1994 Berkshire Hathaway Annual Meeting (Full Version)

put this over here right am i live yet yeah morning we were a little worried today because we uh we weren't sure from the reservations whether we could handle everybody but it looks to me like

there may be a couple seats left up there but i think next year we're going to have to find a different spot because it looks to me like we're up about 600 this year from last year and

to be on the safe side we will seek out a larger spot now certain implications to that because as some of the more experienced you know a few years ago we were we were

holding this meeting at the joslin museum which is a temple of culture and we've now of course moved to

an old vaudeville theater and the only place in town that can hold us next year i think is the charmand coliseum where they have keno and uh racetracks uh we are sliding down the

cultural chain as just as charlie predicted years ago he he saw this coming uh charlie i have some rather distressing

news to report the there are always a few people that vote against everyone on the slate for directors and there's maybe a dozen or so people do that and then there are others that single shot

it and they pick out people to vote against and this will come as news to charlie i haven't told them yet but he is the only one among our candidates for directors

that receive no negative votes this year holy holy no need to applaud i'll tell you when you lose out the title of miss congeniality to charlie you know you're

in trouble with it now uh i'd like to like to tell you a little bit how we'll run this we will we will we will have the business meeting uh in

a hurry with cooperation of all of you and then we will introduce our managers uh who are here and then we will have a

q a period we will run that until 12 o'clock at which point we'll break and then at 12 15 if the hardcore want to stick around we will have another

hour or so until about 1 of of questions so you're free to leave of course any time and i've pointed out in the past that it's much better form if you leave while charlie is talking rather than when i'm talking but

the uh feel free anytime but you you can you if you're panicked and you're and you're and you're worried about being conspicuous by leaving uh you will you

will be able to leave it uh at noon we will have uh buses out front that will take you to uh the hotels or the

airport or to hunt that will take you to uh to the hotels or the airport or to any place any place in town in which we have a commercial interest and

we encourage you uh staying around on that basis um let's have the let's get the business of the meeting out of the way then we

get onto more interesting things i will first uh introduce the berkshire hathaway directors that are

probably directors that are present in addition to myself and first of all there's charlie who is the vice chairman of berkshire and if the rest of you will stand we

have susan t buffett howard buffett malcolm chase iii and walter scott jr and that's it

also with us today are partners in the firm of deloitte and touch our auditors mr ron burgess and mr craig christensen they are available to respond to appropriate questions you might have concerning their firm's audit of the accounts of berkshire

mr forrest carter secretary berkshire he will make a written record of the proceedings mr robert m fitzsimmons has been appointed inspector of election at this meeting he will certify to the count of votes cast in the election for

directors the name proxy holders for this meeting are walter scott jr and mark d hamburg proxy cards have been returned through last friday representing a million thirty five thousand six hundred and eighty

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 a meeting we will conduct the business the meeting and

adjourn to the formal meeting and then adjourn the formal meeting after that we will entertain questions that you might have in the minutes of the last meeting of shareholders i recognize mr walter scott jr who will place a motion before the

meeting i move that the reading of the minutes of the last meeting the shareholders be dispensed with do i hear a second motion has been moved in second are there any comments or questions hearing none we will vote on

the motion by voice vote all those in favor say aye opposed motion's carried and it's a vote does the secretary have reported the number of berkshire shares outstanding entitled

to vote represented at the meeting yes i do as indicated in the proxy statement that accompanied the notice of this meeting that was sent by first class mail to all shareholders of record on march 8

1994 being the record date for this meeting there were 1 million 177 750 shares of berkshire common stock outstanding with each share entitled to

one vote on motions considered at the meeting of that number 1 million 35 680 shares are represented at this meeting by proxy's return

through last friday thank you we will proceed to elect directors if a shareholder is president who wishes to withdraw a proxy previously sent in and vote in person he or she may do so also if any shareholder this president

has not turned into 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 with those persons desiring ballots

please identify themselves so that we may distribute them just raise your hand i now recognize mr walter scott jr to place a motion before the meeting with respect to election of directors

i move that warren buffett susan buffett howard buffett malcolm chase charles monger and walter scott be elected as directors a second been moved and seconded the

warranty buffett susan t buffett howard j buffett malcolm g chase third charles t munger and walter scott jr be elected as directors are there any other nominations is there

any discussion motion and nominations already be acted upon there are any shareholders voting in person that they should now mark their ballots and allow the ballots to be delivered to the

inspector of elections seeing none with the proxy holders please all submit to the inspector of elections the ballot voting the proxies in accordance with the instructions they have received mr fitzsimmons when you're ready you may

give your report my report is ready the ballot of the proxy holders received through last friday cast not less than a million thirty five thousand four hundred and seven votes for each nominee

that number far exceeds the majority of the number of all shares outstanding and a more precise count cannot change the results of the election however the certification required by delaware law regarding the precise count

of the votes including the votes cast in person at this meeting will be given to the secretary to be placed with the minutes of this meeting thank you mr fitzsimmons warning buffett susan t buffett howard g buffett malcolm

g chase the third charleston mother and walter scott jr have been elected as directors does anyone have any further business to come before this meeting before we adjourn

if not i recognize mr waller scott jr to place a motion before the meeting i move the meeting be adjourned if not i recognize mr waller scott jr to place a motion before the meeting i move the meeting be adjourned

second motion adjourn has been made in the second week motion adjourned has been made in the second we will vote by voice is there any discussion

if not all in favor say aye opposed say no the meeting's adjourned it's democracy in middle america

now i'd like to introduce some of the people that make this place some of the people that make this place work to you uh and if you would hold your applause until the end because there are quite a number of our managers here

i'm not sure which ones for sure are here some of them may be out attending the store as well but uh first of all from the nebraska furniture mart are we louis ron and irv blumkin i'm not

sure who's here but would you stand please the any of the uh any of the blumkins that are present okay we looks like earbuds i can't quite see it yeah uh

from borscheims susan jock here susan there she is susan had a record day yesterday uh she just [Applause] susan became ceo just a few months ago

and she's turning in records already keep it up and from central states uh indemnity we have the kaisers i'm not sure which ones are here but there's bill senior bill jr

john and dick kaiser stayed think i can see him john don worster from national indemnity rod eldridge from the home state

companies brad kinsler from cypress our workers comp company a jeet jane the big big ticket writer in

the east and mike goldberg who runs our real estate finance group generally oversees the insurance group mike

gary heldman from fetch heimers chuck huggins from seas the candy man stan lipsy from the buffalo news chuck's been with us incidentally 20 odd years stan's been

working with me for well over 25 years frank rooney and jim isler from h.h

brown dave hillstrom from precision steel ralshay from scott fetzer peter lunder who was with our newest acquisition dexter shoe and harold

alphon his partner couldn't be with us because his wife is ill and finally uh the manager that's been with charlie and me the longest

uh hairy bottle from knw harry here there there's harry yeah harry uh saved our bacon back in 1962 or so

when in some mad moment i went into the windmill business and and harry got me out of it that's our group of managers and i appreciate it if you give them a hand

i have one piece of good news about next year for you in addition to moving to larger quarters they're going to add non-stop air service from

from new york washington and los angeles here in the next few months midwest express so i hope they do very well with it and i hope that makes it easier for you to get into town and

now in this for the next um two hours and 15 minutes or so we'll have a session where we will take questions we have seven zones three on the main

floor we'll go start over there with zone one and work across on the main floor if you'll raise your hand

uh the the person who's handling the mic will pass it to you and and we'll try to not repeat in any individual in any one zone until

everyone in that zone has had a chance to ask one question so after you've been on once let other people get a shot when we move up to the lows

we have one person there and in the case and then we have three in the balcony which is essentially full now and we would uh up there we would appreciate it if you

would you leave your seat and go to the person with the mic it'll be a little easier in both the lows and the balcony to handle it that way and uh if you'll go a little ahead of time that way if there's a line of

two or three you can you can line up for questions in both the loge and the balcony so uh whatever you'd care to ask if you want an optimistic answer you'll of course direct your question to charlie

like a little more realism you'll come to me and let's start over in zone one uh sometimes we can't see too well from up here but uh in fact i can't even see the

monitor right now but i said do we have one over there and if you'll identify yourself by name and and and

your hometown we'd appreciate it my name is michael mullen from omaha would you comment on the use of derivatives i noticed dell computer stock was off two and a half points friday

with the loss and derivatives the question is about derivatives we we have in this room the author of the best uh the best thing you can read on that

uh there was an article in fortune about a month ago or so by carol loomis on derivatives and and far and away is the best article that's been written we also have some people in

the room that do business and derivatives from solomon and it's a it's a very broad subject uh it as we said last year i think someone asked what might be the big financial

story of the 90s and we said we obviously don't know but that if we had to pick a topic that it could well be derivatives because they they lend

themselves to the use of of unusual amounts of of leverage and they're sometimes not completely understood by

the people involved and anytime you combine ignorance and borrowed money uh you can get some pretty interesting consequences and particularly when the numbers get big

and you've seen that of course recently with a recent procter gamble announcement now i don't know the details of the png

derivatives but i i understand at least that what started out as interest rate swaps ended up with png writing puts

on large quantities of of us and i think one other country's bonds and uh any time you go from selling soap

to writing puts on bonds you've made a big jump and it it the ability to borrow enormous amounts of money uh combined with the

chance to get either very rich or very poor very quickly has historically been a recipe for trouble at some point and that derivatives are not going to go away they serve useful purposes and all that

but i'm just saying that it it it has that potential and we've seen a little bit of that i can't think of anything that we've done that would you think of anything we do that

approaches derivatives surely directly no no i may have to cut him off if he talks too long is there anything you would like to add

to your already extensive remarks to him no okay in that case we'll go to zone two my name is hugh stevenson i'm a shareholder from atlanta my question

involves the company's investment in the stock of cap cities it's been my understanding in the past that that was regarded as one of the four quote unquote permanent holdings of the

company i was a little bit confused by the disposition of one million shares could you clarify that was my previous misunderstanding

was my previous understanding incorrect or has there been some change or is there a third possibility well we we have classified the washington post company and and and

cap cities and geico and coke in the category of permanent holdings and but in the case of three of those four the washington post company i don't know maybe

maybe seven or eight years ago geico some years back and now cap cities we have participated in tenders where the company has repurchased shares now the first two

uh the post and and geico we participated proportionally that was not feasible and incidentally not as attractive tax wise anymore the 1968 tax act

changed the desirability of proportional redemptions of shares from our standpoint that point has been missed by a lot of journalists and commenting on it but but it just so happens that

that the commentary that has been written has been obsolete in some cases by six or seven years but we did participate in the cap cities tender offer just as we did in the post

and and geico we still are by far the largest shareholder of cap cities we think it's a superbly run operation

in a business that that that is it looks a little tougher than it did uh 15 years ago but uh looks a little

bit better than it did 15 months ago charlie you have anything on uh no he's thinking it over now though before zone three

good morning my name is howard baskam i'm from kansas city and i've got a theoretical value question for you uh if you were to buy a business and you bought it

at its intrinsic value what's the minimum after tax free cash flow yield you'd need to get well um your question is if we were buying all of a business

and we were buying it at what we thought was intrinsic value what was the minimum correct present earning power or what the pres the minimum discount rate of future

streams no what's the minimum current after tax uh free cash flow yield we could conceivably buy a business i don't think we we we would be likely to but we could we could conceivably buy a business that

had no current after-tax cash flow but we would have to think it was had a tremendous future but that we would not find

obviously the the current figures particularly in the kind of businesses we buy tend to be if we think of what's going to happen in the future but but that would not necessarily have to

be the case uh you can argue for example in buying stock at a time when it was losing significant money we didn't expect it to continue to lose

significant money but but if we think if we think the present value of the future earning power is attractive enough compared to the purchase price we would not

we would not be we would not be uh overwhelmed by what the first year's figure would be charlie you want to add to that yeah we don't care what we report

in the first year or two of after buying anything well i would say that that in a world of seven percent long-term bond rates that uh

we would certainly want to think we were discounting future after-tax streams of cash at at least a 10 percent rate

but that that will depend on on the certainty we feel about the business the more certain that we feel about a business the closer we are willing to play it we

have to feel pretty certain about any business before we're even interested at all but there's still degrees of of certainty and and uh if we thought we were getting a stream of

of cash over the next 30 years that we felt extremely certain about we would we would we would use a discount rate that would be somewhat what somewhat less than if it was one where we thought we might get

some surprises in five or ten years possibility existed nothing to add okay zone four more spins from omaha nebraska you've made comments on several locations about

the intrinsic business value of the insurance operations and in this year's report you state that insurance business possesses an intrinsic value that exceeds book

value by a large amount larger in fact then is the case that any berkshire other berkshire business i was wondering if you would explain in greater detail why you believe that to

be true well i i it i it's very hard to quantify as as we've said many times in the report but i think that it's clear that even taking fairly pessimistic

assumptions that the excess of intrinsic value over carrying value is higher by some margin for the insurance business and i think that the

table in the report that shows you what our cost of float has been over the years and also what the trend afloat has been over the years

would unless you thought that table had no validity for the future i think that a table would tend to to point you in the direction of saying the insurance business does have a very

significant excess of intrinsic value over carrying value very hard number to put put something on but and you don't want to extrapolate that table out but i think that table shows that we started

with maybe 20 million afloat and that we're ups to something close to 3 billion afloat and that that float has come to us at a cost that's extremely attractive on average over the

years and just to pick an example last year when we actually had an underwriting profit the value of that float was

something over 200 million dollars and that figure was a lot bigger than it was 10 years ago or 20 years ago so that's that is a stream uh last year was unusually favorable but

that is a that's a very significant stream of earnings and it's one we feel we have reasonably good prospects in so we feel very good about the insurance business not the insurance business

okay zone five name is jimmy ryden maker from omaha is there any point at which your stock would rise to the point where you might split the

stock surprise surprise i think i'll let charlie answer that this year he's so popular with the shareholders so i can afford to let him take the tough questions

i think the answer is no [Applause] i think the idea of carving ownerships and an enterprise into

little tiny twenty dollar pieces is almost insane it's quite inefficient to serve as a twenty dollar account and

and uh i don't see why there shouldn't be a minimum as a condition of of joining some enterprise certainly we'd all feel that way

in a private enterprise yeah we would not carve it up in 20 units we find it very it's interesting because every every company finds a way to fill up its uh if it's common shareholder

list and you can you can start with the a's and work through the disease and you know every company in new york stock exchange one way or another has attracted some constituency of shareholders and frankly we can't

imagine imagine a better constituency than is in this room i mean we we have we don't think we can improve on this group and and we followed certain policies that we think

attracted certain certain types of shareholders and actually pushed away others and and that is part of part of our eugenics program here at berkshire

yeah just look around this room and as you mingle with one another this is a very outstanding group of people and uh why would anybody want a

different kind of a group yeah if we cause if we if we follow some policies that cause a whole bunch of people to buy berkshire for the wrong reason the only way they can buy it is to replace somebody

in this room or or in this larger metaphorical room of shareholders that we have so someone in someone in one of these seats gets up and somebody else walks in the question is do we have a better audience

i don't think so so i think that i think charlie's charlie said it very well

zone six i'm mr buffett my name is rob naw i'm from omaha nebraska my question is given the recent

announcement of midwest express and their non-stop jet service between the east and west coast will this cut down on your use of the indefensible and will you use more commercial air travel

this is a this is a question planted by charlie i i think you should know i take it to the drugstore at the moment and and i uh no i it's just a question when i

start sleeping in it at the hangar nothing nothing will cut back on the individual it's being painted right now but i told them to make it last a long time charlie though was uh

pointing out the merits of other kinds of transportation last night at the meeting of our managers he might want to uh repeat those here well i just pointed out that the back of

the plane arrived at the same time as the front of the plane invariably he's even more of an authority on buses incidentally if anybody zone seven

mr buffett my name is alan maxwell from omaha i've got two questions what is your next goal in life now that you're the richest man in the country

that's easiest to be the oldest man in

the country secondly you talk about good management with corporations

and that you try and buy companies with good management i feel that i have about as much chance of meeting good managers other than yourself

as i do bringing richard nixon back to life how do i have as an average investor find out what good management is well i think you judge management by by

uh by two yardsticks one is how well they run the business and i think you can you can learn a lot about that by reading about both what they've accomplished and what their competitors

have accomplished and and seeing how they have allocated capital over time uh you have to have some understanding of the hand they were dealt when they when they

when they uh themselves got a chance to play the hand but if you understand something about the business they're in and you can't understand it in every business but but you can find industries or companies

that where you can't understand it then you you simply want to look at uh at how well they have been doing in in playing the hand essentially that's been dealt with them and then the second thing you want to

figure out is how well that they they they treat their their owners and i think you can get a handle on that uh oftentimes a lot of times you can't i mean

there there are many there are many uh companies that obviously fall in somewhere in that 20th to 80th percentile it's a little hard to pick out where they where they do fall but i think you

can usually figure out uh i mean it is not it's not hard to figure out that say bill gates or tom murphy don keo or people like that are really

outstanding managers and hard to figure out who they're working for and i could give you some cases on the other end of the spectrum too

uh it's interesting how often uh the ones that in my view or the poor managers also turn out to be the ones that that really don't think that much about the shareholders too the two often go

hand in hand but i think reading of reports reading of competitors reports i think you'll get a fix on that in some cases you don't have to you know you don't have to make 100

correct judgments in this business are 50 correct judgments you only have to make a few and that's all we try to do and generally speaking the conclusions i've

come to about managers have really come about the same way you could make yours i mean they've come about by reading reports rather than any intimate personal knowledge or

knowing them personally at all so it you know read the proxy statements see what see what they think of see how they treat themselves versus how they treat the shareholders

and and look at what they have accomplished considering what the hand was that they were dealt when they when they when they took over compared to what is going on in the

industry and i think i think you can figure it out sometimes you don't have to figure it out very often charlie nothing to add

okay we're back to zone one hi there my name is liam from palo alto california in meeting aji jain i've been very

impressed over the years i think i even met his parents once they came from india please comment on your deepest impressions of his personality and

managerial skills and also how you go about exactly keeping somebody with such fine skills within the fold you might

go to walt disney someday and you know pull down 200 million well if he gets offered 200 million we may not compete too vigorously at that level

[Laughter] we we we basically try to to run a business so that that that that charlene i have two jobs we we we have to

identify and and and and and keep good managers interested after after we figured out who they are and that often is a little different here because

i would say a majority of our managers are financially independent so that they they don't go to work because they they they are worried about about putting kids through school or or putting food on the table so they they

have to have some reason to go to work aside from that they have to be treated fairly in terms of compensation but they also have to figure it is better than playing golf every day or whatever it may be and

so that's one of the jobs we have and and we basically attack that the same way we look at at what they do the same way we look at what we do we've got a wonderful group of shareholders before i ran this i had a partnership i had a great group of

partners and essentially i like to be left alone to do what i did i like to be judged on the scorecard at the end of the year rather than on every stroke and and

and not second guessed in a way that was inappropriate i like to have people who understood the environment in which i was operating and so the

important thing we do with managers generally is is to find the 400 hitters and then not tell them how to swing as i put in the report second thing we do is allocate capital

and aside from that we play bridge that's pretty much what happens at berkshire so with any of the managers you might name here

we try to make it interesting and and fun for them to run their business we try to have a compensation arrangement that's appropriate for the kind of business there and we have no company-wide

compensation plan we wouldn't dream of having some compensation expert consultant come in and screw it up we we try to some businesses require a lot of capital that we're in some

require no capital some are easy businesses where good profit margins are are are are a cinch to come by but but we're really paying for the extra beyond that some are very tough

businesses to make money in and it would be crazy to have some huge huge uh framework that we tried to place everybody in that that

were one size would would fit all people generally are compensated relating in some manner that relates to how their business does as opposed to there's no reason to pay anybody based on how

berkshire does because no one has responsibility for berkshire except for charlie and me and and we try to make them responsible for their own units compensated based on how

those units do we try to understand the businesses they're in so we know what the difference between a good performance and a bad performance uh it's uh and that's about

that's that's that's how we uh how we work with people we've had terrific luck over the years in in retaining

the managers that we wanted to retain and and it's i think largely it's because particularly they sell us a business that to a great extent the next day

they're running it just as they were the day before and and they're having as much fun running their business as i have running uh berkshire charlie well i've got nothing to add but i think

it's that concept of of treating the other fellow the way you'd like to be treated if the roles were reversed

uh it's so simple when you stop to think about it but it's a rare evening when ajit and warren are talking once on the phone

it's it's more than a business relationship at least seems that way to me yeah well it is the stay that way too and by the way we like our business our relationships to be

more than a business relationship charlie and i are very far we basically it's it's it's a luxury but it's a luxury that that we should uh we should try to nurture we get to work with people we like

and it makes life a lot simpler it probably helps on that goal of being the oldest living american too yeah and we tend to like people we admire yeah who do we like that we don't admire

charlie start naming names do these people have names zone two my name is peter bevlin from sweden

how do you perceive guinness long-term economics growth-wise the the this is that yeah would you repeat that fence what was it what what firm

growth-wise guinness oh guinness i'm not as much of an expert on guinness products as charlie has we approved that

[Laughter] you didn't hear me said he said i proved that i made the decision to buy guinness and guinness is down somewhat from actually the the

price in pounds is about the same but the pound is at about a dollar forty six or seven against an average of dollar eighty something so uh we've had a significant exchange loss on that uh

the uh guinness is despite the name then you know the main product of course is scotch and uh that's where most of the money is made oh they make good money in

in in brewing uh but the distilling is the uh the main business and you know the usage of scotch particularly uh in this country

uh uh the the trends have not been strong at all but that was true when we bought it too there are some countries around the world where it's where it's grown and there's there's certain countries where it's a

a huge prestige item i mean in certain parts of the far east the more you pay for scotch the better you think people uh think of you which i

don't understand completely but i hope it continues uh but but the scotch worldwide scotch consumption has not uh has not been anything to write home about

guinness makes a lot of money uh in the business uh but i would not i don't see anything in the in published history that would lead you to believe that the

the growth prospects in terms of physical volume are high for scotch the guinness itself the bear actually is shown pretty good growth rates in in

some countries actually from a very tiny base in the us as well but they will have to do well in in distilling

or i mean that that will govern the outcome of the guinness i think guinness is well run and it's a it's a very important company in that business

but i wouldn't count on a lot of physical growth charlie what any consumer insights no zone three

mr buffett my name is arthur collis from kenton massachusetts and i'd like to know how you respond to the question that my associates ask me when they say that berkshire hathaway has been a good investment up to now

but if god forbid something happens to mr warren buffett well i'm glad you didn't say charlie munger mean

now berkshire will uh berkshire will do we'll do just fine we've got it we've got a wonderful group of businesses i've told you the two things i do in life uh

and uh in terms of the the managers we have you'd have to come in and really want to mess it up uh i would think and we don't have anybody like that

in terms of uh succession plans at berkshire and then there's the question of allocation of capital and uh you could do worse than just adding it to some of the positions that

we already had the ownership is if i if i die tonight the ownership structure does not does not change so you've got you've got the same large block of stock

that has every interest in and having uh good successor management uh as as i would i mean there's no there's no there would be no greater interest and

it is not it's not a complicated business i mean you ought to worry more about if you own microsoft about bill gates i think or something of sort but this this place is uh you know we've got a group down here

that are that are running these you didn't see me out of porsche i'm selling any jewelry the other day i mean that's that's that's somebody else's job so i and it is not it's not very complicated i incidentally

i i think i'm in pretty good health i mean this stuff will do wonders for you if you'll just try it charlie do you want to add anything is the yeah i think the prospects of berkshire would

be diminished obviously diminished if warren were to drop off tomorrow morning but it would still be one hell of a company

and i think it would still do quite well i uh i used to do legal work when i was young for charlie scouris i heard him once say my business which

was movie theaters like this one was off 25 last year and last year was off 25 from the year before and that was off 25 from the year before and then he pounded

the table and say but it's still vaughn hell of a business it's not a formula we want to test it no no [Laughter]

it is one hell of a business though we've got here i mean and if you if you saw what happened at berkshire headquarters you would not worry as much

there's very little going on there that contributes to things we're writing out our peak of activity this is it zone four uh first of all my name is al martin and

my wife terry is here with me and i appreciate the invitation to attend this meeting i was a little bit uh dubious and

quite excited at that game saturday night i didn't know which side was going to throw the game to the other one but i did find out at the end the first question uh actually was somewhat answered

but not fully uh has the board uh considered a reverse uh split uh my experience has been that uh would you like to make that a motion

there was a motion for reverse split i would say a two for one because if it were three or four for one i might end up with no shares or fractional shares but anyway my experience has been that all the stocks

that have split have gone down in the next two or three months or the next two or three years including one which you are drinking which is a flat coke uh also i have observed merck over the

last several years to be hitting a low which split three for one so i think that you know the the reasons for splitting stocks

are to make it affordable i found that uh every stock ever board was never affordable i found the reason i bought it was because i couldn't afford not to buy it so that's a different philosophy i guess that's somewhat shared indirectly with

the board's running of the stock the second question which is uh has to do with uh

hope it's as easy as the first question [Laughter] well i didn't want to wait for an answer the first question for that reason because it could be complicated and confusing

and so forth the second question has to do with uh could the board consider looking into a commodity broker or a lawyer or both that could take action similar to hillary hillary

clinton's i think you know making your net worth go up by a factor of five overnight uh is more than enticing uh some of us might even want to wait for ten months

to uh get a hundred to one return on the money uh well i wanna say five five hundred and thirty percent in one day

it charlie has never done that for us i mean it it really caused me to reassess

succession plans at berkshire and hillary may be free in a few years i hope you're applauding over coming to berkshire not being fair but i'll leave that up there

okay that was their second question that was my second question of course in my experience it's been that uh most of us have thought through this situation and and i guess it's

pretty speculative but i found out that the rules and laws that are made for trading uh are interpreted rather than enforced and i think that applied to this particular case so

let's go on to the third question right they're getting easier this one is real easy my wife was a collector of blue chip stamps for many many years

and she bought some stamps with her what should she do with them well that we can give you a definitive answer to that charlie and i entered this trading stamp business to apply our wizardry to it

in what 1969 or so certainly but we were doing what then about 110 million no it went up to 120. okay and

then and then we arrived on the scene and we're going to do what about 400 000 this year yes yeah that shows you what can be done

when your management gets active um we have presided over a decline of 99.5 yeah but we're waiting for a bounce

at and i would say this the the trading staff businesses those of you who followed all no it only works because of the of the float i mean they're they're

uh a very very high percentage of the stamps in the 60s were cashed in we have some years that we've got up to 99 percent i believe we sample the returns because they were given out in such quantity

uh but our advice to uh to anyone who has stamps is to save them because they're going to be collector's items and besides if you bring them to us we have to give you merchandise for them so

tell her to tell her to keep they'll do nothing but gaining value over years going back incidentally you're the point on the split i appears going back incidentally here

to point on the split i i think most people think that the stock would sell for for more money split a we wouldn't necessarily think that i think most people think that the stock

would sell for for more money split a we wouldn't necessarily think that was advisable in the first place but we in the second place we don't think it would necessarily be true over a period of time we think our stock

is more likely to be rationally priced uh over time following the present policies than if we were to split it in some major way and and we don't think the average price

would necessarily be higher we think that the volatility would probably be somewhat greater uh and we see no way that volatility helps our shareholders

as a group zone five i am peg gallagher from omaha mr buffett are you interested in influencing mr greenspan at the fed

to stop raising interest rates well i i wouldn't have any influence with him uh he was on the board of cap city some years ago and i know him a bit but but uh i don't think anyone would have

any influence with mr greenspan on that point but i i generally think that his his actions have been uh quite sound during his period

uh as fed chief i mean it's part of the job of the fed as as mr martin said many years ago is to take away the punch bowl at the party occasionally

and that's a very difficult difficult policy to quantify working with markets day by day and of course it's always been the the

job of the fed basically to lean against the wind which of course means if the wind changes you fall flat on your face but that's another question but the uh i don't i think what what he has done is probably

been somewhat appropriate i think he's probably been surprised a little bit as to what has happened with with long-term rates as he's nudged up short-term rates i think he was hoping that

this is just a guess on my part that the the action sort of early in the cycle on the short-term rate front would would might make people feel more confident about the

the longer-term rates and therefore that the yield curve would flatten some i don't know that and he may have been a little surprised on that but it's not an easy job he has

so i would not i would not second guess him myself charlie how do you feel about him fine greenspan is safe zone six

mr buffett i'm lee miller from st louis there was an article in the april 18th burns that attempted to calculate the value behind each berkshire hathaway

share i'm sure you have some views on that and i'd be very interested in your perspective on that issue yeah yeah there was an article about a week or so ago in behrens the same fellow wrote

an article about four years ago reaching pretty much the same conclusion and i hope he hasn't been short in between but the uh it i would say this is not it is not the way i would calculate the

intrinsic value of berkshire but but everyone in in securities markets makes choices on that every day somebody sells a few shares of berkshire and someone buys and you know they are probably coming to

differing opinions about about valuation i i would say that i found it strange that that that the the that apparently he forgot we were in the insurance

business but that that's not total it it really doesn't make any difference i mean what what we don't pay any attention to what what people say about coca-cola stock or gillette stock or any

of those things i mean on any given day two million shares of coca-cola may trade that's a lot of people selling a lot of people buying it if you talk to one person you'd hear one thing and talk to another

it really you really should not make decisions and securities based on what other people think if you're doing that uh you should you should think about doing something else because

it's it's a public opinion a poll will just it will not get you rich in wall street so you really want to stick with businesses that you feel you can

somehow evaluate evaluate yourself and i don't think i mean charlie and i we don't read anything about what business is going

the economy is going to do what the market's going to do or what anybody any time i see some articles says you know these analysts say this or that about some business it just it doesn't mean

anything to us you cannot you kind of get rich with a weathervane zone seven

i'm edward barr from lexington kentucky and i'd like to ask given the amount of capital in the banking industry do you think that more banks should be buying back significant amounts of their stock

like suntrust versus just the token amounts that they're buying back or just the authorized amounts and then also related question and banking are they are banks too focused on

goodwill amortization when declining to buy other banks for cash thereby using purchase accounting versus the normal practice in the

industry of pooling accounting even when the stock they issue may be depressed or undervalued well the first question about the capital in the industry that you really have to look at that on a bank by bank

basis and there is a lot more repurchasing of shares by by banks taking place you mentioned sun trust but national city is they bought it back i think five percent of their national city of cleveland

brought back five percent of their stock in the first quarter there's a there's much more repurchasing going on and that's simply a judgment call by

by management that as to the level of capital they need going forward and what level of capital enables them to earn the return on equity that they think appropriate and whether they

what they feel like paying for their own shares so i think you have to look at that on case by case we certainly like it if we were to own a bank we would our own own shares in a bank we would like

the idea of the bank repurchasing its stock at a price that we thought was attractive we would think that they probably knew more about their own bank than some other bank they were going to buy and that

that uh if the numbers are right it's an attractive way to use capital your second question about goodwill amortization uh and purchase accounting versus

pooling we we we care not at berkshire it absolutely makes no difference to us what accounting treatment we get on something we are interested in the economics

of a transaction some banks some some businesses generally most businesses perhaps prefer pooling because they don't like to take a goodwill amortization charge we think

our shareholders are smart enough particularly if we make it clear to them uh the accounting consequences we think they're smart enough to look through the economic reality of

of of what berkshire's businesses are all about and i think that i think some managements

sell short their own ownership group by by doing various kinds of financial acrobatics in order to have the charges come in a certain way rather than as you point out often they might be

better off buying for cash rather than their own stock as currency but they may prefer to use their own stock because they avoid goodwill charges we've written a few things on goodwill in the past and past annual reports that

might get to that subject we don't care what accounting we sort of rewrite the accounting for any business that we're looking at because in our in our heads we want to have in effect a

standardized way of looking at at businesses and if one company goes through pulling transactions and another goes through purchase transactions we're going to recast them in our own

mind so that there's comparability charlie yeah the the published accounting results are in accordance with standard convention

and their place to start economic analysis uh the figures are frequently quite silly on a functional basis i'm not

criticizing accounting conventions except for some yeah yeah but uh i think it's just a place to start

thinking about economic reality by their nature they can't tie perfectly they can't even tie very well to economic reality

we um we regard it as a negative when we find a management that's preoccupied with accounting considerations but we find it so frequent that we can't we

can't afford to use it as a as a total exclusionary factor it it really surprises me how many managements uh focus on

accounting and and the uh the time they spend on it the it's really unproductive and if you find a management

that doesn't care about the accounting but does explain to you in clear terms what's going on i think you should regard that as a plus in owning a security

zone one mr buffett my name is bill ackman i'm from new york city and my question relates to the appeal of salomon brothers as an investment you talked earlier about

leverage and the dangers of leverage solomon is a business which is levered 30 to one which has very narrow margins and earns relatively modest return on equity in light of the amount of leverage that they use

what is the appeal of the business to you we have here today the chief executive of solomon inc the parent company and and also the chief executive of solomon

brothers the investment banking arm and i would say one of the things we charlie and i feel extraordinarily good about are are the the two fellows that are running that

operation they they did an exceptional job under extraordinarily difficult circumstances as did john mcfarland who's already also here today the three of them i

mentioned four people in the annual report and solomon wouldn't be here today without those three and it wouldn't be the company in the future that it's going to be without them and they they

did an absolutely fabulous job it's the sort of business that as you point out uses a lot of leverage it doesn't in one way it doesn't use as much as it looks like in another way it uses even more

than it looks like but it the test will be a whether they uh control that business in a way that that leverage does not

prove dangerous and secondly what kind of returns on equity they they earn while using it you certainly should expect to earn somewhat higher

returns on equity when you are necessarily exposed to a small amount of systemic risk and

and and and significant amounts of borrowed money than you would in in in a business that's uh that's an extremely plain vanilla business but

i don't know whether you've met uh bob and derek but i think you'd feel better about having a leverage in their hands than about any other hands you can imagine

charlie why don't we have those three gentlemen stand up yeah you ought to give them everybody have done a job for uh berkshire last year i'll leave the applause for them

where where are they there they are i've mentioned this before but it's worth mentioning again derek took on the job of being the operating

head of solomon brothers on on what august 18th 1991 uh he didn't know what he couldn't know

what he was getting into exactly uh he uh two months later three months later we never had a conversation about compensation he did not ask me for

berkshire or my guarantee of for indemnification because he's walking into unknown legal problems we didn't know what we would finally uncover

and he worked uh incredible hours to keep that place together which was not easy bob denham i called

i guess on the 20 or so 20th i called him on a friday i got home on saturday 24th of august he was living a nice pleasant peaceful life in

california and it had a first class law firm good group of clients wife

uh had a good job there and uh i told him i was in a mess and there wasn't any second choice and three days later he was back in new york and living in a small apartment in

battery city and and uh and handling the general counsel's job at uh at solomon they found john mcfarlane on that sunday on the 18th i think he was running on a

triathlon or something at a practice that charlie and i follow but uh they and he was yanked from that and came down and i think john lives over in new jersey but he

holed up in the downtown athletic club and it was his job to keep funding what was then a hundred and fifty billion dollar balance sheet

during a period when people right and left were cancelling is not because we weren't a good credit but because they just didn't want to have anything to do with us for a while and the world bank and the data texas

pension fund and calper all these people were were shutting off funding at a time and and and funding in a business as a gentleman just indicated is the

lifeblood of a of an enterprise like solomon and uh so those three uh deserve an enormous uh hand by really by the solomon shareholders but by this group in turn

because we have an important investment so i thank them publicly zone two i'm kelly ranson from san antonio texas

and i wondered if you could comment on the mutual savings and loan there was just a footnote that the deposits had been assumed by a federal

savings bank and also what about the annual report for westco financial that i know it used to be in the annual report for berkshire i just wondered if

you could comment on that please the question is about we would our 80 percent own subsidiary west coast financial sold its ownership and mutual savings alone in

pasadena last year and let charlie comment on that and then the second question is about the west coast report which is available to any berkshire shareholder simply by riding westco

but we we found that the stapling problems and other things made it a little difficult to to keep adding that every year to the report so now we just we make it available to anyone who would in berkshire who would like to have it

but charlie you want to comment on the sale of mutual yes the savings alone business became very much more heavily regulated after the huge nationwide uh

collection of scandal and insolvency and so on and meanwhile we had a very small savings and loan association

and the combination of the new regulation and the fact that it was a very small part of our operation uh made us decide that we were better

off without it that does happen from time to time in berkshire we we do exit once in a while and by the way we would reserve the right to

change our mind i always liked lord keynes when he said that he got new facts or new insights why he changed his mind and then he'd say what do you do

so so we changed our mind they started they asked our directors at mutual to start going to school on saturday didn't they charlie or something i think that helped change our mind

about mitchell there's a time to vote with your feet and even your wallet zone 3

chicago can you speak to some of the economic characteristics of the shoe industry that allowed the business to be profitable and in your view attractive i didn't hear that did you hear that

john he wanted you to comment on the uh merits of the shoe industry well i think uh our feelings for the show industry are very clear from what's been happening the last few years

we think it's a great business to be in as long as you're in with frank rooney and jim essler and peter lunder and harold alpha otherwise it hasn't been too good the we

we have a couple of extraordinary um shoe operations and but they're not extraordinary because we get our leather from different steers or uh anything of the sort it's uh we have two

companies really three now that lowell's been brought into but that have truly extraordinary records i think those same managements

would have been enormous successes in in in any business they'd gone into but they have gone into the they are in the shoe business and the companies uh earn

unusual returns on equity they earn unusual returns on sales they've got terrific trade reputations uh and i think that to the extent

we can find ways to expand in the shoe business while employing those managements we'll be very excited about doing so uh

it isn't because we think that the shoe industry is any cinch you know per se or anything of the sort but uh but we've got a lot of talent uh employed in the shoe business and whenever we've got talent we like to try

and figure out a way to give them as big a domain as we can and it's not inconceivable that we would expand the shoe business

perhaps even significantly over time zone four yeah thanks mr buffett my name is stuart hartman from sioux city after the brevity of the last question

from section 4 i'll try to be extremely brief um the given the scrutiny that the tobacco business is going under right now number one what do you see as the

business prospects for those huge cash cows and at any point would uh would that be attractive to you given their liability questions about the the future the tobacco business

i i don't i probably know know more about that than you do because it's uh it's uh it's fraught with with uh uh questions that

relate to societal attitudes and and you can form an opinion on that just as well as i could but i would i would not like to have a significant percentage of my

net worth in the tobacco business myself but uh they may have better futures than than i envision i i i i don't really think that i have special

insights on that charlie you no you have to come to a conclusion as to how how society is going to want to treat and

and the present administration for that matter and and uh the economics of the business may be fine but that doesn't mean it has a great future zone five

i'm harriet morton from seattle washington i'm wondering when you are considering an acquisition how you look at the usefulness of the product

in looking at any business uh yes yeah well obviously we we look at what the market says is the utility and the market at the market has voted very heavily for

dexter shoe just to be an example an example i uh i don't know many how many pairs of shoes they were turning out back in 1958 or thereabouts but but year after year

people have essentially voted for the the utility of of that product uh there are 750 million or so

eight ounce servings of one product or another from the coca-cola company consumed every day around the world and there are those of us who think the utility is very high i can't make it through the day without a

few but there are other people that might rate it differently but essentially people are going to get thirsty and and if this is the way they take care of their thirst

uh better than uh and they prefer that to other forms then i would rate the utility high of the product but i think it's hard to argue with with the market uh on that i mean people some people may

think that uh you know listening to a rock concert is not something of high utility other people may think it's terrific so we would judge that i don't think we would come to an

independent decision that there was some great utility residing in some product that had been available to the public for a long time

but but the public had not endorsed in any way charlie well i think that's right but

i'd say every stop we're in a bunch of high utility products i mean nurses shoes work shoes casual shoes

we don't have a lot of what italian pumps don't rule it out charlie we may be here next year defending so i just say if you if you judge the

existing portfolios indicating what the future is likely to be like well certainly a lot of essentials were sold out of borshams yesterday yes [Laughter]

i hear my family clapping zone sex we have no question up here okay zone seven good morning mr berkshire buffett i have a niece here who has a sun named

berkshire so uh i'm chris blunt from omaha my first question is in years past we've had samples of various products when are we going to have some guinness

some somewhat now guinness samples my second question is in light of the multiple uh disasters that have taken place in la has that had any impact on the caps for

berkshire on our super cat business yes the the la earthquake which is originally i believe the first estimate of insured

damage was a billion five which struck us as kind of ludicrous but has now escalated the last official estimate the one we use that's a trigger in our

policies i think is either 4.5 billion or 4.8 billion but it's going to be higher than that uh

our losses are fairly minor uh if it gets to eight billion of insured damage that would trigger

uh another policy or two but i would say that the la quake which did considerably more damage i think that people would have

anticipated from a 6.7 for various reasons having to do with how how quakes operate uh that quake is not

going to turn out to be of any of any reels and it's not the kind of super cat that a 15 or 20 billion dollar

hurricane which hit florida or long island uh or new england would be that that's the kind of we we could lose

or we could pay out six or seven hundred million dollars in sort of a worst case super cat now our total premiums this year might be say 250 million or

something in that area so so one super cat in the wrong place would be would produce and there could be more than one uh could produce we'll say a 400 million

dollar thereabouts underwriting loss from that business the l.a quake is

l.a quake is is peanuts on that scale but it wouldn't have taken a whole lot more uh in terms of numbers on the richter scale if it happened to have an

epicenter where it did and b of the type that it was relatively shallow that we could have had that sort of thing happen i think that the insurance industry has vastly

underestimated maybe maybe not maybe not now but up till a few years ago the full potential of what is

what a super cat could do uh but hurricane andrew and and the l.a

quake may have been something of a wake-up call they were far from a worst-case situation a really big uh

type five hurricane on long island would end up leaving a lot of very major insurance companies in

significant trouble we define our losses essentially 700 million sounds like a lot of money there's a lot of money but but there are limits on our policies

that is not true of people that are just writing the basic homeowners or business they those losses could go off the chart there were certain companies in the la

quake that thought they had a what they call a probable maximum loss for california quakes in it and the l.a

quake which was far from the worst case you can imagine turned out to far exceed those probable maximum losses so i think the industry has had and may still have its

head in the sand a little bit in terms of what can what can happen either in terms of a quake in california or more probably in terms of a hurricane along the east coast

so far this year we're we're in reasonable shape but that doesn't mean much because by far the the larger the larger exposure is in hurricanes and and

essentially 50 of the hurricanes hit in september and about i think it's about 15 percent would be in august close to 15 percent in october so you

have 80 roughly in those three months and there's a little tail on both sides but that's when you find out whether you've had a good or bad year in the super cat business basically it's a business we like at the right rates

because there are very few people can afford to write it at the level that the underlying company the reinsured companies need it and we are in a position if the rates are

right to do significant business charlie nothing to add zone one clayton reilly from jacksonville florida this is a little different than all the

other questions but what were the three uh best books you read last year outside of the investment field

why don't even one will do i'll uh i'll give you a i'll i'll i'll tout a book first that i've read but that isn't available yet uh but it will be in september the uh

the woman who wrote it i believe is in the audience and it's it's it's been ben graham's biography which will be available in in september by janet lowe and i've read it and uh i think those of you who are interested

in investments for sure will enjoy it she's done a good job of capturing ben one of the books i enjoyed a lot was written also by a shareholder who's not here because he's being sworn in i believe

today or tomorrow maybe tomorrow as head of the voice of america and that's jeff collins book uh which is on uh the people versus

clarence darrow it's the it's the uh it's the story of the clarence darrow trial for for uh essentially a jury bribery in in los angeles back

around 1912 when the mcnamara brothers had bombed the la times and it's a it's a fascinating book jeff uncovered a lot of information that the previous

biographies of daryl didn't have i think you'd enjoy that charlie again well i very much enjoyed connie brook

brooks biography master of the game which was a biography of steve ross who uh

headed uh warner and later was what co-chairman of time warner yeah a little more than co-chairman yeah and

she's a very insightful writer and it's a very interesting story i am re-reading a book i really like which is vandoorne's biography of

benjamin franklin which came out in 1952 and i had almost forgotten how good a book it was and that's available on paperback

everywhere we've never had anybody quite like franklin in this country never again he believed in compound interest too incidentally as you may remember

but he set up those two little funds one in philadelphia one in boston right yeah to demonstrate the advantages of compound interest that i think that's the part charlie's reading

zone two thank you for teaching me uh teaching so much to all of us about business my name is mike desale from new york city

you mentioned earlier that berkshire's shoe business was great but that other shoe businesses were not so good what are the uncertainties of the global brand leaders

that the berkshire seems to like they like coke and gillette the global brand leaders in the shoe business being a nike and reebok what are their uncertainties in terms of

long-term competitive advantage business economics consumer behavior and the other risk factors that you mentioned in the annual report this year

thank you so you're really asking about the future prospects of nike and reebok yeah i i i i don't know that much about those businesses we do have one person in this audience at least who

owns a lot of reebok but i i i'm not expressing a negative view in any way on that i just i don't understand that

the i don't understand their competitive position and the likelihood of permanence of their competitive position over a 10 or 20 year period

as well as i think i understand the the position of brown and dexter that doesn't mean i think that it's inferior doesn't mean that i think that we've got better businesses or anything i think we've got very good businesses

but i i'm not i i i'm not uh i haven't done the work and i'm not sure if i did the work i would understand them i think they are harder to understand frankly and to

develop a fix on than than our kinds but they may be easier for other people who just have a better insight into that kind of business some businesses are a lot easier to understand than others

and charlie and i don't like difficult problems i mean we if something is is hard to figure you know i mean we we'd rather multiply

by three than by pi i mean it's just easier for us charlie i mean [Music]

well that is such an obvious point and yet so many people think if they just hire somebody with the appropriate labels they can do something very difficult

that is one of the most dangerous ideas a human being can have all kinds of things just intrinsically create problems the other day i was dealing with a problem and i said this thing it's a new building and i said

this thing has three things i've learned to fear an architect a contractor and a hill and if you go a life like that i think you

at least make fewer mistakes than people who think they can do anything by just hiring somebody with a label excuse me you don't have to hire out

your thinking if you keep it simple you don't have to do we've said this before but you don't have to do exceptional things to get exceptional results and some people think that if you jump

over a seven foot bar that the ribbon they pin on you is going to be worth more money than if you step over a one foot bar and it just isn't true in the investment

world at all so you can do very ordinary things i mean what is complicated about this but you know we're three billion dollars

pre-tax better off than we were a few years ago because of it there's nothing that i know about that product or its distribution system its finances

or anything that really hundreds of thousands or millions of people aren't capable of that they don't already know they just just don't do anything about it

and similarly if you get into some complicated business you can get a report that's a thousand pages thick and you got phds working on it but it doesn't mean anything

you know what you've got is a report but you don't it you won't understand that business uh what it's going to look like in 10 or 15 years the big thing to do is avoid being wrong

that uh there's some things that are so intrinsically dangerous another of my heroes is mark twain who looked at the promoters of his day and

he he said a mine is a hole in the ground owned by a liar and that's the way i've come to look at

projections i mean basically i can remember one and i were offered two million dollars worth of projections once

in the course of buying a business and the book was this thick and for nothing and and we were given it for nothing and it wouldn't open it

you know we'd almost pay 2 million not to look at it it's ridiculous i i i do not understand why any buyer of a business looks at a bunch of

projections put together by a seller or or his agent or his agent i mean it you can almost say that it's it's uh

it's naive to think that that has any utility whatsoever we just are not interested if we don't have some idea ourselves of what we think the future is to sit there

and listen to some other guy who's trying to sell us the business or get a commission on it tell us what the future is going to be it it like i say it's very naive yeah and five years out

yeah we we had a line in the report one time don't ask the barber whether you need a haircut and uh it's quite applicable to projections of

by sellers of businesses zone three mr buffett uh greg ulrich from washington d.c

washington d.c uh in the last year united airlines and northwest have resolved some of their financial

problems by moving ownership over to the employees with us airs current positions uh problems

what do you see as occurring with u.s

air and do you see any uh movement toward employee ownership and how will that affect berkshire's interest

in the company well usair has a cost structure which is non-viable uh in today's airline business now that

in an important way involves its labor costs but it involves other things too but it certainly involves its labor costs and they've they've stated this publicly and

uh i think and they have they have they are talking uh with their unions about it they're

talking with other people about other parts of their cost structure and i think you'll just see that what unfolds in the next relatively few months because there's

any question that the cost structure is out of line i think the cost structure could be brought into line but whether it will be brought into line or not is another

as another question and you know the looking backwards the answer is not to to get into businesses that need to

solve problems like that it's too but that was that was a mistake i made and i think in seth schofield

you've got a manager who understands that business extremely well who probably is as in my view anyway is as

well regarded and trusted by people who are going to have to make changes as anyone could be in that position but that may not be enough i mean

that there's enormous tensions when you need to take hundreds and hundreds of millions of dollars out of the cost structure of any business

and when you need cooperative action all by various groups each one of which feels that maybe they're having to give a little more than some other group

and understandably feels that way you know that is that is an enormously tough negotiating job i think seth is as well equipped for that as anyone but i would not want to i you

know i cannot predict the the outcome charlie well if if i were a union leader i would give seth whatever he wants because he's not the

kind of a fellow who would ask for more than he needs and uh it's perfectly obvious that's the correct decision on the labor side but

whether the obvious will be done or not is in the lab of the gods that's a lot of people with a lot of different motivations and i mean those are really tough tough questions i mean we charlie and i have been involved with

that sort of thing a few times and frequently it works out but it it's it's not it's not preordained zone four my name is sheldon zuzuk from chicago

illinois i have two questions the first one is concerning mr munger we know what mr buffett's retirement plans ours are i was wondering what yours your

plans for the future concerning berkshire i've always preferred the system of retirement where you can't quite tell from

observing from the outside whether the man is working or retired he does it well too

you know a problem in many businesses particularly the more bureaucratic ones is that your employees retire but they don't tell you and i i think i can speak for charlie on

this char charlie and i are not in any hurry to retire he's trying to outlast me actually thank you my second question is i was

just curious why you sold a portion of cap cities we thought that we thought it was a good idea for cap cities to have a tender offer

they had cash that we thought that they could not use in any they were not likely to be able to use in a better way than repurchasing their own shares because they they do have

some very good businesses they and we felt that a tender offer would would uh would not be successful in terms of attracting a number of shares

unless berkshire were tendering we felt the price was reasonable to tender at uh it turned out that the business was getting stronger during that period and various things were happening in media

so there were only 100 000 shares or so tendered outside of our million that isn't necessarily what we thought was going to happen going in but that is what happened it's acceptable to us but uh but that doesn't

mean that it was the desired outcome we would not have tendered all of our shares or anything of the sort we want to remain a substantial shareholder of of of cap cities we've always most of

the time we've favored cap city's buying in its stock and it's bought in a fair amount of stock since the abc merger took place in 19 started in 1986.

zone five good morning my name is matt volk i'm from omaha last year's meeting you made reference to structured settlements i was wondering how is that business progressing for you

the question is about the structured settlement business which is a business in which berkshire guarantees [Music]

in effect an annuity to some claimant of another usually of another insurance company who suffered an injury and instead of getting a lump sum now

wants to get a stream of payments over many years in the future sometimes going out 75 years we have uh set up a life company

to do that business we formerly did it all through our property casualty companies and we have done some business but it is it's not been a big business yet

uh and it may never be a big business it's a perfectly satisfactory business but it's not an important item at present in the analysis of berkshire's value are you getting having a problem with

sound out there on this or not just no zone six my name is david samra i'm from san

francisco california and in your inner report i noticed you mentioned wrigley as being a company that has worldwide dominance somewhat like coca-cola and gillette and

was curious to know if you had looked at the company in any detail and if so whether or not if you decided not to invest what were the reasons why

well we uh we wouldn't want to comment on on on a company like that because we might or might not be buying it we might or might not be selling it and we might or might not buy or sell it in the future

and since it falls under that narrow definition of things that we don't talk about i i you know it's a good illustration of a company that has

a high market share worldwide but but you can understand the wrigley company just as well as i can i have no insights into into the wrigley company that you wouldn't have and and

and i don't i wouldn't want to go beyond that in in and give you our evaluation of the company i hate to disappoint you on those but on specific securities we

uh we are not too forthcoming sometimes charlie

i'm good at not being forthcoming zone seven mr buffett kathleen ambrose from omaha i have a question regarding global

diversification just in general what do you look for in a company and if so as far as europe or latin america if you'd like to be specific yeah the question is about about global

diversification all we want to be in is businesses that we understand run by people that we like and it priced attractively

compared to the future prospects so there is no specific desire to either be in the rest europe or the rest of the world

or far east or to avoid it it's simply a factor that that it's not it's not a big factor there may be more chances for growth in some

countries we 80 percent of coca-cola's earnings uh roughly will come from outside the united states

uh 80 percent of guinness earnings will come from outside the united states but they're domiciled outside the united states whereas coca-cola is domiciled here

certainly in many cases uh there are markets outside the united states that have way better prospects for growth than uh than the u.s market would have

but they probably have some other risks to them that that this market may not have uh but we you know we we like the international prospects obviously a company like coke we like the international prospects of a company

like gillette joe that earned 70 percent of its money outside this country so if you look on a look through basis coke uh we might this year get something

like 150 million dollars of earnings uh indirectly for berkshire's interest from the rest of the world just through coca-cola alone uh but we don't make any specific we

don't think in terms of i like this region so i want to be there or something of a sort that uh it it's uh it's it's something that's specific to the companies we're looking

at and then we'll try to evaluate that uh coke is expanding in china well at the you know that i think i forget what they showed last year maybe 38 growth or something like that in cases

uh maybe uh it's uh it's nice to have markets like that that that are really relatively untapped actually

gillette is expanding in in in china in a big way and the chinese don't shave as often uh and then more of them are what they call dry shavers and wet shavers they're

which is electric shavers but but you know maybe we could stick something into coke that would come maybe a little synergy at

berkshire finally who knows zone one good morning i'm marshall patton from bandera texas

and uh back to the insurance losses what is the comparison between natural disasters and such as the earthquake and so on and the la riots

well i'm not sure what the connection you know they obviously can both lead to two super cats that we insure against because if there is enough insured

damage it's likely to trigger uh payment under some of our policies it would take it would take some really big uh

riot damage to to get to our levels because normally we don't kick in now until a

an event gets up to at least no 5 billion or so of insured damage under a very large majority of our policies

something like a quake causes a a fair amount of damage that is not insured because the extent that it's that it's highways and things of that sort public uh buildings a lot of that is not

insured but you get interesting questions on this you're the usually we ensure an event but what's an event uh if you go back to

the riots that occurred after martin luther king was shot he had riots in dozens of cities is that one event or is

that is that a multiple number of events i mean they're distorted by different people and uh but maybe maybe a rising from a common cause some of those things aren't actually very well defined even after

hundreds of years of of insurance law and and custom experience of that and but i would say that that rioting is very very unlikely to

get to a level that triggers our policy the big the big risks we face are quake and hurricanes and hurricanes are are more significant risk than than

quake they call them typhoons in the in the pacific ocean but uh floods tremendous damage from floods last year but but basically there's not a lot of

private flood insurance bought so the insured losses do not get to not get large just watch the weather channel

zone two diane west from corona del mar california i know mr buffett that you've said that you don't read what other people say about the market

or the economy but do either you or charlie have an opinion about how you think things are going to go are you bullish or bearish you may have trouble believing this but

i i charlie and i never have an opinion about the market because uh it wouldn't be any good and it might interfere with the opinions we have that are good at uh

if we're right about a business if we think a business is attractive it would be very foolish for us to not take action on that because we thought something about what the market

was going to do or or or anything of that sort because we just don't know and and and to give up something that you do know and that is profitable

for something that you don't know and won't know because of that it just doesn't it doesn't make any sense to us and it doesn't really make any difference to us i mean i i bought

my first stock i think in probably april of 1942 when i was 11.

and uh since then i mean actually world war ii didn't look so good at that time i mean the prospects they really didn't i mean you know we were not doing well on the pacific and i'm not sure i calculated that into my

purchase of my three shares but they uh i mean just think of all the things that have happened since then you know atomic weapons and

major wars and presidents resigning and and all kinds of things massive inflation at certain times to to give up what you're doing well

to because of guesses about what's going to happen in some macro way just doesn't make any sense to us the best thing that can happen from berkshire's standpoint we don't wish

this on anybody but is it an overtime is to have markets that go down a tremendous amount we are going to be buyers of things over time if you're going to be buyers of groceries over time you like grocery

prices to go down if you're going to be buying cars over time you like car prices to go down we buy businesses we buy pieces of businesses stocks and we're going to be much better off

if we can buy those things at an attractive price than if we can't so we don't have any fear at all i mean what we fear is is a is an irrational bull market

that's sustained for some long period of time you as shareholders of berkshire unless you own your shares on borrowed money or are going to sell them in a very short period of time are better off

if if stocks get cheaper because it means that we can be doing more intelligent things on your behalf than it would be the case otherwise so i

but we but we have no idea what what and we wouldn't care what anybody thought about it i mean it most of all ourselves charlie no i think the

if you're agnostic about those macro factors and therefore devote all your time to thinking about the individual businesses

and the individual opportunities it's just it's a way more efficient way to behave at least with our particular talents and lacks thereof if you write about the businesses you'll

end up doing fine we don't we don't know and we don't think about when something will happen we think about what will happen it's it's fairly it's not so difficult to figure out what will happen

it's impossible in our view to figure out when it will happen so we we we focus on what will happen this company in 1890 or thereabouts the whole company

sold for two thousand dollars it's got a market value now of about 50 odd billion somebody could have said to the fellow was buying this in 1890

you know you're going to you'll have a couple of great world wars and you know you'll have that you'll have the panic of 1907 all these things will happen

wouldn't it be a better idea to wait we can't afford that mistake basically yeah zone three mr buffett mr munger uh

last year i'm tim medley from jackson mississippi last year the question was asked about your preference for purchasing entire businesses versus parts of public companies uh you

mentioned you prefer to buy private businesses uh because of the tax advantages and your attraction to the people in those businesses are you finding today that there are

better purchases within the private market versus uh in the public securities markets well i would answer that no we

we very seldom find something to buy on a negotiated basis for an entire business we have certain size requirements big limiting factors has to be something

we can understand i mean that eliminates 95 percent of the businesses and and and we get we got we don't pay attention to them we get lots of proposals for things that

are just totally outside the boundaries of what we've already said we're interested in we prefer to buy entire businesses or 80 percent or greater interest in

businesses partly for the tax reasons you mentioned and frankly we we like it better we just it's the kind of business we would like to build if we had our absolute brothers on

it counter to that is we can usually get more for our money in in wonderful businesses in terms of buying little pieces of them in the market because the market is far more inefficient in pricing

businesses than is it is the negotiated market you're not going to buy any bargains and i mean you shouldn't you shouldn't even approach the idea of

of buying a bargain and a negotiated purchase you want to buy it from people are going to run it for you they want to buy it from people who are intelligent enough to price their business properly and they are i mean that's the way

things are the market does not do that the market in the stock market you get a chance to buy businesses at foolish prices and that is why we end up with a lot of money in marketable securities

if we absolutely had our choice we would own a a group of we would own three times the number of businesses we own outright we're unlikely to get that opportunity

over time but periodically we'll get the chance to find something that that fits our tests and in between we will when the market officers the right prices we will buy more

either businesses we already own pieces of or we'll buy one or two new ones something's usually going on there are tax advantages to owning all of them but

that's more than offset by the fact that uh you'll never get a chance to buy the co you never get a chance to buy the whole coca-cola company or the whole chill they're coming businesses like that the sensational businesses are just not available

sometimes you get a chance to make a sensible purchase in the market of such businesses charlie well i think that's exactly right and if you stop to think about it if a

hundred percent of a business is for sale you've got the average corporate buyer is being run by people who are

who have the mindset of of people buying with somebody else's money and we have the mindset of people buying with our own money and there's also a class of buyers for

100 percent of businesses who are basically able and shrewd financial promoters

i'm talking about the leveraged buyout funds and so on and those people tend to have the upside but not the downside in the private arrangements they've made

with their investors and naturally they tend to be somewhat optimistic and so we have formidable competition

when we try and buy a hundred percent of businesses most managers are better off in terms of their personal equation if they're running something larger now they're also better off if they're

running something larger and more profitable but the first condition alone will usually leave them better off we're only better off if we're running something that's

more profitable we also like it if it's more larger if it's larger too but but our equation actually our personal equation is actually different than than a great many managers in that respect uh

even if that didn't operate i think most managers psychically would enjoy running running something larger and if you can pay for it with other people's money i mean that gets pretty attractive

you know huh how much would would let's just say you're a baseball fan well how much would you pay to own whatever your hometown the yankees uh you might pay more if you're writing a check on someone else's bank account

than if you're writing it on your own but knowing to happen and and in corporate america animal spirits are there and those are

our competitors on buying entire businesses in terms of buying securities uh most managers don't even think about it it's very interesting to me because they'll say that they'll have somebody

else manage their money in terms of a portfolio of securities well all that is is a portfolio businesses and i'll say well why don't you pick out your own portfolio let's say that's much too difficult and then some guy will come along with

some business that they never heard of a week before and give him some figures and a few projections and the guy thinks he knows enough to buy that business that very puzzling to me sometimes zone four

could you hold a little closer to you i can't hear too well it's hard to hear is the mic on there it's on ah okay i can hear that fine let's try it one more time

dan rader san mateo california this is a question for mr munger in your most recent letter to shareholders in westco's annual report you calculated

the intrinsic value of westco at about 100 per share and compared that to the then current market price of westco of about

130 dollars per share in the same letter you stated that it was unclear whether then current market prices

berkshire or westco presented a better value to prospective purchasers in light of that would you compare the intrinsic value of berkshire to its

current market price well the answer to that is uh no

berkshire has never uh calculated intrinsic value per share and reported it to the shareholders and westco never did before

this year we changed our mind at westco because we really thought some of the buyers had gone a little crazy and a lot of things were being said to

prospective shareholders that in our opinion were unwise and we don't really like attracting even though we've

had nothing to do with it we don't like attracting people in at high prices that may not be wise so we we departed from our long president and i

and we did in the wesco report make an estimate of intrinsic value per per share but we're not changing the general policy

that was just a one-time quirk well also i think it's true that the the west coast intrinsic value per share can be

estimated by anyone uh within a fairly close limits it just isn't that complicated because there aren't a number of businesses there that that

that have values different than carrying values or where they are they're all footnoted in terms of numbers so it'd be almost impossible to come up with numbers that are

significantly different than the number charlie put in there berkshire has has has assets that number one of which would be the

insurance business that's clear have very significant excess values but but some one person might estimate those that maybe three times what somebody else would estimate them at

that's less true of our other businesses but it's it's still true in in a way so that berkshire's range would be

somewhat greater and it's charlie we basically we don't want to disappoint people we also don't want to disappoint ourselves

but we we have our own yardsticks for what we think is doable we try to convey that as well as we can to the people who are partners in the business

and i think that we saw some things being published about about westco that simply would what might have led to probably did lead to some some

expectations that simply weren't consonant with our our own personal expectations and that that's that leaves us uncomfortable

zone five uh hello my name is charles pyle from ann arbor michigan i'd like to ask you to expound on your view of risk

in in the financial world and i asked that against the background of what appear to be a number of inconsistencies between your view of risk and the conventional view of risk

i mentioned that in a recent article you pointed out an inconsistency in the use of beta as a measure of risk which is a common standard and i mentioned that derivatives are

dangerous and yet you feel comfortable playing in derivatives through solomon brothers and betting on hurricanes is dangerous and yet you feel comfortable

playing with hurricanes through insurance companies so it appears that you have some view of risk that's inconsistent with what would appear on the face of it to be the conventional

view of risk well we do define risk of the possibility of harm or injury and and in that respect

we think it's it's it's it's inextricably wound up in in in your time horizon for for holding an asset i mean if

if your risk is that you're going if you intend to buy xyz corporation at 11 30 this morning and sell it out before the close today

i mean that is in our view that is a very risky transaction because we think 50 percent of the time you're going to suffer some harm or injury if you have a time horizon on a business

we think the risk of buying something like coca-cola at the price we bought it at a few years ago is essentially is so close to nil in terms of our prospective holding

period but if you ask me the risk of buying coca-cola this morning and you're gonna sell it tomorrow morning i say that is a that's a very risky transaction now

as i pointed out the annual report it became very fashionable uh in the academic world and then that spilled over into the financial markets to define risk

in terms of volatility of which beta became a measure uh but that measure that that isn't that is no measure of risk does the risk in terms of our her in terms of

our super cat business is not that we lose money in any given year we know we're going to lose money in some given day that is for certain and and and we're extremely likely to lose money

in a given year our time horizon of writing that business you know would be at least a decade and we think the probability of losing money over a decade is low so we feel that in terms

of our horizon of investment that that is not a risky business and it's a whole lot less risky than writing something that's much more

predictable interesting thing is that using conventional measures of risk something whose return

varies from year to year between plus 20 and plus 80 percent is riskier as defined and something whose return is 5 a year every year we just think the financial world has

gone haywire in terms of measures of risk we we look at what we do we are perfectly willing to lose money on a given transaction arbitrage being

an example any given insurance policy being another example we are perfectly willing to lose money on any given transaction we are not willing to enter into transactions in which we think the

probability of doing a number of mutually independent events of us but of a similar type has an expectancy of loss and and we hope that we are

entering into our transactions where our calculations of those probabilities have validity uh and to do so we try to narrow it down there are a whole bunch of things we just won't do because we don't think we

can we can write the equation on them uh but we basically charlie and i by nature are are pretty risk-averse but we are very willing to enter into

transactions we if if we knew it was an honest coin and someone wanted to uh give us seven to five or something of the sort on one flip how much of berkshire's net

worth would we put on that flip well we wouldn't it would sound like a big number to you it would not be a huge percentage of the net worth but it would be it would be a significant number we will do things

with probabilities favor us charlie yeah we uh would say we try and think like fairmont and pascal as if they'd never heard of modern

finance theory i really think that a lot of modern finance theory can only be described as disgusting

zone sex good morning i'm paul miller from kansas city missouri i've got two questions uh first not too long ago i believe it

was fortune magazine that ran an article regarding personal tax rates and at the risk of misquoting you my recollection is that you favored higher personal

rates rates even higher than those proposed by those in washington the second question is i've heard berkshire hathaway referred to as nothing more than a high-priced

rich man's mutual fund uh would you care to comment on that also well on tax rates i i if you ask me what i personally favor i personally favor a steeply progressive

consumption tax that has a little more a little more attention being paid to it now although the steeply progressive might might be modified by most of the

advocates of the consumption tax maybe to mildly progressive or something of the sort there's a nun dimension uh proposal along that line and there are other people that are talking about it

more it may be examined by the new uh kerry danforth commission which we've got a member uh in the audience uh but i i believe in

one way or another i believe in progressive taxes and so i am not shocked in terms of my own situation and i don't think charlie is particularly about having a progressive

income tax although like i say i think society would run better over time if it were a progressive consumption tax instead do you want to comment on the tax situation

well uh i think there is a point to which income taxes become quite counterproductive if the progression is too high but

i don't think we're there yet we think at least i think i'm extraordinarily well treated by the society i think most people with high incomes are i think if you transported

most of them to bangladesh or peru or something they would find out how much of it is them and how much as a society and and i think there's nothing better than a

market system in terms of motivating people and in terms of producing the goods and services that the society wants but i do think it gets a little out of whack

uh in terms of what uh the productivity may be of an outstanding teacher compared to somebody who is good at figuring out the intrinsic value of businesses i i don't have a better system

on the on the uh on the income side but i think society should figure out some way to to make those who are particularly

blessed in a sense to have talents that get paid off enormously in a market system to to give back a fair amount of that to the society that produces that

the question about berkshire being a uh i think it was a rich man mutual fund or something we don't look at it that way at all we look at it as a

collection of businesses and ideally we would own all of those businesses uh so it's it's to the extent that a mutual fund owns stock in a lot of companies and

diversifies among businesses and we try to own a lot of businesses ourselves i guess that's true but i guess you could say the same thing of general electric or an operation like that we

we are more prone to buy pieces of businesses than the typical manager but we are trying to do in a sense the same thing jack welch is trying to do with general electric which

is trying to own a number of first-class businesses he gets to put the imprint of his own management which i think is very good on those businesses

and and we are more hands-off both in the businesses we own outright and in the ones we own pieces of but we're we're going at it the same way and and the general electric has been very

successful uh under jack's leadership and doing it his way we think in terms of what we bring to the game and the problems of putting money to

work all the time that that our own system is you know will work best for us

charlie yeah i've got

nothing to add to that zone one hello i'm christopher davis from new york city i'm interested in in that many

of the holdings of berkshire are in industries that are perceived as interest rate sensitive industries including wells fargo solomon freddie mac even geico

and yet you you have an admitted sort of ambivalence towards interest rates or changes in interest rates and it therefore seems that you don't feel that those changes affect

the fundamental attractiveness of those businesses i thought maybe you could share your thoughts on what you see in these businesses that the the investment community as a

whole is ignoring well the value of every business the value of a farm the value of an apartment house the value of any economic asset is 100 sensitive to interest rates

because all you are doing in investing is transferring some money to somebody now in exchange for what you expect a stream of money to be

to come in over a period of time and the higher interest rates are the present value is going to be so every business by its nature whether it's coca-cola or

gillette or wells fargo is in its intrinsic valuation is is is uh 100 sensitive to interest rates now the

question as to whether a wells fargo or a freddie mac or whatever it may be whether their business gets better or worse uh internally as opposed to the valuation process

because of higher interest rates that that that is not easy to figure i mean geico if they write their insurance business at the same at the same underwriting

ratio in other words they have the same loss and expensive experience relative to premiums they benefit by higher interest rates obviously over time because they're a float business and the float is worth more

uh to them now externally getting back to the valuation part the present value of those earnings also becomes less than but the present value of coach earnings becomes less

uh in a higher interest rate environment wells fargo it's uh whether they earn more or less money under any given interest rate scenario is hard to figure

there may be one short-term effect and there may be another long-term effect so i do not have to have a view on interest rates and i don't have a

view on interest rates to make a decision as to an insurance business or a mortgage guarantor business or a banking business or something of

sort relative to making a judgment about coke or gillette charlie got nothing to add zone two hello i'm benjamin baron from new york

um could you speak about your insurance business a little bit and especially the retroactive policies you've been writing we speak about the the did you say the

reinsurance business well i heard the retroactive part but the first part reinsurance and the retroactive and also the market in uh bermuda and how you see it

it's one of your potential markets i think the retroactive market is what's called retroactive insurance has been pretty well uh eliminated by developments in in in

accounting so i would not expect this

to really have any volume in retroactive type policies now when we write workers comp with a with a with a policyholder dividend in

effect that's a that's a retroactive policy but that's that's a relative that's a that's a small part of of berkshire's business did i answer what you were

driving out there pardon me did you get comment on the development of uh the insurance business in bermuda oh well bermuda

bermuda is simply a you know a new competitor they're not so new i mean there have been companies in bermuda before but but in the last 15 months 18 months maybe there's been

four billion plus raised and because for tax reasons uh maybe other reasons as well but certainly for tax reasons uh that capacity has been concentrated

in bermuda based bermuda domiciled reinsurers but essentially there's no great difference between that type of competition and other reinsurers

competition except for the fact that that capacity is new and the money's just been raised and so there may be some greater pressure on the managers of those businesses to go out and

and write business promptly than on somebody that's been around for 50 years but it it's it's no plus for us anytime new capacity

enters any business that that we're in and and that certainly certainly goes for the reinsurance business reinsurance business by its nature will be a business

in which uh some very stupid things are done uh and mass periodically i mean it that you can be doing dumb things and not

know it in reinsurance uh and and then all of a sudden wake up and find out the you know the money is gone and uh it's the it's what people have found out

and i use that line in the report a year ago it's what people have found out that we're speculating on on bonds with with low margins recently that you know you don't find out who's been

swimming naked until the tide goes out and essentially that's what happens in reinsurance you don't you really don't find out who's been swimming naked till

the wind blows something

zone three and my question is right now we are reading about

various analysts and how you should in their individual opinion adjust your more cash more stocks more bonds because of how does

berkshire hathaway feel about times of relative financial insecurity do you do you

arrange for more cash reserves looking forward to a time when you might be able to buy or do you go along your path i think the question do we do we get

sort of get into asset allocation by by maintaining given levels of cash depending on some kind of outlook or something of the sort we don't even we don't really think that

way at all we we if we have cash it's because we haven't found any anything intelligent to do with it that day in the way of buying into the kind of businesses we like and and when we can't

find anything for a while the cash piles up uh but that that's not that's not through choice that's that's because we're failing at what we essentially are trying to do which is to

find things to buy and we make no attempt to guess whether cash is going to be worth more three months from now or six months from now or a year

from now so it is you will never see we don't have any meetings of any kind anyway at berkshire but we would never have an asset allocation meeting we would we would

[Laughter] we would we would keep looking i mean charlie's looking i'm looking some of our managers are looking we're looking for things

to buy that need our tests and if we if we showed no cash or short-term securities at and we would love it because it would mean that we'd

we found ways to employ the money in in ways that we like i think i would have to admit that if we have a lot of money around we are

a little dumber than usual i mean it it tends to make you careless but and i would say that the best purchases are usually made when you have to sell something to raise the money to get them

because it just raises the the bar a little bit that you jump over in in the mental decisions but we have

i don't know what we'll show but um certainly well over a billion dollars of of cash around and that's not through choice that that is a uh that you can you can look

at that as an index of failure on the part of your management and and we will be happy when we can buy businesses or small pieces of businesses that

use up that money zone four gentlemen my name is richard surser from tucson arizona i understand that 40 percent of all home

mortgages have been securitized by fannie mae and freddie mac the duopoly i would at the risk of asking you for a projection since you talked about projections before

i'd be interested in understanding what you think will happen to that market share over time for this duopoly thank you yeah well the answer to that

doesn't involve much of a prediction that that market share is essentially certain to go up uh that doesn't mean that those are wonderful businesses to buy but it does but the market share is essentially certain to go up because the

the economics that those two entities possess compared to other ways

of intermediating money between investors and people who want to borrow no one else has those economics so what holds the share of freddie mac and fannie mae down is

the fact that they are only allowed to to loan roughly two hundred thousand dollars on any mortgage that's a that's a a limiting factor it's probably been a good thing for them that

it has been a limiting factor but the uh they are shut out of part of the market but the market that they are in they essentially have economics that

that other people can't touch for intermediate money intermediating money including the savings and loan business that we were in we we had a business that intermediated money went out got it from depositors and

lent it to people who want to borrow on a home freddie mac and fannie mae do it the same way they don't do exactly the same way but they perform the same function

and they did it they could do it so much more cheaply than we could do it by having branches or anything of the sort and paying paying the insurance fee we paid they're going to get the business they

should get the business and so their market share will grow charlie i think that's right you're doing great psalm 5.

good morning i'm sarah pruitt from milwaukee wisconsin and i wondered if you feel that the speed with which information is available and

disseminated today has affected your business buying decision process and do you believe that speed has caused you to miss

opportunities question about seas expanding no does the speed of information today uh affect our

decision-making process now we we i would say that uh we perform about like we were doing 30 or 40 years ago i mean we we read we read annual report it isn't this it isn't the speed of

information really doesn't make any difference to us it it's the processing and finally coming to to some judgment that actually has

some utility that is that it's it's a judgment about the price of a a business or a part of a business of security versus what it's essentially worth and

and none of that uh involves anything to do really with with uh with quick information it involves getting good information

but usually that that it's not we're not looking for needles and haystacks or anything of the sort you know we like haystacks not needles basically and and and and and and we wanted to shout

at us and i would say that uh that well virtually everything we've done has been

reading public reports and and and then maybe asking questions around ascertain trade positions or product

strengths or something of that sort uh but we never have to we can make decisions very fast and when we get called on a business or or we can we can make up our mind whether we're interested in two or three

minutes i mean that that takes no time we may have to do a little checking on a few things subsequently but we don't need to get uh

i can't think of anything where we where we really need lots of price data things like that extremely fast to make any any decisions we've got good management information systems in our operating businesses but

that's that's just another you know that's a question of keeping inventories where they should be and all of that sort of thing i don't think the investor i think you could be in some place where the males

were delayed three weeks and and the quotations were delayed three weeks and i think you could do just fine in investing

zone six james pan new york city uh i have a two-parter question one do you think the stock price of berkshire hathaway is trading within 15 percent of its

intrinsic value currently and two if you think workshop hathaway is undervalued with the amount of cash you have on your balance sheet would you consider a buyback

the answer about a buyback is that that we generally have felt that market conditions that would make berkshire attractively priced probably going to make

other things even more attractively priced because we think our shareholders are more rational than the shareholders of many companies it's it's more likely that we will find some wonderful business at a silly price

then we will find berkshire at a silly price as we go along so that that tends to eliminate repurchases uh but it doesn't rule them out it just

but it explains why the circumstances will not arise very often where repurchases uh would would make uh good sense in terms of giving you uh

a number on intrinsic value i i don't want to spoil your fun i mean you really should work that one out for yourself charlie is the expert on the intrinsic do you have any comment

form charlie well your attitude on that subject reminds me of a famous headmaster who used to address the graduating class every year and he'd say you know he says five percent of you people are going to end

up criminals and he says i know exactly who you are and he said but i'm not going to tell you because it would deprive excitement

companies that constantly told their shareholders what the intrinsic value was were the real estate holding companies in corporate form

and i must say that the amount of and misbehavior that crept into that process was disgusting we would be dis associating with a bad group if we were to change our ways

bill zuckendorff senior i think was probably the first one to do that with web and knapp back in the uh late 50s i've got i still have those annual reports and he would announce you know like the eight decimal

places what the what the intrinsic value of webinap was and he did it right till the day they filed for chapter eleven

i remember that well because somebody said that he fell into bankruptcy and somebody else said how can you fall off

a pancake beware of people that give you a lot of numbers about their businesses i mean in terms of uh in terms of projections or

or or valuations or that sort of thing we try to give you all the numbers that we would use ourselves in making our own calculations of value we we really

if if you read the berkshire reports you essentially you have all the information that that that charlie and i would use in making a

decision about about the security uh and uh if there's anything really lacking in that respect you know we we would actually we truly appreciate

hearing from you because we want to have that kind of information in the report but then we want you to make the calculation but we've stuck i mean that material for example on the float in the insurance business we consider that quite relevant obviously

because we use up almost a page uh printing it uh pretty serious stuff at berkshire the uh but that that that is relevant i mean

your interpretation may be different than the minor charlie's but that that uh those are important numbers and we could give you a lot of bologna about satisfied policyholders you know in

lincoln nebraska i wouldn't tell you a thing about what the what the company's worth and have pictures of them and happy you know receiving the check from the agent all of that but

we're not going to do that zone one mike macy from indianapolis i have really enjoyed reading your annual letters and your annual report and i've gone back and read all the older ones too

they're terrific i have also enjoyed reading the two books by peter lynch and i see a lot of commonalities between the two of you the way you think your philosophy etc i'd certainly

appreciate it if you'd make a few comments on what you think of peter lynch the things he says in his two books and the advice that he gives to investors well i know peter i don't know him well

but i but we played bridget together in omaha as a matter of fact and i i like him personally and obviously he has an outstanding record and he has written those two books which have been best sellers

about his investment philosophy i don't really have anything i'm not going to embroider on his we there is a there there's there's certainly a fair amount of overlap there's some difference peter obviously likes to diversify a lot more

than that i mean he he owns more stocks than the names of companies i can remember i mean but but that's peter and i you know i uh i've said in in investing in the past that there's

more than one way to get to heaven and that there there isn't a true religion in this but there's some very useful religions and uh peter's got one and i think we've got one that's useful too

and there is a lot of overlap but i would not do as well if i tried to do it the way peter does it he probably wouldn't do as well if he tried to do it exactly the way i do it i like him personally very much he's a

high grade guy zone 2.

mr buffett mr munger my name is dave lancas i'm a senior editor at business insurance magazine a two-part question for you can you uh explain a little bit regarding your primary insurance

operations uh what drove up written premiums by more than 50 percent last year and if you expect that to continue this year and then regarding your earlier comments

on the stupid things reinsurers can do in moss can you explain what potential pitfalls that the new cat facilities in bermuda will have

to avoid that you feel berkshire hathaway won't fall into well the first question about our primary insurance uh the figures you'll find it way in the back

someplace but they're they're a little distorted because we bought central states indemnity uh uh late in the year 92 so that there's a

lot more premium volume in there for central states in 93 than there was in 92.

our basic national indemnities basic insurance which is auto and commercial auto and general liability premium volume was very fairly flat the home state operation

fairly flat cyprus up somewhat but those numbers were not anything like the changes so our business last year pro forma for including central states

indemnity for all of 92 would not have shown a dramatic change there really hasn't been much happen in our primary business except that it's been run

it's done very well but it is not growing or exploding and that's true this year as well as last year it's a good business and it could

in certain kinds of markets very substantially but it is not growing in this market and it did not grow last year although its underwriting was very good

uh in the reinsurance business i think essentially the difference in in our reinsurance business from many others uh you know doesn't include them all in

a place like bermuda is that is is essentially the difference that may exist in in our operations and securities versus other people

we will we will offer reinsurance at any time in very large quantities at prices we think make sense but we won't do business if if we don't

think it makes sense just like we will buy securities to the extent of the cash we have available if if they make sense but we have no interest in being in the stock market per se just to be in it we want to we want to

own securities that make sense to us i think for most managements if the only thing they're in is the reinsurance business they may like it better when the when

when prices make sense but they will i think they will be prone to do quite a bit of business when prices don't make sense as well because there's no alternative except to give the money back to the owners and that is not something that

most managements you know do somersaults over so i think i think we are in a favored position essentially being having the flexibility of of of

capital allocation that lets us uh take the lack of business with a certain equanimity that that most managements probably can't

because of their their sole focus uh on the business um rates will get silly in all in all likelihood after a

period when nothing much happens when you've had a couple of years of good experience we priced what we think is exposure we don't price to experience i mean the fact that there was no big hurricane last year i forget the name of the one that was

coming in at north carolina and it veered out essentially but to us it has nothing to do with the rates next year whether that hurricane actually came in in a big way or veered

out into the atlantic again i mean we are pricing to exposure and everyone says that but the market

tends to price and respond to experience and generally to recent experience that's why all the all the uh the retrocessional operations in london you know

in the spiral went busted because they they priced in our view they priced to experience rather than to exposure it's very hard not to do that to be there year after year with

with business coming by and investors expecting things of you and not do that but we will never knowingly do that we may get influenced subconsciously in some way to do that but we will not do

that any more than we will accept stock market norms as being the proper way for us to invest money in equities basically and when you lay out money or

accept insurance risks you really have to think for yourself nobody you cannot let the market

think for you charlie yeah i i think berkshire is it's basically a very old-fashioned kind of a place

and it tries to exert discipline to stay old-fashioned and i don't mean old-fashioned stupid i mean you know the eternal variety so to speak

basic mathematics you know basic horse sense basic fear basic discriminations regarding human

nature all very old-fashioned and if you just do that with a certain amount of discipline i think it's likely to work out quite well stolen free

david goddessman from new york it's no wonder that this meeting draws stockholders from all over the country and despite the talk about age today i'm happy to say this meeting gets better

every year berkshire stands unique in american business as a company whose name has become synonymous with management excellence

unlike many american corporations we as stockholders don't have to worry about reorganizations large write-offs massive restructurings

overstated earnings and overpaid executives with strategic visions instead year in and year out we enjoy

the benefits of the common sense and brilliance of charlie and warren

what did you say your name was i want to add i want to add to that to say nothing of your good humor it's easy to take such consistently outstanding results for granted

but we in this room are the direct beneficiaries of their efforts by our presence here today we show our appreciation to them for their exceptional

performance but we can also demonstrate it in another way i would like to suggest we give them a rousing hand of applause for a job

well done thank you [Music] thank you that was sandy goddessman we've worked together for 30

odd years and he's finally got that down i appreciate that sandy with that we will adjourn and and anyone anyone who wants to stay around uh will will reconvene in 15 minutes and then we'll be here till about 1 15 and for

the rest of you there's buses candy etcetera world books out there thank you zone two now well i don't know where zone two is but we'll do you feel basically the same about

your investment in guinness now as when you made the investment in terms of the company well i wouldn't like to comment on on on anything that we own in terms of how we rank

rate them as desirability or anything i mean whether it's called your led or anything that we we made decisions at a given time at a given price which you can figure out by looking at

our purchases but we may be buying or selling any of those securities right as we talk and we simply don't think it's in the interest of berkshire shareholders as a group

to be talking about things that we could be buying or selling okay hi david winters from mountain lakes new jersey

just wondering um world books had a tough time lately and i'm wondering if there's things you're doing to try to improve that and also the buffalo news has been fabulous and i'm kind of wondering

what's driving the buffalo news buffalo knows you're doing what fabulously yeah well it's doing well right well i would say you gotta give credit to stan lipsey i'm not sure whether stan's here right now but uh who's been

running the news uh world book in terms of unit sales as we put in the report have fallen off significantly the last few few years it's actually surprising in a sense how well the

profits have held up and because they've done a good job and very good job in that respect and as we put in the report we don't know the answer uh precisely we are raushay

is has has taken some actions is taking some actions that that he thinks will improve the operations ralph record as a manager is absolutely at the top of the list i mean

i wrote about it in the 1992 report in 1993 ralph did even better i mean it was a fabulous i think probably may have been

110 or so million pre-tax on on on 90 some million of average equity capital or something so it's a fabulous record but encyclopedia britannic as you

probably know ran at a loss last year the the encyclopedia business has been very has been poor uh could be due to electronic

competition could be due to uh to recruiting problems for salespeople obviously can be a combination of many factors if we

we knew the answer we'd have you wouldn't be seeing those figures right now but uh but it is a it is a top item of attention for for ralph he takes anything that's not

performing as well as before very seriously and we will see what happens but i don't have a prediction on it i wish i knew the answer i don't see any variables to

to any uh in any intelligent way uh tell you or we put in the report the best we could do on that uh the profitability that

as like i say has been pretty good but obviously current trends of new sales will catch up with us at some point unless we unless we boost

unit sales i don't think our market share if you look at print encyclopedias has fallen but i can't be sure of that but i i think

that's probably true but there are an awful lot of encyclopedias going out there as part of a bundled product with computer sales

how are we going to do this is there we got three now okay i'll let you uh hand the mic to who whoever yeah you um lee again from palo alto

by omaha standards you are a relatively young man and every year you point out that berkshire size now precludes you from making the great relatively small

trades which made your reputation how much thought have you given to breaking up berkshire into smaller entities how much what how much thought have you given into breaking up berkshire into smaller entities which

will allow you to make those nice small wonderful trades that you made from the beginning it wouldn't it wouldn't do any good to breaking smaller entities because i

still own you know we'd still have 10 billion plus of of capital to be responsible for wherever it would be so the uh

we we could distribute it out to the shareholders and and let them make their own decisions obviously and anytime we thought that that we weren't going to get more than a dollar of value

per dollar retained that obviously would be the course to follow but there's no magic to creating multiple little i mean we could

we could call berkshire 2 berkshire 3 million dollars to invest and and it doesn't really solve anything charlie do you have any thoughts on that no the uh

berkshire is un incredibly decentralized in the in terms of uh power and decisions resting in the operating divisions in terms of the marketable security it's

securities it's incredibly centralized and so far we have not had any big penalty from not

being able to do the things that we did when we were young eventually we will reach the penalty yeah i think we're there's no question

we could earn higher percentage returns working with a hundred thousand dollars though than 10 billion dollars but yeah but uh but it hasn't hurt us as much as we thought it would as as

as sizes increased but um your universal opportunity shrinks but it shrinks no matter i mean you can set it up in 20 bank accounts or one bank account but you still the universe still

has to to fit the 10 billion in aggregate now how are we doing this do we have another zone over there yeah uh michael bugander new york city two

questions one last year you discussed in your annual report your investment in general dynamics and you also gave your proxy to the company

and its management this year it appears you have sold the stock this year what this year it appears that you have sold the stock in general dynamics

what has changed that you sold 20 of your stake this is country number one and i have number two probably inappropriate to be talking

about what we're buying or selling uh except to the extent that we make a public have to make a public announcement which on something like general dynamics we've

got 13g requirements if we change by more than 5 and we also have as long as we own more than 10 percent we have monthly reporting requirements under form 4.

we think the management of general dynamics has done an absolutely sensational job obviously also it isn't the kind of a business basically that we have a 20-year view on or something of the sort

so it's the the shareholders of general dynamics have been extraordinarily well served by by the management of that company and and we've

we we're thankful because we prospered accordingly but should i take from this comment that you have changed your view about the business itself part should i take from your comment

that you have changed your view about the business itself no no i think you can take my comments are saying just what i said okay question number two could you i think we

want to we want to give people a chance around the room that and then if when when in the zone you're in when a second question comes along we'll be fine but we want we want to get as many people in this hour as we can because

this is the hardcore here zone one it appeared to me that in 1993 the variation between the stock price for the high and the low

was much greater in years than years in the past would you mind commenting on that well there was more volatility in the price of berkshire last year and as i put in the annual report the stock over performed the business last

year now over any 10 or 20 or 30 year history every year the stock is going to perform a little differently at least in the business i mean it

it may slightly underperform or slightly overperform we would prefer that those variations be as as as small

as possible uh but there was more variability last year and then historically has been the case although we've had one or two other we had a few years like that

we our best way to handle that is to give all the information we can to shareholders and prospective shareholders and follow policies that we think will

induce the investment oriented with long time horizons to join us and not to encourage other people but occasionally you know we can't guarantee that result one of the things was

interesting to me i don't know whether it was three months ago or when but i i happened to be talking to the specialist terrific specialist jimmy mcguire he had to leave but he was here earlier

in the in the session and i think at the time the stock was around 16 000 or something like that and he had

some rather significant stop loss orders on the books at 15 500 or thereabouts involving some hundreds of shares to me it is a signal that you know we

have some people that are in my view are not really the kind of owners that we would like to attract because why somebody wants to put an order to sell something for fifteen thousand five hundred that they don't wanna sell at sixteen

thousand is beyond me but and the the idea of people using stop loss orders with berkshire obviously tells me that we've got some people in that that

are using it as a trading vehicle of some sort or have some totally non-investment type calculations in their mind i don't think we have very many of them

but obviously if you have enough people like that you will have a more volatile stock than if you have a whole bunch of people who look at it as something that they're going to hold for the rest of their life

and the stock did go down at that time and hit 15 500 and there was that i think it was close to 300 shares which is four and a half million dollars worth of stock

and somebody made a decision apparently that they or some small number of people made a decision that they wanted to sell something at fifteen thousand five hundred that they could have sold for sixteen thousand

the lower it went the better they liked it apparently i mean the better they like the sale which you know has always struck me as like having a house that that you like and you're living in and you know it's worth a hundred thousand dollars and you tell your broker you

know if anybody ever comes along and offers 90 you want to sell it i mean it doesn't make any sense but it has i would say that there's been some small i think relatively small tendency for

people to get a relatively few people but to get more interested in the price of the stock uh than in in in terms and thinking of it in terms of whether it's going to go

up or down in the next six months than might formerly been in the case i think we're unusually well blessed in that respect in that and that we've got people who basically want owned for a very long time but to

the extent that you get people who were owning it because they think the stock market's going to go up or something of that sort is going to happen that is that is not good news from our standpoint and it will increase the

volatility in it we will do nothing to encourage that zone two yes mr buffett steve lang from toronto

um i was just curious about when you were saying that one of the best things that could happen to uh shareholders is the the market goes down and you're able to buy good businesses at foolish prices

and then a little later on you were saying that uh that we could judge your ability to do what it is that you feel you should be doing by how much cash you have in the account at any given

point in time and by what by the amount of cash that you have in the account in other words i guess what you feel you're supposed to be doing is investing the cash in in good businesses so i'm just wondering about that kind of dichotomy where does

the cash come from if the market does go down if you've been successful in your first ability would that be from the cash flow on the operations of the business from the float is that so so really the success of the

company then is is to some degree the fact that you're able to dollar cost average into the market on an ongoing basis is that right well it isn't precise but but a we do generate cash

in in considerable amounts um so that we will not husband cash simply because we think the market's going to go down or to buy something

but obviously as cash comes in we're always looking for things to do and the cheaper that the the market is generally the more likely it is that we will find something that we understand that we like and that the price will be

attractive and that we will do but it isn't like we could change around the whole portfolio then because that doesn't gain us anything i mean we'd be selling things at lower prices to buy things at lower prices but to the extent that we have net cash

coming in which we do and which we will have um on balance we are you know we are adding to our businesses at more attractive prices than would be the other case

and it's no prediction on any given company i mean whether it's gillette or coke or it might be something we already own it might be something

we don't own but we welcome the chance to to to buy more shares we're not wishing it on anybody but if you asked us next month whether berkshire

would be better off if the whole stock market were down 50 or where it is now we would be better off it was down 50 whether we had any cash on hand now or not because we would

be generating cash to buy things zone three uh byron ranch still from raleigh north carolina thanks for your hospitality this weekend well we thank you for coming too

my question concerns solomon inc and more specifically solomon brothers i know that you on the board of directors i think from 87 to the current time

very much interested in compensation then maybe on the compensation committee between 1987 and 1992

solomon's financial results dismal uh in a very lumpy way but overall quite disabled in your opinion if the

compensation had been rational during this time would solomon have shown results that would make it a quite decent business which i'm going to wonder if the

conversation if the past compensation had been more irrational decisions had been more rational 87 to the current time would solomon have done better yeah is that it

yes sir well i would yeah i would i would say that that if if the present people and the present

compensation philosophy which allows for very large payments for for for uh very large results i i think i i think the company would have done

better you know it you're going to see very big numbers paid in wall street that that's the nature of it the trick is to pay them only when you're getting very big results for the owners

i mean there's no way you're going to pay numbers that look like numbers in other industries and get great results for owners but if you pay these big numbers i think you

should be getting very good results for owners and there the old system was not uh i mean it wasn't it wasn't totally off

the mark on that but it was it was far from an ideal system in my view zone one oh boy and i have one question last year you were using coca-cola puts

as a way to increase income and conversely if they were exercised as a way of increasing your position do you still use puts

in this type on investments you wish to add to 5 million shares as i remember of coke sometime the early fall or thereby i

don't remember exactly last year and the puts i think the premium was around seven and a half million dollars and they're priced around 35.

we have not done that very often um and we're unlikely to do very much of it for one thing

there are position limits on puts which don't apply to us but they apply to the brokers for which we do them and and those position limits

were not clear before that but but we could we could probably write puts on that same amount by doing it through a bunch of different brokers it's not something we're really very

like to do i was happy to do it and and uh in that particular case we made seven and a half million dollars but uh uh we're better off probably if

if we like something old enough to write a put on it we're probably better off buying the security itself um and particularly since we can't do it in

the kind of quantities that really would make it meaningful uh to berkshire uh there are securities i would not mind writing

puts for 10 million shares or something but that probably it's probably allowable for us to do it it's not allow we probably have to do it through multiple brokers to

get the job done and on balance i don't think it's as useful a way to spend my time uh as just looking for securities to buy outright duh

charlie no [Music] i'm from west point my name is rogers uh a couple of months ago there were stories in the world herald that

berkshire hathaway had taken a large position in philip morris and ust but in your annual report

i don't see anything about that can you comment yeah i would say in the last

two years maybe i'm just approximating i've probably seen reports in either the wall street journal usa today may be picked up by the associated

press or in the herald but in in papers of some significance i've probably seen stories that we were buying maybe any one of ten companies in

aggregate over that period of time i would say a significant majority were erroneous we don't correct the erroneous ones because if we don't correct the erroneous ones

if we correct the erroneous ones and don't say anything about the correct ones correct ones too so we will never comment uh on those stories no matter how

ridiculous they are um and it's interesting because you know they keep getting printed

and frankly from our standpoint the fact that most of them are inaccurate is probably useful to us we don't do anything to encourage it but it the fact that uh people are reading that we are buying

abc or xyz when we aren't uh you know that's i i i i don't think people should be buying stocks because they're reading in the paper that we're buying something but

if they do they may get they may get cured of it at some point maybe the newspapers will even get cured of writing the stories when they don't know what you know what the facts are but uh but uh it's something we'll we live with

and we'll probably continue to live with and i would say that based on history if you read something about us buying or selling something other than through reports we filed with the sec or

regulatory bodies the chances are well over 50 percent that i can tell you based on history is correct well over 50 percent that it's wrong zone three do you expect that berkshire would

become one of the standard and poor 500 stocks or dow jones stock well i i i think it's unlikely that it becomes a dow jones stock i don't know what the

criteria are for the s p 500 but i imagine there's some reason why we don't fit i don't know whether they have questions about the number of shares

outstanding or i've never i've never checked with s p uh i wouldn't be surprised if we have the largest market capitalization of any company that isn't in the s p

although i don't know that but they may have some criteria a variety that that preclude berkshire being part of it i've

always thought it'd be very interesting for those of you who like to think about such things that if we were part of the s p 500

and enough people became indexed so that 60 percent of the market was indexed and if charlie and i wouldn't sell which we wouldn't it'd be it'd be an interesting proposition as to how the

how the index funds would ever get there 60 if they tried to replicate the s p uh it'd be i don't know whether they have rules even about concentration of ownership that same line of thing you might have applied to

walmart or some company because just take the extreme example of a company that had 90 of its stock owned by one individual and 12 percent of the money in the market were indexed uh and the ninety percent wouldn't sell

it would bring back the northern pacific corner or something of the assortment in any event i don't think that's going to be a problem and and i don't think we are going to end up being in either index yeah zone one mr buffett my name is

aaron morris i'm from california um what i wanted to know was how you think about how large a position you're willing to take in a given security both in your case where you have new

cash coming in that you can invest and in the case of an investor where they have a fixed amount of capital and they're trying to decide what's the most they should put in the security that they really love

well uh charlie and i have probably at our present size we will never find anything that uh we get as much money into as we want i

think that's probably true surely if we really like it yeah i think that's quite like yeah so you we will probably never hit the limit we would we would love to

we'd love to find something we felt that strongly about and occasionally we do but we won't we won't get as much money into it as we would wish or as if we were running a million dollars of our own money or

some number like that so we are willing to put a lot of money into a single security when i ran the partnership the limit i got to was about 40

in a single stock i think charlie when you ran your partnership you had more than 40 percent sure and we would do the same thing if we were running smaller partnerships or our own

capital were smaller and we were running that ourselves because now we're not going to do that unless we think we understand the business very well and we think that the the nature of the

business what we're paying for the people running and all of that lead up to virtually no risk and uh but you find those things occasionally and we would put assuming it were that much more

attractive than the second and third and fourth choices we would put a big percentage of our our net worth in it

um we only advise you to do that probably don't advise you do it at all maybe but but we would only advise you to do it if you're doing it based on your own conclusions about your own ideas of value and something

that you really feel you know enough to buy the whole business if your funds were sufficient that was being offered you ought to really understand the business but people do that all the time incidentally in private businesses which

have got terrible prosperity by dry cleaning establishments or filling stations or whatever and they put very hyper franchises of some kind they put a very high percentage of their net worth into something a business is very risky basically i

mean it uh it they people put all their money in a farm you know it uh it's it's a business it's subject to all kinds of business risks so it's it it's not crazy if you

understand the business well and if the price is sufficiently attractive to put a very significant percentage of your net worth in if you don't understand businesses then you're better off diversifying and and

fairly widely diversifying sorry berkshire has a substantial shareholder whose father accumulated the original position and when he died he left a very large estate

correctly all of which was in two securities berkshire and one other outstanding company and a bank was co-trustee and the bank trust officer said you've got to diversify this

and uh and it was a very large estate and the young man who was co-trustee with the bank said well he says you know my father had believed the way you do he might have been a trust officer in a

bank instead of leaving this large estate and uh that that young young man holds the burger to this day and i suppose the bank is still giving the same advice

john cho mr buffett this is chuck peterson from omaha and i was just wondering if you could comment on the coca-cola company haven't really talked about it too much today in regards to what you foresee over the

next five years the earnings per share growth and where this growth is perhaps going to come from was that the question about the growth of coke yeah you really have to come to your own conclusion

coca-cola company writes their and reports are extremely good i mean they're very informative um you know you my guess is that at least if you read a few of the

reports you absolutely know as much about the coca-cola company as i would but but in the end you have to you have to make your own decisions about uh growth potential profitability potential

and all that but the one thing i can assure you is that probably if if you spend a relatively small amount of time on the facts that you will have available

to you for making a decision on that question will be will be just as good essentially as the facts you get if you've worked at the coca-cola company for 20 years or if you're a

food and beverage analyst in wall street or anything of the sort that's the kind of businesses we like to look at are things that we think we can understand that way and they're and they're also businesses that usually i think you could understand

that way but we don't like you to give you our answers i mean that that would not be a good idea zone free david

uh i'm sorry david schwab from austin texas i have a question pertaining to the convertible bonds that were outstanding

for about four years any thoughts on if you're a teacher to grade if that was a good deal bad deal how the money was employed compared to

the cost of getting out of the bonds any thoughts we want to know if you think in retrospect your deal with the lions was a good deal for berkshire

no i would say that that if i knew everything at the time that we did the lions day which was a convertible zero coupon

debenture if i knew everything now then that i know now would we have done probably pretty close the we had relatively few

bonds converted when we called when we called them and so that it really wasn't a negative in that sense but if if we'd had more con we could have easily had a lot more converted and

and that would not have been so good obviously if we ended up selling a lot of stock at 11 800 or whatever it was uh it's very hard to measure exactly what

we did with the 400 million or so that that we took in at the time so money being fungible uh separating that 400 million from other resources to

measure the what happened on the the plus side from having the money is hard to do but my guess is a whole hand over again

it probably was a maybe a tiny minus to have issued him what do you think charlie certainly close to a wash now you can ask about u.s hair and that is one way

would have been well to duck and i might say charlie had nothing to do with that decision he didn't even know about it till i did

it and when he knew about it zone one mr buffett i'm joe cerdovan from toronto uh with respect to berkshire's non-permanent but large and therefore

illiquid holdings what is your strategy for managing market impact on sales given the intense scrutiny that uh berkshire is under by the market i didn't get that either i got that i'm

now during that very well yeah i don't know whether you're too close to my we're having a little trouble on that speak a little more slowly or maybe the monitor could repeat that and would you repeat the question okay sorry um just with respect to um berkshire's

large uh non-permanent holdings that are therefore liquid i'm just wondering what your strategy is for managing market impact when you do decide to sell portions of

those holdings given the intense scrutiny you're under yeah yeah question about the things we might sell and what's going to happen to the market when we sell them

that depends i mean it can be a very significant impact it can be a it can be a negligible impact and and depends on market conditions it depends on whether we

might sell in a couple of large blocks to some institutions it depends on it could be you know there could be a tender offer or something the sort we would sell through so it's hard to measure but it is a disadvantage size is a disadvantage

you're absolutely correct in the basic point both in buying and in selling and uh we don't know any way around that and so we allow for it in terms of what

we expect uh you know the kind of uh we need to see and we do we sell so infrequently that it's it's not a crusher of a negative uh

point but it's it's a negative we have that you do not zone two my name is anes ripley i'm from roller

virginia does berkshire hathaway or any of its subsidiaries have keyman insurance on you and mr monger

does berkshire have key man insurance on oh no no we have no we have no no life insurance to my knowledge on anyone except the maybe

standard the group life contracts people have we have no key man insurance it really it really doesn't it wouldn't be material i mean if we have a market value of uh

18 billion or something like that and if it if it really didn't if a one if it made a one percent difference it'd be 180 million dollars and basically the math of intelligently

selling insurance is better than the math of intelligently buying insurance [Music] zone three mr buffett i'm barry ziskin from mesa

arizona long time admirer viewers question uh pertains to guinness i remember reading in a publication i greatly respect outs outstanding investor digest by henry emerson new

york that back in i think it was 58 or 59 you made an investment in cuba decided never to make an investment outside the united states again

at at that time um have subsequently invested in guinness i'm a fellow investor and guinness have invested in guinness for and it's sister company louis vuitton moa hennessy

for over five years and i'm very happy with those investments by the way there's been a restructuring as you know of the guinness lvmh relationship where

guinness no longer owns 24 percent of lvmh rather it owns only its distilling or i should say alcoholic beverage relation right the mowing hennessy part uh the

other parts of lvmh are showing better results these days namely the louis vuitton luggage as well as the christian dior perfume they've also expanded into the newspaper

business this past year a business that you understand do you intend to

look at the possibility first of all of participating in those businesses that you no longer own now with the restructured guinness lvmh deal through some other

form and the second question relates to the currency risk inherent in the guinness investment i'm having bought it at about 1.80 as

you mentioned pound sterling now down to about a dollar 48 the cost of uh hedging foreign currency through the fx has diminished through

the combination of lower interest rates in the uk and the higher interest rates most recently in the us to just about zero i take it we're all investors in companies

not speculators and currencies so the second part of the question is do you intend to do anything about the currency risk portion of that investment well lvmh uh

which as you mentioned was 24 owned by guinness you know that's one of thousands of securities that we could be a buyer or seller so i really don't want to comment on lvmh's

specific attractiveness uh or lack thereof and guinness i think what guinness did was quite like i mean their their interest in that operation was basically through the

the distribution advantages that it gave to guinness his own brands around the world to be hooked up with moet hennessy and vice versa so i think what they did was logical you can

the question of the exchange rate and all of that the exchange rate in terms of what they got in the in the uh spirits business versus what they gave up in the the luggage businesses

and christian dior and a few things you can you can form your own opinion on that but i think the logic was was sound but in terms of whether

we want to be an lvmh by itself that's that's like any other security which we really can't uh we really can't answer uh uh

second question related to uh hedging yeah they had to encourage the edge the answer to the answer to that is we don't and and and coca-cola as i mentioned gets 80 the

earnings from a variety of currencies the yen and the mark being two very important ones they're going to be getting a very high percentage five years from now 10 years from now

they do certain currency transactions but it's a practical matter if you own coca-cola you own a bunch of foreign bonds with coupons on them

denominated in local currencies that go on forever now should you try and engage in currency swaps on all those coupons you don't know what those coupons are yet because you don't know how much they're going to earn in japan or germany but you do know it's going to

go on for decades and they're going to be very significant sums should you try and engage in a whole bunch of currency swaps to go on out and convert all that stream into dollars

we basically don't think it's worth it we don't think our opinion on currencies is any good we don't think we think the market probably know well we know it knows as much about it probably knows more about currencies but

we don't know we do not know more than the market does about currency so there are costs to hedging and even though interest rate structures may cause the

the curve to look flat going out forward so that in effect there's no contango on it it's still there's still the cost there are costs in it now it's a relatively efficient market so that

they're not huge but we we see no reason to incur those costs with what we regard as a totally a 50 50 proposition and it really doesn't go out that far anyway i mean we could do it for a couple of years

but if you take that the way we look at businesses being the discounted flow of of future cash out between now and judgment day we can't really hedge that kind of a risk anyway we could keep rolling hedges

but there's a cost to it that we don't want to incur we don't we wouldn't worry a whole lot about whether some portion of our earnings whether

it's from guinness whether it's from coke whether it's from gillette are denominated at some mixture of marks and pounds and yen and dollars or whether they're all in dollars we'd slightly prefer it we're all in dollars

but we don't we don't lose sleep over the fact that it may be coming from a mix of currencies like that we wouldn't like it in terms of obviously some very weak currencies zone one

uh lawrence graham in mill valley california on page 13 of the annual report uh in talking about the insurance operation

you say that it possesses an intrinsic value that exceeds its book value by a large amount larger in fact than is the case in any other berkshire business to refine an earlier question

that was asked could could you tell me whether you mean that it is larger in by a percentage or an absolute dollars

that is by absolute dollars and that's what you're referring to by absolutely it's very hard to stick a percentage figure on the insurance business because we have so much capital in there that

that that oh and and then and we have other businesses i think that the uh we've got we've got businesses with a book value of of in the tens of millions that are

worth in the many hundreds of millions so you can't you couldn't apply that to the insurance company based by so it's absolute dollars but in terms of absolute dollars we think the excess of intrinsic value over

carrying value at least i do is substantially greater for the insurance business than any other business we own charlie do you have any no that's

exactly right joe little vancouver canada does the uh management succession issue for the top job at coca-cola concern you manufacture you do what with the

the management succession issue over the next several years oh yeah top job coca-cola i think any announcement that from that would come with from coca-cola

he said do you like it does it concern you oh i'm not concerned at all no no coca-cola is very well managed zone three yeah uh chris stavrou from

new york uh according to the latest solomon brothers proxy if uh derek earns uh 30 on allocated equity of solomon brothers

provided that that's at least 10 percent above the return for competitors uh he could earn a bonus of 24 million dollars my

question is whether that return number is is reduced by a charge for preferred dividends i charlie you remember on the comp

commission i can't remember the detail i think the equity my i'm fairly sure but i'm not positive that the equity figure

would include our preferred but not non-convertible preferreds and it would apply to the earnings applicable to the to our preferred plus common

but not but it would it would be after after dividends on non-convertible preferred but i you know i i'm not on the comp

committee and i i have not read the the description that carefully well i am and i can't remember [Music] but i will tell you one thing i do

remember about that and that is a target which would be one it would be hellishly hard to hit be unbelievable i mean that is you're talking about babe ruth squared

yeah doing a 150 home runs in a season instead of uh if that happens you you'll be very glad to pay the money very either under either under either

calculation yeah it really it but it you know i'm glad it's there i hope derek's paying attention to it zone one hi

um chris davis again from new york i wanted to uh ask if you i feel there's such a huge uh discrepancy between the valuation of some of your holdings versus others

in terms of the market valuation in terms of price to earnings price to book in your opinion do the growth prospects

of solomon brothers or the quality or your anticipation of your ability to clip the coupons at solomon brothers justify such a dramatic discount to the

growth prospects of coca-cola or gillette in terms of our ability as berkshire shareholders to clip those coupons and if you could explain or perhaps share your thoughts on why

the market perception if it is uh uh justifies that that distinction yeah i'm not sure i can answer that question without getting into a

discussion of the relative merits of the two companies or the three companies you mentioned at these prices but uh um solomon and coca-cola are obviously very different kinds of businesses are

solomon and gillette and charlie and i uh do our best to to try to understand the businesses obviously it's easier

to understand the future of a coca-cola than it is to solomon but that doesn't mean it's a better buy and what you see at any given time in our holdings is partly

the historical accident even of of of one we bought and when we had money available and all that but it reflected an affirmative decision at that point obviously

and uh our guess would be that that uh you know we we would feel reasonably good about anything that that we owned

in terms of the price at which we bought it and the facts of the time we bought it and the facts change over time solomon i think is a a better company now than it was some

years back but it's still in a business that's can be very volatile and it has a small amount

as does any investment banking firm and as any commercial banking firm of systemic risk i mean you can't get rid of that charlie you want to no i've got nothing

to add zone two thank you sean berry regina canada uh mr buffett you've indicated that most of us in this room could acquire a lot of the information that you and

charlie acquired through the annual reports yet you both also indicated that the gap rules a lot of times leave a little to be desired could you perhaps give an indication as

to how you and charlie come up with the economic value or the intrinsic value of the businesses that you uh finally decide to invest in and and a little bit about the process that

you go through with that thank you well the you know way in the in the 1992 annual report we discussed that a fair amount but

the economic value of any asset essentially is the is the present value the appropriate interest rate

of all the future streams of cash going in or out of the business and there are all kinds of businesses that charlie and i don't think we have the faintest idea what

that future stream will look like and if we don't have the faintest idea what the future stream is going to look like we don't have the faintest idea what it's worth now now that so if you think you know what the price of a stock should be today but you don't think you have any idea what the stream

of cash will be over the next 20 years you've got uh cognitive dissonance i guess is what they call it

the so we are looking for things where we feel fairly high degree of probability that we can come within a range of

of looking at those numbers out over a period of time and then we discount them back and we are more concerned with the certainty of those numbers than we are with

getting the one that looks absolutely the cheapest but based upon numbers that we don't have any uh they don't have great confidence in and that's that's basically what

economic value is all about the numbers in any accounting report mean nothing per se as to economic value there are guidelines to tell you something about how to get at

economic value but they don't tell you anything it there are no answers in the financial statements there are there are guidelines to enable

you to figure out the answer and to figure out that answer you have to understand something about business you don't have to understand a lot about mathematics i mean the math is is not complicated but you do have to

understand something about the business but that's the same thing you would do if you're going to buy an apartment house or a farm or any other small business you might be interested in you would try to figure

out what you are laying out currently and what you are likely to get back over time and how certain you felt about getting it and how it compared to other alternatives that's all we do we just do it with

with large businesses basically the account the the county figures are very hopeful to us in the sense that they they generally guide us to

to what we should be thinking about and and and uh and of course if we find numbers where it looks like people are are taking the most optimistic interpretation of things that they can't

under gap and all of that we get very worried about people who who look like they massage the numbers in any way and there are plenty of people that do

zone three i'm howard baskin from kansas city when you uh are estimating a growth rate on a uh a company i met of a very predictable company

i imagine uh you apply a big margin of safety to it what kind of rate do you generally apply i mean high single digits in the margin of safety or

what kind of growth rate would you on a predictable company might you we are willing to buy companies that aren't going to grow at all assuming we get enough for our money when we when we do it so it

it we are not looking we're looking at ejecting numbers out as to what kind of cash we think we'll get back over time but uh you know would you rather have a savings if you're going to put a million

dollars in a savings account would you rather have something that paid you 10 percent a year and never changed or would you rather have something that paid you two percent a year and increased to 10 percent a year well you can you can work out the math to answer

those questions but you can you can certainly have a situation where there's absolutely no growth in the business and it's a much better investment than some company that's going to grow at very substantial rates particularly if they're going to need

capital in order to grow there's a huge difference in the business that grows and requires a lot of capital to do so and the business that grows and doesn't require capital

and i would say that generally financial analysts do not give adequate weight to the to the difference in those in fact it's amazing how little attention is

is paid to that believe me if you're investing you should pay a lot of attention to it charlie i i agree with that but it it's fairly simple but it's not so

simple can all be explained in one sentence our some of our best businesses that we all outright don't grow but they they throw off lots of money

which we can use to buy something else and therefore our capital is growing without physical growth being in the business and we are much better off being in that kind of a situation being in

some business that itself is growing but it takes up all the money in order to grow and doesn't produce that high returns as we go along a lot of managements don't understand that very well excellent

zone one byron wien from new york you said that uh you decentralized the operating decisions but centralized the capital allocation decisions what kind of staff do you have in omaha

to help you with the capital allocation decisions and the stock selection decisions you make or do you and charlie do that pretty much by yourselves yeah we don't have any staff to help us on it i mean basically we

we tell them to mail all the money to omaha and then when we get there we put our arms around it and and uh we allocate all the capital ourselves

i mean that that is that is our job and uh we don't feel we should delegate i mean we wouldn't do it anyway our personalities aren't such that we would delegate our allocating our own money to

someone letting somebody else allocate our own money but but we feel that's our job and and it's interesting and we've i've written about this in the past that

that's an important job for most managements there's some companies where it's not but it's it it usually is a very important job for most managements and if you take a ceo that's in a job

for 10 years and he has a business that earns say 12 on equity and he's and he and he pays out a third that means he's got eight percent per year of equity i mean when you think of his tenure in

office how much capital he's allocated it's it's an enormous factor over time and yet probably relatively few chief executives

are either trained for or or are selected on the basis of their ability to allocate capital i mean they get there through other routes so i've said it's like you know somebody playing the piano all

their life and then getting to carnegie hall and they hand them a violin i mean it is it is uh it is a different function than most than the route than the the

functions that exist along the routes to the ceo's job at most companies and so many ceos when they get there think they can solve it by either having

a staff that does it or by by by hiring consultants or whatever it may be and and in our view that is you know that's a terrible mistake

because it's uh uh it is if not the key function of the ceo it's one of two or three key key functions at say 80 or 90

percent of all companies and if you can't do it yourself you're going to make a lot of mistakes it may make a lot of mistakes even if you do it yourself but if you you know you wouldn't want anybody in

any other position of that importance in the company essentially saying i don't know how to do this so i'm going to have somebody else do it when it's their key responsibility

but that's the way it works in in business and charlie and i take responsibility for all capital allocation decisions

other than just sort of routine expenditures at the at the operating businesses and we don't get into those at all i mean if if our managers are spending three or four million dollars a year on

machinery or one of them is i mean a machinery equipment plants new leases we have no review process on that we we don't have a staff and headquarters we don't we don't waste the time to do

that we we think those people know how to allocate but the money that relates to the actual operations of their business we think in terms of the capital that is generated above that that that's

that's our job charlie yeah i would say we have practically nobody at headquarters in omaha one of the reasons warren shines up so well is you know he's being compared to

practically nobody and and uh i might say one interesting when we're having this meeting for example i think there's one person there in the office i mean the rest of them are down here

helping on the meeting yeah here we are warren and i are selling candy and encyclopedias and so forth the chief financial officer of berkshire hathaway is handling the microphones

i mean this makes southwest airlines look like they don't understand costco cost accounting it's a very old-fashioned place and by the way speaking of

hawking our merchandise if any of you have safety deposit boxes full of berkshire hathaway certificates and have children or grandchildren who don't have world book in print in the

house you are making a very serious error that is a marvelous thing for to have in a household and the discipline the only applied but this guy

only applies today accidentally i think that's right it is that is it it may not be selling too well because of the current

vogue for encyclopedias on computers and by the way those encyclopedias that are available are inferior compared to world book which is

very user friendly for children and i like it that way myself and and that is one product you really ought to buy

we both use it personally i mean i i i i i keep a set at the office in a set at home and i uh i give away more of that product than any other product that berkshire hathaway makes in any

subsidiary it's a perfectly fabulous human achievement to edit a thing to make that user friendly and with that much

wisdom encapsulated it is a it's a fabulous thing zone 2 pastor dukhan from houston texas from time to time you have

quoted john maynard keynes the the british economies so i would assume that you have read his investment writings

very extensively what are two or three investment relations in your opinion one can learn from that economist well i forget which i think it's chapter eight of the

general theory remember charlie here's the chapter no no there's there's one chapter in the general theory that relates to markets in the psychology of markets uh and the behavior

market participants and so on that probably is aside from ben graham's two chapters eight and twenty and and the intelligent investor

i think i think you'll find uh to get as much wisdom from reading that as as as anything written in investments and uh you'll know it when you see it in the

general theory it's a chapter that jumps out to you about securities and so on and i could be chapter eight but i may be wrong on that um but i would i would recommend

reading that keynes and and graham from vastly different starting points came to the same conclusion

at about the same time in the 30s as to the soundest way to invest over time they differed some on their ideas on diversification

keynes believed in diversifying far less than did graham but keynes started off with the wrong theory i would say in the in the 20s and

he essentially tried to predict business cycles and markets and and then shifted to fundamental analysis of businesses in the 30s and did extremely well and about the same time

graham was writing as this first material i i think janet lowe in her book on ben graham actually has a little correspondence that that took place between keynes and ben so

i would advise you to read uh to read that and there's some letters of his that he of keynes is that he wrote to co-trustees of of of life insurance societies and

colleges and so on that i think you'd find interesting too it's 115 and charlie and i have to go to our director's meeting at berkshire which starts in about 15 minutes so we thank

you all for coming