[0:20]
WarrenGood morning. I'm really delighted we can have this many people come out for a meeting. It says something I think about the way you regard yourself as owners. We're going to hustle through the business meeting, and then Charlie and I will be here for six hours or until our candy runs out. To answer any questions you have, we have people in a number of remote locations, and we have ways of bringing them in for the questions as well. Incidentally, if you hadn't figured it out already, this hyperkinetic bundle of energy here on my left is Charlie Munger, our vice chairman. And we will now run through the business of the meeting. Meeting will now come to order. I'm Warren Buffett, Chairman of the Board of Directors of the Company. I welcome you to this 1999 annual meeting of shareholders. I will first introduce the Berkshire Hathaway Director, that are present in addition to myself. And if you'll stand up, it's a little hard for me to see that right down here in the front row. We have Susan T. Buffett. If you stand and remain standing, please. If you encourage her, she'll sing another song. Howard G. Buffett, don't encourage him to sing a song. Now come G. Chase, Charlie, you've already met, Ronald L. Olson, Ron, and Walter Scott, Jr. Also with us today are partners in the firm of Deloitte 2, auditors. They are available to respond to appropriate questions you might have concerning their firm's audit of the accounts of Berkshire. Mr. Forrest Crutter is Secretary of Berkshire. He will make a written record of the proceedings. Ms. Becky Amick has been appointed inspector of elections at this meeting. She will certify to the count of votes cast in the election for directors. The named proxy holders for this meeting are Walter Scott Jr. and Mark D. Hamburg. Proxy cards have been returned through last Friday representing 1,133,684 Class A, Berkshire shares, and 3,485,85,000 Class B, Berkshire shares to be voted by the proxy holders, as indicated on the cards. That number of shares represents a quorum, and we will therefore directly proceed with the meeting. We will conduct the business of the meeting and then adjourn the formal meeting. After that, we will entertain questions that you might have. Does the Secretary have a report of the number of Berkshire shares outstanding entitled to vote and represented at the meeting?
OtherYes, I do. As indicated in the proxy statement, that a company
[3:35]
Otherthe notice of this meeting that was sent by first class mail to all shareholders of record on March 5, 1999, being the record date for this meeting, there were 1,343,5192 shares of Class A, Berkshire Hathaway Common Stock Outstanding, with each share entitled to one vote on motions considered at the meeting, and 5,266,338 shares of Class B, Berkshire Hathaway Common Stock Outstanding, with each share entitled to one two hundredth of one vote on motions considered at the meeting. Of that number, 1,133,684 Class A shares, and 3,485,85,885 Class B shares are represented at this meeting by proxy's return through last Friday. Thank you, Forrest.
WarrenThe one item of business of this meeting is to elect directors. If a shareholder is present who wishes to withdraw a proxy previously sent in, and vote in person on the election of directors, he or she may do so. Also, if any shareholder that is present has not turned in a proxy and desires a ballot in order to vote in person, you may do so. If you wish to do this, please identify yourself to meeting officials in the aisles who will furnish a ballot to you. Would those persons desiring ballots, please identify themselves so that we may distribute them? I'd like to make one comment before we proceed to the election of directors, and that's that in the general re proxy material, material relating to the the General Re merger, it was stated that the intention was to have Ron Ferguson, the CEO of General Reed, joined the board of Berkshire Hathaway, and that offer was extended and still remains open and will remain open for his lifetime and mine at least, for Ron to join the board. After thinking about it, he decided that he preferred not to be on the board, and in that judgment, he concurred with my feelings generally about boards in that they can restrict your, it can restrict your activities in purchase and sale of the stock, for example, if you do it in a six-month period and you're automatically in trouble with the, and they have to return any profit as calculated in a rather peculiar way to the company. It means that your compensation system is laid out for the world to see. There may be some tax restrictions in terms of the deductibility of salary paid, and so Ron notified me a little bit before the proxy material went out that he preferred at least to defer any decision on joining the board. I can tell you that it has cost Berkshire significant money by the fact that Charlie and I have
[6:24]
Warrenbeen on various boards because your hands are tied in many respects. Even if you don't have any knowledge of anything that might be of material plus or minus, The very fact that it might be imputed to you can restrict action significantly. So we make a point of not trying to be on very many boards. Charlie and I have only gone on boards where we have very significant investments by Berkshire. And sometimes those have caused us to take on a job that we didn't intend originally, as that Solomon movie showed. So Ron, the offer is 100 percent open to Ron at any time. And if he changes his mind in any way, he will be on the board. But that explains the discrepancy between the actions that are being taken this morning of what was described as likely to happen in the proxy material. Now, with that explanation, I would like to recognize Walter Scott Jr. to place a motion before the meeting with respect to election of directors. Walter?
OtherI move the Warren E. Buffett, Susan T. Buffett, Howard G. Buffett, Malcolm G. Chase, Charles T. Munger, Ronald L. Olson. and a Walter Scott, Jr. be elected as directors.
WarrenIs there a second? Somebody should second it. We got a second now there, Susan? Oh, good. Okay. It has been moved in second of the Warren E. Buffett, Susan T. Buffett, Howard G. Buffett, Malcolm G. Chase, Charles, Steve Munger, Ronald L. Olson, and Walter Scott, Jr. Be elected as directors. Are there any other nominations? Long enough? Is there any discussion? Long enough. The nominations are ready to be acted upon. If there are any shareholders voting in person, they should now mark for. their ballots on the election of directors and allow the ballots to be delivered to the inspector of election. But the proxy holders please also submit to the inspector of election a ballot on the election of directors voting the proxies in accordance with the instructions they have received. Ms. Amick, when you are ready, you may give your report.
OtherMy report is ready. The ballot of the proxy holders in response to proxies that were received through last Friday cast not less than 1,145,271 votes for each nominee. That number far exceeds a majority of the number of the total votes related to all Class A and Class B shares outstanding. The certification required by Delaware law of the precise count of the votes, including the additional votes to be cast by the proxy holders in response to proxies delivered at this meeting,
[9:06]
Otheras well as those cast in person at this meeting, if any, will be given to the Secretary to be placed with the minutes of this meeting. Thank you, Ms. Amick. Orney, Buffett, Susan T. Buffett, Howard, G. Buffett, Malcolm G. Chase, Charles D. Munger, Ronald L. Olson, and Walter Scott Jr. have been elected as directors. After adjournum of the business meeting, I will respond to questions that you may have that relate to the business of Berkshire, but do not call for any action at this meeting. Does anyone have any further business to come before this meeting before we adjourned? If not, I recognize Mr. Walter Scott Jr. to place a motion before the meeting. I move this meeting and be adjourned. Is there a second? A motion to adjourn has been made in second. We will vote by voice. Is there any discussion? If not all in favor, say aye. All opposed, say, I'm leaving. No, say no. I'm sorry. Okay, the meeting is adjourned. Now, we'll move forward. Thank you. I ask you, was Joe Stalin ever any better? I mean, we will, we have the, we have this room broken into eight zones, and then we have five more zones from various off-site locations, and we will move in order. We have microphones that you can go to, and we have a monitor each microphone that will line people up. We will rotate around the 13 zones. There's just one question per person. I would ask that you identify yourself and state where you're from. Now, you have to be a little careful on that because a lot of people will say that, who really aren't, will say that they're from Nebraska for status reasons. But if you get beyond that, we will try to identify where everybody is from. And we'll start off in zone one, which is on the right here at the front.
QuestionerMy name's Tim Speer, and I'm from Hartfordshire, England. I was thinking in Ben Ben Graham's book, The Intelligence Investor. He spends the first couple of chapters discussing the level of the market and whether it would save for investment. I was wondering what he'd think of the market today.
WarrenWell, we don't, Charlie and I don't think about the market. And I, and Ben didn't very much. I think he made a mistake to occasionally try and place a value on it. We look at individual businesses and we don't think of stocks as little items that we don't think of stocks as little items that wiggle around in the paper and that have charts attached to them. We think of them as parts of businesses, and it is true that currently we have great trouble finding businesses
[12:06]
Warrenthat we both like and where we like the management's and that they, and find them at an attractive price. So we do not find bargains in this market among the larger companies that are, that are our universe. That is not a stock market forecast. in any way, shape or form. We have no idea whether the market's going to go up today or next week or next month or next year. We do know that we will only buy things that we think make sense in terms of the value that we receive for Berkshire. And when we can't find things, the money piles up, and when we do find things, we pile in. But the stock market, I know of no one that has been successful and really made a lot of money predicting the actions of the market itself. I know a lot of people who have done well, picking businesses and buying them at sensible prices. And that's what we're hoping to do. Charlie?
CharlieHow could you say it any better?
WarrenYeah, but the question is whether you can say it better, Charlie. Okay, we'll go to Zone 2. That may be all you hear from him today. Get used to it.
QuestionerGood morning. David Winters, Mountain Lakes, New Jersey. Could you give us a few hints about the incremental value of Gen. Rees float under the Berkshire Hathaway umbrella and the potential for the growth of Genree's float over the long term?
WarrenYeah. Genrease float, which is now available to Berkshire, it's 100% owned subsidiary, although part of that float is attributable to Cologne, which is only an 83% owned subsidiary of January and also Berkshire. But that, I would say the incremental value today, because it's under the Berkshire umbrella, is zero, because we are bringing nothing to the party that Jenry's own investment people would not have brought to the party. We obviously think that there will be important incremental value over a long period of time. But when that value will appear, or how much how much of it develops is a matter that's out of our hands. We right now have close to 24 billion in total invested assets at Genri and Cologne. Like I say, 83% of the Cologne part is ours and 17% as belongs to somebody else. But we are bringing nothing to that party right now in terms of any managerial skill that is going to add value. I would hope that over time we would. The second question as to the growth of float, the growth of float at General Rhee and Colon will certainly be very slow in the short term. The growth of float at GEICO
[15:16]
Warrenwill be significant percentage-wise. The reinsurance business does not have the same potential for growth as we have at GEICO, and growth is much slower to come about because there are longer-term contractual commitments that people are reluctant to change reinsurers, and they should be. We agree with that. So you, at a level of $6 billion or so of premium volume and already $14 billion afloat, you won't have any, you won't have growth afloat unless premium volume is becomes significantly higher in the future. I think that will happen over time. It will not happen in the short term. Charlie, if I may interrupt your breakfast,
CharlieI've got nothing to add.
OtherZone 3. You can always direct your questions to Charlie, incidentally.
QuestionerGood morning, Mr. Buffett and Mr. Munger. Thank you for hosting another wonderful weekend. My name is Che Wei Wu. I'm a proud shareholder from right here in Omaha. One of the most interesting financial news developments this previous year was the near collapse of the hedge fund long-term capital. I'd like to get your thoughts and Mr. Munger's thoughts about how these private partnerships operate, what your thoughts about the long-term capital deal, and also the Fed's intervention to save it.
WarrenYeah, in that movie you saw, the time when Yellowstone was, when Old Faithwell was performing in the background and Bill was trying to get me to watch that while I was on the phone. A lot of that trip was spent talking to New York about making a bid for what we'll call LTCM, long-term capital management. And the caption on that photo is incidentally is known as the geyser and the geyser. And we were up in, we started in Alaska, and we were going down these canyons in a boat and the captain saying, you know, let's go over there and look at the sea lines. I'd say, let's stay right where we are, where we've got a satellite channel, because I was trying to talk on the phone all the time. Charlie was in Hawaii, and we never did get a chance to talk during that whole period. I didn't want to bother him with a little thing like a bid for a hundred billion plus of securities, and I couldn't find him. So it was, we were in an awkward place to pursue that. I think it's possible that if I'd been in New York or Charlie had been in New York during that period, that our bid might have been accepted. There was just a report published within the last three or four days by a special committee representing the SEC, the Fed, I think the Treasury, and
[18:21]
Warrenthe CFTC, I think I'm right on those four. And it describes just a tiny bit of the events leading to the bid. It referred to our, it referred to, on page 14, I remember it talked about our transaction unraveling. unravel from our side. I mean, we made a firm bid for a hundred billion plus of balance sheet assets and many hundreds of billions. In fact, over a trillion of derivative contracts. And, you know, this was in a market where prices were moving around very dramatically. And with that bulk of assets there, we thought we made a fairly good bid for a 45-minute or hour period. I don't think anybody else would have made the bid. But in any event, the people at LTCM took the position that they could not accept that bid. And therefore, the New York Fed had a group of largely investment banks there at the Fed. And that afternoon, faced with the prospect that LTCM could not. or would not accept our bid. They arranged another takeover arrangement where additional money was put in. It's interesting, if you read that report, which is put together by these four very eminent bodies, and I think on the first page, it says that the first so-called hedge fund, which is the term generally applied to entities like LTCM, first hedge fund, first hedge fund was set up in 1949. And I probably read that or heard that 50 times in the last, particularly in the last year. And of course, that's not true at all. And I've even pointed this out once or twice before. But Ben Graham had, and Jerry Newman, had a classical hedge fund back in the 20s. And I worked for, I worked duly for a company called Graham Newman Corp, which was a regulated investment company and Newman and Graham, which was an investment partnership with, I think, a 20% participation in profits and exactly the sort of entity that today is called the hedge fund. So if you read any place that the hedge fund concept originated in in 1949, presumably with A.W. Jones, it's not an accurate history. There are now, I ran something that would generally be called a hedge fund. I didn't like to think of it that way. I called it an investment partnership, but it would have been termed in an hedge fund. Charlie ran one from about, what, 1963 to mid-70s or thereabouts, and they have proliferated in a big way. Did you, did he blink? We, there are now hundreds of them. And of course, it's very enticing to any. money manager to run because if you do well, or even if you don't do so well, but the market
[21:42]
Warrendoes well, you can make a lot of money, a running one. This report that just came out has really nothing particularly harsh to say about the operation. So I think you will see hundreds and hundreds and hundreds of hedge funds. I think the current issue of Barons may have a recap of how a large group did in the first quarter. And there's a lot of money in those funds, and there's a huge incentive to form them, and there's a huge incentive to go out and attract more money if you run one. And when that condition exists in Wall Street, you can be sure that they won't wither away. Charlie?
CharlieWhat was interesting about that one is how talented the people were, and yet they got in so much trouble. I think it also demonstrates that, I'd say, the general system of ants in America involving derivatives is irresponsible. There's way too much risk in all these trillions of notational value sloshing around the world. There's no clearing system, as there is in a commodities market, and I don't think it's the last convulsion we're going to see in the derivatives game. It's fascinating in that you had 16 extremely bright. I mean, extremely bright people at the top of that. The average IQ would probably be as higher, higher than any organization you could find among their top 16 people. They individually had decades of experience and collectively had centuries of experience in operating in these sort of securities in which the LTCM was invested. And they had a huge amount of money of their own up and probably a very high percentage of their net worth. almost every case up. So here you had super bright, extremely experienced people operating with their own money. And in effect on that day in September, they were broke. And to me, that is absolutely fascinating. There was a book written, you only have to get rich once. It's a great title. It's not a very good book. Walter Gutman wrote it, many years ago. But the title is right. You only have to get rich once. And why do people, very bright people, risk losing something that's very important to them to gain something that's totally unimportant. The added money has no utility whatsoever. And the money that was lost had enormous utility, and on top of that reputation is tarnished and all of that sort of things. So that the gain loss ratio in any real sense is just incredible. I mean, it's like playing Russian roulette. I mean, if you hand me a revolver with six bullets or six chambers and one bullet, and you say,
[24:42]
Warrenpull it once for a million dollars, and I say, no, and then you say, what is your price? The answer is there is no price. And there shouldn't be any price on taking the risk when you're already rich, particularly of failure and embarrassment and all of that sort of thing. But people repeatedly do it, and they do it. Whenever a bright person, really bright person, goes broke that has a lot of money, it's because of leverage. You simply, you basically can't be almost impossible to go broke without borrowed money being in the equation. And as you know, at Berkshire, we've never used any real amount of borrowed money. Now, if we'd use somewhat more, you know, we'd be really rich. But if we'd used a whole lot more, we might have gotten in trouble sometimes. And there's no, there's just no, there's no upside to it, you know. What's two percentage points more, you know, in a given year or that year, and run the risk of real failure? But very bright people do it, and they do it consistently, and they will continue to do it. And as long as explosive type instruments are out there, they will gravitate toward them, and particularly people will gravitate toward them who have very little to lose, but are operating with other people's money. One of the things, for example, in the LTCM case, and Charlie mentioned in terms of derivatives, in effect, there were ways found to get around the, and they were legal, obviously, to get around the margin requirements, because risk arbitraise is a business that Charlie and I've been in for 40 years in one form or another. And normally that means putting up the money to buy the stock on the long side and then shorting something against it where you expect a merger or something to happen. But through derivatives, people have found out how to do that, essentially putting up no money just by writing a derivative contract on both sides. And there are margin requirements, as you know, that the Fed promulgates that I believe still call for 50 percent equity on, on stock purchases, but those requirements do not apply if you arrange the transaction in derivative form so that these billions of dollars of positions in equities essentially were being financed 100 percent by the people who wrote the derivative contracts. And that leads to trouble. It doesn't, you know, 99 percent of the time it works. But, you know, 83 and a third of the time it works to play Russian roulette with one bullet in
[27:14]
Warrenthere in six chambers, but neither 83 and a third percent or 99 percent is good enough when there is no gain to offset the risk of loss. I would argue that there is a second factor that makes the situation dangerous, and that is that the accounting for being actively engaged in derivatives, interest, et cetera, is very weak. I think the Morgan Bank was the last holdout, and they finally flipped to a lenient standard of accounting that's favored by people who are sharing in the profits from trading derivatives, and naturally they like liberal accounting. So you've got an irresponsible clearing system, irresponsible accounting. This is not a good combination. J.P. Morgan shifted their accounting. I think, I'm not sure exactly one around 1990. But Charlie and I, we probably became more familiar with that when we were back at Solomon. And this is absolutely standard, you know, it's gap accounting, but it front-ends profits. And if you front-end profits and you pay people a percentage of the profits, you're going to get some very interesting results sometimes.
QuestionerZone 4. Hi, Dan Kurz from Benita Springs, Florida. You've given many clues to investors to help them calculate birchers and transit value. I've attempted to calculate the intrinsic value of Berkshire using the discount of present value of its total look-through earnings. I've taken Berkshire's total look through earnings and adjusted them for normalized earnings at GEICO, the Supercat business, and General Reed. Then I've assumed that Berkshire's total look-through earnings will grow at 15% per annum on average for 10 years, 10 years per annum for years 11 through 20, and that earnings stopped growing after year 20, resulting in a coupon equaling year 20 earnings from the 21st year onward. Lastly, I've discounted those estimated earnings stream at 10% to get an estimate of birchers' intrinsic value. My question is, is this a sound method? Is there a risk-free interest rate, such as a 30-year treasury, which might be the more appropriate rate to use here, given the predictable nature of your consolidated income stream?
WarrenWell, that is a very good question, because that is the sort of way we think in terms of looking at other businesses. Investment is the process of putting out money today to get more money back at some point in the future. And the question is, how far in the future, how much money, and what is the appropriate discount rate to take it back to the present day and determine
[30:12]
Warrenhow much you pay? And I would say you've stated the approach. I couldn't have, I couldn't state better myself. The exact figures you want to use, whether you want to use 15% gains in earnings or 10% gains in the second decade, I would, you know, I have no comment on those particular numbers, but you have the right approach. We would probably in terms, we would probably use a lower discount factor in evaluating any business now under present-day interest rates. Now, that doesn't mean we would pay that figure once we use that. discount number, but we would use that to establish comparability across investment alternatives. So if we were looking at 50 companies and making the sort of calculation that you just talked about, we would use a, we might, we would probably use the long-term government rate to discount it back, but we wouldn't pay that number after we discounted it back. We would look for appropriate discounts from that figure. But it doesn't really make any difference whether you use a higher figure and then look across them or use the, use our figure, and look for the biggest discount. You've got the right approach, and then all you have to do is stick in the right numbers. And you mentioned in terms of our clues, we try to give you all of the information that we would find useful ourselves in evaluating Berkshire's intrinsic value. In our reports, you know, I can't think of anything we leave out that if Charlie and I had been away for a year and we were trying to figure out, look at the, look at the situation, fresh, evaluate things. There's, you know, there's nothing, in my view, left out of our published materials. Now, one important element in Berkshire, which is a secondary factor that gets into what you're talking about there, is that because we retain all earnings and because we have a growth of float over time, we have a considerable amount of money to invest, and it really is the success with which we invest those retained earnings and growth and float, that will have an important fact, it would be an important factor in how fast our intrinsic value grows. And to an important extent, the, what happens there is out of our control. I mean, it does depend on the markets in which we operate. So if our earnings plus float growth equals $3 billion or something like that in a current year, whether that $3 billion gets put to terrific use, satisfactory use, or no use at all, virtually, really,
[32:53]
Warrendepends to a big extent on external factors. It also depends on, to some extent, on our energy and insights and so on. But it's, the external world makes a big difference in the reinvestment rate. And, you know, your guess is as good as ours on that. But if we run into favorable external circumstances, your calculation of intrinsic values should, would result in a higher number than if we run into the kind of circumstances that we've had the last 12 months.
WarrenCharlie?
CharlieYeah, for many decades around here, we've had roughly 100%, more than 100% of book net worth in marketable securities and had a lot of wonderful wholly owned subsidiaries to boot. And we've always had a very attractive place to put new money in as we generated. Well, we still got the wonderful. businesses, but we're having trouble with the new money. So it's not trouble, really, to have a pile of lovely money. This is not, I don't think there should be tears in the house.
WarrenHave you ever run in any unlovely money, Charlie?
CharlieYeah.
OtherZone 5. Good morning. My name is Ronald Towell. I'm from Brooklyn, New York, and very appreciative of your graciousness as a host for this wonderful weekend. My question has to do. My question has to do with the retailing industry, particularly the department stores and mass merchants. My question has two parts. Without resorting to comments about specific companies, may I ask your opinion as to the long-term prospects for growth and profitability of this industry group? The second part of my question is, given the fact that it is difficult to pick up a newspaper or to be an investor without being bombarded by what is purported to be the potential for exponential growth in the Internet e-business. business, particularly directly to consumers, which could possibly eat into the revenues of these retailers, and even if we assume a relatively low impact of, say, 5% to 10% revenue reductions, and given the fact that top-line growth is critical to any business, especially the bricks and mortar retailers with their high proportions of fixed overhead, what advice could you give to a CEO of such a company, and in turn, based on the preceding scenario, what would be your opinion of the medium and long-term prospects for this industry?
WarrenWell, that's a good question too. And obviously the Internet is going to have an important impact on retailing. It will have a huge impact on some forms of retailing, change them, and maybe revolutionize them.
[36:03]
WarrenI think there are some other areas where the impact will be less, but any time we buy into a business and any time we bought in for some time, we have tried to do it. We have tried to think of what that business is going to look like in five or ten or 15 years, and we recognize that the Internet in many forms of retailing is likely to pose such a threat that we simply wouldn't want to get into the business. I mean, not that we can measure it perfectly, but there are a number of retailing operations that we think are threatened, and we do not think that's the case in furniture retailing retailing, and we have three very important operations there. We could be wrong, but so far that, you know, that would be my judgment that furniture retailing will not be hurt. You've seen other forms of retailing where you're already starting to see some inroads being made, but it's just started. The Internet is going to be a huge force in many arenas, but it'll certainly be a huge force in retailing. Now it may benefit us in certain areas. I would expect the Internet to benefit of Borsheims in a very big way. And you noticed in the movie that we talked about Borsheims.com coming online in May. There's something up there now, but you'll see a new format within a month or so. Now you might say in jewelry retailing, you know, with millions of things that you can click on to 10 years from now, you know, who is going to be important in terms of online retailing of jewelry? I would argue that the two firms have an enormous advantage going in. I would argue that Tiffany has such an advantage. We don't own any Tiffany, but I would say that because of their name, brand names are going to mean very, very much when you have literally, you know, thousands and thousands of choices. People can't. They have to trust somebody. And I think that Tiffany has a name that people would trust, and I think Borsheims has a name that people would trust. And I think Borsheims has a name that people would trust. and Borsheims sells jewelry a whole lot cheaper than Tiffany. So I would say that people who are price conscious but also want to deal with a jeweler that they trust implicitly will find their way to Borsheims in increasing numbers over the Internet. And I would say that people that like the blue box, you know, are going to find their way to Tiffany's over time and they'll pay more money. But I don't see them going for brand X.
[38:42]
Warrenin buying fine jewelry over the Internet. So I think that with the brand that Borsheims has and with careful nurturing of that brand, I would say that the Internet offers Borsheims a chance to have the advantage in cost that comes from a huge one-store location and yet also go into the homes of people in every part of the world. And that kind of a company should prosper. other of our companies, I worry about, you know, I can worry about them being heard in various ways. Geico is going to be a big beneficiary of the Internet. We already are developing substantial business through it. But if I were to buy into any retailing business, whether I was buying the stock of it or buying the whole business, I would think very hard about what people are going to be trying to do to that business through the Internet. And, you know, it affects real estate that is dedicated to retailing. If you substitute 5% of the retail volume via the Internet where real estate is essentially free, you know, you can have a store in every town in the world through the Internet without having any rental expense. So I would be think, I would, I would give a lot of thought to that if I were owning a lot of retail rental space. Charlie?
CharlieWell, I think it is a... tricky predicting that technological change either will or won't destroy some business. When I was young, the department stores had a bunch of sort of monopolistic advantages. A, they were downtown where the street car lines met. B, they had sort of a monopoly on extending revolving credit. And D, they had one-stop shopping and all kinds of weather. And nobody else did. And they lost all three of those advantages. And yet they've done well, a lot of them, for many decades since. At other times, you get a change, and you just get destroyed. Our trading stamp business was destroyed by changes in the economic world. And our World Book business has been seriously hurt by the personal computer and the CD-ROM and so forth. I agree it's a big risk, but it's not easy to – to make predictions in which you have great confidence.
WarrenYeah, if you go down to 16th in Farnamair, where the streetcar tracks used to cross, that was the best real estate in town, and people signed 100-year, 50-year leases on it. And it looked like there was nothing more safe because they weren't going to move the streetcar lines. The only thing was that they moved the streetcars.
[41:38]
WarrenThey just took them, converted it into junk. And it seemed very permanent. The advantage of the big department store, the Marshall Field in Chicago or the Macy's in New York, was this incredible breadth of merchandise. You could go and you could find 300 different types of spools of thread or 500 different, you could see 500 different wedding dresses or whatever. And you had these million square foot and even two million square foot downtown stores, and they were these huge emporiums. And then the shopping center came along, and of course the shopping center created, in effect, a store of many stores. And so you had millions of square feet now, but you still had this incredible variety being offered. The Internet becomes a store. store in your, you know, in your computer, and it has an incredible variety of offerings, too. Some of them don't lend themselves very well, it seems to me, to, to retailing, and, you know, and others do. But Charlie's right. It's hard to predict exactly how it will turn out. I would expect, I would expect, you know, automobile retailing to change in some important ways and part, in very significant part, influenced by the Internet. But I wouldn't, you know, I can't predict exactly how that'll happen. But I don't think it'll look the same 10 or 15 years from now.
QuestionerZone 6. Ben Newell, and I'm from Minneapolis, although I'd like to enhance my status, but I noted that I was born and raised in Lincoln. It just moved up. Like many others, I read Alice Schroeder's analysis of Berkshire Hathaway with great interests this last year. And she described her analysis as a toolkit for investors. And I'm wondering if you see any substantial flaws in any of her toolkit, and in particular, the float-based valuation model that she put together. What are your views on that?
WarrenWell, I don't want to comment on valuation, but I can tell you that Alice is a first-class and serious analyst who spent a lot of time on Berkshire and probably produced the first comprehensive report, at least it's been widely circulated in the history of Berkshire. It's kind of interesting that we got to $100 billion of market value before anybody really published a report about the company. But Alice understands the insurance business very well. She's an accountant by background, and so she understands numbers, and she did a lot of work on the report. And I do recommend it to you as a toolkit.
[44:22]
WarrenI make no comment at all about. about valuation. Charlie?
CharlieNothing to add.
OtherZone 7?
QuestionerHello. I'm Martin Wegan from Chevy Chase, Maryland. I want to thank you for the hospitality this weekend and the wisdom you share with us each year in your annual reports. As a small business band, one of the trickiest jobs I have is dividing up the profits of our business between the employees who generate them. Would you comment and share your thoughts on how you divide up the profits of the Berkshire Hathaway subsidiaries with the employees who are? generate them. And the follow-up is, Mr. Munger, do you have any suggested reading on that subject?
WarrenYeah, we're glad to have you here, Martin. I went to high school and the first couple of years of college with Martin's father, who's also here today. And so if you got a chance to meet Marty, Janie and Younger Martin, say hello to them. In terms of the arrangements we have with comprehensive, compensation, they vary to an extraordinary degree among the various subsidiaries we have. Because we have bought existing businesses, and we have tampered as little as possible with their cultures after we buy them. And some of those cultures are very different than others. I mean, you know, you saw Mrs. B. earlier. As you can imagine, she would leave a very strong imprint on. on any business with which she was involved. And we have a number of very talented managers who have worked out the systems that they believe to be best for their companies. Now, it is true that if there is a stock option plan at a company, we will substitute a plan that is performance-based, which ties much more clearly to the performance of the business than any option plan could. And we will design one that has an expectable cost that's equal to the expectable cost of the option plan. So we try to equate the cost. the cost. We try to make it even more, much more sensible from both the owner's standpoint and the employee standpoint in terms of the way it pays off based on how that business performs. You've probably read in our annual report how we have put an across-the-board plan at GEICO that ties with our objectives. But basically, that was Tony Nicely's work in terms of developing that plan. I mean, he and I thought alike about what counted, and he developed and he developed a compensation grid that applied to everybody in the whole place based on achieving the object is that he felt were important and that we felt were important.
[47:10]
WarrenYou will find, if you go to any Berkshire subsidiary, you'll probably find that they have a compensation plan that's quite similar, with the exception of options, to the plan that they had before we bought the operation. They have successful businesses. And people get their different ways. Some people bat left-handed, some people battened, some people stand deep in the batters box, some, you know, some crowd the plate. They all have different styles. And the styles of our managers have proven successful in their own businesses. We keep the same managers, so we don't try and superimpose any system from above with the exception of what I've mentioned. We do like the idea of paying for performance. I mean, that is It's kind of a fundamental tenant. Everybody says they like that, but then they design systems that pay off no matter what happens in many cases, and we've been reluctant to do that. Charlie?
CharlieYeah, I think it's important for the shareholders to realize that we are probably more decentralized in terms of personnel practices than any company of our size or bigger in America. We don't have a headquarters culture that's forced on the operating businesses. The operating businesses have their own cultures, and I think in every case I can think of it's a wonderful culture. And we just leave them alone.
WarrenIt comes naturally to me. Charlie says we don't have a headquarters culture. Sometimes people think we don't have a headquarters. We have no human relations department at Berkshire. We have no, we have no legal department. We have no investor relations. We have no public relations. We don't, we don't any of that sort of thing. We've got a bunch of all-stars, as we put on the screen, out there running businesses. We asked them to mail the money to Omaha. But we'll even give them a stamp if they request it. But beyond that, we don't really go. And it would be foolish. And what is interesting to me is how I had a lot of preconceived ideas of what motivates people when I started out in business. But you can find certain organizations that resist paying stars on an individual basis. They like to think of themselves as a team, and they'd rather have a team concept of payment. And you can see others where they're much more individually oriented. Actually, Charlie can probably tell you about that in terms of law firms. I mean, some law firms have a culture that is much more star-oriented than others.
[50:00]
WarrenAnd, you know, you've seen successes in both places, haven't, Charlie?
CharlieAbsolutely.
WarrenOkay. I can't remember a case when anybody has transferred from one operating Berkshire subsidiary to another. It's very rare.
CharlieYeah.
WarrenYeah, we don't try and cross-fertilize. We just, we think we've got a good thing going in, you know, in every pot of ground, and we just assume they'll do best if left to their own initiative. Zone 8?
QuestionerI'm Brian Phillips from Chickamaulay. Georgia. And my question is, with regards to an insurance company, if you can use the float for cheap financing, why would you issue a fairly priced bond?
WarrenWhy would we do what?
QuestionerIssue a fairly priced bond.
WarrenYeah, well, the best, the best form of financing for us is cheap float. Now, most insurance companies don't generate cheap float. So, I mean, there are plenty of companies in the insurance business who have a cost of float that makes it unattractive actually to expand their business. businesses. Our insurance companies have had a terrific experience on cost to float, and we would develop it just as fast as we can. Right now, we would have no interest in issuing a bond because we have more money around than we know what to do with, and it comes from low-cost float. But if there came a time when things were very attractive, and we had utilized all the money from our float and from retained earnings and all of that to invest, and we still saw opportunities we might very well. borrow moderate amounts of money in the market. It would cost us more than our float was costing us, but it still incrementally would provide earnings. Now, you know, we would try to gain more float under those circumstances as well, but we would not just quit when we ran out of money from float. We would go ahead and borrow moderate amounts of money. We would never borrow huge amounts of money, though. Charlie?
CharlieWell, I agree.
WarrenOkay. You can see why we've been partners a long time. Now we go to some off, some sites away from this main hall, and I'm not sure exactly how we're going to do this, but we'll go to Zone 9 and see if Zone 9 comes in.
QuestionerHello. My name is Howard Love, I'm from San Francisco. Thank you very much for this weekend in general, and this meeting in particular. Recently at a talk at the Wharton Business School, Mr. Buffett, you indicated that you were talking about the problems of compounding large size, which I appreciate and understand, but
[52:44]
QuestionerAs you indicated, you're quoted in the local paper as saying that you're confident that if you were working with some closer to a million dollars, that you could compound that at a 50% rate. For those of us who aren't saddled with the $100 billion problem, could you talk about what types of investments you'd be looking at and where in today's market you think significant inefficiencies exist? Thank you.
WarrenYeah, I think I may have been very slightly misquoted, but I certainly said some something to the effect, but working. I think I talked about this group I get together every two years and how I poll that group as to what they think they could compound money at it with 100,000, a million, 100 million, a billion and other types of sums. And I pointed out how this group of 60 or so people that I get together with every couple years, how their expectations of return would go very rapidly down this slope. It is true. I think I can name a half a dozen people that I think could compound a million dollars, or at least they could earn 50 percent a year on a million dollars, have that as an expectation, if they needed it. I mean, they'd have to get their full attention to be working on the sum. And those people could not compound money a hundred million or a billion at anything remotely like that rate. I mean, there are little tiny areas, which if you follow what I said on the screen there, I that Adam Smith's interview a few years ago. If you start with A, and you go through, and you just, and you look at everything, and you find small securities in your area of competence that you can understand the business, I think you can, and occasionally find little arbitrage situations, there are little wrinkles here and there in the market, I think working with a very small sum, that there is an opportunity to earn very high returns, but that that advantage disappears very rapidly. as the money compounds. Because I, you know, from a million to 10 million, I would say it would fall off dramatically in terms of the expectable rate, because there are little, you find very, very small things that, you know, you can make, you're almost certain to make high returns on, but you don't find very big things in that category today. I'll leave to you to the fun of finding them yourselves. I mean, terrible to spoil the treasure hunt. And the truth is, I don't look for them anymore. Every now and then I'll stumble into something just by accident.
[55:19]
WarrenBut I'm not in the business looking for that. I'm looking for things that Berkshire can put its money in, and that rules out all of that sort of thing. Charlie?
CharlieWell, I would agree, but I would also say that what we did 40 or so years ago was, in some respects, more simple than what you're going to have to do. Right. We had it very easy compared to you. It can still be done, but it's harder now. You have to know more. I mean, just sifting through the manuals until you find something that's selling it two times earnings, that won't work for you. It'll work, it shows you won't find any.
OtherYeah. Zone 10, please.
QuestionerMy name is Jonathan Brandt. I'm from New York City. Warren, you wrote a in 1977 that the return on equity and growth of book value for corporate America tended towards and averaged about 13% no matter the inflation environment. After properly expensing options and so-called non-recurring charges and taking into account the high price earnings ratio paid for increasingly frequent acquisitions, do you think that 13% figure is still roughly correct? Also, what quantitative method would you suggest that investors use? for expensing the option grants of publicly traded firms where there is no realistic prospect for the substitution of such an options program with a cash-based performance incentive plan. In other words, how do you derive the 5% to 10% earnings dilution referred to in this year's Berkshire's annual report, and is it possible that the dilution figure could be even higher than that? Thank you.
WarrenOkay. Thanks, John. Just like Martin Wigke. Martin Wigan, John Brandt, is the son of a very good friend of mine where we work together for decades, and John is now an analyst with Ruehne Kniff and a very good one. He also, he says it didn't happen this way, but when he was about four years old, I was at the house for dinner with the parents, and he suggested to me after dinner. He said, how about a game of chess? I looked at this four-year-old, and I thought, you know, this is the kind of guy. I said, should we play for money? And he said, name your stakes, so I backed off. And we sat down, and after about 12 moves, I could see, I was in mortal trouble, so I suggested it was time for him to get to bed. The question about return on equity, it's true, back in 1977, I believe, I wrote an article for Fortune and talked about this, more or less, this figure of 12 or 13 percent that the return on equity kept coming back to and explained why I didn't
[58:27]
Warrenthink it was affected by inflation, which was the hot topic of the day very much. And it wasn't, but in recent, in the last few years, earnings have been reported at very high figures on the S&P, although you've had these very substantial restructuring charges, which every management likes to tell you doesn't count. I love that. They, when they, you know, they say, well, you know, we earned a dollar a share in total last year, but look at the $2 a share that we tell you we really earned the other dollar a share doesn't count it, and then they throw in mistakes of the past or mistakes of the future, and, and every three or four years ask you to forget this, as if it doesn't mean anything. We've never had a charge like that that we've set forth in Berkshire, and we never will. We, it isn't that we don't have things we do that cost us money in moving around, but we don't, we do, we do not ask you to forget about those costs. The report, even allowing for options costs and restructuring and charge and everything, return on equity has been surprisingly, to me surprisingly high in this, in the last few years. And there's a real question in a capitalistic society, whether if long-term rates are five and a half percent, whether return on equity can be across the board some number like 18 or 20 percent. There are an awful lot of companies out there that are implicitly promising you. either by what they say, their growth in earnings will be here, or various other ways, that they're going to earn at these rates of 20 percent plus. And, you know, I'm dubious about those claims, but we will see. And the question about how we charge for stock options is very simple. If we look at what a company issues and options over, say, a five-year period and divide by fives because the grants are irregular, or whatever, if there's a company. some reason why that seems inappropriate, we might use something else. But we try to figure out what the average option issuance is going to be. And then we say to ourselves, how much could the company have received for those options if they sold them as warrants to the public? I mean, they can sell me options on any company in the world. I'll pay some price for an option on anything. And we would look at what the fair market value of those options would be that day if they were transferable options. Now, they aren't transferable, but they also employees
[1:00:52]
Warrensometimes get their options repriced downward, which you don't get if you have public options. So we say that the cost to the shareholder of issuing the options is about what could be received if they sold, turn those options into warrants and sold them public or sold them as options. And that's the cost. I mean, it's a compensation cost. And just try going to a company that's had a lot of options grants every year and tell them you're going to quit giving the options and pay you're going to quit giving the options and pay people the same amount of money. They'll say, you took away part of my earnings. And we say, if you've taken away part of the earnings, then let's show it in the income account and show it as a cost because it is a cost. And I think actually a number of auditors agreed to that position many years ago, and they started receiving pressure from their clients who said, gee, that, you know, that might hurt our earnings if we reported that cost. And the auditors caved, and they put pressure on Congress when it can. up a few years ago, and I think it's a scandal, but it's happened, we are going to, in evaluating a business, whether we're going to buy the entire business or whether we're going to buy part of it, we're going to figure out how much it's costing us to issue, and when the company issues those options every year, and if they repriced them, we're going to figure out how much that particular policy causes, and that is coming out of our pocket as investors, and I think people are quite foolish if they ignore that. I don't think it's going to change. It's too much in corporate America's interest to keep it out of the income account and keep issuing more and more options percentage-wise and not have it hit the income account and to reprice when stocks go down. But that doesn't make it right. Charlie?
CharlieYeah, I go so far as to say it's fundamentally wrong not to have rational, honest accounting in big American corporations. And it's very important not to let little corruptions start because they become big corruptions, and then you have vested interests that fight to perpetuate them. Surely, there are a lot of wonderful companies that issue stock options and that the stock options go to a lot of wonderful employees that are really earning them. But all that said, the accounting in America is corrupt, and it is not a good idea to have corrupt accounting.
[1:03:23]
WarrenYou can see the problem of the, of the critical. in it once it starts. It's much like campaign finance reform. I mean, if you let it go for a long time, the system becomes so embedded in and the participants become so dependent upon it that there's, it becomes a huge constituency that will fight like the very devil to prevent any change, regardless of the logic of the situation. I mean, once you get a significant number of important players benefiting from any kind of corruption in any kind of system, you're going to have a terrible time changing it. That's why, you know, it should be changed early, and it would have been easier to change the accounting for stock options some decades back when it was first proposed than now, because, you know, basically corporate America is hooked on it. This does not mean that we are against options per se. If Charlie and I died tonight, and you had two new faces up here, who didn't have the benefit of having bought a lot of Berkshire a long time ago, and they had responsibility, for the whole enterprise. It would not be inappropriate to pay them in some way that was reflective of the prosperity of the whole enterprise. I mean, it would be crazy to pay the people of Dairy Queen in options of Berkshire Hathaway or the pay the people at Star Furniture or any one of our operations because they have responsibility for a given unit and what the price of Coca-Cola stock does could swamp their efforts in either direction. It just would be inappropriate. But it would not be inappropriate to pay somebody that's got the responsibility for all of Berkshire in a way that reflected the prosperity of all of Berkshire. And a properly designed option system, which would be much different than the ones you see, because it'd be much more rational, could well make sense for one or two people that had the responsibility for this whole place. Charlie and I aren't interested in that, but I think that you may be looking at two people up here, 50 years from now, I hope, that where it would, it would be appropriate. But any option system, A, should not involve giving an option at less than the place could be sold for today, regardless of the market price, because once management's in control, it can make that decision, and it should reflect the cost of capital. And very, very few systems reflect the cost of capital. But if we're going to sit here and plow all the money back every year
[1:05:56]
Warreninto the business, and in effect, use your earnings interest-free to increase our own earnings in the future, we think there has to be a cost of capital to have a properly designed option system. People aren't interested in that. The option consultants aren't interested in that because that isn't what their clientele wants. Charlie, you probably wound up a little more now on this too.
CharlieNo, I've wound up enough.
WarrenOkay. We'll go to Zone 11.
OtherCharlie?
OtherGood morning.
QuestionerGood morning. My name is Morris Spence from Waterloo, Nebraska. Some 30 years ago, you disbanded your Buffett partnership saying that you felt out of step with the market, and you feared a permanent loss of capital. Given today's market and current valuations, if Berkshire-Hathaway was a partnership of 100 partners instead of a corporation, would you consider disbanding it as you did 30 years ago? And if not, why not? And was that the right decision back then?
WarrenWell, if our activities were limited to marketable securities, and I had less than 100 partners, and we were operating with this kind of money so that there was a real limitation on what we could do, I would simply tell the partners and let them make the decision. That would be easy enough. We're not in that position. A, we've got a number of wonderful businesses, and those businesses will grow in value, and in some cases very significantly in value. And it's not a few. feasible way. People have their own way if they decide that since we're unable to find things, that they'd rather go on to something else. They have their own way of getting out and they can get out at at certainly a premium to the amount of money they put into the business over the years. So if I were running a marketable securities portfolio now and we're limited to that, I would explain very carefully to my partners how limited my ability to make money in this market would be, and then I would ask them to do whatever they wish to do. Some of them might want to pull out and others might want to stay. In the 1969 period when I closed up, A, I had a somewhat similar situation in terms of finding things, and B, I really felt that the expectations of people have been so raised by the experience we'd had over the previous 13 years that it made me very uncomfortable. and I felt unable to dampen those expectations. And I really just didn't, I didn't find it comfortable to operate where my partners, even though they might nod their heads understandingly
[1:08:41]
Warrenand say that, you know, we really know why you aren't making any money while everybody else is. I didn't think I wanted to face the internal pressure that would come from that. I don't feel any such internal pressure in running Berkshire.
WarrenCharlie?
CharlieYeah, that, I think there are some similarities between. 1969, and the present time, but I don't think that means that 1973-4 lies right ahead of us. We can't predict that. You can argue it worked out wonderfully for Warren to quit in 69 and then have 773-4 to come into with his powder-dry. I don't think we're likely to be quite that fortunate again.
WarrenYeah, it was a long time from 69, though, to 73. I mean, it sounds easy looking back, but the nifty-50, as you may remember, sort of hit their peak in 72. So, although there was a sinking spell for a while in that 69-70 period, the market came back very strong. But, you know, that's part of the game. I mean, it stayed cheap a long time from the 73 period on, and you will find waves of. optimism and they'll never be exactly like they were before, but they will come in some form or other. That does not mean we're sitting around with a bunch of cash because we expect stocks to go down, though. We keep looking for things. We're looking for things right now. We're talking to people right now about things where we could expend substantial sums of money, but it's much more difficult in this period.
QuestionerZone 12. My name is Jenna from Long Island, New York. And I was reading through your annual report. You made reference to Wagner and some country western song I never heard of. I was just wondering what kind of music influences you, and are you planning on doing like a musical video?
WarrenI think with the performance I gave earlier here in the movie, I don't think there's any future for me. But I do have a very musical family. And since you asked, I will point out that my son Peter's recent CD is, available at the Disney booth outside. And Peter had a very successful experience here on public television in March, and we'll be on tour later on. My wife is extremely musical, but I don't think I've got much of a future in it. So far, no one ever asked me to come back. I mean, I've had a lot of introductory appearance. of introductory appearances, but very few encores. I like all kinds of music. I really, I've always liked music. We started out around the house singing church hymns, and in 1942, my two sisters who were here today,
[1:12:00]
Warrenjoined me in a 15-minute program on WW, then the leading radio station in Omaha, and we sang. America the Beautiful and that my dad got elected to Congress on the back of that program. We like to take credit for it. You see my sisters at the end of the meeting. Charlie, what kind of music do you like?
CharlieWell, the one thing I agree with is that if we're going to Star Warren, it should be in a musical. The straight acting won't do. It took me an hour to get that bald for Andy, incidentally. It takes a long time to get bald.
OtherDressing room. Zone 13, please.
QuestionerGood morning, Mr. Buffett and Mr. Munger. My name is Jack Sutton from Brooklyn, New York. Thank you for hosting today's meeting. With reference to communication stocks, because of the growth of cellular communications and the Internet, certain stocks hold the prospect of substantially above average revenue and earnings growth. AT&T and Nokia, as an example, an example, earn respectable margins and return on common equity, and would seem to fit Berkshire's criteria from a financial perspective. Has Berkshire reviewed stocks in the area of communications, and would you consider an investment in this area at some time in the future?
WarrenYeah, there's certainly no question. Amazing things have happened in communications. It's interesting that you mention AT&T, because AT&T's return on equity over the last 15 years has been, you know, has been very, you know, you know, has been very, very poor. Now, they've had special charges time after time and said, don't count this. But the overall return on equity, if you calculated it for AT&T for the last 15 years, it's not been good at all. They were the, you know, they were the leader in the field, but so far what has happened has hurt them, at least relative to their competition, far more than it's helped them. We have a fellow on our board, Walter Scott, who is right here in the front row if I can't quite see him. But who knows a lot more about this? He used to try to explain to me these changes that were taking place. We'd ride down to football games on Saturday, and Walter would patiently explain to me like he was talking to a sixth grader what was going to happen in communications, and the problem was that he had a fourth grader in the car with him, namely me. So I never got it, but Walter did. And he's done very well in MFS and level three. And he's done very well in MFS and level three.
[1:14:42]
WarrenAnd I think for people who understand it, and are reasonably early, you know, there could very well be substantial money to be made. There's been an awful lot of money made in this town of Omaha by people who have participated in this, but I'm not one of them. And I have no insights that I bring to that game that I think are in any way superior, and in probably many cases, not even equal to those of other participants. There's a lot of difference between making money and sponsor. a wonderful industry. You know, the two most important industries in the first half of this century in the United States, in the world, probably were the auto industry and the airplane industry. I mean, here you have these two discoveries, both in the first decade, essentially in the first decade of the century. And if you'd foreseen in 1905 or thereabouts, what the auto would do to the world, let alone or this country, or what the airplane would do. You might have thought that it was a great way to get rich, but very, very few people got rich by being, by riding the back of that auto industry, and probably even fewer got rich by by participating in the airline industry over that time. I mean, millions of people are flying around every day, but the number of people who have made money carrying them around is very limited. And the capital has been lost in that business, the bankruptcies, it's been a, it's been a, it's been a, terrible business. It's been a marvelous industry. So you do not want to necessarily equate the prospects of growth for an industry with the prospects for growth in your own net worth by participating in it. Charlie?
CharlieWell, it reminds me of a time in World War II when there were these two aircraft officers I knew and they didn't have anything to do at the time. And some general came in to visit and he said to one of them, he says, Lieutenant Jones, what do you do? He says, I don't do anything. He turned to the second one. He says, what do you do? And he says, I help Lieutenant Jones. That's been my contribution on communications investments. You can address me as Lieutenant Jones for the rest of the meeting.
WarrenYeah. Some people have thanked us for providing this meeting. I want to thank you because the quality of the – I think we have the best shareholders meeting in the country, and the quality of the meeting is absolutely in direct proportion to the quality of the shareholders.
[1:17:26]
WarrenWe would have nothing without this participation, and I really thank you. It's a big effort to come here for a lot of you, and I thank you for that. Our plan, incidentally, will be to take a break at noon. They have a lot of food outside that they will sell you, and then we'll come back in 30 minutes or thereabouts or 45 minutes, depending on how the lines are out there, and then we'll reconvene for the afternoon. and those of you who are not in this main hall, if you want to come over and join the main hall, there will be enough seats for everybody in the afternoon, and then Charlie and I will continue till about 3.30. Let's go back to Zone 1, please.
QuestionerMr. Buffett, over here. Good morning. I'm Alan Maxwell. I live in Omaha. When you walk down this street, heads turn to watch you. Do you ever get tired of being Warren Buffett? If you could come back again, would you be? You want to be Warren Buffett.
WarrenI think I'd probably want to be Mrs. B. She made it to 104, so I had. And incidentally, I think there were three siblings at her funeral. That's some set of jeans. You'd have to worry about the furniture mart. Now, you know, you see a lot of this, a lot of the publicity bit here for a couple of days around the time of the meeting. life goes on in a very normal way. And I've had a lot of fun. I have fun every day in my life. I had a lot of fun when I was 25, but I have just as much fun now. And I think I'll, you know, if my health stays good, it'll keep being the same way because, you know, I get to do what I want to do and I want to do. And I get to do it with people I like and admire and trust. And it doesn't get any better than that.
WarrenCharlie, do you want to come back as Lieutenant Jones?
CharlieI think there are very few people who would change their skin for somebody else. I think we all want to play our own games.
WarrenWe'll go to Zone 2 with those remarks.
QuestionerHi. Hi. I'm Liam O'Connor. I come from County Kerry in Ireland. And I must admit, the sun shines a little bit more over here than it does on the other side of the world. I was wondering today if you could shed some light on accounting for goodwill. You're referencing your report in several aspects, including your principles, owner principles, and as well as the fact with the current merger of General Rhee, it seems to me there are several different methods that are used worldwide. Right. Through amortization to direct write off.
[1:20:29]
QuestionerAnd the fact when a merger like this is taken, it kind of skews the balance sheet. And I was wondering, in your view, what would you recommend as a more appropriate method for accounting for good well? accounting for goodwill. And secondly, if I could direct it to Charlie, one of the ideas, why not tie goodwill to the share price and have an intangible and a tangible part of shareholders' equity, the intangible piece being the difference between the book value and the share value of a company?
WarrenOkay, I'll take the first part. And it's a good question about goodwill and the treatment of goodwill for accounting purposes. I actually wrote on that subject. I think it was in 1983 in the annual report. And if you click on to the Berkshire Hathaway.com, you can look at the older letters. And you will see a discussion of what I think should be the way goodwill is handled. And then we've discussed it at various other times in the owner's manual. To give it to you briefly, in the UK, for example, Goodwill is written off. instantly so it never appears in book value and there's no subsequent charge for it. If I were setting the accounting rules, I would treat all acquisitions as purchases, which is what we've done virtually without exception at Berkshire, I would treat all acquisitions as purchases. I would set up the economic goodwill because we are paying for goodwill when we buy a general re. I mean, we are paying billions and billions of dollars. for it or when we buy a GEICO or when we buy an executive jet. That is what we are buying is what I call economic goodwill. I believe it should stay on the balance sheet as reflective of the money you've laid out to buy it, but I don't think it should be amortized. I think in cases where it is permanently impaired and clear that it's lost its value, it should be charged off at that time. But generally speaking, in our own case, the economic goodwill that we now, we now, now have far exceeds the amount that we put on the books originally and therefore even by a greater amount exceeds the amount that remains on the books after amortization. I do not think an amortization charge is inappropriate, is appropriate at Berkshire for the goodwill that we have attached to our businesses. Most of those businesses have increased their economic goodwill, in some cases by dramatic amounts since we've purchased them. But I think the costs ought to be on the balance sheet. It's what we, it shows what we paid for them.
[1:23:15]
WarrenI think it should be recorded there. I don't think that the coming change in accounting is likely to be along the lines that I've suggested here, but I do think it's the most rational way to approach the problem. And I think that because there is this great difference between purchase and pooling accounting, that some really stupid things are done in the corporate world. And I have talked to managers who deplored the fact that they were using, that they were using their stock in a deal and going through some various maneuvers to get pooling accounting, because they thought it was economically a dumb thing to do. But they did it rather than record amortization charges that would result from purchase accounting. And they're very frank about that in private. They don't say as much about it in public. Charlie?
CharlieYeah. Generally speaking, I think that what Warren argues for would be the best system, namely set up the goodwill as an asset and don't amortize it in the ordinary case. However, there would be plenty of cases when the cases wouldn't be ordinary cases, when amortization would be rational and, in fact, should be required. So I don't think there is any one easy answer to this one. And there's a lot of crazy distortion in corporate practice because of all the changes. changes. I mean, Australia has cowboy accounting. And Europe has this write-it-all-off immediately accounting, which is what would you call it, half-cowboy accounting, and maybe mining promoter accounting. We think the system should be better than that.
OtherZone 3? Good morning. Good morning. My name is Mike from Omaha. And it's been said that you're the white knight of the investment world because you rescue companies from hostile takeovers. Are there any companies you are now trying to help out? And would you please name those companies? Do you have a cell phone that you're going to place orders with? Or no,
Warrenwe really, you know, what we really want to buy our buy into is our wonderful businesses are at least extremely good businesses. We want them to have managements we like and we want the price to be attractive. And we are not in the business of being white knights. We're in the business of being investors and things that look sensible to us. And I don't think I've been approached by anybody in connection with that. We do get approached occasionally. I should say we get approached when somebody occasionally is when somebody has a takeover bid
[1:26:26]
Warrenand they say, would you like to top it or something, to which our answer invariably is no. No.
WarrenCharlie?
CharlieWell, we're very good at saying no. Charlie's better than I am even.
QuestionerZone 4. Good morning. My name is Matt Haverty. I'm from Kansas City. Twenty years ago, China unleashed capitalism within its borders. Since then, I believe it has benefited more from that economic system than any major country in history. I also believe that this momentum, combined with China's size and demographics, will make it the most fertile economic environment in the world during the next few decades. Nonetheless, there are many Chinese companies with easy-to-understand businesses and 20% per annum sales growth this decade, trading at five times or less last year's earnings. What is your assessment of the risk-reward of investing directly in Chinese companies?
WarrenWell, I don't know that much about them, but certainly if I could buy companies that were earning 20% on equity and had promises, it gave promise of being able to continue to do that while re-employing most of the capital, and they were selling it five times earnings, and I felt good about the quality of the earnings, you know, I would say that would have to be an interesting field. My guess is that it's not a large enough field in terms of the ones that meet those tests should name for Berkshire to profitably participate. And whether you could buy all of those companies from the U.S., I think there would be a lot of, there could well be a lot of problems in that. But I would say, anytime you can buy good businesses, really good businesses, which we define as businesses earn high returns on capital at five times earnings, and you believe in the quality of the earnings, and they can re-employ a significant portion of those earnings additionally at the 20 percent rate, you know, you will make a lot of money if you're writing your assessment on that.
WarrenCharlie?
CharlieYeah. I don't know much about China. But that is not to knock it in any way, shape, or form, because I mean, in terms of, there There could well be opportunities in areas like that. If you can identify those kind of businesses, we would have trouble identifying those businesses ourselves, but that doesn't mean that, you know, you will have trouble or other people that are much more familiar with the economy there would have trouble. So I encourage you to look at your own area of expertise in something like that, and you'll
[1:29:05]
Warrendo much better if the conditions you describe exist, then you can identify the right company. You will do much better than that than you will in American markets, in my view.
OtherZone 5. Good morning. My name is Fred Costano from East Point, Michigan, and I appreciate this opportunity. With Berkshire size becoming very large, are we to expect major future investments to be in the form of complete buyouts such as the general re-acquisition, or would you still consider nibbling in the stock market?
WarrenWell, we don't want to nibble, but we would like to take big gulps and in the stock market from time to time. But we've always wanted to acquire entire businesses. People never seem to really believe that back when we were buying Seas Candy or the Buffalo News or National Indemnity, but that's been our number one preference right along. It's just that we found that much of the time we could get far more for our money in terms of wonderful businesses by buying pieces in the stock market than we could buy negotiated purchase. There may be some movement in terms of the availability of the two toward the negotiated purchase, although it's almost impossible to make a wonderful buy in a negotiated purchase. I mean, you will never make the kind of buy in a negotiated purchase that you can in a bad stock, that you can make, buy a stocks in a weak stock market. It just isn't going to happen. The person on the other side cares too much, whereas in the in the stock market in a 1973 or four, you were dealing with the marginal seller. And whatever price they established for the business, you could buy it. I couldn't have bought the entire Washington Post Company for $80 million in 1974, but I could buy 10 percent of it from a bunch of people who were just operating, you know, based on calculating betas or doing something of the sort, and they were in a terrible market, and it was possible to buy a piece of it on that valuation. You never get that kind of buy-in in a negotiated purchase. We always are more interested in negotiated, large negotiated, than we are in stock purchases, but we are not going to find a way probably to use all the money that way. And we occasionally may get chances to put big chunks of money into attractive businesses which we buy through the stock market, 5, 10 percent of the company or something of that sort.
WarrenCharlie?
CharlieMy guess is over the next five years we'll do some of both,
[1:31:36]
Warrenboth the full, the entire business and the big gulps in the stock market. Yeah, I agree with that. We'll keep working at both. We're not finding a lot in either arena. We might be a little more likely to find it in the negotiated business. It won't be any huge bargain. We're not going to get any huge bargain in the negotiated purchase. We are more likely to find what I would call a fair deal there under today's circumstances than we will in the market. But I agree with Charlie. Over the next five years, I think you'll see us do both.
OtherZone 6. Good morning.
QuestionerMr. Buffett, Mr. Munger. My name is Jane Bell from Des Moines, Iowa. In response to an earlier question, you spoke of people being rich and very, very rich. It seems to me there's a difference between being rich and being wealthy. I assume you consider yourself to be both. Which is the more important to you?
WarrenWell, I think you may, we may ask you to define, I don't want to say sound like President Clinton here too much, but we've asked to... I might want, if you'd really define the rich and wealthy so that I get the distinction, then I think we can give you a better answer on it.
QuestionerWell, in my mind, being rich is having an awful lot of money.
WarrenMm-hmm.
QuestionerBeing very, very rich is having even more. And being wealthy doesn't necessarily equate to having a lot of money.
WarrenWhat does it equate to then?
QuestionerI just want to.
WarrenI think I know what you mean, but I still want you to clear it up before I give you an answer on it.
QuestionerWell, this, of course, is my opinion. I mean, you can be wealthy in health, for example, and I agree with you, certainly there'd be nothing you'd value more than good health for you, you know, yourself and your family. But you go ahead.
WarrenWell, I believe you're starting to get it.
QuestionerMm-hmm.
WarrenHave patience. No, there's no question. No, there's no question about it. I mean, being, the money makes very little difference after a moderate level. I tell this to college students that I talk to. I mean, they are basically living about the same life I'm living. You know, we eat the same foods. I mean, that I can guarantee you. And, you know, there's no important difference in our dress. There's no important difference at all in the car we drive. There's no difference in the television set that we sit there and, you know, watch the Super Bowl on or anything of the sorts. or anything of the sorts. There's really no difference in, you know, they've got air conditioning in summer, and I got air conditioning,
[1:34:41]
Warrenthey've got heat and winter, and almost everything. So any importance in daily life, we equate on it. The one thing I do is I travel a lot better than they do, you know, net jets. So the travel is, travel I do a lot easier than they do. Everything else in their lives, it just, you know, I'll switch places anytime. It doesn't make any difference. So then you get down to the things of health and who loves you. I mean, that's, you know, there's nothing, if you have a minimum level of, I mean, you want to have enough so that you eat three times a day and that you sleep in reasonably comfortable surroundings and so on. But everybody in this room has that, and yet some of the people, by the definition that you've given, are obviously much more wealthy than others, and it's not measured by their net worth. if you define it that way. And I don't disagree with that definition. I might not use the term wealth in describing it, but I'd certainly, you know, maybe call it well-being or something of the sort. Charlie?
CharlieHe's thinking. Sure, there are a lot of things in life way more important than wealth. All that said, some people do get confused. I play golf with a man and he says, what good is health you can't buy money with it. Did I ever tell you about Charlie's twin brother that he golfs a lot? that he golfs a lot with him. I'll take health any time, incidentally.
WarrenSo, I know, the important thing even in your work, I mean, is, to an extreme extent, it seems to me, is who you do it with. I mean, you can have, if you're going to spend eight hours a day working, the most important thing isn't how much money you make. It's how you feel during those eight hours in terms of the people you're interacting with and how interesting what you're doing is and all of that. Well, you know, I consider myself incredibly lucky in that I can't think of anything I'd rather do and I can't think of any group of people I'd rather do it with. And if you ask me to trade away a very significant percentage of my net worth either for some extra years online, or being able to do during those years what I want to do, you know, I'd do it in a second.
QuestionerZone 7. Hi, my name is McCall Bang. I'm from Central Florida. It's nice and sunny there. Not so bad here either now. My question was last year somebody asked about the pharmaceuticals. about the pharmaceutical companies and the aging baby boomers, etc. And you said it was
[1:37:35]
Questionerdifficult to single out individual companies, and I believe Mr. Munger succinctly said that we blew it on that one. I was wondering, however, if the idea of regulation and, you know, the specter of what happened in 92, 93 with an unelected politician kind of dampered the whole industry for a period there, if that plays a part in giving you a little ambivalence about investing in that area for the future? Is that simply an unknowable? Or with all the, you know, a lot of the political things we see here today, if that causes you some concern about the future of that area? I know that you're concerned about the growth of companies having to spend money in Washington with regulation, etc. So I'd like to know your thoughts. thoughts if, specifically, if you have some ambivalence because of future regulation with pharmaceutical companies?
WarrenWell, if we could buy a group of leading pharmaceutical companies at a below market multiple, I think we'd do it in a second. And we had the opportunity to do that in that in that 1993 period, as you mentioned, and we didn't do it. So we did blow it. Because clearly, the pharmaceutical industry as a whole has done. done very well, and it has some of the threats that you enumerated in terms of regulation and so on. But, you know, every industry has some problems, and the pharmaceutical industry has enough going for it that the threats you name should not cause, in my view, should not cause the securities of seller, a depressed multiple, which they did. Now, that's no longer the circumstance. We don't like, you know, we're not going to buy them at present prices, but we, you know, at least I think they're very, you know, As a group, they're good businesses. I do think it's very hard to pick out the winner, you know. So if I did buy them, I would buy them. I would buy a group of the leading companies, but I wouldn't be buying them at these prices. Charlie?
CharlieYeah, I would argue that the pharmaceutical industry has done more good for the customers than almost any other industry in America. It's just fabulous what's been invented in my lifetime, starting with all the antibiotics. antibiotics that have prevented so much death and so much family tragedy. And I think the country has been very wise to have a system where the pharmaceutical companies can make almost obscene amounts of money. I think we've all been well served by the large profits in the pharmaceutical industry.
[1:40:24]
QuestionerZone 8. Good morning, Mr. Buffett, Mr. Munger. My name is Gary Radstrom from right here in Omaha. My question is, somewhere I thought I've read that you buy at least one share of every company on the New York, or on the exchanges to get the annual report. Is that true or is that a thing of the past? And if it is true, how do you keep track of all that information?
WarrenWell, it's got an element of truth in it. Many years ago, I did buy one share of a great many companies. And then I'd get these dividend checks for eight cents and ten cents. And I used to pay my bridge losses by giving, endorsing these checks by the hundreds and giving them to the people who just won a dollar. And then no one asked me to bridge games anymore. So I have adopted a new program where I buy a hundred shares of a great many companies. Actually, I buy them in my foundation, so I don't go crazy at income tax time. I probably, just as a guess, would have a couple hundred companies. So it isn't every company by a long shot. But there are at least several hundred companies where I want to be a registered shareholder and to make sure I get the mailings promptly. And I do keep those around. And I very, even after I lose interest, I very seldom sell one, so I'll just keep buying more. And I'll only buy the 100 shares in something. I might want to keep track of, but I'll probably buy 100 shares in all of their competitors and so that I keep reading about those companies as well. I, it does pay to have a flow of information come in over the desk. And that does, the answer to that question reminds me of a point which I'd like to bring up briefly here, and that is that our shareholders, unfortunately, there's no way around this, unless they go to the Internet on the Saturday that we designate to read the annual report and where it's up on our home site, Berkshire Hathaway.com, are going to receive their reports at significantly different times, and the ones who have their shares in their own names are very likely to get those reports faster than the ones that have their shares held in street names. And from our standpoint, unfortunately, probably 90 percent of the shareholders we have, have name, have their stock held in street names. Now, what happens on that is we print the reports up, we mail the ones to the shareholders who are of record, who have the stock in their own names. We send the balance to where there are brokers or bankers tell us to send them.
[1:43:23]
OtherWell, about 90 percent go to one place in New Jersey, but that's out of our control. I mean, if Merrill Lynch or Charles Schwab or whomever Fidelity turns their list over to that firm, they are the ones that mail the report. We trucked those reports back to them. We may next year try to figure out a way to get them printed closer, but it's out of our control when those reports go out. So our shareholders receive their reports on widely varying dates, which, like I say, you know, I would rather not have that happen. It means that in terms of sending in your request for tickets to this meeting, many people we had this year as late as maybe the 10th of April still hadn't gotten their reports and they wondered about their tickets. So if it's convenient for you, you will, you know, it's better to have your stock in your own name. Now, that isn't convenient for many people. I understand that. But you will get our reports on a more reliable basis and a more prompt basis if you do it that way. If you have your stock in street name, you know, I urge you to look on those dates we've laid out in the report for next year to click on to our homepage because then you will have the information just as quickly as everybody as your fellow shareholder does.
Warrenmuch have a level playing field and we want everyone to have access to the information as close to simultaneously as possible and during a time when the market is not open we think that just makes sense that's the way we do it if we were running a partnership but there is this problem with street name holdings of somewhat erratic distribution and that's the reason why when I want to keep track of say all of the companies in the pharmaceutical industry I'll buy a hundred shares of each one and I'll I'll stick them in the name of the foundation, and that mailing comes directly to me in Omaha. So let's go on to Zone 9. I'm Lola Wells from Florida. You have been recently quoted in the newspapers as saying that some major corporations have used questionable practices to make their operations seem more favorable. Would you be willing to be willing to be more specific about these practices? Not until I'm on my deathbed. No, I have followed a policy of criticizing by practice and praising by name, and we will not, you know, we do, Charlie and I both find certain practices very, very deplorable, and they aren't limited to whom a single or a few large corporations, but it would, we would probably
[1:46:07]
Warrenbe less effective in arguing for change if we went to a few specific examples. A, they would not be that much different probably than hundreds of other, or at least dozens of other companies. And secondly, those who get critical of the world find the world gets very critical of them promptly. And I think we, I think we do more good by, in a sense, hating the sin and loving the sinner. So we will continue to point out the sin, but we will not name the sinners. Charlie?
QuestionerWarren, I think she wants you to name the practices.
WarrenOh, the practice. Not the miscreants. No.
CharlieWell, the practices are some, the practices are some of the things we've said. They relate to accounting charges that are designed to throw into a given period, a whole lot of things that should have been covered in subsequent periods in the earnings account or to smooth out or to inflate earnings in future accounts. There's a lot of that being done. There's a lot of it's been done. The SEC under Arthur Levitt, who I admire enormously for his efforts on this, is making a concerted attempt to get a corporate America to clean up its act on that. But it'll only be because somebody hits them over the head. I mean, it has become totally fashionable to play games with the timing of expansion. of expenses and revenues. And, and frankly, until the SEC got tougher, in my view, the auditors were not doing enough about it. I think that in terms of hiding compensation expense and not recording it in the case of options and all of that, I think. Companies now have the option of recording option costs in the income account, but you have not seen any great flood of people doing it. And actually, there's a lot of people doing it. And actually, the way they show to the footnotes is quite deceptive in my view, because they try to make assumptions that minimize what the income account impact would be. But the cost to the shareholder is what counts. I mean, that is the compensation cost, as far as we're concerned, and that's been minimized. The whole effort to engage in pooling rather than purchase accounting has seen a lot of There's been a lot of deceptive accounting in that respect. There's been deceptive accounting on purchase and purchase accounting adjustments. So those are the kind of things we're talking about. Charlie?
CharlieYeah, it's the big bath accounting and the subsequent release back into earnings of taking an overly large bath
[1:48:56]
Warrenbath that create a lot of the abuse. We could name names. We won't. But, I mean, we have we have seen firsthand management who think they are doing, they say they're doing what everybody else does. And the truth is they are now, because everybody else is doing it. And it takes some outside force, in this case, probably the SEC, it should have been the auditors, and to clean up the act, because once it becomes prevalent, the fellow who says, I'm going to do it fair and square, all of a sudden becomes at a disadvantage in capital markets. He's penalized, and he says, why should I penalize my shareholders by doing something when legally I can get away with doing something else?
WarrenCharlie?
CharlieNothing more.
OtherZone 10. Good morning, Mr. Buffett and Mr. Munger. My name is Robert McClure, and my wife and I live in Singapore. My question concerns insurance. In the 1994 annual report, you made the following remarks, and I quote, A prudent insurer will want its protection against true mega catastrophes, such as a $50 billion windstorm loss on Long Island, or an earthquake of similar cost in California, to be absolutely certain. That same insurer knows that the disaster making it dependent on a large supercat recovery is also the disaster that could cause many reinsurers to default. There's not much sense in paying premiums for cover. that will evaporate precisely when they are needed. So the certainty that Berkshire will be both solvent and liquid after a catastrophe of unthinkable proportions is a major competitive advantage for us, end quote. As I said, that was in the 1994 annual report. Please give us an update on those remarks. Would you say that that competitive advantage you described is intact, or would you go so far to say that it has that it has been enhanced over the past five years with the merger of General Reed and with what's happened in the Supercat insurance industry.
Ajit JainYeah, I would say that that reputation, certainly the reputation is a stronger, it's a stronger than ever. I mean, Berkshire's preeminent position as the reinsurer most certain to pay after any conceivable natural disaster. That reputation is stronger today than it's ever been, and General Rees' reputation right along with it. I would say the commercial advantage inherent in that reputation is very important. I can't tell you exactly how it rates compared to 1994, but I can tell you that it's important.
[1:52:08]
Ajit JainIt tends to be more important when we're reinsuring other very large entities, large entities, either primary insurers or large reinsurers than it is with a smaller company. The smaller company probably focuses on that less. But we are writing probably this week a very large cover for a very important reinsurer. I don't think they'd want to buy that from almost anyone else. I mean, a couple of people maybe, but they may, they could decide not to buy it from us because they might not feel they wanted to buy it. I think in this case they will. But I don't think they would have a of 10 people from whom they buy it, and they're too smart for that because it's a very high-level cover. And if that is called upon, there will be a number of people whose checks will not clear, and Berkshire's check undoubtedly will clear. So it is a big, the reputation has never been better. The commercial advantage is significant, how much it translates into, you know, that can vary from year to year. But I think it's a permanent advantage that Berkshire will have. I mean, I think five years from now and 10 years from now, and particularly after there has been a huge super cat, it will be a great asset to Berkshire to be thought of as, essentially as I've described it as Fort Knox. And we will pay under any circumstances. And there aren't many people in the insurance or reinsurance business that can truly that. And when the very big cover comes along, we should have very few competitors. Charlie?
CharlieWell, I think that's exactly right.
OtherOK, Zone 11. Good morning.
QuestionerGood morning. Richard Corrie from England. Could you please say what was the main factor which produced the very substantial gain in intrinsic value mentioned in your report? I asked this because per share gain, in portfolio and operating profits were modest. And you said there was no immediate gain from issuing shares for acquisitions.
WarrenWell, we did increase the float per share very significantly last year, I mean, invest in assets per share. And I would say that in the GEICO's business was worth far more at the end of the year than at the start of the year, and that was our largest subsidiary at the start of the year. And if anything, Geico's competitive position continues to improve, I would say that executive jet is a natural fit into Berkshire, and we paid a significant sum for it, but that it will be a very, very big company 10 or 15 years from now. And perhaps, well, I'm almost sure
[1:55:14]
Warrenit'll get there sooner as part of Berkshire than it would have gotten there otherwise. And its dominance maybe even greater over the years as part of the Berkshire family than it would have independently, although it would have done very well independently. I mean, it had a terrific management. It had started early and they had the most service-oriented company, you can imagine. So it would have done fine without us, but I think it will do even considerably better and get there faster with us. So I think there, I think in the aviation field, certainly in the primary insurance field, we had large gains in intrinsic value. And I think that additionally, we had a significantly greater amount of invested assets per share to work with. So I feel good about what happened with intrinsic value last year. The problem is doing it year after year after year. Charlie?
CharlieJust basically, we have a wonderful bunch of businesses, and we have a float that keeps increasing in a pretty good record. of doing pretty well in marketable securities. None of that has gone away.
QuestionerZone 12? My name is Elias Kanner, and I am from New York City. Mr. Buffett, thank you for this entire weekend. I met you at the ball game on Saturday and at Garats yesterday. It was a great honor for me each time. Thank you. My question is this. Mr. Buffett, will you groom a younger man or woman as you? your heir apparent. If so, when might you do this? When I say younger, I mean a person 15 to 20 years younger than yourself. Of course, I'm not complaining. You're the best in the world.
WarrenWell, 15 or 20 years younger is a lot easier to do than it used to be. A large percentage of the world's population is now eligible. We have today, the people, the people, the people, the people people to take over Berkshire. There's no problem about that at all. They have been named in letters that the directors have, and they are in place. Exactly who will be the two people, will of course, or it could be one person, will depend on when Charlie and I are out of the picture. I mean, if we've written the letter 10 years ago, it might have been different than today, it might be different 15 years from now. So our death or incapacity, the timing of it will determine exactly who will be the current person in that letter. But we have those people in place. They don't need to be groomed from this point forward. They exist. They're ready. They'd be ready to run Berkshire tomorrow morning, and I think you'd be quite pleased with the job they did.
[1:58:27]
WarrenAnd that's why I don't worry about having, I've got 99 and 3 quarters percent of my net worth in Berkshire. And, you know, I don't want any of it sold. If I knew I was going to die next week, I would not want it sold in the coming week, and I don't want it sold after it. I feel very comfortable with the businesses and the managers and the successor top management that we have at Berkshire. But I just don't want them to take over too early. Charlie?
CharlieYeah, I actually think that the prospects for continuity of corporate culture to the extent we have one at Berkshire is higher. than prospects for continuity of corporate culture at most other large public companies. I don't see Berkshire changing its way of operating, even if Warren were to expire tonight. And I think that the capital, the fresh cash would be allocated less well. But as I've said, it passed shareholder meetings, well, that's too damn bad. That's why we don't have a public relations department. By the way, I don't think the job would be ill done. I just don't think it would be done quite as well as Warren does it.
OtherOkay, Zone 13. Good morning, Mr. Buffett and Mr. Munger. I'm Carrie Blecker from Wellington, Florida. Thank you for stopping by the Convention Center before. Mr. Buffett.
WarrenIt was nice to see you again.
QuestionerMy pleasure. Recently, much has been made of the fact that Berkshire is the largest company to not be included in the S&P 500. Do you gentlemen have... have an opinion as, or what is your opinion as to whether Berkshire should be included and why? Thank you.
WarrenYeah, that's a question we've gotten asked quite often since the General Reed deal was announced. Berkshire, if you talk to the S&P people, I think they would say, and I think they've even said it publicly, or at least a representative has, that we certainly qualify in every way that, except from what they might have been said it publicly, or at least a representative has, that we certainly qualify in every way that, except from might term the liquidity standpoint. It's probable that maybe it's 6%, maybe 7% of the investment funds. The equity funds in the United States are indexed, and the number is, or the amount is going up somewhat as we go along. I saw an article with the contrary on that, but I think they had it wrong. The amount of money, indexed money is, in my view, rising month by month. So if you were to put Berkshire into the index tomorrow, in effect, you'd have a market order to buy
[2:01:23]
Warren6 to 7% of the company, or roughly 100,000 shares of A. That would not be good. You know, the stock would obviously spike up dramatically as some stocks already have when they've been added. There have been some, I've looked at the list of all the companies have been added, and some have moved up substantially. And, we've looked at the list of all companies have been added, and some have moved up substantially. And we would have even more impact at Berkshire than the typical stock because our stock is fairly tightly held. Most people don't want to sell it. There are two solutions to them, three solutions being, one of them being not to put us in the index, but we are the most, I think probably the most significant company in the United States that isn't in the index in terms of market value and a lot of other factors. So if you want to put Berkshire or a company like it in the index and not have some crazy market aberration, you could have one of two things happen. And this would be true, I think, more and more of other companies, as well as they add them to the index and there's more money against indexed. One, you could have the company agree that at the time it was added to the index that simultaneously, the company itself would sell an amount of stock that was about equal to the index buying that would be generated. In other words, if we were to offer 100,000 shares roughly of A stock at the same time as being added to the index, that would neutralize the index buying. The only problem with that is we don't want to sell 100,000 shares, or 10,000 shares, or 100 shares of A stock at Berkshire unless we have some very good use for the money. It isn't going to happen. So we are not going to do something like that just because we want to be in an index. The other possibility, and I believe this was used in Australia when a very large mutual life company converted to stock. I think it was the largest company in Australia, AMP. And that would be to phase in the weighting of a stock like Berkshire. And I think later on they may have to do it for all stocks. But phase in the waiting, say, over a 12-month period so that it was 1-12th waited the first month, 1-12th waited the 1-12th waited the second month and so on. That means, in effect, there would have to be a market order once a month for a half of 1 percent, roughly, of Berkshire. Well, I don't think that would be very particularly
[2:03:54]
Warrendisruptive, and I think there would be a – once you knew that phase-in was coming, there would be a – but there would be some anticipation so that you would not get big spikes in the stock and dips subsequently. I think that would be a logical way, but Standard and Poor's to date has not had to do that sort of thing, and they may have various reasons and various good reasons for not wanting to do that. Now, if indexation continues to grow as it has, and you get a situation where 15 percent of the money becomes indexed, you know, I think they're going to have to come up with some approach similar to one of these two that I've named, or that it will simply get too disruptive to the market. It would be interesting. I know American Online has behaved very well since it was introduced to the S&P sometime back, but I would think that it might get to be the case that if you simply shorted the companies that got added to the S&P after the S&P effect had been felt, that you might find that those stocks would tend to underperform as that one artificial buy ordered, in effect, its impact wore off. So I think something is going to happen. I think indexation is far exceeded what anybody anticipated, including S&P, or including me or Charlie, and I think there's been a good reason for it to develop. I think as it continues to develop, it will have more and more impact on the market in ways that probably S&P is not that excited about, nor would the index funds be excited about. So there is likely to come a solution to the liquidity problem that might be particularly acute at Berkshire, but that prevails throughout. the market that occurs when stocks are added and I would think if they adopt some solution that certainly if they adopt the solution of gradual waiting that that Berkshire would be a very logical candidate for the S&P it really makes no difference to to us what has done along that line we don't we would not be unhappy being in the S&P as long as it didn't have some huge market impact at the moment of putting it in on the other hand, you know, we love the owners we've got, and I don't see how we could improve on this group much by having the index funds. So we'll see what happens on it. It is not a big deal to us, and we want to be sure if we're ever added it isn't too big a deal to the market because I would not like, you know, the people who sold that day might like it,
[2:06:37]
Warrenbut I would not like the stock to jump up, you know, $20,000 a share on one day because there's some market order for 100,000 shares, and then gradually, you know, work its way back down to where it should have been in the first place. No one benefits from that except the people who sell in the very short term, and that is not the group that I primarily worry about. Charlie?
CharlieMy guess is that Berkshire will eventually be in the S&P Index. Somebody will figure out how to do that sensibly. Maybe not soon, but someday.
OtherOkay. Zone 1.
QuestionerMy name is James Claus, and I am a huge. here from New York City. Mr. Buffett, Mr. Munger, today we've already heard you talk about a few countries outside of the U.S. here. And my question is, if you are directly investing equities outside the United States, what would be your requirements for the market as a whole? And by this I mean things like the transparency of the accounting system, the breadth and liquidity in the market, the rights of shareholders, the stability of the currency. And it'd be nice if you'd mentioned a few of these countries. Kind of just a little addendum there is for the companies. Are the companies in these countries, how relevant do you believe the reconciliation to U.S. gap contained in Form 20F really is?
WarrenWell, the answer is most of those points you mentioned would be of interest to us. We'd have to rule out anything where the markets aren't big enough. I mean, we are looking to put hundreds of millions of dollars into any single investment at a minimum. Certainly, we think in terms of $500 million as being a minimum. We make exceptions to that. And that's going to rule out a good. great many companies. Transparency of accounting and accounting rules. We care about that, but we can make adjustments mentally. In some respects, we may think in certain countries accounting is better than here. And so as long as we understand the accounting system, we will be looking toward the same kind of a discount model in our mind of how much cash is this business going to generate over years and how much is going to have to be put into it. And it's the same sort of calculation that goes into our thinking here. And here we don't follow strictly gap accounting in our thinking. So we don't, the accounting differences would not bother us as long as we understood those accounting differences. The nuances of taxes, the corporate
[2:09:05]
Warrengovernance that you mentioned could make a difference. If we thought corporate governance was far inferior to here, we'd have to make an adjustment for that fact. But I would say that in most of the major countries, the countries that have stock markets that are big enough so we could take a real position, it's a possibility that we would invest in any of them. We wouldn't rule out, you know, Japan, Germany, France, England, the major markets. Now, it's important to recognize that in all the world's stock markets, something like 53% of the value is in the U.S. market. I mean, here we have 4.5% of the world's population, but 53% of the value of all publicly held companies in the world is represented in with companies in the U.S. markets. So we are a big part of the pie, but we're very willing to look at almost all of the rest of the pie as long as we're talking about markets that are big enough to let us put real money into them.
WarrenCharlie?
CharlieWell, so far we haven't done much, and Warren has said, but we don't have a rule against it. What more can we say?
OtherWe can say zone two.
QuestionerGood morning, Mr. Buffett. My name is Jean-Philippe Kramer's, and I'm coming from London, England. I have a question regarding Coca-Cola. The first part is, are you worried that the earnings of Coca-Cola might continue to be affected by the weakness in the emerging markets and the strength of the dollar over the next few years? And the second part is on the P-E ratio of Coca-Cola at 35 times. earnings? Are you worried about the potential rise in interest rates? And is it linked to your views on inflation that you are not worried about the rise in interest rate? Thank you.
WarrenWell, in relation to the strength of the dollar, which means that profits in foreign currencies don't translate into as many dollars, we don't have any big feeling on that. I mean, if I, we had strong feelings about the dollars' behavior vis-a-vis the euro or the euro or the pound or whatever it might be, you know, we could give vent to those views by actually buying or selling large amounts of foreign exchange. We don't know which way the dollar is going to go. So I have nothing in my mind in regard to any decision on buying or selling Coke that would relate to any prediction in my mind about the course of the dollar. The earnings of Coke have been affected by the strength of the dollar in the last few years, particularly the strength against the yen, when, you know, when it went from 80-odd to 140-odd, that was a huge hit in terms of what the, in terms of the N translation into dollars from those profits.
[2:12:22]
WarrenAnd the strength of the dollar generally would hurt. But looking forward, I don't know. have any prediction on that. It's in Coke's interest to have countries around the world prosperous. I mean, they will benefit from increased prosperity, increased standards of living throughout the world. I think we'll see that over any 10 or 20-year period. I think people's preference for Coke will do nothing but grow Coca-Cola products. So what I am concerned about is share of market and then what I call share of mind. In other words, what do people think about Coca-Cola now compared to 10 years ago or 20 years ago. What are they going to think about it 10 years from now? Coca-Cola has a marvelous share of mind around the world. Everybody in the world almost has something in their mind about Coca-Cola products, then overwhelmingly it's favorable. You can't, you know, try to think of three other companies like it. I can't do it in terms of that ubiquity of good feeling, essentially, about the product. But we measure it by unit cases sold and by shares outstanding. And we want a lot more unit cases sold, and we like the idea of fewer shares outstanding over time. I'll be giving you that same answer 10 or 15 or 20 years from now, and I think there'll be a lot more unit cases sold then. It is true that the case growth slowed starting in the second half of last year and continuing through the first quarter of this year. But that's happened from time to time in the past. In my view, you know, that is not, that it's not an important item. It may be an important item in what the stock does, you know, in a six-month period or a one-year period, but we'll be around 10 years from now, and Coca-Cola will be around 10 years from now. And right now, we own 8.1 or 2 percent of Coca-Cola, and we'll probably own a larger percentage 10 years from now because they'll probably repurchase some stock. The PE ratio of Coke, like virtually every other leading company in the world, strikes us as, you know, they all strike us as being quite full. That doesn't mean they're going to go down, but it does mean that our enthusiasm for buying more of these wonderful companies is less than it was when the PE ratios were substantially less. Ideally, those are the kind of companies we want to buy more of over time. We understand their businesses, and my guess is that there's a reasonable chance, at least,
[2:14:58]
Warrenthat sometimes in the next 10 years we buy more shares of either Coke or Gillette or American Express or some of those other wonderful companies we own. We do not like the P.E. ratios generally. But, again, I stress that does not mean they're going down. It just means that we got spoiled in terms of how much we got for our money in the past. And we hope that we get spoiled again.
WarrenCharlie?
CharlieYeah, if what matters to you is what you think Coke is going to look like 10 years out or even further out, you don't really pay much attention to short-term economic developments in this country or that or currency rates or any other such thing. They don't really help you in making the 10 or 15-year projection, and that's the one we're making. So we have tuned out all this. noise as it's called in what communications networks. Tune out the noise, and if you look at the big picture, we think Coke is fine. It's hard to think of a better business in the world among big businesses. You know, there's obviously companies that are starting from much smaller bases that could grow faster. But it's hard to think of a much more solid business.
OtherZone 3. Newport Beach, California, Bruce Lindsay, and formerly from Omaha, Nebraska. And I have a question. Some time ago I read that they were buying, you were buying silver. I never knew the reason why you were buying silver.
WarrenWell, we covered the silver purchase in the 1997 annual report for a special reason. Well, A, it was part of a group of three unconventional investments we made, and one of those investments was a sufficient size so that we felt people ought to know about it specifically. And then we felt our shareholders ought to know that we sometimes do things that they might not have guessed that we would do from reading past annual reports. So we named the three unconventional investments. But in this year's report, we have stated we will not be naming those investments unless one of two things happened. One is that they become of a size that you should know about them specifically in order to to evaluate the kind of thing we do in Berkshire and the commitment of resources that has been made. Or two, if regulatory authorities either, obviously, if they require us to report it, we'll report it immediately, or in the case of Silver, a year plus ago, an important regulatory authority indicated they would have, that they prefer if we report it.
[2:17:52]
WarrenWe weren't required to do so, but, but, but, and our desire is to cooperate on that anyway, so we, we did report it. But we stated in this year's report that absent those factors, we will not be giving details on unconventional investments any more than we give any more details on our regular equity holdings than we're more or less required to do. We did say that we had changed certain of the unconventional investments that were described in the previous year's report, and we stated that we had entered into several new ones. So, we are in some things that most of you or maybe all of you don't know about, but they aren't of sufficient size so that they're going to, in any material way at all, affect your investment.
WarrenCharlie?
CharlieNothing to add.
OtherZone 4. Good morning, Mr. Buffett. Wayne Lang from Toronto, Canada.
QuestionerLast year, when you were asked about the Year 2000 computer issue, you expressed some concerns about the cost overruns and the federal government readiness. Our two countries are in the business. much better shape this year. But could you update us on your current thinking and what concerns you may have about the impact of the lesser residences internationally on our companies' revenues, supply chain, or on the stock market?
WarrenYeah. Last year, I think I also told you I didn't really consider myself an expert on this. And what I tell you is just what I pick up from being on audit committees or talking to people who are a lot smarter than I am in this sort of area. But that doesn't mean they're right on it. because they weren't talking about it 15 years ago when they should have been talking about it. So I, my general feeling, and all secondhand, my general feeling is that the part of the world that we have to worry about is in pretty good shape. It's cost a lot of money in various places. It's cost us a fair amount of money. But some companies it's cost a terrific amount of money. But I do not think it's going to be a big deal. And I, you know, I could be wrong, but I, and I'm less worried about it being a big deal today than I was a year ago. You know, and Charlie, do you know, anything to add?
CharlieNo.
QuestionerDoes that mean you think it's going to be less of a big deal than you thought a year ago?
CharlieNo, it means I have nothing to add.
WarrenOkay. That's probably what I should have said in the first place.
OtherZone 5. Good morning. My name is Bob Brewer, and I'm very Brewer, and I'm from down the road in Lincoln, Nebraska.
[2:20:41]
QuestionerI just wanted to ask you how you think the continuing economic turmoil in Japan is likely to affect the global economy and the U.S. stock market over the next five to ten years.
WarrenWell, Charlie and I are no good on those macro questions, but I would say this. I mean, the Japan problem has been around now in financial markets and banking systems. So I've been around for some time. now. So I see no reason why it should have more impact on the rest of the world now than it has had in the last few years. And I would say it's had certainly very little effect on the U.S. in the last few years. And it's not, it's no factor in our thinking at all in terms of what we would buy or sell tomorrow morning. I mean, if we got offered a good business tomorrow, unless it was directly involved, I mean, its primary business was in. Japan, but if it was a business in this country, that's not something that we would be thinking about. We would be thinking about the specifics of that business. We don't really get too concerned about the things that come and go. I mean, in the end, if we're right about a business over a 10 or 20-year period, just take seize candy. We bought it in 1972. Look what happened in 1973 and four, you know, and all the oil shocks and what this country was going through and inflation, all that sort of thing. For us to, let's say, and let's say, and let's say, and let's say, and let's say in 1972, somebody laid out a roadmap from 1972 to 1982, with the prime rate going to 21 and a half percent, long-term rates going to 15 percent, and all of the things happening, the Dow going to 570 or whatever, or 560, and that wasn't the important thing. The important thing was that this peanut bread will taste like it does, which is terrific, and that over time we can get a little more money for it. So, you know, it's made $4 million pre-tax in in 1972 when we bought it and made $62 million last year. It doesn't, we don't want to be thinking about the wrong things when we're buying businesses. And that applies to marketable securities just as much as it does as when we're buying 100 percent of the business. If we're right about the business, the macro factors aren't going to make any difference, you know. And if we're wrong about the business, macro factors are not going to bail us out. Charlie?
CharlieYeah, I think what's interesting in Japan is interesting to one as a citizen. Here is a major industrial country. And they understand all
[2:23:24]
Warrenabout Keynesian economics and everything else. And when it starts sliding down into a big recession, it just keeps going and going and floundering and staying down and year follows year. And you take the interest rates down to practically zero and you run a big budget deficit. The economy still stays down. I think this has been very interesting to the economists of the world. I don't think any of them would have predicted that as modern a country as Japan could contract for as long as it did. And I think the cause is related to the extremeness of its booms in both land prices and security prices and the corruption in its accounting practices and in its regulation of financial system, including banks. I think it's an interesting lesson for the world of how important it is, not to a lot of slop get into the accounting and regulatory systems and how a lot of folly in markets doesn't help either. Sort of fascinating to, you know, people keep saying, well, why doesn't Japan stimulate? They got short-term rates down to zero, and long-term rates at 2 percent. Well, that would stimulate me, but it doesn't, it's sort of, as Charlie says, it's sort of defied a little bit some of the classical Keynesian theory on that. But in the 30s, we had the same problem in this country. We drove interest rates way down toward the latter half of the 30s. And I would argue that probably the extreme prosperity in America is related to this so-called wealth effect with stock markets going up and up. And I think people thought that was a smaller factor than maybe it is.
QuestionerZone 6. Good morning, Mr. Buffett and Mr. Munger. My name is Jeff Lilly from Denver, Colorado. My question is as follows. Over the last couple of years, I've read, both of you quoted, as not following the stock price on a day-to-day basis, not being terribly concerned about whether Berkshire is up or down. You now have analyst coverage. perhaps you requested it or perhaps you acquiesced to it. But my question is whether this reflects any change in your attention paid to the stock price or your philosophy about investor relations and whether you think the analyst coverage is going to have any impact on the stock price going forward?
WarrenYeah. No, it reflects no change in our attitude towards stock price. I mean, we are concerned about building the intrinsic value per share of Berkshire at the highest rate we can, consistent with a couple of other principles that we've set forth.
[2:26:30]
WarrenAnd we hope very much that the stock price stays in a zone that is not too wide around intrinsic value. There's going to be some zone of some sort because intrinsic value itself is not precisely calculable. And in addition, you wouldn't expect it to track a penny for penny. But we don't want it to go crazy in either direction in relation to intrinsic value. When we may be... to deal with General Reid that attracted more analyst attention and institutional investor attention because General Reid's shareholder base was overwhelmingly institutional. So institutions had to decide whether they were going to continue with their investment or clean it out. And we knew we would end up with more institutional ownership subsequently. Alice Schroeder asked me prior to the merger meeting, she said they were a group of institutions that were coming to the meeting, which I liked. I mean, the fact that they were serious enough about their investment to come and see what Berkshire was all about. And a few of them even had a requirement, I think, from their own boards that they at least have sat down with management. So we spent, I spent an hour or so with a group that she had put. together and that came to Omaha. But that's the last contact I've had with any institutional investor. And we will have no special meetings with institutional investors or anything. I mean, they are absolutely welcome to attend this meeting to get all of the information that's dispensed. I think it's very useful, frankly, to have an analyst or two that is well-versed in Berkshire and that thinks straight and does their own. homework. And that's a plus because it means we don't have to do it. And in effect, that if institutions want to talk to somebody about it, they don't call me because they're not going to have much luck calling me. And they can call them Alice or some other, some other analysts that wants to do it. And that's perfect. We have a non-paid, it is not investor relations because that's thought of somebody is sort of pumping your job. But at least we have an information office now, a non-paid information office. And, you know, that goes along. the grain of my nature. And we, you know, we, we, people say you want individual owners, you want institutional owners. What we want are informed owners who are in sync with our objectives, our measurements, our time horizons, all of that sort of thing. I mean, we want, we want people
[2:29:10]
Warrenthat are going to be comfortable owning Berkshire. And we don't want people who are owning it for reasons different, in a way different, that are different from our reasons for owning. We don't want people that are concerned about quarterly earnings. We don't want people who are concerned about stock splits. We don't, you know, we don't want people that need to be pumped up about the stock periodically. It's just not of interest to us because it just means we have to keep living that way in the future. And it's not the way we want to live now. It's not the way we want to live in the future. What we really want are a bunch of people like we have in this audience who sit down and read and think and understand that they're making an investment. It's not just a little ticker symbol. They're buying part of a business. They know what the business is all about. They know how we think. They know how we measure ourselves. They're comfortable with that. And they can come in individual or institutional form. And when we get them, we like to keep them. So there's no change in our attitude about that. There is a change in coverage in that there is some limited amount of coverage in Wall Street, which I guess for a company with $110 or $20 billion of market value there should be. We'll have one more question, then we'll break for lunch. We'll go to Zone 7. And after this question, we'll break. We'll come back in about 45 minutes or so. And those of you, as long as we see that everybody's gotten served with food in that time, and will, any of those who are offside or with the holiday, I think there are buses to bring you over, you can drive over, and there'll be plenty of room here. You can also go out and tour the Boeing business jet. We'll sell you as little as 50 hours a year, I believe we have that on it. So take your wallets at lunchtime.
QuestionerYeah. Good morning. from Melbourne, Australia. I was wondering if you could help us out with the flight operations, which are now a large part of Berkshire. I think we're still putting a lot of capital into them. I was wondering, you've pooled both of them together in the annual report, and I was hoping perhaps you could help us out with what return on equity you're expecting for each of those divisions.
WarrenYeah, the more capital intensive is the flight safety operation, because every simulator costs real money, and we will add a number
[2:31:31]
Warrenof simulators each year. So flight safety, you can look at their figures before we acquired them, and it's reasonable to extrapolate those numbers out on a larger basis as we go along. But flight safety's return on equity is not going to move up or down by a dramatic amount. I mean, our simulator training price are related to the costs of the simulator, and so there's not going to be way higher returns on equity, nor should there be way lower returns on equity. There is a growth in the equity employed in the business because it is a growing business, and we're training more and more pilots every year. But that'll be a fairly steady thing. The executive jet business is in an earlier part of its development, although it's the leader in its field by far, but we're doing substantial investment spending in a place like Europe, and we'll be doing that on an accelerated pace, if anything. In the end, though, our customers end up owning the planes. So we have an investment in a core fleet of planes, which supplements the customer's planes. But by its nature, it's not a capital-intensive business. We are moving around a lot of capital every day. We'll have a hundred and forty or so customer planes now. and an aggregate, you know, just to pick a figure, that those planes are certainly worth a billion and a half or more, and we've got seven billion of planes on order or some number like that, but we will sell those planes to our customers. So it could be down the line that it will be a business with a very good return on capital. We'll still have an investment in the core fleet, and we'll have some facilities, hangar facilities and that sort of thing, but our customers will have the big capital investment. I should point out they'll have a whole lot less capital investment. that they own their entire plane themselves. So they will be getting a bargain as well. Let's take off for lunch, and I'll see you back here in about 45 minutes of those who wish to rejoin us. Thank you.
OtherLadies and gentlemen, we'd like to remind you that lunch is being served out of the stands in the outer lobbies. And also on the second floor, Hartland Hall, there are stands open on the north end. If the lines get a little long downstairs, you can try upstairs. Thank you.