Berkshire Hathaway Inc. (BRK.A)

ASM 2007 Part 2

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May 5, 2007

Okay. If you're ready, we are. We're going to keep going in the same order because there's people in the other rooms that have been waiting. So we will go to number 11. Hi. My name is Christian Baja from Superfund. I have a question for you, Mr. Buffet. What do you think about managed futures funds? About which one? I didn't quite get that. What kind of fund? Managed futures funds. Oh my. Like a very well diversified portfolio in stocks and bonds going long and short. All the different markets based on the most natural human behavior, trend following or hurt behavior? Yes. Managed futures funds. Well, I would say that we think the most logical fund, is the one we have at Berkshire where essentially we can do anything that makes sense and are not compelled to do anything that we don't think makes sense. So any entity that is devoted to a limited segment of the financial market, we would regard as being at a disadvantage to one that has total authority if you have the right person in charge. But that's an assumption you're going to make under any fund. So we would not want to devote our funds to something that was only going to buy bonds, something that was only going to buy futures or anything of the sort. We buy futures at Berkshire. We buy bonds at Berkshire. We buy currencies. We buy businesses. So I think it's a mistake to shrink the universe of possibilities. Ours is shrunk simply by size but we don't try to we don't set out to circumscribe our actions in any way. But in the end, there's no form that produces investment results. Hedge funds don't produce investment results. Private equity doesn't produce investment results. Mutual funds don't produce it. If it was simply a matter of form, we'd all call ourselves whatever that form happened to be. What really makes the difference is whether the person that's running it knows what their limitations are, knows where their strengths are, plays when they have the opportunity to play advantageously and stays out when they don't see any opportunities. Charlie? Yeah. I'd go further. I'd say averaged out, I would expect that the return per dollar per year in managed futures funds would be somewhere between lousy and negative. And I would agree with that. Yes. Usually those are sales tools. I mean people find out something that will sell and it can be bond funds at some point it can be in but when they find something to sell it will get sold to the public that will be it will sell till it stops selling and that means lots of money comes in and lots of competition for a limited number of opportunities and I think it's a mistake to get sold something on the basis that here is a great area of opportunity. Areas don't make opportunities, brains make opportunities basically. Number 12. Matthew Monahan from Palo Alto, California. Mr. Buffet, Mr. Munger, first of all I want to thank both of you so for so freely sharing your wisdom and knowledge over the years. Even though we've never met in person I consider you both to be close personal mentors and attribute your teachings and philosophies to any success I've had in business so far. So thank you. Here's my question. For a 23 year old with high ambitions, some initial working capital, and a genetic wiring as you call it for disciplines like Investments, mathematics and technology. What do you foresee as the significant areas of opportunity over the next 50 even 100 years? And if you were in my shoes, what would be your approach and methodology for really learning, tackling and mastering these areas of opportunity for the purpose of massive value creation? Well, I I remain very big on the idea of reading everything in sight. And frankly, when you get the chance to talk to somebody like Lorimer Davidson as I did was when I was 20 years old. I probably learned more from Lorimer Davidson in those 4 or 5 hours than I learned in in college with the exception of learning some accounting or 1 or 2 subjects like that. So you just want to soak it up. If you have those qualities you talked about, you'll see the areas as you go along. I mean, we have Charlie and I probably we've made money in a lot of different ways, some of which we didn't anticipate when we were 30 or 40 years ago, but we did have the ability to recognize some. We didn't have the ability to recognize others but we did know when we knew what we were doing and when we didn't and we just kept looking. We had a curiosity about things. You would know at a time like the long term capital management crisis, for example, that there were going to be ways to make money. I mean, they were going to be out there and all you had to do was just read and think 8 or 10 hours a day and you were going sensational. So you can't really lay it out ahead of time. You can't have a defined roadmap, but you can have a reservoir of thinking, looking at different kinds of businesses, looking at different kinds of securities, looking at markets in different places and you will then spot a reasonable number of things that come along. You won't spot every one of them. We've missed all kinds of things. But the biggest thing too is to have something in the way you're programmed so that you don't ever do anything where you can lose a lot. I mean, our best ideas have not been better than other people's best ideas, but we've never had a lot of things that pulled us way back. So we never went 2 steps forward and 1 step back. We probably went 2 steps forward and a fraction of a step back, but avoiding the catastrophes is a very important thing and it will be important in the future. I mean, you will have your chance to participate in catastrophes. Charlie? Yes. And of course, the place to look when you're young is in the inefficient markets. You shouldn't be trying to guess whether one drug company has a better drug pipeline than another. You want to go when you're young some places very inefficient. And you shouldn't be trying to guess whether the stock market is going to go up or whether long term bonds are going to change in yield. I mean, you don't have anything to going in that kind of a game. But you can have a lot going in games that very few people are playing and maybe where they even got their heads screwed on wrong in terms of how they're thinking about the subject. The RTC was a great example of a chance to make a lot of money. I mean here was a seller of 100 of 1,000,000,000 of dollars worth of real estate where the people that were selling it had no economic interest in it, were eager to wind up the thing and they were selling at a terrible time when the people who had been venturesome in lending were no longer lending. The people who had been venturesome in the equity end of real estate had gotten cleaned out. So you had a great background of environment and then you had an imbalance of intensity in terms of analyzing situations between the seller, which was the government with a bunch of people who had no economic interest in it and were probably eager to wind up the job and buyers on the other side who were of the generally cautious type because the more venturesome type had taken themselves out of action. So there were huge amounts of property. So you get these opportunities and you'll get more. I mean, there won't be any scarcity of opportunities in your life, although there will be days when you feel that way. Okay. Let's go to the other rooms now. They've been waiting. Number 13. John Goss, Key West, Florida. Katrina created litigation that resulted in some rulings that combined flood damage and wind damage where the insurance companies thought they covered wind only. As a result, some insurance companies are significantly reducing coverage in those states. Florida recently empowered their insurance company called Citizens to be more aggressive, not only with windstorm, but also with homeowners, while at the same time not allowing requested rate increases of other insurance companies. The result is that some solid insurance companies have announced reducing their coverage or pulling out of Florida. Is this type of government interference a random fluctuation in insurance or a major cause of concern for the future? Well, that's an easy one to understand both sides of the question on. I mean, the average homeowner is not going to sit there and read line by line what is in his insurance policy and a lot of times the agent is not going to explain it carefully to him. So when something comes along and he thinks it's insured and it turns out that he bought policy where it wasn't insured, he's going to feel very unhappy about it. And when tens of thousands of people feel unhappy about it, you're very likely to get some kind of governmental and probably an inflation by judicial degree or by threats of the government to, in effect, extend the terms of the policy beyond what the insurance company thought it was insuring. Now an insurance company that's had that kind of experience is going to be very reluctant to write insurance policies in the future if they don't think that the words will be adhered to. And other than that, I can fully understand some guy who's had his house blown away in a storm and a lot of it was water damage and a lot of it was wind damage thinking that he's been wiped out and the insurance company comes around waiving a policy that's got a lot of small print in it, he's going to be unhappy. So it's a real tussle on that and I guess I would if I were writing policies, I would put the exclusions in very big type and very easy to understand. But I still would expect that if thousands of people suffered losses, that courts and legislators would probably seek to stretch the terms or even abrogate the terms of the contract in order to take care of their own constituents and figure that guys like me or institutional investors who own insurance companies can afford it better than the homeowner. When you get into the question of whether you should, in effect, have all of the people in the country pay premiums for, we'll say, hurricanes in a way subsidized it through policies in Nebraska or Minnesota or someplace for hurricanes. In Florida, that gets very tough. I mean, it can be very expensive to ensure hurricanes if hurricanes become more frequent and more intense. In fact, it can become so expensive that people really will not want to bear the cost of insurance and they'll want to socialize it some way. And of course, the guy in Nebraska says, look, you went down there to live on the ocean and you know, you thought it was wonderful and we're back here with these terrible winters, but why should we pay a portion of your insurance? So you're going to have that tussle go on and you'll really have that tussle go on if you get a $100,000,000,000 or $150,000,000,000 insured loss in Florida because that will mean a huge change in taxation if the state of Florida steps in to compensate people, there'll be calls for Washington to pay for it. But, you know, it's how much people who are not exposed to a risk should pay for the people who have elected to be exposed to the risk is it becomes a political question. And my guess is that sometime in the next 5 or 10 years, you'll see a struggle on that subject that exceeds far exceeds what we saw on Katrina. Charlie? I've got nothing to add. Number 14. Hi. My name is Glen Tongue and I'm a shareholder from New York. I'd like to congratulate you on Berkshire's newest Director, Sue, is a terrific addition. My question is We agree with you. My question is according to the 10 Q filed yesterday, you purchased about $5,300,000,000 in shares in the Q1. This acceleration in activity is occurring while the general market levels are getting more expensive. Does this indicate some shift in your thinking about hurdle rates of return for your ever growing asset base and or your prospects for an elephant sized acquisition? Well, that's a good question. I would incidentally, I would say in the Q1 actually stocks didn't rise, but they've risen a lot in April, but they didn't go down either. I mean they were pretty much flat and we did invest $5,000,000,000 or so in equities. Did we change our standards? I don't think so. But you can't be 100% sure that you haven't if you haven't had a date for a month, you may say that was a girl you would have dated the 1st day, but who knows? So I don't know for sure the answer, but I think we would have dated that girl the 1st day. And the second question in terms of does it reflect giving up on finding an elephant to acquire in terms of a business? The answer to that is no. We've got plenty of money available and we would sell stocks if we really I mean that would not be a problem if we really needed to, to buy a really big business. So, we're as prepared as we've ever been prepared to buy a big business outright. We hope we do. We hope we buy relatively small ones if they're attractive. We bought a very attractive business, TTi run by Paul Andrews, terrific business in the Q1. And I wish it was 5 times the size, but maybe it will be someday. But we know that we're in with the kind of person we want and the kind of business we want. And if we find larger ones one way or another, we'll swing them. Charlie? Yes. The one thing I think we can promise you is that we won't make returns on average and the kind of stuff we're buying now like those that we made 10 or 15 years ago. We won't come close. No. It's a different world with more modest expectations. And we hope you share them. Let's go to number 1. Hello, Charlie, Warren, Bill Paparella from St. James, New York. Warren, I brought my 10 year old daughter, Gina, with me. She asked me last summer, how do I get rich? So I gave her your letters, writings, even gave her Charlie's Almanac. So she's been reading ever since, asking me a lot of questions. So I said, maybe we'll go to our first meeting together. Is she married? I mean, she's the kind of girl that I want my granddaughter or grandson to meet. So we're learning together. Warren, my question for you, is in regards to your recent charitable gifts. And if I could start by saying that I mean no disrespect. You're my hero. So and nor nor is it political. You're doing fine so far. Okay. I am as a father of 5 daughters, perplexed and upset, that one or I've read that one or more of these foundations is a big supporter of Planned Parenthood and, abortion rights. If you were to go on the Planned Parenthood website, you would see a website that promotes promiscuity, goes out of its way to support, Internet porn. Now let's let's get to the question, please. Do you have a question? The question is, Warren, I was hoping that you could speak to the 1,000,000,000 of dollars that's been allocated with an agency as Planned Parenthood that is very well funded. It just doesn't seem to jive with the hero that I study and I was hoping that you could speak to it. Yeah. Well, I'll be glad to speak to it. I think it's a terrific organization. And I really think it's too bad that for millennia, you know, women, not only in the United States but all over the world, you know, have had involuntary bearing of babies forced upon them and usually by a government run by men. So I don't think we want to get into a we don't want to get into a cheering contest here, but I I think that it's a very important issue. I think it tends to have a small natural funding constituency because it isn't a popular type thing where it's like sticking your name on a hospital or something like that. But I would say that, if we'd had a Supreme Court with 9 women on it starting, when the country became the United States that, by now, I don't think a question like yours would even be being raised. You know, men set the rules for a lot of years and, I think it's wonderful that a woman can make reproductive choices. But, you know, we've got a lot of people to disagree with me on that. I've got a lot of people to agree with me on it and I hope you'll respect my opinion as I do yours. Thank you. Number 2, please. Hi. I'm Bob Klein from Los Angeles. Pursuing your earlier comments on Sigmas from a different angle, the conventional wisdom in the investment world is that an investment's risk can be measured by the volatility of the price of the investment in the marketplace. To me, this approach has it backwards since changes in price are determined by the changes in the opinions of investors in the marketplace, why would a rational investor substitute the opinions of the marketplace as reflected in the volatility of the price for his own assessment of the risk of the investment? And consultants take this idea further by tracking the volatility of a portfolio manager's results in an attempt to measure risk. So could you guys expand on your thoughts on this? Yes, volatility does not measure risk. And the problem is that the people who have written and taught about volatility do not know how to measure or taught about risk, do not know how to measure risk. And the nice thing about beta, which is a measure of volatility, is that it's nice and mathematical and wrong in terms of measuring risk. It's a measure of volatility but past volatility does not determine the risk of investing. I mean, actually take it with farmland here in 1980 or in the early 1980s, farms that sold for $2,000 an acre went to $600 an acre. I bought one of them, when the banking and farm crash took place and the beta of farms shot way up. And according to standard economic theory, market theory, I was buying a much more risky asset at $600 an acre than the same farm was at 2,000 an acre. Now people because farmland doesn't trade off and then prices don't get recorded, they would regard that as nonsense that my purchase of $600 an acre of the same farm that sold for 2,000 an acre a few years ago was riskier. But in stocks, because the prices jiggle around every minute and because it lets the people who teach finance use the mathematics they've learned, they have in effect, they would explain this away a little more technically but they have in effect translated volatility into all kinds of past volatility in terms of all kinds of measures of risk. It's nonsense. Risk comes from the nature of certain kinds of businesses. It can be risky to be in some businesses just by the simple economics of the type of business you're in. And it comes from not knowing what you're doing. And if you understand the economics of the business in which you are engaged and you know the people with whom you're doing business and you know the price you pay and is sensible, you don't run any real risk. And I don't think Charlie and I, certainly at Berkshire, I don't think we've ever had a permanent loss in marketable securities that was 1% maybe, 0.5% of net worth. I made a terrible mistake in buying Dexter Shoe which cost us a significantly more than 1% of net worth where I bought an entire business then. But I was wrong about the business. It had nothing to do with the volatility of shoe prices or leather or anything else. It just was wrong. But in terms of marketable securities, I cannot recall a case where we've lost it. I mean, we've done a lot of things in securities that had a very high beta. We've done a lot of things in securities that had a low beta. It's just the whole development of volatility as a measure of risk. It's really occurred in my lifetime and it's been very useful for people who wanted a career in teaching but it is not we've never found a way for it to be useful to us. Charlie? Well, it's been amazing that both corporate finance and investment management courses as taught in the major universities, we would argue it's at least 50% twaddle. And yet these people have very high IQs. One of the reasons we've been able to do pretty well is that we early recognized that very smart people do very dumb things and we tried to figure out why. And we also wanted to know who so we could avoid them. And We will not run big risk at Berkshire. Now we will be willing to lose as I put in the annual report $6,000,000,000 in a given catastrophe but our catastrophe business run over many years is not risky. A roulette wheel will occasionally pay off at 35 to 1. That sounds like you're paying out an awful lot of money compared to the amount bet on one number. But I would love to own a lot of roulette wheels. Number 3. Hi. My name is Stuart Kaye and I'm from New York City. Warren and Charlie, you spend a lot of time evaluating the management quality and integrity of the companies that you may invest in. In my current job, I do not have the opportunity to do that. As I read through annual reports and financial statements, what do you suggest I focus on to help me to determine the quality and integrity of management? Well, you can we spent many, many years and we've bought many things. I mean, without meeting managements at all, having any entree to them, The stocks, the 5,000,000,000 of stocks that we may have bought in the Q1, most of those were companies I've never met the management, never talked to them. We read a lot. We read annual reports. We read about competitors. We read about the industries they're in. In terms of sizing up management, obviously if we're going to buy the whole business, that's a different question than you because we're going to buy it, be in bed with them, they're going to run them and we care very much about whether they're going to behave in the future as they have in the past once we own the business and we've had very good luck on that. But in terms of marketable securities, we read the reports. Now, Charlie and I were just talking about one the other day, where we read an annual report of a large oil company and the company, you know, 100 pages, public relations people, lots of pictures, spent a fortune on it and you can't find in that report what their finding cost per Mcf per barrel of oil was last year. That's the most important figure in an oil and gas company over a period of years, but every year it counts. The fact it wouldn't even be discussed, the reason it wasn't discussed, it was absolutely terrible. But the fact it wouldn't even be discussed and to the extent it was touched on, it wasn't done in a dishonest manner. When we read things where we basically are getting dishonest messages from the management, it makes a difference to us. Like I say, in marketable securities, we can solve that by selling the stock and it's not the same thing as buying the entire business. But I think you can learn a lot by reading the annual letters. I mean, for one thing, if it's clearly the product of some investor relations department or outside consultant or something of the sort, that tells you something about the individual. If he's not willing to talk once a year through a few pages to the people who gave him their money to invest, I mean, I've got some questions about people like that. So I like that feeling that I'm hearing directly from somebody who regards me as a partner and you may not get it all the way but when I get a 0% of the way, I don't like it. We've still bought into some in marketable securities, we bought into some extremely good businesses where we thought they were run by people we didn't really like very well because we didn't feel they could screw them up. Charlie? Yes. I think that's exactly right. There are 2 things, the quality of the business and the quality of the management. And if the business is good enough, it will carry a lousy manager. And the converse case where a really good manager gets in a really lousy business, you'll ordinarily have a very imperfect record. In other words, it's a rare person that can take over a textile business totally doomed which is what Warren did in his youthful folly and turn it into what's happened here. You should not be looking for other warrants on the theory there under every bush. I figured it out in 20 years though. I'll have to say that for myself. 20 years and I finally figured out I was in the wrong business. But there are business if you gave me first draft pick of all the CEOs in America and said it's your job to run Ford Motor now or pick a company that's in a terribly tough business, and I wouldn't do it. I mean, it's just too tough. They may get it solved. They get cooperation from unions and a whole bunch of things. But it will not be solely in the control of the CEO who has that job. He is dependent on too many good things happening outside to say that he alone can get the job even if he's the best in the world. Number 4. Hi Warren. Hi Charlie. I'm Walter Chang from San Jose, California. My wife and I are expecting our first baby boy in July and we're going to name him Warren after you. You're trying to get into my world again. I'm rooting for you for the next one. I'd move him further down the line, maybe number 5. Warren and Charlie. Warren, if you were writing a follow-up to the very prescient Forbes I'm sorry, Fortune Magazine article from November 1999 in which you were talking about the lean and fat 17 year periods. What would you be writing? And since we're halfway through this 3rd 17 year period, how is it turning out based on your expectations from back in 1999? Yes. The 17 years, of course, I had a little fun with because of the fact that there were 2 17 year periods and there are also 17 year locusts. So I stretched it a little from a literary standpoint, but there's nothing magic about given spans of time. There was something very different between the 1st 17 years of that 34 year period and the second 'seventeen and I use that for kind of a dramatic contrast. If I were writing something now, I would say what I said just a little earlier in response to Frank Martin's question that it is if I had to own, long bonds or long term position equities, I'd rather have equities, but I would not have high expectations for them but I would have expectations beyond 4.75%. How much beyond, I'm not sure. But something enough beyond 4 3 quarters percent that I would rather own equities than bonds. I did not feel I felt in 1999 that people were extrapolating the experience of the previous 17 years and assuming there was something magic about owning equities and expectations of the people were bound to be the people were bound to be disappointed. They simply had an unrealistic view by extrapolation and that was the main purpose of that article. But if I were writing something now, I would not have high expectations for equities, but I would have better expectations for equities than for bonds. Charlie? Yes. And I would say that since that article was written, the results from owning equities have been pretty lean at least compared to what happened in the glorious 17 years that preceded. So Warren has been right so far and he's probably right now when he says modest expectations. You really don't have in markets, you can't say something terribly important or intelligent every day or every week or every month. That's one of the problems of if you went on television too often or had to write weekly letters or something of the sort. Every now and then you get something extreme. I mean, I did close down the partnership in 1969 and an 'seventy four. I gave another interview in 'eighty one or 'two. I mean every now and then things really get out of whack and but the gradations in between, they're too tough. But the nice thing about it is you don't have to have an opinion every day or every week or every month. If you own some good businesses and you bought them at the right price, if they get to a silly price, you probably should sell them. And if you find that everything is extremely cheap like in 74, you should put every available dime into equities and that's what we've tried to do. Number 5? Yes. Thank you, gentlemen, and for this opportunity to ask you a question. My name is Ronnie Pellegreen and this is my 14 year old daughter, Mikaela. We are here representing 100 of ocean commercial hook and line salmon fishermen and their families from the West Coast. They are barely hanging on to their livelihoods because of the Klamath River crisis. My husband is a 4th generation hook and line commercial fisherman from Eureka, California. His family has fished for the last 100 years. Last year, our commercial salmon season was completely shut down because of the crisis in the Klamath River. It is caused by the 4 lower hydroelectric dams owned by your subsidiary, Pacific Corp. We personally took a 95% hit in our income, excuse me, and we had no way to make up that loss. We have used our savings and were forced to take out a Small Business Administration disaster loan to meet our financial needs. Our daughters were so upset after overhearing my husband and I last Christmas. They came to us wanting to give us all the money in their bank accounts. I am telling you this, gentlemen, and shareholders, because you and the shareholders can help. Under Klamath Dam relicensing, it is shown that this dam removal makes economic sense for Pacific Ore and Mid American. You are a great businessman who have built an incredible empire. We sure could use your creativity and expertise in solving this crisis situation so the Indian people along the river and we in the coastal communities can continue our long and proud heritage. People back home are eagerly waiting for me to bring a response back from you. My question is, what can I tell them is your position on removing the outdated Klamath dams? Yes. Our position on it is quite simple. The FERC and several of the regulatory commissions have before them 27 different proposals or positions by various interest groups. Some like hydro power, which is what comes from the dams because it does not generate the emissions that come from coal or gas fired generation. Some like the fact that hydropower is cheaper, several 100000 consumers. Some people have been hurt by what you describe in terms of the fish and you have a public policy question which will not be determined by Pacific Corp. It will be determined by FERC because they represent the public. The fact the Secretary of Interior has advised FERC that it's a very tough question. FERC will be have hearing they will listen to the positions. The Oregon and what Utah, California perhaps, public utility commissions will be listening to the arguments and in the end, we are a public utility responding to public policy, public policy weighing both your interests and the interests of others in the matter. We'll come to a determination and Pacific Corp will do exactly what they say. We are responsive to the people that regulate us just as people have been in that position since the first dam was put in 1906. So that is entirely a question for FERC and the and the state commissions. Number 6. Good afternoon, Mr. Buffet and mister Musker Munger. Thank you for taking my question. This is my second time at the Berkshire Hathaway meeting that I have attended. My name is Cameron Sparrow. I am 13 years old and from Boulder, Colorado, Colorado. My question is for Mr. Buffet. Mr. Buffet, what is your opinion about the merger of the New York Stock Exchange with the Euronext? Do you think this that the merger will have a positive or negative effect on the market? Well, I really don't know the answer to that. My guess is that, I mean both of those institutions were very large institutions beforehand and we would judge a positive effect in terms of narrowness of spreads as an investor in terms of cost of execution and that sort of thing. Mike, both places have been very efficient in the past. I mean, we pay quite low payments although my broker is here, we could probably should be paying even less. But both the New York Stock Exchange has gotten far more efficient in terms of costs from 30 years from the days of fixed commissions back in the early '70s and before that. I mean, it's a fraction of the cost. And the real test from our standpoint is do we get better executions and less costly executions. And like I say, both institutions were big, big effective institutions before. If they get a little more efficient, I hope it gets passed on to the customers, but it may just result in larger profit. But we're pretty satisfied, quite satisfied actually with the functioning and the New York Stock Exchange is where we do most of our business. But we've done business, we've been buying international stocks and we've had generally good executions throughout the world. So it's not a source of either concern or enthusiasm to me. Charlie? I don't know anything about it. I don't either but I took longer to say so. Number 7 please. Mr. Buffet and Mr. Bunker, thanks for hosting this wonderful meeting. My name is Chandra Chawla and I'm visiting from Seattle, Washington and I think Berkshire Hathaway can contribute to the reduction of global warming if for next year's shareholder meeting, Mr. Gates and I fly on the same plane. My question is I have made a few mistakes in business by trusting the wrong people. So in and I don't know where to learn how to trust the right people. They don't teach you that in business school and the people who are supposed to teach you in the corporate world sometimes betray you. So how can I learn who to trust and who not to trust? Boy, it's a great question but you probably have about as good a chance of getting a good answer from me on that as you have of getting on Bill Gates' play next year. But I get letters all the time and I hear from people who have been taken advantage of in financial transactions. And it really is it's sad. And a lot of it isn't even, it's not fraud or anything. For one thing, I mean just the charges involved, the frictional costs and the baloney that is presented is tough. Charlie and I have had very good luck in terms of buying businesses and putting our trust in people. It's been just overwhelmingly good but we filter out a lot of people. And then they say, well, how do you filter them out? I would say and I think Charlie will agree with this. People give themselves away fairly often and maybe it does help to have been around as long as we have in seeing the various ways they give themselves away. When somebody comes to me with a business then I probably shouldn't tell this publicly because they'll probably tailor their approach subsequently. But when they come, just the very things they talk about, what they regard as important and not important, there are a lot of clues that come as the subsequent behavior. And like I say, we've really had a batting average I wouldn't have thought we would have had in the people that we've joined with but it hasn't been 100%. It's been well above 90. Percent. And I get asked that, I mean, how do you make those judgments? And I don't know, Charlie, can you articulate the way we do it? Well, partly we're deeply suspicious when the proposition is too good to be true. Warren once introduced me to a gentleman promoter who wanted to inveigle us into an insurance program and he said, We only write fire insurance on concrete bridges that are covered by water. He says it's like taking candy from babies. We are able to filter out propositions like that. Yes. Anybody that implicit in their comments or what they kind of laugh about or all kinds of things in terms of the fact it's so easy and it ain't that easy. We get suspicious very quickly. And the truth is we rule out 90% of the times and we may be wrong about a fair number that we're ruling out. The important thing is whether the ones we're ruling in we're right about. And so we don't mind we're looking for the obvious cases of people you can trust. I mean, go back to 1969 again, when I was thinking about who to turn my partners over to, all kinds of people with great records. That was a hedge fund. That was the first heyday of hedge funds. There were books written about it, New Breed and Wall Street and so on. You can look them up. And dozens and dozens and dozens of people with good records. And when I sat down and thought about I'm going to write my partners and tell them who to turn over all their money to because most of them had 100% or something close to it with me. Charlie, Sandy, Bill, Raulain. I couldn't have told you which of the 3 was going to do the best. And I couldn't even tell you those 3 would have done better than 5 others that somebody else might pick. But the one thing I was sure of, it was that they were going to be sensational stewards of money. They were going to care more about those people, the people that were turned over to them and getting the best result possible than they were going to care about whether they made X or 2X this year in terms of commissions or fees or any of that sort of thing. Anytime I find somebody with what I regard as an unfair fee structure and saying what I can get it, well, I rule them out. I may rule out some of the wrong people but the ones that are left in, I feel very good about. And I wish I could give you better advice than that but that's all I can do. 8. Yes. Mr. Bruffett, Mr. Munger, thank you again for being so generous with your time with us every year. I'd like to follow-up on the question from the gentleman from Australia and from Munich on valuation. The gentleman from Australia asked about margin of safety and you replied that a superior business may not require that much of a margin of safety. And my follow-up would be is does that suggest market rate of returns going forward for superior businesses? And then on the Munich valuation in which you cited a farm example on discounted cash flows, I'm very curious how you come up with your discount rate and how you might adjust that discount rate based upon various businesses. You might want to discuss your discount rates used for Coca Cola, J and J or some of your past investments? Yes. We don't formally have discount rates. I mean every time I start talking about all this stuff, Charlie reminds me that I've never prepared a spreadsheet. But I do in effect in my mind, I do. But we are going to want to get a significantly higher return obviously in terms of cash produced relative to the amount we're outlaying now for a business than we are from a government bond. I mean, we're going to that has to be the yardstick at a base. Then how much more do we want? Well, if government bond rates were 2%, we're not going to buy a business to earn 3% or 3.5% expectancy over the years. We just don't want to commit our money way. We'd rather sit around and wait a little while. If they're 4.75%, what do we hope to get over time? Well, we want to get a fair amount more than that. But I can't tell you that we sit down every morning and I call Charlie in Los Angeles and say, what's our hurdle rate today? I mean, we've never used the term. It's a little bit of the we want enough so that we feel very comfortable if they close on the stock market for a couple of years, if interest rates go up another 100 basis points or 200 basis points, we're still happy with what we bought. And above that, I really I know it sounds kind of fuzzy but it is fuzzy. Charlie? Yes. The concept of a hurdle rate makes nothing but sense and yet a lot of terrible errors are made by people who are talking about hurdle rates. Just because you can measure something and guess it doesn't mean that it's the controlling variable and what you're dealing with in a messy world. And I don't think there's any substitute for thinking about a whole lot of investment options and thinking about why one is better than another and what the likely returns are from each etcetera, etcetera. And the trouble with the hurdle rate concept, not that we don't have 1 in a sense, is that it doesn't work as well as a system of comparing things. In other words, if I have something available that I think will give me 8% for sure and I can buy all I want of it and you've got a perfectly good investment that I think will earn 7. I don't have to waste 5 minutes with you. You're like the mail order service offering the bride through the mail and she's got aids. I can go on to some different subject. And so this the concept of opportunity cost is it's so little taught in investment. They teach it in the freshman course in economics in all the major universities. But when you get to the corporate finance departments and so forth, it doesn't lend itself to them kind of mathematics they want to use so they ignore it. But in the real world, your opportunity costs are what you want to make your decisions based on. Yes. And even if you had something that you're really familiar with and we're very sure on the 8%, 8.5% wouldn't tempt you if somebody came along as a practical matter of being. As I mentioned, I've been on 19 corporate boards. I would say that of the presentations I've seen and I've seen a lot of them and every one of them had a calculation of internal rate of return, if they burned them all, the boards would have been better off. I mean, there is so much nonsense presented because the presenters essentially know what the listeners are desirous of hearing and what is needed in order to get through something that the CEO wants to do anyway that you just get nonsense figures. And we may get nonsense figures too but they're ours. Let me give you an example of that. I have a young friend who sells private partnership interests to investors. He's in a really tough field where it's hard to get decent returns. And I said, What return do you tell them you're aiming for? And he said 20%. And he said, how did you pick that number? He said, if I chose any lower number, they wouldn't give me the money. And there's no one in the world we think can earn 20% with big money. I mean it just so anybody making a promise like that, basically, we're going to write off immediately. It's amazing to me what in a sense how gullible big investors are pension funds and so on and that they have people come around and promise them the holy grail and they wanted so badly that they're willing to believe things that just have to be nonsense. Let's go to number 9. Good afternoon, Mr. Buffet, Mr. Munger. My name is Robert Peyton and I'm from Chicago, Illinois. Over your careers, has there been any question either personally or professionally that you haven't been able to get a comfortable answer to that you cannot simply put in your too difficult pile? Thank you. Charlie? Well, sure you get problems. May I just ask one? Sure. If you got a child dying of some horrible disease, you have a problem you can't just put in a too difficult pile. So there are lots of things in life that come to you that you where you have no option to not consider the issue. But where it's voluntary like choosing one investment for many from many, then the too difficult pile is a marvelous way of sifting your daily grist. Yes. I have a file on my desk. Laura Graham gave it to me. It's entitled Too Hard. And as Charlie said, if something is optional and it's too hard, you just throw it in there. If you got the problems of weapons of mass destruction, it is too hard but just you have to keep wrestling with it because if you even reduce the probabilities a tiny bit, you're doing something, but you're never going to solve it. You just have to keep working at certain types of problems and you hope you don't have too many like that. 10. Another many greetings from Germany. I am Bernard Jarden from Fluhren Winselm, a little town close to the Black Forest, and I'm the mayor of it. My question to Mr. Buffett and Mr. Manger is, how often do you review each single position in your portfolio? Some look at their stocks every day, sometimes more, some only once a year. What is your frequency? Thank you. Well, that sort of breaks down into 2 periods of my life. When I had more ideas than money, I was thinking about everyone all the time because I was thinking about buying the next one and which one I would have to sell in order to buy something even more attractive. So my opportunity cost as Charlie would put it then was the least attractive stock which I would give up to buy something more attractive. So I literally if I had $100,000 and it was all invested and I wanted to put 10,000 or 20,000 as something I felt was more attractive, I would be thinking all the time of which one of these do I unload. Now our situation is such that we have more money than ideas and that means that we really aren't reexamining something every minute because the option is cash and not doing something that we really are excited about. We still think about the businesses we're in, whether they're wholly owned or whether they're partially owned through stocks. Think about them all the time. I mean, we've got a lot of information filed away in our minds and you keep getting little incremental bits about that company or the competition or other things going on. So it is a continuous process, but it's not a continuous process with the idea that daily activity or weekly activity or monthly activity is going to resolve. It's just we want to just keep adding to our thinking, the knowledge refining it further about every business that we're in. If we needed some money for a very big deal, for example, let's say we needed $20,000,000,000 or $30,000,000,000 or $40,000,000,000 and we had to decide to sell $10,000,000,000 of equities just to pick a figure, we would use the information we've been collecting daily which hasn't really meant much as we've gone along and then we would come to a decision about where we raise the $10,000,000,000 Charlie? Yes. But even in Warren's solid days when he had way more ideas than he had money, he did not spend a lot of time thinking about his number one choice. He could put that aside and devote his efforts to other subjects. Number 11. Good afternoon. Charles Frischer from New York. In the last 18 months, the company has allocated at least $1,000,000,000 to 4 or 5 publicly traded companies. Berkshire has an abundance of capital and a scarcity of ideas. Since these stocks investments were made in large cap companies in which we could have probably made $5,000,000,000 in investments. Have you thought about allocating more capital to each stock investment? Yes, we do think about that obviously and there are certain ones that we have added 1,000,000,000 of dollars to that we already had substantial positions in a couple of years ago. Obviously, when we add to the present list, we think we're adding to the ones either that look the most attractive to us or to the ones that we can just buy. I mean, there are some things where we can't put that much money in or where we will hit reporting thresholds that will cause a problem. If we own over 10% of a company, if we can't sell a share of it then for 6 months without it being if there's a profit of being recaptured pursuing to a short swing rule. So there's some technical things that enter into whether we cross certain thresholds of ownership size. But if you look at the portfolio at the end of 2007, you're going to see that certain positions in there from 2,006 have probably been increased by 1,000,000,000 of dollars and that's always something that I'm considering and Charlie is considering. We like to add the present positions. I mean those are companies we know, understand, obviously like to some degree and if the price gets reasonably attractive and we got money around, we will add. If we can find a good business to buy, we will sell the least attractive. Charlie? Yes. It isn't as easy as it looks to buy these big positions. When we were buying Coca Cola, we were buying every share we could with what 30% or 40% of the daily trading. Yes. And it took us a long, long time to get our position. And so there are huge difficulties to managing great big common stock portfolios. We like it way better when we have those problems now than we liked it when we didn't have them early. But it does make it much harder. We have no easy way of moving these elephants around. In general, we think we usually can buy something like 20% of the daily trading volume and feel that we're not causing the price to be violently different than it would have been if we hadn't been participating in the market. So that means if we're going to buy $5,000,000,000 worth of something, dollars 25,000,000,000 worth of it's going to have to trade. And that's a lot for many stocks. So it's we are a big ocean liner and that has its disadvantages compared to being a smaller boat. Number 12. My name is Wendy George and I am from the Hoopa Indian Reservation in Northern California. I'm here with the Yurok and Karuk indigenous people who live along I don't know whether the microphone isn't working or not, but we want to make sure it is working. Who live along the Klamath River. My people are river people. Our entire culture, religion and subsistence is centered around the river. Your subsidiary company Pacificor owns dams on our river. Mr. Buffet, I know you care very much about humanity and ethical business. We also understand that you cannot exercise direct control over Pacificor's Pacificor's operations. However, there are things you can do to help us. So we are here to ask you if you would be willing to meet with the tribal representatives, learn more about our issues and explore ways to help save our salmon. Are you complete or just take your time here? Complete. Okay. As I said earlier, we will not make the determination in the end. It will be made by FERC. It's the same way as if we're going to put in a coal generation plant or a gas generation plant or more wind powered. For example, we put in a lot of wind power in Iowa but that was decided essentially by the utility commission in Iowa that they wish to make that decision. And incidentally, sometimes people are unhappy when we put in wind because they don't want the transmission lines that are going to be involved. They're usually happy to give us the plots on which to put the wind turbines because they get paid very well for it but they're not happy to have the transmission lines. And there anytime you get into the public utility field, there are people happy and unhappy with decisions. Nobody wants a generating plant built near them and that's the nature of it. The world does want electricity and because it wants electricity and it wants more electricity, it essentially has to decide the public policy issues through regulatory authorities. When we will do exactly what FERC finally and with the consent of the state commissions, but they finally decide on it and all of the arguments will be presented to them. As I say, there are 27 groups, I believe. And then they go and then they get the opinion of the secretary of the interior and so on and a lot of other groups. And somehow, they come out with a decision on public policy and we will follow it. It takes a lot of time too, I must say. Anytime you've got an issue that's got 27 different views and more than one authority, it's going to take significant time. I'm in a peculiar position on this because when we bought Pacific Corp, we had the Walter Scott and I both signed affidavits as part of the acquisition of Pacific Corp. The Oregon Public Utility Commission required that we submit these affidavits and I'll read you from this. I don't want you to think I'm ducking behind us but this was executed several years ago and it says, I agree, I will not exercise any control directly or indirectly on matters that pertain to Pacific Corp except for relating to Pacific Corp that are ministerial in nature. And then I agree as a Mid American holding company and Berkshire Hathaway directors, I will recuse myself from voting on on Mid American holding corporate Berkshire Hathaway board of director matters concerning Pacific corporate activities or operations. This is part of the order that came down that allowed Mid America to buy Pacific Corp. I must say too that in terms of the Oregon commission and the 5 other states that our application went through an almost record time because Mid American does have such a good record in terms of being responsive to the public utility commissions under which it's operated and we will continue to be responsive. But I appreciate your point. Thank you. Number 13, please. Peter Vandenbrooke, Cleveland, Ohio. Mr. Buffet, Mr. Munger, thank you for so eloquently answering some of these tough questions. I know of no other public company that would allow a forum such as this. You're doing a great job. My question is a follow-up question to the Katrina aftermath situation regarding policyholders with insurance companies and the tussle between coverage and what's the proper remedy for those that suffered after such a storm. Part of that tussle or one of the results of that tussle was some legislation that was passed in the State of Florida. Could you please explain that legislation as you understand it to shareholders? And what effect, if any, does that have on Berkshire's insurance subsidiaries? Thank you. Yeah. I can't tell you with precision with the Florida. Don't know whether Joe, Brandon or Ajit or Tad Montross, if they're in the managers group, if somebody could pass the citizens by a considerable margin than it did before but there are some significant limitations on that. And I think if we've got a microphone with 1 of the 3 of them, they could answer that question better than I. Do we have somebody over there? Are they all out writing insurance or More likely buying jewelry. Who do we have? It's impossible for me to see over there with the lights but I'm getting a mic. Hello? Morning. It's Joe. Took me a little time to get here. I was looking for a g. What was the specific question? I think the question I think the questioner wanted to know what has really happened in Florida in the last 3 or 4 months in terms of the state getting involved in the homeowners insurance business. Well, back in mid January, the Florida legislature met in a special session and passed legislation at the urging of the Governor that expanded the reinsurance fund and ultimately is moving a lot of risk both personal lines, commercial lines from the private market to the public market. And this is going and has manifested itself in lower prices for wind risks in Florida and has freed up capacity that was dedicated to Florida for other markets. So ultimately it's going to have a depressing effect on the insurance industry. Longer term, there is no free launch and the state and the citizens of Florida are taking a tremendous amount of risk and it will all work out if the wind doesn't blow. But the odds are eventually it will and Florida is going to have a large public policy issue to deal with. Joe, are they explicitly taking out about $30,000,000,000 and then sort of leaving it in the laps of the gods above that? I'm not sure myself. Yes. I believe they take out about $30,000,000,000 It's about the increase was $12,000,000,000 to $16,000,000,000 So they previously had taken about 18,000,000,000 out and they took an additional $12,000,000,000 to $16,000,000,000 Yes, the real problem will be if there turns out to be $100,000,000,000 insured loss and then, the state may decide to issue $60,000,000,000 or $70,000,000,000 of bonds. They may decide to go to the federal government and say this really isn't our fault and therefore the entire country should pay in some form. Who knows what will happen and the truth is it's very unlikely that a $100,000,000,000 storm occurs. The biggest one was Hurricane Andrew which trended through inflation to present day, probably wouldn't quite hit 30,000,000,000 but if that same storm come through as a category 5 about 20 miles north of where it came where it hit, you would have or you could easily have something like $100,000,000,000 storm. So you're going to have to stay tuned on that And if they don't have any hurricanes in the next couple of years, the whole matter will die down, big hurricanes. And if they have a $100,000,000,000 storm, they will probably go to Washington and we will find out whether the whole country has been ensuring hurricanes in Florida or whether the federal government will throw it back to the State of Florida and the State of Florida would presumably issue a lot of bonds and taxes would go up and in effect you would distribute insurance might uninsured losses in relation to the proportion people pay of the general tax revenues of a state like Florida. It's tough to be where the wind blows a lot, but it's also a very nice place to live apparently. So we will find out how it plays out. Number 14, please. Steve Rosenberg, originally from Michigan. Thank you very much for continuing to serve as excellent role models and for the values that you continue to teach by example. I'm curious to know who are your present day role models. And I know that your prior heroes included your father, Ben Graham and Davey, but would be curious to know who in addition to those 3. Thank you. Well, I've had a number of them and I'm not sure I want to name them because I it's the ones you don't name. They might feel a little left out. But the one thing I've been very lucky on is that the ones I've had have never let me down. So I have never had that experience where you've looked up enormously to somebody and then had that person let you down in some way which would be a terrible experience and very hard to get over it. And I'm sure some people have had that in marriage and they've had it in business and the worst situation of course is if you have it with your parents. But that did not happen. In fact, the reverse happened with me. So, I can just tell you that choosing your heroes is very important. I tell that to the students when they come because you are going to gravitate toward the behavior of those around you. I tell people to be sure and associate with people that are better than you are. Marry up, you know, and and hope you find somebody who doesn't mind marrying down. And it will do wonders for you. It was a huge help to me. I can tell you that. Charlie? Yeah. I would say that you're not restricted to living people and picking your mentors. Some of the very best people are dead. Well, with that, we better go to number 1. Hello, everyone. My name is Kendall Berbrueacre. I'm a senior from Purdue University in West Lafayette, Indiana. I have my resume screen printed on my shirt. Charlie and Warren, I brought a shirt for each of you as well as one for Deb Ray, who is responsible for my presence today. Additionally, I have a strong interest in social entrepreneurship and the Gates Foundation and would love to offer a shirt to Bill if he is willing to accept. Now I had an overly technical question about the historic rate of economic growth and why it's 3% as opposed to 2 or 5. However, given my circumstances, I feel it is more appropriate to ask if I made a sound economic decision to make this trip to Omaha to display my own intrinsic value and to turn down the $500 that the man just offered me for my spot in line to 27,000 people and to learn from you or if I would have been better off charging the equivalent amount to my American Express card on See's Candy and Coca Cola. Thank you. And again, my name is Kendall Bruyere. Thank you. I thought your question was going to be what shirt size we wore, but Mine is small. I think we'll move on to number 2. Tom Nelson, North Oaks, Minnesota. This one is for Charlie. What are your current views on the costs and benefits of ethanol production in this country? Well, you know, even McCain has had a counter revelation lately. He's decided that ethanol is wonderful now that he realizes that that's the way they think in Iowa. I'm somewhat in his position here but I won't allow that to stop me. I think the idea of running automobiles on corn is one of the dumbest ideas that has gotten widespread acceptance that I have ever seen. But in a government with a lot of political pressures, weird decisions get made but that has to be about as crazy a decision as was ever made. You want a social safety net under people and the most basic safety net of all is food. You're going to raise the cost of food so you can run these automobiles around and you use up just about as much hydrocarbons making the corn as you get out of the ethanol. Now, I would say that and you don't count in the cost of the ethanol, the cost of the topsoil that goes away forever when you it's I love Nebraska. I'm a Nebraskan to my core but this was not my home state's finest moment. We're going to try and smuggle him out of town tonight. I should make one announcement. In terms of the books at the bookworm outside, Jerry Goodman, a friend of mine from way back, wrote a book many years ago called Super Money which he just brought out a new edition. They actually flew those in. They arrived here at the auditorium about 9 or 10 or 11 o'clock I guess this morning. And the new revised issue of Super Money is now out there in addition to all the other titles and I would feel remiss after all the trouble they went to if I didn't mention that to this group. It's a very good book. Jerry was a great writer. He wrote The Money Game which was a classic and Super Money is a good book too. Let's go to number 3. Good afternoon, gentlemen. Paul Wigdorff from Montclair, New Jersey. What are you doing to protect our company's portfolio against the perils of inflation? Specifically, are you looking at further currency investing and metals investing? Well, we would not necessarily look at metals investing as being any protection against inflation at all. But the best protection for inflation is your own earning power. I mean, somebody that is a first class surgeon or lawyer or teacher or salesperson or anything else, whether the currency is seashells or paper money or whatever, we'll do all right in terms of commanding the resources of other people. So your own earning power is your best is the best hedge against inflation. The 2nd best hedge is to own a wonderful business, not a metals business necessarily, not a raw material business, not a minerals business but a wonderful business. And the truth is, if you own Coca Cola, if you own Snickers bars, if you own Hershey bars, if you own anything that people are going to want it to give a portion of their current income to keep getting and it has relatively low capital investment attached to it so that you don't have to keep plowing tremendous amounts of money and just to meet inflationary demands, that's the best investment you can probably have in an inflationary world. But inflation is bad news for investors under almost any circumstances. You can argue that if you owned some business required very little capital investment and had real flexibility of price during an inflationary period so that people will continue to give up a half an hour of work of their own work every month to buy your product and you leveraged it, then you might even beat inflation to some extent but leverage is not our game. But we try to own good businesses. I think that Berkshire would not do as well during high rates of inflation at all as it does in real terms as it does in periods of low inflation. But I think we would do better than a good many companies. Charlie? I've got nothing to add. Number 4. Hello Warren and Charlie. My name is Felton Jenkins. I'm from Savannah, Georgia. I've been a shareholder for a number of years and this is my 3rd annual meeting. Thanks to you guys and thanks to your managers and all your employees for the great job. Just briefly follow-up on one thing. It's been published in the Washington Post, LA Times, a number of media outlets that the FERC, the California Regulatory Commission, the Department of Interior had determined that it would save between $100,000,000 to $200,000,000 to decommission the dams and find alternative power versus doing the capital retrofit. But anyway, my question is, what can you tell us about your views on the future profitability of the railroad industry and what might make that more exciting going forward versus what it's done historically? Thank you. Yes, thank you. I don't think it'll be a lot more exciting but the relative the competitive position of the rails has improved somewhat from really not a very good competitive position 20 or 25 years ago. There have been a lot of progress made on the labor front. They benefit in their competitive position visavis trucking as oil prices go up. Higher diesel fuel obviously raises costs for rails but it raises costs for their competitors, the truckers, by probably a factor of close to 4 compared to how it hurts them. And there isn't a whole lot of new capacity being created in the rail industry. So what was a terrible business 30 years ago and it was operating under regulation, It still operates under the threat of reregulation which has a tempering effect on their pricing power. But it's a better business now. It'll never be a sensational business. It's a very capital intensive business. And when you put tons of capital out every year, it's very hard to earn really extraordinary returns on capital. But if they earn a decent return on capital, it will be a it can be a good business over time And it could be a lot better business than it was in the past. Charlie? I've got nothing to add to that one either. Number 5. Hello, Mr. Buffet and Mr. Munger. My name is Murray Blevins and I am from Bardstown, Kentucky. This is my first shareholder meeting. My question is what do you think are the best ways a 10 year old can earn money? Well, I must say a subject I gave a lot of thought to when I was 10. More than I gave to school and some other things. You have to probably a little young to deliver papers. That was always my favorite. And I got about half half the capital I started with by by delivering papers. And I always liked it because I could sort of do it by myself. I don't know the situation in the town in which you live but like I say, 10 is probably a little young but 12 or 13 would not be. And almost any there can be a lot of little bit. I tried to I must have tried 20 different businesses by the time I got out of high school. The best one was a pinball machine business but I'm not sure I want to recommend that you get into that. When I did, it was a much purer business where you put a nickel in and that was about it. But it is interesting. I read a study a long time ago. I wish I'd get my hands on it because I've quoted it a lot but I've never quoted it as authoritatively as I would be able to if I could actually find the damn thing that I read 30 years ago. But it correlated business success with certain variables. And, you know, they tried grades in school and they tried what your parents did and they tried whether you went to business school, all those kind of things. And they found it correlated best with the age at which you entered got started your first business, got into business. That the younger you were when you did your first piece of business, it seemed to correlate best with later business success. And to some extent that's sort of natural. It's probably true that when you see it in athletics, you see it in music and that sort of thing. So whatever you can figure out that other people will pay you to do that they don't want to do themselves or that they like done for them, I advise you to look around the neighborhood and talk to your parents, talk to your friends, see what other people have done that have been 10 or 11 or 12 years old that's worked for them and copy it. But if you can get a good paper out when you're 12 or 13, that's a sure way to save some money. I've often wondered about people that are having trouble being in debt that have a normal 8 hour job. If they added a route in the morning and just put that aside, it could be the way out of being behind the game instead of being and getting ahead of the game and take another hour and a half out of their day but not too many people seem to do it. Charlie used to sell. Didn't you use to sell yourself the best hour of the day or something, Charlie? I bet. Yeah. Tell them what you did. Well, when I was young, I read that savings bank thing, the richest man in Babylon which taught the joys of underspending your income and investing the difference and how wonderfully it worked overtime. And lo and behold, I did exactly what this little pamphlet suggested and it worked. And the other idea and so I got the idea that I had a mental compound interesting too. And So I finally decided I was just going to give the best hour of the day to improving my own mind and then the world could buy the rest of the time. And that may have been a very selfish thing to do but it worked. Yes. Charlie was selling his time. I don't know what we're getting per hour as a lawyer in those days. Not much. Yes. He just decided to sell himself the best hour and not a crazy thing to do. But I would tell that little girl that if you make yourself a very reliable person and stay reliable all your life, faithfully doing whatever you engage to do, it will be very hard for you to fail at anything you want. Number 6. Good afternoon everyone. My name is Dennis Petrowski. My hometown is West Point, Nebraska and I now live in Omaha with my family. As you may know my mother came from West Point. Thank you Warren and Charlie for your incredible education, generosity and this great meeting. I've attended every meeting since 1994. Warren and Charlie, assuming a necessary margin of safety in the future cash flow estimates and proper adjustments in the discount rates, would you discuss which trends of global economic growth that you think will be sustainable given our holdings in railroads, steel, materials and energy with our modest expectations, enormous trade deficit, tight credit spreads, low risk premiums and explosive growth in emerging economies? Thank you. We think we're in a pretty good group of businesses for the world we face. We don't know which ones will turn out to be the best. There's a few that we think are real super winners and we think a significant number of them will do okay. And we don't try to buy our businesses with the thoughts much of world trends. We certainly think in terms of international foreign competition. I mean, we do not want to buy into a business that has a very high labor content, and that has a product that can be shipped in from abroad very easily because sooner or later that will probably be trouble just like Charlie and I bought into an airline. He came along and tried to rescue me some years ago that had very high seat mile costs and it had protected routes, US Airways. So it was able to operate with $0.12 a seat mile of cost because Southwest hadn't gotten there yet with their $0.08 costs, but they get there. And you do not want to have something whose competitive position is going to erode over time. But I think most of our businesses have got pretty strong competitive conditions and really the variables you name don't bother us. We will play the hand as well as we can and we're playing it with terrific people in very good businesses and we're dealing from strength all the time. You know, we've always got a loaded gun and we think we've got the right values with our managers, the people. I think we got a culture that's owner oriented and we got a lot of things going for us and they won't produce huge returns but they're likely to work okay. Charlie? Well, we learned about foreign labor competition in our shoe business. And in that, it reminds me of Will Rogers who didn't think man should have to learn these easy lessons in such a hard fashion. Will Rogers believed that you should learn not to pee on an electrified fence without actually trying it. Will told Charlie a lot of things he didn't tell me. Number 7. Hello, Mr. Buffet and Mr. Mungal. This I'm Shrinivas Canadian Wall from Fort Lauderdale, Florida. First of all I want to thank you for your efforts in making investors aware of the high transaction cost involved with several investments and I got a lot of personal benefit by reading your articles. My question today is in reference to the declining value of dollars compared to all other major currencies. In last 3 years, dollar declined as high as 25% to 30%. So I want to understand how it is going to impact as a to individual investors and how big is the threat? Thank you. Question is about the declining dollar but I didn't get all the what do we think about it? What are we going to do about it? We think the dollar over time is like less policies are changing in a major way is likely to decline somewhat more against most major currencies and we originally backed that opinion up with transactions that got as high as $21,000,000,000 or $2,000,000,000 in the ownership of foreign currencies and then the carry on that, the difference between interest rates in the various countries made that quite an expensive way to express that belief. So we have focused much more on buying into companies that have that earn lots of money in other currencies on the thought that they will be somewhat favored over companies earning just US. But that's not, as I mentioned in the report, that is not a huge determination of what we buy. It's a factor, but it's not 50% of the decision or anything like that. We are following policies in this country that are likely to cause the dollar to decline in value against many major currencies. And who knows what speed, whether it happens this year or next year, we don't have any idea on that sort of thing. But the fundamental forces are fairly strong. We actually only own one currency now, trade, which would surprise you actually. We'll tell you about it next year. Charlie? Yes. So far, something peculiar has happened. During this exact period of maximum dollar decline in value versus other currencies, The dollar prices at Costco have showed an inflation factor of approximately 0. So what really matters of course is how things are working in your own country. And it's been perfectly amazing how well we've gotten by so far with the decline of the dollar. Yes. As Charlie says, we reference everything in terms of our own country. If you look at oil for example, which we'll say has gone from roughly $30 a barrel to $60 a barrel over the last few years, during that same time the euro has gone from $0.83 to $1.35 So the price of oil, if you're a European, has gone up very little. I mean, we think oil has run wild but in terms of the anybody that's using the euro, the price of oil has gone up about 25% and we think and we feel the price has gone up 100%. So you do have this anchoring of thought to your own currency which is understandable. I do think you'll need to think about currency matters more than Americans traditionally have. I was struck 20, 30, 40 years ago when I would travel elsewhere how much more sophisticated most people in Europe, in the UK, wherever were about currency than in the United States. We never had to really think about it because everything was dollar based and an American didn't have to be smart about currency or even think too much about it in terms of their business. But that world has changed. Number 8? John Norwood from Des Moines, Iowa. A quick question a quick comment and a question. A comment following on, Charlie's comments on ethanol, I would ask him at least to look at the environmental benefits of ethanol as a fuel blend, octane boosters superior to other types of chemical additives such as MTBE which has been so damaging to, groundwater. My question is for mister Buffet and I'm hoping you might be able to tell us a little bit more about your interactions with the board of directors and the types of ideas and idea exchange and perhaps a model for how you believe a board of directors is supposed to function with management? Thank you. Yeah. I would say that most writers and most shareholders probably have a little bit of a distorted version at least. Most corporations, large corporations have operated over the years. Usually for a long time, I would say that directors generally were sort of potted plants. I mean, you sat there and the management had its agenda and didn't really want input on major matters. And Charlie and I can certainly testify the fact that we had that great lack of success even when we are the largest shareholder of a company in terms of talking about the things that really count. I mean if somebody spends their whole lifetime, 25, 30 years rising to the position of CEO, they want to be boss and you can't blame them. And the only thing in their way is the Board of Directors. So they look for people who are big names and they look for ways to keep them happy, but they don't really want them getting into the business very much. There's a lot more process now that's been imposed by the recent rules. But I would say still in terms of the reality of the guts of business and the discussions that take place and all that, I think you might be surprised that the level overall of that throughout corporate America. As I've written in the report, overwhelmingly the job of the Board of Directors is to have the right CEO. I mean, if you've got the right CEO, 90% of it takes care of itself. If you were a director of cap cities and you had Tom Murphy as the CEO, case closed. It was all you needed. And if you have that CEO, I think you have an obligation on the board to make sure that there's not overreaching by the CEO because the CEO can have different interests. And I think the third thing that the board does should do is they really should bring some independent judgment in on major acquisitions because there is a national tendency for people with usually big egos, big motors who get to be CEOs to like to do big things and to become bigger spending other people's money. And normally, when big deals come along, the management by the time it gets there, they've made the deal anyway. They have investment bankers there who go through a little ritual. I've never seen one come in and make a presentation that says it's a dumb idea. I mean they're they know what the answer is supposed to be and it it just becomes kind of a little game. And I so I think in those three respects, a good director will first make an affirmative decision. You've got a very good CEO, not the best in the whole world, not everybody can do that, but a very good CEO that that CEO is not overreaching. And when significant deals come along that they get a chance to weigh in and that you really get a balanced discussion about the real economics of what you're doing. And I would say in that latter point, what I've seen over the years has really been pretty bad but I can understand it because the CEO wouldn't bring in the deal unless he wants it done. And once he brings it in, he's going to stack the deck and make the presentation in such a way that it's almost impossible to exercise independent judgment. Charlie, do you have any thoughts on that? No. I think big deals on average in America are contrary to the shareholders' interest. That's the way to bet. On the acquirer side, usually the shareholders are worse off. Most stock deals, they think about what they're getting and they don't think about what they're giving. I mean, I've had been involved time after time where people are giving a significant percentage of the business which they wouldn't sell at the current market price. If somebody came along with a tender offer 20% higher, they would say that's inadequate. But they hand away a piece of the business because they want to own something else. And there's nothing wrong with that but you just have to be sure that you're getting as much as you're giving. I have very seldom heard a discussion. In fact, I don't think I virtually ever heard a discussion of weighing what you were actually giving away on a stock deal versus what you're getting. I've heard a lot of discussion about dilution and when dilution will be overcome and all that sort of thing, but that is not the question. The real question is are you if more value is being created, how is it being whacked up between the 2 companies? And if not extra value is being created, what are you getting more than you're giving? When I gave away 2% of Berkshire Hathaway to acquire Dexter's shoe, that was one of the dumbest deals in the history of the world. And I did it all by myself. Charlie participate in that one. I wish he had. But it was dumb. I mean, it wasn't 2% of what I had then at Berkshire. It's 2% of the present Berkshire Hathaway company. You'd all be 2% richer, little more than 2% richer but you'd be a full 2% richer if I hadn't done that. Fortunately, you made some better decisions. Yes. Well, I have to or we wouldn't be here. But the point is that doesn't show up under conventional accounting at all. It gets brushed under the rug. At Gillette, literally, we had 10 deals in a row that never met, came close to meeting the case that was presented at the time they were presented to the board. Was that ever mentioned to shareholders? Did it show up in our financial report? Never. It never will. And that goes on all the time in Corporate America. And unfortunately, shareholders, to the extent they got unhappy with managements are complaining about whether they've got diversity on the board or something like that. But it's when they're when you're blowing away the company, I mean that to me is a whole lot more important. Charlie, do you want to Yes. The self serving delusional nature of even some very good minds in terms of IQ points is amazing. I had a friend who sold a business to a government controlled business in a socialized Scandinavian country. And my friend had a very nice business and the people on the other side after they had bought it for stock in their government corporation said this was such a marvelous deal. We got your whole business and we didn't have to give anything. Well, we own stock in the Third National Bank one time out in Nashville and they got the ability and they're wonderful people, really wonderful people but they got the ability to acquire other banks where they formerly have been limited in that ability and they went out to some very small bank and the guy at the very small bank said, I want stock. And he says, my stock is worth private market value and your stock is worth market price. Well, market price happened to be half of but he says, all I'm getting is whatever the market is. So I want you to value your stock at the market and value mine at this huge premium. And he said, and then there's just one other condition. He said, since I'm going to be putting my whole net worth in your stock, he said, I want your promise you'll never do a deal this dumb in the future. Do you remember that one? Yeah, I remember. Yeah. And that fellow was just being a little it was just getting a little more out in the open than is typically the case. I've been on some terrific parts. There was a local one here called data documents that really functioned with everybody on the Board thinking about the business, understanding the business, making decisions as owners, every one of them had a significant percentage of their net worth in the business and probably the best board I've ever been on. I mean every decision there was made for business reasons. The worst decisions, at least they have a potential for any worse, but it's standard procedure now when an acquisition comes up to trot in investment bankers and the lawyers and the momentum is just totally to get the deal done. And like I say, there will be a lot of slides presented and I don't need to look at the slides. I know what the answer is going to be at the end. They're going to say it's a great deal. But and there will be nobody arguing the other side. They're just it is not like something where you would make a decision and you'd have somebody get pro and con. It just doesn't work that way. I don't know how to improve that a lot. I think we've got a sensational group at Berkshire. You have a group with almost everybody on the board having a significant percentage of their net worth bills is so big we can't get them to a significant percentage but that's he's got 100 of 1,000,000 of dollars in it. We've got a board that is in exactly the same position as the shareholders. They don't have directors and officers insurance. They've got the downside as well as the upside. They bought their stock in the open market, so it hasn't been given to them. It is a real owner's board. And I like it that way. I think it's a terrific group and I'm glad I can get them to work cheap. Number 9 please. My name is Eid and I'm from Kuwait. And as far as to earlier comment about borrowing from Kuwait, I can tell you that after 40 years we now lend in dollars. And you are always welcome in Kuwait. My question is if you would pick a partner to invest with you in big deals, what would be your criteria for choosing partners? We is that are you complete on that? I'm complete. Yeah. Okay. Thank you. We normally don't want to do deals with partners. If we like a deal, we want to own it all and we usually have the money to do it all. So there would be almost in very few cases where there being a need for a money partner. And then is there a question for a knowledge partner. And we really wouldn't want to be going into something in most cases where we were relying on somebody else to be the brains of the deal, we've made exceptions on that but not very seldom. So we by our nature, we would like to have 100% of any deal for the benefit of our shareholders. If we're going to spend our time on it, we just assume get 100% of the rewards. We don't mind taking 100% of the downside and we ought to understand it well enough so we don't need a partner. Charlie? I've got nothing to add to that one either. Number 10. I'm just trying to think, have we done any big partnership deals or? Well, you made that partnership deal with Lucadia, but they brought you the deal. That is true. We made a very good partnership deal with Lucadia. They did way more than their share. They brought but they brought us the deal. And so they asked us to participate in their deal. Now in effect, we own less than 100% of some of our businesses and we're in partnership with the management, but that's perfect. I mean, we've got some great experiences with that and we'll continue to have great experiences. But and they came they're in on the same terms as we are and they're owners. All of our managers think like owners but in certain cases they are real owners directly in those businesses as well. But just some outside party is a partner we really haven't done. Although I would do another deal with LUKADI if they came to me and I liked the deal. I mean that was a very good experience. Number 10. Good afternoon, ladies and gentlemen. My name is Ari Yajah. I'm a junior from Bruich College, New York City. And on behalf of the Portfolio Management Club, I would like to thank you, Mr. Buffet, for inviting us to this wonderful event. And my question is that, first of all, speaking about the Berkshire's portfolio, there's an increasing exposure of your investments towards commodities such as to oil through Prato China, to steel through POSCO and to coal and agriculture through the rail stocks that you recently purchased. So my question is that what is your long term view on commodities? And how does it impact your view on the geopolitical state of the world in the future? Thank you. I and to my knowledge, shortly we'll hear from him, but we have no opinion on commodities. If we're in an oil stock, it's because we think it offers a lot of value at this price but it does not mean that we think the price of oil is going up. If we thought oil was going up, we could buy oil futures, which we actually did once. But very seldom, very, very seldom would we have any opinion on what, any given commodity would do. Owning POSCO, we just think it's one of the well, it is probably the best steel company in the world, remarkable record. When we bought that stock, we were buying it at 4 or 5 times earnings with a debt free balance sheet and one of the lowest cost producers around. I mean, it's a fabulous company. And on Dishon, it was a play on the Korean won and we made 20% on the won by being invested through a won denominated security. So we may occasionally be in those kind of businesses. We basically like best the businesses that require very little capital because they're the only ones that have a chance of earning really high returns on capital. You can't have a business that has huge capital expenditures year after year and end up with a high return business. It just doesn't work in this world. But you can find some businesses that really require relatively minimal capital investment. Here's the case. This is a small one, but See's Candy is not going to require a huge capital investment. It requires some capital investment, but it's a far better business relative to size, adjusted for size. It's a far better business than any steel business is going to be or any oil business is going to be. It's just that it's not very big. We'd love to have it bigger and we'll do our share in every way we can as you may have noticed up here. But we do not have any we do not have a bias toward at all toward businesses involved in commodities. And if we had any bias, it would be against. Charlie? Yes. We're going to be investors in businesses, not commodities by and large. And that has to work better over time. Number 11. Good afternoon. My name is Andy Peek from Weston, Connecticut. Recently, the newspapers have been in the news. Their Murdoch bid for Dow Jones, Morgan Stanley's Hassan El Masri's push to eliminate the New York Times dual class share. Given you are both experts in the dual class share and newspapers, what advice would you give to the long suffering New York Times shareholders and what advice do you have for Arthur Sulzberger, the besieged CEO of the New York Times and head of the family that owns the newspaper? Well, I think the long suffering, as you put it, shareholder of the New York Times, has probably made a mistake. I mean, I don't think I'd necessarily blame the Sulzburgers for the woes of the newspaper business. I mean, we have said for a good many years that we thought, in effect, we thought newspapers were overpriced because they reflected a valuation based on looking in the rearview mirror rather than through the window. And it's interesting, we have this dual class structured Berkshire, but because I converted a whole bunch of shares to B, I own about the same percentage of the B as the A because I converted about 6 or 7 times as much as I needed for present gifts. I I want to get down to my safe deposit box when I have to and I didn't want to get down every year to convert stock. So I just converted a bunch of stock early on and now I own about 30% of each. So it has no effect in terms of the voting power of Berkshire. But the woes of the newspaper business are not connected with the difference in voting structure at The Times or other places, the newspaper business has just gotten a lot tougher. And if you think about it, I mean, let's assume that Mr. Gutenberg back there in the 15th century, instead of wasting his time developing movable type and all of those kinds of things, he decided to become a day trader or a hedge fund operator and really made something himself so that we never had print. But we along came the internet, along came cable, TV, all kinds of other things. And then now this year, Johannes Gutenberg 28 or something came along and said, I've got this wonderful idea. We're going to chop trees down. We're going to haul them great distances and then we're going to put them through expensive newsprint machines and then we're going to send them down to some place where they got expensive presses and we'll run these things all night and then we'll send delivery trucks out through the snow to get these little pieces of paper out to people where they can read about what happened yesterday. Well, I don't think we would be backing him. Now it happened that the other one came along first and people's habits don't change immediately and you know, the world doesn't turn over. But in effect, the position of newspapers today still reflects the fact that they have inertia and momentum on their side from the past and I don't care how smart you are. There was a fellow that came into the LA Times a few years back. He was going to take the circulation up to 1,500,000 as I remember it shortly. And the circulation is now 800 and some 1000 of the LA Times and it's going to go down it's going down every week. And I don't know that Joseph Pulitzer or William Randolph Hearst or E. W. Scripps or anybody who were geniuses in their day maybe at building circulation can do much about that. The truth is that the world has changed in a significant way. We used to sell 300,000 world books a year. It was a good value and we sell 22,000 sets or something like that now. And it isn't because the world book isn't worth what it sells for, is it? It's just not worth what it sells for to most people who can go on the internet and get an awful lot of that information free. So I don't think I would blame the dual class structure on anybody's investment losses in the New York Times. The companies that have not had dual class structures, I mean, we own the Buffalo News and the Buffalo News earnings have been they're certainly down over 40% from the peak. We have terrific management. We've got a paper that has among the highest penetration in circulation of any large metropolitan paper in the country but we are our earnings are going down and it's a fact of life. Charlie? Yes. He was talking about that dual class structure as being intrinsically wrong. But I would argue that the Sulzberger set it up that way when they went public. And so that was in the basic contract. And once a contract has been made, the idea that you can just stamp your foot and take away the contract strikes me as kind of an immature idea. I would add too that the Salzburgers from the start, anybody that bought at the New York Times knew that they would not try to maximize earnings in a given quarter or try to reputation which allows It did not have a reputation which allows it perhaps to have a decent future on the internet. It did not get to where it is by a policy of Management 101 is taught at some business school. And yet following that differing course, I don't know how many papers in New York disappeared, but whether it's the Herald Tribune or the Sun or the World Telegram or you name it, the world, they had a different management approach and they all fell by the wayside and the times are still around. So I'm not sure 10 years from now or 15 years from now that people will regard the times as playing of their hand as being necessarily an inferior one. They may have a better position going into the Internet than almost any newspaper around. Certainly a lot better than the Philadelphia Inquirer or the LA Times says. The LA Times will have more trouble monetizing their reputation on the internet than the New York Times will, if there's a national game to be played in that. So we'll see how it plays out. Number 12? My name is Betty Stewart Rogers Jeffries in Hills, Illinois, 35 miles northwest of Chicago. This is the first time I've ever been to your annual meeting. And I want to thank you both for giving us so much time to answer our questions and give us such words of wisdom. I would also like to thank you for giving us a wonderful weekend of lunches, brunches, cocktail parties, time at Goraz and Borsheim's. The problem is that when I told my 2 adult daughters that I was going to have such a wonderful weekend, they both made me promise to bring them next year. And if 25,000 people bring 2 people next year, where are we going to meet? Well, I would if you get the answer to that, I'm really waiting to hear it because we it's about 27,000 and we are just about maxed out here. We're just about maxed out in terms of hotel rooms. I think we're going to have 4 new hotels in Omaha before next year. But that's a couple of 1,000 people. And based on the growth, at some point, we sort of hit the wall and I haven't figured out how to handle that. If anybody has any suggestions, I'll appreciate hearing about them. But I'm delighted you're having a good time here. I hope you've all had a good time here. Thank you. We're now going to take a 10 minute recess and then we'll reconvene. Thank you. Okay. And Here we are. The meeting will now come to order. I'm Warren Buffett, Chairman of the Board of Directors of the company. I welcome you to this 2,007 Annual Meeting of Shareholders. I will first introduce Berkshire directors. I've already done that. So also today with us are partners in the firm of Deloitte and Toujar auditors. They are available to respond to appropriate questions you might have concerning the firm's audit of the accounts of Berkshire. Mr. Forrest Carter is Secretary of Berkshire. You will make a written record of the proceedings. Ms. Becky Amick has been appointed Inspector of Elections at this meeting. She will certify that the count of votes cast in the election for directors. The named proxy holders for this meeting are Walter Scott and Mark Hamburg. Does the secretary have a report of the number of Berkshire shares outstanding entitled to vote and representative of the meeting? Yes, I do. As indicated in the proxy statement that accompanied the notice this meeting that was sent to all shareholders of record on March 6, 2007 being the record date of this meeting, there were 1,113,240 shares of Class A Berkshire Stock outstanding with each share entitled to one vote on motions considered at the meeting and 12,888,424 Shares of Class B Berkshire Hathaway common stock outstanding with each share in total of 1 200th of 1 vote on motions considered at the meeting. Of that number, 955,276 Class A shares and 11,301,274 Class B shares are represented at this meeting by proxies returned through Thursday, May 3rd. Thank you. That number represents a quorum and we will therefore directly proceed with the meeting. The first order of business will be a reading of the minutes of the last meeting of the shareholders. I recognize Mr. Walter Scott, who will place the motion before the meeting. I move that the reading of the minutes of the last meeting of the shareholders be dispensed with and the minutes be approved. Do I hear a second? I guess I heard a second. The motion has been moved and seconded. Are there any comments or questions? We will vote on this question by voice vote. All those in favor, say aye. Aye. Opposed? The motion is carried. The first item of business is to elect directors. The shareholders present who wishes to withdraw a proxy previously sent in and vote in person on the election of directors, he or she may do so. Also, if any shareholder that is present does not turn in a proxy and desires a ballot in order to vote in person, you may do so. If you wish to do this, please identify yourself to meeting officials in the aisles who will furnish a ballot to you. With those persons desiring ballots, please identify themselves so that we may distribute them. I now recognize Mr. Walter Scott to place a motion before the meeting with respect to election of directors. I move that Warren Buffett, Charles Munger, Howard Buffett, Susan Decker, William Gates, David Gottesman, Charlotte Guyman, Don Keogh, Tom Murphy, Ron Olson, and Walter Scott be elected as directors. Is there a second? It's been moved and seconded that Warren Buffett, Charles Munger, Howard Buffett, Susan Decker, William Gates, David Gottesman, Charlotte Guyman, Donald Keogh, Thomas Murphy, Ronald Olson, Walter Scott be elected as directors. Walter Scott be elected as directors. Are there any other nominations? Is there any discussion? The nominations are ready to be acted upon. If there are any shareholders voting in person, they should now mark their ballots on the election of directors and allow the ballots to be delivered to the Inspector of Elections. Would the proxy holders please also submit to the Inspector of Elections a ballot on the Election of Directors voting the proxies in accordance with the instructions they have received. Ms. Zamek, when you're ready, you may give your report. My report is ready. The ballot of the proxy holders in response to proxies that were received through last Thursday evening cast not less than 1,000,08,564 votes for each nominee. That number far exceeds the majority of the number of the total votes related to all class A and class B shares outstanding. The certification required by Delaware law of the precise count of the votes, including the additional votes to be cast by the proxy holders in response to proxies delivered at this meeting as well as any cast in person at this meeting will be given to the secretary to be placed with the minutes of this meeting. Thank you, Mr. Amick. Warren Buffett, Charles Munger, Howard Buffett, Susan Decker, William Gates, David Gottesman, Charlotte Guyman, Donald Keogh, Thomas Murphy, Ronald Olson, Walter Scott have been elected as directors. Now the next item of business we'll spend more time on and that is a proposal put forth by Berkshire shareholder Judith Porter, the owner of 10 Class B shares. Ms. Porter's motion is set forth and the proxy statement provides that Berkshire Hathaway not invest in the securities of any foreign corporation or subsidiary thereof that engages in activities that would be prohibited for US corporations by executive order of the President of the United States. The directors have recommended that the shareholders vote against this proposal. The microphones at Zone 17 are available for those wishing to speak for or against Ms. Porter's motion. These are the only microphone zones in operation. So I ask that you go to either 1 or 7 if you'd like to talk on this. I ask that you can find your remarks solely to Miss Porter's ocean. Now we have a number of shareholders who want to talk about this. And we will let shareholders speak if there's sufficient time at the end of that. And we're willing to certainly willing to have them speak for half an hour. And Charlie and I will give maybe a couple of minutes of response after that. But you've got a half an hour, different shareholders can speak. I hope you tailored the length of your remarks, the early ones, so that it gives other people a chance. And if we have time after the shareholders have spoken and there are other people that are in attendance as visitors that wish to speak, we'll have them also. But if the shareholders use up the full time until almost 4 o'clock, then we'll have to finish at that time. So Ms. Porter, if you're available, if you can turn the light on there at Station 1 to speak, you have the floor. Thank you. Mister Buffet, my name is Judith Porter and I'm the shareholder who introduced the proxy resolution involving Berkshire Hathaway's divestment of PetroChina. PetroChina is implicated in the genocide in Darfur, Sudan. I want to thank you for allowing us to speak to this resolution. In many countries, it would be impossible for us to do so, but we are indeed fortunate to live in a country where we can express our opinion without fear or without recrimination. Before my husband formally presents the resolution, I want to explain to you why I have introduced it. My family is no stranger to genocide. My grandparents were murdered in 1941 in the Nazi genocide as were other members of my family. I will never forget the despair my father expressed when my aunt, who was released from Bergen Belsen concentration camp, sent him a letter telling him what happened to his family. It deeply affected him for the rest of his life and I was raised to believe that genocide should never ever again happen, never again. The world was silent when my grandparents were murdered, but genocide has continued. In the genocide in Cambodia, the world was silent. In the genocide in Bosnia, the world was silent until late in the slaughter. The world was again silent in the horrible genocide in Rwanda. How many times must we say never again? Now there is the first genocide of the 21st century in Darfur. 2a half 1000000 civilians have been driven from their homes. More than 400,000 have been killed and 1600 villages have been destroyed. Berkshire Hathaway can play a role in ending this slaughter by divesting in PetroChina as we'll shortly describe. As an exemplar of both business ethics and personal integrity, your support of divestment will send a signal to China and to the Sudan that there are costs to continuing this destruction and it will lead other corporations to follow your ethical actions. Genocide is never a good investment. I can think of no greater tribute to my grandparents than introducing this resolution. As Elie Wiesel said in his Nobel Peace Prize speech, we must take sides. Neutrality helps the oppressor, never the victim. Silence encourages the tormentor, never the tormented. Sometimes sometimes we must interfere. My husband will now present the proxy resolution. He will be followed by Jason Miller who will speak about the relationship between CNPC and PetroChina. Abdul Majid, who is from Sudan, will speak about the genocide taking place and Bob Edgors, secretary general of the National Council of Churches, will conclude our discussion of this resolution. Thank you. Thank you, Mr. Buffet. Since you've read the resolution, I will not repeat the resolution. I will speak about the resolution though. On November 3, 1997, president Bill Clinton issued executive order 13067 which imposed a trade embargo prohibiting most American businesses from operating in the Sudan. This executive order was expanded on April 27, 2006 by president George w Bush. While it is true that American companies cannot do business in the Sudan, Americans can invest in Asian and European companies that do business in the Sudan. Such investments do not violate the letter of this law, but they certainly do violate the spirit of the law and are counter to the stated policy of the United States. We believe there is general agreement that the Chinese National Petroleum Company, CNPC, plays a major role in funding the genocide, in providing weapons to the Sudanese, in cooperating with the Sudanese military, in forcibly displacing local populations and in myriad other ways facilitating the killing of 100 of 1000 of Darfuris. CNPC is the largest foreign investor in Sudan's oil industry and fully 70% of the revenues Khartoum generates from CNP's operations go to its military, which in turn conducts the genocide in Darfur. We are here today because Berkshire Hathaway is the major non Chinese investor in CNPC's subsidiary, PetroChina. You, mister Buffet, have stated that you believe that we are wrong, both in our analysis of PetroChina's connection to the genocide and the belief that divesting the company's PetroChina holdings would in any way have a beneficial effect on Sudanese behavior. We disagree. You are correct in stating that PetroChina does not do business in the Sudan. However, as you agree, its parent's company, CNPC, is a major investor in the Sudan, and funds from that relationship help provide the instrumentalities of genocide. Management's claim that the relationship between PetroChina and CNPC is similar to that between Fannie Mae and the US government. That argument is fallacious. The Harvard US government. That argument is fallacious. The Harvard University advisory committee on social responsibility examined the management of the 2 countries. The results of that review was striking. There was almost total management overlap between the two companies. Andrew Leonard, writing for salon.com, commented, to declare that a subsidiary has no ability to control the policies of the parent when the 2 entities are run by exactly the same people is an exercise in specious obfuscation. In short, PetroChina is an artifact created for the sole purpose of allowing some shareholders to distance themselves from the action of its parent, CNPC. In China, the company shared the same brand name and the same logo. If you look at a coin, the images on the two sides are different, but the coin is a unity. You cannot spend one side of a dime or own one side of a quarter. It's the same with PetroChina and with CNPC. They look different, but they are simply 2 faces of the same corporation. 2 US presidents have stated clearly that it's against the national interest of the United States for US companies to do business in the Sudan. It is the position of the US government that a targeted economic boycott of the Sudan will help end the genocide in Darfur. For a US company to invest in a subsidiary of a foreign company such as PetroChina that engages in business in the Sudan is a circumvention of executive order 13067 and weakens the US sanctions. Economic sanctions against the Sudan have worked in the past. For example, Talisman Oil's sale of its assets in the Sudan helped bring about the end of the civil war in the Sudan. Sudan's main protector of the United Nations is the government of China. China will be hosting the 2008 Olympics and is very sensitive about negative publicity that could be aimed at that event. In response to the recent criticism of the Chinese support of Sudan by Mia Farrow and Steven Spielberg, a senior Chinese official traveled to Sudan to push the Sudanese government to accept the United Nations peacekeeping force. You and the company are viewed as exemplars of ethical behavior. If Berkshire were to take the lead and divest, others would follow. If Mia Farrow can cause change to occur, then so too can Warren Buffett. No one divestment in South Africa brought about the end of apartheid. But if we all act together, we have tremendous power to bring pressure on the Sudanese government to stop the killing of innocent people. During the last 2 decades, beginning with the tearing down of the Berlin Wall in October 1989, we have seen events that no person could ever have anticipated. The breakup of the Soviet Union, the democratization of Eastern Europe and an unbelievable transition in South Africa. What we have learned is that all things are possible. There are important issues in our society that desperately need our attention. Remember the words of Hillo, If I am not for myself, who will be for me? If I am for myself alone, what am I? If not now, when? Thank you, and I'm pleased to introduce Jason Miller. I'm Jason Miller, the National Policy Director for Sudan divestment task force and also an owner of 3 shares of Berkshire Class B stock. I'd like to echo the porter's comments that CMPSC is by far and away the most irresponsible and abusive oil operator in Sudan. They've participated with the government in forced displacement and other human rights violations. And 70% of the revenue that they provide to Sudan gets funneled into the military that prosecutes the the genocide at Darfur. But what does that have to do with Petra China? Currently the chairman of Petra China's board is the immediate past president of CMPSC. The President of CMPSC is the president of PetroChina and vice chair of the PetroChina Board. The CFO of CNPC is the CFO of PetroChina. The Chairman of the PetroChina Supervisory Board is the Chief of Discipline and Inspection at CNPC. 8 of the 9 PetroChina directors have a current or immediate past connection to CNPC. 4 of the 5 PetroChina Supervisors Have A Current OR Immediate Past Connection TO CMPC, All PetroChina senior executives are currently or formerly connected to CMPC. We've also documented a slew of other management irregularities. Furthermore, asset transfers between the two are fluid and often cross subsidized. After PetroChina's IPO, it took on $15,000,000,000 in debt from CMPC, which freed up cash flows for CMPC to spend on Sudan. 10% of IPO revenue from PetroChina went to CMBNC's operations in Sudan. 50% of CMPC's profits come from PetroChina dividends. PetroChina in 2,005 provided $3,150,000,000 in cash for CMPC's finance arm to provide to other CMPC subsidiaries like those in Sudan and 64% of CMPC's assets are represented by PetroChina stock. If this isn't management overlap and 2 manifestations of the same entity, I would challenge people to find one that is more overlapping. As a result and because of the huge magnitude of the atrocities in Darfur, even a whiff of this type of overlap between PetroChina and CNPC and the lack of strong corporate governance structures there would suggest that engagement with PetroChina by Berkshire Hathaway is a minimum requirement in order to investigate these connections and their potential contributions to the Darfur genocide. I'd very quickly also like to mention the important question that Berkshire Hathaway was asked, which is what's next? If we engage PetroChina, ask them about these questions, what happens? The answer, by unanimous consent with all foreign policy experts we interact with and those international organizations working in Sudan is that China would change its behavior in Sudan. Sudan is too important to China as an energy policy for China for it to abdicate those assets. And as a result, we've already seen changes in China's behavior and taking leadership from the cues of Berkshire Hathaway would be one more in the line of Mia Farrows and Steven Spielberg's that could help catalyze the important sea change that's necessary to bring an end to the genocide. I'd now like to introduce a Darphorian who's from Des Moines and would like to see I would is he a shareholder or not? I want to be sure all the shareholders have it. He has the proxy of Etta and James Friend, who are the shareholders of I just want to make sure, are there other shareholders at 7 that want us to talk to or not? I want to make sure that all the time isn't taken. We will not take all the time. Okay. That's fine. I just want to make sure that the shareholders aren't shut up. Good afternoon and thank you for inviting me to speak about Darfur. My name is Abdulmai D'ousif and I'm speaking today as a proxy of ITA for ITA and Jamie's friend who are the holders of 4 shares of class fee stocks. I am from Western Darfur and my parents still live in Darfur. I fled from Sudan to Egypt in September 2002 after being accepted from Sudan University in Khartoum for speaking out in a situation of Darfur. We are detained for a few weeks and we suffered from abuse physically and the physiology every day until they released and told us we are not allowed to go to any university and we had to stay away from any activity for the student association. I gained a refugee status in the United States and I moved to Des Moines, Iowa on March 2005. The Jindjuyu attacked my family's home in Darfur in January 8, 2007. 4 armed men from the Janjaweed attacked our home in the early morning. At that time there was a guest in my family home. The Jahnjaweed left him without attention so he ran away to get help from our neighbors. The Janjaweed started by taking all the money and jewelry from my family. When the janjavit found out that someone had run to get help They left my family but they promised them they were going to come back. Even that my family escaped injury, my neighbor Atayb Hassan and his entire family of 5 were murdered by the Janjawid. The Janjawid also took their horses and their activities were ongoing and their and these activities were ongoing in my town for a while. And everybody in my community or someone was murdered, have someone was murdered and raped by the jenavit. And my mom told me everybody wake up every day and the first thing they do is check the neighbor and the relative to see if they are alive or not and so do I. The jingyweed are still in my town. Now they work as the gangs who kill and rape every family is affected and nobody can stop them. Even though I live in safety and and peace there here in United States, I still worry about my family back home in Darfur. Please try to do anything to help my family and all people in Darfur. I need your help. If you do the simple thing like tell your friend about the genocide and therefore or join an organization or talk or send letter to your member of Congress or don't invest in any companies that help genocide in their work. Please Mr. Buffet and Berkshire Hathaway shareholders get involved to bring the hope and peace to the children and women and all of us in Darfur. Whatever you do to stop the genocide in Darfur is the saving life of human being. Thank you for listening. And now I would like to introduce Bob Edgar, the General Secretary of the National Council of the Church. Thank you. As we close, I'm Bob Edgar, General Secretary of the National Council of Churches and a former member of the United States Congress. I am here in support of the resolution and a proxy for Doris Gluck who holds 10 shares in the company Class B Stock. In February of 1968, I had the privilege of meeting Doctor. Martin Luther King 5 weeks before he was assassinated. Later as a member of congress, I served on the select committee on assassinations looking into both the death of Doctor. King and John F. Kennedy. I come here today in honor of the kind of dream that Doctor. King had. He said this, our lives begin and end the day we have become silent about the things that matter. We will not be silent. I am here today representing millions of faithful Americans, Christians, Jews, Muslims and others who have stood up and said no to this genocide. Just 11 or 12 or 13 years ago, 800,000 people were killed in Rwanda in 90 days and we were silent. We will be silent no more. Mr. Buffet, this morning you said a great thing and I quote, I find it reprehensible when a government preys on the weaknesses of its citizens rather than protecting them. I wholeheartedly agree. You were talking about gambling. We urge you to think the same way about genocide. On the document in opposition to this resolution, you said this: proponents of the Chinese government's divesting should ask the most important question in economics. And then what? We are prepared to answer that question. And then what? And then what? Then the world will finally focus on the issue of genocide in Darfur. Then the international investors all over the world and many companies would follow the ethical actions of Berkshire Hathaway's moral leadership, moral leadership and call for all governments of the world to stop the genocide. And then what? Children would be saved, women would not be raped, fathers would not be killed and we would find our way in this human family to care for one another. Jesus said we should love our neighbors as ourselves. I think he meant we should probably try every means available to stop those neighbors from being killed. This is just one way we can follow those words of Jesus. And finally, the former pope, John Paul, said, I dream of a world where none will be so poor, they have nothing to give and none will be so rich, they have nothing to receive. I urge support of this resolution. Are there other shareholders that would like to talk before we respond? Mr. Buffet, my name is Aaron Frank. Thank you for hearing us on this matter. I'm from Atlanta, Georgia and along with being a Berkshire shareholder, I also independently own shares of PetroChina. And this issue is something I've struggled with for years in terms of whether to divest or not. What I've done personally is given the dividends that I received from PetroChina to organizations that help in Darfur, but this is mostly symbolic. What is clear to me is if I had the opportunity to engage the management of PetroChina in a meaningful way as I do with you here today, that I would be compelled to do so ethically. As owners of Berkshire Hathaway, we have a unique opportunity to engage the management of PetroChina in a way that will be heard not only by the management of PetroChina but by CNPC, China and the international community due to your standing. That's a unique opportunity and this is an incredibly important matter. And I think we have an ethical obligation to do so. Thank you for listening. Okay. Thank you. Is there anyone? My name is Bill Rosenfeld from Lexington, Massachusetts. In your web posting, you claim that a subsidiary can't control the actions of its parent. So actions against PetroChina will have no impact on CMPC. Suppose that millions of Americans boycotted GEICO Insurance or other Berkshire Companies because of a policy of Berkshire Hathaway. Wouldn't that make you reconsider that policy even though your subsidiaries are voiceless in Berkshire Hathaway Management? How does targeting PetroChina to influence CNPC differ from this situation? Well, I actually would say it's quite different. If a shareholder of WESCO, you might Mark, you might put up the chart that shows the flow of ownership both with China and with It's up. Okay. WESCO does not control Berkshire Hathaway. We can have all the we can have lots of overlap of management and everything. Berkshire Hathaway controls Wesco. If a shareholder of Wesco were to complain to the management of WESCO, which is analogous to better China about the fact that let's say that Berkshire bought his car or any other was we could certainly introduce action. So it flows down where the overlap means nothing. I mean, obviously, the Chinese government controls PetroChina. They own 88% of the stock. We control Mitek, we own 90% of the stock. We control WESCO, we own 80% of the stock. We can tell Mitek what to do. We can tell WESCO what to do, but Mitek and WESCO cannot tell Berkshire what to do. I think there's a fundamental misunderstanding on that. The Chinese government controls 32 of the largest 33 publicly owned companies in China. And the Chinese government in effect, is in charge of all of those companies. The Chinese government does business with the Sudan. PetroChina does not. PetroChina in no way tells the Chinese government what to do. And we've seen evidence of that in a lot of ways. So it seems to me it's backwards. If it was PetroChina following a policy that the Chinese government hurry. We have no disagreement at all about what's going on in our effort. There's 2 questions. One, does PetroChina influence the Chinese government? And secondly, if we don't agree with what the Chinese government is doing, should we sell our stock in PetroChina? The people here who have come, who own stock in Berkshire Hathaway have obviously made the choice even though they disagree with what our policy is to continue as shareholders. And I agree with them with that 100%. And we, in turn, elect to continue to hold our shares in PetroChina because we have no disagreement with what PetroChina is doing. If there's a disagreement, it may be with what the Chinese government is doing. Now, in terms of what the Chinese government is doing, you know, we've heard talk about divestiture by China. If the Chinese left the Sudan tomorrow, 400,000 barrels of oil would be being produced a good bit with the money that China has invested into Sudan. You can't take the assets, you can't take the refinery, you can't take pipelines. You can't take oil out of it. They can sell their interest. They could sell it to other people who are doing business in Sudan. They could sell it to the Sudanese government. But believe me, they would probably sell it very cheap. The Sudanese government would get a bargain. Or the Sudanese government might very well renegotiate terms in their favor if they allowed a 3rd party to buy. Believe me, they would be in a position if they assuming they could affect the transfer. And I think there's a lack of understanding of what really would happen if China said tomorrow, we're going to take our interest away from our activities in Sunan. They would have to sell them or they'd have to give them up one way or the other. And like I say, I think the Sudanese government would probably end up better off financially if they had a half decent advisor in the question than they are presently. I might mention one other thing which is kind of interesting in this. We buy currently about $250,000,000,000 worth more of goods from China than we sell to them. And we give them little pieces of paper in exchange. And we say to them, we want your goods and you should work hard and send us your goods and we'll send you these little pieces of paper called American dollars. 2 years ago, China wanted to use some of those American dollars. We'd use their goods to want to buy a company called Unical. Unical was a low tier US company. The majority of their production of oil and gas came from outside the United States, a substantial majority. It came places like Thailand, Indonesia and the Chinese wanted to buy that company. And by a vote of 395 to 18, the US House of Representatives sent their message to President Bush that it would be against the national interest to let this company be sold, which as I say, produced very little oil and gas in the United States. Got most of it from the rest of the world. So in effect, we snubbed the Chinese in a big way on something important to them, energy. And I might mention that we import perhaps 4 times as much energy from all the countries around the world as the Chinese do even though they have 4 times the population. So we have in a sense, told the Chinese a couple of years ago, don't even think about buying a small US company with a fair amount of production abroad to satisfy your energy needs. And I think it's understandable to some extent that the Chinese are looking for energy around the world just as we have for the last century. They are buying significant amounts of oil from Sudan. They put money in there and the Sudan. They are going to buy 4 or 5. They're going to buy that 400,000. They're not taking the whole 400,000 barrels a day from the Sudan, but they're taking significant amounts. They're going to buy that oil in the world market. That oil is going to get produced. Revenue is going to flow to the Sudan. The question is how much the Sudanese keep themselves and how much gets, dispersed to the Chinese because of the investment they've made. So I see no effect whatsoever in Berkshire Hathaway trying to tell the Chinese government, how to conduct their business. I agree 100% with the fact that what is happening in Sudan should not be happening and there are other parts of the world where that same situation may exist although not to the same degree. But I don't think it's proper for us to divest our shares in PetroChina. They would be sold to somebody else. I think the proponents of the motion probably would like the idea that the price of the stock would go down. Well, we don't sell stocks basically to try and drive them down in price. We might sell PetroChina if it went up enough, but we would not be selling it to try and drive down the price because all that would be doing would be giving a bargain to somebody else who is buying the Saka Petro China. It doesn't change the funds available to them at all. One of the speakers mentioned the amount of money that goes from PetroChina up to its parent. Money from WESCO comes up to Berkshire from our subsidiaries. That's the nature of having a major ownership in a subsidiary. You get money from Mytek, you get money from Nebraska Furniture Mart which we own 80% of. But that really has nothing to do, in my view at least, it has nothing to do with the fact that it is China that has a policy in respect to being partners in Sudan and it is not PetroChina at all. Selling our stock would not change one thing. If we would have any communications, it's a practical matter of the communication should the Chinese government. And actually people here have had a chance because we have a lot of media here. They've had a chance to express their views to the Chinese government. Believe me, unless the opinions get expressed to the Chinese government, expressing with petro China means nothing. I mean, the petro China is controlled by the Chinese government and they are not if you're an official of Petro China, you're not going to tell the Chinese government what to do. They're going to tell you what to do. Charlie? The issue also is China is a rapidly rising nuclear power And who should decide how the federal government or how the Americans should react to China? There's a lot to be said for letting the policy flow through the U. S. Government instead of sort of a vigilante effort of various citizens. Now, I would also point out that there's a lot wrong all over the earth and there's a lot of cruelty and there always has been and there'll always be a lot of oil produced in a lot of lands with a lot of cruelty. And nobody is in favor of cruelty but there's a limit to how much you can fix. And so I'm very skeptical of the idea that Berkshire should become an instrument of telling of setting United States policies visavis China. Charlie and I have our own views, for example, on reproductive freedom. But we don't have a Berkshire Hathaway policy on reproductive freedom nor do we finance from Berkshire Hathaway funds, the funds of our shareholders. We do not finance any activities that relate to our personal beliefs, although we may obviously fund them by ourselves or speak out on them by themselves, but we do not have a Berkshire Hathaway funding just because we believe that women should have the right to choose or questions of that sort. I think reasonable minds can disagree on these subjects. At Berkshire, there's all kinds of businesses we won't buy and control individually, but we're willing to own stock in the same businesses. Is that the correct moral line to draw? I don't know. We do our best and we make the decisions and we make the calls. I would say I wonder really whether when the Unocal question was being determined here with the Chinese to whom we'd given lots of little tickets in exchange for taking their goods and they came along with a perfectly decent offer to the shareholders of Unocal, dollars 18,500,000,000 They wanted to buy a little more oil and gas production around the world and the US Congress overwhelmingly said this is a terrible thing and we want the United States to oppose it and we want it sold to Chevron for less money. And I really don't recall a lot of people speaking up on behalf of the Chinese right to buy oil companies over here just like we bought oil companies around the world for many decades. So to the extent that they may feel themselves somewhat alienated from the rest of the world in this respect, I think we've actually contributed our share. Charlie? Another thing in the complexity of life, the woman who lost her family to the holocaust, we clobbered the people that committed that genocide by joining genocidal Joe Stallion. These issues are complicated. Okay. Are there any shareholders that want to vote in person in this on this matter or to change their proxies? We have monitors to just raise your hand. And if there are none of those, Ms. Amick, are you ready to give your report? My report is ready. The ballot of the proxy holders in response to proxies that were received through last Thursday evening cast 15,740 votes for the motion and 830,598 votes against the motion. As the number of votes against the motion exceeds the majority of the number of votes related to all Class A and Class B shares outstanding, the motion has failed. The certification required by Delaware law of the precise count of the votes will be given to the secretary to be placed within minutes of this meeting. Thank you, Ms. Amec. The proposal fails. Does anyone have any further business to come before this meeting before we adjourn? If not, I recognize Mr. Scott to place a motion before the meeting. I move this meeting be adjourned. Is there a second? All those in favor, say aye. Opposed, no. Thank you and I'll see you next year. Thank you.

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