Berkshire Hathaway Inc. (BRK.A)

ASM 2006 Part 1

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May 6, 2006

Good morning. I'm Warren Heescharlie. There's one thing I should probably clear up first because I know it's puzzling you. In the movie, he always gets the girl. Now, that's hard to figure out, isn't it? But I've but I finally understand what the what's happening. It's something called the Anna Nicole Smith rule. It's when choosing between 2 old rich guys, pick the older one. Now, in a few minutes, we're going to open this up to your questions. We have a number of zones, and we'll just proceed around zone by zone. But before we do that, there are a few people I would like to thank, and then there's a couple of short announcements I'd like to make. First of all, if we can get the spotlight up there on Andy Hayward, Andy does that cartoon for us every year. He travels around. He gets the voices in there. Andy, where are you? Just shortly, he comes up with the ideas. Andy is the runs Deac Entertainment. Deac is the one I've told you about in the past that produced Liberty's Kids, which I think is probably the best way not only for youngsters to learn American history, but for people my age as well. I mean it's a terrific series of young kids, a couple of young ones in the time of the American Revolution. And I watched several of those episodes and I'd forgotten a lot of American history since I was in school. It's just a really it's a wonderful series. It appeared on PBS over time. And if you're looking to learn American history or have your children or grandchildren learn it, you couldn't do better. And in the months ahead, he's working on the what do we call it? It's the Secret Millionaire's Club, but it's going to be a program that's designed to teach young people some of the very basic lessons about money, how to avoid getting into trouble with it, how to use it effectively and what your attitude should be toward it. So we're looking forward to getting that out early next year. I'll guarantee you that it will be a terrific program for teaching children and your grandchildren something about the subject of money. I also want to thank Bob Iger. Bob is up there. Bob runs Disney. He's doing a terrific job. And I thought we could originally entice the desperate housewives into appearing simply by the chance to appear with Charlie. But after we made that appeal, we then went to Bob Iger and said, see what you can do for us, Bob. So thank you, Bob. Also in that section, I'd like to have a special introduction for the man that first taught Charlie and me something about the value of franchises and the advisability of buying great businesses instead of cheap businesses. Prior to the purchase of See's Candy in 1972, I intended to look primarily at financial measures in buying businesses and buying things that were cheap in relation to book value and we always tried to get a lot of tangible assets in relation to our money. But we found out that the intangible assets, if properly nourished and if properly identified, you can make a whole lot more money with than buying a lot of tangible assets cheap. And in 1972, early in 'seventy two, Charlie and I went to See's candy which had been in the hands of the See's family for many decades and we bought it. And of course, Charlie and I didn't know a thing about making candy. We were pretty good at eating it. And we needed someone to run the place. We met a young fellow there. It was clear to both of us that he was the ideal person to run See's Candy. And in just a few minutes we made a deal with him that's lasted a lifetime. And if Chuck Hudgens and his wife Donna would stand up, I'd love to have you give them a real well deserved round of applause. As you noticed, my daughter, Susie, produced that movie. She does every year. She works hard on it, and we don't pay her anything, although she does remind me occasionally when I'm out of Borchheims that she worked very hard on the movie. And I'll see her there on Sunday. And, Susan, if you would take a bow, please. And the impresario of this event, I just turn it over to her every year and forget about it, But she puts on this show. She brings all the exhibitors in. She arranges everything. She moves into the hotel across the street a few days ahead of time or a week ahead of time and make sure everything hums. And Charlie and I just come down on the day of the meeting and take a bow, and that's Kelly much more broad. Kelly, are you here? Towards Kelly. There she is. Give her a big hand. We wouldn't be having this without her. Now I'd like to introduce our directors. We're going to have the business meeting at 3:15. We do the Q and A first and we get to that later on. But for those of you who won't be around and a lot of people tend to leave it at lunchtime, I'd like to introduce the various directors. You've met Charlie and myself. And if you'll just stand individually, we can withhold the applause, if any, until the end. That way, that embarrassing applause meter that we had on the Omaha Idol show will not will not cause anyone distress. Howard Buffett, Malcolm Chase, Bill Gates, David Gottesman, Charlotte Guymon, Don Keogh, Tom Murphy, Ron Olson, and Walter Scott Junior. A terrific group of directors. I know of I literally know of no directors of any large publicly owned companies that have universally as significant a percentage of their net worth in the company purchased in the open market as that group. Do you, Charlie? I'm thinking. None. None. Okay. That may be all you hear from him folks, so kind of savor it a little bit. I also would particularly like to thank Jamie Lee Curtis even though that she came up with the wrong guy at the end. But Jamie cooperated on this. We're going to have as a thank you. Jamie is very interested in a the Park Century School. 1 of her sons goes to that school. It's for it's for, gifted but but but learning challenged students. They're having an auction tonight, but it will continue subsequently. Bill Gates and I have autographed the monopoly set and we will personally inscribe it to whoever the winner of that auction is. So if you want to go to eBay and check that out, we promise that we will not similarly autograph anything else. So I hope that Jamie Lee and the school have a big success on that. We have 2 announcements, one relatively unimportant but nevertheless pleasant, and that is that we released our earnings yesterday after the close and I think we can put those up on the screen. Having any luck on that? Did we withdraw those earnings, Mark? Oh, no. They stood up another 6 hours of audit or so. And as you can see, we don't pay any attention to realized gains or losses. We had some gains this year. We had some losses in the Q1 of last year. So but that's meaningless in any in the short term. Over time, obviously, it makes a difference. But they we do not pick anything to buy or sell in any given quarter, any given year in the way of securities based on the effect it will have on our income account for that period. It's totally immaterial. In fact, we'd rather sell things that we have a loss in just from a tax standpoint. If we have some high tax cost stocks and some low tax cost stock, we'll sell the high one and record the loss because we would get a better tax result that way for the short term. So we ignore that. But if you look at the operating earnings, you'll see that in those main divisions that I take in the annual report, I show our 4 major businesses and then investment income as a side, Things worked out pretty well in the Q1 for all of them. I would caution you that in our insurance underwriting, our worst quarter would normally be expected to be our 3rd quarter. You're not gonna have hurricanes in this hemisphere in the Q1. The real exposure the worst exposure is in the Q3 and then there's a lesser exposure in the Q4. We write a lot of catastrophe insurance business. Earthquakes, as far as we know, don't have any particular seasonal aspect to them, but hurricanes definitely do. Now the interesting thing is that under standard accounting, if we write a hurricane policy for the calendar year 2006 and we receive $1,000,000 of premium, we would earn $250,000 in the Q1 and $250,000 in the 2nd quarter and so on. We would earn a pro rata throughout the year. And that, in our view, actually is not proper accounting, but it's required accounting. The real exposure to loss is primarily in the Q3. So you can't take our insurance underwriting results in any way for a rather benign quarter like the Q1 and extrapolate them for the year. But nevertheless, it was a very good year, a very good quarter. GEICO had excellent growth. I believe that our well, I'm almost certain that our growth in the Q1 was better than any of our main competitors and actually by probably by some margin. The underwriting was very good. Our reinsurance underwriting was very good. January had a good quarter. Our smaller companies had a good quarter. So things generally have been working very well in all four sectors, and that's nice, but that's not terribly important. I mean, 5 years from now, nobody will remember whether the Q1 or the Q2 was at good at Berkshire Hathaway. But what did happen and which we announced last night, which was very important, the acquisition of a large, extremely well managed, profitable, really extraordinary company called ISCAR. And up until October of last year, I knew nothing of this car. I did not know about their extraordinary management, but I got a letter and I got a letter from Eitan Wertheimer and maybe a page and a half, page and a quarter, and he told me something about this business. And sometimes character and talent sort of just jump off the page at me, and this was one of those letters. It came from Israel. And I expressed an interest after reading this letter and in getting together with Eitan. And not long thereafter, I met not only Eitan but his CEO and President, a remarkable man named Jacob Harpaz, Danny Goldman as CFO, and we met in Omaha. They subsequently met Charlie. And this all came to fruition yesterday when we signed a contract. Now we have well, before I go on to this, maybe Charlie would like to say a word or 2 about his carcass. He's hard as it is for you to believe, he is not only he's as enthusiastic about this as I am. Now have you ever seen that before? I ask you. Charlie likes this one extraordinarily well. Charlie? Well, this is a company that from very modest beginnings rose to be the best company in its field in the world. It's not yet the biggest, but that leaves them something to do. The average quality of the people in this company is not only extraordinary, it's off the chart. And the beauty of this as you look at the toolbox is they're all young. Now this is a real quality enterprise and these people know how to do some things that we don't know how to do, a lot. So of course, we're enthusiastic about the company. I'm always enthusiastic when I get to deal with some of the best people in the world. I would like, if we get the spotlight down there, they're right out here in front. I would like individually 3 managers to stand up and then Eitan is going to talk to us a bit. And then we have I I think we've got it arranged so we can have a short movie that will tell you something about ISCAR. But first of all, if Eitan Wertheimer would stand up and we could get the spotlight on him done. Over there. Okay. Eitan, let me introduce the other 2 and then can we have you speak to the group? Jacob Harpaz is the president and CEO. Take a good look at these people because they're going to make it they're going to do very, very well for you. And and and Danny Goldman, would Danny, would you stand up? Thank you. And if you'll give the microphone to Eitan, I think Eitan would like to talk to the group just a bit. Good morning, everybody. It's Omaha. It's spring. The fields are green. The days get longer, and we bring a big family into a new home. I'm standing here before you, representing 5,869 people, not only the people, but their families, their past, and their future. It took us 3 years to look what to do next. We were successful. We still have a lot of mistakes ahead of us to do, And till we found one day somebody came to us and asked, have you heard about Berkshire Hathaway and Mr. Buffett? We said, yes, we heard, but we never thought about it. And when we started studying about the company, we understood that this is the right combination for us, a family company with a strong culture and a culture we love to keep, a young group of people that we love to work, maybe not for very long, but not less than 20, 25 years from today. And we decided let's try it. And we had a very interesting lesson from Warren. We had had a very interesting lesson from Charlie, and we survived both of them. I'm very happy that I represent here not only the people that make the product and go to the customers, I also in a way represent a big family of customers that make manufacture things, They'll make cars go faster and safer. They'll make airplane fly. They will make the mold to make the bottles for the Coca Cola. They'll make a washing machine. They'll make the tools to make a carpet, they'll make many things. And many times, the people who manufacture a little bit in the shade. And I'm very proud to stand as a manufacturing guy and say, I'm standing for all of them, all our customers, which I must thank them every morning, not only for buying, but also for trying new ideas that we bring and working very hard to stay competitive. Whoever will stay competitive will be there long term, and this is also our goal. Here is Mr. Harpaz Jacob. In reality, my job is not to disturb, and he, in a very gentle way, fired me 10 years ago. He performed and did better things than I could do, and it didn't make sense that I'll disturb him, so I went on to do other things. We've been in the company only 34 years and the real job is done by Jacob and many, many other people. I'm sure that you have seen the film in 80 days around the world and we prepared for you in 61 companies around the world. And I hope you enjoy it. We definitely have to fulfill a lot of expectations. We definitely have to work very hard to make everybody very proud that we joined the family, also our people, and for sure, everybody in this room. So let's hope we all be successful, and let's look into the future, And I'm looking forward to come every spring to Omaha when the fields are green and the days get longer. Thank you. For 80% of the company. The family remains in partnership with us. They retain 20%. It's the first business we've purchased that is based outside the United States. We have others that have operations there. I think you'll look back on this in 5 or 10 years as being a very significant event in Berkshire's history. And it's interesting in this world in which many businesses get auctioned off, figures get dressed up before they sell them and leveraged up and so on. We can we continue to hear from people periodically who consider their businesses too important to auction. And we've never really bought one at auction, have we, Charlie? Remember? I can't remember one either. Yeah. So there's a there's there's a benefit in that because in effect, the people that pass through that filter of caring enough about their business that they don't simply put it up like a piece of meat in an auction are also the people in our view that make the best managers and make the best partners over time. There is something going on in their brain that says this business is so important and the people that are here are so important and the customers we take care of are so important that we actually care about the home in which these businesses reside. And I think that filter works very much to our benefit. We've bought a number of businesses in the last 15 or 18 months where people have felt that way. And I think the crowning one here is this car. So I welcome our new friends from Israel. I'm going to go over there and visit in September to see if there are any more girls out there like you and see if we can drum up a little more business. And with that, let's go on to the question period, and we will do this until noon, at which time we'll break for 45 minutes or so and come back and then we'll continue until about 3 o'clock, then we'll break for about 15 minutes, have the formal business meeting from 3:15 to 3:16. And then at 4 o'clock Charlie and I are meeting with all of the people that came from outside of North America. This year we had about 550 requests for tickets from countries outside of North America as opposed to about 380 last year. So we're looking forward to meeting all of you that have come a long way to attend this meeting. Now we've got a dozen zones in here and we'll start off with zone number 1. Yeah. My name is Edward Janik from Denver, Colorado. First, I want to thank Charlie and Peter Kaufman for their wonderful book. I think Benjamin Franklin would be very proud. My question is, last year, when asked about Social Security, you said that a country as rich as the US should take care of their old people. This year, I read Pete Peterson's book, Running on Empty, and I was wondering, from the standpoint that is the greatest benefit to society, where should you draw the line on entitlement spending? And I was wondering if you gentlemen disagree on the subject at all. Well, you always have the question in every society, whether it's formalized or not, you have the question of how you take care of the old and the young. You know, you have people in their productive years turning out goods and services, and you have people that are too young to participate in the turning out of those goods and services, but that nevertheless need them and you have people that are old in the same position. And starting in 1935, I believe, we statutorily formalized that idea. We'd always felt that way about the young that the school should be there for them and when they couldn't pay for them themselves and that the society owed the duty to both classes. But in 1935, we took up the idea that the government would provide this base limit. Now I think there's some merit to the argument that the 65 became outmoded as longevity improved. And that is now being changed to some degree and I think there's probably some more change needed. But this country has an output of almost $40,000 of GDP per person. And some people, like Charlie and myself, are very lucky to be wired in a way that in a market system we get enormously wealthy and other people are not so wired. And they come out and they in a market system do not necessarily do so well and they're fairly lucky if they provide for themselves during their working years and they do not have the ability to earn at a rate that takes care of them in later years. And society has taken that on. Our country can easily handle the Social Security question. I mean, it's a and it's kind of astounding to me that a government that is quite happy to run a $300,000,000,000 or $400,000,000,000 deficit now worries a lot about the fact they're going to have a $100,000,000,000 deficit or something in Social Security 30 years from now. I mean, there's a little bit of irony in that. It is true that if we maintain the present age brackets that eventually you have 1 person in the older years for every 2 that are producing in the younger years. But we produce more every year as we go along. And there will always be a struggle in a representative society and democratic society between how you divide up that pie. But we have a huge pie, we have a growing pie, And we can very easily take care of people in a manner at least as well as we take care of them now in the future from that growing pie without the people in their productive years not also having a gain in their standard of living. Charlie? Yes. I think the world of Pete Peterson, but I don't come to the same conclusion. Of course, if we didn't tinker with Social Security, it would eventually run low on funds. But if the country is going to grow at 2% or 3% per annum, we're decades ahead, it's child's play to take a little larger share of the pie and divert it to the people who are older. It would be crazy, I think, to think you would always freeze the share of money going to the old at exactly the same sum no matter how rich you got. It's a perfectly reasonable thing to do to pay a little more in the future to support what I regard as one of the most successful programs in the history of our country. Social Security has a low overhead and does a world of good. It's a very reasonable promise to make and I wish my own party would wise up a little on how little an issue it is. This is what happens when you ask a couple of guys our age how you feel about treating older people. Incidentally, the currently and everybody talks likes to talk about the unified budget. You didn't hear talk about the unified budget 30 years ago on the national level but the unified budget means that the social security surplus now gets counted toward reducing the overall budget. So they're very happy at present to take the Social Security surplus and trumpet the number that is after that. But then when they start talking about a Social Security deficit out 20 or 30 years, they tend to get they want to separate that off and get very panicky about it. So I think there's a lot of hypocrisy in the argument. Let's go to number 2. Good morning. My name is Phil Rafton, shareholder from Orinda, California. My question for you, How would you design a compensation system in a very cyclical industry that can swing from boom to bust? You want to tie compensation to results in some way, but this can lead to huge swings in pay. And for example, today in booming industries like energy and mining, profits are large as a result of the boom in the industry and not necessarily the results of management skill. Conversely, when the industry is down, profits are low due to no fault of management. So again, my question, how do you design a compensation package to best reward management performance? Yes, that's a terrific question because if you're running a copper company now with copper at 3.50 a pound, you can coin money even if you happen to be the village idiot. And similarly when copper was at 80 or 90¢ a pound, which has been most of our adult lifetime in that general, there were fairly sparse times in mining much of that time. And we design compensation systems at Berkshire. We have dozens and dozens of companies. Some of them are capital intensive, some of them are cyclical, some of them don't require much capital. Some of them are terrific businesses if no one runs them. Some of them are very difficult businesses even if the best of management comes. And we have a wide variety of compensation systems. You're wise when you say how you design one for that kind of a situation because so often people come in with sort of standardized systems or whatever the highest system they see is and then apply it to their own benefit. Most people have left to select their own compensation systems will come up with the appropriate, from their standpoint, comparable arrangement. If we owned a copper mining company in its entirety, we would measure it probably more by cost of production than we would by whether copper was selling for $2 or a pound or a dollar a pound. I mean, the management has control, depends on the kind of ore bodies and everything, but they certainly have control over operating conditions. They do not have control over market prices. And we would have something I think that would not fluctuate a lot in a business like that, the bonus available, but it would probably tie to what we thought was under the control of the individual that was managing the business. That's what we try to measure. We try to understand the industry in which they operate, and we try to understand the things that the manager can have an impact on and how well they're doing in that. We measure at GEICO, for example, we measure by 2 unit measures. 1 is growth unit growth and one is the profitability of seasoned business. New business costs money. We want new business so we don't charge that against the manager or the 20,000 other employees who share in it. We do not want to pay for anything that is not under their control. We do not want to pay for the wrong things. And I would say in a cyclical business that you if oil is $70 a barrel, I don't think any particular management deserves credit for. In fact, they all sort of denied that they've got anything to do with it when they got a call before Congress. But I would not I would not give them credit for the fact that oil is $70 a barrel or $40 a barrel. I would give them credit for low finding costs for over time. I mean, what you really want to do if you have a producing oil company is you want a management that over a 5 or 10 year period discovers and develops oil at lower than average unit costs. And there's been a huge difference in performance in that among even the major companies. And I would pay the people that did that well. I would pay them very well because they're creating wealth for me. And I would not pay the guy a lot of money that simply is cashing in on $70 oil and that really has got a terrible record in finding it at reasonable prices. Charlie? Yes. It's easy to have a fair compensation system like we have at Berkshire. And a lot of other publicly traded corporations also have fair compensation systems, but about half of them have grossly unfair systems in which the top people get paid too much. We know how to fix Berkshire but our ability to influence the half of American industry where the compensation systems are unfair has so far been about 0. Yes. One thing you may find interesting, we have, I don't know, 68 operating companies. We probably have probably have responsibility for the compensation system of perhaps 40 managers or thereabouts because some of them have businesses grouped under them. I can't think again, I can't think of anyone we have lost over a 40 year period because of differences in views on compensation. I also we've never had a compensation consultant come into Berkshire. They may have had them at the subsidiaries, but they're smart enough not to tell me. They oh, it's never happened. I mean, we do not and we do not have lots of meetings. We don't spend a lot of time on it. It is not rocket science. It's made more complicated than it needs to be, more confusing than it needs to be because having a system that is complicated and confusing serves the needs of some who want to get paid a whole lot more than they're worth. And the system won't change because it's working to the advantage of the people that have their hand on the switch, the people that pick the human relations consultants and pick the people who are on the Comp Committee. I was put on 1 Comp Committee and Charlie can tell you what happened. He was there. Yes. We were the biggest shareholder at Salomon. 2 of us were on the Board and Warren was on the comp committee and in that frenzy of envy which characterizes compensation and investment banking, Warren remonstrated, softly I thought toward a slightly more rational result and he was outvoted. Charlie used the term envy rather than greed, which is interesting because that's been our experience is that envy is probably a bigger motivation in terms of people wanting to be in that top quartile or whatever it may be than greed. It's a very interesting phenomenon that you can hand somebody a $2,000,000 bonus and they're fine until they find out that the person next to them got 2,000,001 and then they're sick for the next year. Charlie has pointed out of the 7 deadly sins that envy is kind of the silliest because you don't feel better. You know, I mean, if you get envious of somebody, you feel worse the whole time. Now, you know, gluttony, you know, I've had some of my best times while being gluttonous. There's a real upside to gluttony. I I don't we won't get into lust, But I've heard that there are upsides to that occasionally. But envy, you know, all you do is sit around and make yourself sick and get to sleep. But that's it's part of the human psyche and you see it big time and you get this irony. The SEC wants even more transparency on pay, which I think basically is a good idea except for the fact that it becomes a shopping list for every other CEO when they see that somebody is getting their haircuts paid for by the company and they decide that they'll they too need their haircuts paid for by the company and they suddenly become big tippers. Let's move on to number 3. Greetings to all of you from the Midwest of Europe. I'm Norman Renthrop from Bonn, Germany. Thank you very much for writing your shareholder letter in such a way that we feel treated as partners. Warren, in the shareholder letter you ended with your thoughts on managing Berkshire Hathaway in the future. May I ask you how do you train your successors? What do you tell them? How do you summarize to them what is important to you and how, if you were able to do so, how would you measure whether or not they have lived up to your expectations? Well, that's a good question and I think actually in reading that letter, you know, that's part of the part of the reason it's written is to convey not only to our partners, our shareholders, but also to our managers and anybody else in the public what Berkshire is all about. This meeting in terms of what we do is intended to give a personality and a character to Berkshire. And we don't say it's better than anybody else's necessarily, but we do think it's us. And we think we want managers to join us who believe in the sort of operation we have, a partnership with shareholders, a lifetime commitment to the businesses. We want those people to join us. We want what they see after they join us to underscore the values we have. So everything we do, we hope is consistent with what most people would call a culture at Berkshire. So the written word, what they see, what they hear, what they observe, and that is training in itself. It's the same sort of training you get as a child. I mean, you when you are in the home, you're learning something every day by the behavior of these terribly important people, these big people that are around you. And a home has a culture, a business has a culture, to some extent a country can have a culture. And we try to do everything that's consistent with that. We try to do nothing that is inconsistent with that. And believe me, if you're a bright business Berkshire manager, and they are bright, they buy into it to start with, they see that it works, and it doesn't require formal lessons or mentoring or anything of the sort. I mean, if you talk to our Berkshire managers, you would find that they think consistently with how in effect Charlie and I think. There are plenty of people that don't and they don't join us. I mean, you know, we hear all the time from people. I've got one coming in a little while actually that nothing's going to come of it because this guy has I mean, his brain processes things different than mine does. And I'm kind of interested in learning about his business, so we'll get together. But it wouldn't fit. It would just not it would be a mismatch. And the nice thing about it is our culture is so well defined that there aren't many mistakes in terms of people entering it or behaving in a way inconsistent with it. So I think that I don't think there's any formal training necessary. I mentioned in the annual report the fact that if I die tonight, there are 3 obvious candidates to take my place. Now the Board knows which one of them they would agree on tonight, might be different 3 years from now. But any of those 3 would not miss a beat in terms of stepping in to the culture that I hope we have here because it's theirs too. Charlie? Well, you know, if Warren has kept the faith until he's 75 years old in maintaining a certain kind of culture and a certain way of thinking, do you really think he's going to blow the job of passing the faith on? What could be more important in terms of his duties in life? You all have something You all have something more important to do than worry about the fact that the candle is going to go out at Berkshire just because some people die. This is a place where the faith is going to go on for a long time. And of course, at headquarters, we aren't training executives, we find them and they're not hard to find. You know, if a mountain stands up like Everest, you don't have to be a genius to recognize that it's a high mountain. Okay, number 4. Hello. My name is Ewan Gan, and I'm from Whitehaven in England. Actually, the last time I was this nervous asking a question, I'd just presented my wife with an engagement ring from Borch Heinz. So Well, I hope you get nervous again. My question for you is with the enthusiasm at the moment for emerging markets, Many closed end funds which contain emerging market stocks are treating at significant premiums to their net asset values even when open ended funds can be used to acquire similar portfolios of stocks for the net asset values. This doesn't seem very rational to me. Why do these premiums persist? And do you agree that it's irrational? MR. Yeah, I would say it would tend to be. I don't know anything about the specifics that you're referring to on emerging market funds. I haven't looked at the size of the premiums, but history would certainly show that most closed end funds, just about all closed end funds eventually go to discounts. I actually worked well, I'll skip that analogy. But the overwhelmingly closed end funds have gone to discounts. Initially, if they're sold with a 6% commission, of course, the initial people are getting $0.94 of net asset value by paying the dollar. But I don't if I saw 2 if I had an interest in buying into emerging markets through other people's management and I could buy an open end fund at x or at asset value and I had to pay 120% of x for some closed end fund, you'd have to convince me very strongly that the management of the closed end fund was better. So I think you're right. I don't again, I don't know the size. The premium's a few percent. It doesn't really make much difference. But occasionally Charlie and I have witnessed in the past closed end funds that have sold even at 30% or 40% premiums over asset value. Overseas Securities was a tiny fund that used to do that for years and baffled everybody. But eventually they will come back down to earth. Charlie? I've got nothing to add. He's hitting his stride now. Number 5. Warren and Charlie, I want to thank you for putting a once obscure Midwestern city on the map last year with your acquisition of Pete Legal's company, Forest River. I'm Frank Martin from Elkhart, Indiana, the RV Capital of the World. I'm glad to have you here, Frank. Frank has just brought out a book incidentally that's a history of some of his annual letters. It's a good book and I recommend you get it. SECRETARY Thank you, Warren. I also want to thank you for your influence over Robin Williams and other Hollywood stars. Those of you who have seen the movie RV realize that Warren will go to no end to promote the products of the companies he acquires. A few people have already noticed that actually, Frank. On a more serious note, there's a small but growing trend in American Business Governance to move from purology voting for directors to majority voting, long the statering in Great Britain. What do you see as the upside and downside of majority voting as it relates to raising the standard of ethics in the corporate boardroom? Charlie, you want to take a swing at that? I don't think it will have any effect at all on ethics in the corporate boardroom. There get to be fashions in the government's subject. I think that the troubles in American corporations are not going to be fixed by something like that. All these reforms have to be considered in the light of the kind of people that are likely to be activists in using new powers. And that crowd is a mixed crowd, to put it gently. The question in the boardroom is to what extent and you have to understand it's partly a business situation, it's partly a social situation. The question is to what extent do the people that are participating there think like owners and whether they know enough about business so that even if they're trying to think like owners that their decisions will be any good. And Charlie and I have been on boards of companies with dual voting. Berkshire has that, although it's so minor that it doesn't really make any difference. But we've been on other boards that I have never really seen any difference in behavior based on the nature of the votes that got them into the boardroom, but there's an enormous difference. I think you'd be blown away if you watched boardrooms over the years. There's just an enormous difference in terms of really the business savvy of the people in the room, the degree to which they are thinking like owners as they go along. And I've seen no I don't know the dual voting or the lack of dual voting really is going to have very much to do with that. The key I've mentioned in the past there's all these fashions, as Charlie says, in corporate governance. But the job of the board is to get the right CEO to prevent that CEO from overreaching because sometimes you have some people that are very able but they still want to take it all for themselves. But if they take nothing and they're the wrong CEO, there's still a disaster. So low pay itself is not the criteria. But you want the right CEO, you don't not want them overreaching. And then I think the board needs to exercise independent judgment on important acquisitions because I think CEOs, even smart CEOs are motivated frequently in acquisitions by other than rational reasons. And in those three areas, American directors have I don't think they've given a tremendous account of themselves in recent years whether at dual system places or otherwise. The only cure to better corporate governance in my view is that if the very large shareholders start really zeroing in on whether those questions I just mentioned are being addressed properly. If they go on all these peripheral issues, they have a lot of fun and they get in the papers. They have little checklists and they can issue grades and all that. It isn't going to do anything in terms of making American Business working better. But if the 8 or 10 largest shareholder groups, if the really large institutional investors say, this compensation plan doesn't make any sense and we're not voting for the directors and here's why we're not voting for the directors, you'd get change. But so far, they've been unwilling to do that. It takes the big shareholders. It's not going to be done by any coalition of small shareholders or people sticking things on ballots. But the big shareholders of this country, basically they've some of them have farmed out their voting even. I was amazed to find that out that a number of very large institutional investors have actually just turned their voting process over to somebody else. They don't want to think like owners and they we all bear the penalty for that. Number 6. Hello. My name is Andy Pollan from Adrian, Michigan. Thank you once again for having me to Omaha. My question is for Warren, but Charlie, please add your thoughts as well. Warren, I've heard you say many times that you don't understand the technology and that you rely on Bill for that. And that's fine. And I see from this year's movie that you're learning, so that's good. Slowly. I'm also curious to hear what you've learned so far about the other information technology companies such as IBM, some microsystems, Oracle, Dell, EMC and Intel? I know what I've learned is I know enough to know that I don't know enough to make an investment decision. Charlie and I have circles of competence that extend to evaluating a number of types of businesses and there are a whole lot of businesses that we won't be able to evaluate. Some of them I don't think I think very few people can evaluate. I mean, you get outside of you just get into businesses that where the future is so likely to be different than the present that maybe there's a few people who have great insights on it but we sure don't. We are best at the businesses where we can come to a judgment that they're going to look a good bit like they do now 5 years from now, 10 years from now. They'll be bigger, they'll be doing different things, but the fundamentals will be the same. This car will be a bigger company 5 years from now, maybe a much bigger company. And we may get a chance to do interesting acquisitions. But what you saw there, the fundamentals won't change. The way that people think won't change. I can name a number of businesses that are bound to change dramatically. I mean, when you think of how much the telecom business, for example, has changed over the last 15 or 20 years, it's startling. Even with hindsight, it's a little hard to figure out who was going to make all the money and so on. There's just games that are too tough. Charlie says, we've got 3 boxes at the company, in, out and too hard. And a lot of things end up in the too hard pile and it doesn't bother us. We don't have to be able to do everything well. If you go to the Olympics and if you can run the 100 meter well, you don't have to throw the shot put. You know, some other guy can throw the shot put and you'll still get a gold ribbon, you know, if you run the 100 meter fast enough. So we try to stay within the circle of competence. Tom Watson Sr, I think it was Sr. Yeah, Tom Watson Sr, many years ago said, I'm no genius but I'm smart in spots and I stay around those spots. Well, that was pretty damn smart, you know. And we have found a lot of our managers who don't think they can solve every problem in the world, but they run their businesses extraordinarily well. I mean, you do not want to Frank Martin mentioned Forest River, you do not want to go and compete with Pete Legal in his business. He's going to kill you. And he's very, very, very good. But he doesn't come around and try and tell us how to run the insurance business because that's not his game. We look for people that are very good at things they understand, and we don't get any inferiority complex at all about the fact that well, I you mentioned Intel, I believe. I was virtually there at the birth of Intel because I was on the board of Grinnell and Bob Noyce was the chairman of the board of Grinnell. And we bought at Grinnell, we bought $300,000 worth of the original debentures. And I knew Bob. I thought he was a very, very smart guy, but I wouldn't have had the faintest idea how to evaluate the future of Intel then, and I really don't have it now. And I think they probably had a few surprises themselves in the last few years with AMD and what's been happening in their business. But how about that's going to look like in 5 years? I don't have any idea. And I'm not so sure if you're in the industry, you'd know exactly what it was going to look like in 5 years. Some businesses are very, very hard to predict. Charlie? Yes. 1 of the foreign correspondents last year after looking at us carefully said in effect, you guys don't seem smart enough to do so much better than other people as you're doing. Was he looking at me or you, Charlie? Both. Have you got an explanation? And we said we know the edge of our competency better than most people do. It's a very useful thing to know the edge of your competency. And I always say, it's not a competency if you don't know the edge of it. I'll have to think about that a little bit. Bill will explain it to me later. Area 7, please. I am John Bailey from Boston, Massachusetts. I wanted to ask Warren and Charlie if you could consider 3 hypothetical securities for a long term investment. The first would be like a share in median family income for the United States. The background there that on in real terms, median family income has been stagnant for approximately 30 years. The second security would be a share in all corporate income in the United States. The background there that corporate income has been taking an ever larger slice of GDP for several years. And finally, a bit more abstract, a share in all capital assets in the United States. And I would like to include all intangible capital assets, if possible. So would any of these be of interest for a long term holding, perhaps 20 years or so? And if not, why not? Well, I think I'd rather buy ISCAR. The corporate profits, as you point out, have been close to their highs except for a very few years post World War II and as a percentage of GDP. It's hard to imagine being much larger. It's interesting, while corporate profits is reported you take the S and Ps, percentage of book, percentage of sales, good on the line, they're all on the high end. Corporate income taxes really are not that high relative to the total revenues of the country. So you can see that there's been a little disconnect there in some manner. But median family income is something that Charlie and I've never even considered. We are not are not shooting for that. It is certainly true that in the last 5 to 10 years that the disparity in income has widened significantly and that the tax breaks for the wealthy have been extraordinary. I've pointed out in the past that most of the members of the Forbes 400, myself included, pay a lower percentage of their income to the U. S. Government counting Social Security taxes than does the receptionist that works in their office. That was not true 30 years ago and I don't think it's something that should be true in a rich society, but it has happened. And I just computed my 2,005 return in 2004 and I have no tax shelters. I don't have a tax advisor. I just do things and at the end of the year I add it all up. In 2004, my rate was the lowest of the 15 or 16 people in the office. And in 2,005, my rate was even lower. And that's courtesy of the U. S. Government. It's not courtesy of a lot of tax write offs or anything of the sort. And I think that's I think it's crazy and I don't think the American people understand it very well. And I think that if they did understand it, they should and would be quite unhappy about it. So I think that the lower incomes median and the median people making medium amounts of income have not shared in the prosperity of the last decade or so in a way that's all proportional to the way the wealthy have participated in it. It. The last point you mentioned a little too esoteric for me, so I'll pass it over to Charlie. Yes. But I think the main figure that matters to all of us, including the people at the median, is how does GDP per capita grow and those figures have been very good. And so, I wouldn't get too wild on the subject of the median income. It isn't like we're all permanently in some status with nobody moving from status A to status B. There's a huge flux both up and down. And what's really important is that the pie keep growing at a decent clip. All that said, I think that Warren's right that some of those tax changes were a little crazy. I mean they caused more envy than we needed, but I don't think it's all that important. We might think it was more important if we were working at the median income, Charlie. Let's go to number 8. Good morning. I'm Diane Ryan from Kansas City. My question is, what is your opinion on the economics of ethanol and just as a fuel additive? And as a potential investor, should I be looking at that industry? Well, I don't know enough to answer the latter part. I know we don't Charlie and I would not know enough to evaluate ethanol projects. We've been approached on them and of course they're quite popular now. But in terms of figuring out what an ethanol plant is going to be earning on capital 5 or 10 years from now, it's far easier for us to figure out whether people are going to be drinking Coca Cola or even eating seized candy, which I highly recommend. So it will depend on government policy. It will depend on a lot of variables that we're not particularly good at predicting. It's easy to raise money for it now. I mean it's a popular item. It's hot. And our general experience is that we don't look at things very much that are hot at any given time. I know nothing about the biochemistry or anything of the sort. I have a son who was head of the ethanol board in Nebraska. And if I notice that he suddenly starts getting richer than I am, I will suspect that I should start looking at ethanol very hard. But so far I haven't seen tangible evidence of that. There's no question ethanol usage is going to grow. I mean, that we will see. Generally speaking, ag processing, agricultural processing business have not earned high returns on capital. I mean, if you look at Cargill, you look at ADM, you look at the big processors, that has not been a great business. And ethanol could prove an exception, but I'm not sure how you gain a significant competitive advantage over time with any given ethanol plant. And if you get too many of them around, it will not be a good thing when you're turning out a commodity. Charlie? Well, my attitude is even more hostile than Warren's. I have just enough glimmers of thermodynamics left in me to suspect that when you that it takes more fossil fuel energy to create ethanol than you can get out of the ethanol you've created. If so, that's a very stupid way to try and solve an energy problem. Well, considering my family situation, I would say I have friends who like ethanol and I have friends who don't like ethanol, and I want my position to be perfectly clear. I'm for my friends. Let's go to number 9. Hello. My name is Johann Freudenberg from Hannover, Germany. Do you think we are in a commodity bubble? Thank you. So certainly not in agricultural commodities, they haven't done anything if you're talking about wheat or corn or soybeans or something. But if you get into the metals, oil, I know there's been a terrific move. The most extreme probably has been copper, isn't it? I would say that oil, if you go back a few years to when it was at $10 a barrel, it's been more extreme than copper. But you are undoubtedly it's like most it's like most trends. At the beginning, it's driven by fundamentals and at some point, speculation takes over. The very fact that the fundamentals cause something that people looked at for years without getting excited about fundamentals change the picture in some way. Copper does get a little short or people get a little worried about currency and maybe gold goes up or whatever it may be. But it's that old story of what the wise man does in the beginning, the fool does in the end. And with any asset class that has a big move that's based initially on fundamentals is going to attract speculative speculative participation at some point and that speculative participation can become dominant as time goes by. And famous case always being tulip bulbs. I mean, tulips may have been more attractive than dandelions or causes people to start looking at an asset that they causes people to start looking at an asset that they never looked at before and to get envious of the fact that their neighbor made a lot of money without any apparent effort because he saw this early and so on, that takes over. And my guess is that we're seeing some of that in the commodity area and of course I think we've seen some of it in the housing area too. How far it goes you never know. I mean it just some things go on to just unbelievable heights and then silver went back in there that was manipulation to some extent, but it got up to $50 an ounce very briefly back in the early '80s. But the eyes of the world that never looked at silver when it was $1.60 or something or $1.30 back in the '60s, everybody in the world was looking at it and were shorting and some were buying, but it becomes a speculative football. And my guess is that an awful lot of the activity in something like copper now is speculative on both sides of the market. If it goes to $5 a pound, who knows, but you are looking at a market that is responding more to speculative forces now than the fundamental forces in my view. Charlie? Well, I think we've demonstrated how little we know about commodity prices by our very skillful operations in silver. I think you can change that from our it's mine actually. I bought it very early. I sold it very early. Other than that everything I did was perfect. I mean, we managed to minimize things there with great efficiency or I managed to. Charlie didn't have anything to do with that. I was the silver king there for a while. We did make a few dollars on it. But we're not good at the game of when it gets into the speculative area, figuring out how far a speculative boom will go. We if the fundamentals are attractive, we think we're getting a lot for our money buying equities or whatever it may be. We'll make some money. We will we may not make as much money remotely as much money as somebody who has plays out the last 30 days or 30 weeks of a real wild orgy. I mean, these things, they tend to be the wildest toward the end. But that gets back to the question of Cinderella the ball. I mean, you know, you're there, you're having a wonderful time, the Punch Bowl is flowing and the dance partners are getting prettier all the time and you know at midnight it's going to turn to pumpkins and mice. And you look around the room and you think just one more dance, one more good looking guy, one more glass of champagne, and you think you're going to get out of there at midnight. And of course, everybody else thinks you're going to get out of there at midnight, too. And in the end, it does turn to pumpkins and mice. And in this game, as I've said, Adam Smith said it many years ago, a fellow named Jerry Goodman wrote under the pseudonym of Adam Smith, says the problem with that particular dance for Cinderella is that there are no clocks on the wall. And in the markets, if you're talking copper now, if you're talking Internet stocks in 1999, if you're talking uranium stocks in the 1950s, there are no clocks on the wall. And the party does get to be more fun minute after minute, hour after hour, and then it does turn to pumpkins and mice. Number 10. My name is Luisa Laredo. I'm a student at University of Kansas, and I'm originally from Brasilia, Brazil. My question is for both Mr. Buffett and Mr. Munger. The stock market in South America has been growing quickly in the last few years. What do you think about investment opportunities in South America given the political environment and underlying risks? Yeah. We would our problem in many markets is that we have to put a lot of money to work to move the needle at Berkshire. We've got a market value of $135,000,000,000 or something like that. So we are looking to put out 100 100 of 1,000,000 of dollars at the minimum when we look at marketable securities and that really narrows the field in terms of countries or in terms of businesses within those countries. But we made an investment about 3 years ago in PetroChina. Now PetroChina is 1 probably one of the well, it is 1 of the 5 largest oil companies in the world. And yet we were only able to even there to get $400 and some $1,000,000 into it, which fortunately is worth a couple of 1,000,000,000 now. But here is a country the size of China, largest company in that country, and even there we only got 400 and some $1,000,000 in, although we would have liked to have gotten more. But we weren't afraid to go into China. We wanted to get paid more for going into China and we did because we don't know the game as well there. We would feel the same way in Brazil. I mean, we a great beer company down there that a friend of mine ran and we should have been in that. We knew he was a great manager and he was going to do a great job with it. So Brazil would not be off limits at all, but we'd have to be able to get a lot of money into a business we understood at an attractive price. We would want it to be cheaper than if it were in the United States. We wouldn't understand the tax laws as well, the nuances of governments, a whole bunch of things. But after allowing for that at a price we would do it, we're unlikely to put a lot of money into Brazil is a big country, but we're unlikely to put a lot of money into really small economies because we can't get enough money into them. Charlie? No more. Number 11. My name is Jeff Bingham. I'm from Chicago, Illinois. I have a question regarding the manufactured housing industry. What is your outlook on demand, for the industry? And correspondingly, in your opinion, will lending increase in a meaningful way over the next few years? And are the homes priced attractively relative to competitive products like stick built housing and apartments in the face of continued site rent increases at the community level and in some cases lenders requiring shorter maturities on mortgages. It's been kind of an interesting history on manufactured housing. You go back you have to go back 30 or 40 years, 40 years, I think almost, to have fine volume as low as it's been in the last couple of years. And the houses are better than by far better than they were then. There have been years when 20 percent of the housing the new housing product in the United States was manufactured housing, 1 out of every 5. Last year, leaving out FEMA demand, we were bumping along for the 3rd year, I believe, just a tiny bit over the $130,000 level, which is like 6% or 7%, probably 7% of new housing starts. So the percentage of the total new housing stock that has been manufactured housing in recent years has really been very low. While the houses are better considerably better quality than in the earlier years. You can look at the house we got 2 houses out there on the exhibition floor, around $45 a square foot. That's good value. There's a lot of resistance through local zoning laws and that sort of thing by the local builders to the influx of manufactured housing. We've made progress on that in some areas. We're actually developing subdivisions in that business. The houses were mis sold 4 or 5 years ago in huge quantity because you had manufactured housing retailers selling the properties, getting any kind of a down payment, and taking the loans, selling to people that we shouldn't be buying. I'm taking the loans, securitizing them so somebody in some insurance company someplace lost significant sums of money. So you had really an abuse of credit in the field and there's a hangover from that and it's taken a long time for that hangover to work its way through. I think Clayton Homes, which we own, has done a terrific job in both the financing. They should be financed on shorter terms incidentally. I'm if you put them on owned land, that's one thing. But financing for 30 years, in my view, was a mistake. But the terms got very lax for a while, and we're bearing the consequences of that now. But I think the market will get bigger, but I do not think it will get bigger this year. I see it here that counting some FEMA demand and some hurricane induced demand and maybe 150,000 units, 145,000 units. And by industry standards, that's down a lot. Now the number of plants is down a lot and the number of retailers are down a lot. Clayton's position is very strong and their record is so much better than anybody in the industry that you have to look very hard to find number 2. Charlie? Yes. You asked about stick built housing and how competitive it was. That's been one of the troubles of the manufactured housing game is that the stick built housing has gotten so efficient, but there the system is aided greatly by Berkshire's subsidiary, Mitek. So and stick built housing is amazingly efficient when it's done in big quantity with systems like Mitek provides. And if it weren't for that, there'd be a lot more manufactured housing. Personally, I think manufactured housing is going to get a lot better and take a lot more of the market. It may take a considerable period, but that is so logical and I think it will eventually happen. Yes, somewhere down the road you would expect 200,000 plus units for the industry, but I don't think you'll see it in the next year or 2. The industry has to think through, and they have they've made a lot of progress on this, but they have to think through what's the logical way of financing these things and what's the way to make sure that the person who buys it really has an asset that's in excess of their of loan value 5 10 years down the road. And really very little consideration was given to that 5 years ago. It was just a question of way better worry about it later on. Clayton did a way better job than other companies in that respect, but those were the industry conditions that existed then. I think but I think Clayton will be Clayton could easily be the largest homebuilder in the United States in future years because that we will be a big part of an industry that as Charlie said should be doing more volume. I also think that some of the sin that was in the manufactured housing finance a few years ago has shifted into the finance of the stick built houses. There is a lot of ridiculous credit being extended in America in the housing field. And it had a horrible aftermath in the manufactured housing sector and my guess is there'll be some trouble in the stick belt sector in due course. Well, dumb lending always has its consequences and usually on a big scale because you don't see it for quite a while. So therefore, it's like a disease that doesn't manifest itself for a few weeks. And you can have an epidemic of something like that. And by the time you know you have an epidemic, you're very well into it. Well, that's what happens in dumb financing. And you had that you periodically get up, but you certainly had it in commercial financing in the '80s and you had the RTC and the savings and loan crisis and all of that because because literally one dumb project was put up after another. A developer will develop anything he can borrow the money against. I mean, it's that simple. And when the lending institutions pour the money out for something, it will get built. And that happened in manufacturing housing. It happened in commercial real estate in the '80s. I think it's happened in conventional housing here in recent years. And if you look at the 10 Qs that are getting filed for the Q1 of some lending institutions and the 10ks that were last year and you look at the balances increasing on loans for interest that's accrued but was not paid because people had adjustable mortgages but they're only adjustable so far but the lending institutions are taking in the income as if it were paid. You'll see some very interesting statistics. Yes. And some of this dumb lending is being facilitated by contemptible accounting. The accounting profession has not stopped compromising its way into terrible behavior. Our auditing bill just went up. Number 12. My name is Elliot Samuels. I'm from New York City. Thanks to high energy prices, other factors, Russia has been one of the best performing markets recently. The country's financial condition has stabilized since 1990s, a fledgling middle class is taking shape as personal incomes grow and there are also risks, political, legal, risk to minority investors. But there are also potentially great values among 2nd tier companies there. I was wondering what needs to happen in Russia for you to invest there, whether for Berkshire or for yourself? And what kind of companies would interest you there? It sounds like you may own a few Russian stocks yourself. I would as you know, in 1998, Walter Wriston said sovereign governance don't default in 1998. In Russia at least, he was proven wrong. And Charlie and I were inherited a business at Solomon that was in the oil business, big time out in the in Siberia. And there came a time when we got to dig the holes. We sent the money in and as long as we were drilling we were welcome and then we wanted to start taking the oil out after our money had been used to drill the holes. They weren't quite as friendly. In fact, it was really kind of extreme what took place with us. So having had a few experiences like that, it might take us quite a while before we wanted to sink a lot of money into Russia. It may be different now, but I don't think it's any certainty. I had breakfast in Sun Valley 3 years ago this July I believe it was with Kortakowski and we had a translator there And he talked to me about whether he was thinking about listing UCOS on the New York Stock Exchange, but he said it would require registering with the SEC or something and he wasn't sure whether that would that was be too dangerous. Well, I don't think he listed there, but he went back to Russia and he's been in jail now for well just about ever since and Yukos was put into bankruptcy with tax claims and it I don't I just think it's a little hard to develop a lot of confidence that the world has changed permanently there in terms of its attitude toward capital and particularly toward outside capital. Charlie, what are your thoughts? Yes. The situation reminds me a little of poly Petroleum which years ago was much traded in Los Angeles. And the saying always was, if they ever do find any oil, that old man will steal it. And I'm afraid we have some of that problem in many of the countries in which we're seeking for oil. Didn't we really have the livelihood of our guys threatened over there, Charlie, when they I think we sent in some people to get out the equipment. And they said if these sent in the people to get out the equipment, not only would the equipment not get out, but the people wouldn't get out. So we understood the situation. That was not that long ago. No. Number 1 again. I'm Laurie Gould from San Francisco, California. My question is, what are your thoughts about the residential real estate market in the U. S, where it's headed? And how is California different, if so? Well, Charlie's our California expert. We've managed one time to develop a great piece of property in California and we spent about 20 years or so developing it, Charlie? Yes. And we got our money back with interest. Barely. Barely. Yeah. Okay. Yeah. We finished it at just the wrong time. We the land value that we nurtured, that was a terrific piece of land. Charlie lives there. I don't think it's an exaggeration to say we spent 20 years working on developing the land. And the land value which in effect we cashed out for, what, dollars 5,000,000 or $6,000,000 now would have a the implicit land value would be what? Maybe $100,000,000 Yeah. But we finished it at the wrong time. So, it's a wonderful the climate is wonderful. Everything's wonderful about this property. It's just that that from time to time, even in great localities You've seen it happen in New York a couple of times in the last 30 years where the swing in properties values has just been huge. And what we see in our residential brokerage business and we're in I don't know how many different states because we see a slowdown every place. Now we see it most dramatically in some of what have been the hottest markets. And the markets where you're going to in my view, you're likely to see the greatest fall off and where you've had the biggest bubble are the ones tend to be the high end market and they tend to be ones where people have bought for investment or speculation rather than use. People will pay $300,000 for a house and mortgage it for 270 if they have a job and everything, they won't move out. I mean, you don't lose a lot of money even though the market value on a given day is less than the loan value when families stay together and employment is present and all that. But when you have investment type holdings or speculation type holdings, when you in effect have had the day traders of the Internet move into the day trading of condos, then you get a market that can move in a big way. First, it sort of stops and then it kind of reopens. Real estate is different than stocks. If you own 100 shares of General Motors, it's going to trade on Monday and that's what it's worth and you can't kid yourself about it. But if you own real estate, there's a great tendency to think about the one that sold down the street a few months ago and there's a great tendency to think you only need one buyer who hasn't gotten the word that things have slowed down and you'll make your sale. I can tell you that in Dade and Broward County for example in Florida where the average condo is about 500,000 If you go back to December of 2,004, there were less than 9,000 condos listed for sale. And I think 2,900 of them sold in the month. So you were turnover 1 every 3 months less than that. Now the listings are up to 30,000 and the sales are down to under 2,000 a month. Well, 30,000 is $15,000,000,000 worth discontinuities in a market like that where all of a sudden people realize that the whole supply demand situation has changed. So I think we've had a bubble to some degree and it's very hard to measure that degree till after it's all over. But I would be surprised if there aren't some significant downward adjustments from the peak, particularly in the higher end properties. Yeah. And the man is right that the bubbles came in Manhattan and in certain places in California. In Omaha, housing prices are quite reasonable. So it's the country is not all the same at all. We just got an estimate of the tenants at 24,000 which was about what it looked like from the ticket suite. I thank you all for coming on that. Even better, the Furniture Mart which had sales in 1997 of $5,000,000 2,003 sales of $17,000,000 sales last year of 27,000,000 dollars is up so far $2,500,000 with the best yet to come. So we're I would say we're likely to do over $30,000,000 at the Furniture Mart. And that incidentally is about equal to a normal monthly volume for the stores. So you're doing your part. Thank you. Number 2, but you can do more. Good morning. My name is John Norwood from Des Moines, Iowa. I have a 2 year rule for my closet. If I don't wear a particular pair of pants or a shirt within 2 years, I give it away to goodwill, so that someone else can put it to better use. With $40,000,000,000 cash, I'm wondering whether Berkshire Hathaway should have a similar closet rule for deployment of surplus shareholder cash. It won't go to goodwill, I promise you that. Thank you. And wouldn't it be better if you had a smaller budget and fewer gifts you needed to you and Charlie needed to shop for, would you have more time for the beach and a better chance of hitting some home runs? Yeah. I don't think we'll hit any home runs under any circumstances. But the you might consider a normal level of cash at Berkshire as being about 10,000,000,000 although we there could be circumstances where we go below that. But because of the catastrophe insurance business we're in and all of that, we do not scrape the bottom of the barrel, but we don't need anything like $40,000,000,000 I think you'll see in the 10Q that we have I think it was about $37,000,000,000 at the end of March, double check that. And I'm not counting the cash in the finance business. Yes, 37 something. And we're spending 4,000,000,000 on ISKAR. We've spent we're spending some money on some other things as well. But we would be happier, much happier if we had $10,000,000,000 of cash and all the balance in things that we liked very much. And we worked toward that end at all times. But there is nothing even about the way businesses come to us. We've got one idea at present, low probability, but that would take could take as much as $15,000,000,000 or close to $15,000,000,000 of cash. And whether it comes to fruition or not, who knows. But we do work on them. And what we care more we don't like having excess cash around. We like even less doing dumb deals because we do them forever. I mean, if we make a dumb deal, it just sits there. We don't resell it 3 months later by having an IPO of it or something of the sort. So you're right. You're right to say that we should be very uncomfortable about the fact that we've got the cash, but we but it's also important that we not be so uncomfortable that we go out and do something just to be doing something. I would say it's likely but far from certain that 3 years from now we have significantly less cash and I hope significantly more earning power. But the goal of that cash is to be translated into permanent earning power over time like I say with the $4,000,000,000 that we've just committed on ISKAR. We love having that $4,000,000,000 employed there instead of sitting around in short term securities. And that's our job. Charlie and I don't do anything else except appear in movies and that sort of thing. But the you're right to keep jabbing us on that because but we jab ourselves. Neither one of us basically likes cash. We always want to have adequate cash and we always will have adequate cash. And we are the biggest player in the world in cat insurance. And people come to us because they know we're going to run a place that's very strong financially. But it doesn't have to be as liquid as we are now. We spent 5,000,000,000 well, we didn't spend that much. At the Berkshire level, we spent about 3,500,000,000 on Pacific Corp. Now we contracted for it a year earlier, but we will get more chances I think in that field, but you never can tell when they'll come. So come back next year and I hope we have less cash. Yes. Oh, really? Oh, so okay. Well, we'll go to 13 now. Okay. Charlie, would you like to add anything on that? Yes, I think you may get some perspective on what bothers you. If you go back to the annual report of Berkshire 10 years ago and then compare that report with the last one, Despite the great difficulties of deploying cash, we managed to put an awful lot of wonderful stuff into Berkshire in the last 10 years. So we aren't altogether gloomy about that process continuing. I neglected to go to the adjacent room which has a number of people in it as well. So I'm going to go to number 13 now which will come from the ballroom. This is Phil McCall from Connecticut. I wonder it's been some time since you've commented on Coca Cola. And now that you're off the board, I wonder if you feel free to on it. Yes. Well, I won't make particularly different comments from when I was on the board, but Coca Cola is a fabulous company. Coca Cola will sell over 21,000,000,000 cases of various products, more Coke than anything else around the world this year and it goes up every year. It's interesting the stock in, what, 1997 or 'ninety eight, whenever it was, sold over $80 a share when the earnings were, I don't remember whether they were a dollar 50 a share or something like that. And the earnings then were not as of good quality as the earnings are now when they were $2.17 or something like that. And every year, they have they account for a little greater share of the liquids consumed by people in the world. They make fabulous returns on invested capital. It's a business that has exclude the bottling part of it, it has $5,000,000,000 or $6,000,000,000 of tangible assets and makes a similar amount. So there are not lots of big businesses in the world that that are 100% pretax on tangible assets and it'll be a great business and it's been a great business. The stock got to what in retrospect clearly was a ridiculous level, but you can't hold the present management, Neville Isidel, responsible for And he if the company sells 4% or 5% more units this year than last year and the population of the world goes up 2%, it just means that more people are putting that particular source of liquid down their throats than the year before and that's been going on ever since 18/86. So it strikes us as a really wonderful business that sold at a very silly price some years back and you can definitely fault me for not selling the stock. I always thought it was a wonderful business. But clearly at 50 times earnings, it was a silly price on the stock. So we like it. We'll own it 10 years from now in my view. Charlie, no more. Peter brittle gets caught occasionally, but it's worth it. It's worth it definitely. But you hear me? What? Oh, you want some? Get your own box next time. Now do you want us to go to 14 or not? Yes? Okay. Number 14. My name is John Goss from Key West. Have insurance rates hardened as much as you anticipated? And have you seen a significant flight to quality in the last few years? Yes, I think you're probably asking more about reinsurance rates. The actually in auto insurance, can figure it out our policies are up more than our premium volume. So the average premium in auto insurance, which after all is close to 40% of the whole market for insurance, the average premium in auto insurance is actually down a little bit. But in reinsurance, in which we are a big player, you will there's great variances. If you take insurance from marine risks in the Gulf Coast, drilling rigs and offshore platforms, that sort of thing, those prices are up very dramatically but they should be. I think in the last couple of years, there's been like $2,500,000,000 of premium in the Gulf Coast and $15,000,000,000 of losses. So if you paid out $15,000,000,000 and took in $2,500,000,000 the more astute of you would figure that you needed a little more money for that particular risk. We have been historically, at least in recent years, the largest writer of catastrophe, mega catastrophe insurance in the world and I think we will be this year. In fact, I'm almost sure we will be this year. Our mix has changed some. Prices are up a lot. But what we don't know is whether exposures are up even more. We don't know whether the experience of the last 2 years, we'll say, in the with hurricanes in this hemisphere is more to be relied upon than the experience of the last 100 years. You can take the 100 year experience and it tells you one thing and you can take the last couple of years and it tells you something else. And which is more meaningful? We don't know the answer to that. We do know that it would be kind of silly to assume that the 100 year experiences is the relevant criteria when conditions we know certain atmospheric conditions have changed. We know water temperature has changed. But we don't all the it. We do not know all of the variables that enter into the propensity of hurricanes to occur and the degree to how intense they may be if they do incur. We don't know the answer to that. We don't think anybody else knows the answer to it either. So we are getting more money for hurricane insurance. We're getting appreciably more money. If the last 2 years are the relevant years, we're not getting enough. If the last 100 years are the relevant years, we're getting plenty. And we will know more as time unfolds. The really scary possibility is that variables are changing in some way so that the change is continuous and that what we've seen the last 2 years is not a worst case example at all. And of course, you get into chaos type theory with some of these variables where the outcome is not a linear relationship to the input. And you can dream up some pretty scary scenarios on this. I don't know whether they're true and nobody knows. We are willing to write certain areas, certain coverages because we believe the prices are adequate and we can sustain the losses. We're willing to lose many 1,000,000,000 of dollars in a given catastrophe if we think we've been paid appropriately for it. But it is not like figuring out the odds on flipping coins or rolling dice or something like that. You are dealing with changing variables and you the worst thing you could have would be a 100 year history book in making those judgments. The Q3, we will have a lot of exposure for wind. We don't have as much exposure now. Well, we may we I'd say we're getting there, but we don't have as much certainly as much as we had a couple of years ago. Prices, questions about prices hardening, the prices are getting are hardening in that particular area. And if they get to what the where we really feel they're appropriate, we might take on a fair we will take on a fair amount more risk. If they don't get there, even though they're higher than last year, we won't we're not interested in riding it because a dangerous business and we don't believe in modelers at all. I read all this stuff about modeling. I wrote about that a few years ago. It's silly. The modelers don't know a thing in my view about what's going to happen. And we get paid for making guesses on it. If over a lifetime the guesses are decent, we will know that we were doing the right thing. But if this year goes by and nothing happens, we still don't know whether we are right on the prices because if you get a 25% rate for something and it doesn't happen in a year, that does not mean that it's 20 you didn't need 40% or 50%. It just means that if you do it enough times, you will find out whether overall your judgments are any good. It's still a business we like. We bring a lot to the party. Everybody knows we can pay. You got into the question of creditworthiness. If there is some super, super catastrophe and I regard sort of the outer limits of that being a $250,000,000,000 insured loss, for reference, Katrina was presently estimated was about a $60,000,000,000 loss. So if something comes along, it's 4 times Katrina, which could happen. We can pay and we can comfortably pay. We would probably have about 4% of that, maybe $10,000,000,000 A very large percent of the industry would be in very, very serious trouble. So we can play bigger than others and we can survive better than others if something bad comes along. And we will see over a 5 or 10 year period how we do. You can't judge it by any 1 year. Charlie? A record of the past, if you average it out, has been quite respectable. And why shouldn't we use our capital strength to get in the volatile stuff that makes other people frightened. Do we go back to number to here? One more, number 15. Hello. Yeah. I'm Mark Rabunov from Melbourne, Australia. I had a 2 part question on the 2,005 annual report. Firstly, NetJets is a substantial part of our operations. Unfortunately, its value is obscured by losses in recent years and I can't estimate its value from the report. I was hoping you might be able to help me on that. The second thing, how do I value the Berkshire Hathaway Reinsurance Group in light of the deferred charges on retroactive policies? Thank you. The second question about the we have an item that's about $2,000,000,000 on the asset side. I think I'm addressing the question of deferred charges on retroactive policies. That reflects the fact those retroactive policies where we ensure we reinsure in effect the loss of somebody has already incurred, although they may not know how much they've incurred, and we have limits on these. But we set up a factor that essentially recognizes the fact that we will have that money for a considerable period of time. We set up an asset and that gets amortized over the length of time we have that asset. That number, which I think has gotten as high as $3,000,000,000 over the years since we haven't done any of those any big contracts recently is down around $2,000,000,000 There's nothing magic about that. It means that we're going to amortize that $2,000,000,000 over the lifetime of the use of the funds and we think we'll make money net during that time. But we misguessed on one a couple of years ago and took $100,000,000 charge for example in the Q1. I think it was the year before last. The other question was about NetJets, wasn't it, Charlie? But yes, what I didn't get it all. I love the Australian accent of our gecko, but I didn't pick up the exact nuances of what you asked. But my guess is you asked about the about the earnings and operation of NetJets. And NetJets has grown rapidly and so far our expenses have grown faster than our revenue. We've got the top service in the world. We've got really the only worldwide service. We have a very strong position particularly in larger airplanes. But I'd have to tell you that that I did not anticipate. I thought we would have economies of scale to some degree and so far you could almost argue that we've had diseconomies of scale. And our expenses particularly last year basically got out of hand. And there are various reasons I could give you for that. All I can tell you is it's being addressed. Rich Santouli, who runs that operation, you could not have a better operator. He loves netjets. He works at it 16 hours a day. He is there's nobody in the world I would have run that except for Rich. I think it's an important service. It's tough to make money with airplanes. They're capital intensive. We've had fuel do what it has although that's a pass through to people but it still affects the business. And I would I had expected we would be profitable last year and as I put in the annual report I was dead wrong. I think we will be profitable before long, but you should take my prediction there with probably with a certain amount of skepticism till it actually happens because I like I say, I've been wrong. We've got a good business and that almost anybody looking for a large plane on a fractional jet program comes to us. We are able to get full price for our service, but there were a variety of inefficiencies last year which added up to a lot of dollars And, you know, you're entitled to hold me accountable for the fact that we paid a lot of money for the business many years ago and we haven't earned any money since then. We've got a much bigger business now, probably 5 times or so the size of the business we bought. Maybe some solace. I looked at Raytheon's figures the other day, they lost a lot of money and they have the 2nd largest operation in it. But they sell their they sell airplanes too so they may not feel it the way I do. But if I had to bet one way or the other I would bet we will be making money before long but I've lost that bet in the past. Charlie? Yes. The product integrity is so extreme between flight safety and net jets. The pilots are subjected to real oxygen withdrawal in the course of the safety training so they will recognize the subtle sensation that you get. And not everybody does that. It's an expensive, difficult thing to do. And place after place after place, that system is very obsessive about product integrity. And it's my guess that that obsession in due course will be rewarded. Okay. We'll go to number 3. Dear Warren and Charlie, I'm Oliver Kralshad from Frankfurt in Germany. Here's a question to the Silver King. Some commodity investors give you as a reference as one of the largest owner of physical silver. Could you please clarify what kind of exposure you or Berkshire currently have in silver? And further, could you please help us to understand how you determine the value of a non interest bearing precious metal? Do you have any silver on you, Charlie? We had a lot of silver at one time, but we don't have it now. The original decision, my decision, was that the production of silver and the reclamation of silver, I don't remember the numbers exactly now, but they were running perhaps a 100,000,000 ounces or thereabouts less than the consumption. And now a lot of consumption has gone down in photography, but that's where the reclamation was too so that those tended more to balance each other out. I haven't looked at the figures for the last year or so but silver was out of balance. Now on the other hand there were enormous quantities of silver above ground and there were huge quantities of silver that could possibly be removed from other uses perhaps in jewelry and all kinds of things that could conceivably add to supply as they did in the early 1980s when the Hunt Brothers thing took place. But overall, silver was being produced and reclaimed at a lesser rate than it was being consumed. And added to that was the fact that there are relatively pure silver mines. Silver mines silver is largely produced as a byproduct of copper and lead and zinc. And so that it was not easy to bring on added production. So all of that added up to the fact that I thought that silver would get tied at some point. And as I said, I was very I was early in that conclusion and I was early in selling. So we have no silver now and we did not make much money on it. And you're right that it doesn't earn anything. So you sit with it. It's not like sitting with a stock where in most cases earnings are piling up for you. You have to hope that a commodity moves in price because it is not producing anything as it sits there looking at you. And that's one of the drawbacks of commodities. Charlie? We didn't get where we are by owning non interest bearing commodities. I don't think it's a big issue around here. We actually owned oil at one time too, didn't we? But we didn't make much money out. We made a little money. No, you made quite a bit out of oil. But it's a good habit to trumpet your failures and be quiet about your successes. Yeah. Well, we have more to trumpet than we have to be quiet about. How about number 4? Good morning. My name is Bill Gunn. I've traveled from the United Kingdom, and I would like to ask if you think it's a good investment strategy to invest in regions of high resources per capita. In particular, I should like to ask if you think that the analysis per capita should lead to higher growth for businesses in that region plus the bonus of a relative exchange rate growth? Thank you. I'm not sure about the per capita part, Charlie. My understanding is he was talking about investing in a region with high resources per capita. I think he means natural resources. You think in places like Canada or something of the sort where the I can clarify, yes, high natural resources, but good but also good infrastructure? Thank you. And whether there'd be relative currency strength in those as well? No, rather it's a good area for us to be operating in. Well, that would be a little macro for us. We really we really just zero in on, you know, whether people will keep eating candy and and whether we can charge a little more for it next year. The we don't play big trends. You know, We don't think about demographic trends or anything of the sort. We think about our own ages getting older. But other big trends, they just don't mean that much. There's too much money to be made from year to year to think about things that take decades to manifest themselves. So I can't recall of a decision we've ever made on a purchase of a business or a stock or a junk bond or a currency or anything else based on a macro? Not only that, we've recently failed to profit much from one of the biggest commodity booms in history and we'll probably continue to fail in the same way. But we'll search for new ways to fail. I mean, we're not trying to limit ourselves. It's probably true incidentally in a country like Canada where you've got probably millions of barrels of oil of millions of barrels a day of oil production coming on and where there's, you know, relatively few people and where there's already a surplus running they're running a significant current account surplus that it's not strange that their currency should be strong relative to a country like ours where we're running a huge current account deficit and we don't have that same natural the gain in natural exports coming on that they do. But that there's so many more important factors that are going to hit us immediately that that's what we really think about day to day. Number 5? Good morning. My name is Glenn Strong. I'm from Canton, Ohio. I'm an optimistic person and I'm sure it would be more enjoyable to discuss the Chicago Cubs march to the World Series. You are optimistic. But everybody has a bad century now and then as somebody said about the government. However, I have an information deficit on a certain topic that I hope you can fix. Please gaze into your crystal ball. As an investor, I want to know how to address the risk of nuclear terrorism in the United States. Consider a scenario where terrorists have detonated a nuclear device in a major US city. I know there would be a terrible cost in human lives. Gentlemen, what would happen to our economy? How would it respond? How resilient would it be? Thank you. Well, it will certainly depend on the extent of it. But if you're asking how to profit from that, there's probably some dealer that will sell you mortality derivatives. But I'm not sure that's what we would be thinking about then. No, I agree with you and I couldn't agree with you more about that being the ultimate problem of mankind, not necessarily a terrorist type usage, but a state sponsored usage of weapons of mass destruction and it will happen someday. The extent to which it will happen, where it will happen, who knows. But we have always had evil people. We've always had people who wish evil on others. And 1000 of years ago, if you were psychotic or a religious fanatic or a malcontent and you wished evil on your neighbor, you picked up a rock and threw it at them and that was about the damage you could do. But we went on to bows and arrows and cannons and a few things. But since 1945, it's the potential for inflicting enormous harm on incredible numbers of people has increased, you know, at a geometric pace. So it is the problem of mankind. It may happen here, it may happen someplace else. People say it's a sometimes they say, well, you know, if we solve poverty, we'd solve this. Well, I would just remind you that nuclear weapons have only been used twice and those were by the richest country in the world, the United States in 1945. So people will justify their use under some circumstances that they feel threatened. They will justify them for religious reasons, they will do all kinds of crazy things. And the what holds it in check is the degree to which the lack of knowledge of how to do it is controlled and the degree to which the materials are controlled and which the deliverability is circumscribed. And we're losing ground on all of those fronts. The knowledge is more widespread. The possibility of getting your hands on materials, the Doctor. Khan's of the world and so on has increased and it will be it's a real problem, but we won't be thinking about what Berkshire did that day in the stock market. And I don't know how money attacks that. I mean, I've always felt that as the top priority. I think it should be the top priority for philanthropy in my particular case, but it's a very difficult it's a worst case problem. You have 6,000,000,000 people in the world and if a certain percentage of them who are one way or another a little crazy or very crazy and some of whom and that craziness would manifest itself by trying to do great harm to a lot of people. And it's only one of them has to succeed. I don't know how many we've intercepted over the years. I'm sure we've intercepted a lot of incipient ones, but it is a worst case problem and one will terrorists. But Berkshire is better set to survive than anybody else, but it won't make much difference. Charlie? Well, I think that the chances will have another 60 or 70 years with no nuclear devices used on purpose is pretty close to 0. So I think you're right to worry about it, but I don't myself think there's much that any of us can do about it except to be as sensible as we can and take the consequences as they come. The only thing you can do about it, but you only have one vote is to elect leaders who are terribly conscious of the product and problem and who devote a significant part of their thought and energy into minimizing it. You can't eliminate it. The genie is out of the bottle and you would like to have the leading the leaders of the major countries of the world regarding it as their primary as a primary focus. Actually, in the 2004 campaign, I think that both candidates the 2,004 campaign, I think that that both candidates said it was the major problem of our time, but but, you know, they probably suffer from the same feeling that I do that's very hard to address. Number 6. Hello, Mr. Buffet, Mr. Munger. My name is William Schuller, and I'm a shareholder visiting from Spicewood, Texas. I would like to thank you both for being so generous to the public with your ideas. Last year, I read Poor Charlie's Almanac and came across a passage on share repurchases. It reads, When Berkshire has gotten cheap, we found other even cheaper stocks to buy. I'd always prefer this. It's no fun to have the company so lacking in repute that we can make money for some shareholders by buying out others. Last year, you bought stock in some great businesses trading at fair prices such as Walmart and Budweiser, but did not attempt to buy our own shares. Would shareholders be correct to infer from this decision that you both felt Walmart and Budweiser were trading at a deeper discount to their intrinsic values than Berkshire was? And would it be possible to buy as much Berkshire in the open market as he did Walmart without running up the share price? Most of the time, we would not be able to buy an amount that would be material in terms of the increasing the value of the remaining Berkshire shares. But that doesn't mean it would never happen. But if you look at the trading volume on Berkshire and Mark you might put that up if we can in a second, we probably have less opportunity than most companies if our stock should be selling below intrinsic value to have anything meaningful happen. We would also have if we regarded some other company as worth X the good business and we could buy it at 90% of X, we might be doing that now whereas we wouldn't have done it many years ago. But we might require a somewhat greater margin in terms of buying Berkshire shares simply because our view on that might be less we probably have more knowledge on it, but we might be less objective than on some other things. We think that when we buy if we were to buy in Berkshire shares and if you remember 4 or 5 years ago I announced we would if the price stayed the same that the case ought to really be compelling. Now if it's compelling we ought to do it. It was compelling at that time, but simply the act of writing about it, you know, it's a little bit of a Heisenberg principle, the act of writing about it in effect eliminated the opportunity to do it, which is fine because we do not we are not looking to make money off of buying from shareholders at a depressed price. On the other hand, if the price is sufficiently depressed, we will announce again that we intend to do it and then we'll see whether we actually get a chance to do it. Charlie? Yes, the whole climate in the country is different now. It used to be that almost every company that bought in shares was buying the man at an obvious bargain price. Now I think a lot of share buying is designed to sort of prop the stock price. In other words, it's not bargain seeking. It's more like Sam Insel. 40 years ago, 30 years ago, it was very it was a very fertile field for making money to look at companies that were aggressively buying in their shares. The most extreme case probably you mean Teledyne. But those people were buying overwhelmingly. Gordon Wallows was doing it at the companies he controlled. Those people were motivated simply by the fact they wanted to buy the stock below what it was really worth and significantly below. And you could make money with that group. And we did a little of that at the time. I would say in recent years that that motivation has been swamped by people who either think it's fashionable to buy in shares or by people who really like the idea of trying to prop their stock up somewhat. And the SEC has certain rules in terms of your the way you conduct your repurchases to prevent daily sort of propping up. But I think there's a lot of motivation that our stock has got to be cheaper than other people's stock and we've got a wonderful company and so we're just going to buy the stock come hell or high water. And that is not the way we would go about repurchasing shares. We've got what we had up there. I think some figures that showed the turnover of Berkshire shares compared in the year compared with a few others I picked out. I think Berkshire has the lowest turnover by some margin of any major company in the United States. And I put Walmart up there because the Walton family owns about the same in fact, they own more of Walmart than I do of Berkshire. So this is not a function of simply the fact that we've got concentrated holdings with the Buffett family. This is a reflection of the fact that we've got a really unusual shareholder body and that they think of themselves as owners and not of people who are moving around with little pieces of paper every week or month. We have the most in my view, we have the most what I would call honest to God ownership attitude among our 400,000 or so shareholders of any company, of any big traded company in the United States. We have people buy Berkshire to own it and hold it. And that's reflected in our turnover. That does mean if for some reason the stock gets cheap, real cheap, that we will not be able to buy a lot of stock in. But we don't want we are not we're not looking to buy out our partners at a discount. If it sells there and we tell them we're going to buy it, we'll buy it. But that's not a way that we're trying to make money. Charlie, anymore? No, I've said my piece. Number 7. Good morning. My name is David Sabre, shareholder for Minneapolis, Minnesota, looking for some advice you might give the young professionals here. I could be classified as one of those helpers that you described in your annual report. In fact, most of my friends are helpers and some could be classified as super helpers. Most would love to step out and explore some of their more innovative ideas, innovative business model strategies and things of that nature. But the risk of giving up a significant salary, health insurance, flights, all the ridiculous corporate perks that some of us young professionals earn. What advice would you have in us into pursuing those dreams? Charlie, what do you think? Well, there's certainly a lot more helpers in the economy than there used to be. And the ones that come here tend to be the very best of the helper class. So I don't think you should judge the helper class by those you meet here. We get the best of them. And as to what the young helpers ought to do so that they'll eventually be like Warren Buffett, I would say the best thing you can do is reduce your expectations. I think I've heard that before. Well, it is as I wrote about and I tried to tweak the system a little bit, but it is an interesting business in that the activities of the professionals are self neutralizing. And if you're going to if your wife is going to have a baby, you're going to be better off if you call an obstetrician probably than if you do it yourself. And if your plumbing pipes are clogged or something, you're probably better off calling a plumber. Most professions have value added to them above what the layman can accomplish themselves. In aggregate, the investment profession does not do that. So you have a huge group of people making I put the estimate as $140,000,000,000 a year that in aggregate are and can only accomplish what somebody can do in 10 minutes a year by themselves. And it's hard to think of another business like that, Charlie. I can't think of any. No. But it's become a bigger and bigger business. And as I've pointed out in the report, the main thing that's been learned is that if the more you charge, at least temporarily, the more money you bring in and that people have this idea that price equals value. It's useful to get into a business like that. Sometimes I'm talking to the people at a business school and I ask them what the what a great to name me a great business and, of course, one of the great businesses is a business school because basically the more you charge the more your prestige is to some extent. And people think that a business school that charges 50,000 a year of tuition is going to be better than what charges 10,000 a year of tuition. So there's some of that that well, there's a lot of it that's gotten into the investment field recently and you now have large certain large portions of investment management that are charging fees that in aggregate cannot work out for investors. Now obviously some do, but you cannot be paying people 2% 20% where they get it in the good years and they fold their partnerships and start another one if they have a bad year and that sort of thing. You can't have that's only going to produce, we'll say, 7% or something that's only going to produce we'll say 7% or something like that a year for investors and have people net better off. It isn't going to work. And then the question that you will have is how do I pick out the few exceptions? And everyone that calls upon you to sell you this will tell you that they are an exception. And I am willing to bet a significant sum of money. We'll put it up to anybody who wants to name 10 partnerships that are $500,000,000 or more of management and pit those after fees against the S and P over a 10 year period. It gets away from the survivorship bias and all that kind of thing. And it isn't going to happen. But a few will do well. They're bound to do well. And I just and actually I think I do know how to pick a few that will do well. I mean I did it in the past when I wound up my own partnership in 1969, I told people to go to either Bill Ruane or Sandy Gottesman and that would have been a very good decision whichever place they went. So if you know enough about the person, know enough how they've done in the past, know enough about their personality and honesty and a whole bunch of things, I think that occasionally you can make a very intelligent choice in picking an investment manager. But I don't think you can do it if you're sitting running a pension fund in some state and you have 50 people calling on you. You're going to go with the ones that are the best salespeople and not the ones that are best investors. Charlie? Yes. On that State Pension Fund Investment subject, I think it ought to be a crime to entertain in any way a state pension fund official, and I think it ought to be a crime if you are a state pension fund official to accept the entertainment. It's not a pretty scene, a lot of investment management in America now. And human nature being what it is and the amounts of money being what they are, I don't think much is going to be improved. Well, we wanted to leave you in a good mood for lunch. So we will break now, and we'll come back in about 45 minutes or so. And those of you who are in the other rooms, by then, the crowd tends for some unexplainable reason. And you can all join us here in the in the main room, and we'll be back in about 45 minutes. Thank you.

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