Berkshire Hathaway Inc. (BRK.A)

ASM 2013 Part 2

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May 4, 2013

Okay. I had a hotdog with a lot of ketchup for lunch. I hope you did the same. And we'll go to Doug. Thank you Warren. May West once said, the score never interested me, only the game. Are you at the point now where the game interests you more than the score? But before you answer the question, let me explain to you why I asked it. In the past, your research has been all encompassing, whether measured in time devoted to selecting investments and acquisitions or the intensity of analysis. You are interested in the old days of knowing the slightest minutiae about a company. You once said in characterizing Ben Rosner, quote, intensity is the price of excellence. Close quotes. Your research style has seemed to morph over time from a sleuth like analysis, American Express comes into mind when you hired Jonathan's dad, Henry Brandt. You and he conducted weeks of analysis and site visits and channel checks, not so much in the later investments. As an example, you famously thought of making the Bank of America investment in your bathtub. There is an investment message of this transformation from being intense to less intense. Would you please explain the degree it has to do with the market, Berkshire's size or some other factors? Yes, I think actually you have to love something to do well at it. There may be exceptions on that, but it is enormous, enormous advantage if you absolutely love what you're doing every minute of it. And the nature of it is that, that intensity adds to your productivity. And I have every bit of the intensity not manifested exactly the same way, but it's there every minute. I mean, I love thinking about Berkshire. I love thinking about its investments. I love thinking about its businesses. I love thinking about its managers. It's part of me. And it is true, you can't separate the game from the scorecard. I mean, you so your scorecard is part of playing the game and loving the game. The proceeds are to me are unimportant but the proceeds are part of the scorecard so they come with a scorecard but it's much more important. I mean, I would there's no question about it. I would be feel the same way about Berkshire at this point if I didn't own a share of it, if I didn't get paid. I mean, it's what I like doing in life and that's why I do it. So I don't think you'll I don't think it's actually a correct observation and Charlie can comment on this. To say that because we're doing things in a somewhat different way that any of the intensity or the passion has been lost. There's nothing more fun for me than finding something new to add to Berkshire and that was true 40 years ago. It's true now and be true 10 years from now, I hope. Charlie, how would you answer that? Well, I think when you bought American Express for the first time, you didn't know that much about it. So naturally you were digging in rather deeply. The second time you bought it I remember you got on the golf course with Olson. Frank Hertz. Yep. And you just saw how he couldn't get rid of American Express if you want to do. And then you bought it the second time. The research was still just the first one was hard and the second was easy. It's all cumulative. Yes, it's cumulative actually. Yes. And what I learned sitting with Lorimer Davidson on a Saturday at GEICO in January of 1951 is useful to me and I don't have to learn it the second time. I can build on it. But that's one of the great things about investing. I mean the universe, there's enough in it so that you can find lots of opportunities, but it's not like it's changing dramatically all the time. There are some things that may change and we just don't play in that part of the game if we don't understand them. But what Charlie says is true. I didn't know a thing about American Express when the salad oil scandal hit in November of 3. But I thought I saw an opportunity. So I learned a lot about it. I went around to restaurants and talked to people about travel and entertainment cards, as they were called then. I learned about traveler's checks. I talked to banks. And I was absorbing some knowledge. And then as Charlie said, when we were up at Prowse Neck playing golf with Frank Olson and he was running the Hertz Corp and he was telling me that there was no way in the world that he could get rid of American Express or even get them to cut their fees. That was my kind of business and I knew enough to proceed to buy a fair amount of stock and now we own whatever it is, probably 13% of the company or thereabouts and they keep buying in their stock. We can't buy any more stock ourselves. I got asked that question in March of 2009 by Joe Kernan, why aren't you buying the stock of American Express? Well, it was a bank holding company and we couldn't add a share. But they are doing it for us. And I love that. At Coca Cola, at Wells Fargo, to a lesser degree, at IBM, at most of our companies, Our interest in the company goes up every year because the companies are repurchasing shares and they probably earn more money, so we got a double play going for us. The passion is not gone, I promise you. Station 1. A lot of them look at quantitative metrics such as PE ratio, return on equity, debt to asset ratio, etcetera. So Mr. Buffet, when you analyze a stock for purchase, what's your top 5 quantitative metrics that you look at? And what's your preferred number for each metric? Thank you. Well, we're looking at quantitative and we aren't looking at the aspects of the stock. We're looking at the aspects of the business. It's very important to have that mindset that we are buying businesses, whether we're buying 100 shares of something or whether we're buying the entire company. We always think of them as businesses. So when Charlie and I leaf through Value Line or look at annual reports that come across our desk or read the paper or whatever it may be, that for one thing we have a we do have this cumulative knowledge of a good many industries and a good many companies, not all by a long shot. And different numbers are of different importance or various numbers are of different importance depending on the kind of business. I mean, if you were a basketball coach, you would if you're walking down the street and some guy comes up that's 5 4 and says, you know, you ought to sign me up because you ought to see me handle the ball, you would probably have a certain prejudice against it. But there might be some one player out there that made sense on. But on balance, we would say, well, good luck, son, but we're looking for 7 footers and then if we find 7 footers, we have to worry about whether we can get them halfway coordinated and keep them in school and a few things like that. But we see certain things that shout out to us, look further or think further. And over the years we've accumulated this background of knowledge on various kinds of businesses. And we also have come up with a conclusion that we can't make an intelligent analysis out of about all kinds of businesses. And then usually some little fact slips into the view that causes us to rethink something. It was mentioned now I got the idea about buying the Bank of America or making an offer to Bank of America on a preferred stock when I was in the bathtub, which is true. But the bathtub really was not the key factor. The truth is I read a book more than 50 years ago called Biography of a Bank. It was a great book about APG and NA and the history of the bank. And I have followed the Bank of America and I have followed other banks. You know, for 50 years, Charlie and I have bought banks. We used to trudge around Chicago trying to buy more banks in the late '60s. And so we have certain things we think about in terms of a bank that are different than we think about when we're buying his car. And so there is not one size fits all. We have certain things we think about when we're buying an insurance company. There are certain things we think about when we're buying a company dependent upon that dependent upon brands. Some brands travel very well, Coca Cola being a terrific example, and some brands don't travel. And we just keep learning about things like that. And then every now and then we find some opportunity. The Bank of America, whenever it was in 2011, was subject to a lot of rumors, terrible lots of big short interest, morale was terrible and everything else. It just struck me that an investment by Berkshire might be helpful to the bank and might make sense for us. And I never met Ryan Moynihan at that point. Maybe I met him at some function of some party or something, but I had no memory of it. And I didn't have his phone number, but I gave him a call. And things like that happen. And it's not because I calculate some price precise PE ratio or price book value ratio or whatever it might be. It is because I have some idea of what the company might look like in 5 or 10 years. And I have a reasonable amount of confidence in that judgment. And there's a disparity in price and value and it's big. Charlie, would you like to elaborate? We don't know how to buy stocks just by looking at financial figures and making judgments based on the ratios. We may be influenced a little by some of that data, but we need to know more about how the company actually functions. And anything a computer could be function to do in terms of screening. I never do it. Do you use a computer to screen anything? No, I don't know how to. No. Bill, tell me, explain it to me. I, we, you can it's a little hard to be precise on because we don't really use screens. On that hand we're screening everything. But it's not like we sit there and say, we want to look at things that are lower price, book value or low PEs or something of the sort. We are looking at businesses exactly like we'd look at them if somebody came in and offered us the entire business. And then we try to think what is this place going to look like in 5 or 10 years and how sure are we of it. And most a lot of companies, we just don't know the answer to it. We do not know which auto company is going to be knocking the ball out of the park 10 years from now or which one's going to be hanging on by its fingernails. We've watched the auto business for 50 years, a very interesting business. But we don't know how to foresee the future well enough on something like that. We think that the Burlington Northern will have a computer a competitive advantage 15 years from now with a high degree of confidence. We would never have that degree of confidence about Apple no matter what their financial statement showed. It's just too hard. Yes, we don't know about an oil company 10 years from now in terms of what the product will be selling for. But I would say we're virtually 100% confident about a Burlington Northern or a GEICO or some other companies that I won't name. People with very high IQs who are good at math naturally look for a system where they can just look at the math and know what security to buy. It's not that easy. You really have to understand the company and its competitive position and the reasons why its competitive position is what it is. And that is often not disclosed by the math. Yes. It's not what I learned from Ben Graham. Although the fundamentals of looking at stocks as businesses and the attitude toward the market and all that is absolutely still part of the catechism. But I don't know exactly how I would manage money if I was just trying to do it by the numbers that You do it poorly. This question is from Benjamin Knoll of Greater Twin Cities United Way. Every time Bill Gross writes a new essay on the quote, new normal, unquote, I get more depressed about the prospects for my retirement. Do you share his view that market returns in the next few decades will be much lower than in the past few? And should we expect Berkshire's future market returns to be greatly constrained not only by its size but also by much lower equity returns overall? Yes, Charlie and I don't pay any attention to macro forecasts. We have worked together now for 54 years, and I can't think of a time when we made a decision on a stock or on a company where a macro discussion where we've talked about macro. And you know, we don't know what things are going to look like in any precise way. And incidentally, we naturally, we think if we don't know, nobody else knows. That's a conceit that we have. And so why spend time talking about something you really don't know anything about? I mean, people do it all the time, but it's not very productive. So we talk about the businesses. And I like Bill Gross. He sounds like Lloyd Bensch, you know, back in the he's a friend of mine. But I don't it doesn't make any difference to me what he thinks about the future. It doesn't make any difference to me what any economist thinks about it. I have a general feeling that America will continue to work well. And I don't that there's throughout my adult lifetime and before that, there's always been all kinds of opinions that about what's going to happen this year, the next year, anything like that, and nobody knows. What you do know with a very high degree of certainty in my view is that the NSF will be carrying more carloads 10 years from now, 20 years from now that there will be no substitute for the service that they provide, that there will be 2 important railroads in the West and 2 important railroads in the East And that they will have an asset that has incredible replacement value. Nobody could turn out something like it and they don't get paid fairly for what they do. And it's not very complicated. And to ignore what you know because of predictions about what you don't know or what and what nobody else knows in our view It's just plain silly. So we don't have anything against somebody talking about a new normal or an old normal or an in between normal. But it doesn't mean anything to us. My own guess is that people will do very well owning good businesses if they don't pay too much for them, whether they hold them for 10 years or 20 years or 30 years. And if they try and time their purchases in some way by listening to forecasts about what's going to happen in business and try and buy and sell them, they're going to do very well for their broker and not so well for themselves. Charlie? Yes. But of course, Warren, we have a lot of money. We have to do something with it. So we're going to do our thing no matter what the external climate is. If you're a busy surgeon and trying to decide whether to work 2 more years before you retire, then you may be more interested and rationally so in the new normal. And I would personally advise the guy to work an extra couple of years. In other words, I kind of agree with Bill Gross. What do you think the normal is? Well, less than we've enjoyed in our lifetimes, the new normal. What have we enjoyed in the last 10 years? I mean, you know. It hasn't been so bad. No. And it hasn't been so That's not nearly as good as it was in the first 30. Yes. And do you think it will be worse than the average of the last 10 years? I think that's quite a conceivable outcome. Yes. So take your pick. Okay. Jonathan? Warren, I'm sorry. My last I'm not talking. Over time, Fruit of the Loom and others have lost nearly all of the t shirt focused wholesale screen print market to Gildan, a relatively new player with very low cost structure. Gildan is now going after the underwear focused retail market and is having some success with certain large customers. Brand is obviously more important in the retail market, but is there any reason to think Fruit of the Loom won't lose significant amounts of share here over time, just as they did in the wholesale screen print market. What can they do to protect what remains of their franchise? Yes. You keep your costs down and you constantly work at brand building and you try very hard to make sure that your main customers in turn have their customers happy with the product and are happy at the price points that you can deliver it at. And you're correct that Gilvan in terms of certain aspects, the non branded aspects basically of some parts of the business has hurt fruit in the last, well, last 10 years certainly. But we turn out 1st quality, low priced underwear with a strong brand recognition. And I think it will be very tough to either build a brand against it or to beat our costs significantly. Now Gildan pays very little in the way of income tax as you know because they route stuff for the Cayman Islands. And that's a modest factor. But I think you'll find 5 years from now or 10 years from now that our market share in men's and boys, particularly underwear, will hold up. But you're right, they're a competitive threat. Haines is a competitive threat. And it's not it's not a business that you can coast in. I mean it's not Coca Cola but it's not an unbranded product either. And I think fruit will do reasonably well, but it will not get anything like the kind of profit margins that you can get in certain branded products. Charlie? Yes. And then too, with as many products as we have, we may average out pretty well in terms of market shares, but we're not going to win every skirmish or every battle. Okay. Station 2. Yes. Hi, Warren. Hi, Charlie. I'm Fritz Hauser from Offenburg, Germany. I'd like to know what 10 books influenced you the most and that weren't written by Graham and Fisher. And I'd also like to tell you that I think it would be great if you would publish the portfolio statements of the Puppet partnership years. I think there are a lot of small investors that would get a kick out of knowing what you invested and how you went ahead and analyzed the companies. Thank you. Yes. Well, Charlie ran something called Wheeler and Munger. And his portfolio was even more interesting. So we'll start with you, Charlie. He ran a more concentrated portfolio than I did in those days. Yes. I don't think people would greatly help. You wouldn't recognize the names most of them with the early Buffett Partnership. You'd recognize American Express but they're rattled off some of the names. Yes. Well, we can start with Mosaic Tile and Meadow River, Coal and Land. There's hundreds of them. Flag Utica, coal and iron, you name it. I've literally owned I bet I've owned 4 100 or 500 names at one time or another, but most of the money has been made in about 10 of them. And I couldn't name 10 books either that have that I regard as that much better than the next 10. My mind is a blend of so many books I can't even sort it out anymore. Yes, the intelligent investor changed my life in terms of I literally had read every book in the public library by the time I was 11 on the subject of investing. And there were a lot of books and there were technical books, Edwards and McGee. I mean that was classic in those days and a whole bunch of them Garfield grew. But, and I loved, I enjoyed reading them a lot. Some of them I read more than once. But I never developed a philosophy about I enjoyed. I charted stocks. I did all that sort of thing. Graham's book gave me a philosophy, a bedrock philosophy on investing that made sense. I mean he taught me how to think about a stock. He taught me how to think about the stock market. And he taught me that the market was there not to instruct me, but to serve me. And he used that famous Mr. Market example. Taught me to think about stocks as pieces of businesses rather than ticker symbols or things that you could charter or something of the sort. And so it was that philosophy and in some way further influenced by Phil Fisher's book. Phil Fisher was just telling me the same thing that Charlie was telling me, which was that it's very important to get into a business that had fundamentally good economics and one that you could ride with for decades rather than one where you had to go from flower to flower every day. And those that philosophy has carried me along. Now I've learned different ways of applying it over the years. And but it's the way I think about businesses now. I have not found any aspect of that bedrock philosophy that has flaws in it. You have to learn how to apply in different ways. So those are the books that influenced me. And of course, in other arenas, Charlie and Charlie has probably read more biography than anybody that I know of. And I like to read a lot of it. We just go back through reading the Joe Kennedy biography. You've read that, haven't you, Charlie? Yes. I'm not sure you want to emulate everything he did, but it's still interesting reading. We read for the enjoyment of it. I mean it's been enormously beneficial to us, but the reason we read is that it's fun and it's still fun. And on top of it we got we have gotten very substantial benefits from it. My life would have been different if I had been Graham hadn't gone to the trouble of writing a book, which he had no financial need to do at all. I would have had a very different life. Okay, Becky. This question comes from Bill Miller of Legg Mason. He writes, the US airline industry has been plagued with terrible economics for over 100 years. With the pending merger of US Air and American, the industry will have consolidated to the point where the top 4 carriers will control almost 90% of the traffic. As a result, the industry has been consistently profitable this past several years with many of the airlines now earning double digit returns on invested capital and generating substantial free cash flow. Do you think the industry's much improved economics are likely to persist? And would there be any economic benefits if Berkshire were to own a domestic airline and pair it with NetJets? Yes. Well, the answer to the second is no. But the question about the industry is really interesting because it is true that it is consolidated very significantly. And in some businesses, you can have only 2 competitors and they're still terrible businesses. They beat each other's brains out. And sometimes they end competing to do very stupid things. You can argue that that's what happened with Freddie Mac and Fannie Mae. I mean, enormous companies that had a huge advantage over everybody else, but they still in their battle to both report higher earnings every quarter and to beat the other guy out, drove prices for insuring loans down to the improper levels and did a lot of other stupid things too. So you see you do see certain industries where once they get down to very, very few companies do extremely well And you see other industries where even when they get to be 2 of them, they don't do that well. I mean, you can take Coke and Pepsi in the United States. I mean, they're the only 2 colos people can name and 50% are sold to soft drinks or colas. But if you go into a supermarket on the weekend, you will see them pricing their product at ridiculously low prices and competing very vigorously. So it's very industry specific. The airline industry has this situation where they have very, very, very low incremental cost per seat with enormous fixed costs and the temptation to sell that last seat at a very low price is very high and it's very and sometimes it can be very difficult to distinguish between the last seat and other seats. So it's a labor intensive, capital intensive, largely commodity type business. And it's been, as Bill Miller points out in that question, it's been a death trap for investors ever since Orbital took off. I mean, as I've said, there had been a capitalist at Kitty Hawk. He should shut down Orville and do us all a favor. But having neglected to do that, investors have poured money in to airline companies and aircraft manufacturing companies now for 100 years plus with terrible results. And if it ever gets down to where there's one airline and there's no regulation, it will be a wonderful business. And then the question is whether having gotten down now through a lot of bankruptcies to a relatively few that are doing high percentage of the seat miles, whether it's a good business yet. I don't know the answer to, but I'm skeptical. Charlie? Well, the last time we were presented with a similar opportunity was when the railroads did exactly what Bill Miller suggests. The railroads got down and consolidated and got better control of their labor costs and that turned into a wonderful business. And what did we do? We missed it. And we stumbled in very late to the party, right? Right. So we've proven ourselves to be slow learners in this field. And it's conceivable, isn't it, that Bill Miller is right in what he suggests? Which way do you have it? It goes into my too hard pile. Mine too. But he could be, right? Yes, sure he could. And it will be fun to watch. But we we like we like things we have stronger feelings about that. We do not think that things will change dramatically and what was seized candy. We've got even there, the real profitability is limited to the West Coast, but we do not see some competitor coming along and taking away business. You really couldn't create another railroad. I hope not. And you can create another airline. Very easily. That's what we don't like about it. And people love doing it. It's exciting to people. And you can sell the idea. I've had probably a dozen proposals over the last 25 or 30 years from people that want to get into the airline business one way or the other and a number of them have. It's sexy for some reason. I mean, if you go to the office of some Mr. Big CEO and say I want to talk to you about this new airplane, you get in the door. I mean, if you want to talk to them about hauling coal or something, it's a little different. So it is a business that attracts people. And you can go out and raise money for a new airline. And the record is it's really been something. I don't know how many bankruptcies there have been in the airline field, but it's an enormous number. And of course, some have done it more than once. We bought U. S. Air. I bought that. I was at Garats with Ed Kolodny and he explained to me how wonderful the airline was. He's a good guy incidentally. And I wrote a check and by that time the check was cashed, they were having troubles. I mean, it did not take long. And then they went bankrupt twice. We were very lucky. We actually made quite a bit of money on it as it turned out because there was a little blip at one point. But I think it went bankrupt twice after we bought it. And Charlie and I were on the board and we would look at these projections and they were just ridiculous. I mean they never came true, did they, Charlie? No, no, no. It was we were very popular because we actually pointed that out a few times. Okay, Cliff. I want to ask you about share repurchases. How hard a floor should shareholders think about the 1.2 times book value buyback multiple? Are there circumstances under which you would not be buying back at 1 point 2? Yes. Well, generally speaking, book value has got nothing to do with the price at which you should repurchase your shares. Intrinsic business value does. And the correlation between intrinsic business value and book value throughout the investment universe is there is virtually no correlation. So book value is unimportant in most companies. It actually has reasonable tracking utility at Berkshire, our intrinsic business value is very considerably above book value and we have signaled that. We'll say it right here. We said it before, but in addition, we've signaled that by saying that we would repurchase our shares as long as we had a substantial cash balance and met all the needs of our operating companies at 120 percent of book value. And if we got the opportunity to buy it there, we would probably buy a whole lot of it. The calculus is very much what I put in the report. You know, You take care of your business with money first. And if you can buy additional businesses, it's something where you add to the per share value of the business, you do that. If you can repurchase your shares at a significant discount from intrinsic value, It's like buying dollar bills at $0.90 or $0.80 or whatever it may be and it's a very sure way of improving per share value. It's been very difficult for us to do it because every time we announce it, people say, well, if he thinks it's worth more than 120 percent of book. Yes, those cheapskates are willing to pay that. Right. Well, if at least one cheapskate is willing to pay that. They're right. And we don't really we've got mixed emotions on it. We don't really like the idea of running a company that makes most of its money by buying its partners out of the discount. But if partners want to sell out of this kind, we also like the idea of buying and making sure money that way. We haven't done much of it. Most of the time our stock has sold in a reasonable range in relation to intrinsic business value. We would think that probably a fairly significant percentage of time in recent years has sold at least some discount. There were a few years when we thought it sold for more than intrinsic business value. But if it if in our opinion, the Director's opinion, the stock is selling at a significant discount and we've got the money around and we've got the stock offered to us in reasonable quantity, we will buy it. And there could be circumstances, it's unlikely, but there could be circumstances where we would buy a whole lot at a price that would be attractive for the stockholders who stayed in. Charlie? Nothing to add. Station 3. Hi there. Sean Cawley. I'm a real estate agent in Los Angeles, California. Question for Charlie. It's kind of a real estate question and it's also a company culture question. Have you ever considered moving to Omaha to be closer to corporate headquarters? Well, I think the answer to that is no. I'm sure the answer to that is no. Our partnership works extremely well. And even though we're somewhat technophobic, we have gotten to the point where we can handle using the phone. And don't push us beyond that. No, we've never learned anything beyond the phone. But we and we actually I mean as a practical matter, we each know exactly how the other guy thinks so that we don't really even need the phone exactly. We used to do a lot of phoning back when it cost a lot of money to phone. Now it doesn't cost anything to phone and we don't talk to each other. Charlie has a lot of fond thoughts about Omaha incidentally, as do I. Yes, although as I said earlier on this weekend, they are rebuilding it so rapidly now that I feel like Rip Van Winkle. They have torn down so many of the buildings I remember. It's amazing how much Omaha has changed in the last 5 years. Well, you have to remember that a third of the lifetime of the country has passed during our lifetime. So you have to expect a little change occasionally, Charlie. Okay, Andrew. Okay, Warren. We got a couple of questions related this year to climate change and its impact on the company. So let me ask this question from Clem Dinsmore, who asked, if asked, what would the underwriting experts at your casualty insurance and reinsurance companies advise you and your fellow board members are the emerging risks to Berkshire's many enterprises from the changes in extreme weather associated with climate change. And I would add that Jed McDonald, asked a separate question, but related, saying, what are your thoughts on the price on carbon debate? Yeah. Well, as you've noticed that you've been here the last few years, the climate really is getting a lot warmer. The obviously. Well, Charlie knows far more about science than I do, which is not saying a whole lot. But the, my general feeling is that there is a certainly a reasonable chance that people that are worried about warming and the effect of CO2 etcetera are right. But I don't know enough so that I can say that I can speak as any kind of an expert on it. I don't know the answer on it, but I certainly are willing to I'm willing to assume that there are a lot of very smart people who think that and I think that it's a reasonable assumption. I don't think that it makes any real difference in assessing insurance rates from year to year. We have a general tendency to be pessimistic in our assumptions about the likelihood of natural catastrophes, but we would have that general bias, which I think is useful, regardless if there were no carbon emissions of any kind going on, we would still assume that whatever the past history had been of natural disasters, we would assume that they were going to be somewhat worse. And the global warming in terms of resetting prices of insurance from year to year is not a real factor. Our general pessimistic bias is something of a factor. The second part about pricing of carbon emissions, do you want to repeat that again? The full question, and I abbreviated it, was what are your thoughts on the price of carbon debate? Do you think it's a feasible way, for example, to incentivize efficiency improvements and capture the externalities of carbon's damaging effects or is it a lofty, idealized concept too tricky to figure out in practice? I would say that the question calls for having Charlie give the answer. Well, you got to realize that I'm a Caltech trained meteorologist, but that was before they'd invented most of modern meteorology. I think that carbon trading is pretty impractical, a whole bunch of nations with different ideas and so on. And I think if you want to change habits, the correct answer is carbon taxes. I think Europe because they are socialist and wanted to tax the thing that people needed the most, They put these big high taxes on motor fuel. So they did it by accident and not it was a good idea vis a vis global warming and a lot of others just because they really needed the money. But I think they stumbled into the right policy. I think the United States should have way higher taxes on motor fuel and that's efficient. Some group of shareholders, are they like clapping for high taxes? They weren't all clapping. Okay, Doug. Warren, my next question is both a question and an unusual challenge. I'm asking this next question because in the past you've been open to inviting your audience to apply for jobs. In 2002 you suggested that shareholders who thought they were eligible to send in their qualifications if they were interested in seeking a seat on your Board of Directors. And again in your 2006 letter, when you advertised for a successor to Lou Simpson at GEICO, you said at the time, send me your resume. In the past you have discussed your views on short selling. You have cited that stocks tend to rise over time and you've talked about the asymmetry between reward and risk. By contrast, the last 15 years has demonstrated that short selling can be a value additive tool to total return when done by professionals. In fact, I believe Todd Combs had success as the short seller when you hired him. He had so much success he stopped doing it. Mike? Yes, Charlie, but he got the job from that success. My question is No, no, he didn't. You can't slide that one in there, Doug. Okay. My question is, would you ever consider committing capital to a short selling strategy, would you or Berkshire consider being my Homer Dodge who invested in your partnership after the original 7 investors? Would you or Berkshire Hathaway be willing to give my firm at least $100,000,000 in a managed account. If Seabreeze failed to outperform the increase during the 2 year period of the book value increase in Berkshire all the earned fees earned would be contributed half to the Sherwood Foundation and half to 2 charities of my choice including the Jewish Federation of Palm Beach County. And even if Seabreeze outperformed Berkshire's change in book value, 25% of the earned fees would be contributed to the charities and I want to add something else. You talked about being technophobic. Technology may be very hard for Berkshire to invest in, but it is also disruptive to many industries whose business models are scathed by it. And this produces very fertile ground for short selling The answer to your question is no. Charlie and I are no strangers to short selling. I mean we both failed at it. Yeah. So, Will, just think about how lucky you are. You don't have the competition from all kinds of people that listen to us or ourselves. No, I may even propose a little wager at some point, but we'll let that ride for the time being. I've known well, if you go back far enough, you know, we did a reasonable amount of short selling and I've certainly identified lots of companies that I thought were far overpriced and I've identified a fair number of companies that I not only thought but was virtually I was virtually certain were frauds. And so have Charlie. We've been seeing them ever since we got in the business. But making a lot of money short selling still is not a game that appeals to us over a long period of time. It's one of those things that we don't like trading agony for money. But we wish you well. Station 4. Ben Sauer from Shreveport, Louisiana. Could you be more specific about what factors you considered when determining what a fair price was for, I think, acquisitions such as Heinz? And also, what sources do you use to make judgments about major changes that will affect an industry? Well, we usually feel we're paying too much, isn't that right, Charlie? But we find the business so compelling, the management or associates so compelling that we gag and we get there on the price. But we there is no mathematical perfect mathematical formula. Looking back when we bought wonderful businesses that turned out to continue to be wonderful, we could have paid significantly more money and they still would have been great business decisions. But you never know 100% for sure. And so it isn't as precise as you might think. Generally speaking, if you get a chance to buy a wonderful business, and by that I mean one that has economic characteristics that lead you to believe with a high degree of certainty that they will be earning unusual returns on capital over time, unusually high. And at again at high rates of return. That's the best of all businesses. And you probably should stretch a little. Charlie and I have had several conversations while we were looking at a building a business which we liked and we're sort of gagging at the price and Charlie or I will say let's do it even though it kind of kills us to pay that last 5%. We did that with See's Candy. Charlie was the one that said, for God's sake, when we weren't writing a check, I was the one that was suffering. But it's happened quite a few times, hasn't it? It almost always happens. Modern prices are not cheap. No. And great businesses, you're not going to find lots of them and you're not going to get the opportunity to buy them. And although you do in the market, the stock market will offer you opportunities for profit percentage wise that you'll never see in terms of negotiated purchase of business. In negotiated purchase of the business, you're almost always dealing with someone that has the option of either selling or not selling and can sort of pick the time when they decide to sell and all of that sort of thing. In stock markets, it's an auction market, crazy things can happen. You can have some technological blip that will cause a flash crash or something. And the world really hasn't changed at all, but all kinds of selling mechanisms are tripped off and that sort of thing. So you will see opportunities in the stock market that you'll never really get in the business market. But what we really like, we really like buying businesses to hold and keep. We like buying cheap marketable securities too. But particularly when you've got lots of cash coming in and you're going to continue to have lots of cash coming in, you really want to deploy it in great businesses that you can own forever. Charlie? If we kept our earlier modes, if we'd never learned, we wouldn't have done very well. The game of life is a game of everlasting learning. At least it is if you want to win. We want to win. Carol? This question is from Logan Reed of Pauling, New York and has both a question and a postscript. And I'm going to do the postscript first. It's friendly. I'm an 86 year old World War II vet, which puts me about halfway between you and Mr. Munger. I would respectfully and urgently request that you quit eating so many hamburgers. Those things plug up your arteries, and I want to keep you around for a while in spite of the fact the unfriendliness comes in here that you voted for president Obama. Now here is the question. This guy is trying to kill me and he's doing it. Over the years, you frequently alluded to your legendary If these are hallmarks of the philosophy which has enabled the If these are hallmarks of the philosophy which has enabled you to achieve your astounding success, how can you possibly support an administration which has plunged our country into $16,000,000,000,000 worth of debt and has not indicated the slightest concern over the efficiency, inefficiency, inefficiency over the inefficiency of big government. Well, the 16,000,000,000,000, we'll have to give Bush a certain amount of credit for that too. But they certainly didn't certainly wasn't the Obama administration that at least allowed policies that created the greatest financial crisis and required an appropriate stimulus on the part of the government. But in the end, I find it totally unproductive, and that fellow at 86 probably is should have pounded out by now to discuss politics with people. I mean, you're going to have roughly half agree with you and half disagree. So if you look at this, the trouble is Charlie and I, even though he's a Republican, I'm a Democrat, we really don't disagree as much as you might think based on that. Otherwise, I could say you could just take your pick here and vote for one of us and ignore the other one. And we would offer a little something for everyone. The amount of deficit spending in the last 4 years, the amount of stimulus provided, fiscal stimulus provided, I think has been quite appropriate in relation to the threat to the economy that was posed by the greatest panic in my lifetime. I mean, you literally had a situation where Berkshire Hathaway was getting a phone call because General Electric needed money and we were the last stop. That is quite a situation. It's quite a situation when Freddie and Fannie go into conservatorship and WAMU and WACOVIA fail and where money market funds have 5% drained out of them in 3 days and with a panic underway. So we needed fiscal stimulus in this country. Now the real question is how to get off of that. And that is a problem, but it's a lesser problem that we would have had if we decided to follow some austerity program in my view at least starting in 2,008. And how do you feel about that, Charlie? I agree with you completely. And by the way, so did George W. Bush. That was bipartisan that we were in so much trouble on both sides of the aisle. We finally got together and supported these extreme interventions. George Bush issued probably the 10 greatest words of economic thought in history. Most people don't give them credit for that. They think of Adam Smith and comparative advantage and Keynes and Animal Spirits and all those guys, but George Bush went out there in September of 2,008 and said that money doesn't loosen up, this sucker could go down. I mean, that is a man that knew how to get to the point. And I give him great credit for it, enormous credit. And plenty of members of this party did not agree with what he was doing. We owe him a lot in that respect. And we are leaders, generally speaking, of both parties. Once they were in terrible trouble, I think have behaved or came up with policies that in general were very useful in avoiding something far worse than what we experienced. And they weren't easy to do. I mean, they took some guts. So I am not I am disturbed by a national debt that grows in respect to GDP. In fact, I wrote an article in the New York Times, an op ed piece in 2,000 I think maybe 2,009 or 2010 talking about this very problem. But we came out of World War II with a debt higher, a gross or net debt higher in relation to GDP than we have now. And people were predicting terrible things at that time because of that situation. And the country has done sensationally that The real danger is that it just continues to grow and it gets easier to print money than exercise some discipline. But we've encountered far worse problems than we face now. I mean this is not our country's toughest hour by a huge margin and I think we will do fine, but with a lot of bickering and kind of nonsense that will bother you when you read about it day to day. But when you look at it from the viewpoint of history 10 or 20 years from now, you will not be that disturbed. Charlie? Well, I agree with you George W. Bush and I like these non partisan episodes when we get together and do things right. And I also think that our current problems are quite confusing. In fact, if you aren't confused, I don't think you understand it very well. That sort of immunizes you from everything. How bothered are you by the level of debt in relation to GDP? Well, I don't think there's any one fixed ratio that is written in the stars as required. As a matter of fact, most of the debt, as I can see of it, is not even counted in what you call debt. The off the books debt the United States is bigger than the on the books debt. All the present value of future promises that are unfunded. That can be changed however. Yes, ma'am. But if they can be changed, but are we really going to take Social Security away from somebody who's worked a lifetime? Well, we should. I don't think it's very likely. No. But Social Security is not a killer actually in terms if you have a GDP that rises a couple of percent in real terms, more in nominal terms. Well, of course, that's the great problem. All of our problems are trivial. If GDP will just rise at 2% per annum per capita, All these problems that the Republicans are screaming about fade into insignificance if we can do that. And but you got to have policies that enable you to do it. And I'm not sure we always do that very well. Okay. Stay tuned. Jonathan? I have a question about the competitive landscape in the paint business. I personally always use Benjamin Moore, but some say that Benjamin Moore is disadvantaged because it doesn't control its own distribution as does Sherwin Williams and they note that it has lost market share to Bayer, which is sold in the home centers at lower prices. You recently replaced management there. What changes in strategy and or pricing, if any, are being undertaken at that unit? And what is the outlook for that franchise? Yes. Benjamin Moore, it's a relatively small percentage of the total pain industry, but at the high end, it is the best regarded paint and we have not lost position in that respect. But the when we purchased Benjamin Moore, I made a promise, I even made a video. It had a dealer system and people had invested their savings and passed on from generation to generation dealerships from Benjamin Moore and counted on the company adhering to a dealer system even though you could always get a huge jump in volume, particularly in the 1st year if you went with the big boxes. So we were always approached by the big boxes and they said, let us take Benjamin Moore into our stores whether it be Home Depot or whomever. And we would have gotten a big jump in volume when that happened and they would have loved us to have as a brand with that kind of identity in their stores, but it would have represented a total change in the distribution arrangement. I don't think it would have worked out as well over time, and I know it would have been essentially, particularly after my pledge, which the other which the management pledged to, it would have been double crossing a network of dealers that trusted us and trusted us when we bought it to continue with the policy. A dealer policy will work with a first class brand like Benjamin Moore. It will never get the kind of market share as we'll take a bear which is distributed through Home Depot. We were actually offered bear at one time. And Charlie, you remember that one? Yes, we do. Yes. But the company was actually investigating and well on its way to implementing some moves that would have, in effect, gutted or we felt would drastically hurt the dealers and violate the pledge that I made to them back when we bought it. So we did have a change there. And we will not follow the Sherwin Williams path, which is a very I mean, it's a very effective business strategy. I'm not knocking that at all, but that is not our strategy. Our strategy will be a dealer strategy focused on the high end of the market. Besides, it's worked very well. Yes, it's worked well. It will continue to work well. It doesn't mean that Sherwin Williams won't do extremely well, I think they will. It doesn't mean the barrel won't do well, I think they will. But we are in a different segment and it's up to us to protect and really foster the dealer distribution network and I think we can have something and do have something very special with those dealers and with the position that Benjamin Moore has, but it will not lead to far higher market shares. I think it will lead and that has to very decent profitability. Benjamin Moore has a good business and I think it will continue to be a good business. Charlie? Well, I agree totally. I always wish you could buy 5 more like it tomorrow. Exactly. Okay, Station 5. Derek Foster, Ottawa, Canada. First of all, thank you Warren for sharing all your information. You've changed my life. I took finance in university, couldn't understand Greek formulas, but now I can invest reasonably well. My question to you is, in the past, you've said, for an investor, you should simply for 99% of investors, you should simply stick money in an index fund and let it go and don't worry about it. Those 1% of investors choose your best five stocks and put a substantial amount of money in it. I'm just wondering, how about a strategy of perhaps buying 20 of the best stocks in America, you know, Procter and Gamble, Coca Cola, Johnson and Johnson, whatever, the companies that have been around for centuries or a century or decades or whatever, and just leaving it at that. Do you think that would outperform an index fund over the long term? And I want Charlie's opinion as well. Well, it's a little bit of I don't know whether you're saying the 20 largest companies. The 20 best might you might get different thoughts from different people on which they are. But I think you would probably the 20 you would pick would virtually match the results of an index fund. Who knows exactly which ones would be the best. But the real distinction and Graham made this in his book basically is between the person who is going to spend an appreciable amount of time becoming something of an expert on businesses because that's what stocks are or the person who is going to be busy with another profession wants to own equities and actually will do very well in equities. But the real problem they have is that they may tend to get excited about stocks at the wrong time. They really the idea of buying an index fund over time is not to buy stocks at the right time or the right stocks, it's to avoid buying them at the wrong time, the wrong stock. So equities will do well over time. And you just have to avoid you know getting excited when other people are excited or getting excited about certain industries when other people are trying to behave like a professional when you aren't spending the time and bringing what's needed to the game to be a professional. And if you're an amateur investor, there's nothing wrong with being an amateur investor. And you just simply you've got a very logical profitable course of action available to you and that is simply to buy into American business in a broadly diversified way and put your money in over time. So I would say your group of 20 will probably match an index fund and you'll probably do well on that and you will do well in an index fund. Charlie? Well, I've got nothing to add. I do think it's that knowing the edge of your own competency is very important. If you think you know a lot more than you do, you're really asking for a lot of trouble. Yes. And that's true outside of investments too. Works particularly well in matrimony. Do you want to give any other advice on this? He gave it in the movie. I saw people taking notes. Okay, Becky. This question comes from James Broadbelt Harris of Columbus, Ohio. He says that your enormously generous multibillion dollar charitable gifts of Berkshire Hathaway stock over the past decade have and will continue to be sources of saleable assets for the charities linked to the Buffett, Gates and Munger families. Could annual sales of 1,000,000,000 of dollars' worth of donated stock by these charitable foundations be a reason why shares have traded under 120 percent of book value And will announce share repurchase plans fully address the selling by the charitable funds in the coming decade? Yes. I give away 4.75 percent of my stock, we'll say, every year. And let's say that's $2,000,000,000 worth of stock roughly. That's 1% a little less than 1% of the market value of Berkshire. Many companies on the Eric Stack Exchange trade over 100% a year. A 1% sale annually of the outstanding capitalization is absolutely peanuts. And you can even argue in some cases that it can aid in terms of market price because the availability of stock sometimes determines whether people get interested in buying. But 1, a supply of 1% annually is not going to change the level at which the stock trades. I mean it's just it's insignificant compared to the volume. Berkshire, I think Berkshire's volume A and B combined is probably averages what $400,000,000 or $500,000,000 a day. So $2,000,000,000 spread over a year is not going to affect things. And you can argue that everybody else has a right to sell their stock or give it to a charity. I don't think I should be totally tied up in terms of being able to give the stock away. Charlie? Well, there's nothing so insignificant as an extra $2,000,000,000 to an old man. I've never given away a penny that in any way changed my life. No. No. Have you, Charlie? No. Okay. Well, of course not. Yes. We never even thought about it. No, it would be unthinkable. It has a lot more utility in the hands of other people than it does in my safe deposit box. Okay, Cliff. Looking over your Q1 results in the 10 Q, I was wondering, and this might apply more to the non insurance businesses, what are you seeing in terms of reading the tea leaves for the U. S. Economy right now? Are you starting to see lift? And I'm curious if you have any if you feel any need to start to expand Berkshire internationally outside of the U. S? Well, we're willing to go anyplace where we think we understand what things are going to in a reasonable way, what things are going to look like in 5 or 10 years and where we get our money's worth, good management and all of the things that we emphasize. But so we don't we've never foreclosed anything, but we're going to find most of our opportunities in the United States. It's just the nature of things that this is a huge, huge market for businesses and we're better known here. But most of our deals will take place here, but we find things outside the United States, particularly in terms of bolt on acquisitions. In terms of current business, ever since the fall of 2009, coming out 4 years, we've seen a gradual improvement. And sometimes people have gotten encouraged to think it was speeding up quite a bit and then they get feeling that they start talking about a double dip, which I've never believed in and it hasn't happened. What we see overall is just a slow progress in the American economy. You saw those figures on car loadings for the 1st 17 weeks. And we were up 3.5 percent, but the other railroads were up 0.4%. So the industry as a whole might be up 1% or thereabouts, a little over 1%. This economy is not for the last 4 years, it's not come roaring back in any way, shape or form. It's never faltered. And I wouldn't be surprised if it keeps going this way. Now finally the overhang in housing ended about a year ago. But so we're starting to get seeing some recovery in home prices, which has a big psychological effect. And we're seeing some improvement in construction, but we don't want to start overbuilding again. We really want to have housing starts that more or less equal household formation. And I think we're seeing that. So if you ask me where we're going to be when we meet here next year, I think we will have moved forward. But I don't think it will be in any surge of any sort, but I don't think it will stall either, Charlie. Well, it's not a field where I've been good. We do know what's going on now though. I mean we have a Yes, we know what's going on now. And I guess that ends it then. Well, you can't make a lot of money knowing what's going on now. And you can't make a lot of money thinking what's going to go on tomorrow if you don't either. We will just keep playing the game. I mean, if we hear about something tomorrow that we can spend $15,000,000,000 or $20,000,000,000 on and we feel we like the business, United States or otherwise, we'll move in an instant. And if we don't, we won't do anything. And we just never know when opportunity is going to come along, but it does come along from time to time. And sometimes in financial markets, it comes in a huge way. I mean, that will happen from time to time. We may not see very many more, but most of the people in this room will see 4 or 5 times in their during their lifetimes, they will see incredible opportunities offered in probably in equity markets, but maybe in bond markets as well. People things will happen. And then you have to be able to act and that means both in terms of having the ability and also having the mental fortitude to jump in when most people are jumping out. Okay. Station 6. Charlie, you want to no. Okay. Station 6. Hi. Brandon from Los Angeles. If I'm in my 20s and I'm starting a partnership, what advice do you have about getting people to put in money before I have a track record as a solo investor? Well, you haven't sold me. No, I I don't I think people should be quite cautious about investing money with other people even when they have a track record incidentally. There are a lot of trackers that don't mean much. But overall, I would advise any young person that wants to manage money and wants to attract money later on to start developing an audited track record as early as they can. I mean it was far from the sole reason, far from the sole reason that we hired Todd and Ted, but we certainly looked at their record. And we looked at a record that we both believed and could understand because we see a lot of records that we don't really think mean much. I mean if you get, you know, if you have a coin flipping contest as I wrote you know some years ago and you get 310,000,000 orangutans out there and they all flip coins and they flip them 10 times, you will instead of having 300,000,000 left, you'll have 300,000 roughly left that will flip 10 times in a row successfully. And those orangutans will probably go around trying to attract a lot of money to back them in future coin flipping on this. So it's our job when we hire somebody to manage money to figure out whether they've been lucky coin flippers or whether they really know what they're doing. When you had his problem, didn't you scrape together about $100,000 from a loving family? Yes. Well, I hope they kept loving me after they gave me the money. That was the well, it was very slow and it should have been very slow. As Charlie has pointed out, some people thought I was running a Ponzi scheme probably there and other people may not have thought it, but they thought it was to their advantage to sort of scare people because they were selling investments in Omaha. But you to attract money, you should deserve money and you should develop a record over time that does it. And then you should be able to explain to people why that record is a product of sound thinking rather than simply being in tune with the trend or simply just being lucky. Charlie? You're starting today and you're 25 years old. How do you attract money? Well, I think most people start with friends and family or people whose trust they've already earned in some other way. So it's hard to do when you're young and that's why people start so small. And a relatively few will be successful. That's right, Tim. Yes. Some of them a great many will be successful and make I mean we had the hedge fund record here. And during that time, the hedge fund managers probably made a very considerable amount of money. As I pointed out, Todd and Ted working under a 2 20 arrangement, if they put the money in a hole in the ground, would make $120,000,000 each this year. So it's not exactly an arrangement that you don't want to think about a little bit before you engage in it. The arithmetic attracts many of the wrong sort of people. Naturally, we thought we were exceptions. Andrew? Okay. At Berkshire, there's a unique dynamic that exists between your recognition of Ajit's special skills and Ajit's special skills. You comment often about how unique Ajit's skills are. So just tell us, is Ajit your successor? And if not, what happens to Ajit's businesses without Ajit? Well, they won't be without Ajit for a long time. And he's remarkable in many ways, but one of the ways he's particularly remarkable is that when people start copying something he's doing and turning what was maybe quite profitable into something that becomes something every time Dick and Harry is doing. He figures out new ways to do business. And I noticed you started with the As when you started on possible successor with the G and you won't have any more luck when you get to the Bs. Charlie? Well, I think the basic answer is that if Ajit ever is not with us, We won't look as good. Yes. We won't look as good, right? And that's true of a number of other managers too. We have an extraordinary group of people in most cases who do not need the money that they earn working for us, they may make substantial money. And they are doing a job for you shareholders and for me and Charlie that you can almost say we don't deserve, but they are having I think they're having a good time running their businesses. The one thing we do is try and create an atmosphere where they can enjoy running the businesses rather than spend all their time running back and forth to headquarters and doing show and tell operations and that sort of thing. And it's taken a long time though too. I mean we operated Berkshire for 20 years without a G. He'd come in the office in 1965 instead of 1985, we'd probably own the world. Kind of fun to think about, isn't it? Charlie? Doug? Howard, like you, I have 2 sons that I love. Like you, I have a son in the audience today. This question is not meant to be disrespectful. Sounds like it's going to be, but go ahead. But it's a question I have to ask. Okay. Someday your son Howard will become Berkshire's Non Executive Chairman. Berkshire is a very complex business, growing more complex as the years pass. Howard has never run a diversified business nor is he an expert on enterprise risk management. Best as we know, he hasn't made material stock investments nor has he ever been engaged in taking over a large company. Away from the accident of birth, how is Howard the most qualified person to take on this role? Well, he's not taking on the role that you described. He is taking on the role of being Non Executive Chairman in case a mistake is made in terms of who is picked as a CEO. I don't I think the probabilities of a mistake being made are less than 1 in 100, but they're not 0 in 100, and I've seen that mistake made in other businesses. So it is not his job to run the business, to allocate capital, to do anything else. If a mistake is made in picking a CEO, having a non executive Chairman who cares enormously about preserving the culture and taking care of the shareholders of Berkshire, not running the business at all, it will be far easier to then make another change and that he is there as a protector of the culture and he has got an enormous sense of responsibility about that and he has no illusions about at all about running the business. He wouldn't have no interest in running the business. He won't get paid for running the business. He won't have to think about running the business. He'll only have to think about whether the Board and himself, but as a member of the Board, but whether the Board may need to change the CEO. And I have seen many times, really many times, over 60 plus years or about probably 55 years as a Director, times when a mediocre CEO, likable, not dishonest, but not the person who should run it needs to be changed. And it's very, very hard to do when that person is in the Chairman's position. It's not as it's a bit easier now that you have this procedure where the Board meets at least once a year without the Chairman President, that's a very big improvement in my view in Corporate America, because a Board is a social institution and it is not we'll say to Chicago or New York or Los Angeles once every 3 months, have a few committee meetings and maybe have some doubts about whether they really got the right person running it. They may have a very nice person running it, but they could do better. But who's going to make a change? And that's the position that the Non Executive Chairman, in this case Howard, would be in. And I know of nobody that will feel that responsibility more in terms of doing that job as it should be done than my son, Howard. I think the mongers are much safer with Howard there. You got to remember the Board owns a lot of stock. We're thinking about the shareholders. We're not trying to gum it up for the shareholders. Yes, after my death, whatever it may be in terms of value then, but it would be $50,000,000,000 worth of stock. We'll over a period of time go to help people around the world. That makes an enormous difference whether that the company behind that stock is doing more or not. And both Charlie and I have seen, we've seen some more than one example of where a CEO who might be a 6 on a scale of 10 and is perfectly likable and has perhaps helped select some of the directors that sit there and continues to run the business year after year when somebody else could do it a whole lot better. And it can be hard to make that can be hard to make that very hard to make that change if that person controls the agenda and keeps everybody busy when they come into town for a little while. You can have a CEO that's 9 out of 10 on everything but with deep flaws too. It helps to have some objective person with a real incentive sitting in the position Howard will be in. The example I've used in the past, I mean, is that blessed are the meek for they shall inherit the earth, but after they inherit the earth will they stay meek? Well, that could be the problem. If somebody got Maine CEO of Berkshire, it could be a position where people might want to throw their weight around in various ways. You may have noticed that in the annual report in terms of our newspapers, I said, you know, I am not going to be telling them who to endorse for president. I've endorsed Romney and to endorse Obama. I voted for Obama, but I'm not going to change that. But when I write that sort of thing, I'm trying to box in my successor to some degree too. And we do not want somebody using Berkshire Hathaway as a power base in the future. We want them to be thinking about the shareholders. It's that simple. Sometimes somebody becomes CEO who has the characteristic of a once famous California CEO and they used to say about him as the only man who could strut sitting down. Okay. Station 7. Hi. I'm Brad Johnston from Minneapolis, Minnesota. And my question is, within the context of a very low interest rate environment that may be sustained for some time and the challenge that insurance companies are facing in that environment with respect to managing their capital as well as managing their risk and uncertainty when they have future liabilities and potentially the need for liquidity. And maybe you could transcend that down to the individual as well who is dealing with a low interest rate environment, trying to manage uncertainty and yet still get some cash return from investments. I appreciate your concept of selling some of your shares periodically and being better off to do that rather than take dividends, but many people are dealing with challenges of cash flow. And then just one final tag on, if you could, at the end, could you explain what Federal Reserve Chairman Ben Bernanke believes he has as a tool in his toolbox called the term credit facility? No. The answer is I can't. Can you, Charlie? No. The problem faced by people who have stayed in cash or cash equivalents or short term treasuries or whatever. I mean it is brutal. The loss if they live off their income, the loss of purchasing power, it's just staggering when you get into these low interest rates. They are huge victims of a low interest policy and a dramatically low interest policy. Basically I've written I wrote back in 2,008 to own equities. I mean it was equities were cheap and you were almost certain to get killed. You know in terms of for at least a while we had promised that the Fed was going to hold rates very low. So it was a great time. So in equities and I feel sorry for people that have clung to fixed dollar investments, particularly short term ones during a period like this. And I don't know what I would do if I were in that position. Imagine having some that seemed like a very large amount of money in the past, but a quarter of a percent on $1,000,000 is $2,500 a year and that is not what people anticipated when they were saving over the years. I well, anybody I've advised, I've always felt that owning businesses certainly made sense, more sense than fixed dollars under most circumstances, not every time in my life, but probably 90% of the time in my life it's made more sense than owning fixed dollar investments and it certainly made dramatic sense in a few years ago when equities were marked down to where they were terrific buys and where you could see the prospect that fixed dollar investments were going to pay very little for a considerable period of time. And I didn't anticipate that we would see the kind of rates for the extended period that we have already, and I don't know how long it will go on, but it's a real dilemma for people. I get letters. I get a lot of letters from people that say I've got $300,000 and I've said what should I do. So it's the fallout from low interest rates has hit millions of people in a very harsh way and you don't read much about it and they don't have much of a voice, but it's been a good argument for owning productive assets rather than dollars during a period like this. Charlie? Well, they had to hurt somebody and the savers were convenient. What would you do about it? I would have done about what they did. I would have felt bad about it but I would have that's what I would have done. Okay. Station 8. We're now going to the shareholder base. We've gone through the panels and we've got about 45 minutes late left and so we're going to give the shareholders a chance to ask answer to ask all the questions, maybe answer them, ask all the questions from this point. Station 8. Hi. Chris Yu from Tokyo, Japan. Can you talk a little bit more about the IBM investment? Where do you see the moat for that business? And just in the spirit of full disclosure, I work for Microsoft. Yeah, what was your question, what was your, the mode around which business? IBM. IBM. Well, I would say that I do not understand the mode around an IBM as well as I understand the mode around the Coca Cola. I think I have some understanding of it, but I feel I would have more conviction about the mode around a Coca Cola or a Wrigley or a Heinz for that matter than an IBM. But I feel good enough about IBM that we put considerable amount of money in it. And there's nothing that precludes both Microsoft, which you mentioned at IBM being successful. In fact, I hope they both are. We have got enough conviction about IBM's position that we took a very large position. I like their financial policies. I think the odds are good that their position is maintained in a strong way over time. But I don't feel the same degree of conviction about that as I do about the BNSF railroad. I mean, it's very hard for me to think of anything that can go wrong with BNSF. I can think of some things that can go wrong with IBM. They incidentally have a very large pension obligation. Now they have a large pension fund too, but you're talking $75,000,000,000 or $80,000,000,000 of assets and liabilities that it is a big annuity company on the side and you can have balls can take funny bounces in the annuity field. I would rather they didn't have that, but that is a fact that I take into consideration what I buy. They show the assets and liabilities are being roughly equal, but the liabilities are a lot more certain than the assets over time. Charlie? Well, yes. Well, at least the IBM pension plan has the resources of IBM. I suppose you're a big life insurance company now. All over the world, the life insurance companies have started to sever the tortures of hell. In Japan, they agreed to pay 3% interest. And of course, there was no way to earn 3% interest once the Japanese policies had been placed a long time. A whole lot of once revered secure places look unsecure now. And at Brown Berkshire, you'll notice the life operations are where we have our own policies that distinguish from reinsurance are pretty small, right? Yes. We do not like giving options in this world and people tend to well, particularly they got a sales force pushing them on as you have in the life insurance industry. They have tended to give people options that have in certain cases cost some huge amounts of money. It's you always want to accept that option. You never want to give an option. But the Life business isn't just the reverse side of that. Actually the mortgage business, I mean Charlie and I were in the savings and loan business. The idea of giving somebody a 30 year mortgage where they can if it's a good deal for you, they can call it off tomorrow. And if it's a good deal for them, they keep it for 30 years. Those are terrible instruments. They're good for you if you're buying a house. And I recommend that you recommend everybody in this room get a 30 year mortgage immediately on house for all they can. If it's a bad deal and rates go to 1%, you can refund it. And if rates go to 6% or 7%, maybe you can buy it back for $0.70 on the dollar or something of the sort. So the life companies have engaged in that big time, a big, big time in the last few decades and a lot of them are paying the price and some of them haven't even realized exactly quite what the problems are. They're kind of like the fellow in the Switchblade fight, you know, where the guy takes a big swipe at him with a Switchblade and the fellow says you didn't touch me and the other guy says, well, just wait until you try and shake your head. Well, that's a little bit like where some of the life companies are right now. Charlie? Anything further, Charlie? No, that's gloomy enough. Okay, Station 9. Hi. My name is Masato Musso. I'm from Los Angeles, California and an MBA student at Boston University. You have mentioned that you are 85% Benjamin Graham and 15% Phil Fisher. And you have also said that if you only had $1,000,000 today, you could generate 50% returns. Since I'm a young investor, this is my question for the both of you. How was your investment strategy different when you were still accumulating money as opposed to managing billions? Did you focus on specific industries, small cap, large cap, etcetera? Thank you. Well, managing $1,000,000 is an entirely different game than running Berkshire Hathaway or running some $20,000,000,000 or $50,000,000,000 fund of money. And if Charlie and I were running $1,000,000 now or $100,000 we would be looking in some we'll be looking at some probably some very small things. We would be looking for small discrepancies in certain situations. And the opportunities are out there and periodically they're extraordinary. But that's something we really don't think about anymore because our problem is handling $12,000,000,000 or $14,000,000,000 or whatever it might be coming in every year. And that means we have to be looking for very big deals and forget about what we used to do when we were very young. Charlie? Yes, I'm glad I'm thrilled with that particular problem. He worked pretty hard at it when we both did. Yes. Never. Yes. We looked under a lot of rocks and I used to make big returns on my float on my own income taxes. Between the time I got the money and I paid it to the government, I frequently made enough money to pay the tax. But it was working for small amounts of money and doing it on most things. He didn't tell me how to do it, though. Okay, Station 10. Hi, Roland and Charlie. This is Andy Ling from Shanghai, China. Thank you very much for what you have said and what you have done. People around the globe have benefited a lot what from your philosophies. So you have fans, even a lot of fans even in China. My question is, how did you see investments in emerging markets? Will Berkshire expand its investments in places like China? If yes, what kind of industries and companies you are interested in? Thank you. Yes, we don't really start out looking to either emerging markets or specific countries or anything of the sort. We may find things as we go around, but it isn't like Charlie and I talk in the morning and we say it's a particularly good idea to invest in Brazil or India or China or whatever it may be. We've never had a conversation like that, have we certainly? No, no. It just won't happen. We don't think that's where our strength is. And we know that our strength is not there. And we think probably most people's strength isn't there either. I mean it sounds good, but I don't really think it's the best way to look at investments. If you told me that we could only invest, we're perfectly willing to do it. We owned a lot of PetroChina one time. We own some BYD now. We've owned securities outside the United States and we'll continue to. But if you told us that we could only invest in the United States the rest of our lives, we would not regard that as a huge hardship, would we, Charlie? Yes. It's a great way to sell an investment advice to have a whole lot of different categories, lots of commissions, lots of advice, lots of action. And a lot of things we just we don't feel we've got enough of an edge so that we want to play. When we hear somebody talking concepts of any sort including country by country concepts or whatever it might be, we tend to think that they're probably going to do better at selling than at investing. It's just such an easy way. I mean, it's what people expect to hear when somebody comes calling. Today, we think that you ought to be looking at this or that around the world. Things that we just find a good business at an attractive price. Yes. Our experts really like Bolivia. You say, well, last year you liked Sri Lanka. It's just we're not comfortable with that. Yes. And we usually think it's a lot of baloney, but That's why we're not comfortable. Okay. Station 11. Hello, Mr. Buffet and Mr. Munger. My name is Brandt Hooker from Los Angeles. I want to thank you both, first of all, for all the years of advice and your financial philanthropy as well as your education and or knowledge philanthropy you've given to so many investors around the world. And my question is, the US government was seemingly complicit in enticing the American public to buy a home and therefore a mortgage at any cost. Do you think our legislators are doing the same thing now? And are we creating a bubble? No, I don't think we're remotely near a bubble in terms of housing now. And I certainly think that your statement is accurate but not complete in terms of what went on before. I mean the whole country almost every really kind of went crazy in terms of housing and the government was a very big part of it because they're a very big part of the financing of it. And it's certainly true that plenty of legislators were encouraging Freddie and Fannie to be doing things that they shouldn't have been doing and not just in retrospect. I mean if you looked at it at the time, you could come to that conclusion. But there were an awful lot of people doing the same thing. I mean it was coming from all sources and it had that aspect to it which bubbles do where year after year for 3 or 4 or 5 years whatever it might be that the skeptics looked like idiots and that the people who jumped on the bandwagon were the ones that were refinancing their houses at ever higher prices and people who were speculating on other houses. So it just looked all so wonderful. And people are really susceptible to that sort of bandwagon effect where they see their neighbors making easy money. Everybody's making easy money but them and they finally succumb. It's just the nature of things. And it doesn't mean it doesn't mean the people at Freddie or Fannie were necessarily evil, a few of them were or that legislatures legislators necessarily were evil, although again a few of them probably were. But overwhelmingly, I think most people just get caught up in a grand illusion. And it's happened many times in history. It will happen again. And you can use that very much to your profit. We're that kind of a period now on housing. You've got very, very low interest rates which support in many cases the purchase of houses that because it brings down the payments obviously. But I personally about a year ago, I mean I recommended to people that they buy houses and I certainly recommend to people that they finance them now. And in most places I would recommend if you find a if you're going to live in the community for some time and you find a house that fits your needs, I think it's probably a very good time to buy it in part because the financing is so unbelievably attractive. Charlie? The main problem was that as things got crazier and crazier, the government could have intervened by pulling away the punch bowl before everybody was totally drunk. And instead, the government increased the proof. And this was not a good idea. But it's hard to get governments in a democracy to be pulling away the punch bowl from voters who want to get drunk. Well, it's almost impossible. Yes. I mean it isn't So you're complaining a little bit about what's sort of inevitable in life. Not too good an idea. You'll see it again. Not necessarily in housing but you will see it. And humans will continue to make the same mistakes they have made in the past. I mean, they get they get fearful when other people are fearful. I mean that's you saw it in those money market funds when $175,000,000,000 flowed out in 3 days. I mean everybody gets when people get scared they it's very, very persuasive. I've often thought that if I owned a bank in a 2 bank town, if I were inclined to, I might hire a whole bunch of Hollywood extras to form a line in front of the other guy's bank. I mean, the hell of it is that they you know as soon as they got through forming a line there they started forming a line at my bank because they people people really get they get fearful in en masse. Confidence comes back sort of one at a time. But But when they get greedy, they get greedy en masse too. I mean it just the way the humans are constructed. That's where Charlie and I have an edge. We don't have an edge particularly in many other ways, but we are able, I think perhaps better than most to not really get caught up with what other people are doing. And I don't know whether we learn that over time or what. But when we see falling prices, we think it's an opportunity to buy and it doesn't bother us. Now we don't own things on margin or we don't get ourselves in a position where somebody else can pull the rug out from under us. And that's enormously important in life. You never want to get out on a limb. And of course, leverage gets very tempting when things are going up and leverage what was introduced into housing in a huge, huge way. I mean people just felt that you were an idiot if you didn't keep borrowing more on your house and maybe using that to buy more houses or using it to live on or whatever. And then finally, the roof fell in. Charlie? Okay. Station 1. Hi, Warren. Hi, Charlie. My name is George Issels from Cologne. Do you see investment opportunities in the Eurozone, For example, extending your stake in Munich Re. Do you trust in the policy of the ECB to bring the things together? Thank you. Yes. Well, we are perfectly willing to look at business opportunities in the Eurozone, and we bought a couple of bolt on acquisitions, one for a couple of 100,000,000 in the farm equipment area. And we'll be happy if we find a business in any one of the 17 countries tied to the euro. There might be a few of them, maybe a little less inclined than others. It may create opportunities for us to buy businesses. We'd be happy to. Europe is not going to go away. But the European Monetary Union was, you know, had a major flaw and they're grappling with a way to correct that flaw. And with 17 political bodies and a lot of diverse cultures, it's really tough for them to do so. They'll do it in time in my view. But essentially they synchronized a currency without synchronizing much else. And nature finds a fatal flaw and so does economics and they found it fairly quickly in terms of the euro and the structure that was put in place will not work and I'll have to find something that does work and they will eventually but they may go through a fair amount of pain in the process. Charlie? Yes, structured as Europe was structured. Letting in Greece and the European Union is a lot like using rat poison as whipping cream. It just it was an exceptionally stupid idea. It's not a responsible capitalistic country, a place where people don't pay taxes and so on. So it's just and I've tried for years to get in and use Country A and Country B, but he and committed fairly extreme fraud in the course of getting into the union. They lied about their debt. And so Europe made terrible mistakes. They have politicians too. You think it will be behind them in 10 years? I think Europe will muddle through. Sure. Think what Europe has already muddled through. But we would be delighted with even with that dire forecast, not over We would be delighted tomorrow to buy a big business in Europe that we liked and we'd pay cash for it. I hope you'll call me if it's in Greece. I make these small suggestions, but you can see it isn't that much. Okay. Station 2. Hi. I'm David Yaris from Miami Beach, Florida. On behalf of the Internet, welcome to Twitter. And my question is, how has social media impacted your business, and any Berkshire Companies? And what impact do you see it having on the world in the short and long term? Probably half the people more in this audience could answer that question better than I can. It has certainly in a place like GEICO, it makes a difference and over time will make a huge difference and marketing just as the internet made a change. I mean GEICO was founded in 1936 and it had a great business idea of going direct, but it did it by entirely by mail initially and it worked very well. And then it progressed to as the world changed, it went to TV advertising and phone numbers and that sort of thing. And then it went to the Internet and now it goes on to social media. So we have to listen to our customers in all our businesses. Some of them is much more dramatic than others. And I've been amazed at how fast the world has changed. I thought the internet for example in terms of GEICO would affect younger people very quickly in terms of their buying habits. But the truth is that it's spread across the entire age range very, very quickly, huge change. And you have to respond to that. And I am not the best person by miles to do that, but we have people that are very good at it in our businesses and they're thinking about it for me and they'll continue to think about it. But it would be a terrible mistake to put me in charge of social media at Berkshire Hathaway. And Charlie would not be a particularly good choice either. Charlie, do you want to defend yourself? Well, I don't understand it very well for a very good reason. I avoid it like the plague. And I hate the idea of the teenagers in my own family immortalizing for all time the 3 dumbest things they said when they were 13. We would have been in big trouble, Troy. We would have been in big trouble, both of us, if that were the system. And so I think there's a time when your ignorance and folly ought to be hidden. Yes. I also think that when you multitask like crazy like the young people do, none of the tasks is likely to be done well. There anyone we've forgotten to offend? Okay. Station 3. Hello. My name is Stuart Kaye and I work in Stamford, Connecticut. Earlier in the meeting, you said when reading over financial statements, you identified companies you were virtually certain were frauds. What was it in those financial statements that you saw that made you be so certain they were frauds? Well, it varies just enormously over the years, but there are we can't identify 100% of the frauds or 90% or 80%, but there are certain ones that jump out to you. Just people give themselves away a lot too. I mean in poker they talk about tells. And Charlie and I have bought a lot of businesses and it's very important when we buy those businesses that we assess the individuals that we're buying from with some degree of accuracy because they hand us the stock certificate and we hand them a lot of money and then we count on them to run the business with as much enthusiasm after they have the money as they did before. And so we are assessing people. And we don't think we can assess everyone accurately. We just have to be right about the ones where we make an affirmative decision. And those decisions have not always been perfect, but they've been pretty good and I would say they probably have gotten a little bit better even as the years has passed. Similarly, in looking at financial statements, for example, in the insurance field, we've seen some frauds and there you can see things being done with loss reserves occasionally. We saw it back and I won't name any names unlike Charlie. I don't we'll call them company A's and B's instead of naming names. But you would see companies that when they were offering stock to the public the year or 2 before that the reserves would go down very suspiciously and then and or even when they were selling them to other insurance companies, they were buying in stock, they might be building the reserves. But there's a 1,000,000 different ways and I don't claim I know all the ways obviously. But I have seen enough situations over the years and I've seen how promoters act. And you can spot certain people who you know are one way or another playing games with the numbers. They give themselves away. But I can't give you a checklist of 40 items or something of the sort that you look for in the balance sheet or the income account or the footnotes. Charlie, can you help him? Sometimes it's pretty obvious. I once was introduced by Warren of all people by accident to a man who wanted to sell us a fire insurance company. And among the first things he said with a thick accent from Eastern Europe, I think. Don't name countries. And I don't remember the country. But what he told me was he says it's like taking candy from babies. He said we only write fire insurance on concrete structures that are underwater. And I figured out instantly that it was probably fraudulent. You guys are correct. I'm a very acute man. Yeah, the guy is a. You actually had some experience as a lawyer in the movie industry. Oh my God. Yes. When you get into accounting for well, movies are a good thing. I mean, in terms of how fast you write off properties and anything where you've got construction in progress or progress payment type things. There's so many ways you can you can cheat in accounting And financial institutions are particularly probably prone to it. And there's been plenty of insurance. A lot of it, they're not being deliberately fraudulent because they're deluded. In other words, they believe what they're saying. Yes, people like to hire them as salesman. If you've got doubts, forget it. You know, basically, it's probably some reason it's interesting, the accounting, they've worked harder and harder and harder coming up with disclosures in accounting. And I'm not sure I find present financial statements more useful or in some cases as useful as I found them 30 or 40 years ago. Charlie? Well, I think the financial statements of big banks are way harder to understand now than they used to be. They just do so many different things. They've got so many footnotes and there's so much gobbledygook that it doesn't they're not my grandfather's banks. Well, we couldn't understand them when we owned them. I mean we bought a company that at January, they had 23,000 derivative contracts. And Charlie and I could have spent 24 hours a day and had the help of 10 or 20 math PhDs and we still wouldn't have known what was going on. It cost us about $400,000,000 to find out. And that was in a benign market, but nobody can. And the accountants have certified the balance sheet. Sure. It's a new kind of asset. I invented a name for it. I said good until reached for. Well, and you would actually the same auditing firm would be auditing 2 different companies that are on the opposite side of a derivative transaction and attesting to different values to the same contract. Charlie, if I'm one mistake, Solomon on the derivative counter, what was it $20,000,000 on? No, it was a big contract and both sides reported a large profit, less by their accountants, on the same contract. Kind of like us and wish for making it. Once people get in a competitive frenzy, things just go out of control. I became the interim CEO of Solomon in 1991. And fortunately, I testified to both the House and Senate Committee before I found this out. And generally speaking incidentally, Solomon wanted to have conservative accounting. I think that would be a fair statement. And in many cases did. But they did come into me one day and they said, Warren, you probably should know that we have this item. And I think it was around $180,000,000 or something like that with a capital base of $4,000,000,000 maybe, but $180,000,000 And they said this is a plug number and we've been plugging it ever since Fibro merged with Solomon in 19, I guess, 'eighty one for 10 years. This number moved around every day. And as I remember, fibro or one of them was on a trade date system and that was on a settlement date system. And in 10 years with Arthur Andersen as their accountant paying a lot of money in auditing fees, they just never figured out how the hell they get the thing to balance. So they just stuck a number in every day. And they literally plugged it for 10 years and I couldn't figure out how to unplug it myself. I mean you almost had to start over. Didn't they do that one time out there? We did that, Robert. Yes. You're right. We had a discrepancy when we changed accounting systems in our savings and loan and none of the accountants could fix it. So we just let it run out. Yes, we let the account. We just let the account run out. And then we start over again. We started over, right. Yes. Accounting is not quite the science that people might want. Accounting you can do things like they do in Italy when they have trouble with the mail. It piles up and irritates the postal employees. They just throw away a few carloads and then everything is full smoothly thereafter. So that happened in some unnamed international company country. Yes, Italy. Okay. Section 4. Good afternoon. My name is Jerry Lucas from Newark, Delaware. You answered the question earlier about emerging markets. I just have a similar question. If you found the business that attracted you in Sub Saharan Africa, outside of South Africa, Are the conditions right today to make that investment? Well, I might not know enough to do it myself, but I think I wouldn't rule. If it was attractive enough and I thought I understood the nature of the business, I would probably get some advice from some other people and I might not end up doing it, but I wouldn't totally preclude it. I saw that done. The University of Michigan hired an investment manager in London who specialized in Sub Saharan Africa Africa. And the first thing people would want was not to have the money under their pillow. And they just bought all the little banks in Africa and they made a lot of money. So it is possible if you know what you're doing to go into very unlikely places. I would say we're not very good at it. No, that is not specialty, but it can be done. And if we were poor enough, we might even be thinking about doing it, right, Charlie? I don't think so. Okay. Next year we'll prepare for this. Okay. Station 5. Hello. I'm Marvin Blum from Fort Worth, Texas, the home to 4 of your companies. Absolutely. We love Fort Worth. Thank you. We love you too and your presence in our community. I'm an estate planning lawyer. And it's interesting as we wrap up today to ponder taxes. I can design plans that eliminate estate tax, and pass down great amounts of wealth to the next generation. But many of my clients come to me and say, they want a plan like Warren Buffett's. Leaving their kids enough so they can do anything, but not so much that they can do nothing. Now they ask me and I'm asking you, how much is that? And how do you keep from ruining your kids? Well, I think more kids are ruined by the behavior of their parents than by the amount of the inheritance. Your children are learning about the world through you and more through your actions and through your words from the moment they're born. You're their natural teacher And it's a very important and serious job. And I don't think I don't actually think that the amount of money that a rich person leaves with their children is the determining factor at all in terms of how those children turn out. But I think that the atmosphere and what they see about them and how their parents behave is enormously important. I would say this, I've loosened up a little bit as I go along. Every time I rewrite my will, my kids are happy because they know I'm not reducing the amount anyway. And I do something else that I find that which I think is an obvious thing, but it's amazing to me how many people don't do it. I think that your children are going to read the will someday, assuming you're a wealthy person, your children are going to read the will someday. It's crazy to have them read it after your dad for the first time. I mean, they're not in a position to answer questions unless the Ouija Board really works or something of the sort. And so if they're going to have questions about how to carry out your wishes or why you did this or that, why leave them endlessly wondering after you die? So in my own case, I always have my children only rewrite a well every 5 or 6 years or something like that. And I have them read it. They're the executors under it. They should understand how to carry out their obligations that are embodied in the will. And they should also if they feel there's anything unfair about it, they should express themselves before I sign that will and we should talk it over and we should figure out whether they're right or I'm right or someplace in between. So I do think it's very important in wealthy families. Once the kids are of a certain age, I mean, I don't advise doing this with your 14 year old or something, but when they get certainly by the time they're in the mid-30s or thereabouts, I they should be participants in the will. And I do think that if you get to be very wealthy, the idea of trying to pass on create a dynasty of sorts, it just sort of runs against the grain as far as I'm concerned. And the money has far more utility. The last 100 of 1,000,000 or 1,000,000,000 have far more utility to society than they would have to make it create a situation where your kids don't have to do anything in life except call a trust officer once a year and tell them how much money they want. Charlie? I don't think I want to go into this one. Okay. And I'm absolutely sure you don't want to discuss your will with your children if you're going to treat them unequally. No. That is poison. But one of the problems you have, I mean, and what you want to discuss just for that very situation is there may be circumstances where one child will have much more of an interest in one type of asset than another or something of the sort. And if you want to make sure that your definition of equality in terms of handling different kinds of assets is that meshes or at least is understood by the children so that they don't think the fact that you gave one a farm and another house or something of the sort resulted in inequality when you thought it was equality. Charlie, you want me? No, he's staying away from this one. Okay. Station 6. No question. No questions. I like Station 6. Station 7. Mr. Buffet, Mr. Munger, thanks for everything that you do for us, including the advice that you give us and also for as an individual investor for the things that you've done for me. I have a question. You've long been against stock splits. But as you think about the Berkshire A share, and one day you can if you don't split it, you can get to $1,000,000 Is the Board thinking about how to deal with that in terms of getting new stock owners, the ownership structure and so on? Well, I think we've got a pretty good arrangement now. It evolved originally through some people that were going to try and make a lot of money off of our shareholders by creating their own split shares. So we created the B shares and then when the BNSF acquisition came along, we wanted to be sure that people that wanted to have a stock free exchange or the one to get shares were not prohibited simply because they had a small amount of BNSF and therefore our B shares were too expensive. So I think now with one stock in the $100 range, People can split this people that own the A stock can split their stock any time they wish. And we've always pledged that there won't ever be this situation, but if there were some corporate transaction or anything like that, we will the A and B will get treated identically. And so I really see no reason to change the present situation. Charlie? I would not hold your breath until we change. That may apply to almost anything in our life. Okay. I think we'll take about a 5 minute or so recess and then we'll get on to the business part of the meeting. And I thank you all for coming and I hope you come next year. If you'll please take your seat, we'll get on to the annual meeting of shareholders. We use a script for this. The meeting will now come to order. I'm Warren Buffett, Chairman of the Board of Directors of the company, and I welcome you to the 2013 Annual Meeting of Shareholders. This morning, I introduced the Berkshire Hathaway directors that are present. Also with us today are partners in the firm of Deloitte and 2 Chair auditors. They are available to respond to appropriate questions that you might have concerning their firm's audit of the accounts of Berkshire. Forrest Carter is Secretary of Berkshire. He will make a written record of the proceedings. Becky Hammack has been appointed Inspector of Elections at this meeting. She will certify it at the count of votes cast in the election for directors and the motion to be voted upon at this meeting. The named proxy holders for this meeting are Walter Scott and Mark Hamburg. Does the secretary have a report of the number of Berkshire shares outstanding entitled to vote and represented at the meeting? Yes, I do. As indicated in the proxy statement that accompanied the notice of this meeting that was sent to all shareholders of record on March 6, 2013, being the record date for this meeting, there were 892,000 657 shares of S. A. Berkshire Hathaway common stock outstanding with each share entitled to 1 vote, a motion is considered at the meeting and 1,126,000,000,12,136 shares of Berkshire Hathaway common stock outstanding with each share entitled to 1 10000th of 1 vote. A motion is considered at the meeting. Of that number, 637,192 Class A Shares and 691,560,484 Class B Shares are represented at this meeting by proxies returned through Thursday evening, May 2. Thank you. That number represents a quorum, and we will therefore directly proceed with the meeting. First order of business will be a reading of the meeting, minutes of the last meeting of shareholders. I recognize Mr. Walter Scott, who will place the motion before the meeting. I move that the reading of the minutes of the last meeting of the shareholders be dispensed with and the minutes be approved. Do I hear a second? Second. The motion has been moved and seconded. Are there any comments or questions? We will vote on this motion by voice vote. All those in favor, say aye. Opposed? The motion is carried. Next item of business is to elect directors. If a shareholder is present who did not send in a proxy or wishes to withdraw a proxy previously sent in, you may vote in person on the election of directors and other matters to be considered at this meeting. Please identify yourself to one of the meeting officials in the aisle so that you may you can receive a ballot. I recognize Mr. Walter Scott to place a motion before the meeting with respect to election of directors. I move that Warren Buffett, Charles Munger, Howard Buffett, Stephen Burke, Susan Decker, William Gates, David Gottesman, Charlotte Guymon, Donald Keogh, Thomas Murphy, Ronald Olson, Walter Scott, and Merrill Whitmer be elected as directors. I second the motion. It has been moved and seconded that Warren Buffett, Charles Munger, Howard Buffett, Steven Berg, Susan Decker, William Gates, David Gottesman, Charlotte Guyman, Donald Keogh, Thomas Murphy, Ronald Olson, Walter Scott and Merle Whitner be elected as Directors. Are there any other nominations? Is there any discussion? The nominations are ready to be acted upon. If there are any shareholders voting in person, they should now mark their ballot on the election of directors and deliver their ballot to one of the meeting officials in the aisles. Ms. Hammack, when you are ready, you may give your report. My report is ready. The ballot of the proxy holders in response to proxies that were received through last Thursday evening cast not less than 6 195,403 votes for each nominee. That number far exceeds a majority of the number of the total votes of all Class A and Class B shares outstanding. The certification required by Delaware law of the precise count of the votes will be given to the secretary to be placed with the minutes of this meeting. Thank you, Ms. Hammack. Warren Buffett, Charles Munger, Howard Buffett, Steven Burke, Susan Decker, William Gates, David Gottesman, Charlotte Guyman, Donald Keogh, Thomas Murphy, Ronald Olson, Walter Scott and Merrill Whitmer have been elected as directors. The next item of business is a motion put forth by Robert L. Berridge. The motion is set forth in the proxy statement. The motion directs Berkshire Hathaway to establish quantitative goals for reduction of greenhouse gas and other emissions at its energy generating holdings and publish a report to shareholders on how it will achieve these goals. The directors have recommended the shareholders vote against this proposal. I will now recognize Bruce Herbert to present the motion. To allow all interested shareholders to present their views, I ask Mr. Herbert to limit his remarks to 5 minutes. Good afternoon, Mr. Buffet, Mr. Munger, ladies and gentlemen. My name is Jirogan Joike. I am a student of Economics and Finance at Warburg College in nearby Iowa. I hail from Kenya, and I'm here with a group of fellow students, all of whom very much appreciate the opportunity to take part in this celebrated event. I stand on behalf of Voice of Seattle to move item number 2 on Page 12 of the proxy, a proposal that Berkshire established goals for greenhouse gas reduction at its energy holdings. We applaud Mid American Energy for having the largest renewable energy portfolio in the entire USA. However, it is also true that mid American generates close to half of its power by burning coal. It's a huge emitter of greenhouse gases. Given this fact, why doesn't mid American have a plan? 66 of other U. S. Electric utilities have greenhouse gas reduction goals. 66 percent, but mid American is not among them despite publicly proclaiming that on its website, and I will quote, we will set challenging goals and assess our ability to continually improve our environmental performance. As you're aware, climate disruption creates profound financial risk for the global economy as well as for Berkshire. The investor network on climate risk, whose members managed more than $11,000,000,000,000 and the carbon disclosure project, whose members managed more than who represent more than 80,000,000,000,000 in assets globally, have called on companies to disclose risks related to climate change as well as to take steps to reduce that risk. In 2010, the SEC announced that climate risks are financially material and they must be disclosed. This is because high carbon path creates risk whereby the low carbon path is a lower risk, more secure way into the future. Without planning and a set of forward looking goals, neither management nor investors can know where they stand. In addition, Berkshire is seen as being particularly vulnerable to climate disruption. Why? Because many of the most negative financial impacts of climate disruption are borne by insurance companies. For example, GEICO took its largest single loss in history from Superstorm Sandy, a $490,000,000 loss to claims on more than 46,000 flooded vehicles. Berkshire's reinsurance business is likely to bear significant risk from the clear trends towards increasingly extreme weather. While some portion of this may be pushed towards clients in the form of higher premiums, it is real is it really fair or a good long term strategy to saddle customers with the cost of poor planning? I'd like to conclude by recapping some of the major points. 100 of the world's largest institutional investors representing 1,000,000,000,000 of dollars of invested assets have called on companies to set greenhouse gas reduction goals. Such goals are key tools for managing the profound business risk created by climate disruption. More than 2 thirds of utilities have already established such goals. And institutional proxy advisory firms repeatedly recommend voting for goal setting and disclosure of this sort. Therefore, I urge you all to please join us in voting for this common sense proposal that avoids risks, preserves profits, and treats our customers fairly. Thank you very much. Thank you, Mr. Herbert. The microphone at Zone 1 is available for those wishing to speak for or against the motion. Zone 1 is the only microphone station in operation. For benefit of those present, I ask that each speaker for or against the motion limit themselves to 2 minutes and combine your remarks solely to the motion. So anyone who would like to speak should go to Zone 1 where Mr. Herbert was, and we'll turn the microphone over to the next speaker. Thank you, Mr. Buffet. I believe that just burning some coal, although it is bad for the environment, as long as it's operating inside the EPA guidelines for it, it should be perfectly fine. That's my only view on it. Thank you. Thank you. Is there another speaker? Mr. Buffet, good afternoon. And I just want to say we know how passionate you are and such a philanthropic individual. The environment is incredibly important. And on behalf of my good friend, John Doerr, who could not be here this afternoon, I know how passionate he is also about the environment. So please take consideration into this man's proposal. And I know you're you've agreed to go against his proposal, but if not this year, perhaps next year, you will look at this man's initiative again. And thank you so much. Thank you. Thank you. Is there another speaker? No further speakers. Thank you. The motion is now ready to be acted upon. If there are any shareholders voting in person, they should now mark their ballot on the motion and deliver their ballot to one of the meeting officials in the aisles. Ms. Zamek, when you're ready, you may give your report. My report is ready. The ballot of the proxy holders in response to proxies that were received through last Thursday evening cast 57,569 votes for the motion and 598,162 votes against the motion. As the number of votes against the motion exceeds a majority of the number of votes of all Class A and Class B shares outstanding, the motion has failed. The certification required by Delaware law of the precise count of the votes will be given to the secretary to be placed with the minutes of this meeting. Thank you, Ms. Hammack. The proposal fails. Does anyone have any further business to come before this meeting before we adjourn? If not, I recognize Mr. Scott to place a motion before the meeting. I move this meeting be adjourned. Motion to adjourn has been made and seconded. We will vote by voice. Is there any discussion? If not, all in favor say aye. All opposed, say no. This meeting is adjourned. Thank you.

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