rich company has disappointed on recent quarterly earnings reports in just this week slashed its dividend by 80%. How do you see the streaming wars evolving, and do you still have conviction in your investment thesis? Is your investment thesis based on the company being an acquisition target or based on its fundamentals?
WarrenYeah, and how would you like to manage my money for nothing? They, you know, we are not in the business of giving stock advice. to people and people who don't know anything about stocks can make a lot of money doing that and we don't think it's something we should give away. But I will say this, it's not good news when any company passes this dividend, or cuts the dividend dramatically. And the streaming business is extremely interesting to watch because there's people, people love to use their eyeballs watching, being entertained on a screen in front of them or a phone or whatever it may be. But there's a lot of companies doing it. And you need fewer companies or you need higher prices. Well, you need higher prices or it doesn't work. And you don't lock in people when you get them to join up for the streaming period when your serial runs. I mean, you keep them on for a while, but you can't lock them up. And we'll see what happens. I mean, I had a gasoline station when it was 21 or 22, and it's about three or four or four or five miles from here. And we had one competitor, and he determined our profit because he looked at his price every day. And if we cut the price, he'd match it, and we couldn't raise the price. And he did twice the gallonage, so he won. And there's just a price. There's just basic business problems that you see with certain interests that you don't see with the other. Disney was unique in its animated, what it offered, you know, in the 30s and 40s.
[56:16]
WarrenAnd they wrote the stuff off at the first showing, and then they rejuvenated Snow White and all these other people every seven years, and that was fine. But this is a different world. And the eyeballs aren't going to increase dramatically, and the time they can spend are it's not going to increase dramatically. And you've got a bunch of companies that don't want to quit. And who knows what pricing does under that. But anybody tells you what they know what pricing will do in the future is getting themselves. Charlie?
WarrenCharlie's had a lot of experience, incidentally with Hollywood. I mean, he used to, before I even met him. I think the movie business is one tough business.
CharlieYeah. my view. The talent will make the money. The agents will make the money. And if you've got a theater, you know, the theaters are now doing 70% of the business that they did before the pandemic. And big hits, you know, have enormous grosses. But you can't reduce the supply. People have only got so many hours in the day. They've only got two eyeballs. And they've got more choice than ever before. And they've got stuff that's cheaper. offers them the same experience and some of them like the experience, you know, particularly the big hits of going. But it isn't like you can double the number of people or double the eyeballs or anything like that. And you've got a lot of people. The talent will always get paid. And when you essentially are packaging that talent one way or another, and you need to get higher prices and you've got a lot of strong companies that don't want to quit, that's an interest an interesting equation. If you think the movies are tough, try to invest in a New York show on a conventional stage. There they think it's a breach of faith in that business to let the person put up the money, ever get any money back.
WarrenYeah. Yeah, well, Charlie saw a lot of that actually.
WarrenYeah. I don't like those businesses. Tell them what happened on Cleopatra, Charlie.
CharlieNo, it's a business that everybody's tempted to go. They love the idea of going in it, you know, and I get a certain amount of psychic income. I never own any race horses either.
WarrenWell, I, my father and I, and I used to talk about claiming a horse at Exhaarbin, but we never quite got around to it. We had a lot of fun where you the track together.
OtherOkay. Section 6. Good afternoon. My name is Hannah Hayes, and I'm a high schooler from Iowa.
[59:11]
QuestionerYou said earlier today that transitioning to renewable energy has the people and capital to support it, so with enough investment in renewables, the development of energy storage technology to soon meet Iowa's energy needs and support from the government system through Inflation Reduction Act funding, why hasn't Berkshire Hathaway? energy truly invested in the future by accelerating retirement plans for the coal plants which have high operating costs and are currently Iowa's biggest carbon polluter and will continue to be until they're finally retired in 2049, which is too late to be curbing emissions according to the IPCC.
Greg AbelYeah, it's very interesting. We, we, in Iowa, we have actually produced more. uh wind energy that is used, uh, the amount of energy used by our, our customers, but it's not, it's not producible 24 hours a day necessarily. So the, there's problems. And incidentally, in Iowa, a significant majority of counties welcome us when we come around and want to put in wind and some don't want it. I mean, it, you know, it is, you know, it is, it is a significant majority of counties welcome us when we come around and want to put in wind and It is a, there's a not in my backyard someplace. There's other places where they love the money they get from a small plot of grounds and people in the, like, the taxes are paid. But I would say that if there's one state in the union that stands out in the development, it's Iowa, but what's also interesting in Iowa is that we have one other major company. There's always loads of little co-ops. all kinds of things that sell electricity. But we have one major competitor, and our prices are significantly lower. And as a matter of fact, we are now in the Omaha Public Power District, and three miles or four miles away, we're selling electricity in Iowa. And we are selling it cheaper, even though public power was invented in Nebraska. has been a, uh, I think it's, you know, George Norris did it back in the 1930s. And, you know, it's, it's, it's, Nebraska's resisted, to some extent, wind power, more than Iowa, but like I say, our competitor, or alderent source hasn't really pursued it the way we have. But I would, I would say that our record in wind and solar, uh, I would say that our record in wind and solar, has not been topped by any utility in the United States. And, of course, it's been aided by the fact that most utilities pay out 70 or 80% of earnings and dividends.
[1:02:21]
WarrenAnd we haven't taken a common dividend out of, we had a little tiny preferred, we haven't taken a common dividend out of, you know, for 20 years. We've reinvested, I don't know how many billion, and that's the reason why their earnings have gone from 200 million to 4 billion, but we're not earning a higher rate of return on capital than we were when we started. We just put way more capital into the business as we went along and kept reinvesting the capital. So I wish Greg were to tell you more details about it, but, but, uh, but, uh, I would say that we'd put up, we'd really put a Berkshire-Hathaway Energy's record against any utility of the United States.
CharlieCharlie Youngman, you've watched it. Well, I have, and I'm not personally at all sure how bad the global warming is going to be. I think, I don't think anybody knows for sure whether the seats are going to rise two inches or 20 feet. And so I think there's a lot of false claims here in the world where much is not known.
WarrenYeah, we. Wyoming, there is a lot of wind in Wyoming, and we are building transmission line that extend out through the West. But it was World War II, and they told us to do it. And somebody, we had a czar in Washington that could say, you know, just get it done. Like I said to Henry Kaiser, I'm building ships. You know, you can't believe how far ahead we would be down from where we are, but we've got some money. We've got the know-how. And we do spend about, this year, our depreciation in our utility company is on the order of $4 billion. And we spend maybe $3 billion additional left. So maybe we spend $7 billion. And there are very few companies in the utility industry that are spending, you know, that percentage of their depreciated. But we just don't know, we just I'd love to be spending more, but there are people all over that don't want, they don't want the pipeline to go through there, they don't want it, whatever it may be. And that is the problem of a democracy. And even, as I mentioned, within Iowa, you've got a great many counties that majority, a great majority of the counties, I think, welcome the wind power, and you've got some counties that don't like it. And we're obviously going to work with the ones that want to work with us. We do not have the ability to go in and tell anybody what to do on that. And there's a public utility commission in every state that basically governs what we earn on it, what
[1:05:27]
Greg Abelwe do, and that's the way the industry is developed. And that's not bad unless you get into things that in effect, you know, extend. And they're part of a countrywide system rather than a statewide system. I think also that even if we weren't worried about global warming, it would make sense to shift to renewables to conserve our hydrocarbons. There are certain things hydrocarbons can do that nothing else can do. And there are only so much of them there. Why not be cautious in conserving them? And the cost, they've gotten so much more efficient, too. I mean, the winds down. I mean, if you look at what we're doing now, those towers are way more efficient. And, but there's a lot of, a lot of people that are talking, that, they're talking about things that can't be done. And then there's, there's a. There's a lot of nonsense in this field.
QuestionerYeah, yeah. If you like nonsense, this is the field for you.
Greg AbelWell, we're, but we're in the field, so.
QuestionerI know. Okay, Becky. This is a question from Monroe Richardson. The Wall Street Journal reported in March that oil producers are producing less oil and may have reached their peak in the Permian Basin. Given the major positions of both Occidental Petroleum and Chevron in the Permian, would you please explain the rationale for Berkshire's significant holdings of both those companies, considering that future outlook for oil there?
WarrenWell, there's no question. It's really interesting about oil, and Charlie knows way more about oil. When did you buy that royalty in Hare Bakersfield or wherever it is? That was before I met you, right?
CharlieYes. No, it wasn't before. It was, but it was. Yes, it was. It was just before. You're right.
WarrenAnd that kind of immoral is still paying me $70,000 a year. Would you pay for the... A thousand dollars? Yeah. Yeah. Now that's the opposite of the Permian. My dad bought... bought $1,000 or $1,500 with the royalties before he died. In 1964, he left him to my mother. My mother left him to her two daughters. And my older sister died, and my younger sister's here today. And she gets these checks every month, and she knows about all these different fields and what they're producing. And that's the reality of half of the oil production, or something around that in the United States. And then the other half is shale. And, you know, if you've gone to the movies and never watched oil, you've never watched the things that are pumping on
[1:08:24]
WarrenCharlie's royalties in California. You see these gushers of oil. Well, in the Permian, and I'm like, this should sink in on you. And the first day, the first day when you bring in a well, You know, it may be 12,000 barrels, it may be 15,000 barrels, and it's even, it's dangerous. And Occidental had one come into, I think, in 19,000 barrels or something I got one day. And in a year, a year and a half, it becomes practically nothing. It's just, it's a different business in effect. And the United States, it's interesting. interesting we use whatever we use maybe 11 or a fraction well we produce at 11 a fraction million barrels of oil equivalent a day but if shale stopped I mean it would drop to 6 million very fast well just imagine taking 5 million barrels a day out of the production in the world and and then we're also taking down our strategic petroleum reserve uh strategically petroleum reserves the ultimate oil field you don't have to drill it's just we've got it and it was supposed to be strategic but but it gets involved in politics and uh so there's there's there's all when you're about the oil business you're talking with different kinds of businesses basically and and and we like Occidental's position in the Permian and we wouldn't like that position that well it got to minus one day it got to minus 30 dollars or a barrel that was crazy of course but but if oil sells at x you know you do very well and it sells at half of x you know your costs are the same and it doesn't change the production and it doesn't work as well but it also brings down the oil production of the united states very fast so we don't know what oil prices will be but we do very much like the occidental position they have and that's why we finance them a few years of ago and it looked like it was a terrible mistake when the oil market just totally collapsed and and then it changed around and we bought a lot of the common stock in the last few months they've reduced our preferred which we don't like obviously we'd be disappointed in them if they didn't reduce it it's intelligent from their standpoint so we've taken of the 10 billion dollar preferred we've gotten maybe four or five hundred million dollars of it retired at 110 percent of par but uh vicky hollum uh she's an extraordinary manager of occidental her first job was with city service that was the first stock i bought in nineteen forty two uh she knows what happens beneath
[1:11:39]
Warrenthe surface i know the first stock i've bought in nineteen forty two uh she knows what she knows what happens beneath the surface i know I know the math of it, but I wouldn't know, I wouldn't have the faintest idea what to do if I was in an oil field. I mean, I don't, I can dig to the feet down, I can't, in my backyard and I can, that's my, that's my understanding of subsoil in the world. I can't picture the field that Charlie has been collecting that monthly check from, from 50 plus years, 60. 60 years roughly or my sister's getting at various fields where they just keep pumping and bumping and bumping and bumping in and we in the United States are lucky to have the ability to produce the kind of oil we've got from shale but it is not a long-term source like you might think by watching movies about oil or something of the sort. Charlie, do you have anything?
CharlieYeah, it really dies fast, those shale wells. If you like quick death in your oil wells, we have them for you. No. But accidental, they're doing a lot of good things. Yeah, they deal a lot of new wells. Yeah. They're doing it a profit, but it's a different thing. It's a different kind of oil business. It's just different. Yeah. Yeah. And that's true of almost half the oil produced in the United States. And there's times... There's a lot of oil down there that nobody knows how to produce. And they've been working at it for like 50 years. But they worked at the existing shale production for about 50 years before they figured it out. And it was weirdly complicated when they finally were able to do it. There's only one type of sand that works. Can you imagine a horse? horizontal pipe, you know, maybe a mile and a half or something. It's just so different than what you think about. And it goes laterally for three miles, two miles down. Yeah. How the hell do you build two or three miles laterally when you're already two or three miles under the earth? They've mastered a lot of very tricky technology. Do we able to get any oil out of these wells at all? Yeah. And we love the position with us. Occidental. Yeah. We love having Bickey run it. And they've been... And there's a lot more oil down there if anybody can figure out another magic trick. That's all we need is another magic trick. But Occidental has some other things, too. Yes, yes. But the price of oil still is incredibly important in terms of the economics of short-lived oil.
[1:14:37]
WarrenI mean, no question about that. Well, if it's... Well, if it's... And we will, incidentally, you know, there's speculation about us buying control. We're not going to buy control. We don't want to run. We've got the right management running it. We wouldn't know what to do. Charlie wouldn't know what to do in an oil field. Admitting you're buying coal, it'd be like going out and seeking to acquire a cancer or something. You can't even borrow to expand a coal mine now. It's really, it got very unfashionable. fashionable. Yeah. And we think, frankly, some of the things that are ridiculous. And on both sides, on both, in both extremes. I mean, you're dealing with physics, you're dealing with, you're dealing with, you know, it's the politicization of positions on something that's enormously important in terms of energy. It just lends itself to demagogues. and fundraisers and advisory organizations and everybody in sight. And we will make rational decisions, and we do not think it's un-American to be producing oil. And there is no oil basin in the United States that compares to the Permian in terms of promise. Yeah, we were lucky. We didn't know it was there until, you know, not that many years ago. many years ago. It had sort of been used up, and they always knew the shale oil was there, but they thought it was going to stay unrecoverable forever. The second or third stock I bought was Texas Pacific Land Trust, and they owned 3 million acres down there in P, and they were grazing revenues of 10,000 a year or something like that. They were sitting on this incredible amount of oil, and basically that company is now actually part of Chevron. And went through Texaco and did all kinds of things. And there's still a Texas Pacific Land Trust, but a lot of that property is fee owned by their minerals are owned by Chevron, which is some advantage. But it's, well, it's an interesting subject, I'll put it that way. And we will not be making any offer for control of Oxenana, but we love the shares we have. We may or may not own more in the future, but we certainly have warrants on, on which we got as part of the original deal, on a very substantial amount of stock at around $59 a share. And those warrants last a long time, and I'm glad we have them.
QuestionerOkay, Station 7. My name is Max Joe, and from Toronto, Canada. I have a question for Charlie regarding statement you made in the United.
[1:17:46]
Questionerthe past. You once mentioned that you would prefer to hire someone with IQ of 130 who believes is 120 over someone with IQ of 150 who thinks is 170. Understand that you are referring to Elon Musk. Given the recent success of his ventures, such as Tesla, SpaceX, and Starlink, I'm curious to know. If you still hold a view that Elon Musk overestimate himself, thank you so much.
WarrenWell, yes, I think Elon Musk overestimates himself, but he has a, he is very talented. So he's, he's overestimating somebody who doesn't need to overestimate to be very talented. There's a Bill Maher program about a week old, maybe two weeks old, but he interviews Elon. And Elon does a terrific job, toe-to-to-to with Bill Maher, who, it's worth watching. And Elon is a brilliant and brilliant guy, and I would say that, you know, he might score over $170, but he, you know, he dreams about things. And he, his dreams have got a foundation. He would not have achieved what he has in life if he hadn't tried for unreasonably extreme objectives. He likes taking on the impossible job and doing it. We're different.
CharlieWarren and I are looking for the easy job that we can identify. Yeah. If we can do it playing Tick-Tac doll, we'll do it, you know. We have a whole different way of going to the whole way. But we don't want to compete with Eli. in a lot of things. I mean, you know. We don't want that much failure. Yeah. And it takes over your life in a way that it just doesn't fit us. But, you know, there are going to be, well, there have been important things done by Elon already. And it requires fanaticism isn't the word.
WarrenYeah. It is the word.
CharlieOkay. Well, it is. That wasn't quite the word, but it's a dedication to solving the impossible, and every now and then it'll do it. But it would be torturous to Mayor Charlie. And I like the way I'm living, and I wouldn't enjoy being in his – but he wouldn't enjoy being in his – but he wouldn't enjoy being in my shoes either.
QuestionerWhat's the Belmara interview? Okay. This question comes from Foster Taylor. At the 2010 Berkshire annual meeting, you said the one question that you would ask of the Berkshire CEO would be about the distribution of cash to shareholders as the Berkshire cash pile grows larger and larger. So let me ask that question. Do you still feel confident of the future prospects for our over $100 billion in cash on hand? Or are we getting closer to cash distributions?
[1:21:33]
WarrenWell, our – you know, the one thing, if Berkshire shares are selling for less than we think they're worth, that's a pretty – that could be a pretty big way to distribute cash. But we'd rather – what we'd really like to do is buy great businesses. If we could buy a company for $50 billion or $75 billion, $100 billion, we could do it. And we can do it, and our words good. It's difficult with a public company, because in effect, if you bid on a company, you make the bid, and their shareholders vote months later, and you're giving an option, if we're good for it, and the other guy has a way to top you, or all kinds of things, they can get out of it, and you get paid 2% for that or 1% for that. is not an appropriate price. And on the other hand, Delaware will decide whether they should do it or not. And that's the way the world is. I mean, that's the law. So, it'd be easier to do with a private company. And there aren't very many that are big. On the other hand, there aren't very – there's nobody else that can quite make a deal like we can under the right circumstances. And there could be a situation where a bunch of very – a number of very decent companies. I've got a very uncomfortable borrowing structure, and money comes due to them at the exact wrong time, and that's when they pick up a phone as did Tiffany and Harley Davidson and you name it. I mean, a whole bunch of companies, in 2008. That sort of thing will happen again, whether it results in us getting the calls or what the world is exactly at that time. But the one thing we know is that the number of phone calls that you can make at a time like that is very, very limited. And there can be good companies. They don't want to sell the company necessarily, but they may want – they just may need $5 or $10 or $20 billion, depending on what company you're talking about. And that can happen, and our own shareholders can be selling the stock too cheap, and we'll never do anything to make them sell it cheap. and we'll tell them the truth about what the business is, but if market circumstances result in us being able to buy in $50 billion of our own stock, we'll buy it. So we'll see what the world holds, but I don't, I don't, I don't, we don't have the opportunities we used to have, but we've got, we've got enough, and we're making money with what the things we have. It isn't killing us to hold $130 billion of, of, uh, uh, uh, uh, uh, uh,
[1:24:39]
Warrenbills at 5% plus bond equivalent yields. And everybody says, well, yields are going to go down to the future. I don't have the faintest idea. Yields are going to do in the future. And, you know, the prime rate was 21 and a half percent in 1981 or two, and people were worried that it was going to go totally out of, it's been out of control. And Volker kept it from happening, but if Volker hadn't been in there, who they all knows what would happen? So, we're running Berkshire so that we'll do okay, and maybe we'll do do a little bit better than okay. Charlie?
CharlieOkay, maybe fine.
OtherOkay, station eight.
QuestionerHello, Mr. Buffett, I'm Mr. Munger. My name is Carlos Sanchez, and I'm for honor to be here from Guadalajara, Mexico. Mr. Munger, as a fellow lawyer, I have a question regarding corporate law. Considering your experience and success, if you were to offer guidance to someone like Ralph Tortorella when he was at the beginning of his career, and before becoming Versailles Hathaway company's lawyer, what key principles or lessons would you suggest to help him excel in his profession?
CharlieWell, I'm not sure I quite caught all of that, but I don't think I have a lot of advice about how to succeed as a lawyer. I have a son-in-law who describes modern law practice in a big firm. He says, it's like a pie-eating contest where if you win, you get to eat, more pie. And I advise you to avoid that kind of a law firm. Life is too short to just do nothing but eat pie.
WarrenYeah, Charlie has not practiced law since what, 1964, maybe or whatever it was. But...
Charlie1962.
Warren62. And Charlie has given me four or five pieces of advice that don't really come from his legal background, but because he knows the system so well, and, you know, really did do quite well at Harvard Law School, despite his taunting of teachers and a few things, he has given me four or five solutions on things that nobody else in the world would have given me law firm or otherwise. And it's it's been within a set within a, within a, almost a nanosecond, and when I described a problem to him. And he just gave me the answer that nobody else would have come up with. And I told you one of them last year, so I won't repeat it at this meeting. But it's, we've got the best lawyer in the world in Charlie, if it's something that really matters. And there have been times. when I've taken advantage of that. And I, Charlie didn't want to be a lawyer.
[1:28:12]
WarrenHe didn't want to sell his time, maybe at $20 an hour or something, to people he thought were making the wrong decisions. And he knew more about it than they did. And that just did not strike him as a good way to go through life. And I think he's probably right on that. I think he'd have really gotten to be miserable. If he had to keep doing that, I mean, it's just no fun. It'd be like me giving investment advice to somebody or taking it from somebody I had to, you know, it just, I just wouldn't want to do it in life. And Charlie figured that out. And so we decided to work for ourselves and it's worked for ourselves. And it's worked for, been happily ever after. We have no complaints. Yeah, none.
OtherOkay, we're at Becky. This question comes from Ryan Harding. It's about the new. new 15% corporate minimum tax rate. As he sees it, its implementation is currently understood, he thinks that as he understands it, to apply over a rolling three-year periods and to be based on reported earnings. First, does the inclusion of unrealized gains and losses in reported earnings under the current financial reporting standards contribute to the calculation for corporate minimum tax rate purposes? And could it could potentially convert some of those notional deferred taxes into cash taxes, even if a rise in the market price of a major holding is only temporary, but rather extreme. And then second, could it reduce the effect of some of the renewable energy tax incentives and others?
WarrenYeah. I think the answer on the second part probably is no, but I don't want to say it is for sure, because he's asking the same questions I ask of Mark Hamburg, who's the smartest guy on combining understanding business, understanding the tax code, understanding SEC rules and everything else, that you'll find in corporate America. And these questions, the particular question on marketable security, I don't think has been answered yet. And I think that there are a number of things about the New Tax Act that were not enacted. But I would say this. You know, we have said ourselves what we think, the proper approach to operating income. We didn't design that because this tax law came along with some years back. So we are, we would think that you wouldn't include capital gains, unrealized capital gains in. But we, we've got enough, I think, no matter how things turn out, you know, the 15% tax doesn't bother me in the least.
[1:31:15]
WarrenAnd we can figure ways, once we know the rules, where we will pay the 15% tax. And, you know, we were paying 52% taxes, federal income taxes, when I bought control in the partnership of Berkshire Hathaway. I mean, the tax rate come down dramatically, and the deferred tax that was embodied that was embodied. For example, of Sanborn Map when I was involved in a system that was allowed under the tax law to avoid that tax. But that was a huge tax, 52%. So we will live with this tax code, and we do not think corporations are overtaxed in the United States. And, you know, and I think that the conversation about how we lose out to the world and all that sort of things is really nonsense. But we've got a new law that hasn't yet, the regulations haven't been written on. And when we know what the game is, we will absolutely figure out a way to pay 15% every year, which generally we've been paying anyway. And as I pointed out, if there were a thousand corporations in the United States that paid what Berkshire has been paying paying. Nobody else in the United States, no individual, no corporation would ever pay, any income tax, social security tax, gift tax, estate tax, anything else. A thousand like Berkshire Hathaway would produce the revenue that's being produced by the federal government, that's being derived into the present tax code from everybody in the United States. And I don't feel badly about that, and I'd love to get up to what it's one 500 or something of the sort of done. But I'd like to do it. We can do it at this rate. it at this rate, I'm happy to do it. I think we are privileged to live in the United States, but we also have to control spending. And that's something that Congress doesn't quite want to like to give, like to do. And they didn't like to do it. But my dad went to Congress, but they've dug in more as the years have gone by. Charlie?
CharlieWell, we would cover this subject earlier. Yeah.
OtherOkay. Station 9.
QuestionerAm I right on this? Yeah. My name is Avalon Gross, and I am from Los Angeles, California. I am from Los Angeles, California. I am a shareholder, and it's my fourth year coming to the Woodstock of capitalism. Yeah. We're glad you came. Thank you so much for everything, Warren and Buff, Warren Buffett and Charlie, and Charlie Munger. What is the funniest story that you have never told about each other? And also, what is the hardest part of your business?
[1:34:36]
WarrenI'll answer the second. The second part of your question is that we don't have a hard business. We love our business. Every morning when I get up, I feel good. I don't know what's going to happen that day. Maybe nothing will happen, but maybe something will happen. happen. And if nothing else, I'll roll some tea bills or something, but it, it, it, I work, I work with the greatest group of people you can imagine. I mean, we, we, we like each other, and nobody is after anybody else's job or anything of the sort. It's ideal working conditions, and it's five minutes from my home or thereabouts. So I haven't spent my life commuting. I just can't imagine and having anything better. And Charlie's got a lot of funny stories you haven't heard, but we'll see what you only comes up with. I think Warren and I are naturally so ridiculous that we don't need very many funny stories. We each do things that are peculiar enough so that we can keep one another amused.
CharlieTell them what you told the lawyer when we were buying a hosha cone. I don't remember, you tell them.
WarrenWell, you remember, it was 1966, and And we were down in Baltimore buying a department store, and we needed a lawyer. And we needed a lawyer who was nearby and would do exactly as told. And Charlie came up with a very good lawyer from Wilmore Cutlers, I believe. And I don't know whether Charlie remembers the instructions he gave the lawyer or not.
CharlieNo, I don't.
WarrenOh, well, Charlie told the lawyer, who we'd never met before. And he said, well, he just, he says, treat warm. I was 36 at the time or 35. He said, treat worn like any other 90-year-old client. This guy knew exactly what he meant. And we made the deal in a hurry. And then we went to the bank, the first National Bank, I believe it was a Maryland National Bank, actually. And there was a fellow named Cammy Slack there, wasn't it, Charlie? And we wanted to borrow six million bucks against a $12 million purchase. purchase and Cammy looked at us and with bewilderment. And he says, you want to borrow $6 million dollars? And that's a little old Hoshal Coon. And Charlie and I said something to the effect, well, the Maryland National was our first call. And if they didn't want to do it, we had another bank we'd go to. Anyway, they allowed us the money. But when he said a little old wholesale call, and we immediately started thinking, maybe this isn't the best deal we've ever seen in our lives.
[1:37:35]
WarrenFrom that point on, we're going to do. We were trying to figure out how to sell it. But we had as much fun, Sandy Goddessman was involved with us then too. We had as much fun out of deals that didn't work in a certain sense as the ones that did work. I mean, it's, you know, if you knew you were going to play golf and you were going to hit a hole in one on every hole, you just hit the ball and then went in the hole 300 yards away or 400 yards away. Nobody played golf. golf. I mean, part of the fun of the game is the fact that you hit them into the woods, and sometimes you get them out, and sometimes you don't. So we are in the perfect sort of game, and we both enjoy it, and we have a lot of fun together, and we don't have to do anything we don't really believe in doing. I mean, we are not dictated to by any group, and so we get to follow our own. And we get to forge our own destiny and, in a sense, forge the own principles by which we can run the company. And that's a huge luxury in life. And we don't want to be president of any other company in the world or CEO or anything else where we have to conform to certain things that we really don't want to conform to. Have a fair description, Charlie?
CharlieYeah, it is.
QuestionerOkay, Becky. The position comes from David Cass, who is a professor at the business school at University of Maryland. He says at last year's annual meeting, Warren mentioned that Berkshire had taken a large stake in Activision Blizzard as a merger arbitrage play. Since the UK regulator has blocked its acquisition by Microsoft, has Berkshire reduced or sold its stake.
WarrenWell, I think in terms of what we do with stocks, we don't give information except when required to, which is in the 13th or whatever we file. And there's some, there's certain things you can actually figure out by looking at our 10, or on, yeah, our 10Q, which we followed this morning, which you have to look pretty hard. But I would say this, it's, I think Microsoft has been remarkably, what's the word, willing to cooperate, willing to cooperate with governing body, and I mean, they want to do the deal and they've met them. The opposition, it seems to me, more than halfway, but that doesn't mean that it gets done if a given country, in this case, the UK, wants to block it. They're in a better position to block it than the United States, but just the way the world works. And that doesn't get solved by all.
[1:40:52]
Warrenget solved by offering more money. So it, it, I don't know how it, how it turns out. But if it doesn't go through, I don't think it's through any, any shortcoming by either Microsoft or Activision. But not everything that should happen, does happen. And, well, we ran into that when we bought, made the deal with Dominion Energy 18 months ago, and they let us buy a good bit of what we wanted to buy, and then the government in effect said, you can't buy something else, which I think we would have done a better job with than anybody else did, and in which the states involved and not object to it, which the customers didn't object to it. But you don't, you don't, you don't. don't take on the United States government, you know, and you try and figure out things that you won't have a problem with. And I think in that case, the NOS government made a mistake. I think the British government is making a mistake in this case, but that's life in the big city, is sure, I would say. And what we do will depend on a lot of things. Charlie?
CharlieWell, I think what we do. Yeah, you kissed that one off beautifully.
OtherOkay, station 10. Hi, Warren. Hi, Charlie. My name's Anderson Fuller, and I'm from Avonport, Nova Scotia, and Canada. And before I ask my question, I just want to thank you for all you've done to give us insight into your minds as investors. So, for me, the most compelling takeaway from Berkshire is your guys' emphasis on and successful use of properly aligned incentives. In my view, owning and leading a business has two central benefits. First, you directly benefit as the company goes through your equity in it, and second, you have autonomy. Incentives for employees are a bit easier to understand, such as offering benefits, fair pay, and creating a strong culture. But I've always struggled to understand them at the highest level. Even though you say Berkshire gives its managers significant flexibility, it must be less than what they have when they were independent. Additionally, you would think passion and a willing to sell would be inversely correlated. So how exactly does Berkshire Bridges Gap and incentivize owners of its subsidiaries to give up these benefits to Berkshire? Thank you.
WarrenWell, what we really hope to find is managers who love their business, but don't like a lot of what comes with it as a public company. I mean, if they have to spend a lot of time listening
[1:43:57]
Warrento people, tell them what to do about this or that, and they can't afford to irritate them. Or they have to go along with their trade association, because, you know, whatever they may call it, because you don't want to look like a free rider. And there's all kinds of things, compromises, that people have to make in most jobs. And Charlie and I solved that problem. I had five bosses in my life, and I liked all five of them, two of them were just huge factors in making my life better, but I like all five of them. A couple of them are, you know, some people here, J.C. Penny, Cooper Smith, you know, I've worked with 75 cents an hour, and I love working at pennies. Well, I didn't love working at pennies, but I love working for Cooper Smith and, you know, it was 75 cents an hour. But I had to do it what they told me to do, which was to sell men's shirts first, then men's clothing, then children's clothing, and so on. And I love working for the newspaper, and I had a great manager when I was in University of Nebraska. Got to work for Ben Graham. I mean, everything worked out, but, but there's nothing like working for yourself. And if you can't own a big company, working at Berkshire Hathaway, or running a company, is the closest thing you will get. You don't have to spend time courting analysts who you probably have contempt for in many cases. You don't have to spend time with banks, you know, getting money and particularly in terrible times. Yeah, there's all kinds of, you get a lot in the way of freedom that I would think would be meaningful to me. And it might be better if you own the whole place yourself. but maybe you've got siblings that want out. Maybe there's a million reasons why you may not be able to achieve that unless you're home to Berkshire. And that's easier probably if they have a family business where people want to go in different directions than it is with a public company. But there's still possibilities there. So that's why that's why I think if I owned a public company and it would. was worth many, great many billions of dollars, and Berkshire Hathaway wanted to buy it, and the shareholders were willing to vote it. I would, consider it the way I would feel about life. But one thing, I wouldn't want to retire at 65. I'd want to keep working. And, you know, we just, there are reasons to sell to Berkshire, which Charlie and I, in certain positions, if we were on
[1:47:11]
Warrenother side would take the deal. And, uh, uh, but it isn't for everybody. Charlie?
CharlieI think we have a pretty good one. We've been very lucky. And I don't know. It seems to be that most of the people who are going to end up the way we did, they almost already know how to do it. Well, the most important purchase in retrospect that we may have made was national indemnity. Not because specifically what it did, but what it led to. And Jack Ringwall controlled the company. And I knew him and liked him, and he knew me. And once a year, he'd get irritated when the Nebraska Department of Insurance or somebody would come around. And he said they always came around when the exorbin racetrack was open, you know, so they could. I mean, he had all these theories about why it was a pain in the neck to be regulated. And I told Charlie Haider, next time Jack is in that mood where he's ready to sell just because he's tired of fooling around with all these guys, be sure and find him. And so Charlie called me one day and he says, Jack is in the heat. And I said, bring him over. And we made a deal. Well, that's why Jack sold. And he was happy after he made the deal. And I was happy after we made the deal. So there's a man that controlled the business, but just decided. These people didn't seem to bother them as much once they were my problem and not his. And you just can't tell when lightning will strike. And that didn't do magnificent things for us initially, but just look at what it led to, you know. And then, so you never, you know, if you knew, if you knew how you were going to, again, if you knew how you were going to shoot all 18 holes, it wouldn't be any fun playing, you wouldn't get on the first T. I mean, it's, it's. It's the uncertainty, the fun of playing the game, the opponents, all kinds of things that make a game interesting. And I think Charlie and I are in the most interesting game in the world.
QuestionerOkay. Becky. Here's a question from Simon Withers in Perth in Western Australia. It's been a long time since we've heard about Seas Candy and Net Jets. Could you please give us an update on Seas performance and when you project it will run out of places to open stores in the United States. Could you also give us an overview of how NetJet's performed since its acquisition, and whether it's achieved the potential you saw at the time of that acquisition?
WarrenWell, with Cs, it hasn't been a question of opening stores.
[1:50:10]
WarrenWe found out that we've tried about, we've had this wonderful brand that doesn't travel, you know, the mystique, the actual product, the feelings people have about some things, as we said before. I mean, sometimes it's limited to given markets, Dr. Pepper sells at a huge rate in Dallas, Fort Worth, and maybe 10 times the percentage per capita maybe that it has in Detroit or Boston. And you say, well, how can that be where the product's been around for a century, and people travel, and you have national advertising, and I'm not sure, but I keep learning more as I watch different brands. And Charlie and I, our economics were so good in California that we tried to, in many cases, the same experiment over and over again. It doesn't cost much to experiment. We've tried everything in the world to cause the brand to travel. And we always think we were right for the first week, and then we find out that the magic, we can beat any other candy store. pretty much, but there aren't any candy stores anymore to speak of as the world has changed. So, uh, seas is a, 101 years now, it has magic, and it has limited magic, and sort of the adjacent west, you can almost, it's gravitational almost, and then, uh, you get to the east, and incidentally in the east, people prefer dark chocolate to, to milk chocolate in the West people before milk chocolate to dark the easting cell miniatures and dark the west i mean there's all kinds of crazy things in the world that consumers do but you want to keep observing it because you do learn a little and with charlie and i'm the the the temptation to keep trying to keep trying things because the economics were so good if we succeeded so we tried various things and of course every manager wants to try as that comes along because they have loved you know it should work but it doesn't work so but that's that's that's what makes it very interesting and net jets we we have really learned how to distinguish and justifiably distinguish uh a service uh to people so that if you can you can you have to be very well to do to use it but if you're very well to do you're very well to do you're in effect you're spending your errors money i mean it's what i told my aunt alice after she went from teaching to be worth millions and millions of dollars and she came to see me she never been married and she said can i afford to buy this for a code in 1968 or nine and i said alice you aren't
[1:53:23]
Warrenbuying it your nieces and nephews are buying it because that's who you're leaving your money to speaking on behalf of your nieces and nephews i've said we want you to buy it and it's the same way you know do your airs want you to fly around in that gesture or do you want to leave a little more money to your foundation or your kids and and the way to solve that one is to offer your kids a few hours themselves then their attitude can change so it's it's it's in a class by itself it's it's done what Ferrari has done in a different sort of way in cars Ferrari sells 11,000 cars a year i mean maybe 12,000 and and you know they're known throughout the world and we'll have a Chevy dealership in austin or something we'll sell as many cars but we're not Ferrari and net jets has 600 and counting Europe I mean it's maybe 650 we're gonna buy a hundred planes this year and we won't sell any because we've got a backlog and we took we took a net jet flight over to Tokyo and we arrived in good shape and we spent a couple days there and we flew back and there's just nothing to it now you can say well you're getting sort of decadent and all that in your old age but uh the money will go to philanthropy and the money will probably be a hundred billion or more and and I forget the philanthropies want me to spend a few bucks on myself and it all it has to do is be better than the last dollars that are spent by various philanthropies which have plenty of problems finding things to do that make lots of sense so uh not just there isn't a competitor i mean we looked at the other day wheels up stock came out of ten dollars a couple years ago it was selling it 48 cents the other day and they've got 12,600 people that have given a bill a billion dollars a little over a billion dollars on prepaid prepaid prepaid cards where they've given them money and they get a certain number of hours later on and they don't i think there's a good chance that some people are going to be very disappointed later on and when they had money to do net jets they they know they'll get they'll get on the same planes with the same pilots uh as i and my family have flown on since before we bought the company so it's not it's not shaped by wasn't the decision was shaped by by some commercial uh objective a couple years before i never heard of net jets and frank runy mentioned it to me and i bought share share immediately and uh and we bought the company and and
[1:56:25]
Warrenevery well my kids have to buy commercial sometimes but they sometimes they get to use hours too but i've never flown anything else and why would i i mean it's it's it's it's it's the gold standard and uh nobody will match our fleet i mean if you've got you've got 600 planes you've got them a lot more places in the united states than anybody else will have theirs i think we're the second largest fleet counting the commercial airliners and and our fleet's growing like i say the rate of 100 planes a year so it's it's it's a marvelous company and and adam johnson has performed uh it you just can't believe what he's done with the business and it was a tough model for a long time but he's brought it where it is and we've got we should have a wonderful company for forever
Charliecharlie well not yet's been remarkable you can argue that it's worth as much as any airline now
Warrenoh it's so different and charlie we had a hard time selling charlie in that just membership and then we figured the way to get him to buy a membership was to put a coach seat in the and the fusill and that really knocked him i mean i think he's the only one we sold on the basis i used to come to the berkshire annual meetings on coach from los angeles and it was full of rich stockholders and they would clap when i came into the coach section i really like that but i got to tell you we semi-corrupted him he he he he he uh he he feels he kind of has to explain it but he still flies in that jess now so and it'd be crazy not to you know it's uh it your errors are paying for it i mean if he if he's find me anybody who's the state came in at less than zero because what they spent in on net jets threw them into that position uh let me know but i've i've never seen a case yet it won't be the case for the buffett family and and uh it's the residual bottom beneficiary that's paying uh for your uh your membership and and uh it's a little hard to get used to paying that much money though when you live like charlie i have most of our lives
Otherokay we will go to uh section 11 hello my name is humphrey lew i'm from charlottesville virginia uh first i wanted to ask to wanted to add my thanks to you and uh mr munger and mr buffett and all of berkshire for throwing this grand event each year Looking at the global trends, it increasingly does seem that zero mission vehicles may have finally reached the cusp of mass adoption.
[2:00:06]
QuestionerDo you see any opportunities in this space, either in specific vehicle manufacturers or in related technologies?
WarrenWell, I would say that Charlie and I for long have felt that the auto industry is just too tough. you know the forward motor company i mean henry ford uh looked like he owned the world with the model t and then and he brought down the price dramatically he took up wages dramatically he was he might have been with a different personality uh uh uh uh or some different views he might have been elected president of the united states i mean there there's there's a good book that came out on that recently that told about the story of of what tells a little about nebraska in terms of but henry ford and and and uh thomas edison joining up uh maybe a year or two of us it it'll if you're interested in autos you ought to read that book but henry ford did that and you know and 20 years later that that uh they were losing money and they had a guy with a done in his pocket i think harry bennett you know it was was was running the ford motor company it was on its way to the junkie when the witskins came in and and and henry for the second hank the deuce as i call them brought in tex thornton and my friend r j miller and a few people but it's just it's i i've read i was reading the other day actually the 1932 annual report of general motors and uh it's one of the best annual reports i've i read it's a totally honest you know assessment of exactly where they were they had 19 000 dealers then and the population as i mentioned earlier was about 120 million or so and now with 330 million people all brands in the united states have like 18 000 dealers or something it it's just a business where you've got a lot of worldwide competitors they're not going to go away and they're look like it looks like there are winters at any given time but it doesn't get you a permanent place although as i mentioned i would say ferrari is in a special place but i only sell 11 or 12 000 cars a year and uh u.s last year i think there were 14 million something and uh it's it's not a business where we find it fascinating to be in we like our dealership operation but i don't think i can tell you what the auto industry will look at look like five or ten years now i do think that you're right that uh that uh that you know there's a you will see a change in the vehicles but you won't see anybody that owns the market because they change the vehicle
[2:03:13]
Warrencharlie well the electric vehicle is coming big time and that's a very interesting development at the moment it's imposing huge capital costs and huge risks And I don't like huge capital costs and huge risk. And we're subsidizing in the United States and we're actually doing it try putting in a pro-labor time. I mean it is subject to politics like you can't believe too. But it's going to be with us. We're not going to quit driving cars and American public has a love affair with them. But I think I know where Apple is going to be in five or ten years and I don't know where Apple is going to be in five or ten years. I don't know where the car companies are going to be in five or ten years. And I may be wrong, but that's, we, Charlie and I followed the auto business with intense interest. Charlie's firm was the specialist in General Motors on the Pacific Coast Stock Exchange, and that was a franchise, wasn't it, Charlie?
CharlieYeah, we get by working very hard, we could make a minor amount of money.
WarrenYeah, yeah. Wasn't minor at the time, no matter.
CharlieYeah. It was. It was. It was pretty minor at the time, even.
WarrenYeah. Well, that was pretty minor. Okay. Becky.
QuestionerThis question comes from Lindsey Peter Schumacher in Cedar Rapids, Iowa. Does the current size of the Federal Reserve balance sheet concern you? In particular, the result of quantitative easing. The Federal Reserve expanded its balance sheet out of nothing. The net effect, in essence, is a form of single-entry accounting, creating something of value out of nothing other than a series of book entries, and wondering what Mr. Munger thinks about this as well.
WarrenWell, I don't think the Federal Reserve is the problem, and I think they can't solve the fiscal problem. And I do not worry about the Federal Reserve. And I think it's fulfilling the functions for which it was established. I probably would not have been And they have two objectives, and I would not have been one probably that would have changed the inflation objective to 2% a year from zero. I think that, you know, I think that if you tell you people that you're shooting to depreciate your currency at 2% a year, that has a lot of implications, although it feels good to all to do a lot of people. A lot of people want a little inflation. But nobody wants a lot of inflation, except somebody's got a lot of debts. And I do not worry about the Federal Reserve balance sheet. I enjoy looking at it, and the numbers are big. I always like big numbers, but
[2:06:25]
Warrenit is not, it's interesting. One one of the most interesting figures to me is currency. circulation. I mean, it is gone. They were saying cash is trash back in 2007 and eight and all of that cash is going to disappear. Well, if you look at the Federal Reserve balance sheet, it's gone from 800 billion to 2.2 trillion. And most of that's in $100 bills, overwhelmingly. And if you figure it out, I think there's about $5,100 bills per person, babies, everybody, in the United States. And I would really like to know where all of that is. I mean, nobody's hoarding Euro dollars, you know, in South America or Africa or wherever, and the demand for currency now. You know, it's, some of it maybe used to be subtle drug dealers, activities, and all of that. But anybody thinks cash is trash. Although, look at the Federal Reserve balance sheet. And actually, you can look at the, look at the Federal Reserve balance sheet and actually, you can look at how many $5 bills and $2 bills and ones and all that. And the action has been in $100 bills. I mean, it is just astounding the way that $100 bills have spread. And of course, we don't know where, I don't know where they are. And I don't think the Fed can know exactly, but they probably make a lot better guess than I could. But I do know it's happened, and you can watch it every week, and you'll watch currency and circulate. probably grow a little bit. And believe me, cash is not trash. Charlie?
CharlieI don't know where we're headed with all of this. It's been very extreme. I think that you could be pretty extreme in fighting depressions and so forth if you reverted afterwards to a period of some discipline. But if you're just... Some decibelin, but if you're going to just keep borrowing, printing money and spending it. I think eventually it causes bad trouble. And you can see it in Latin America. Latin America let its currency get out of control all the time. And of course, it lagged the United States in economic achievement greatly. So I think we pay a price if we ever give up our old ways entirely and go into a new world where we just try and print money to make it easier to get through the year. We paid a price in World War II. I mean, everybody, school kids and everybody else, myself included. We bought what we originally called war bonds and defense bonds and savings bonds and all that. But from 1940, due to 1944 or five, you paid out 1875, I mean, I got $25 back, and every kid
[2:09:46]
Warrensaved savings stamps and all that. But when you got all through, you know, you had 120% of GDP in the national debt instead of 30 or 40% and we had a lot of inflation, subsequently, a lot. So the people that really bought those bonds in support of the war had a portion of their purchasing power taken away from them. Well, there wasn't anything wrong with that particularly. But when the country gets in the habit of doing that, I don't think it's, I think it's tough to figure out where the breaking point is with society, but I don't think you want to come anywhere close to it. It's also tough to have a mass of people unemployed. That's the tension.
QuestionerYeah. Well, that's why the Fed has two objectives in terms of employment and inflation. And, uh, but they're not the ones that, that create the deficits. And so far the system had worked pretty well, although like I say, it's been...
WarrenSo far, the man who jumped off a tall building. Yeah. It's all right until he hits the ground.
QuestionerYeah. Well, but, but you, there could be ways we can stop now at the third floor, or the sixth floor. We don't know what floor it is, but we know what this isn't happening at the ground. But the question, you know, politically, It's very, very, very tempting to vote appropriations, and it's not fun to vote taxes. And Russell Long, head of the Senate Finance Committee, they got a building name after him now. He said, you know, don't tax you, don't tax me, tax like I got behind the tree. And basically, that is the attitude of, I mean, it's the reality of what is useful in politics. So far, this country's managed to work very well with a lot of things that could theoretically cause a lot of problems, but it doesn't mean, it doesn't guarantee us the future on it. And being the reserve currency, let's just do a lot of things, but it also creates a lot of consequences if we screw it up.
WarrenCharlie?
CharlieWell, we're bidding a subject to death, but it is a problem. I wish we had a solution.
OtherOkay, well that will go to Station 1 if we... Hello, Mr. Buffett and Mr. Munger. My name is Connor. I'm an economic student at the University of Nottingham. My question for you today is during the pandemic, we witnessed supply chain shortages, especially from Asia. As a result, companies have chosen, with political attentions, to move production away. Should companies? make these decisions? And should the government support them?
[2:13:06]
QuestionerCharlie?
WarrenWell, that's a good question. Yeah. Obviously, it's logical if you're in business and you can make the thing in Mexico way cheaper. It's natural to open a factory in Mexico and get your parts cheaper, and a lot of the auto manufacturers have done exactly that. On the other hand, nobody wants to hollow out the whole country, so all the manufacturers jobs or elsewhere and we're all living with a bunch of farmers, you know, like English colonies in 1820 or something. And these ideas are, of course, in big tension. We don't have that much foreign production.
QuestionerRight, Warren?
WarrenYeah, well, but we've lost, well, originally Berkshire Hathaway's the textile manufacturing. It lost because the... South became feasible versus the North, and of course, then eventually... The South got expensive to China.
QuestionerSure.
WarrenAnd society benefits, and some people get killed in that sort of a situation and a rich society should take care one way or another and of people who worked in our shoe factories, people who work in our textile companies. I mean, if you worked in our textile operation in 1964, when we took it over, half our workers only spoke Portuguese. And, you know, they weren't getting great wages at all. But now you could do it in the South, and we were doomed to go out of business. And it wasn't the fault of the worker in any way, shape, or form. It wasn't our fault. We kept trying to... trying to compete.
QuestionerWell, it was a TVA had cheap power down there.
WarrenSure. And textiles really congealed power. And air conditioning changed everything. But the heat in those damn pleasures were impossible. That's a lot of things. But then it moves offshore in many ways. And net, the country is better off because of it, but it displaces a lot of people really can't do something else. can't do something else in life. You can't talk about retraining somebody that's 55 or 60 and speaks only Portuguese and really tell them they're going to have a great future a new Bedford Mass. And, you know, so you don't want to be glib about it. And we can afford to take care of those people. And we've got some systems that work reasonably well, but there's a tension between, you know, what about the person that doesn't do anything and all that kind of stuff. So these are not easy problems to solve, but I would say that by and large, we want the whole world to prosper. We do not want to be a world. We don't want the United States to be a country of extraordinary prosperity and have the rest of the world.
[2:16:30]
WarrenSerbian. No, it isn't going to work, and it particularly isn't going to work in a nuclear world. So, you have your own feelings about it as a humane person, but it doesn't. It is not, it can be done better. And we've got the resources to do it. I mean, the output of this country, what can be done with a lot fewer people and doing more specialized things. And of course, it has been. The work week in the United States, you know, in my lifetime has dropped dramatically. And people still feel busy and it will be the human lot to some people. to say, you know, how can I get all these things done? But my mother didn't drive free kids anyplace. I mean, want to go any place. If you were lucky, we got old enough, he had a bicycle. The world just keeps looking at everything moving up as becoming sort of a base that leaves them somewhat dissatisfied. And with our prosperity, we can do a lot of things we couldn't do in in 1930, and including taking care of people that get displaced by the fact that somebody else can do that work and improve their lot in life, and we've got to make sure that we have the best system that takes care of the people who get displaced by that. But doing that, in a political system we have and everything, we'll make a lot of mistakes along the way, but we've got to keep moving in that direction. And I say, really interesting thing about it is that the Adam Smith was right, that the free market capitalism automatically, with a lot of property and private hands and free trade and all that, automatically creates GDP per capita that grows and helps everybody, including the people at the bottom, helps everybody a lot. But an inherent in the process, there's a lot of pain in that. free market capitalism, for instance, to the Portuguese workers in a textile company in New Bedford. And nobody's ever figured out how to take all the pain out of it. We do have government safety nets to take some of the pain out. We make those safety nets a little bigger as time goes by. But apart from that, if you try and take all the pain out, you'll also take all the gains out of it. You won't have a growing GDP of a capital. You'll have an economy like Russia's, which has been characterized as saying. they pretend to pay us and we pretend to work.
QuestionerYeah. Yeah. The other systems haven't worked better. But it also produces more and more disparities in wealth. And people that do nothing but get assets under management without actually performing anything extra,
[2:19:41]
Warrenmake fortunes. And I mean, it's the job of government to keep the best aspects of capitalism, while a lot of capitalism, capitalism while not causing people that only speak Portuguese to suffer in the process. I mean, the two aren't compatible politically over time. And we stumble along making progress on things like Social Security and all that. And we are a lot better off than we are when I was born. Net, the United States, has done a very good job of this tension between capitalistic growth and a growing social safety net. We can be pretty proud of our country.
Charliecountry looking backward. Yeah. That may be why we have 25% of the world's GDP, starting with a half a percent of the population in a few centuries. I mean, it's just, it's a miracle. And it wasn't because we were smarter. Well, you've got to say that there must be something to the system that's worked pretty well, even though it's produced a civil war and all kinds of things, you know, and women, you know, not getting a shot at anything, you know, even after they passed the 19th Amendment. It's a work in progress. I think actually there's been progress, but it's mankind's nature to see the things wrong with it if you've... Even worse, it's man's nature to take the progress as a right, not something to be earned or strive for, but something that should automatically just flow in over the transom. And that attitude is poison. It doesn't do anybody anything. doesn't do anybody any good.
QuestionerOkay, now ask us an easy question, Becky. This question comes from Doug DeShiel. Since the accounting rules changed requiring Berkshire to report the change in fair value of its equity investments through the income statement, Mr. Buffett has repeatedly told shareholders to ignore those changes as they're not reflective of the long-term returns that those investments will produce. Recently, Mr. Buffett has argued that hold to maturity accounting used by the banks to avoid reflecting the changes and fair value of bank investment portfolios in the income statement and the shareholder equity account do a disservice to its various stakeholders. Can Mr. Buffett elaborate on why he views mark-to-market accounting differently for banks in comparison to Berkshire?
WarrenWell, I believe in both cases, in doing it on the balance sheet and not in the income statement. It's a very tough problem with the auditor's face, is that the, obviously, the income statement
[2:22:26]
Warrenfeeds into the balance sheet, but the balance sheet tells you whether deposits can be paid, it tells you a lot of things, and we show it on our balance sheet. We believe in showing market values on our balance sheet. We just don't believe in running it through the income account. And in getting there, we would put it in other comprehensive income like it was for a long time. So I sympathize to some extent with the, oh, for our extent, with the audit group but they have to really decide whether they want to, they want the balance sheet to represent values except it doesn't reflect them on the upside if we buy a Seas Canyon, it's worth way more money. So it's conservative in that sense. But, or whether they want to have an income account that becomes meaningless to people, because it really changes every five seconds, you know, I mean, while we're, well, the market's closed today, but, but, but, uh, You know, we have days. Well, I guess Apple was up, what, seven or eight points on Friday? I mean, that's $7 billion. I mean, that's a crazy income account. It is a reflection in where we stand at that point. And of course, if you're a bank where you're putting out money really and things that people sort of mortgages, I mean, primarily, there are a terrible instrument. for a bank to own, but a great instrument for a consumer to buy and build in the whole society now in a way that was entirely different than the past, you've got to pay attention to whether they've gotten out of whack in terms of what the value of what they own and what can be demanded of them tomorrow morning. And if we had all of our money that could be demanded from us tomorrow morning, we'd have to behave a lot differently. than Berkshire does. So I don't, I really think the way to do it is the way you recommend doing, which is exactly what was being done until a few years ago. I recommend the shareholders look at it that way, but we're going to follow the rules, obviously, the SEC, you know, state authorities and everybody require us. But I'll still explain to the shareholders exact what I would explain to my sister. about what really counts of Berkshire. And I think every management actually has an obligation to that. And instead of it, they go in the other direction and give them a lot of figures that are total nonsense. You know, I can't imagine some of the, you know, I thought was about as bad as you could get,
[2:25:20]
Warrenbut they kept going, you know, earnings before everything. EBE. And so, but that doesn't change what I would change. tell my sister, who's here in the audience, I hope. And I should tell us all the shareholders. And we'll consistently do what is legal and will consistently say what we think is right. Charlie?
CharlieYeah. We want owners who understand what they own. Now, that doesn't mean they have to understand the detail of it. But that's why we have people that have been around 50 or 60 years. That doesn't mean that they read the 10 queues or anything like that. they feel worth telling it to them like they live next door to us. I don't know what the accountants were thinking when they made that change. It strikes me as bonkers.
WarrenYeah. Absolutely bonkers. I don't see how anybody who understands how businesses really operated and should be operated and should be operated by owning managers would have made that accounting change. The accounts did it just because they had a wild. wild moment. Twenty, 25 years ago, I suggested the audit profession that they just, that the audit committee asked auditors for questions. And the shareholders would know a lot more about the company if those questions were asked, but it wasn't good for the auditors to be asked those questions because it might increase their liability if they answered them. And the client didn't want them to answer them because they the man even didn't want them to do it. No, they want a system where if they follow certain rules, they're safe. And that's understandable. But I don't think the past year, this rule requiring changes in marketable securities to go through the income account quarterly. They didn't do that to protect themselves from liability. They just did that for some crazy reason of their own.
CharlieYeah. You get a bunch of people who are all being drawing a lot of pay out of the income. complicated system and rising in it like so many officers in the Army, God knows what they'll do if you put them in a little room by themselves and tell them to invent new accounting standards.
WarrenWell, to our order to remember, that's Charlie talking, and that's right. But I agree with him, 100%. He's 99. He can get away with more than I can get away with it. Okay. Station 2. But what he said is enormously important. I mean, just, you've got to have some insights into what the hell really goes on. Even if you're an accountant.
[2:28:30]
QuestionerYeah. Okay. Station 2. Dear Warren, dear Charlie, my name is Victoria Wrenthrop. I am 22 years old and I study in Munich at the CDTM, the Center of Digital Technology and Management. As your grandchildren are more in my age group, let me ask you, how do you transfer your wisdom to your grandchildren and heirs? How do you lead them to investing? Do you see value in investing as a family or individually? Thank you.
WarrenI'm going to let Charlie do the answering on it. He's got more.
CharlieWell, I have more grandchildren, but I am quite philosophical about my grandchildren. not thinking exactly the way I do. It seems to me that's almost the natural course of life. And I just live my life my own way, and they can observe it as an example if they want to. And if they don't, they can try some other way. I don't like it when they try some other way. And I have to pretend that I like some of the boyfriends and girlfriends I don't like. But I just struggle through, like, through like everybody else. And usually I just bite my tongue and keep silent. That's my way of handling it.
WarrenWell, I would say that I think that in my case, my three children, I've grown a lot smarter in the last 30 years, and I think I've grown smarter.
CharlieWell, I know, but you needed a lot of help. That is for sure.
WarrenNo, I would totally acknowledge that. That's why I had the room to go. I mean, I had plenty of room for improvement. We all had a lot. lot to grow. I worked a year for U.S. Steel, which was in their fabrication department in Los Angeles, a big operation. The thing was utterly doomed. And three years later, it went back to Greenfields. The whole thing was raised to the ground. I did not see it coming. Now, I would, to be that ignorant and that, as I was at that age, it was a sin. And my professors, by and large, were even more eager than I was. We just, nobody had observed the basic economics of business in a scientific way at all when I was young.
CharlieWell, if we're getting into confession time, I have to tell you, it's 3.30. So we don't want to keep going on. Who knows what we'll be saying in another half hour. So I thank you all very much for coming. At 4.30, we will have the shareholders meeting here, and the, we're continuing to sell goods for another 20 or 25 minutes. We've already broken all kinds of records, but let's really make it tough for comparisons next year. And again, I thank you for coming, come next year, and maybe we'll figure out the answer to a few more of these questions.