Berkshire Hathaway Inc. (BRK.A)

ASM 2008 Part 1

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May 3, 2008

Folks, this just in. It appears that Warren Buffett has struck a deal to trade jobs with daytime soap opera diva, Susan Lucci. Buffett has reportedly negotiated a permanent spot on the cast of All My Children. Apparently, Ms. Lucci is en route to Omaha as the new CEO of Berkshire. Where could he be? Do you mean Warren Charlie? He's been detained at the TV studio. Oh, haven't you heard about the deal between Warren and me? He's going to be a big star in All My Children and I'm going to be taking over Berkshire Hathaway. Well, you certainly got some important qualities that Warren lacks. Well, thank you, Charlie. And you can relax now, you dear man. You just make yourself at home because I'll take it from here. Thank you. I've been wanting to talk to our shareholders for quite some time now. There are some changes I really think we need to make around here. The first thing we need to look at is our dividend policy. I have never heard of anything so cheap and so unfair to our wonderful shareholders. We need to change it. Sounds good to me. And second, we need to look at giving guidance on earnings and we need to do that every single week. Sounds good to me. And third, we need to pay our directors more than $900 a year. Hi, Warren. Warren, I thought you were at the All My Children's Studio. What's that talk about dividends that I hear? Oh, nothing important, Warren. You just concentrate on your role on the show. Susan, my show is Berkshire Hathaway, and my role is to run it. Warren, you can't do that. I just did it. All my children can't do without you. And I can't do without Berkshire. Oh, Lauren. So you mean the deal is off? The deal is off. I really want to thank you. You've brought me to my senses. You can go back to all my children. I'll stay here at Berkshire. But I am so grateful to you, Susan, that I want you to go out to Berkshire. Not to Berkshire, not to Borsheims. And I want you to pick out anything you would like and charge it to Charlie. Oh, Warren, you are a darling. Okay, Charlie. Let's get this show on the road. The she spent more time with him than she did with me, but the we're going to follow the usual procedure. The business meeting will start at 3:15, but between now and then, with a break for lunch, we're going to answer your questions. We don't screen them ahead of time, as you know, based on who gets lined up at the microphone first. And we'll go around from sections to sections and then go to the overflow rooms. My understanding is that our best estimate is that we have about 31,000 people here today. Somewhere I have a map here. Mark, do we have that? Pardon me? Can't hear a thing up here, but in any event, on the yellow pad. Okay. We'll just mark them off as we go along. The, I would like before we start I heard Ron Olson laughing there. I think he made it. I'm glad to hear it. Let me introduce our directors. I really wasn't sure whether to go through with this part of the show after they showed that rousing applause for things like dividends and raising their rent. But we have up here, we have Charlie Munger on my left. He's the one that can hear. I can see we work together for that reason. And if the rest of you will just stand as I give your name and if you'll hold your applause to the end or even longer if you would like, I will introduce them. Howard Buffett, Susan Decker, Bill Gates, David Gottesman, Charlotte Guymon, Don Keogh, Tom Murphy, Ron Olson, and Walter Scott, the best directors in America. Charlie and I will take a break at noon because we will probably, by that time, finish all of the things we have up here to eat, and we'll need to have lunch. I'd appreciate it if you would limit your questions to one question, and that means not embodying a 3 parter or a 4 parter or something like that. And there's no need to make a long introductory statement because we'll get more questions answered that way, and we want to cover as many people as we can. So with that, we'll go right over to post number 1 and start in with the first question. A very good morning to Mr. Buffett and Mr. Munger. My name is Rajesh Vohra from Bombay, India. I have been learning a lot from annual laters of yours. It's been a great insight into investment philosophy that I haven't learned from anywhere else. Great job. That's on the mind side. But on the hard side, what touches me the most is what you have achieved all this years is through 100 percent honesty. And I salute to that. Thanks. My question my question is on what key steps would you recommend to correct the mindset of typical investor like me, which is what you net it as lemmings like the crowd mindset? What would we recommend? We got the question being repeated here. About the mindset of an investor, is it? He wants you to advise him as to how he can become less like a lemming. Well, since you repeated the question, I'm gonna let you give the first answer to that, Charlie. Until he eats about a 1000 calories, He wants to invest less like a lemming. Oh, I understand that. I was giving you the short first shot at it. But well, I will tell you what changed my own life on investing. I started investing when I was 11. I first started reading about it. I believe in reading everything in sight and first started reading about it when I was probably 6 or 7 years old. But for about 8 years, I wandered around with technical analysis and doing all kinds of things, and then I read book called The Intelligent Investor. And I did that when I was 19 down at the University of Nebraska. And I would say that if you absorb the lessons of the intelligent investor mainly and I wrote it forward and I recommended particularly chapters 8 and 20 that you will not behave like a lemming and you may do very well compared to the lemmings. We have here in the bookworm copies of The Intelligent Investor. And I think it's as great a book now as I did when I read it early, I guess, in 1950. You will never you can't get a bad result if you follow the lessons of Ben Graham taught in that book. I should mention that there's a book out there also that I did not I did not know it would be completed by this time. My cousin Bill Buffett has written a book about our grandfather's grocery store called Foods You Will Enjoy, and Bill will be out there. He's signing books. I just got my first copy a couple of days ago, read it, and I enjoyed it a lot. Charlie worked at the same grocery store how many years ago? Probably probably a good 70 years ago in Charlie's case. Neither one of us was very good. But my grandfather, you don't want to pay much attention to his advice on stocks. He's a he wrote a lot of letters and he was very negative on the stock market and big on hard work at the grocery store, so we quit listening to him. Instead, read The Intelligent Investor. That's the book that gave me the philosophy that has taken me now for a lot of years. And there's 3 big lessons in there which relate to your attitude towards SOX generally, which is that you think of them as parts of a business and your attitude toward the market, which is that you use it to serve you and not to instruct you and then the idea of a margin of safety of always leaving some extra room and things. But the people in this room, I think, have learned that important first lesson. I mean, I think most people that own Berkshire do not see themselves as owning something with a little ticker symbol or something that may have a favorable or unfavorable earnings surprise or something of the sort. But they rather think of themselves as owning a group of those businesses that are out there in the other room. And that's the way to look at stocks. You'll never be a lemming if you do that. Let's go to number 2. Good morning, Warren. Good morning, Charlie. My name is George Issels from Cologne, Germany. My question, how is the operational integration of the Cologne Re progressing? Thank you very much. Colon Re is a, for those of you who are not familiar with it, is a 95% owned subsidiary of a General Re of which Berkshire Hathaway owns 100%. And Colone Re, I believe, is the oldest reinsurance company in the world. It's done a magnificent job for us as part of 1st January and then Berkshire Hathaway. And we have a process in place that will before too long result in us owning 100% of Cologne. One difference then, there won't be any difference in operation. It runs magnificently the way it's being run. But at that point, up till this point, they have run their own investment portfolio. That portfolio and the equity portfolio of GEICO are the only 2 that I don't run. But when we own 100% of Cologne, then I will take the Cologne. So there will be you will not see any other changes except we will consolidate in 100% of the earnings of Cologne rather than 95%. Area 3? Good morning, Mr. Buffet, Mr. Munga. My name is Sam Reiner from Fort Lee, New Jersey. And my question concerns your comment this week about the recession and the stock market going up so significantly in April. Can you expand on where the market's going from here? Well, I could expand, but I couldn't answer. The we Charlie and I haven't the faintest idea where the stock market is going to go next week, next month or year. We never talk about it. It never comes up. Our directors will tell you that they've never been to a directors meeting where the subject of the direction of the stock market is. We are not in that business. We don't know how to be in that business. Obviously, if we could guess successfully a high percentage of the time where the stock market was going to go, we would do nothing but play the S and P futures market where there wouldn't be any reason to look at businesses and stocks. So it's just not our game. We don't think what we see when we look at the stock market is we see thousands and thousands and thousands of companies priced every day. And we ignore 99.9% of what we see, although we run our eyes over them. And then every now and then we see something that looks like it's attractively priced to us as a business. Forget about the word stock. So when we buy a stock, we would be happy with that stock if they told us the market was going to close for a couple of years. We look to the business. It's exactly the same way as if you were going to buy a farm a few miles here outside of Omaha. You would not get a price on it every day and you wouldn't ask whether the yield was a little above expectation this year or down a little bit. You'd look at what the farm was going to produce over time. You'd look at the expected yields, you'd look at expected prices, the cost of taxes, the cost of fertilizer, and you would evaluate the intelligence of your purchase based on what the farm produced relative to your purchase price. Quotes would have nothing to do with it. That's exactly the way we look at stocks. We look at them as businesses. We make judgments about what the futures of those businesses will be. And if we're right about that in those judgments, the stocks will take care of themselves. Charlie? Nothing to add. He's been practicing for weeks. Let's go to area 4. Good morning, mister Buffet and mister Munger. My name is Chandra Chawla and I am from Seattle, Washington. Berkshire Hathaway has some of the best managers in the world and I am very bad at hiring good managers. Some of the decisions I have made which were without any phone calls from Jamie Lee Curtis, I look back and I see what was I thinking. What can you advise on how in 1 hour you can assess the capability of a person to be a good manager? Well, you have to understand that we cheat. We buy businesses with good managers. So if you give me 100 MBAs, and I have these classes come out all the time, I've had about 30 schools this year, and usually there's 75 or 100 men and women in the classes. I know more could take those 100 and spend a few hours and rank them from number 1 to 100 in terms of their future achievements as managers, you know, then I could pick them, you know, it it would be impossible for me. But what we do is we buy businesses with great managers in place. We've seen those people perform for, in many cases, decades. We've seen their record and they come with the business. Now our job is not so much to select great managers because we do have this proven record that they come with. Our job is to retain them. And many of the managers, the majority of the managers that work at Berkshire are independently wealthy. We hand them checks, sometimes in the billions, often in the 100 of 1,000,000. So they do not have a monetary reason to work in many cases. So our job we are dependent on them incidentally. I mean, we have 19 or so people at headquarters and we have 250,000 working for Berkshire around the world. And we can't run their businesses. And our job is to make sure that they have the same enthusiasm, excitement, passion for their job after the stock certificate changes hands than they have before. Now that that requires some judgment on our part as to whether these people love the business or love the money. They all like money, but many of them, well, our managers in particular, they love their businesses. I mean, they've worked at them. They're a work of art to them and they've been in the family sometimes as many as 4 generations. So, we have to see the passion in their eyes. And if we see that, then we have to behave in a way that that passion remains. Can't be done by contract. We don't have contracts. It won't that doesn't work. But we can try to create an environment and Berkshire frankly is the ideal environment. It's even an ideal environment because of events like this. Our managers feel appreciated and they are appreciated. They're not just appreciated by me and Shirley. They're appreciated by you. And we want to give you a chance to applaud them. So I I can't be of enormous help in in the if you're looking at a group of MBAs, you know, it's it's not easy. I mean, they know they sort of learn by that point in life how to fool you in terms of what answers you want to hear and all of that sort of thing. I would I would look for the person with passion for the job. I mean, the person that is always doing more than they share. You look for people that are good communicators and all of that sort of thing. But I like my way better. It's a lot easier just to take somebody who's been batting 400 in baseball and say, I think I'll stick them in the lineup. And the nice thing about our game is that in baseball, unless you're Nolan Ryan or somebody, you have to hang up things at 40 or thereabouts. But in our game, they go on and on and on. I mean, I use as an example, we had a famous Mrs. B from the Furniture Mart and she worked for us till she was 103 and then she left and she died the next year. And that is a lesson to our managers that Charlie? Well, that was very useful advice. It reminds me very much of the late Howard Amundson, a young and starving business student, once asked him for advice as to how to get ahead. Howard said, well, I always keep a few $1,000,000 lying around in case that opportunity suddenly turns up. Well, let's go to number 5. Good morning. I'm Joe Hudson, a shareholder from Culver, Indiana. Could you please comment on how you use stock options when trying to enter or exit a position in a public company? Yes. We've think there was one time we sold a put on Coca Cola with the idea that if it got exercised, we were very happy to own more Coca Cola. It didn't get exercised. We would have been better off if we just bought the stock. Usually, if you want to buy or sell a stock, you should buy or sell the stock. And using an option technique to buy a call on a stock instead of buying the stock outright with the idea that you get it a little cheaper that way means that about 4 times out of 5 you'll be right and the 5th time the stock will have moved earlier and you'll missed the transaction you wanted to have. And so we virtually have never used options as a way to enter a position or exit a position, and I would doubt very much if we do. We've used we've sold these equity long term equity put options that are described in the press release yesterday and were described in the annual report, but that's a different sort of thing. If we want to buy something, we'll just start buying it. And if we want to get out of it, we'll start selling it and we won't get involved in any fancy techniques. Charlie? Well, if I remember right, you wrote a letter when the public authorities were deciding whether we should have option exchanges for stocks. And Warren was all alone at that time and he wrote a letter saying that he didn't think it would do any good at all for the country to throw out the margin rules and in this fashion. I've always thought that Warren was totally right. We it's the idea of turning financial markets into gambling parlors so the croupiers can make more money has never been very attractive to us. Yes. It's very interesting to me when I talk to these MBA students. One of them from the University of Chicago, the very first question I got a few years ago, he says, what are we being taught that's wrong? I love questions like that. I have to plan them in the future. The amount of time spent at business schools, maybe it's a little less now, but teaching things like option pricing and that sort of thing, it's totally nonsense. I mean, you need 2 courses in a business school. 1 is how to value a business and the from a standpoint of investments, how to value a business and how to think about stock market fluctuations. But the idea that you would spend all of this time with formulas, but the problem, of course, is that the instructors know the formulas and you don't when they come. And so they've got something to fill all the time explaining to you. And it is no fun if you I mean, if you were teaching biblical studies and you could read 3 or 4 of the most important religious tone forward and backward in 5 different languages, you would hate to tell somebody that it all comes down to the Ten Commandments. I mean, any damn fool can do that. So there's a great desire of the priesthood in finance to want to teach the things that they know and you don't know and that they spent a long time learning and it maybe require a fair amount of mathematics. And it really has nothing to do with investment success. Investment success depends on buying into the right businesses at the right price. And you have to know how to value businesses and you have to have an attitude that divorces you from being influenced by the market. You want the market there not to influence you. You want it there to serve you. And that requires a mindset which goes back to an earlier question. And it's a mindset that's described quite well in Chapter 8 of the Intelligent Investor. Let's go to number 6. Hi. I'm Irene from Bonn, Germany. Both of you are very generous person. What is your joy of giving and what are the potential pits when donating money? Pitfalls when donating money. I'm sorry. God, that's the joys of giving and the pitfalls of donating money. The, I know personally I've never given up anything in my life that made a difference in my life. I mean, there are people that will go to church this Sunday and they will drop money in a collection plate, and it will make the difference about where they take their family or whether they take their family in terms of where they eat, whether they go to a movie, whether they get an extra present at Christmas, whatever it may be. I mean, they are giving some money that makes a difference in their lives. I've never given a penny that way, and I never will. I mean, I get to do everything I want to do in life, but because I've lived a long time, which gives you an enormous advantage, in terms of accumulating money and most of the things I want in life don't come from the expenditure of money. So it accumulates and basically I'm giving away excess. I'm not giving away anything from necessity. So I really you know, I think what I'm doing is useful with the money, but I don't think it's on a par at all with the actions of somebody that's giving money that really makes a difference in how they or their children live. Those are really charitable people. I think my sister Doris is here. She has given away money that made a difference in her life. She gives away time too. She gives away 8 or 10 hours a day in terms of actually looking into the real needs of people and giving them things beyond the money, giving them help and advice and somebody to talk to. And that is that's real giving. And I admire her for it. I'm not emulating her. I mean, she is in the retail business of giving. I like wholesale much better. In terms of the pitfalls, you can make mistakes in any area. But if you you should give the things that you personally have an interest in and believe in, and that can be anything. I don't I'm not going to prioritize what should be done with gifts. It's something you're involved in, something you want to give your time to as well as money. But beyond that, I'll let Charlie carry on. Yeah. Regarding pitfalls, I would predict that if you have an extreme political ideology, whether of the left or the right, you're very likely to make a lot of dumb charitable gifts. If you hang around, Charlie, like I do, you you get the sunny side of life. I mean, we ought to have that playing the sunny side of the street. Let's go to number 7. Good morning. My name is Akash Vijay and I'm from India. I worship Mr. Buffet for his philanthropy and I do hope to serve the Gates Foundation someday. My question to Mr. Buffet is what's your level of involvement when one of your companies is faced with an ethical dilemma? For example, fruit of the looms competitors have sweatshops in Central America. So what do you do to ensure that you don't fall into the same trap? Well, we let our managers run their businesses and we've got some terrific managers not only in terms of ability, but I would say that what we have seen of the ethical standards of our managers and has been extraordinary over the years. That doesn't mean there isn't there aren't slip ups here or there. But taken as a group over decades, I think that I'm very happy in effect turning over the keys not only to the financial performance of the business, but in terms of how they behave. And I would say that I think you're quite wrong in terms of fruit of the looms operations are conducted and absolutely terrific standards. John Hollins here, I'd be glad to have you meet with him later. But we're proud of our business and how they operate. We do not give them elaborate guidelines. I write them a letter every 2 years roughly and I ask them to send me a letter telling them who they think should be the successor if anything happened to them that night. I keep those letters around. Fortunately, they don't come into play very often. But I also tell them we've got all the money we need. It's nice to have more money, but we're not going to lack for money at Berkshire Hathaway. We don't have a shredder reputation more than we need, and we never want to trade away reputation for money. So we give them that same message that was given in the movie in terms of the Solomon situation, which is that not only do they behave in a way that conforms with the laws, but that they behave in a way where if a story were written by an unfriendly but intelligent reporter the next morning in their local paper, they would have no problem with their neighbors, their family reading it. And we run that in the movie every year just because we like the managers to keep getting that message all of the time. There is no pressure from Berkshire's corporate office to report X dollars per of earnings in any quarter. They don't give me budgets, so they don't there's no feeling that they have to come through with given numbers or I'll be embarrassed in public in terms of publishing earnings or anything of that sort. We have no incentives to cause people to do anything that would go against their conscience or play games or cut corners or anything of the sort. And overall, I think it's worked pretty well. It isn't perfect. You can't have 250,000 people in the city without having something going on at some point. And we do have 250,000 people working. But I'm not unhappy with our batting average. Charlie? Yeah. And of course, fruit of the Loom does have foreign plants and we have no rule against that at all. We've got quite a few foreign plants now. We don't favor foreign plants. We just do whatever makes sense under the circumstances. We had a shoe business I've written about in Maine and we have wonderful, wonderful workers there. They were more productive than workers around the country around the world. But the United States was producing 20 years ago roughly a 1000000000 pairs of shoes a year. And we were a nation of Imelda Markoses. I mean, it was wild. And Brockton, Massachusetts and you name the towns revolved around the shoe business as did a town called Dexter, Maine. And we bought that business and we tried to compete. We had a good brand name. We had great workmanship. And we found out that it just plain wouldn't work against competing against shoes produced in China. So now of the it's over 1,000,000,000 pairs of shoes a year used in this country. Basically, they all come from outside the borders and you're going to see that. And factories in China, factories in Central America, they do not have exactly the norms that we have in this country and that's going to be the situation. We will not we are not going to tell the world how to run their business in any great way. We obviously we have some standards that have to be met, but we are not they are not exactly the situation you're going to find in the United States. Number 8. Good morning. My name is Mike McGowan. I'm from Pasadena, California. I'm a shareholder in both Berkshire and WESCO. I run a website called financialfoghorn.com and I write about precious metals and things. And I've asked you questions in the past about silver and I didn't really get them answered. So I thought I'd ask about a different commodity this time. I read about the Chinese raising the price of tungsten and I think about your comment last year in buying ISCAR. Will commodity price increases in things like tungsten affect the profitability of ISCAR? And would that be the reason you're locating a plant in China to build machine tools? Thanks. Yes. The reason the plant was built in China was to serve the Chinese market, which is large and growing. And we opened in Dalian late last fall. It's nicer to be closer to the raw material, but it really had nothing to do with changes in the price of tungsten. Generally speaking, if you're creating a higher value added product as ISCAR is doing from a raw material, there may be 3 months, 6 months of adjustment to changes in raw material prices. And obviously, with some commodities, if it gets high enough, you get into substitutes. But there isn't going to be any substitute for tungsten in the cutting tools. And there won't be we've tried some substitutes for crude oil in terms of gasoline or not so heating oil. But then the substitutes like natural gas go up in price, too. So I think largely in our businesses, raw materials get passed through. Now we're having a tough time, for example, in the carpet business in passing through the cost increases that we experience in oil based raw materials. But we would be having we'd probably be having trouble in the carpet business regardless now because of the slowdown in residential housing. It does make it tougher. But over a period of time, our businesses are going to reflect raw material costs. And on this candy here, I have this fudge, which I can hardly wait to get into. It's going to reflect sugar and cocoa and things like that over time. And if you're running an airline, it's going to reflect the cost of fuel. So you can have little squeezes here and there, but it's not a big deal. And it certainly isn't the reason that we went to China to locate the ISCAR facility. That facility incidentally, ISCAR, we have a number of people here from ISCAR and families in some cases. That has I had very high expectations for that when we bought it. It's exceeded it in every way. It's exceeded in terms of financial performance. It's exceeded in terms of the human relations we've developed with the people. I mean, it was I told you it was a terrific acquisition a few years ago. It's been a dream acquisition. And I know Charlie wants to add to that. Yes. I would say that the short answer is that while we don't like inflation because it's bad for our country and our civilization, that we will probably make more money over time because there is inflation. Go to number 9. Good morning. My name is Mark Rabanov from Melbourne, Australia. My question is, Berkshire has bought a lot of shares over the last 12 months in listed companies. Do you expect the return on these investments to be between 7% percent 10% per annum over many years, which is, I would say, well below what Berkshire has achieved in the past? The answer to that is yes. The we would be very happy if we could buy common stocks where our expectation over a long period pretax from a combination of dividends and capital gains. We'd be very happy if we thought it was going to be 10%. And we would probably settle for a little less than that. And there's no question, absolutely no question that returns from owning Berkshire will be less in the future than they have been in the past. There's no question that we will not do as well with the common stocks at Berkshire that we own in the future as we have over the last really 40 years or thereabouts. We operate now in a universe of marketable stocks that where we're talking about companies with market caps of at least $10,000,000,000 but really in most cases to have a meaningful impact on Berkshire. We're talking much bigger than that maybe $50,000,000,000 and up. Well, that universe is not as profitable universe to operate in as if you have the entire universe of 1,000 and 1,000 of companies. So if we just take an example, if we find a company with a market cap of $10,000,000,000 and we can buy 5% of it, then usually that's about what we could buy without disturbing things. We We have a $500,000,000 investment. Let's say it doubles over a period of time. That's $500,000,000 You pay a 35% tax, you have $325,000,000 dollars That's less than 2 tenths of 1% in terms of Berkshire performance. So our universe has shrunk enormously. And we will not do as well in that universe remotely as well as we would if we were operating in a much wider universe and could do all kinds of things. We've found little things to do from time to time where we've made some money. I may refer to them a little later on a couple of things. And they're nice, but they don't move the needle very much at Berkshire. So anyone that expects us to come close to replicating the past should sell their stock. I mean, because it isn't going to happen. And I think we're going to get decent results over time, but we're not going to get indecent results. And in this field, we prefer indecent, but we're not going to get them. Charlie? I think you can take Warren's promises to the bank. We are very happy making money at a rate in the future that is way less than the rate at which we made money in the past. And I suggest that you adopt the same attitude. Well, I wouldn't condemn him to that. I think if you're working with small amounts of money, I've talked to yes, then you may have something very much better to do with your money than to buy Berkshire. I mean, if you're working with small amounts of money and you want to put in significant amounts of time and examine thousands of securities, you will find things that are more intelligent to buy than Berkshire. We still think Berkshire is an attractive investment over a long period of time. We think that it stacks up reasonably well with other very large companies. We don't think it's the most attractive investment in the world in terms of what you can find if you're willing to go through those thousands of possibilities, which is what Charlie and I used to do many years ago. It's not feasible for us to do it now and it wouldn't have any impact on Berkshire. What we really like at Berkshire is buying good sized to very large 1st class businesses with 1st class management and just sitting there. Because the nice thing about that is you don't have to go from flower to flower. You can just sit there and watch them produce more and more every year and give you capital and you can buy more businesses. That's a nice formula. It's a formula that will work I think for us. It won't produce returns like the past. Number 10. My name is Chuk Chuk Hillman. And I come here from the Klamath River. And I come here with a heavy heart. And I know this is a pretty lighthearted event, but I came here last year with a heavy heart too, and I fasted for 10 days driving over here to speak with you. And we really were disrespected last year because one of your subsidiaries, Cificor, is has dams on the Klamath River that are creating toxic algae blooms along with multiple other things. I won't go into it too far. But I just come here today with a principal agreement between you and I that you will sit down at the table and help us figure this out, help us make Pacificor accountable and beings that I'm an indigenous American and you're a guest in my home as a European American that you would do that in front of all your shareholders today in good faith that you care as a philanthropist and you care about helping 3rd world countries fight poverty, disease when you're helping create it right here in the United States? You may not last year, we read the order from under which we acquired Pacific Corp. And actually as you may know, I'm prohibited from actually making decisions in that in the area of Pacific arc. That was part of the that was part of the Public Utility Commission ruling when we bought it. But we have Dave Sokol here who can speak to that. I think the first dam was built in 190 7, and we bought Pacific Corp a couple of years ago. But David if Dave could go to a microphone, I think that, I think he could address the issues that you brought up. I don't think we meant in any way to be disrespectful last year. Those of you who were here last year, that we may have a difference of opinion on this. And incidentally, there are strong differences of opinion, as I understand it, in your area about what should be done. And, well, I think I should have Dave make the explanation on that. Dave? So, you want to put a spotlight on the Thanks, Warren. As you stated first, it would be inappropriate for Mr. Buffet to respond in any detail on this issue because as part of the acquisition in 2006 of Pacific Corp, he specifically agreed in writing not to interfere with any decisions of our regulated assets within Pacificorp. So having said that, these four dams that we operate on the Klamath River were built over the last 100 years. There are a whole series of issues in the Federal Energy Regulatory Commission relicensing process as to what should occur. These decisions through that regulatory process have been ongoing for 8 years and they won't culminate for probably another 6. Having said that, there are 28 various parties from federal, state and local agencies, Native Americans, fish fishery folks, local landowners that are party to a discussion as to what should or should not happen with these assets. And I left out the irrigators. Of those 28 parties other than Pacificorp, there are at least 4 different directions in which people think this process should go. From our perspective, we will be pleased to find a resolution when the 28 parties agree as to how that resolution should go forward, how it would be funded, etcetera. Fundamentally, it's up to the Federal Energy Regulatory Commission, state and federal regulators in addition to them, and then our specific regulators in each of the 6 states that Pacific Corp operates in. So if public policy moves in the direction of dam removal, fish ladders or maintaining the existing status quo, that would be the process in which we would go forward. We are working constructively with each of the various parties. We've met numerous times with each of the 4 tribes. And it's a complicated situation and one that hopefully over time a cooperative resolution can be met. Area 11, please. Good morning. I'm Dinesh Takadia from Voluntary California. Well, we learned something from a comic movie, but could you please expand on how do you maintain your good mental and physical health? Well, you start with a balanced diet. Some Wrigley, some Mars, some Seas, some Coke. Basically, if Charlie and I can't have a decent metal attitude, who can? I mean, we get to do what we love doing every day. We do it with people that are not only cheerful about it and like us, but they do their jobs extraordinarily well. They like their jobs too. We're forced to do virtually nothing. We don't want to go. I have a trainer that comes 3 times a week. She may I think she's probably here. And She may think I'm a little begrudging in that particular activity, but that's only 45 minutes 3 times a week. And the rest of the time, I am doing almost well, I'm doing whatever I love every day by day by day by day and I do it in air conditioned offices and with all kinds of help. It I mean, how could you be sour about life, you know, being blessed in so many ways? And then the amazing thing is that when Charlie's 84, I'm 77, And we've slowed down, I'm sure, in a lot of ways, but we pretend we haven't and it doesn't seem to bother us. We get along fine. Great partners, great managers, great families. There's just no reason to look at any minuses in life and to focus on that, it would be crazy. So So we really do count our blessings because they've been many and they continue to come forth and we'll enjoy it as long as we can. There's not much more to it than that. Charlie? Well, I wish we were poster boys for the benefits of running marathons and maintaining a very slim bodily state and so forth. But as nearly as I can tell, neither of us pays much attention to any health habits or dietary rules. And it seems to have worked pretty well so far. I don't think we can recommend it to everybody, but I, for 1, don't plan to change. Really, from the moment we get up to when we go to bed tonight, we get to do all kinds of things. We get to associating with wonderful people is about as good as it gets. And we we're biased obviously, but we think we live in the best country in the world and have all kinds of good things. I mean, just imagine. We could have stayed in my grandfather's grocery store and it would have been hell. By the way, this relates to the subject of corporate compensation. You're in a job which you would pay to have if that were the only way to get it. And you're supposed to be an exemplar from other people for other people. There's a lot to be said for not paying yourself very well. He points that out to me regularly. Well, if you think about it, the idea that CEO compensation represents a market system and that you have to pay some guy a $10,000,000 retention bonus or something to stay around at a job that he's been fighting to keep and stacking the board and everything so that they keep him around and all. I mean, it's I don't know of a CEO in America. I'm sure there are a few, but I don't know of any that wouldn't gladly do the job at half the price or a quarter of the price. And I've seen some that have left jobs paying the made figures and nobody's offered them anything a year later or 2 years later. I wonder where that wonderful market system is that supposed to have all these bidders for their services. It's really sort of ridiculous I think. Let's go on to 12. Hi. I'm Richard Renthrob from Bonn, Germany. At the moment, I attend high school and would like your wisdom on how to approach the question of what to do with the rest of my life. So We prefer things a little more difficult than that if you've got to say. So Mr. Buffett, Mr. Wenger, if you were about to start all over again, what profession would you choose and why? Well, I would choose what I do because, A, I have fun at it. I'm reasonably good at it. I meet a lot of interesting people through it. No heavy lifting. It fits me. It doesn't but that that's not advice for you. I mean, you have to find out what really what's your passion in life. It's a terrible mistake to kind of sleepwalk through your life because unless Shirley MacLaine's right, you know, it's the only one you're going to have. And the, so I was luck I was very lucky in that I found my passion early. I mean, I that's not easy. You know, that takes some luck. It just so happened my dad was in a business, at a very small office and he had a bunch of books down there. And when I would go down there on Saturday or after school, I would start reading those books and it turned me on. And, this was before Playboy actually existed. And so that was just plain lucky. If he'd been a minister, I'm not so sure I would have been quite as enthused about visiting the office. But that's the way to go. And I can't prescribe that for you. But I can tell you that if you're going through the motions in life, you're doing something Now obviously, if you need the job you have and you can't make a change and your kids have to eat and all of that, you deal with realities like that. But when you're in a position to make choices, I always tell the kids that come visit me, I tell them go to work for an organization you admire or an individual you admire. That means many of them become self employed, but they but the idea, you can't get a bad result. I went to work for Ben Graham when I was 24. I only worked for him for less than 2 years. I jumped out of bed every day in the morning. I was excited about what I was going to do. I was learning things. I was with a man I admired. I never asked my salary when I took that job. I moved to New York City and found out what my salary was when I got the check. So just be sure and be sure you get the right spouse. That's enormously important. As Charlie says, the problem is that we talk about the fellow that spent 20 years looking for the perfect woman, and then he found her. And unfortunately, she was looking for the perfect man. So you may have a problem in that But it's it's enormously important who you marry. I mean, it's a huge, huge, huge decision. And, if you're lucky in a couple of things like that, you're going to have a happy life and you're going to behave better as you go along. I mean, it's a lot easier to behave well when things are going your way and you're enjoying your work and you like the you're thinking about things every day that they're the kind of things you like to think about. And Charlie has a lot better advice than I have. And I'd go to it. Well, of course, you'll do better if you develop a passion for something in which you have a considerable aptitude. I think if Warren had gone into the ballet, nobody would have ever heard of him. Well, I think they'd have heard of me just in a different way, Charlie. Well, the chances are if you buy something that turns you on, you probably do have some talent for it. I mean, I never I don't think I could have gotten turned on by ballet. Let's go we're going to go now to 13, which is in an adjacent ballroom. We have multiple overflow rooms, which is how we're handling the 31,000. The Grand Ballroom is the only one where we've got a microphone in. So let's go to number 13. Somebody there? I'm Nancy Ankewitz. I'm from New York City and I teach at New York University. Mr. Buffet, I'd love to get your advice on something that's a little off the investing path, but that taps into your business experience and wisdom. I'm writing a book to help people of a more introverted nature get the recognition they deserve. What advice would you give to the quieter half of the population to help them raise their visibility in their careers? Well, that's a very good question. And I sort of faced that at one time. I was absolutely throughout high school and college terrified of public speaking. And I would have I avoided any classes signing up form that would require it. I would get physically ill if I even thought about having to do it, let alone doing it. And I took a Dale well, I've first of all, I signed up I went down to a Dale Carnegie correspondence at Columbia and signed up for it, gave him a check for $100 went back to my room and can't and stopped payment on the check. This is a real man of courage you're looking at up here. And then I came out to Omaha I saw a similar ad. I was at the Rome Hotel for you old timers in Omaha on 16th Street and I went down there. And this time I took $100 in cash and gave it to Wally Keenan who who many some of you may know. He died some years ago. First time I met him and I took that course. And when I finished that course, I went right out of the University of Omaha and volunteered to start teaching, knowing that I had to get up in front of people. I think the ability to communicate both in writing and orally is of enormous importance, under taught. Most graduate business schools, they wouldn't find an instructor to do it because it was sort of beneath them to do something so supposedly simple. But if you can communicate well, you have an enormous advantage. And to you who are talking to these the group of introverted people and believe me, I was in certain ways quite introverted. It's important to get out there and do it while you're young. If you wait until you're 50, it's probably too late. But if you do it while you're young, just force yourself into situations, where you have to develop those abilities. And I think the best way to do that is to get in with a whole bunch of other people who are having equal problems because then you find you're not alone and you don't feel quite as silly. Of course, that's what they did at the Dale Carnegie course. I mean, we would get up in front of 30 other people who could hardly give their own name. And after a while, we found out we could actually pronounce our own name in front of a group. And but we would stand on tables and do all kinds of silly things just to get outside of ourselves. And you may have thought it by this point, you may think it went too far in my particular case, but that's another problem. But you're doing something very worthwhile if you're helping introverted people get outside of themselves and working with them in groups where they see other people have the same problem and they don't feel quite as silly themselves, I think is I think you're doing a lot for some human beings when you help them do that. Charlie? Yes. It's a real pleasure to have an educator come who is working to do something simple and important instead of something foolish and unimportant. I hope he's not going to name names. Okay. Let's go back to number 1. Hi, Mr. Buffet. My name is Regina Chikasola, and I'm the Klamath Riverkeeper. I came here today with many of the other people from the Klamath that came here, and I thank you for having us. And I thank the shareholders for being a lot nicer to us this year than they were last year. So my question is, I'm sure you're familiar with the severe pollution issues in the Klamath River, such as the toxic algae problem that is 4,000 times allowable recreation levels and that the fish are also now toxic due to the Klamath dams. I was wondering if you were familiar with the finances behind the Klamath Dams. Many economic studies have shown that removing the Klamath dams would be up to 100 of 1,000,000 of dollars cheaper than relicensing them. So my question is what would you do if Pacific Core decided to keep these dams even though it would mean that your shareholders would lose money in the long run and that Pacific Core's ratepayers would also be losing money? Well, I think the question about the ratepayers will be addressed by the public utility commissions. I mean it is their job to represent the citizens of Oregon and weigh a number of different considerations. For example, clean energy, do you want to replace hydro energy with what you're talking about with coal, which emits carbons into the atmosphere. There are enormous trade offs. Anytime the government gets involved in eminent domain, we have that with wind farms. For example, in Iowa, there are some people that are unhappy with us using the land for wind farms. But on the other hand, you get clean energy that way. And there are trade offs involved in government policy. You get into that with a question of eminent domain, all of that sort of thing. But I think I'm going to let Dave talk to the question, the more technical questions you get into. But I would say overall you have people with widely different interests. Obviously, a big interest is the cost of electricity. And to some extent, every public utility commission that makes a decision on gas versus coal versus wind versus solar is making a decision based partly on the economics to their ratepayers, partly on their feelings about what is the best for society. And those commissions are appointed state by state to make those decisions. Now in addition, in this case, we have the FERC as it's called the Federal Energy Regulation Commission that will also have to rule on it. They will listen to everybody. They'll listen to you. They'll listen to the 28 others that Dave mentioned. In the end, we will do exactly what they say. I mean, as a public utility, if they tell us to put up or not put up coal, we will not put up coal. If they tell us to put up wind, assuming that there's a place where there is wind, we will put up wind. We follow the dictates of the regulatory bodies that tell us what to do. And in the end, they give us a fair return on the assets employed. And we will get that return whatever the assets may be. If they tell us to put in coal assets, we'll get a return on that. So from our standpoint, on the standpoint of profitability, it's neutral. From the standpoint of society weighing all these different things, that's a decision society will make. But Dave, let's want to talk to the allergy question? Sure. First, it's important the Kerrick tribe did do a study and found bioaccumulation of microcystin or blue green algae in the perch and the freshwater mussels in the Klamath River. What's important to understand about that and by the way, we disseminated that report immediately to state and federal health agencies because they should know about it. Microcystin is not unique to the Klamath River. There are 27 other lakes in the state of Oregon that have blue green algae. 70 different countries, every province in Canada and 27 of the US states have lakes that have blue green algae. It is created from lakes that have a high abundance of nutrients and naturally forming algae. And at the head of the Klamath River is a lake known as Upper Klamath Lake, which is actually a Bureau of Reclamation Reservoir. It's a shallow, large reservoir that is known as being hyper eutrophic, which means a great abundance of, algaes and various nutrients. Those nutrients then flow down the river and do pass through or in cases get backed up by the 4 reservoirs down below the Bureau of Reclamation Link Dam. The important issue is those things are in fact taken into account by the Federal Energy Regulatory Commission. They issued their environmental impact statement last November, which endorsed various fish passage methods on the dams, but do not call for removal of the dams. But again, those are decisions that all the state federal agencies and the various involved parties will either have to come to agreement with or let them run their course through the FERC process. Thank you. Number 2. Hi. My name is Henry Patner. I'm hailing from Singapore most recently. In one of your older letters in 1964, you introduced a 4th investment method called General's Relatively Undervalued. In your description you say, we have recently begun to implement a technique which gives promise of very substantially reducing the risk from an overall change in valuation standards. We buy something at 12 times earnings when comparables are poor quality companies sell at 20 times earnings, but then a major value revaluation takes place so that the latter only sell at 10x. Is this technique pair trading? And if so, how did you think about and calculate the ratio of longs to shorts? Yes. I didn't remember we started as early as 'sixty four, but certainly in the '60s, we did some of what in a very general way would be called peer trading now which is a technique that's used by a number of hedge funds, and perhaps others that go along one security and short another and often they try to keep them in the same industry or something. They say that British Petroleum is relatively attractive compared to Chevron or vice versa. So they long one and short the other. And actually that technique was employed first by Ben Graham in the mid-1920s when he had a hedge fund. Oftentimes I read articles all the time that credit A. W. Jones with originating the hedge fund concept in the late '40s. But Ben Graham had 1 in the mid-1920s and he actually engaged in pairs trading. And he found out it worked very modestly well because he was right about 4 times out of 5, but the time he was wrong tended to kill him on the other 4. We did we shorted out the general market for about 5 years and the partnership to a degree. We borrowed SOX directly from some major universities. I think we were probably quite early in that. We went to Columbia and Harvard and Chicago and different places and actually arranged for direct borrowing. There weren't it wasn't as easy to facilitate in those days as it is now. And so we would take their portfolios and we would just say give us any of the stocks you want to and then we'll return them to you after a while and we'll pay you a little fee. And then we went long things that we thought were attractive. We did not go short things that we thought were unattractive. We just shorted out the market generally. It was always kind of interesting to me when I would visit the Treasurer of Columbia or something like that and I'd say, we would like to borrow your stocks to short. And he thought his stocks were pretty good at that point. And he'd say, well, which ones do you want? I said, just give me any of them. I'm happy to short your whole damn portfolio. I needed the Dale Carnegie course to get me through that kind of thing. We didn't have any specific ratios in mind. We were always limited by the number of institutions that would give us the SOX to short. So it was not a big deal, but we probably made some extra money out of the 60s. It's not something that would fit our what we do these days at all. And generally speaking, I think if you got some very good ideas on businesses that are undervalued, it's really unnecessary to do any shorting out of the market. There's a for those of you who are in the field, I mean, there's a kind of a popular proposal. Money managers always have some popular proposal that's being sold to the potential investors. And now there's something called 130%, 30%, where you're long 130%, long short 30%. That stuff's all basically a bunch of stuff just to try and sell you the idea of the day. It doesn't really have any great statistical merit, But the fish bite as Charlie says. Charlie can elaborate on that. Yes. We made our money by being long some wonderful businesses. We didn't make it by a long short strategy. Number 3. Dear Mr. Buffet, Dear Mr. Munger, my name is Oliver Krautschheit from Frankfurt in Germany. The subprime crisis has led to inconsistent pricing in capital markets. Credits are trading at large discounts and at the same time, the equities do not reflect this. My question is, when will this be over and how do you take advantage of market dislocations? Well, when there are market dislocations, there are always ways to take advantage of it, but we'll leave for you the joy of searching for those. But there have been some really important dislocations. And I brought along just for your amusement, a few figures on something that that we've done recently, but it doesn't have any big significance for Berkshire. I mean, Berkshire will make some extra money out of this. It doesn't take any time to think about, but it does illustrate just how dramatic the changes were. And the ones I brought along relate to the tax exempt money market funds. There were $330,000,000,000 of these. That's a lot of money, dollars 330,000,000,000 And they relied on re pricing of really almost all cases, 1st grade municipal bonds. Every 7 days they had these auctions and it was all set up very elaborately so that people could have their money more or less in their minds instantly available in something that was tax exempt. And they were marketed extensively. And I brought along, for example, here's one that related to the they were backed by various municipal issues. This happened to be one by the L. A. County Museum of Art. Just pull that out. And on January 24th, it was marketed at 3.15%. January 31, 4.0. February 7, 3.5. February 14, 8%. Now how can a tax exempt bond of short term nature be selling at a 3.5% rate 1 week and 1 week later on Valentine's Day be at 8% and 1 week after that be at 10%. It's now back to 4.2%. Now those are huge dislocations in markets. That's crazy. It be one thing to be some little obscure item, but this happened with 1,000,000,000 and 1,000,000,000 and 1,000,000,000 of dollars of securities. It even happened, We got these bid sheets every day. And this happens to be a bid sheet, I think from Citigroup. And they were repricing these every 7 days. And what you would find on these you'll see there's lots of issues involved. The same issue would appear on several different pages because it would represent some different auction, although handled by the same broker at the same time. On one page, you would find an issue. We would bid all these we happen to bid these at 11.3%. On one page, we bought them at 11.3%. On another page, the same issue, we bid the 11.3% and somebody else bid 6%. So you had the same issue with the same broker at the same time being sold at 11.3% 6%. Those are markets of extreme dislocation and you find those occasionally. You found that after the long term capital management crisis in 1998. You found the equivalent of it in the stock market in 1974 and so on. And those are great times to make unusual amounts of money. And if you there are certain things we can't figure out. I see in the Wall Street Journal, I see advertisements these days of auctions taking place in some esoteric mortgage securities. If you had enough time, you could probably figure out some of those that were very mispriced. We don't fool around with that. We just don't have the time. We were able to do 4 we have about $4,000,000,000 in this right now. When we got all through, we'll have made some extra money for a couple of months. It won't be significant in relation to Berkshire's size, but it's something that's very easy to do. You may be able to find by working very, very hard on some smaller issues, you might be able to find in this mess in mortgages and it's gone beyond subprime. It's gone into all days and it's gone into option arms and that sort of thing. You may there very well could be some great opportunities out there that Charlie and I will no longer spot because we just can't be looking at that many things. Charlie? Yes. What is interesting is that how brief these opportunities to take advantage of dislocations frequently are. Some idiot hedge fund bought unlimited municipal bonds at incredible margins. I think they bought 20 times more municipal bonds than they could afford with their own money, borrowing all the rest. And when those things were dumped on margin calls, municipal bonds suddenly got mispriced in America. But this location was very brief. So you But very extreme. You've been very extreme. And so if you can't think fast and act resolutely, it does you no good. So you're like a man standing by a stream trying to spear a fish and the fish just comes by once a week or once a month or once every 10 years. And you've got to be there to throw that spear fast before the fish swims on. It's a pretty demanding business if you do it right. But there have been times I mean in the junk bond market there was a 3 or 4 month period in 2002 where some really incredible things happened, and they happened on a large scale. So Yes, it happens about twice a century. Yes. Which means that he and I have only had 4 or 5 times when we could do it. Let's go to number 4. Hello, mister Buffet and mister Munger. My name is Srinivas, I am from Fort Lauderdale, Florida. I read all your letters and annual reports multiple times and every time I get a different insight. So thanks for doing it. My question is about converting the successful small businesses into large enterprise. I have a good and successful small business from last few years. I'm unable to grow it to the next level. It seems like there are some components mean, it's the nature of compound interest. And you can't I mean, it's the nature of compound interest and you can't build it in one day or one week. So Charlie and I have we have never tried to do in some master stroke convert Berkshire into something 4 times as large. People have done that sometimes in business. But we've kind of we've sort of felt that if we kept doing what we understood and did it consistently and had fun while we were doing it, that it would be something quite large at some point. But it there's nothing magic. It'd be nice to attract a whole bunch of money into some great idea you have and multiply it manyfold in a few weeks or something of the sort. But that has really not been our approach. We've just we have done in a general way, we've done the same thing now. We do little variations of it. But we've kept doing the same thing for years, and we'll keep doing it. We will have more businesses a few years from now than we have now. And we'll have all the ones we have presently. Most of them will do better, some won't. And we will have added something. And that's an automatic formula for getting ahead, but it's not an automatic formula for galloping ahead. And but we don't really feel we're not unhappy because we're not galloping. We're unhappy if we're not moving at all. But we've got 76 or so, in most cases, pretty darn wonderful businesses. And like I say, we'll have more as we go along. So it's a very simple formula. Gipsy Rose Lee said once, she said, I have everything I had 5 years ago. It's all that it's 2 inches lower. Well, what we want to have 5 years from now, a whole bunch of business we had before that are 2 inches higher plus some more businesses. And that's the formula. Charlie? Yes. You got to remember that it's the nature of things that most small businesses will never be big businesses. It's also in the nature of things that most small most big businesses eventually fall into mediocrity or worse. So it's a tough game out there. In addition, the players of the game all have to die. And that is those are just the rules of the game and you have to get used to it. We've only created from scratch one small business that became a huge business that I can think of and that's the Reinsurance Department. And there Warren and Ajit and others have created a great and valuable business out of air. But can you think of anything other that's large that we've done in all these decades? No. No. We've only done it once. So we're a one trick pony. Yes, we were lucky on that one too. And incidentally, without a G, we wouldn't have done it at all. Right. Right. It isn't that we did it. A G did it. We just sat there cheering. Somebody asked us once what was the best investment we ever made. And I answered the fee we paid to the executive recruiter to find Ajit Jain. In that connection, I'd like to give you a little report. We went into the municipal bond insurance business a few months ago and actually we did it through a Jeep and he got our companies up licensed and running. And in the Q1 of 2,008, I don't have the figures for all the other people, but our premium volume came to over $400,000,000 And I think now that was overwhelmingly written in the secondary market, but I think our premium volume was not only larger than any other municipal bond insurer in the United States. I wouldn't be surprised if it's as large as all of the rest of them combined. And this was from a standing start that Ajit accomplished this. And I have here a list of what 300 and this is at the end of the quarter 278, I believe, of these transactions. Now that's all done out of an office with 29 or 30 people who are doing a lot of other things too. I mean, it's a remarkable, remarkable place. One of the interesting things about this is that almost all of this business, although not all the premium volume, all of the almost all of this business was came from people who came to us with municipal bonds asking us to insure them and in every case, except 2 or 3, they already had insurance from the other bond insurance, most of whom are rated AAA. So they were paying us a fee which was higher to write insurance which would only be paid not only if the municipality didn't pay, but the original bond insurer didn't pay. So we were writing business in an average rate of 2.5 percent for the quarter, and the original insurer had charged perhaps an average of 1%. And they had to pay. And they in fact, the only way we're going to pay is if they went broke. So it tells you something about the meaning of AAA in the reinsurance in the bond insurance field in the Q1 of 2,000 and 8. Ajit's done a remarkable job in this arena, and Berkshire wrote a couple of primary policies for the Detroit Sewer District and the Detroit Water District at each about $370,000,000 or $380,000,000 And people have found our insured bonds trading in the secondary market at a more attractive yield to the issuer, in other words, at lower yields, than from any other bond insurer. So this whole company has been built just in a matter of a couple of months by Ajit and his small office in Connecticut. It's pretty remarkable and I congratulate him for it. I wanted to know if you could not talk with management, could not read an annual report, and did not know the stock price of a company, but were only allowed to look at the financial statements of a company, what metric would you look at to help you determine whether you should buy a company? Well, what we're doing in investment and what everybody is doing in investment is they're laying out money now to get more money back later on. Now let's leave the market aspect of the asset out. I mean when you buy a farm you really aren't thinking about what the market on it's going to be tomorrow or next week or next month. You're thinking about how many bushels of of beans per acre can you get or a corn per acre and what the price is likely to be. You're looking to the asset itself. And the case you lay out, the first question you'd have to make is do I understand enough about this business so that the financial statements will tell me the information that's useful to me in making a judgment about what the future financial statements are going to look like. And in many cases, the answer would be no. Probably in a great majority of the cases, it would be no. But I've actually bought stocks the way you're describing many times. And they were in businesses that I thought I understood where if I knew enough about the financial past, it would tell me enough about the financial future that I could buy. Now I couldn't say the stock was worth X or 105% of X or 95% of X. But if I could buy it at 40% of X, I would feel that I had this margin of safety that Graham would talk about and I could make a decision. Most times I wouldn't be able to make it. I wouldn't know if you hand me a bunch of financial statements. You don't tell me what the business is. There's no way I can make a judgment as to what's going to happen. It could have been a hula hoop business. It could have been a pet rock business. On the other hand, it could have been Microsoft early on. So unless I know the nature of the business, the financial statements aren't going to tell me much. If I know the nature of the businesses business and I see the financial statements, if I see the financial statements on Wrigley, I know something about the business. Now I have to know something about the product before I can make that judgment. But I we've bought lots and lots of security, Charlotte. The majority of the security Charlotte and I bought, we have never met the management and never talked to them. But we have primarily worked off financial statements, our general understanding of business and some specific understanding of the industry and the business we're buying. Charlie? Yes. I think there's one metric that catches a lot of people. We tend to prefer the business which drowns in cash. It just makes so much money. One of the main principles of owning it is you have all this cash coming in. There are other businesses like the construction equipment business of my old friend, John Anderson. And he used to say about his business, you work hard all year and at the end of the year, there's your profit sitting in the yard. There was never any cash, just more used construction equipment. We tend to hate businesses like that. Yes. It's a lot easier to understand a business that's mailing you a check every month. But that's what an apartment house is. If you own a you can probably value an apartment property pretty well if you know anything about the city in which it's in. And if you have the financial statements, you can make a reasonable guess as to what the future earnings are likely to be. But that's because it is a business that gives you cash. Now you can there could be surprises in that arena as well. But I bought a lot of things off financial statements. There are a lot of things that I wouldn't buy if I knew that actually, there are a lot of business I wouldn't buy if I thought the management was the most wonderful in the world because they were in the wrong business. It really doesn't make much difference. Number 6. Good morning. My name is Mike Palmateer, Fisheries Supervisor for Cuttouches Fisheries. Mr. Buffet, you grew up and still live in the banks of the Missouri River. I too live on a river called the Klamath. My family has lived there since the time immemorial. In 2,002, 68,000 fish died at the mouth of the Klamath River due to disease and bad water quality. These fish are also my relations. If another company polluted your river and killed all the fish and made the river unswimmable and unfishable, how would you approach this problem? Thank you. Well, I think society would, as a whole, should approach that problem by looking at the net benefits from whatever is taking place in that situation and what the cost of electricity would be and what the farmer situation would be if you went to a different form of water distribution in there. There are a lot of competing ideas and desires in a large society. And it's up to government basically to sort out those. And we were we're sorting it out. Right now, we're building coal plants in the country. We're building gas plants. We're doing various things. People are coming to different conclusions about what kind of trade offs they want to make. And generally, those are being made at the state level, although you could have a national energy policy that would override individual states' decisions. We're responsible. We're responsive to national policy on that. We're responsive to local policy. The Oregon Public Utility Commission, I'm sure, is aware of exactly what you've discussed. And they have to consider that. But they have to consider a lot of other things in determining what is the best way to generate the electricity required for those citizens of Oregon. And Dave, would you want to add anything to that? Warren, just one comment and not in any way to be disrespectful of the fishermen, but it we are not polluting the river. We're not doing adding anything to the water that isn't coming out of Upper Klamath River. And we do recognize the different views as to whether the irrigation is a good thing or a bad thing, whether renewable power such as hydro is better than returning the river to its prior 19 7 date. But the one thing that just to be clear is that Pacificorp is not adding anything. The water is flowing through penstocks, creating electricity and coming out the rear end, and it did so under a 50 year FERC license. But again, we understand the varying concerns and hopefully over the next 6 years a societal answer that balances all those concerns will be reached. Thank you. I'd like to point out how refreshing it is to have people addressing a pollution problem, which has nothing to do with burning carbon. Number 7. I'm Jack Grange. I'm from Philadelphia. I'm in 7th grade and I'm 12 years old. I just want to ask what kind of things should I be reading like in my grade because I know there are a lot of things that they don't teach you in school that you should know But what things should I be looking into? Well, I would get in the habit if you don't have it already, but you sound like you, Mary Merrill May, of reading a daily newspaper, which is not the most popular thing in the world among younger people these days. But you want to learn as much as you can about the world around you. You know? And Bill Gates, I think, quit the letter P in the world book. Doesn't seem to have hurt him too much to have quit there. But you ought to have a set of you can have a set of world books. You can read the newspapers. You should just sop it up. And you'll find out what's the most interesting to you. I mean, there's a certain point where the sports majors are most interesting to me and then the finance pages. And I happen to be a political junkie, but you just can't learn enough in life. And I think the fact what you'll find is the more you learn, the more you want to learn. I mean, it is fun. And but you sound to me like a young person that's going to do a lot of that on their own. Do you have any suggestions, Charlie? You'd probably suggest reading Ben Franklin. Well, my suggestion would be that the young person who just spoke has already figured out how to succeed in life. You've got it made. Number 8. Greetings to all of you from the Midwest of Europe, from Bonn, Germany on the Rhine River. I'm Norman Renthrop. I'm a shareholder in Berkshire, Wesco and Cologne Re. I want to thank you and Ethan Wertheimer to take the initiative and the time to come to 4 cities in Europe and potentially throughout the world to tell owners of family businesses what great alternative Berkshire Hathaway is to selling their businesses to buy out funds. Now my question regarding the chocolate industry. I'm challenged since I cannot buy seized candy in my hometown Bonn, Germany. You gave that great example of the great business, the good business and the gruesome business. C. Scandy, you cited having sent like $1,300,000,000 in cash profits to Omaha. There's another company called Lindt and Spongli. Now while SeaScandie achieves more than 20% profit on sales, you describe that their growth has been okay. Lindt and Sprungli does only 14% on sales, but they did go almost global. Yeah. Could you get to the question, please, on this? Yeah. The question is in whether you want to have a company with high profitability but okay growth versus a company going global but lower profits? What are your considerations? It really makes no difference to us. We evaluate all kinds of businesses. And what we do want is we want a business with a durable competitive advantage, which both of the companies you named do. And we want something we understand, and we want the management that we like and trust, and then we want a price that makes sense. And we try to look at we probably looked at every confectionery business for 20 years that publicly owned where we get the figures. And sometimes we find something where it's where we can take action and most of the time we don't. When they're private businesses, we don't determine a really good private business. I always tell the manager the best thing to do if you got a wonderful private business is just keep it. It's going to be worth more next year and the year after. So there's no reason to sell a wonderful business except for kind of extraneous factors. It may be family situations, it may be taxes, it may be that there isn't another potential error or whatever it may be. But there's no need. If you've got a business worth $1,000,000,000 you don't need the $1,000,000,000 You've got a business that's worth $1,000,000,000 anymore than if you've got a farm that's worth $1,000,000 you already got the $1,000,000 you just happen to have it in the farm. And if you like farming, you keep it. So we never urge people to sell the businesses. We urge them to keep them. But there comes times when they do want to sell for one reason or another, maybe once every 20 or 50 years. And we do think if they have a business that they're enormously proud of, it's a really fine business, that they can keep more of the attributes that they love in that business by selling it to Berkshire, than they can by far selling it to anyone else. So we are the logical buyer. As you mentioned, I'm going to Europe. Eitan has been wonderful about setting this up. And we're going to make presentations not to try and get anybody to sell us their business now because most people shouldn't sell us their business now. But we do want them to think of us when the time comes, when an event occurs that does cause them to think about selling. And we want to be on their radar screen. And we're more on the radar screen in the United States than we are in Europe, and we're going to try to correct that. But if you take a firm like you name on Lindt, there's a price at which we would buy stock in Lent. There's a price at which we buy the whole business, but it's unlikely to be selling there. If you think about 100 and 100 of wonderful companies, I get all these managers that just got a CEO yesterday who called me and they want to tell me about their business and they imply their businesses or they think their business is the most attractive investment in the world. It isn't the most attractive investment in the world. There are thousands of possible investments. And the idea that all these managers are saying our stock is the most wonderful in the world is crazy. But it's our job to look at hundreds of things and in terms of marketable securities, buy what we think are the most attractive ones among the ones we understand and like as businesses. And then occasionally, we get the chance to buy an entire business. We never do that at a bargain price. It just doesn't happen. People don't do that. The stock market gives you bargain prices, individual owners won't. But when we get a chance to do that at a fair price, we like doing it. We love building Berkshire with a bunch of businesses with favorable long term economic characteristics. But the chance that any one of them, we aren't going to look for a given confectionery company and say regardless of price we're going to do this because we don't do anything when the phrase regardless of price enters into the sentence. Charlie. Yes. I watched a man build up a business in Southern California, which was a wonderful business. And the time came to sell it and he devoted his whole life to creating it. He sold it to a known crook who was obviously going to ruin the business just because he could get a slightly higher price. I think that's an insane way to live a life if you own a prosperous business. I think the better course is to sell to somebody you know is going to be a good steward of what you've created. Let's go to number 9, please. Hi. My name is Johan Freudenberg from Germany. How would you as a European investor that invests in U. S. Equities hedged the U. S. Dollar risk? Thank you. How about I go ahead? How do you hedge the U. S. Dollar? Well, I don't know whether you're thinking of starting in Germany and hedging the dollar risk of investing here or vice versa. We are happy to invest in businesses that earn their money in euros and Germany or whether it's their France or Italy or earn their money in sterling in the U. K. Because we do not have a feeling at least I don't have a feeling that those currencies are likely to depreciate in a big way against the U. S. Dollar. That would be how we would get hurt. We could offset that by borrowing the money in those countries and borrowing in their currency to make the purchases. But overall, I think that the U. S. Is going to continue to follow some policies that have made the dollar weaker in recent years. So if I had to bet my life one way or another over 10 years, I would probably bet that the dollar would weaken against other major currencies. And therefore, I feel no need if we buy companies, those earnings primarily arise elsewhere in major countries. I feel no need to try and hedge those purchases. I mean, if I landed from Mars today with $1,000,000,000 of Mars dollars or whatever they call them on Mars, And I was thinking about where to put my money. I went to the local wherever my UFO landed and went to the bank and said I've got this $1,000,000,000 of Mars currency and they said, well, what would you like to exchange here? Don't think I'd put all the $1,000,000,000 in U. S. Dollars. So it doesn't bother me to buy businesses around the world unhedged in terms of their currency and have a fair amount of our earnings coming from earnings that originate in other currencies in which I will convert at current rates to dollars at some time in the future. If you take Coca Cola, we own 200,000,000 shares of Coca Cola. And if their earnings are roughly $3 a share, that means our share of the earnings of Coca Cola is $600,000,000 a year. And of those earnings of $600,000,000 maybe close to $500,000,000 will be from around the world, all different kinds of currencies. Basically, I like that. I think that that will be a net plus to us over time, and it certainly has been a net plus to us in recent years. So we are not in the business of hedging currencies basically. We do not have a lot of hedges set up. Charlie? Nothing to add. Number 10. I'm Eric Schlein from Larchmont, New York. This is actually a follow-up question from a question that I asked last year at the meeting. I'd asked you guys what you would do with the small sums of money since I run a small portfolio under $1,000,000 And I asked you if you'd be doing things like the net nets that Benjamin Graham used to talk about and liquidation arbitrage, a lot of the things that used to do with the Buffett partnership. And you acknowledge that you wouldn't be just a buy and hold investor that you basically are today, but we'd be doing a lot of those transactions. And Mr. Buffet, you also talked about how a lot of the investments you would do with under $1,000,000 would have nothing to do with stocks and would be with other types of securities. And you don't really elaborate neither of you really elaborated any more than that. So I guess I was wondering if you could elaborate a little more a little bit more on how your investment strategy back then then in reference to non stock investments would be different than your buy and hold strategy today. So what kind of stuff would you be doing? Maybe if you can give me a past example that you did in the '50s or the '60s, that would be great. Thank you. Appreciate it. Well, if I were working with small sums of money, and I would be happy doing that, it would just open up thousands of possibilities to me. And you might very well certainly we found very mispriced bonds where we could come nowhere near buying a position of enough size in Berkshire to make a difference, but where it would have made a difference if you were working with $1,000,000 But it would be bonds, it would be stocks of both in the United States and elsewhere. We found them in Korea a few years ago that were ridiculously cheap. You basically had to make very significant returns, but you couldn't put big money out in it. So it could be in stocks, it could be in bonds, wouldn't be in currencies with small amounts. But I had a friend who used to buy tax liens, Tom Knapp, he's got some relatives here. An enterprising person can find a lot of different ways of making money. You'll find them most of them will be in small stocks. If you're working with small money, they'll be in small stocks or in some specialized bond situations. Wouldn't you say that, Charlie? Sure. Number 11, please. Hi. I'm Doctor. Silver from the Infertility Center of St. Louis. And we feel that by making many, many babies, we're doing the best we can to help salvage the solvency of Social Security. We won't pursue the logic of that too far. We need someone to pay into the system. And with the demographic implosion that we're facing and the current anti immigration feeling, that this is the real cause of the social security dilemma and that we're facing and it's true in most of the developed world. But my question is everybody is looking very closely at what you and Charlie are going to say at this meeting because there's just a huge amount of confusion since the credit crisis. And I guess you've been through many, many years decades of confusion, but everybody really wants to know what you think because we have 3 candidates, one of whom I like, which I won't mention, but all 3 of whom seem to be pandering to voters and not really demonstrating a profound understanding of economics. And we're going to decrease interest rates to help the credit crisis and we're going to inject $180,000,000,000 as free gifts into the economy and yet our dollar is down 50%. And we certainly don't want a recession and all the misery that would bring, but aren't we going to eventually have a gigantic inflation here in the U. S? And so in China, which is our major partner in this, the stock market has gone down and people are losing money because they're worried about the U. S. So I'm wondering if you could just shed some words of wisdom on if you were the presidential candidate, which I would like to see happen, what would be your position or your policy? Well, I think it was Bill Buckley, was it, that ran for Mayor of New York 40 years ago or something like that. And they asked him what the first thing he would do if he were elected. He said, I'd ask for a recount. It's not an easy game. I think we have just personally, I think we have 3 pretty good candidates this time, quite good candidates. But I think that your comments about the pandering and all that, I'm afraid that's just part of a very if you have a very long political process and you have people only generally willing to listen to ideas in fairly short form. And you're trying to make the other candidates look bad one way or another, and I'll promise. So I think that the truth is you do get a lot of pandering in the policies that are proposed. I think I think you have candidates that are pretty pretty smart about economics. I happen to think 2 of the 3 are maybe a little smarter about economics than the 3rd. But the 3rd may be just as smart too. It may just be forced into a different position. Political processes is something that doesn't lend itself to Douglas Lincoln debates on the fine points of policy and it's a tough game. And I don't the one thing I think is I think they will behave better in office than on the stump. I think that's true of all three of them. And I think but I think that's just built into the system. We have a country that works awfully well. It whether Warren Harding is in office or Franklin Pierce or whatever it may be over the years. And it gets back to that saying I've said many times that I think that you want to buy stock in a business that's so good that an idiot can run it because sooner or later one will. And we live in a country, frankly, that is so good that your children and grandchildren will live a lot better than than you live, even though an idiot or 2 runs it from time to time in between. But we've got a lot better than idiots running. I mean, believe me, I think we've got 3 very good candidates, and I'm I wish whichever one of them wins, I wish him well. It's not it's the toughest job in the world, the most important job in the world. And I think the motivations of the people running it are a lot better sometimes than their proclamations as they go along in the political process. I think it's very hard to run an IWA without paying for ethanol. I mean, I and maybe you may win some badge for courage or something in the end, but you won't win the presidency. Charlie? Well, I'd like to address the recent turmoil and its relation to politics. After Enron totally shocked the nation with the gross amount of folly and misbehavior, our politicians passed Sarbanes Oxley. And it has now turned out that they were shooting at an elephant with a pea shooter. And lo and behold, we have a convulsant that makes Enron look like a tea party. And I confidently predict that we will have changes in regulation and that they won't work perfectly. Human nature always has these incentives to rationalize and misbehave. And the learned professions very often fail in their basic responsibility to be learned. And we're going to have this turmoil as far ahead as you can see. Look at it this way, I have a job here I love and I gladly pay to have this job. Now have enough stock, so I'm reasonably assured of keeping the job. But let's just assume for the moment that there were 3 other candidates out there and none of us have had any stock and we were all up here making a pitch to you. My answers might have been a little different today in terms of what Berkshire's prospects would be under me and all of that sort of thing going forward. It's a corrupting process. Now it's it works pretty well, but the process itself has to be corrupting. Just take the boom in commodity prices we've had. We've had a boom in the price of oil, but we've had a boom in the price of corn and soybeans. Now I have heard no political candidate say you've had this huge increase in the price of corn and soybeans. That means all these poor people throughout the country will be paying more for food, so we ought to put an excess profits tax on farmers. That is not something you're going to hear. On the other hand, when it happens in oil and it happens to be Exxon, people will propose occasionally we ought to put a terrible tax on Exxon because the price of oil has gone up. There's a lot of situational ethics or situational policy making that depends on how many voters there are in any given category and what state you happen to be in and all that. But I don't think I'd behave any better. Now if my ambition were to be President of the United States, I would I'm sure it would affect my what I talked about my behavior. We're all human beings. And so I don't condemn the people for the fact that when they are working 18 hours a day and the other guy is shooting at them and they start exaggerating things a little. I just don't think you should expect more of human beings. And I think that they will tend I think any one of the 3 candidates will tend to behave quite well in the White House. They'll succumb to all the things that presidents do in terms of having the certain groups that help them get there and all of that sort of thing. But I think on balance, they will end up doing what they think is best for the country, and I think they're all smart people. Number 12. My name is John Ebert. I'm from Bremerton, Washington. I'm very pleased to see that both you and Charlie look so healthy. And I'm also glad to know that your goal is to work till at least 102 before you retire. I think your secret must be the Cherry Coke and the See's candy by evidence of what you're doing on the screen there. My question obviously deals with succession. At last year's meeting, you spoke about your plan for your Chief Financial Officer. Could you please update us on where you stand on succession? Yes. And we've said on the CEO front, we have 3 that any one of which could step in and do a better job than I do in many respects. And the Board is unanimous, I believe, in terms of knowing which one that would be if it were tomorrow morning, but that might be different 2 or 3 years from now. I think in any event, though, when the time comes, they'll want to pick somebody reasonably young because I think on balance, it's a good idea to have a long run at this job. And I think it aids in acquisition and being able to make promises to people about how their businesses will be treated and so on. In terms of the investment officer, the board has four names. We've discussed the 4. Any one or all of the 4 would be good at doing my job, probably better in some ways. And but they all have good jobs now. They're happy where they are now. They would I think every any one of the 4 would be here tomorrow if I died tonight and they were offered the job by the Board. They're all reasonably young. They're all very well-to-do or rich. And compensation would not be a major factor with them. I think that any of the 4 would take the job at less money than they're making now. But there's no reason for them to come now. They would I would still end up making the decisions and they would probably chafe the idea of not being able to make the decisions. I actually worked for Ben Graham for a few years, and I loved the man enormously. I learned an amount from him. I named my older son, middle name is after him. But in the end, I wanted to make decisions. And I if Ben Graham made them differently, I actually prefer to make my own decisions. And that's anybody that manages money well is going to feel that way. So it's just better in this case. It could happen tomorrow. It could happen 5 years from now. But whenever I'm not around to make the decisions, the Board will decide whether to have 1, 2, 3 or 4 of these people. They'll decide they may decide to have 4 and divide it up 4 ways. They may decide to have only 1. They will probably be heavily influenced by how the incoming CEO feels about exactly how he wants to work with a group or with 1. And they'll come. So there will be no gap after my death in terms of having somebody managing the money and they'll probably be a lot more energetic than I am now. And they'll they may they could very easily have a much better record. Some of them have a much better recent record than I do. Charlie? Well, you know, we still have a rising young man here named Warren Buffett And having that's the advantage of working with a guy 84, you always look young. And I think we want to encourage this rising young man to reach his full potential. One thing I should point out with our average age being 80, people talk about aging managements. Well, we haven't found a management that isn't aging. If we ever find out, we want to start eating what they eat. And what I can point out about your management, since our average age is 80, we're only aging at the rate of 1.25 percent a year. And that is the lowest rate of aging that I know of in Corporate America. I mean, some of these companies have 50 year olds and they're aging at 2% a year. And just think how much riskier that is. Let's go to 13. I'm Isaac Dimitrovsky from New York City. Mr. Buffet, it's great to be here. I've read there were several times in your investing career when you were confident enough in one idea to put a lot of your money into it, say 25% or more. I believe a couple of those cases were American Express and The Washington Post in the seventies, and I've heard you discuss your thinking on those. But could you talk about any of the other times you've been confident enough to make such a big investment and what your thinking was in those cases? Charlie and I have been confident enough if we were only running our own net worth. I'm certain a very significant number of times, if you go over 50 years, there have been a lot of times when you would have put at least 75% of your net worth into an idea, wouldn't, aren't there, Troy? Well, but 75% of your worth outside Berkshire has never been a very significant amount. Well, but I'm going back. Let's just assume it was. Let's just assume you didn't have Berkshire in the picture. There have been times I mean, we've seen all kinds of ideas we would have put 75% of our net worth in. Warren, there have been times in my life when I've had more than 100% of my net worth invested in things. That's because you had a friendly banker. I didn't know that there have been times well, initially I had 70 several times I had 75% of my net worth in one situation. There are situations you will see that over a long period of time, I mean, you will see things that it would be a mistake if you're working with smaller sums. It would be a mistake not to have half your net worth in. I mean, there you really do sometimes in security see things that are led by cinches. And you're not going to see them often and they're not going to be talking about them on television or anything of the sort. But there will be some extraordinary things happen in a lifetime where you can put 75% of your net worth or something like that in a given situation. The problem has been the guys that have put 500% of their net worth in. I mean, you know, I mean, if you look at just take LTCM, very smart guys, very decent guys, some friends of mine, high grade, knew their business, but they put, you know, maybe 25 times their net worth into things that were a cinch if they hadn't have gone in that heavily. I mean, they were in things that had to converge, but they didn't get to play out the hand. But if they'd had 100% of their net worth in them, it would have worked out fine. They'd had 200% of their net worth and it would have worked out fine. But they at least that went to maybe 2,500 percent or something like that. So there are stocks. I mean, actually there's quite a few people in this room that have close to 100% of their net worth in Berkshire and some of them had it for 40 or more years. Berkshire was not in the cinch category. It was in the strong probability category, I think. But I saw things in 2,002 in the junk bond field. I saw things in the equity markets. If you could have bought Cap Cities with Tom Murphy running it in the early in 1974. It was selling in a 3rd or a 4th what the properties were worth and you had the best manager in the world running the place. And you had a business that was pretty damn good even if the manager wasn't. You could have put 100% of your net worth in there and not worried. You could put 100% of your net worth in Coca Cola earlier than when we bought it, but certainly around the time we bought it in. That would not have been a dangerous position, be far more dangerous to do a whole bunch of other things that brokers were recommending to people. Charlie, you want to? Yes. If you the students of America go to these elite business schools and law schools and they learn corporate finance the way it's now taught and investment management is the way it's now taught. And some of these people write articles in the newspaper and other places and they say, well, the whole secret of investment is diversification. That's the mantra. They've got it exactly back ass work. The whole secret of investment is to find places where it's safe and wise to non diversify. It's just that simple. Diversification is for the know nothing investor. It's not for the professional. And there's nothing wrong with the know nothing investor practicing it. It's exactly what they should practice. It's exactly what a good professional investor should not practice. But that's there's no contradiction in that. A know nothing investor will get decent results as long as they know they're a know nothing investor, diversify as to time they purchase their equities and as to the equities they purchase. That's crazy for somebody that really knows what they're doing. And you will find opportunities that if you put 20% of your net worth in it, you have wasted the opportunity of a lifetime in terms of not really loading up. And we've had the chance to do that way, way in our past when we were working with small sums of money. We'll never get a chance to do that working with the kinds of money that Berkshire does. We try to load up on things. And there will be markets when we get a chance to from time to time. But very seldom do we get to buy as much of any good idea as we would like to. Go to number 1. Good morning, Mr. Chairman and Charlie. I am Father Val Peter. For 25 years, I was lucky to be head of Boys Town. Expanded across the whole country. Warren was very kind to me, very helpful over long periods of time. What I represent today is Parents Television Council. We're 1,200,000 folks across the country. And our concern is to help keep toxicity off television programs, excessive violence, etcetera. And I was very surprised, being on the Parents Television Council Board, when I read a report I hope it's not true, but it might be that says that of the best and most troublesome advertisers, Berkshire Hathaway is near the bottom at 444 out of 452. I hope that's not true, but my point is this. When I was head of Boys Town and somebody said something like that, I'd say, go find out. Correct it. My question is, would you be kind enough to say, go find out it was necessary? Correct it. Thank you. Yeah. Well, I would say this, that I don't know where the rankings come from. I mean, I see the certainly by far our biggest advertiser would be GEICO. We spend over $700,000,000 a year on advertising. I see their ads all over the place and I don't regard them as offensive or inducing antisocial behavior or anything like that. But I would glad be glad for you to contact Tony nicely because I can't think of any other company at Berkshire that does remotely the amount of advertising. And Tony is an easy fellow to find. He's here now actually, but you could find him at GEICO or you could find him at the GEICO booth probably later in the day and just talk to them about that. I'd be glad to have you do that, Father Peter. Number 2? Good morning, Mr. Buffet, Mr. Munger. My name is Deb Calviello, and I'm from Windsor, New Jersey. I'm 45 years old and have achieved financial independence in that I'm able to manage the money of my spouse and myself full time. And that goes to marrying well, part of that. I was going That could be a big part of it. Marrying well in the sense that I received the encouragement and the confidence to pursue that. That's terrific. I was going to ask you a question more along the lines of diversification, but I think I will put it this way. I'll skew it a little differently. Each of us has a traditional IRA, a Roth IRA, and together we have a brokerage account. Should the assets in those accounts be separated or better managed as a whole pile. In other words, have overlapping securities in each account or different types of securities relegated to a specific account? Yes. Well, I would say your marriage sounds like it's going to last, so I think you should think of yourself and your husband as a unit. And I would you should in my view, you should look at your overall financial condition and not worry about where the location of the assets will be. So if you have a net worth of X and you have 20% of it in 401 and 30% outright and so on like that. Just look at the whole picture and decide what mix of assets, what type of assets you want and don't treat them as being in separate pots. I mean, at Berkshire, we own stocks in a whole bunch of different our insurance companies own stocks in separate portfolios and we've been having a portfolio in Cologne as mentioned earlier. I don't even think about what entity anything is in. It's all working for Berkshire and I think you should the way to think about your situation is to think about it all working for your family. Now if you're you strike me as having a very solid marriage, and I think your husband would be crazy if he split with you. But the if you're just starting out, you may want to keep your money separate for a while till you see how it plays out because a significant percentage you end up in divorce. This is I don't get into marriage counseling very often. So I can feel the ground sort of disappearing between my feet here, but I will turn it over therefore to our marital expert, Charlie Munger. Yes. Occasionally, you'll find an investment that is going to produce a huge amount of taxable income. It's a junk bond paying a high yield that's taxable or something. So some items are more suitable for those retirement accounts that get tax deferral benefits. But apart from that, it's all one pot. Sure. Number 3. Hi, Warren. I'm Doug Hicks from Akron, Ohio. And you hear on the news lately, a lot of people say that oil will run out during this century. Considering the US policy is to do nothing until the very last second, how do you think the end of oil will play out? For example, do you think that this would unfortunately result in World War 3 or do you think alternative energy will be available the day that oil runs out to take its place and maybe do you think these oil companies value will go to 0 when oil runs out? Yes. Oil won't run out. It doesn't work that way. But oil will do at some point, who knows when, people have predicted a lot of everything. So oil at some point, daily productive capacity throughout the world will first level off and then start declining very gradually. The nature of oil extraction is such that wells don't with bare exceptions, they don't go to a given point producing 100 barrels a day and then all of a sudden quit or anything like that. So you're running into this depletion aspect and get into decline curves and that sort of thing. So we won't we're producing in the world 86,000,000 or 87,000,000 barrels a day of oil, which is more than we've ever produced before. We are closer by at least my calculations, we are very much closer to producing almost as much as our productive ability is in the world with fields in their current stage of development than we've ever been. I mean, our surplus capacity, I think, is less than, well, any time I can remember, and it's quite a bit less than most periods. So we don't have the ability to crank up in any short period of time the 86 or 7 to 100,000,000 barrels a day. But whatever that peak will be and whether we've hit it 5 years from now or 50 years from now, then it will just gradually taper down and the world will adjust to it. And hopefully, we'll be thinking about it well before it happens and various adjustments will be made in the world that will cause the demand to somewhat taper down as the available supply. But we will be producing oil far beyond this century. It's just the question is whether we're producing 50,000,000 barrels a day or 75,000,000 or 25,000,000 barrels a day. I don't know the answer to that. There's a lot of oil in place in the world. We've messed up the recovery of a lot of the oil. I mean, we never recovered the total potential of fields. And some fields we've misengineered in ways so that we'll recover a very small percentage. Now maybe there'll be better engineering tertiary recovery and that sort of thing in the future. It's not it's not a it's nothing like a an on and off switch though in terms of the world producing oil or adjusting to reduced capacity or anything like that. You may still have enormous political considerations to access to the available oil because it's going to be so darned important to our society for so long. There's nothing we can do in any short period of time that will wean the world off of oil. And that is a fact of life. Charlie? Well, if we get another 200 years of economic growth pretty well dispersed over the world while the population of the world also goes up. All of the oil, coal, natural gas and uranium reserves of the world are like nothing. So eventually, of course, you have to use the sun. There is no other alternative. And I think we can competently predict that there'll be some pain in this process of adjusting to a different world. Personally, I think it's extremely stupid to use up the hydrocarbon reserves of the world as fast as we are. I don't think we've got any good substitutes for those things as chemical feedstocks. And I think it's perfectly crazy to use up something so precious for which you have no alternative that's sure to be available. And if you look at it backwards, what should we have done? Hell, we should have bought all the oil in the '30s in the Middle East and taken over here by tankers and put it in our own ground. I mean, it's obvious to see what should have been done in the past. Even though that's obvious, are we doing the equivalent of that now? And the answer is basically no. So I think the governmental policy tends to be way behind in terms of rationality. And I think we'll just have to soldier through. But eventually, if we're going to have prosperous civilization, we have no other alternative than the sun. What's your over under figure for 25 years now, world production oil per day? Down. Down. That's not an insignificant prediction. I mean, believe me, if oil production is down 25 years from now, it'll be a different world. I mean, you China is going to sell over 10,000,000 cars this year. I mean, the demand is going to keep even at these prices, it's hard for me to imagine demand falling off a lot. So if production falls off, you'll have some interesting consequences. Number 4. Mr. Buffet and Mr. Munger, my name is Guy Pope and I'm from Portland, Oregon. I enjoyed the cartoon this morning, and I'd like to expand on that. I too like the idea of both of you serving as a single term as the President of the United States. During hypothetically, let's say, Mr. Buffet, you served the first term, Mr. Munger, you serve the 2nd term. I think the other way around is better, but go ahead. Each of you, please name 3 difficult policy decisions you would implement during your term to better the country. Well, Charlie is going to serve the first term, so I'm going to let him name his 3. I think that one takes us so far afield that I think it's asking too much. Three perfect solutions to the major problem of mankind from each of us in a few minutes. We've just barely managed to stagger through life as well as we have and I don't think we're quite up to it. We probably have a massive federal program for retirement homes actually. I would probably do something about the tax system that would change things so that the super rich paid a little more and the middle class paid a little less. But that's my that might be why you'd prefer to have Charlie serve first. Number 5. I'm Ryan Johnson from Arizona, and I wanted to ask what you think about the food shortages in the world and what trends you see in the next decade or 2? Well, again, I'm no expert on that, Charlie. Well, I said last year that I thought that the policy of turning American corn into motor fuel was one of the dumbest ideas in terms of the future of the world that I'd ever seen. I came out here with the head of an academic institution and he called the idea stunningly stupid. Now I'm here in Nebraska where I like Nebraskans to prosper. But this idea was so monstrously dumb that I think it's probably on its way out. We've now well, now we've got time for a couple more. Let's go to number 6. Hi. My name is Timothy Farris. I am a guest lecturer at Princeton University twice a year. And I'd like to touch on an earlier question about investing with small sums of money. I'd like to ask both of you, if you were 30 years old again and had your first million in the bank, how would you invest it assuming you're not a full time investor, you have another full time job, you can cover your expenses with other savings for about 18 months, no dependents and it'd be really helpful for my students, for myself and others here, If you could be as specific as possible about asset classes, percentages, whatever you're willing to offer. Well, I'll be very simple. Under the conditions you name, I probably have it all in a very low cost index fund. And it'd probably be might be Vanguard, somebody I knew was reliable, somebody where the cost was low. And because you postulated that you're not going to become a professional investor, I would recognize the fact that I'm an amateur investor. And I would feel that unless bought during a strong bull market, which this is, it hasn't been, I would feel that that was going to outperform to a degree bonds under current conditions over a long period of time and then I'd forget it and go back to work. Charlie? Yes. It's in the nature of things that you aren't going to have a whole lot of extremely successful professional investors. You've got a great hoard of professionals taking Croupier's profits out of the system, Most of them by pretending to be professional investors. And that is in the nature of things too. And but if you don't have any rational prospects of being a very skilled professional investor, of course, you should compromise on some simple thing like an index fund. Yes. And that you will not get that advice from anybody because nobody gets paid to give you that advice. And so you will have all kinds of people telling you how much better they can do for you than that and how if you just give them a wrap fee or give them commissions or whatever it may be that they will do better, but they won't do better. On average, 1,000 other people like you do the same thing. That group of 1,000 will do worse if they listen to the people that make pitches at them. And in the end, why should you expect I mean, you'll get a very perfectly decent return over a 30 or 40 year period by doing what I suggest. And why should you expect more than that when you don't bring anything to the party? The salesman will tell you that you'll get it, but you won't. I would give you another word of warning. Do not judge stockbrokers generally by the ones you meet at this meeting. We attract some of the most honorable intelligent stockbrokers in the world. They are not representative of the class. The politician and him just came out. Okay. We'll do one more, and then we'll break for lunch. Number 7. Good morning. My name is Tim Pham. I'm from Austin, Texas. For my children, I would like to hear from both of you as far as the temptation to keeping up with the Joneses. And can you give them advice that they can live by with respect to frugality, debt and work ethic? Yes, just tell them to keep up with the buffers. Well, Charlie and I have always been big fans of living within your income. And if you do that, you'll have a whole lot more income later on. And I think they will to a considerable extent, not a perfect extent, they will follow the example of their parents. I mean, if their parents are coveting every possession of their neighbor or trying to figure out ways to increase their cost of living without necessarily their standard of living. The kids are likely to pick up on it. But now you can get the reverse effect. If you get too tough with them, they go crazy later on. But the oh, it's people make that election. And incidentally, there are people, there are plenty of people that I don't advise to save. I mean, the real if you're struggling along and making a reasonable income and you have a job with a 401 ks being put aside for you and you have Social Security, who's to say whether it's better to defer a dollar of expenditure on your family on a trip to Disneyland or something that they'll get enormous enjoyment out of So that when you're 75, you can have a 30 foot boat instead of a 20 foot boat. I mean, there are choices and there are advantages to spending money in various forms for your family when it's young and giving them various forms of enjoyment or education or whatever it may be. So I don't advocate I may practice, but I don't advocate extreme frugality. The and I don't say that it's always better to be saving 10% of your income instead of 5% of your income. I think it's crazy to be spending 105% of your income. And I think that leads to all kinds of problems. And I get letters from people every day that have experienced those problems. But in the end, you want to have an internal scorecard. I mean, you are not a better person or a worse person because you live a different kind of life than your neighbor. You live a life that is true to yourself. Charlie? Yeah. It's it's obviously the best best method to train your children to provide the proper example. I think we're hearing a child that didn't get that advice. But of course, even if you do provide the proper example, it's likely not to work. It's new. Some of the time anyway. It's new now. We'll take about a 30 to 40 minute break. We'll come back. Some of those who are in the other room, we always have some openings here after lunch, so you might be able to move into the main room. We'll reconvene, we'll say, at 12:45. We'll go till 3 My cousin Bill Buffett will be out at the bookworm signing books about my grandfather. And I look forward to seeing you in a few minutes. Thanks.

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