Welcome to CNBC's live stream of the Berkshire Hathaway 2023 annual meeting. We are here live in Omaha, Nebraska. Good morning, everybody. I'm Becky Quick, along with Mike Santoli, and in just 30 minutes' time, Berkshire Hathaway Chairman and CEO Warren Buffett's going to be taking the stage with his Vice Chair, Charlie Munger. The legendary duo will also be joined by Berkshire's two other Vice Chairs, Greg Abel, who manages the non-insurance operations for the company, and Ajit Jain, who runs all of the insurance businesses. As always, it's a pretty big crowd here. Lots and lots of people.
Yes.
A few people you might notice too. Tim Cook is here. Apple, of course, is still Berkshire's largest holding, big part of its portfolio. There you see him backstage getting ready to go out and take his seat. He gets to sit down in the special seats. By the way, that's Debbie Bosanek, Warren's assistant, who's standing by. Just went by beside him. Also in the crowd, Bill Murray. He has been here for a couple of days, been hanging around. You can check out, he is taking a seat right now too. Some other big people who are expected to be here, some well-known names, Jane Fraser, who's the Citi CEO, Ruth Porat of Alphabet. She's actually here. I did see her a little earlier.
Interesting, yeah.
By the way, this was a scene just a short time ago as the Berkshire shareholders who were first in line started streaming onto the floor. Mike, this is like Black Friday used to be.
Yeah.
Day after Thanksgiving.
That's right.
People waiting, lining up. These were the doors. Yeah, it was a big rush. They open, and everybody comes running in, and it's not just because of the rain outside.
Absolutely. It's a massive arena, convention center, so people know, and I don't know what time do they start lining up?
I looked out the window at 5:30 A.M., and I thought, "Huh, that's not as big of a crowd as I've seen in years past.
Yeah.
I realized it's because they changed the setup for this. People used to stand about 10 deep right at the door. This year, they pushed everybody, the crowds, down the block because they, I guess they didn't want too much of a mob scene in one place. If you watched, it went for blocks.
Yeah.
I didn't realize it until I went to the other side of the hotel to see.
Yeah.
It went for blocks and blocks, and I've honestly never seen a line this long.
A lot of people.
Wrap around the convention center.
Talking about how it's buzzier and more crowded in the exhibit hall this year versus last year, which was the first after the pandemic, of course. They broke for two years. It seems like there is a little more of a interest in being here in person.
Well, they know how to time it.
Yeah.
There's a lot of news that's happening. Usually you get about 40,000 people who are here. This year, they've been running ahead.
Mm-hmm
Just in terms of the number of tickets that they gave out. I talked to Warren Buffett briefly last night. He said that they had 6,000 people who showed up at will call yesterday to try and get last-minute tickets.
Wow.
They ran out of tickets. They had to go print more to try and get people in the doors, and they've never seen anything like that.
Yeah.
As you mentioned, the stuff sold out. If you look at some of the places that are back here, we're gonna talk about some of these companies. He's been running the numbers and seeing what happened. I won't say too much now, but he's been tabulating all of this up to see exactly what their sales are running like here versus years past.
Yeah. Obviously, this is sort of a weird microcosm of the business and the company as a whole.
Yeah.
It's not revenue neutral, as he always talks about.
Right.
You're paying to play here.
You are. In fact, it is going to be a big day here. First, though, we should talk about the news at hand. Berkshire is out with first quarter earnings, and that came just moments ago. Mike has been digging through all the numbers on this.
Yes.
There's some stories to be told here.
There are. First of all, a big swing to the upside in the overall reported earnings number from about $5.5 billion in the first quarter last year to $35.5 billion. Almost all that swing was the mark to market on the investment portfolio. Operating earnings, though, is still a good story, up almost 13% year over year, up to about a little more than $8 billion. It seems like the insurance business, specifically GEICO, swinging to a fatter underwriting profit from last year. We could talk about exactly how they got there, but it seems as if higher pricing, less advertising revenue. They went for margin as opposed to pure market share, it seems, at this point.
On the investment side, seems like there was a reduction in the Chevron stake.
Okay
Over the course of the quarter. You have to back into the numbers based on the dollar value of the stakes that they give you and the share prices at the time. Essentially, it seems like Berkshire was a seller of about 20% of that stake. It's like.
Oh, that's a big chunk, right?
six or seven billion dollars' worth.
Okay.
It's still a significant holding. I think it's also worth keeping in mind, Chevron stock was up over 50% last year.
Okay.
Simply by the market appreciating, the dollar value went up a fair bit.
Well, it's interesting, though. If they were selling some of that stake while they were building the Oxy stake, the Occidental-
Right
Occidental Petroleum stake, not a call necessarily on oil overall, just maybe picking.
Exactly. Relative value
Yeah
or positioning within that. Also, Berkshire, a net seller of overall equity securities in the quarter, but the majority of that net reduction seems to be the Chevron stake. The rest of it's hard to know. Apple, pretty much unchanged. Of course, the stock's up a lot, but the position is unchanged. Bank of America also seems unchanged too.
Okay. Those are two that I think people would have had.
Not a lot of change in terms of the key core holdings.
Well, for Bank of America, that's the one bank that he has kept.
Exactly.
He's sold out of a handful of other banks, some of them, that he's held for a very long time. Bank of America still seems to be his favorite, and maybe we'll hear more about that today.
You would hope.
Right.
Just maybe general thoughts about his assessment of the banking system and whether it needs help, whether it looks like it's an opportunity. You have all these valuations that have been crushed. Another thing to keep in mind for the quarter, there was $4.5 billion of shares bought back by Berkshire.
Okay.
That was up from $3.2 billion in the year-ago quarter. It's not an enormous number in terms of the market value of Berkshire, which is $700 billion. It's like a, you know, what, $18 billion annual run rate of share buyback.
Right.
They do reduce their outstanding shares. The net reduction of shares, down about 1.2%, year-over-year. You know, it's something.
There were questions that came in. I've been looking through some shareholder questions for a couple of months now.
Yeah
that have been coming in on this, and some of the questions that came in is, "Do you still like Berkshire Hathaway? Do you still like the stock at this price? Are you going to be as aggressive as a buyer?" I guess this answers some of that question.
Some of it, yeah.
Yeah.
It's absolutely not super aggressive, but it's sort of soaking up some of the shares that are out there. Of course, Buffett in his shareholder letter was very vociferous about defending the practice of being able to buy back stock.
Sure.
He does it in a disciplined way. He wants to be careful about why he's doing it and what the valuation is. But clearly he's willing to use that. Oh, the cash went up to $130 billion, so up marginally, total cash holdings.
Nice pocket change. There had been a lot of questions that came in too about the insurance company, specifically GEICO, and you can see the Gecko right behind us.
Yeah, that's right.
Um-
Over our shoulder.
People just wondering what's happening. I guess we'll dig into that a little deeper today. We've got some numbers that you've been going through too.
Be very interested to hear the color on the strategy behind it because there was a little bit of, you know, an issue last year where it seemed like profitability was down. Now, pricing is up across the industry.
Yeah.
Policies are able to be written at higher prices, and so that's happening across the board. It does seem, you know, as I say in the commentary within the 10-Q, that they did reduce advertising expense, and it was a big swing to the upside in underwriting earnings.
I mean, with insurance it takes a while to raise pricing for anybody.
Sure
... in the industry because you have to go state by state and get regulators' approvals before you can actually raise any of it.
Yeah.
There is a delay. We saw some, a huge hit to the profitability of all the insurers as, you know, prices to replace cars.
Right
Prices to fix things, construction, all of that went up.
Right.
They couldn't raise their prices as quickly.
Exactly. It is an industry-wide phenomenon, but it seems as if GEICO is trying to decide they wanna skew toward more profitable customers. We'll see if that's a theme.
Yeah
That's gonna continue. Another couple of tidbits are building products and consumers, margin squeeze that's happening across the industry. Railroads, pretty flat.
Okay.
BNSF pretty flat year-over-year, and pretty big reduction in consumer-related freight loading.
Who needs an analyst? You've already done all the work.
Did the highlights. I got my little, you know, tape bookmarks and-
Yeah. No, that's good.
world map.
It works. Okay, we have a lot more to get to this morning. We wanna give you a quick look at today's schedule, though. Mike and I are gonna be here with you until 10:15 A.M. Eastern Time. That is when Buffett, Munger, and the Vice Chairman Greg Abel and Ajit Jain are gonna be taking the stage. You get to watch all of this, the annual meeting, you can see it exclusively here on CNBC and cnbc.com. Buffett's going to begin the meeting with a summary of the past quarter's results, but like we said, Mike's already done that for you, so, that's your bathroom break time. Then he's gonna open the stage to shareholder questions, and I'll be asking some that have been e-mailed in to me. Again, we've gotten lots and lots of emails this year, more than I've ever seen.
Buffett's also gonna rotate through the 11 microphone positions that are in the audience too, so you'll see a lot of questions being asked. Around 1 P.M., Buffett will break for lunch, but you get to stick around with us. Mike and I will be joined right here by Berkshire board members Ron Olson and Howard Buffett. We'll also be talking to tech investor Ann Winblad and Activision Blizzard CEO Bobby Kotick, who has been coming to this meeting for years. He was here last year but had to leave early because he was going to a birthday party, so he left, I think, at the lunch break. After that is when Buffett revealed to the crowd that he had taken a stake in Activision Blizzard.
Right.
Bobby found out when he was on a plane on his way back home. He's here this year too, and we'll find out if there's any new news on Activision.
At the time, of course, it was viewed as an arbitrage position because.
Yeah
Activision had agreed to be sold to Microsoft for cash.
Buffett said it was an arbitrage position.
Yeah, exactly. The spread was very wide.
Yeah.
It seemed just like the market was leaving money on the table. Now that it looks like perhaps regulators in the U.K. might block that deal.
Yeah
The question is, does it remain, you know, worthwhile holding?
A point of interest.
on a fundamental basis?
Yeah.
It'd be fascinating to hear the commentary on that. Then at 2:00 P.M. Eastern, Buffett and Munger will be back on stage for another 2.5 hours of shareholder Q&A. After the afternoon session wraps, we'll be back with you to recap all of the day's action. While the market's staging a big rally to close the week after a strong jobs report and revisions to the February and March employment numbers, Apple, a major Berkshire holding, which was unchanged in the quarter, a key driver for yesterday's rally. The stock closing higher by about 4.5%, on the day after posting better than expected earnings. Apple now up nearly 34% so far this year. Here to help us navigate the current market environment and look at opportunities right now is John Rogers.
He's the Chairman and Co-CEO of Ariel Investments and a longtime Berkshire meeting attendee. John, good to see you. Thanks for stopping by here.
Great to be here.
What's your, I guess, what're you looking to hear from Mr. Buffett and Munger both about? I mean, we know that the principles they're gonna accentuate, that they always do, about how they do their business and what matters and doesn't matter in the earnings and how they approach things. What about the moment right now, where it seems like there's big questions about financial system stability, whether there's value in bank stocks, whether the economy can handle these rate hikes?
A couple things that I'm gonna be looking for. One, you know, when Becky interviewed Warren when he was in Asia, and there was talk that Warren talked about how certain of his companies were not meeting expectations. Earnings were gonna be less than expected, and profits were lower than expected. I wanna see if that trend has continued. Is he still seeing weakness in the overall economy? The second thing, you know, Becky followed up with a question about Paramount Global, and he was kind of a little bit soft and not as aggressively supporting his position as I'd expected. I'm curious to see what he has to say today about it, especially after the stock dislocated this week.
You are an owner of Paramount.
Correct.
We are an owner of Paramount Global. It's.
Yeah.
It's not been a fun week.
Yeah.
Yeah.
How do you feel about things? I mean, Paramount slashing the dividends, I think it caught some people by surprise, but Mario Gabelli was here yesterday, and he said it didn't catch him by surprise. He wanted them to do that because he wanted them to shore up their cash position and put it back into their business at this point.
I think it was the right decision, and I watched Mario Gabelli yesterday morning, and then we did a panel, and he has been very positive about the future for Paramount Global. We're still very, very optimistic. We think they have so many assets around the world. They've got that great Paramount library. They've got Mission: Impossible coming out this year. All the great sports entertainment that they have and all-time favorites like 60 Minutes. I think there's more there than just the streaming, and I think sometimes people are more worried than they need to be.
Is it more there as a standalone business, or do you think that this is an acquisition? An acquisition target and that Mario Gabelli has always been about, you know, the business of lovemaking with mergers and acquisitions.
You're right. I think that everyone, as we talk to experts in the industry, everyone says there's way too many streaming services. We've got to get it down to three, four at the maximum. I think it's very possible that Paramount Global will be bought at some point.
As a value manager, do you look at the carnage in things like regional banks and anything that seems like it's connected to a commercial real estate and view that as more of a core risk to the economic outlook, or is there actual value being surfaced in the process?
I think the stocks have gotten crushed. There's a lot of pessimism, and as Warren often says, "You want to be greedy when others are fearful." I think if you're gonna buy the banking stocks, you'd buy a whole basket of them, not try to pick one, but really be diversified. We've been also adding to our favorite Northern Trust is our favorite bank stock.
Mm-hmm.
I think we're gonna be okay. There's gonna be some pain and anguish here, and of course, commercial real estate's getting harmed, and it doesn't help having the banks and the problems they are.
Yeah.
Down the road, we'll be fine.
I've been talking to folks here in the last day, and there is a little bit of suspense as to whether, in fact, clearly we'll get some questions on this, whether Buffett himself sees there to be any opportunities here to provide capital in areas where it's like, I mean, it's worth going back to how he acquired a lot of his financial positions, right? American Express 60 years ago, coming off a crisis that it needed capital. Bank of America, clearly. Salomon Brothers in the early 1990s. Goldman Sachs back around the crisis too. So in other words, he's been there as a source of stable capital at times when the financial system seemed like it was in trouble. Would you want to see him make a move like that?
That would bring a lot of confidence to the economy and to the financial system. Whenever he steps up, all of us believe in him so much. I think it would be great if he was able to be helpful during this period and get a great return for Berkshire shareholders.
You know, you gotta wonder, has he been involved with conversations on these things? Are there deals that he saw and passed up on? You know, maybe we'll get a little color into some of that today. I'm hoping. You know, maybe that's why there's so many people that are here today too. John, we're gonna welcome our television audience in just a second, but we want you to stay with us, and I'm doing this because literally the TV clicked. I'm just
Okay.
Hold your thought for just a second. We wanna make sure we are welcoming our audience. In fact, you're gonna hear a bell in just a second. Yeah, ding, ding. There it goes. That sound that you're hearing right now, me doing ding, ding, it means that it's 10 A.M. Eastern Time, and that means that it is time to welcome our television audience as well. We are, again, at the Berkshire Hathaway annual meeting and, yeah, okay. Wanna welcome our television audience here and around the world. I'm Becky Quick. I'm here with Mike Santoli, and this is our live all-day coverage of the 2023 Berkshire Hathaway annual meeting. We are just 15 minutes away from the start of the action. Wanna get back to our conversation with John Rogers. He's the chairman, co-CEO, and CIO of Ariel Investments.
For everybody on television, this is a conversation we've been having with our streaming audience at CNBC.com. Let's just pick it up with where we left off. John, you were just talking about how if you saw Buffett step in and do some sort of a deal, whether it be in the banking system, whether it be something that kind of showed some confidence in the system, that would mean a big deal for investors everywhere.
I think it would be. He is so revered, as we know, around the world, and I know that the Biden administration has been talking with him, and I know, you know, other leaders are. You can bet that he's the first call of many of the major banking giants on Wall Street to make sure they're getting his best advice and including him in these important conversations.
It's probably also worth keeping in mind that what he says about his take on whether in fact the banking system is sound and whether the market is overshooting in its attack on some of these regional bank valuations is worth listening to as well. If he thinks the Fed has it right, we have this deposit backstop facility, and you know, let's keep in mind, one of the reasons that the bank stocks are going down is consumers are in great shape. You got a lot of cheap mortgages, unprofitable for the banks. They're looking at 5% money market yields. They can move their cash there. It'll be interesting to hear whether he thinks it's an economic risk or it's just kind of a sector that's upside down for the moment.
Well, as you know, he's such a long-term investor, and I think he's going to believe, as he always talks about at the annual meeting, about how last century, all the problems that confronted our country, we always resolve them. Our capitalist democracy is the best system ever invented. This crisis will pass also. I also notice when I love watching CNBC in the morning when you have those special boxes showing returns, like now you've been showing the regional banks, how they're doing. That's a sign that you're getting toward a period where, you know, six months from now, that'll be an old forgotten story, and we'll be onto something new. I love seeing that because it gives you a sense of what's important today.
That's right.
Yeah.
John, you are a long-term investor too. You're a value investor. You don't often get swayed by things that are happening in the immediate. I have to think that some of the things you've seen recently have been enough to make you sit up and take notice. Is there anything you've changed in the portfolio as a result of the potential credit crunch, as the result of just watching money move quickly out of places? Does it change your mind or change your investor's thesis at all for the short term?
The only thing that sometimes happens, like right now, the housing markets have been very weak. Higher interest rates have been troublesome and problematic for the housing industry. We've been leaning in some of the suppliers to the housing industry, some of our favorites, like Leslie's, for example, and Resideo, and people that are creating products for the housing industry. We think it's been overdone, and there's real bargains there.
You know, there's been a lot of commentary and, to some degree, a bit of angst about how narrow the index performance has been, at least recently or at times this year. We've talked about Apple's performance. A huge sway on the index is a handful of stocks really carrying the S&P 500. Where does that leave you as somebody who looks, you know, for smaller and less expensive, less popular stocks at the moment?
You know, you know, I've been fishing in the small- and mid-cap value world for 40 years, and I really think there's more opportunity than ever. There's these orphan stocks, neglected stocks that no one's looking at because they've been so focused on these giant, great, giant companies that have done so well.
What about Berkshire itself, in terms of how it's positioned? I mean, on the one hand, it's kind of eternal, right? The way it's structured and who it's managed by. On the other, I mean, if you look at what's in favor right now you know, aside from Apple, which is, you know, 20% of the market value of Berkshire right now, its stake in it is. You have, you know, consumer staples exposure. You have real capital assets that people seem to be wanting to have pricing power. Even on the insurance side, they're able to actually make a profit, interest rates being up perhaps a help to them. Do you see value in the shares themselves at this level?
We do. You know, when Warren makes the decision to buy back stock the way he has, he's so conservative, and so for him to make that bet, it gives you a really great sense that he sees the company as really undervalued, and we would agree. We think it's a great bargain here today.
Have you been buying?
I own it personally. You know, it's too big for my small or midcap value-
Yeah.
Portfolios at Ariel Fund. I haven't added to it in a while, but that's a good suggestion.
John, thank you very much. We always enjoy seeing you here, and we really appreciate your time this morning.
Thank you. Thanks for having me.
John Rogers from Ariel Investments. All right, Berkshire Hathaway's $11.6 billion acquisition a year ago of the property and casualty insurer Alleghany brought another diverse portfolio of brands under the Berkshire umbrella, including one of the fastest growing toy makers in the U.S. That's Jazwares. They make all those viral Squishmallows, and here at the meeting, they're actually selling special Warren Buffett and Charlie Munger Squishmallows this weekend. They come in 8-inch size and 16-inch versions. This is the first time they've ever made Squishmallows with a real human's face on them. We actually caught up with the company's CEO and chief commercial officer, Judd and Laura Zebersky.
We acquired a company called Kelly Toys.
Okay.
They were making Squishmallows. It's been around since 2017. We were fortunate enough to build the brand once we acquired Kelly Toys.
Because I mean, people compare this to things like Beanie Babies or to the Cabbage Patch Kids.
Yeah.
where each of these dolls has a story that comes with it. You guys are holding the special ones you have.
Yeah.
Yeah.
For this meeting of Warren and Charlie. The first time you've ever put a human face on one of these.
Yeah.
Yeah, it's the first time.
So what-
I think it worked out pretty good.
How did you come up with the storylines? Was that part of it too, or did you guys add to that?
Every Squishmallow has their own individual story.
Yeah.
When we acquired Kelly Toys, we saw that they had this almost diamond in the rough. People were passionate about it. It wasn't available everywhere. It wasn't available globally. The bios were always part of it and what made them really special because kids and adults all identified with something in the bio. Charlie and Warren both got their own bio that represented them as people, not just businesspeople, but the really interesting individuals they are.
One of the things that I think is so amazing, I mean, these are cool plush toys, but they're plush toys.
Yeah.
They're squishy.
Yeah.
They have become the most popular toy brand in 21 states.
Yeah.
They beat out Nerf, Play-Doh.
Yep.
They beat out Nintendo Switch and Hot Wheels. How does that happen with a plush? Have you guys been surprised by how they're taken off?
Of course.
Yeah.
Yeah. Yes. It struck a nerve during COVID. It was this palliative type of feel. People that were staying home, they bought more and more Squishmallows, and they fell in love with the product.
Yeah.
We're the number one best-selling toy in the U.S.
Yeah.
in many, many markets. I think what's interesting about it is our demographic. It's not just kids.
Yes.
It's adults. It's grown women. We did a Squish Squad tour, and we went to major cities, and we looked at the line, and we said, "Wow, there's not that many children in the line." That's the interesting part. People find it emotionally supportive. You know-
That was a big surprise to us.
Yeah.
People in their fifties are buying our Squishmallows. Wow. That's very unusual in the toy business.
Okay. When you found out you were being acquired by Berkshire Hathaway, your thought was?
Wow.
Wow.
What's happening?
Dream come true.
Yeah.
If you would've asked us 26 years ago if this would ever happen, we would say, "No way," but anything's possible in America.
Well, the interesting part is Berkshire didn't keep all the companies. I think there were some they kinda got rid of.
Yeah.
They saw you guys, and they chose to keep you.
You know, I remember last year we were watching.
Mm-hmm.
We knew the transaction was happening. We watched the annual shareholders meeting, and we said, "Are we gonna be there next year?
Well, in fact, I think they probably are gonna be here next year. I think the question is how much of the floor space they're going to get to negotiate, because those have been hot sellers.
They need more. Yeah.
A lot of people. Yeah, they do. We weren't the only ones who caught up with them, though. We were actually there a little later when Warren Buffett and Charlie Munger came by to visit the Jazwares booth right here in the exhibition hall. Here's a funny coincidence for you. Both of them, both Laura and Judd, were lawyers before they had this career. That's something they had in common with Charlie Munger, too.
Of course.
By the way, they were sick of it, too. They wanted a job that was a little more fun. Do you know they're both reformed lawyers?
Yes.
They both started out as lawyers.
Yes.
Well, I'm glad to see a reformed lawyer every time.
Yeah.
We are so happy to be a Berkshire client.
We're the worst lawyers.
You spend your days doing, going through purchase orders and that.
Yes.
Very useful work.
Charlie and I would like to see about 90% of the lawyers being reformed.
This is a pinch me moment for us because we remember, you know, Judd started the company by himself, no financing, no money, no backing, and just did it and worked hard. Of course, we had many bumps in the road, many, many, and it makes it that much sweeter, and we appreciate it, and we never forget how hard it was.
You're much smarter today than you were yesterday.
Yeah.
You've learned a lot.
I'm glad you were part of Alleghany.
Yeah.
Oh.
Thank you.
Are we.
Are we.
You can catch more of our interview with Judd and Laura Zebersky of Jazwares and some other sounds from inside the Berkshire Hathaway annual meeting in a special series of CNBC's daily podcast. It's called Squawk Pod, and you can just scan the QR code on your screen to go ahead and follow Squawk Pod. You can check it out and listen anytime.
All right, well, joining us now is the CEO of Benjamin Moore, Dan Calkins. Benjamin Moore has been part of the Berkshire portfolio for more than 20 years. Dan, good to have you.
Great to be back.
Hope you're enjoying the weekend so far. Eventful few years since you've been running the business.
Yes
... for Berkshire, for at Benjamin Moore. Housing boom in conjunction with the pandemic, then a downturn in home-related investment and improvement. Where do things stand right now? We got the inflationary pressures you've had to kinda deal with and pass through. What's your kinda snapshot of the business right now?
Well, we're in a great spot. We're actually celebrating our 140th anniversary this year at Benjamin Moore. We've been through cycles like this before, obviously. We'll be through this cycle, but it has been what we call Benjamin Moore chasing the new normal because we had explosive growth in 2020 and 2021, took a little bit of a step back in the fourth quarter last year, got off to a slow start this year, but at the end of March, we started to see light. We're going into the paint season, and people are seeing, they're starting to paint again, and we're seeing that in our numbers on a regular basis. Obviously, big driver for us is housing turnover, and with interest rates high, people not moving as much, that has an impact on our business.
As mortgage rates hopefully start to come down, we'll see more active moving, and that drives some more sales for us.
Just fixing things up.
Yeah, fixing.
Like a new coat of paint. We can't move, so new coat of paint.
Yeah, exactly. Yeah, you'll have people doing some remodeling if they're not going anywhere, but the big driver is the churn. Somebody moves, they paint.
Every room. Yeah.
Every room.
In terms of supply chain, I mean, paint coatings were particularly.
Mm
dramatically impacted.
Yes
You know, during the pandemic with a lot of the components in short supply. Where does it sit right now, and have you retained pricing? I was just looking in aggregate in the quarterly report that, you know, there has been some margin squeeze across the building products businesses in total.
Yes
which is not just Benjamin Moore.
Right. No, we definitely felt that. We're in a good spot now. Early last year, we had about 65 days of inventory at hand. Our historical average is about 95 days on hand. I'm happy to say at the end of March, we were at 96 days on hand. We're back to our historical norms from an inventory perspective. We have been able to take pricing over both 2021 and 2022. While we felt some of the pressure and compression last year, that's evening out now. We're recognizing the pricing we took last year in our sales this year, so things are good.
that implies that you haven't seen consumers sort of trading down or anything like that when it comes to paint?
Yeah. No, we have.
Okay.
We have. Some of it, particularly on the DIY side, we've seen some of our product mix shift from some of our more premium products to more of our mid-range products. But we have a full assortment, full portfolio that can meet all those price points that are out there. We're seeing some of that happening right now, and we hope to-
How much margin shrinks when somebody trades down? How much does the margin head down?
It's maybe 6-7 points from a, you know, premium product to more of a commercial type product.
Okay.
We have healthy margins at Benjamin Moore. We have one of the things Warren likes best about Benjamin Moore is that premium position we carry.
You know, there's a big picture, sort of long-term structural bullish story about homeownership.
Yes.
Actually, homeownership rates, ticking higher still even through this tough period.
Yeah
for the economy and this demographic wave that's washing over.
Right.
How are you thinking about, you know, expansion plans, your ability to capture a lot of that?
Yeah. We have been growing and expanding, not just here in North America. We've been very aggressive, particularly in the UK and in moving into Western Europe, which is a still small part of our business, but we haven't felt the impact over there because it's new territory for us. We have explosive growth going on over there right now, very exciting. Then here long term, you know, to your point about families being formed, that's happening with this generation that's coming into the housing market, and we just think this is a blip through this period of time. As that changes, we're prepared to service what we need to.
Guys, if you take a look, you'll see this is live footage. Warren Buffett is making his way out to the stage right now. Charlie Munger will be joining him as well. That means they're about to get to the end of the movie. They have a long movie, 45-minute movie that they show to the shareholders. That's what they're seeing right now. There you see Charlie Munger as well. They're being taken out to stage. That means things are about to kick off there. I'm gonna take my leave.
I was gonna say that also means you have a place to go.
Okay.
All right.
Mike, thank you.
All right.
I'll see you back in just a little bit.
We'll see you in a little bit, Dan.
Dan, great to see you.
Thanks so much.
Thank you.
Thank you.
We appreciate it.
See you.
Thank you very much.
All right. Well, insurance, of course, one of the big storylines in Berkshire's earnings this morning. Joining me now to discuss is Evercore's David Motemaden. He has got buy ratings on the likes of Travelers, Progressive, and Chubb from Evercore ISI. Dave, thanks for joining us this morning. We were just talking about how over the first quarter, Berkshire's insurance businesses, specifically GEICO, did make some moves on pricing kind of fattened up the margins, reducing advertising spend. It seems like maybe an industry-wide trend, but what's been happening overall in the competitive landscape when it comes to those insurance lines?
Yeah, thanks for having me. You are seeing just a massive hard market in the personal auto insurance space, and GEICO has actually taken, you know, fairly aggressive action on that front. You can see that, you know, the focus on profitability is really coming through in these results where their policies in force shrank 13%. You know, that's partly because, you know, their premium per policy, which is a good proxy for their price increases, you know, is up 15%, which is, you know, among the highest that I've seen. You know, Allstate was up 16%. Progressive was up, you know, close to that level. The entire industry is raising price.
For GEICO, it looks like they've actually seen, you know, their units come down quite a bit, and that's resulted in them having better frequency dynamics, which has, you know, really helped their earnings. You know, another thing I've noticed is, you know, they really cut their ad spend. They're really focusing on, you know, what people-
All right.
They're underwriting to focus on profitability.
Yeah. I appreciate that color, David. That was, that's great. We're gonna hear a lot more about that in the Q&A, in the shareholder meeting, and we're gonna actually get to Becky Quick and Warren Buffett and Charlie Munger for Q&A. We'll see you back here at 1:00 P.M. Eastern Time when Buffett and Munger break for lunch ahead of their afternoon Q&A session and the official shareholder meeting. They are taking the stage right now, as you can see, and we go there live.
Morning. Good morning.
Hey, Warren.
Thanks for coming. Omaha loves it. I love it. Charlie loves it. We're glad to have you here. We're gonna make this preliminary before the questions very short because we wanna get in at least 60 questions. Half divided by the audience outside this arena and half from you. I would just like to get right to the directors and the earnings that have been put up on our webpage this morning, but we'll cover those very fast, and then we'll get to the questions. When I woke up this morning, I realized that we had a competitive broadcast going out somewhere in the UK. They were celebrating a King Charles, and we've got our own King Charles here today.
Next to him, we have Greg Abel, who's in charge of all the operations except for insurance. Next. Next to Greg, we have a man I ran into in 1986, and has made us look good ever since. We have the man in charge of insurance, Ajit Jain. Ajit. Now we have our directors here in front, and if they would just stand briefly, and then I'll go on to the next one. They're all here today. First of all, going alphabetically, there's Howard Buffett. There's Susie Buffett. There's Steve Burke. Ken Chenault. Chris Davis. Sue Decker. Charlotte Guyman. Tom Murphy Jr. Ron Olson. Wally Weitz. And Meryl Witmer. That's as good as you can get.
There's one other person I would like to mention before we get on to the earnings that were put in the press release this morning. That's who we have here. We've got this. This is hard to believe. Can you imagine a name? Melissa Shapiro Shapiro. She was Melissa Shapiro till she married another Shapiro. She put this whole thing together with no help from me, no help from Charlie, and a lot of help from the people in the other room. Melissa. Yeah. It's very easy to remember her second name. You can remember her third name. Melissa Shapiro Shapiro. With that, I would like to next move on to the earnings and a couple small slides that explain what we're all about, and then we're gonna get to the Q&A.
The slide is up behind me? Yeah, there it is. We reported in the first quarter operating earnings a little over $8 billion. When we talk about operating earnings, we're basically referring to the earnings of Berkshire Hathaway as generally. Well, as required under GAAP, excluding, however, capital gains, both realized and unrealized. There's a few other very minor items, but basically, we expect to make capital gains over time. Why would we own the stocks otherwise? It doesn't always work out, but overall, it works out pretty well over time. In any day, any quarter, any year, even occasionally over a five-year period, the stock prices move around capriciously. Now, we own a lot of other businesses. We consider those stocks businesses. We own a lot of other businesses where they get consolidated, and they don't move around in value.
Now, if we had a little bit of Burlington stock outstanding, if we had a little bit of the energy stock trading, those stocks would move around a lot, but the businesses are what count. The operating earnings, as you'll see in the first quarter, came in at about $8 billion. I would say that in the general economy, the feedback we get is that I would say perhaps the majority of our businesses will actually report lower earnings this year than last year. In various degrees in the last six months or so, at various times, the businesses have left the incredible period, which is about as extraordinary as I've seen in business since World War II, where the government would pour out a lot of money to people who couldn't get goods.
It was more extreme in World War II, but this was extreme this time. It was just a question of getting goods to deliver and people bought, and they didn't wait for sales. If you couldn't sell them one thing, they would put another thing in the backlog. It was an extraordinary period. That period has ended. It hasn't ended with, as you know, it isn't that employment's fallen off a cliff or anything in the least, but it is a different climate than it was six months ago. A number of our man-managers were surprised. Some of them had too much inventory on order, and then all of a sudden, it got delivered, and people weren't in the same frame of mind as earlier.
Now we'll start having sales at places where we didn't need to have sales before. Despite the fact that this year, I think, in general, will be slower than last year, we actually are situated so that I would expect, and believe me, when I say expect, it's nothing is sure. Nothing's sure tomorrow, nothing's sure next year, and nothing is ever sure, either in markets or in business forecasts or anything else. We don't pay much attention to markets or forecasts unless the markets happen to offer something interesting to do. Nevertheless, we are positioned in two respects, as you'll see from this first report. Our investment income is going to be a lot larger this year than last year. That's built in.
I mean, we had, as you'll see in a minute, we've had $125 billion or so in very short-term investments. Believe it or not that long ago, we were getting 4 basis points, which is next to nothing on that $125 billion, which means we were getting $50 million a year. Now the same money the other just day or day before yesterday, we actually bought because of some funny twist in the market because of doubts about the deficit ceiling or the debt ceiling. We bought $3 billion of bills at a 5.90. That's 5.9. It was a 5.92 bond equivalent yield.
We will have what produced us not that long ago on a twelve-month basis, was producing $50 million a year, producing something in the area of $5 billion a year. We're in a position where the investment income is essentially, well, it is certain to increase quite a bit. Insurance underwriting is not. It does not correlate with business activity. It depends on things like hurricanes and earthquakes and other events. On a prospective basis, on a probability basis, we're likely to have a better year this year in insurance underwriting than we had last year. It just isn't affected by what you might call the business cycle or what applies to generally an industry, retailing, you name it.
I would expect one massive earthquake or one hurricane that came in at just the wrong place would affect that prediction. On a probabilistic basis, our insurance looks better this year. If you get two of those, two of the elements there of our main elements of earnings that look like they will swing in our direction, I would expect, but I can't promise, that our operating earnings will be greater than last year. If we move to the second slide, I give you those operating earnings figures just to give you an overview of what has happened since the pandemic started and of the year before as a base.
We retain all our earnings, as you know, so if we're retaining $30 billion or $35 billion or whatever it may be a year, you should expect more operating earnings over time. I mean, this number should be significantly higher 5 or 10 or 15 years from now because we have the advantage of retaining earnings, and that's what got us to these figures because they were essentially nothing when we started, and they got there by retaining earnings, and we'll keep retaining earnings. It's no great triumph if these numbers move up. What we hope is that they move up at a reasonable rate. Historically, they moved up at an unreasonable rate sometimes, but we were working with much smaller sums then, and that can't be repeated with our present capital base because I note there, I believe it's on this slide.
Let's take a look. Now that'll be. It's on the next page. Let's move to the next slide. We show that we had, on March 31st, $504 billion of GAAP net worth. Now what may surprise you is that there's no other company in the United States, no other company that has a number that is that large. That isn't because we've got the most valuable company in the United States. Other companies have used their money to repurchase shares. They could have accumulated $504 billion in GAAP, but basically, we have more under GAAP accounting now than any other company in the U.S.
Of course, if you measure return on equity, that becomes a very big number to increase at a rapid rate, but we hope to do so. Not a rapid rate, a decent rate. Right below that you see something called float. Float is money that is left in our hands, somewhat akin, but very importantly different than a bank deposit. It, you have to pay interest to get a bank deposit. You have to pay more interest these days, and you have to run a bank and do a lot of things. Basically, this is money that represents unpaid losses at this time. You get paid in advance in insurance.
What shows up as a net liability on our balance sheet gives us funds to exercise with an amount of discretion that no other insurance company that I know of in the world enjoys just because we have so much net worth. Our float now comes to $165 billion, and the man sitting on the far left is responsible for moving that number up from a pittance in 1986 to this incredible figure, which in most years, practically all years, hasn't cost us anything. It's like having a bank with no employees, no interest, and no ability to withdraw the money in a hurry that we have working for us. It's a very valuable asset that shows up as a liability.
Ajit is responsible for building up this treasure, which has been done by outcompeting insurance companies all over the world. Then now a number of our insurance companies in turn are run by talented managers who contributed one way or another, start with GEICO at the beginning of my career. At that float, if you think about it, just think of a balance sheet. You've got liabilities here, and you've got assets over here, and the liability side finances the asset side. It's very simple. Stockholders' equity finances it, long-term debt finances it, and so on. Stockholders' equity is very expensive in a real sense.
Long-term debt has been cheap for a while, but it can get expensive, and it can also become due eventually, and it may not be available. Float is another item that shows its liability, but hasn't cost us anything, and it can't disappear in a hurry. It finances the asset side in the same way as stockholders' equity. Nobody else thinks of it much that way, but we've always thought of it that way, and it's built up over time. I show at the bottom what's happened with cash and Treasury bills through March 31. I will tell you that in the month of April, we probably added about $7 billion to that factor. Now, part of that is because we didn't buy as much stock because that reduces cash and Treasury bills.
We bought about $400 million worth of stock in the month of April. That's a minus in terms of cash available. However, we sold net some stock which produced maybe $4 billion. Of course, we had operating earnings, probably $2.5 billion or something in that area. My guess is we probably increased our cash and treasury bills $6 billion-$7 billion in the month. I just wanna give you a feel for how the cash flows at Berkshire. Then if we move to the final one. I think it's the final one. Next to last one. I think it is the last one. Let's see, the fourth. Yeah. Is this? We should have the one up there, class A equivalent shares outstanding.
You'll notice that every year, the number of our shares go down. If we own more businesses and the businesses make more money, your share as shareholders, as owners of Berkshire increases every year without you laying out any money. Now you're laying out the alternative which you could receive in dividends, but the reason we've gotten to where we are is because we kept the money. We did pay a dividend in 1967, $0.10 a share. It was a terrible mistake. I always tell people that I'd left for the men's room, and the directors voted while I was gone, but that isn't true. I was there. I confess. We've reinvested, and it has produced the $500 billion plus of shareholders' equity and the $30 billion plus of operating earnings.
We'll continue to follow that policy because it makes a great deal of sense. With that, I think we've taken care of the preliminaries. You can study the 10-Q. It's on the webpage. If you have a week or two vacation, you could spend it reading the 10-Q. That is the essence of Berkshire. With that, I will start with Becky Quick, and we will alternate between Becky and the audience. Her questions have come in from all over the country, and I believe you identified the sender. Go to it, Becky.
Thanks, Warren. The first question comes in from Randy Jeffs in Irvine, California. His question is: If Silicon Valley Bank's deposit had not been fully covered, what do you think the economic consequences would have been to the nation?
Well, I would just simply say it would have been catastrophic. That's why they were covered. Even though the FDIC limit is $250,000, that's the way the statute reads, but that is not the way the U.S. is going to behave, any more than they're going to let the debt ceiling cause the world to go into turmoil. They...
I can't imagine anybody in the administration, in the Congress, in the Federal Reserve, whatever it may have been, FDIC, I can't imagine anybody saying, "I'd like to be the one on television tomorrow and explain to the American public why we're keeping only $250,000 insured, and we're gonna start a run on every bank in the country and disrupt the world financial system." I think it was inevitable. Charlie, do you have any?
No, I have nothing to add.
Okay. Well, incidentally, I should mention this now. Ajit and Greg will be here in the morning session, which ends at noon. If you've got questions to direct to them, the time to do it is in the first half of the show. Then, after lunch, it'll just Charlie and I will be back. Okay. Area one.
Hi. Neerav Patel, Haverhill, Massachusetts. Mr. Buffett, Mr. Munger, it seems like you found the sweet spot between being too conservative and too aggressive as investors. Do you ever make bad investment decisions because of your emotions? What do you do to try to keep that from happening?
Well, we make bad investment decisions plenty of times. I make more than Charlie 'cause I like to think it's because I make more decisions, but probably my batting average is worse. I can't recall any time in the history of Berkshire that we made an emotional decision. I know the movie had Jamie Lee in there, but that was for laughs. I mean, Jamie Lee, she's good, but she's not good enough to get me or Charlie to make an emotional decision. Charlie, I'm sure you have something to add on that.
Well, it's a different movie than is shown in most corporate meetings.
Yeah. Have we ever made an emotional decision?
No.
No. That's in business we're talking about. Yeah. No, you don't wanna be a no-emotion person in all of your life, but you definitely wanna be a no-emotion person in making an investment or business decision. You can argue that. I would say that we've made an emotional decision perhaps when a manager has been with us for some period, and we haven't. We've ignored the fact that perhaps they weren't quite what they were earlier. Our businesses are so good that they run better sometimes. I talked about Wesco, for example, the wonderful Louis R. Vincenti. It ran on automatic pilot for a while, but I don't think we suffered by it.
You can argue that if Charlie and I hadn't liked Louis as much as we did, we might have spotted it a little bit early. I don't think it made any difference in the results. Would you agree with that, Charlie?
Yeah. I agree totally with it. I'm glad we behaved the way we did at Wesco. By the way, we bought the thing for a few tens of millions, and it became worth $2-$3 billion.
Yeah. That wasn't common in the savings and loan businesses, you may have noticed. They really went crazy in that industry. We had a wonderful guy in Louis.
We didn't go crazy.
Yeah, we didn't go crazy. Okay, Becky.
This question comes from Ben Knoll in Minneapolis. He says he's a Berkshire shareholder of three decades, and he's attended many Berkshire meetings. He's here again this year. This is addressed to Ajit and Greg. He says, "Last year I asked you about how GEICO and BNSF appeared to lose ground to their leading competitors, GEICO on telematics and BNSF on precision scheduled railroading. Ajit, you responded by saying how you expected GEICO to make progress in a year or two. Greg, you spoke about your pride in BNSF, but you didn't directly address the threat of precision scheduled railroading. Will each of you please provide perspective on these competitive challenges and our company's strategies to address them?
In terms of GEICO and telematics, let me make the observation that GEICO has certainly taken the bull by the horns and has made rapid strides in terms of trying to bridge the gap, in terms of telematics and its competitors. They have now reached a point where on all new business, close to 90% has a telematics input to the pricing decision. Unfortunately, less than half of that is being taken up by the policyholders. The other point I wanna make is, even though we have made improvements in terms of bridging the gap on telematics, we still haven't started to realize the true benefit, and the real culprit or the bottleneck is technology. GEICO's technology needs a lot more work than I thought it did.
It has more than 500, actually more than 600 legacy systems that don't really talk to each other, and we are trying to compress them to no more than 15, 16 systems that all talk to each other. That's a monumental challenge, and because of that, even though we have made improvements in telematics, we still have a long way to go, because of technology. Because of that and because of the whole issue, more broadly, in terms of matching rate to risk, GEICO is still work in progress. I don't know if any of you had a chance to look at the first quarter results, but GEICO has had a very good first quarter, coming in at a combined ratio of 93 and change, which means a margin of 6 and change.
Even though that's very good, it's not something we can take to the bank because there are two unusual items that contributed to it. Firstly, we've had what is called prior year reserve releases. We've reduced reserves for the previous years, and that contributed to it. Secondly, every year, the first quarter tends to be a seasonally good quarter for auto insurance writers. If you adjust for those two factors, my guess is, the end of the year, GEICO will end up with a combined ratio of just south of 100, as opposed to the target they're shooting for is 96. I hope they reach the target of 96 by the end of next year.
Instead of getting too excited about it, I think it's important to realize that even if we reach 96, it will come at the expense of having lost policyholders. There is a trade-off between profitability and growth. Clearly, we're gonna emphasize profitability and not growth, and that'll come at the expense of policyholder. It'll not be until two years from now that we'll be back on track fighting the battles on both the profitability and growth front.
Greg?
Yep. Moving to BNSF. I'll start again by expressing great pride in the BNSF team. We have an exceptional group led by Katie and her managers that show up every day to do great work on the railroad. At the same time, they would be the first to acknowledge there's more to be done there. The specific reference to precision scheduled railroading, the other large railroad, Class I, railroads in the U.S. follow that, including the two in Canada. We're well aware of what they're doing and obviously pay close attention to their operating metrics. Our team strives every day to be more efficient, obviously. I would say we balance it with the needs of our customers.
If I look back to pre-2022, we look at the three-year period of 2019, 2020, 2021, the BNSF team made significant progress on their efficiencies and delivering overall value back to the shareholders and to their customers, and at the same time, maintaining a very safe railroad for our employees. We're making excellent progress. That didn't stop last year. They made great progress. Again, the reality in 2022 is we did go through a period of time where we had to, call it, reset the railroad. We came out of the pandemic, there were the supply challenges. We had certain other labor issues and other things going on at the port.
The reality is, our team prioritized getting the railroad back in place for the long term, not a short-term focus on hitting certain operating metrics in 2022. We're well aware of where we were relative to those metrics, but the real focus was to get the railroad reset in a safe manner, such that we could deliver long-term value and long-term service to our customers. That's really what we'll continue to see with that team. There'll be continual progress. There'll be years where it's not as quickly or even we go backwards, but over the long term, we'll be very. We'll see exceptional results from that team and couldn't be more proud that we have that asset. Thank you.
Well, both of them deserve applause. I would like to add one thing. At GEICO, Todd Combs was Ajit’s choice, my choice. Go back to GEICO to work on the problem of matching rate to risk, which is what insurance is all about. He arrived with exquisite timing right before the pandemic broke out, and all kinds of things changed. Todd is doing a wonderful job at GEICO, and he works closely with Ajit because he still has a home in Omaha. He comes back here, and we get together on the weekend sometimes too.
That's been a remarkable accomplishment under difficult circumstances, and he's not all the way home, but he's made a very, very big change in multiple ways at GEICO. Then one other thing I would like to mention, there have been a lot of public companies created in the last decade or thereabout in insurance. There's none of them that we would like to own, and they always started out in their prospectus saying, "This is a tech company, not an insurance company." Of course, they're a tech company. Everybody's, whether they're in insurance or a lot of other places, are using the facility, but you still have to properly match rate to risk. They invariably have reported the huge losses. They've eaten up capital.
There's been one company that nobody has generally heard of. There's only been one that I know of, a company started in the last 10 years that has been an overwhelming success, and that's a company that Ajit and 4 people who joined with him set to develop a new business. It's called Berkshire Hathaway Specialty. It now has. What's the float, Ajit?
Coming up to $12 billion.
Yeah. We've built more float than probably all these companies combined. We've now. It's cost us essentially nothing in terms of an underwriting loss. Four people have turned into, I don't know, 1,500 around the world. We took on the whole industry, and we brought some unique talent. The four people that came and now have, like we said, 1,500 or so worldwide. We brought capital, and we brought capabilities that really only Berkshire could supply. It was the combination of brains and talent and energy and money. No one has really successfully entered this space. Plenty of people in the space who didn't like us coming, and we did it without it costing us a dime of entry. It's been unmatched by any of the public companies that went public.
People have seen us do it, but they can't duplicate it. That's what Ajit has created. Peter Eastwood with us led this group, Berkshire Hathaway, especially. It's just remarkable. Anyway, with that, let's go on. Give him a hand for that. Okay, let's go to section two.
Hi, Charlie. I'm Warren. I'm calling here from Singapore.
I'm glad you got that in.
Okay.
Your priorities are right.
Yes. I have a question on AI and robotics. Here's my question. As AI and robotics continue to advance, what do you believe will be the positive and the negative impact of this technology on both the stock market and society as a whole? And are there any specific industrials and companies that you believe will be most impacted?
Karen, I thank you for asking Charlie that question. Well, if you went into BYD's factories in China, you would see robotics going in at an unbelievable rate. We're gonna see a lot more robotics in the world. I am personally skeptical of some of the hype that has gone into artificial intelligence. I think old-fashioned intelligence works pretty well. There won't be anything in AI that replaces Ajit. I'll state that unqualifiedly. It can do amazing things. You know, Bill Gates brought me out of the latest, maybe not the latest version, but one he thought maybe I could handle, which has to be careful with me in terms of leading me too fast. It did these remarkable things. It didn't, but it couldn't tell jokes.
Bill told me that ahead of time and prepared me. It just isn't there. You know, with things like checking all the legal opinions and all, you know, since the beginning of time and everything and eliminating all the chaff. I mean, it can do all kinds of things. When something can do all kinds of things, I get a little bit worried, and 'cause I know we won't be able to uninvent it. You know, we did invent, for very, very good reason, the atom bomb in World War II, and it was enormously important that we did so. Is it good for the next 200 years of the world that the ability to do so has been unleashed? We didn't have a choice.
When you start something. Well, Einstein said after the atom bomb, he said, "This has changed everything in the world except how men think." I would say the same thing may. Not the same thing. I don't mean that, but I mean they with AI, it can change everything in the world except how men think and behave. That's a big step to take. It's a good question, and that's the best answer we can give. Becky?
This question comes from Tom Seymour. He says, "The first sentence of a recent Financial Times article read, 'Charlie Munger has warned of a brewing storm in the U.S. commercial property market, with American banks full of what he said were bad loans as property prices fall.' Please elaborate on what's going on in commercial real estate. How bad will the losses be, and what sectors or geographies look particularly bad? I'll just add an addendum from another viewer who wrote in and wanted to know if Berkshire would be more active in commercial real estate as a result.
Well, Berkshire has never been very active in commercial real estate. It works better for taxable investors than it does for corporations taxed the way Berkshire is. I don't anticipate huge effects on Berkshire, but I do think that the hollowing out of the downtowns in the United States and elsewhere in the world is going to be quite significant and quite unpleasant. I think the country will get through it all right, but as they say, it will often involve a different set of owners.
The buildings don't go away.
The owners do.
Most people like to buy with non-recourse in real estate and one time I asked Charlie, there was some real estate guy we were talking to him and, you know, "How do they decide how much a building like this is worth?" The answer is, it's whatever they can borrow without signing their name. If you look at real estate, generally, you'll understand what the phenomenon that's happening if you remind yourself that that's the attitude of most people that have become big in the real estate business. It does mean then that the lenders are the ones that get the property.
Of course, they don't want the property usually, so then the real estate operator counts on negotiating with them and the banks tend to, you know, extend and pretend. There's all kinds of activities that arise out of commercial real estate development, which occurs on a big scale. But it all has consequences. I think we are starting to see the consequences of people who could borrow at 2.5% and find out it doesn't work at current rates, and they hand it back to somebody that gave them all the money they needed to build it. Charlie's had more experience in real estate. Charlie got his start in real estate, though. I mean, Charlie.
Yes. It's difficult. I like what we do better.
Well, as Charlie once said to me when I was leaving his house a few months ago, I was visiting him. We talked for a couple of hours, and I said to Charlie as I left. There wasn't anybody else in the house, and I said, "Charlie, I'll just keep doing what we've been doing." Charlie said, without looking up or pausing a second, he said, "That's all you know how to do, Warren." He was right, too. Station three, is it?
Hi. My name is Jala Zi. I'm from Santa Clara, California. My question is to Charlie and Warren. Given the rise of disruptive technologies that can improve productivity significantly, and AI being one of them, how do you envision the future of value investing in this new era? What adaptations or new principles do you think investors should adopt? Any recommendations for investors to remain successful in this rapid changing landscape? Thank you.
Well, I'm glad to take that one. I think value investors are gonna have a harder time now that there's so many of them competing for a diminished bunch of opportunities. My advice to value investors is to get used to making less.
Charlie has been telling me the same thing the whole time we've known each other. I mean, we get along wonderfully because
We are making less.
Yeah, well, that mostly, I think, is because it's larger.
We did better when we were younger.
Yeah. We never thought we could manage $508 billion.
No. We never did.
Or whatever, 5. Yeah. I would argue that there's gonna be plenty of opportunities. Part of the reason there are going to be plenty of opportunities, the tech doesn't make any difference or any of that. I mean, if you look at how the world's changed in the years since 1942 when I started, you'd say, "Well, how does a kid that doesn't know anything about airplanes and doesn't know anything about engines and cars and doesn't know anything about electricity and all that?" New things coming along don't take away the opportunities. What gives you opportunities is other people doing dumb things.
I would say that, well, the 58 years we've been running Berkshire, I would say there's been a great increase in the number of people doing dumb things, and they do big, dumb things. The reason they do it, to some extent, is because they can get money from other people so much easier than when we started. You could start 10 or 15 dumb insurance companies in the last 10 years, and you could become rich if you were adroit at it, whether the business succeeded or not, and the underwriters got paid, and the lawyers got paid. That creates. If that's done on a large scale, which couldn't be done 58 years ago, you couldn't get the money to do some of the dumb things that we wanted to do, fortunately.
I think that investing has disappeared so much from this huge capitalistic market that anybody can play in, but that the big money is in selling other people ideas. It isn't outperforming. I think if you don't run too much money, which we do, but if you're running small amounts of money, I think the opportunities will be greater. Charlie and I have always differed on this subject. He likes to tell me how gloomy the world is, and I like to tell him, "We'll find something." So far, we've both been kind of right. Charlie, wouldn't you budge an inch on that or not?
There is so much money now in the hands of so many smart people all trying to outsmart one another and outpromote one another at getting more money out of other people. It's a radically different world from the world we started in. I suppose it will have its opportunities, but it's also gonna have some unpleasant episodes.
They're trying to outsmart each other in arenas that you don't have to play. I mean, the if you look at that government bond market, if you at the Treasury bill market, I mean, you got this one bill that's out of line with the others. Went over $3 billion of it the other day. Those are people. The world is overwhelmingly short-term focused. If you go to an investor relations call, they're all trying to figure out how to fill out a sheet to show the earnings for the year, and the management is interested in feeding them expectations that will slightly be beaten. I mean, that is a world that's made to order for anybody that's trying to think about what you do that should work over five or 10 or 20 years.
I just think that I would love to be born today and go out with not too much money and hopefully turn it into a lot of money. Charlie would, too, actually. Just like me. He would find something to do, I will just guarantee you. It wouldn't be exactly the same as before, but he would have a big, big, big pile.
I would not like the thrill of losing my big pile into a small pile. I like my big pile just the way it is.
Well, we agree on that, incidentally. Okay.
Yes, we do. You're one of the most extreme lovers of the big pile.
Becky?
This question is for both Warren and Ajit. It comes from Jason Flocner in Livingston, New Jersey. He says, "In 2016, you entered into a very unique transaction with AIG, where you assumed up to $20 billion of liabilities in exchange for about $10 billion up front. Can you please provide us with an update on this transaction in light of the increase in interest rates? And then in Tokyo, just a few weeks ago, you talked about the risks of banks with assets that were susceptible to rising interest rates. Any insight as to how Berkshire liabilities are susceptible to duration would be appreciated.
Is that directed to Ajit or me or what?
Both.
Okay. Let me introduce it by one thing. Well, Ajit Jain is the key to this. He's the one that put the deal together. Look, we got handed $10 billion, we'll say. We weren't restricted to putting that into bonds. What the exact interest rate. Interest rates affect us to some degree, maybe in terms of the terms of the deal we did with AIG or anybody we would do a similar deal with like that. We don't have to put it in matching bonds or anything of the sort.
It goes into a general pool of assets which we manage, and the assets, you know, well, the liquid assets now are $130 billion plus, and but it goes in, so it, you know, it is not set aside in some little compartment like people like to think. Now, no other insurance company could do it, but they can't think that way. They aren't even used to thinking that way, but they can't think that way because they don't have our balance sheet. We account for 26% or something like that of the net worth of all property/casualty companies in the United States.
So far, the payments that we have had to make have run modestly, and Ajit will correct me on this if I'm wrong because he paid a lot of attention. The amount we have had to pay has run slightly below the amount we anticipated having to pay in terms of our share of the losses. It served AIG's purposes. It came to us, where we're in a unique position. There's nobody else that was able to write that, just like when we took on Lloyd's. I mean, Lloyd's said there was no choice other than Berkshire Hathaway when they essentially resuscitated their market by laying off a lot of liabilities on Berkshire Hathaway. We won't see those deals very often.
If they're for $500 million or something like that, somebody else will go in there and offer more money, and everybody's looking for money on Wall Street. If they start talking with a deal like the AIG deal, there isn't any other stop, no. Correct me on all my numbers there, Ajit.
No, one way to look at how the deal is performing since we did the deal is at the point in time when we did the deal, we had made certain projections of how much we will pay out each year. What we do is monitor what the actual payments are since the inception of the deal and how does that compare with what we expected to pay out. As Warren mentioned, these two numbers are very close to each other. More specifically, the actual payouts are 96% of what we had projected to pay out at this point in time. Which is good, but not great. We are still ahead of the curve.
If we do end up paying out less than what we projected, not only would we have borrowed money at a very attractive rate, meaning less than 4%, significantly less than 4%, in addition to that, we would have made a fee, which in 2015 dollars would be $1 million. We would have borrowed money at less than 4%, and we would have made a million-dollar fee, which is slightly more than what we were expecting to do. Net-net, we're very happy with the deal. We're happy we did it, but the game is not over. The total liabilities are coming down the pike every second day. I'm cautiously optimistic that the deal will work out better than what we expected it to work out.
Well, the really interesting thing is that within Berkshire, the casualty insurance companies have four times as much stockholder capital behind each dollar of premium volume. Four times normal. Of course, we see the big deals. Who would you trust if you had a big liability you want to dump on somebody? We have $25 billion or more coming in from things other than insurance, uncorrelated to insurance every year with no obligations. We don't pay dividends. If you pay dividends and, you know, you cut your dividend, try going around trying to write insurance the next day. I mean, it's a business where the people are counting on you to pay. When we take that $10 billion, we don't agree to put it in 5-year bonds and 10-year bonds. We don't even think that way.
The people who do business with us know that they have somebody like nobody else on those that's gonna be able to pay $10 billion, you know, no matter what happens to the economy. It's not only the presence of enormous strength in the insurance companies, it's the fact we got all these earnings that essentially come in every month, and we don't have a lot of debt. I mean, we have debt at the railroad and the energy level, but in terms of the rest of the operation, and we don't guarantee that debt, but it's plenty good. There just isn't another Berkshire. Ajit recognizes that when he's negotiating. Does the other party if the sums are big enough.
There's all kinds of people that love to get $500 million or $300 million, and they may think in terms of lending it out because that's what their insurance companies can do at a somewhat higher rate. That is not a game we play in, and we don't have any interest in playing in it. Okay. Station four.
Hello, I'm Marvin Blum, an estate planning lawyer from Fort Worth, Texas, home to many of your companies. In fact, Warren, I met you at the memorial for our beloved Paul Andrews, who was manager of TTI. I'd like to get your thoughts on a widespread problem in the world of estate planning, and that's the failure of most parents to prepare the next generation for the inheritance coming their way. In particular, if the estate includes a family business, most parents fail to do business succession planning to plan for who will run the business on the day when, not if, the founder is no longer there to run it. The kids aren't prepared, unlike King Charles, the other King Charles, not King Charlie Munger.
Sure.
Who has been preparing for his job as King of England now for more than 70 years. I sometimes describe the situation like this. Picture a football game. At one end of the field is a quarterback. He has great skills. He throws a beautiful pass to the other end of the field. At the other end of the field are the receivers. They've never been to a practice. They don't know the rules of the game. They don't know how to work together as a team. They're clueless. The quarterback is the patriarch and the matriarch. The football is the inheritance or the family business, and the receivers are the kids.
I got the
What are the odds that they're gonna catch the football and go score a touchdown?
Yeah. I'm
Probably only around 10%.
I've got the picture. I probably observed as many just because of my age and to some extent because of things like the Giving Pledge. I probably observed as many particularly wealthy families, the problems, and they all get very particular to the family. In my family, I do not sign a will until my three children have read it, understand it, and made suggestions. Now, my children are in their sixties, and that would not have been a great success if I'd done the same thing in their twenties. It depends on the family. It depends on how the kids feel about each other. There's all kinds of things. It depends on the kind of business you have. There's 1,000 variables.
I do think that it's if the children are grown and when the will is read to them, it's the first they've heard about what the deceased thought about things, the parents have made a terrible mistake. People have well, I've run into all kinds of situations, and some people don't tell their children anything, and some of them try and get them to bend to their will by using their own personal will. They make a million mistakes. That's one you don't get to correct. Now, certainly in my well, Charlie's had a lot of experience, too, with with.
Well, at Berkshire, we have a simple problem of estate planning. Just hold the goddamn stock.
That doesn't fit everybody, Charlie. I mean, you know.
No, it only fits 95%.
I don't know necessarily whether if you have billions of dollars, you wanna leave it to all your children. I mean, that's something.
Well, that's another question. If you're gonna place it somewhere, I'd just as soon as Berkshire stock.
Yeah. Oh, you're solving the investment problem for them.
Yeah, yeah.
You've got the personal problem of the fact that when they were four, one of the kids pulled the other kid's cat's tail or something like that. I mean, you're dealing with human beings, and the biggest thing you want is your children to get along. You want that all through your life.
Yeah.
The estate isn't the only place where you can mess that up, but it's a place where it's a very easy. I mean, I know a number of cases where the people did not know what was in the will, where there were huge sums involved. You know, within about 15 minutes, each one of them had a lawyer. You know, they don't get along since. It's important to handle it right. It's important if you want your kids to have certain values, it's important that you live those values. It's important that you talk about them to them or they're learning from you from the day they're born what you're really like.
Don't think that a cleverly drawn will substitute for your own behavior in teaching your kids the values you hope that they will have. Your will should be in conjunction with that. It should start expressing it, and they grow older, and then they learn to pass along their values in connection with the size of the estate. If there's family farms, it's one thing. If it's a bunch of marketable securities, it's something else. I know of one instance by a particularly rich fellow that once a year, he'd get his kids together and have a dinner and do all kinds of things to get them to sign their income tax returns in blank because he didn't want them to know how much money they had and everything. Well, that isn't gonna work.
I mean, I don't know what necessarily would've worked with him, but if you want. You know, but Charlie and I have said it. You know, if you wanna figure out how you wanna live your life, you write your obituary and reverse engineer it. I mean, you know, and Paul Andrews, incidentally, who you mentioned at TTI, lived as great a life as anybody I've known. He thought about these problems, and he came to me. He was 61, I think. Had all the money way beyond what he needed. Didn't care about it. He'd like to give it to people. He had all kinds of good things he wanted to do. He said, "For a year, I've been worried about my business, TTI." He said, "I've got all the money I need.
The family's got all the money they need. But what do I do with the business? These people have helped me throughout my life. He says, "I could sell it to a competitor. If I sold it to a competitor, they'd fire my people and keep their people when they put it together. If I sell it to a private equity firm or something, they'll be figuring their exit strategy as they sign the papers." He said, "So I've been thinking about it a year." He said, "It isn't that you're such a great guy." He says, "It's just you're the only one left." We bought it, and we lived happily ever after. That was a man that knew what life was about.
With that, let's go on to Becky.
This question comes from Don Glickstein in Seattle. He says, "Warren has criticized Norfolk Southern's handling of its train derailment, yet has been silent about BNSF's conduct. A federal judge ruled in March that BNSF intentionally and illegally violated an easement agreement on tribal land in Washington State by transporting long trains of crude oil. The same month the judge made his ruling, a BNSF train derailed on tribal land, spilling oil in an environmentally sensitive area. What is Warren doing to ensure that BNSF and other Berkshire subsidiaries fulfill their ethical responsibilities?" He says he's been a Berkshire owner for more than two decades, and he's concerned that Berkshire has no systems to identify and address what he calls reprehensible behavior at BNSF and other subsidiaries.
Greg?
It is a valid issue that our team obviously has been dealing with at BNSF. We did move crude across that tribal land. We had an agreement that allowed us to move X number of units per day. We did breach it. We went over it. There was some fundamental breakdowns there in that our team didn't understand the number of trains that they could move. We have had significant discussions with the tribe looking to resolve the issue, recognizing we obviously benefited from moving those trains, and those type of discussions will continue.
I would say, there's lessons learned there that we have to, when we make a commitment, understand what that commitment is and live by it or don't assume we can just move our trains as we wish or the cargo as we wish. We have to respect those agreements. There's been a lesson learned there, but at the same time, we've taken it very seriously and attempted to reach a resolution there. At some point I hope we do come to a true resolution that's fair both to the tribe and to BNSF. On the derailment side, we did have an issue around the train derailed. We worked very closely with the tribe to mitigate that issue instantly or at least over a very reasonable period of time.
They were very responsive. Our team was very responsive, and there were really no long-term environmental impacts to that spill. Our teams highlighted in other comments, obviously derailments do occur in the industry. We take them incredibly serious. They're not all hazardous, but irrespective of that, we're constantly looking at how do we prevent them? How do we detect them when we potentially have one that's going to occur? What do we do with our trains? Then ultimately it comes down to responding properly because they will occur. I think we have an incredibly dedicated team that's always ready to respond to the communities they're impacting.
There are derailments. How many a year?
Yeah. Well, there's 1,000 plus in the industry, though.
Yeah.
Yeah.
You start hauling freight and we're a common carrier. We take heavy, very heavy freight, and we take them at 100 degrees when it's weather, and we take it to zero and we go around curves and we have grades. Even a 1% grade, if you're going down a hill with, I don't know how much weight behind you. I mean, there are a lot of. Railroading is not an easy business. Of course, the systems were designed, you know, basically in the late 1800s, the mid to late 1800s. We have 22,000, I think it is, miles of track, and that doesn't count sidings and some other things. It is not an easy business. We'll make mistakes.
We're not making a mistake because we have a derailment. We will have the derailments 10, 20 years or 30 years from now. I mean, we have to carry certain products we wish we didn't have to carry. We're a common carrier. Do we like carrying chlorine and ammonia and all of that? No. They're gonna move from one place to another in this society, and we are a common carrier. We load them and if they select our railroad. We are better than we used to be, but we've got a long way to go. Is that a fair enough statement?
Absolutely.
Yeah.
Yeah.
Okay, station five.
Hi, Mr. Warren and Miss Munger. My name is Su Jing Hua from China, Zhuning Longdao Company. First of all, I'm so excited and very honored to be here today. My question is: With more and more people focusing on environmental protection and the government supporting the new energy industry as well, what are your thoughts on the continued development of new energy? How may the new energy firm achieve better development in future?
Yeah. Well, Greg Abel, I think is the best to answer that because he since we bought a company called MidAmerican, but now called Berkshire Hathaway Energy. He has been talking about it yearly, preparing reports hoping that we can help solve a number of the problems. We probably spent more money than any utility, I would guess, in the United States.
Absolutely. Yeah.
We've just scratched the surface. It is not easy when you cross state lines. I mean, you've got different jurisdictions, and this country should be ahead of where it is in terms of transmission. We have been the biggest factor in helping that. Why don't you tell them a little bit about it?
Sure. Thanks, Warren. There's no question there's an energy transformation going on around the globe. As Warren touched on in the U.S., and in some ways, I would hope here in the U.S., it would be we'd at least have a plan, a clear plan across the nation as to how to approach that. The reality is it is state by state, with some exceptions. As a result, when you think of Berkshire Hathaway Energy, we own 3 U.S. utilities there. They all participate in multiple states, but they're developing plans state by state and then trying to integrate them across the various states.
The opportunities are significant because there is a transformation going on. We've outlined our goal on where we're going relative to carbon at BHE, where they'll, by 2030, reduce their carbon footprint by 50% relative to 2005. That's the Paris Agreement and the standard they wanna hold the utility industry or the utility companies to. We're well on that path, but to achieve it is a true journey. I've often talked to Warren, when we bought PacifiCorp back in the mid-2000s, we immediately recognized to build a lot of renewable energy like we'd been doing in the Midwest and Iowa, but that was basically in a single state. Now, PacifiCorp, we're in 6 states. We started that back in the mid-2000s.
Here we are. We laid out a great transmission plan. Here's how we're gonna build it, here's how we're gonna effectuate it, and all the benefits for our customers over that period of time. Here we are in 2023. We have a little more than a third of that. At the time, it was a $6 billion transmission project. Today, we have a little more than a third of it built, and we've spent probably closer to $7 billion. It's the right outcome. It's still a great outcome for our customers, but that transmission, as part of the transformation, you absolutely have to build it to move all that renewable energy. That's sort of the complexity Warren was highlighting. It is a. You can't just wake up one day and solve this problem.
You start with transmission, and then you build the resources. At that same company, if we look at what we're doing across BHE Energy and that energy transformation, we have $70 billion of known projects that are really required to properly serve our customers and achieve that type of energy transformation across those utilities. That's in the coming 10 years. We have a team that's absolutely up to the challenge. They're delivering on their commitments, and it's a very good business opportunity for each of our companies and for our shareholders. 'Cause as we deploy that capital, we obviously earn a return on equity of it. It will be a long journey. It'll happen over an extended period of time.
The further you get out there, the more dependent upon the evolution of a variety of technologies that are progressing, but not there yet.
You've raised a question. I wanna just take an extra minute on it 'cause it's so important. I don't really know whether our form of government is ideal at all in terms of solving the problem you describe. We have solved it one time. In World War II, we took a country that was semi-limping along, and we found ourselves in a World War. What we did in a World War is we brought a bunch of people to Washington at a dollar a year. You know, whether it was Sidney Weinberg or Goldman Sachs, you just name them. We gave them enormous power to reorient the resources of the United States to face the problem that they faced, which was to create a war machine.
What they did was they found Henry Kaiser, you know, and told him to build ships, and they went to the Ford Motor Company and said, "You build tanks and some airplanes." They reordered the industrial enterprise of the United States in a way that was unbelievable because they had the power of the federal government, and they had the ingenuity of American business, and they had the facilities of American business, and it led to a very successful outcome. Can we do that in a peacetime where you've got 50 states and you have to get them to cooperate, and you don't have anyone that you can issue orders, but you can't designate where the capital goes at the other end.
You know, we try and do it with tax incentives and all that sort of thing, but we haven't created the unity of purpose and the machinery that worked in World War II, where essentially everybody felt their one job was to win the war, and we figured out how to use our industrial capacity to, in effect, defeat the Axis powers. How do you recreate that with, you know, the present democratic system? I'm not sure I know the answer, but I sure know the problem. I think that if you've got an emergency on your hand, I mean, you really need to re-engineer the energy system in the United States.
I don't think you can do it without something resembling the machinery, the urgency, whatever. The capital is there.
Yeah.
The people are there. The objective is obvious. We just don't seem to be able to do it in peacetime where we're used to following a given set of procedure. You know, China's got one country, and we've got 50 states, and we got a whole different system of government that we should be up to the test, but so far it hasn't worked. Thank you for the question. Becky?
This question comes from Chris Freed in Philadelphia. He says, "We know that Greg Abel and Ajit Jain are the next generation of Berkshire leaders. Who are currently behind Greg and Ajit in their respective roles?
Well, Greg will be, absent some extraordinary circumstances, but he's gonna succeed me. Then he will be sitting in a position where he needs his equivalent or something close to the equivalent because he's better at many things than I've been. He will need that substitute. When the question comes where we know Ajit's opinion on that, but Greg will probably be the one that will make the final decision. I mean, it's his responsibility. Ajit will give him his best advice, and I think the odds are very high that Greg would follow it. But those are not easy questions. It isn't like we've.
Everybody talks about the executive bench and all of that sort of thing, which is baloney. I mean, you know, you don't have that many people that can run the largest by net worth company and all kinds of diverse businesses. You don't need five people either. You need a lot of good operating managers, and you need somebody at the top that allocates capital and make sure that you've got the right operating manager. We've designed something where we separate the insurance and the rest of the business, and I think it's a very good design. We wouldn't be smart to name that decision now about the two different areas of the business because a lot can change between now and then.
The most likely change is that this job changes. Charlie?
I've got nothing to add. We have a lot of good people that have risen in the Berkshire subsidiaries. There's a reason why our operations have by and large done better than other big conglomerate companies. One of them is that we change managers way less frequently than other people do. That's helped us.
When Paul Andrews died, we knew who he thought should take over there, but there wasn't any reason to announce that. I mean, Paul Andrews would have. I wish he'd lived to be 100. We had one of our managers die not long ago, and how old was he, Karen?
Yeah, mid-1990s. Seymour.
Yeah. Seymour Lichtenstein. Seymour, I wrote him a letter when he was 80, and I said, you know, "I'm glad you're 80, and I'll write you again when you're 90." I wrote him again when he was 90, and he didn't make it to 100. He had a terrific following him, and they really managed it jointly to some extent as the years went by. It's case by case. Main thing to do is have the right person running the whole place. Okay. Station six.
Good morning. My name is Hach Okamoto. I'm from Miyazaki, Japan. Mr. Buffett, I was one of the 8,000 employees at Salomon Brothers that you saved. I was younger back then. I was working at Seven World Trade Center. I've always wanted to thank you in person for saving the company, its employees, including myself and my family. Thank you, Mr. Buffett.
Thank you. Thank Deryck Maughan, who actually had been over in Japan before that and who I met for the first time the day before I put him in. It wouldn't have worked if Deryck hadn't come. Whatever you taught him in Japan, thank you.
Thank you, sir. Now my question. From time to time, you have reminded us to not bet against America. What do you think are the most important things for U.S. to remain strong? On the risk side, if the strength of the country is undermined, what could be the reasons?
Well, we've had a lot of tests. I mean, we're such a young country. You know, when you think about Japan and you think about the United States, it's just incredible how new we are to the block. I mean, you know, what are we, 234 years old since we started. That's nothing. I mean, you know, Charlie and I combined are two-thirds of the life of the country. We've lived two-thirds of the life of the country. I mean, it really has. I mean, we've been tested at 46 national elections, but we've made some bad choices, and we've had a civil war. I mean, it.
The country has had enormous advantages, though, in some way because we started with 0.5% of the world's population in 1790, and we now have something close to 25% of the world's GDP. It wasn't because we had some incredible advantage in terms of the island. It was nice to have two oceans on each side back when people tried to rule the world by ruling the waves. You know, we had good neighbors in Canada and Mexico, but it's a miracle. You say, how do we keep the good parts of this system while culling out our obvious defects? We do it in a very herky-jerky manner. Net, United States is a better place to live than it was when I was born by a huge factor.
I mean, I just got a root canal a week ago, and I was just thinking, I don't know who even invented Novocaine, but I'm for him. You know, I mean but in a million ways, I mean, you can romanticize about the past, but forget it. It is work, but now we do have an atom bomb, and we wish nuclear power, you know, we wish the atom had never been split, but it has been, and you can't put it back in the bottle. The challenges are huge. Our government always looks. You know, my dad was in Congress back in the 1940s, and it looked like a mess then, you know. It although it was unified by the war to some degree, but it was still very partisan.
Now, the problem we have, I think, is that partisanship, it seems to me, has moved toward tribalism, and tribalism just doesn't work as well. I mean, when it gets to tribalism, you don't even hear the other side, and tribalism can lead to mobs. I mean, it just flows. I mean, you've seen it elsewhere. We've seen it to a degree here. We have to refine, in a certain way, our democracy as we go along, and we deal with the world we live in. If I still have a choice of any place to be born in the world, I'd want to be born in the United States, and I'd want to be born today. I mean, it's a better world than we've ever had.
With present-day communications, we can all see much more how terrible it is in many ways. It's got problems. When I was born in 1930, there were 2 billion people in the world, and now there's maybe 7.7 billion and growing. We went millennia with really no change in population. Of course, we've introduced energy into in an incredible way into something where we now have 7.7 billion people using way more energy than they did when I was born, when there were 2 billion people. It's an exciting world. It's a challenging world. I you know I don't know the solutions on things.
I do think that we do need to think about different solutions in terms of how we get important problems solved and that we don't kid ourselves that something magic will happen or that everybody will get together, and we'll all just cheer and it'll go away by 2050 or any. How well we adapt to them, we will see. I would say so far it doesn't look very promising, but then I'm sure that when Lincoln looked out at what was going on in the Civil War, it didn't look very promising either. I think that the U.S. is capable of doing remarkable things, and I think it wouldn't surprise me if they do it again. Charlie Munger, are you? Pardon.
Well, I'm slightly less optimistic than Warren is. I think the best road ahead to human happiness is to expect less. I think it's gonna get tougher. I think the solution of having a huge proportion of the young and brilliant people all go into wealth management is a crazy development in terms of its natural consequences for American civilization. We don't need as many wealth managers as we have.
Charlie was born on January 1, 1924, and you'd hate to go back to that, wouldn't you, Charlie?
Yes, I would. I like more wealth managers who are just merely reflecting the fact there's more wealth. But I don't like everybody going into wealth management or MIT or something. It's, I think, the world's a little crazy now.
Take your choice. Okay, Becky.
This question comes from Dennis DiGennaroro. As Warren stated in the 2022 annual report, Berkshire will always hold a boatload of cash in U.S. Treasury bills. It will also avoid behavior that could result in any uncomfortable cash needs at inconvenient times, including financial panics and unprecedented insurance losses. After Warren passes away, his A shares will be converted into B shares and distributed to various foundations. These foundations will then sell the shares to fund their causes. Warren estimates it will take 12-15 years for all his shares to be sold.
I worry that a corporate raider like Carl Icahn or a group will buy up enough of these shares to take control of Berkshire and completely disregard Warren's philosophy of holding a lot of cash in U.S. Treasury bills and instead be greedy, reckless, and highly speculative and ruin Berkshire's position as a rock-solid financial fortress. I also worry that changes might be made in how Berkshire's subsidiaries are run. Do Warren and Charlie worry that these things could happen?
I think it's fair to say we think about it plenty, but I don't worry enormously. It is true that Greg and the directors will have a honeymoon period for a long time because simply because of the moats that will still remain. It's true that eventually they will get judged based on how well our operation fares versus others. Now, if we don't pay any dividends in 12 or 15 years, you're talking $1.5 trillion that it would take to take over. I think if we can't. That limits the group. They like to think about how much they can borrow against it and all that. It doesn't work when you.
Some of these, there's nobody that could come close to doing it themselves. I think that the important thing is that Berkshire be regarded as a national asset rather than a national liability. We've got to be a plus to the country with our form of operation, and we certainly have got a record which will then be 12 or 15 years longer, done with much more capital, more companies, more things will have happened where our hundreds of billions can work its way into the economy in terms of lots of jobs, lots of products, lots of behavior, and it can be compared with other things. I think we win out if we deserve to win out, and I think the odds of that happening are very, very, very high. Charlie?
Well, I don't spend much time worrying about something that can happen 50 years ago and after I'm dead. I think if you sort of take care of each day's responsibilities pretty well and think ahead as well as you can, then you just take the results as they fall. I'm philosophical, but I didn't spread it unnecessarily.
Okay. Neither one of us are worried, basically. We plan. We do plan. You know, I've got a model in my mind of what Berkshire has been. It's been modified plenty of times over 58 years. The one thing I knew initially is, or very quickly, was it shouldn't be a textile company. That was an important decision. I mean, we've just played the hand as it come along, and we made a few really good decisions, and we'll never make a decision that kills us. The only things that are a threat to the planet, we don't have any answer for those. We keep ourselves in better shape than anybody else that.
We just aren't going to have big maturities of debt that come along. We aren't going to have insurance policies that can be cashed in en masse, and we will sit with a large, what looks like a huge amount of capital, and well, it is a huge amount of capital. There's a huge amount of earning power. There's a huge amount of diversity, everything. Our business model will be graded, and it'll be graded against a lot of, a lot of people that we'd like to be graded against. I think we're handing something very secure over to the future, and I think we've got the shareholder base like nobody has. I mean, there isn't anybody in the country that I know of unless they'd had an employee-owned company prior to going public or something of the sort.
This is the product of, you know, 58 years of regarding the shareholder as the owner of the company. What does that mean? That means having happy customers. It means being welcomed by your community rather than having them turn you away. It means that the government feels better with you if there's a financial crisis because you can provide something that actually the country can't under some circumstances, and you'll be there. At the same time, it'll be good for the business. We will have crises of one sort or another.
If they aren't challenging the planet, which worries you in terms of some of the threats that we have, we'll be a plus for the United States, and if we're a plus for the United States, we'll survive. Okay. Station seven.
Mr. Buffett and Mr. Munger, thank you for having us this weekend. My name is Beau Clayton, and I'm from Durham, North Carolina. One of the reasons that we are all here is that you're great storytellers, and we carry those stories back home with us. Can you please share a couple stories that maybe we haven't heard before about Mr. Abel and Mr. Jain that capture their character and their caliber as leaders?
I'll start out with Ajit Jain. He walked into the office in 1986, and I'd gotten the bright idea of going into the reinsurance business, I think, in maybe 1969. I'd stumbled along for 17 years. I had a wonderful guy that ran it. But he also liked certain brokers. I mean, it. He was running it the traditional way. The top quality and everything else, but he fell into the. He didn't try and change the system. He tried to improve the system and to some degree. We just went nowhere. 17 years wandering around in the wilderness, and I thought I was, you know, I knew we could have something good.
Ajit came in on a Saturday, Michael Goldberg had steered him in, I think. Mike deserves to be enshrined in perpetuity for that act. I talked with him a while. I think maybe I was opening the mail on Saturday while I talked with him. He had absolutely zero experience with insurance, but he'd actually seen a good bit of how corporate America operated because he'd been in management consulting. After talking with him, I knew I'd struck gold. I hired him and gave him the backing of some money. We had a very good period in the market almost right away for him to act.
Ajit, you know, if I had the top pick of 10 insurance managers in the world, I could take all 10, and they wouldn't. You can't replace Ajit. We still enjoy talking. We don't talk as frequently as we used to, but we used to talk every day. He's one of a kind. You know, if they're gonna stick around long enough, you only need one of a kind. Paul Andrews stuck around at TTI, had all the money in the world. Every time I talked to him about getting a raise or something of the sort, he said, "We'll talk about that next year." He was not what you get when you get the top draft picks from the leading business schools.
I will say this, I have never looked at where anybody went to school in terms of hiring. I mean, I just. Somebody mails me a resume or something, I don't care where they went to school. It just so happens that Ajit went to some pretty good schools, but he isn't Ajit because he went to those schools. Charlie, do you have to tell a story or two? How'd you find Louis Vincenti?
Well, he was there. I
You got to recognize him.
I asked Louis once how he managed to play first-string football at, I think, Stanford when he only weighed 165 pounds. He said, "Well," he says, "I was pretty quick." He was pretty quick, but we have found a lot of people within our companies who were pretty quick. It's.
Yeah, we had one guy that quit at fourth grade, Ben Rosner. Am I wrong on that?
Oh, yeah. Totally self-educated. Ben Rosner knew more about retailing in difficult neighborhoods than anybody. He watched everything in his business like a hawk. He was amazing. Now, there was an example. We never found anybody who could do what, when Ben died, that skill, that ability left us.
Yeah. Yeah, you want a story. It's kind of interesting because Ben Rosner had a partner, Leo Simon. Leo Simon was Moe Annenberg's son-in-law. Leo, therefore, was very wealthy. Ben started with nothing, but they liked each other. One time, well before they got involved in the business we bought, they got the idea of buying a submarine from World War I and taking it to the Century of Progress or the World's Fair, in effect, in Chicago, I think in 1933. They bought this submarine for practically nothing. They figured, you know, the average guy from Omaha was going to his first World's Fair, get into a submarine for a quarter or something, that they'd pay it.
They hauled it from Florida or wherever they got that, hauled it to Chicago. Then they got into Chicago, and they were hauling a submarine down the streets of Chicago. It was creating traffic problems like nobody could imagine. A cop came over, and he said to Ben, he says, "Where do you think you guys are going with that submarine?" Ben says, he says, "Well, I don't..." He says, "You'll have to talk to my partner, Mr. Capone." The cop says, "You're on. I'll just keep going." That was Ben Rosner. Then Leo Simon died. When he died in 1967 or so, Ben Rosner kept delivering half the profits to his widow, who was incredibly rich, of course, being Moe Annenberg's firstborn daughter.
I think Mo had nine girls in a row before Walter came along. The chance I may be off by one, but anyway, I went to this fancy apartment. Anyway, Ben kept her in for half the deal, and he had her sign the rent checks just so she would look like she was doing something in this business. She didn't need the money, obviously, but he just felt he was obligated once his partner, Leo, died. Then she started criticizing him. At that point, Ben went to her, his lawyer. Well, it was her lawyer, actually, Will Felsteiner. I don't know whatever happened to Will, but he gave me a call because Ben wanted to call me because he wanted me to buy it, and he wanted me.
If I bought it, he'd be rid of the ex-partner's wife. He had me and Charlie come back, and we went to Will Felsteiner's office. Ben says, "I'll work till the end of the year, and that's all. But I'll sell you this thing for $6 million, and I have $2 million of cash and a couple million of real estate and a couple million of operating earnings." I go, "This is crazy." He felt if he was getting a lousy price, she was taking a half of the lousy price for half the money. He looked at me at some point. Charlie, you describe the rest of it. You're not gonna get
He said, "I heard you're the fastest draw in the West." He says, "Draw.
We're in a New York lawyer's office.
Yeah.
This guy is selling his baby, and he told us he was leaving. I got Charlie on the side. I said, "If this guy leaves at the end of the year, you can throw away every psychology book that's ever been written. I mean, it isn't gonna happen." We bought it, and we lived happily ever after with Ben. One time he was taking me over to see a property we had in Brooklyn. Along the way, I said, "Ben, you know, I promised you I wouldn't interfere in the business when we started." He knew a but was coming, and he just said, "Thank you, Warren," and then shut me up. He was a lot of fun.
We had so many Ben Rosner stories, but now you've heard one that hasn't been published before. Okay, Becky.
This question comes from Chai Gohil. He writes, "This is for Ajit. Reinsurance industry is going through one of the hardest pricing environments in the last 15 years. Berkshire historically has participated during these stressed times when economic returns are very attractive. This year, it appears Berkshire has not been interested in deploying its resources towards property cat reinsurance despite such strong returns. Can you elaborate on reasons for not participating despite these returns? Your broader view on how you're planning to shape your reinsurance business post-acquisition of Alleghany.
Okay. In terms of Alleghany, that's an easy response. We treat our operating units independent of each other, and as far as Alleghany is concerned, they have a major presence in the reinsurance business under the brand name of TransRe. That company will operate the way it's been operating in the past. There'll be no change in terms of strategy or management, and they will keep doing what they're doing. They've been very successful, and hopefully, they'll keep being successful. Now, in terms of the property cat business that I have been active in over these last several years, you are right that the last 15 years has been a difficult time. Prices have not been attractive. Even though we have had some presence in the property cat business in the last 15 years, it really is been minimal.
This December 31st, which is a big renewal date for cat reinsurance, we were hoping that we would get a few days in the sun and we'd be able to deploy our capital and be able to write some fairly attractive business. As it happened, towards the end of December, till about the third week of December, I was very optimistic that we would get a chance to put $ several billion on the books. In the last 10 days of December, unfortunately, a lot of capacity came out of the woodworks. Pricing that we were expecting to realize didn't really come and meet our pricing requirements, as a result of which, January 1 was a big disappointment. We did not write as much as we were hoping to write. Now, fast-forward to April 1, which is another big renewal date.
We had a lot of powder dry, and we were lucky that we kept the powder dry because April 1, suddenly prices zoomed up again a lot higher than what they were on January 1 and started to look attractive to us. Now we have a portfolio that is very heavily exposed to property catastrophe. To put that in perspective, our exposure today is almost 50% more than what it was 5, 6 months ago. You know, I think we have written as much as our capacity will allow us to write. We are very happy with what we've written. The margins have been healthy.
The only thing that I want to mention to you is that while the margins have been healthy, we have a very unbalanced portfolio. What that means is, if there's a big hurricane in Florida, we will have a very substantial loss. As opposed to that, if we have a very big loss anywhere other than Florida, relative to our competition, we will have a much smaller loss. Net-net, I'm very happy with the portfolio. It is a lot better than what it's been in the past. I don't know how long it'll last and, of course, if the hurricane happens in Florida, we could lose. Across all the units, we could lose as much as $15 billion. And if there isn't a loss, we'll make $several billion in profit.
Ajit Jain, tell him how long. When you called me and said you'd like to expose us to whatever it was, $2 billion more of exposure. How long I took to say yes.
Yeah. So the way we think about our exposures, you know, in the property, in the insurance operations collectively across the entire company, given that we have about a little less than $300 billion of GAAP capital, we think of that as a 55% exposure that you're willing to take on. To complete Warren's story, a few weeks ago, we had about $13 billion of exposure all across the globe. I called up Warren, I said, "We're up to thirteen. It'll be nice if we can go up to fifteen. That's a good round number." That was less than a 30-second phone call. I think Warren said yes without even listening to what the numbers were.
I hope he calls me again. Okay, station eight.
Hello. My name is Adalberto Flores, and I've been a shareholder for about 16 years, and I'm coming from Guadalajara, Mexico. My question is for Warren and Charlie. Companies have the eternal dilemma between building products that can make profits and increase their company competitive position. In the best case, you can build products that have both characteristics at the same time, like Google did, but most of the time, companies need to choose between short-term profits and long-term defensibility. For example, Amazon was focused on building their famous Amazon flywheel with limited profits initially in order to obtain stronger network effects with the hope of getting more defensible profits in the future. When you invest, you constantly speak about the importance of building competitive moats. What advice would you give to CEOs about how to balance this dilemma, which is essentially short-term profits versus long-term defensibility?
Thank you.
The answer to control your destiny, which we've been able to do at Berkshire. We feel no pressure from Wall Street. You know, we don't have investor calls. We don't have to make promises. We get the chance to make our own mistakes and occasionally find something that works well. We recognize that the people in this room and people like them are the ones we're working for, and we're not working for a bunch of people that care about whether we meet the quarter estimate or anything. We have a freedom that we get to use, and we're interested in owning a wonderful business forever. There aren't very many wonderful businesses. We do learn a lot as we go along.
Charlie and I have often mentioned how we learned so much when we bought See's Candies, which we did. We learned when we bought Ben Rogers' chain of women's dress shops spread all over the eastern part of the country. We learned when we tried getting into the department store business back in 1966, and as the ink was drying on our purchase price, we realized we'd done something dumb. We're learning all the time how consumers behave. I'm not gonna be able to learn the technical aspects of businesses, but that'd be nice if I knew it, but it isn't essential.
You know, we are obviously, we've got a business at Apple, which is larger than our energy business, and we may only own 5.6%-7%, but our ownership goes up every year. I don't understand the phone at all, but I do understand consumer behavior. I know how people think about whether to buy a second car. I know why they go out. We own auto dealerships. We own it. We're learning all the time from all of our businesses how people react to Garanimals versus, you know, selling them something else.
See's was a sort of breakthrough, but it just we just keep learning as we learn more about how people behave and how a good business can turn into a bad business and how some good businesses can maintain their competitive advantage over time. We don't have some formula. The Berkshire people are. We just. We can also tell in 10 seconds whether it's something of interest. I mean, when, you know, I get these calls, and they wanna send decks and all that sort of thing, which is nonsense. I mean, it's a bunch of guys sitting around that get paid for drawing up these projections of the future and everything like that. If they knew the future, they.
You know, we don't know the future, but we do know certain kinds of businesses. We know what the right price is, and we know what we think we can project out in terms of consumer behavior, and threats to a business. That's what we've been about, and that's what we'll continue to be about. We don't get smarter over time. We get a little wiser, though, following it over time and you can do it while sitting in the office with a telephone, too, which we like. Charlie?
Well, tell them the story of the Japanese investment. That should be told again. That's a nice story.
You know, well, it was pretty simple. I mean, I you know, other In fact, when I started, other people were going through Playboy, and I was going through Moody's, you know, basically. There's a movie out called Turn Every Page, which I saw again for the second time a couple of days ago. Lizzie Gottlieb, and I recommend everybody in this world watch that because I turned every page in the past. I did it for thousands and thousands of pages in Moody's, and I did it at the Department of Public Utilities in Boston. I did it in the insurance department. You just kept turning pages. Well, that goes on for a while, but now we need big ideas in order to find things. What was your question, Charlie?
Tell them about the Japanese.
Well, the Japanese thing was simple. I mean, You know, I like looking at companies. I mean, I like looking at figures about companies. Here were 5 very, very substantial companies, understandable companies. Most of them, maybe all of them, we'd done business with them in 12 different ways. If you go a couple of miles from where this place is, our last coal generating plant was built by one of the companies. So here they were. They were sitting as a group where they were earning, we'll say 14%, on what we were gonna pay to buy them. They were paying decent dividends. They were gonna repurchase shares in some cases. They owned a whole bunch of businesses that we could understand as a group, although we didn't mean we had deep understanding on any.
We've seen them operate and everything. There wasn't anything to it. At the same time, we could take out the currency risk by financing in the yen, and that was gonna cost us 0.5%. Well, if you get 14% on one side and 0.5% on the other side, and you've got money that you know forever, and they're doing intelligent things, and they're sizable. We just started buying them. I didn't even probably tell Greg until maybe six months after we'd gotten going. Then when we hit 5% in all of them, we announced on my birthday and at ninetieth that we owned over 5%, and recently went over for the first time to visit with them. We were more than pleasantly surprised, delighted with what we find there.
Now we own 7.4% of them. We won't go over 9.9 without their agreeing, and we sold another JPY 164 billion, whatever it is.
What it would have done for us if we only had $5 billion or something and it made $10 billion simply in that way.
Yeah.
We would look like heroes. Now $10 billion just sort of disappears as a little dot in Berkshire's reports.
It's fun.
It is fun, and it is $10 billion.
Charlie says it keeps me out of bars whenever I talk to him about it. I probably talked to Charlie about this in the year after I started. Who knows? I mean, I knew he'd like it. I mean, obviously.
We try to do every dollar we would do. We could only do about $10 billion.
Yeah. Yeah. Well, not even that, quite that much.
Yeah.
You know, we are $4 or $5 billion ahead plus dividends, and we got a carry that's terrific. You know, they welcome us, and they should welcome us. We love it the way they're operating. We're not there to tell them what to do in the least. We did say we'd never go over 9.9%, and we made it. They know that we'll be true to our word. I went over there partly to introduce Greg to those people because we're gonna be with them 10, 20, 30, 40 years from now. They may occasionally find something that we can do jointly. They look forward to doing that, and we look forward to it.
In addition, we have some other operating businesses in Japan. Greg Abel, do you have anything?
No. The only thing I would add is that Warren, you went over there. It was to build the trust with these Japanese companies because we do hope there's long-term opportunities. Fundamentally, as you highlighted,
They're an incredible. They've been a very good investment. I'd also highlight the five meetings we had were really quite remarkable. I mean, these companies, the culture and history around it, and how proud they are, you know, there's just moments of learning from them. It was just a great experience to spend really two days with the five companies.
An issue that we intended to be JPY 56 billion that we were issuing and selling turned out to be 164.4 or something like that. It-- Everything's worked so well, and as Charlie says it, you know, it doesn't move 500 billion of net worth that much. This one is, you know, it will keep adding over the years to Berkshire's value with very widespread, probably $400-$500 million a year. We'll just keep looking for more opportunities. Japan, we are-- Berkshire is the largest borrower outside of corporate borrower, outside of Japan that exists. We didn't set out to be that, but it's turned out that way. We're not done.
I mean, you know, in terms of what may come along there, and we have some direct operations there, as I mentioned. We've got some really wonderful partners working for us, and I don't have to do anything. Okay, Becky.
The next question comes from Ali E. TabetRohit , who asks, during an episode of Investing the Templeton Way podcast, Professor Damodaran, who he respects almost as much as Warren and Charlie, mentioned that he is not comfortable with positions becoming a large part of his portfolio. For example, when they reach 25%-35%. He mentioned that Apple is now 35% of Berkshire's portfolio and thinks that that is near a danger zone. Wonders if Warren and Charlie can comment.
I'd like to make one comment first, but Charlie will come up with.
I think you cover it fine.
Yeah, I know that was coming. Apple is not 35% of Berkshire's portfolio. Berkshire's portfolio includes the railroad, the energy business, Garanimals, you name it, See's Candies. They're all businesses. You know, the good thing about Apple is that we can go up, you know. They got about 15.7 billion shares outstanding. They get down to 15.25 billion without us doing anything. We got 6%. We can't own more than 100% of the BNSF. We can't own more than 100% of Garanimals or See's Candies. It'd be nice. We'd love to own 200%, but it just isn't doable. They're all the same. They're good businesses.
To think that our criterion, our criteria for Apple is different than the other businesses we own. It just happens to be a better business than any we own. We put a fair amount of money in it, but we haven't got more money in it than we've got in the railroad. Apple is a better business. Our railroad is a very good business. It's not remotely as good as Apple's business. Apple, you know, has a position with consumers where they're paying, you know, maybe they pay $1,500 or whatever it may be for a phone. These same people pay $35,000 for having a second car. If they had to give up a second car or give up their iPhone, they'd give up their second car. I mean, it's an extraordinary product.
We don't have anything like that we own 100% of, but we're very happy to have 5.6% or whatever it may be. We're delighted every 0.1% that goes up. That's like adding $100 million to our earnings. I mean, our share of the earnings. They use their earnings to buy out our partners, which we're glad to see them sell out too. The index funds have to sell. They bring the number of shares down. You know, we went up slightly last year, and I made a mistake a couple of years ago when I sold some shares when I had certain reasons why gains were useful to take that year from a tax standpoint. Having heard me say that, it was a dumb decision.
Charlie, you've already given your comment about it, but we do not have 35% of Berkshire's portfolio. Berkshire's portfolio is the funds we have to work with, and we want to own good businesses, and we also want to have plenty of liquidity. Beyond that, you know, the sky's the limit or our mistakes. Who knows what the bottom is? Charlie, do you want to add anything to your earlier comment?
Well, I think one of the inane things that's taught in modern university education is that a vast diversification is absolutely mandatory in investing in common stocks. That is an insane idea. It's not that easy to have a vast plethora of good opportunities that are easily identified. If you only got three, I'd rather read my best ideas instead of my worst.
Now, some people can't tell their best ideas from their worst, and in the act of deciding that an investment idea is good, they get to thinking it's better than it is. I think we make fewer mistakes like that than other people, and that is a blessing to us. We're not so smart, but we kinda know where the edge of our smartness is. That is a very important part of practical intelligence. A lot of people who are geniuses on IQ tests think they're a lot smarter than they are, and what they are is dangerous. But if you know the edge of your own ability pretty well, you should ignore most of the notions of our experts about what I call de-worseification of portfolios.
Okay. Yeah. Session nine.
Hi, Charlie and Warren. Thank you for this superb shareholder meeting celebration. My name is David Chung from Hong Kong, and a proud graduate of Chicago Booth. I'm also here with my two sons, Aiden and Ashton, who's currently studying University of Chicago as a freshman and sophomore. This is my second time attending the conference, last being 2019, four years ago, which I was only a guest shareholder of my friend Andrew. After the shareholder meeting, I have decided to buy into Berkshire Hathaway, which has given me a great return of 62% since 2019. I want to thank you for that. I have also taken one of your advice to give my children a share for each of their birthdays.
Ah.
Although they want a Berkshire Hathaway A shares, they will do just fine with B shares. My question is: How do you see the current U.S.-China internet companies' valuation and the price disparity, given there has been many uncertainties such as geopolitical tensions, significant cost optimizations with leaner U.S. tech firms, while China tech has been through all that already? Thank you.
Charlie, you wanna?
Well, there's been some tension in the economic relationship of United States and China. I think that tension has been wrongly created on both sides. I think we're equally guilty of being stupid. If there's one thing we should do, it's get along with China, and we should have a lot of free trade with China in our mutual interest. I just can't imagine. It's just so obvious. There's so much safety and so much creativity that's possible. Think of what Apple has done by engaging in a partnership with China as a big supplier. It's been good for Apple and good for China. That's the kind of business we ought to be doing with China. More of it. With everything that increases the tension between the two countries is stupid, stupid, and ought to be stopped on each side.
Each side ought to respond to the other side's stupidity with reciprocal kindness. That's my view.
It creates one enormous problem, of course, which is that you have the two superpowers of the world, and they know they have to get along with each other. Either one can destroy the other. They're gonna be competitive with each other. But part of it is trying, always in a game like that, is trying to judge how far you can push the other guy without them reacting wrong. You know, if either side is a bully, in some ways they can get away with it to an extent because the alternative would drive them both into destruction. If they push it too far, they increase the probability that something really does go wrong. It's a, you know, it's one of those game theory dilemmas.
You really need the leader of both countries, and you need the populace to understand at least the general situation in which these countries are gonna operate over the next century, and know that some leader that promises too much can get you in a hell of a lot of trouble. That, like, you know, that you've got one kind of a system that gets its leader one way, and you got another system that gets its leader another way. Keeping either side from trying to play the game too hard, and thinking the other side will go along, you know, it's like playing chicken, you know, and driving toward a cliff. It is.
If you got any diplomacy skills, persuasive skills or anything like that, you really want people that will convince the other country as well as his own or her own country, that this is what we're engaged in. We've got to do it right. We won't give away the store, but we won't try and take the whole store either. We're just at the beginning of this, unfortunately. I mean, we've learned what the situation was. It used to be the Soviet Union and mutually assured destruction was our policy then, and that kept a lot of things from happening. It also came with a very close call with Cuba. These are not these are different games that existed hundreds of years ago.
You could, you know, Britain might rule the seas or France or Spain, but now you're playing with a game that you can't really make a huge mistake in. I think that the better that's understood in both countries, the more the leaders feel that their citizenry does understand that, the better off we'll be. That a lot of demagoguery, a lot of inflammatory speaking, but a lot of authoritarian action. I mean, it all carries its dangers. The world has stumbled through the years post-1945 with a lot of close calls in the nuclear arena. Now we've got pandemics, and we've got cyber and a whole bunch of other things. We've got more tools of destruction than the world's ever had.
It's imperative that China and the United States both understand what the game is and understand that you can't push too hard. Both places are gonna be competitive and both can prosper. That's the vision that is out there, that China will have a more wonderful country, United States will have a more wonderful country. The two are not just compatible, they're almost imperative, in terms of, what's gonna happen in the next hundred years or so. I think that the leaders of both countries have got an important job in having that understood and not to do inflammatory things. We'll see whether the luck that has taken us from 1945 to present holds out. I think we can affect to some extent that luck.
With that cheery message, we will move to Becky Quick.
This question comes from Rohit Belani. Berkshire bought a substantial position in Taiwan Semiconductor and contrary to its normal holding timeline, sold almost the entire position within a few short months. While you cited in a CNBC interview that geopolitical issues were the catalyst, these issues were seemingly no different when you acquired that stock. What else, if anything, changed in those few months and prompted the firm to offload close to $5 billion worth of Taiwan Semiconductor shares?
Taiwan Semiconductor is one of the best managed companies, and important companies in the world. I think you'll be able to say the same thing 5 or 10 or 20 years from now. I don't like its location, and I've reevaluated that. I mean, I don't think it should be any place but Taiwan, although they will be obviously opening up chip capacity in this country. Actually, one of our subsidiaries that we got in Alleghany is participating in their Arizona construction activities. It's a question of we would rather have the same kind of company in our. There's nobody in the chip industry that's in their league, in our view, at least in my view.
The man that is a 91-year-old or so that connected with us, I think I played bridge with him in Albuquerque. Marvelous people, marvelous company, but I'd rather find a marvelous people. I won't find it in the chip industry. Marvelous people and marvelous competitive position and everything. I'd rather find it in the United States. I feel better about the capital that we've got deployed in Japan than in Taiwan. I wish it weren't so, but I think that's a reality, and I've reevaluated that in the light of certain things that were going on. Charlie?
Well, my view is that Warren ought to feel comfortable if he wants to.
Put that in the minutes. Okay. Station 10.
First of all, thank you for making our lives better. My name is Bogumil Baranowski. I'm a founding partner of Sicart Associates in New York. We manage multi-generational family fortunes, hence my question. Mr. Buffett, in 1976, in your tribute to Benjamin Graham, you wrote, "Walter Lippmann spoke of men who plant trees that other men will sit under. Ben Graham was such a man." You are both such people. Could you share with us your 100-year vision for Berkshire? It's a question to you both.
Yeah. I would like to add one thing about Ben Graham. Ben Graham did all kinds of things for me, and he never expected one thing in return. I mean, just you name it, and he did it. There wasn't any hidden, you know, or slight hint, I should say, of anything he expected in return. I checked. Well, he wrote a book in 1949 that, in a sense, said to me in very persuasive terms that what I'd been spending the previous eight or nine years working at and loving was all wrong. That book has been. I check it every now and then on Amazon to see where it ranks. You know, Amazon ranks hundreds of thousands of books by sales.
Benjamin Graham's book has been up there like number 300 or 350 or something like that forever. There isn't any book like it. I wrote HarperCollins a note the other day because they're bringing out another edition, and I asked them how many copies have been sold, and they said the records didn't go back far enough. But they had 7.3 million copies of this little book that changed my life and continues to outsell every investment book. Investment books come along and, you know, they're number 400 or 1,000 or something for a while, and then all of a sudden they're number 25,000 or 200,000. This book, you know. In how many areas can you find any book that has had that sustained position? You can't.
You go back and look at number 1 in 1950 or number 2 or number 3, and you look at in 1951 and 1952, they don't continue. I mean, they just don't continue. Cookbooks, maybe one or two of them last for a while, but there is nothing. This book lives on, and everybody keeps bringing out new books and saying a lot of other things, but they aren't saying anything that's as important as what he said in 1949 in this relatively thin little book. Our vision for Berkshire is exactly what we said today. We want it to be a company that is owned by its shareholders and behaves in a way that society is happy that it exists and not unhappy. We will have unlimited capital.
We'll get lots of talent, and we've got a base that can't be beat, and there's no reason why it can't be perpetuated, just like Ben's book, and maybe be an example to other people. If so, we'll be very happy. Charlie?
Yeah. One of the really interesting things about Benjamin, he was a really gifted teacher, a very honorable profession, and that is what has lasted. However, an interesting fact that he was sheepish about in his old age was that more than half of all the investment return that Benjamin Graham made in his whole life came from one stock, one growth stock, GEICO, Berkshire's subsidiary. At the time he operated, there were a lot of sort of lousy companies that were too cheap, and you could make a little money floating from one to another. The big money he made was one growth stock. Buying one undervalued great company is a very good thing, as Berkshire has found out again and again and again.
Ben wrote a postscript to the 49 edition, pointing out exactly that fact and acknowledging it, but said, but also took some good lessons from it. You know, he said, "That's the way life is," that you prepare and you know, you don't lose everything along the way, and then something comes along. GEICO came along because a banker in Fort Worth that had financed Leo Goodwin, and I think the banker got three-quarters of it, and I don't mean Leo Goodwin who founded GEICO, then called Government Employees Insurance Company, and you can figure out the acronym. The deal almost fell apart. The deal was, as I remember, for maybe $1.5 million or something like $1.25 million.
It almost fell apart because of a difference of $25,000 in the net worth delivered. This is a business that's, you know, worth $10s of billions. I mean, but he pointed out the irony in that, too. I mean, he was honest about his failings and but also the strengths of his approach. He was totally intellectually honest about his approach. That to some extent, you know, Charlie and I have seen that in our lives. I mean, the sort of the prepared mind, the willingness to act when you need to act, and the willingness to ignore every salesman in the world and imperative to ignore them. It's one or two things that make the right decision. If you make the right decision on a spouse, I mean, you've won the game.
You know, there's an enormously important decision, and we've got all the time in the world, I mean. We've got more time now than we used to have when I was a kid to make that decision. You know, I don't know whether a third or whatever percentage below that one. You know, it is really interesting. The thing to do is just keep trying to think things through and not do too many stupid things, and sooner or later, you have a lollapalooza, as Charlie would say. Okay, Becky.
All right, this question comes from Tarafter, a shareholder in Sierra Vista, Arizona, who is asking a question of Ajit Jain. Wants to know about electric vehicles getting insurance from the manufacturer instead of car insurance companies. A recent article in The Wall Street Journal shows that though EVs are a small but growing percentage of sales, Tesla and GM are offering their own electric vehicle insurance. What will GEICO do to combat this?
Yeah. GEICO is talking to a number of original equipment manufacturers as well to try and see how best they can work with the auto manufacturer and offer insurance at the point of sale. There haven't been very many success stories as yet. We'll wait and see. You know, clearly it is a very convenient way to sell auto insurance at the point of sale, but there's a fair amount of data that needs to be collected on the driver, not just the car, and that makes it a little more complicated. We are talking to some auto manufacturers ourselves. We are hopeful, too, that we will strike a deal with some of them before not too long. Tesla has made, and GM, they both have talked a lot in the press in terms of getting into the insurance business.
In fact, GM, I think, has projected they'll write $3 billion of premium, which, you know, it's hard to imagine where it'll come from. They're all hot to trot. I think somebody will find the secret sauce before not too long, and we ourselves are in that race.
Yeah. I would point out that General Motors has had motor insurance for decades. I mean, this is not a new idea. Uber wrote a lot of insurance for a while. They laid it off with somebody, and that company got killed by it. I don't know the deal between Uber and I forget the name of the company that took it on. Ajit would probably know.
James River.
Yeah. You know, there's nothing. It is not a new idea. It's not magic in the least. I mean, it is hard to come up with something that is better at matching risk to price than a bunch of very smart people are doing it at Progressive and a bunch of very smart people are doing it to a greater extent at GEICO. I mean, it is just. It was fascinating to me when Uber went into it, you know, and they were gonna get their head handed to them, but they laid off a good bit of it, a very substantial percentage of it with somebody else who got their head handed to them, surely.
You know, but it was a story, you know. It—Wall Street loves it. We've got 80 car dealerships that do a lot of business. You know, we've got the people buying the car in the place, and we form an insurance company around the group for some reason that writes insurance. You know, it's hard to improve on the present system.
Yeah.
I wouldn't pay a penny. I'd pay to avoid it, actually. I mean. Go ahead, Ajit.
Yeah. The only point I'd like to add is the margins on writing auto insurance are 4%, which is a very small number. Once there are more people that are trying to take a bite of the apple, it just becomes very, very difficult to keep all the mouths fed in a profitable manner.
Yeah, you can say there was one big new idea in insurance, in car insurance back in 1920 or so when State Farm started. State Farm and still has it next to Berkshire, it's our, it's the leader in having net worth. It's a mutual company, but some guy just figured that there was a cartel running car insurance, and he Farmer from Merna is the name of the book, I think, over in Illinois. He created a system where he really took 20 points or so out of the cost. Surprise, surprise, here he is, you know. Nobody owns stock in State Farm. It's an insult to capitalism, actually. Everything you learned at the business school says it shouldn't work because nobody owns it. Nobody's going public with it. No nothing.
It's got more net worth. It's almost probably double, leaving Berkshire out of the picture. It's probably double the next guy and nobody's really improved on their system that much. It's fascinating how people don't really look at the essence. You know, these are cases that should carry a message. The truth is, in Wall Street, anything can get so depressed whether you can sell it or not. If you can sell it'll get sold. A bunch of insurance companies came along and got it sold, and this can be a story about this stock or that stock, and it sounded good when they talked about it at Uber for a while. It is really interesting. The investing public does not learn much. Okay, station eleven.
Hi, my name is Jeff Merriam. I'm from Edina, Minnesota. We've been coming for years to make that professor from the earlier question really nervous. Half our family's wealth is in Berkshire Hathaway.
Well, it doesn't make Charlie nervous.
My question has to do with voting control in the future. There was a question earlier about corporate raider. I was more wondering about who is actually gonna own the voting control. Is it gonna be institutions, CalPERS, BlackRock? Are they eventually gonna get their way with the ESG, checkboxes that we're gonna have to check? What should we be thinking about that?
Well, you're thinking very well. The interesting thing is, the big aggregations look like, of course, they'd be in index funds. What index funds want is they want a world in which society doesn't get upset with them about the fact they've got all the voting power. I would say in the last year or two, it's looked like a better idea for them not quite to get as. What was the phrase that Charlie used?
They backed off a lot.
Yeah, they backed off a lot. It's in their interest to back off. Interestingly enough, in looking at money management, you know, the game is not performance, it's assets under management. Index funds produce a tiny fee on assets under management because it was pioneered by Vanguard. When it became successful, it was very easy to replicate. Not so easy, but I mean, it was inevitable it'd be copied. It came with a management fee of 2 basis points. What people that have offered index funds would really like is you to buy their other funds or let them manage money in some other way so that they get a higher fee on assets under management.
Which, of course, is exactly why the index fund was invented in the first place. It's gotten. It's not a loss leader, but it is a way to pull money in. You hope that people ignore what was said by what's his name? You know, John Bogle. Jack Bogle. They ignore him, and essentially they give up the idea, and that we'll offer you a fund that does this in India, and we'll offer you another fund that does that. Of course, those management fees are higher. They're really counter-selling the idea that John Bogle came along with.
In the process, they have achieved a lot of votes, and that was fun for a while, but the last thing in the world I want to do is have Washington or the American public decide that they're throwing around their weight too much. They're tending to back off now. If you figure out where their self-interest is, you can judge where their behavior is gonna go. Charlie,
You-
You want to defend them?
No, you can square what you just said. You're totally right on everything.
Well, in that case, I won't ask anybody else. Okay, Becky.
All right, this question comes from Almu, Grinnell, and it's about. This is for Warren and Greg. Since 2019, Berkshire repurchased huge amounts of stock, about approximately reducing 10% of the share count and increasing the intrinsic value per share for the continuing shareholders. Greg is expected to be the successor of Warren as CEO, so will he be in charge of the main capital allocation decisions, including future share buybacks? Greg has been key in the development of Berkshire Hathaway Energy, and I think a good capital allocator. Does he, has he been involved in the share repurchases that have been executed over the past years? Do you, both Warren and Greg, work together in the estimation of Berkshire's intrinsic value and the share buyback decisions?
Well, the answer is that Greg, I'm gonna turn it over to him, but the answer is Greg understands capital allocation as well as I do, and that's lucky for us. He will make those decisions, I think, very much in the same framework as I would make them. We've laid out that framework now for 30 years or something like that. People make it way more complicated than.
I mean, particularly if you're working on a doctorate or something, it's just a great subject to have lots of footnotes and, you know, 50 pages or 100 pages, but it is, it's no more complicated than if you and I and Charlie had a business, and you wanted to sell your interest, and we could buy it for less than we thought it was worth and without misleading you in any way about what was going on, and we'd buy it then. Greg, you're on because you're gonna be doing it in the future.
Right. Yeah, well, I think, Warren, you said it really well. I mean, the framework's been laid out. We know how you approach it and with and how you and Charlie have approached it and really don't see that framework changing. When the opportunity presents itself, we'll wanna be an active repurchaser of Berkshire shares. We think it's a great outcome for Berkshire shareholders to own a larger piece of each of our operating businesses and our and the portfolio, the equity companies when the opportunity presents itself.
It can be the dumbest thing you can do, or it can be the smartest thing you can do. You know, to make it more complicated than that and start getting into all this. You obviously do what the business needs to do first. The opportunities are there. Grow your present business, buy additional business, whatever it may be. Then you make a decision on dividends, but that decision becomes pretty irrevocable because you don't cut dividends without having major effects in your shareholder base and a lot of things. Then if you've got ample capital, and you don't see that you're going to use it all, and your stock is attractive and enhances the intrinsic value for the remaining shareholders, it's a no-brainer.
If it's above the price of intrinsic value, it's a no-brainer that you don't even listen to anybody, no matter what investment banker comes in and tells you, "Here's how to do a repurchase program." Okay. Station one.
I'm Tom Nelson, a podcaster from North Oaks, Minnesota. Charlie, in 2022, you used phrases like really massively stupid, massive kind of ignorance, and crazy to describe what you said was the 30% of Americans hesitant to submit themselves to untested mRNA COVID gene therapy. Do you stand behind those quotes today?
Yeah, sure.
Well, we got time for one more then before lunch. Becky?
Okay. Thought I was out, but let's see. Let's see here.
How about lunch pretty soon, but.
No, no. Okay. I've got one for you. This one comes from Drew Estes. This is a question for Warren. In your 1969 letter to partners, you said, "In any company where the founder and chief driving force behind the enterprise is still active, it's still very difficult to evaluate second men. The only real way to see how someone is going to do when running a company is to let them run it." This wise statement now applies to Berkshire. Once the second men are running Berkshire, what would you advise owners of Berkshire to watch for? Specifically, what actions, if taken, should give us concern?
Well, I think I would have some comfort in the fact that 99% of my net worth is in that company. So I probably got a stronger interest in it, and. But I would say that I don't have a second choice. I mean, it is that tough to find, but I've also seen Greg in action, and I feel 100% comfortable. Like I say, I don't know. Something happened to Greg, I would tell the directors, you know, they have a problem, and they won't. I don't have anybody to name. If they put somebody in, Berkshire on automatic pilot can work extremely well for a long time.
I mean, it doesn't like the businesses go away or anything of that sort. You can't. It's hard to judge successor management in a really good business because if they don't show up at the office, it'll keep working for a long time. Maybe that lack of a useful input may show itself in five years. I mean, it may go a long time. How are the shareholders, you know, advised by a bunch of people that are concerned about whether you're meeting earnings projections or something, telling them whether the management's any good? You know, it is very hard. It's very hard. I've been on the board of 20 companies. It's very hard to
If you ask me to rank the management of each one, it's very difficult to do because some are just better businesses than others. Some would be better off not managed hardly at all. Others really need help, but they got a lousy business. Tom Murphy told me a long, long, long time ago, he said, "The secret of business is to buy a good business." It's okay to inherit one, too. Greg is inheriting a good business, and I think he'll make it better. But I don't think it's easy to put any one of the next 10 nominees in and try and judge 3 years later whether they've done a good job or not. It's gonna be a very interesting job for the board, but it shouldn't listen to Wall Street on it.
They've got the job. If they put somebody in, there's a surprise. We both got out on a plane. They put somebody in. They've got a real job in assessing that person. It'll depend on how good he or she is as a talker. It'll depend on, you know, them courting Wall Street to be supportive of them, all kinds of things. We've got some very good people on the board, but they would be challenged in that position, as would I, where I've been in that position in other companies where a very great leader has left and on the way back from the funeral, you know, nobody knows what to do exactly. With that cheery message, we will go to lunch, and we will come back. We'll see you at 1:00 P.M. Thank you.
We're still gonna try and get 60 questions in. We've done 25 so far. Yeah, 25. Keep the questions short, and I'll try and keep the answers short. Thanks.
Welcome back to our live coverage of the 2023 Berkshire Hathaway annual meeting. I'm Mike Santoli. The morning Q&A session has just ended. Becky will rejoin me in a minute, let's recap some of the big news Warren Buffett, Charlie Munger, and Berkshire vice chairs Greg Abel and Ajit Jain just made in the Q&A session. As Warren mentioned, they got through 25 questions. A lot of them pretty wide-ranging. At the top, Buffett did say that the way things are tracking right now, most of Berkshire's operating businesses look like they'll be down in earnings for 2023, so the broader economic slowdown is reaching them. Broad exposure to railroads and building products as well as energy and a lot of consumer areas.
That's probably not a surprise, but it is a contrast to the rise in operating earnings they had in the first quarter. Now, on Apple, in response to a shareholder question that Apple was becoming a very large percentage of the investment portfolio, some 35% according to the question. Actually, it's approaching half of the equity securities in the portfolio. Warren Buffett said that's not the way they think about it. They think about their entire business as being the portfolio. Apple is not a particularly large sale if you consider the companies, the businesses that they own outright. Therefore, he also said Apple is a much better business than any one of their operating businesses. They wish probably they could own all of it, but right now, they own almost 6%.
Apple keeps buying back a ton of stock, which raises Berkshire's proportion of the whole company, which they're pretty happy with at the moment. Buffett also said in response to a question about how he quickly sold out of Taiwan Semiconductor after having built a stake not long before. Buffett said he feels just his capital is safer in Japan than in Taiwan. They're a little concerned, obviously, about geopolitical tensions in Taiwan, excuse me. Really does like the investments in the Japanese trading houses financed with very inexpensive borrowings in yen. That was essentially some of the headlines out there. A lot of skeptical comments about AI in response to some questions this too. We're gonna get to a lot of those details. Meanwhile, CNBC.com's banking reporter Hugh Son at CNBC headquarters right now.
Hugh, you know, Warren and Charlie didn't spend-
Yeah.
a whole lot of time this morning talking about the banks. Despite all the recent regional banking turmoil, they didn't really get many pointed questions on it, but did get one. I wonder what you make of that.
The one question they did get was the very first of the day, which was, you know, what would have happened to the U.S. if SVB's uninsured depositors were allowed to go under. Warren was very clear on that. He said that it would have led to a disaster, that essentially, it would have led to a run in every bank in the country the following morning. Essentially, an important thing to do. I think, you know, for my money, it is more interesting about what he hasn't said than what he has, which is, you know, we're at a moment in this country where, you know, the business model of regional banking is under attack, and we're wondering whether or not the market is essentially pushing otherwise healthy banks to the brink.
You know, the question of the hour for me, and hopefully he gets this in the second half of the afternoon in the Q&A, you know, is whether or not that there's a point, a price in which he's willing to deploy capital. Clearly, you know, for those who don't know, the backdrop is that Warren Buffett has been time and time again one of the most important, you know, backstops of the U.S. banking industry in this country, that he has provided capital, he has provided confidence to U.S. banking, to the U.S. banking industry time and time again. We're all dying really just to figure out what he's gonna say.
You know, if he doesn't say anything about this, I would point to the idea that perhaps it is a bit early to get involved in banks. I mean, he's given pretty negative comments to our Becky Quick but only last month about, you know, his prospects for banking, and that's certainly one of the things I wanna hear.
Yeah, for sure. I guess you might also be able to argue that the particular banks that are most under pressure right now are relatively small. They're literally, you know, regional. They're restricted to small parts of the country. They're not necessarily big, long-term franchises that would meet the other investment criteria perhaps that he might look for. But it's interesting that he did not really change his holdings in this latest quarter in Bank of America, in Citigroup, presumably. So that would suggest that there's not a general concern about the overall system, but maybe also, at least as far as we know, did not find fresh reason to extend capital to some of the struggling banks.
Yeah, I mean, you know, he spent the last three years cutting his stakes in banks. He, you know, at one point in 2019, 2018, he loaded up on JP Morgan, Goldman Sachs, and had a significant stake in Wells Fargo. Wells Fargo historically had been one of their biggest holdings, and he'd pared back after their fake account scandal. You know, more recently, he's pared back in PNC and U.S. Bancorp. Certainly, I think, you know, the general sort of idea is that he's loath to own banks heading into a potential economic downturn, and certainly that's still the case where we are to this day, Mike.
For sure. A related area, of course, this morning, one of the shareholders asked about problems in commercial real estate. Now, Charlie Munger has been outspoken about the banks being full of what he said were bad loans. While he said this morning this would not be a Berkshire problem, he is concerned about the situation. Listen to what he said.
I do think that the hollowing out of the downtowns in the United States and elsewhere in the world is going to be quite significant and quite unpleasant. I think the country will get through it all right, but as they say, it will often involve a different set of owners.
Yeah, Mike, you know.
Hugh, that is one of the sort of feared after effects or exacerbating factors with the regional banking crisis, of course, is their own exposure to commercial real estate.
Yeah, 100%. I mean, that would certainly feed into this thesis that, you know, maybe now is not the time to come into the banks, even considering how shellacked those stocks have been since the SVB collapse back in March. Clearly, you know-
Mm-hmm.
The concern right now is that these banks are holding tons of loans, either to, you know, office builders, commercial real estate loans, that type of thing, which are set for some pain in the coming months. That has yet to actually play out. It's certainly something that we're all keeping our eyes on.
Sure. Also seen some skepticism about the asset class of commercial real estate in general. Warren Buffett saying that people just essentially pay for a building, whatever they can borrow. There's not a lot of price discipline there, perhaps, or valuation focus. Hugh Son, thanks. Becky Quick is now back with us. Becky Quick, we hit on a couple of the points.
Yeah, what'd I miss?
I mentioned what he had to say about Apple. Essentially, he's not worried about it getting to be too big a position.
Yeah.
Because he views it holistically within the entirety of Berkshire, not just the Apple portfolio.
You and I had talked about it. I can't remember if we were on camera when we were discussing this or not.
No, we were.
Just talking about what a big position it is, you know, if you don't think about it from his perspective, I hadn't, just in terms of, okay, you're not talking about a stock portfolio, you are talking about an overall portfolio of a company.
Yeah.
The amount that goes into it. What kind of stunned me is the idea that he said Apple is a better business than any of the businesses that we own in whole.
Exactly. Without a doubt. We did mention that. That's a big headline. You know, and he said, "Look, we have great businesses. We have a great railroad," and all the rest of it. I think just that's what the numbers would tell you.
Yeah.
Just in terms of the profitability, the sustainability of profit margins, the loyalty of the customers. It was interesting. He also, you know, he's got a lot of things working in his favor, which is, as he said, Apple continues to buy back shares from everybody else but him.
Yeah.
Raising his ownership stake in the business.
You know, it occurred to me at the time, maybe we'll get a chance to ask him this at some point, but if that's the case, why don't you just put more money in Apple?
Yeah.
You've got $130 billion almost sitting around in cash.
Sure.
Obviously, he always wants to have a lot of cash. He's talked about $50 billion or more in the past.
Yeah.
that he'll have on hand. That still leaves you a lot of wiggle room, and that makes you think that he must be keeping some of that other dry powder to be opportunistic.
Yeah.
With any deals that come along.
It feels like there's a general pull where, in dollar terms, that position keeps getting bigger.
Yeah.
Because Apple does well, again, they buy back stock from everybody else. I will say it's a much more expensive stock now than it was when he bought it 8 years ago or 7 years ago.
Maybe that's the explanation.
I mean, back then, he felt like it was undervalued because people didn't re-recognize, in his view, that it was a kind of a indispensable consumer product in the minds of the customers. Whereas now it's kind of valued the way those other consumer staple businesses are.
All right. Let's listen to what Warren actually had to say. We've got those comments about Apple.
Apple, you know, has a position with consumers where they're paying, you know, maybe they pay $1,500 or whatever it may be for a phone, and these same people pay $35,000 for having a second car. If they had to give up a second car or give up their iPhone, they'd give up their second car. I mean, it's an extraordinary product. We don't have anything like that we own a hundred percent of, but we're very, very, very happy to have 5.6 or whatever it may be percent, and we're delighted every 0.1% that goes up. That's like adding $100 million to our earnings. I mean, our share of the earnings, and they use the earnings to buy out our partners, which we're glad to see them sell out too.
All right. Now, right now we wanna bring in renowned corporate lawyer and Berkshire director, Ronald Olson. Ron is also one of the top shareholders of Berkshire's shares as well. We keep an eye on a lot of these things. Ron, thank you for joining us this morning.
Hey.
Hi. We just wanna talk to you about what you heard in the first part of this meeting, because I think they were pretty reflective, pretty focused on a lot of the succession issues and what's going to happen, what's taken place with both Greg Abel and Ajit Jain being in the positions they're in, maybe stepping up and doing a lot more of the day-to-day work and activities over the last few years. As a board member, the board's been kind of understanding of what's been driving those things. What do you all talk about in the board meeting? What do you think of what you heard today?
Well, you're right, Becky. There's a lot of focus on succession. What I took away from the meeting, part of which was not available to the general public, was what was going on in the movie that preceded it. There was a focus on succession for over the last three decades, year after year. Look what we have on this stage. What I heard coming from, what, a combined 101 years from Warren and Charlie was an amazing reflection of their energy and their wisdom.
101 years in business.
Yeah
at Berkshire, right?
Yeah.
Right.
To me, they've got a long runway ahead, and we are so fortunate to have Greg Abel designated as Warren's successor, and the board feels enormous confidence. I can detail a little of that if you want, but that's. We've had a lot of contact with Greg. Personally, I've known him since we bought MidAmerican quite a number of years ago. Tiny little company. Had a asset over in the Philippines that generated some energy from geothermal, couple other little things, and look what that company is today. Greg has built that. Not Warren, not Charlie. Greg has built that. Good bit of it was by acquisition. People worry about Greg's ability to make acquisitions. I don't. The board doesn't. He's a numbers guy, just like Warren's a numbers guy. I'm not. They are. He has, you know, the fundamentals, high integrity, high intelligence.
Recently, this last year, I got more than what I've had before about Greg by having him as a client. I worked very closely with him on one matter. This is a person who leaves nothing for doubt. He plans. He's skillful. He has a political skill that I would say exceeds Warren and Charlie's. We're very excited.
Warren also said that he is a great capital allocator, which is pretty much a high praise. As you said, he's done plenty of M&A, so if you were worried about that part of the business. It's interesting because there's always this line that has to be walked, which is, look, this company's gonna be great as structured, almost no matter who's running it, and on top of it, we have great people who are gonna be running it. Warren just said before the break there, you know, Berkshire on autopilot would work extremely well for some period of time.
Yeah. I think Charlie said it slightly differently. He said, "We've given this a lack of attention, and I suggest that that's what the rest of you should do after we leave." We've got phenomenal managers and so there's a high level of confidence in the future, and I don't. If people didn't take that away from this morning, Becky, I'll be surprised.
Well, it's also, I was gonna just mention, too, the couple of questions about, you know, once the shares are, you know, they've been donated, once they convert to Class B shares, the voting control slowly over time eventually will make its way out into the public. This seeming concern about what that would mean in terms of activists or somebody, you know, altering the strategy or makeup of the company. I mean, Warren seemed to say nobody could afford to really muscle this company around at this point, especially in 10 or 15 years.
Well, I happen to agree. I've done a fair amount of work for companies who've been subjected to what we call activist investors through the years, including some of the names mentioned today. I don't see that being a serious threat in any way, shape, or form. It is a huge company. As Warren pointed out, largest net worth in the, you know, S&P 500. I think another point to be made in that respect is it's not just Warren's and Charlie's holdings of the stock. We've got shareholders who are devoted to this stock, and so long as we behave, they will trust their savings with us.
That's what I wanted to ask you about, Ron. Just the number of items on the ballot this time around on the proxy for ESG, for other things they wanna push the company to do, push the board to do, changes, whether that be looking at climate change, whether that be saying, "I'm not gonna ever have anyone at the company have a political perspective that's made public." I mean, those are things that Warren and Charlie both have been pretty disdainful of, the idea that anybody else gets to force all the rest of the shareholders and the rest of the company what to do. That's fine because Warren and Charlie are in a position to be able to say those things. I think the key is probably the shareholder base. Are you convinced that the shareholder base will remain the same?
Second of all, will they vote? Will they actually go out and vote? Because retail investors in general don't vote on these things. They just let it ride, which is why you can have somebody get a small portion of the vote and have their way with things.
Well, the increasing percentage of ownership by some of the large index funds and so on, yes, that's a different kind of investment. I don't see that overtaking the individual shareholders that have been our base for years. Their confidence, I think, will remain as long as we have the kind of leadership we've had. Greg's not gonna change that. These managers are not gonna disappear. If we make other acquisitions, I've got confidence we will, and I've got confidence that they will be made soundly with leadership. Warren has said for years, the kind of leadership that love their money or love their business more than they love their money.
Yes.
They'll be devoted to what is in the best interest of these individual shareholders. You take these four initiatives. Climate change is a big issue, no question about it. By the way, I thought Warren's comment today about one more thing we as a country should be thinking about is how we're going to mobilize the dedication to climate change as we did mobilize the country in defending World War II or pursuing World War II. There's a lot that can be done, but I don't think very many companies have done more than Berkshire, and I don't think the people that are pushing these initiatives really understand what the monies we are devoting to, for instance, transmission building, which is essential to get renewable energy where it needs to be.
You know, what Greg has done out in Iowa, Berkshire Hathaway Energy building BHE for nearly 100% of the ratepayers-
Mm-hmm.
It's great.
Ron, one last question before you go. Is there something you're hoping to hear more about in the second round of Q&A?
I'm sorry. Say that again.
Is there something you're hoping to hear in the second round of Q&A?
You mean this afternoon?
Yeah.
I don't think there's a need for me filling in the blanks for what they're going to say. There is a seriousness of purpose about this meeting that simply is not reflected in any other meeting, annual meeting I go to, and I go to a number. That comes about, I think, because of the mutual respect between the audience, that is the shareholders, and the management. I wanna see that continue, and I'm sure it will this afternoon.
Ronald Olson, who is a Berkshire board member. Wanna thank you so much for your time today, Ron.
I'm delighted to be here.
It's great to see you.
Thank you.
Thank you.
Thanks, Ron.
AI, of course, is all the rage right now with recent earnings calls flooded with references. One of the shareholders wanted to get Warren and Charlie's thoughts. Not surprisingly, Charlie Munger did not hold back.
I am personally skeptical of some of the hype that has gone into artificial intelligence. I think old-fashioned intelligence works pretty well. It can do all kinds of things. When something can do all kinds of things, I get a little bit worried. 'Cause I know we won't be able to uninvent it. You know, we did invent for very, very good reason, the atom bomb in World War II, and you know, it was enormously important that we did so. Is it good for the next 200 years of the world that the ability to do so has been unleashed? We didn't have a choice. When you start something.
Einstein said after the atom bomb, he said, "This has changed everything in the world except how men think." I would say not the same thing. I don't mean that, but I mean with AI, it can change everything in the world except how men think and behave.
Joining us now is noted tech investor, Ann Winblad. She's co-founder and managing partner of Hummer Winblad Venture Partners. Anne, it's great to see you. Thanks so much.
Thanks for having me.
There was a fair bit, I guess you would say, of skepticism about AI's ability to completely upend all these industries and maybe act as a threat to a lot of the businesses that Berkshire owns. Also some suspicion about, as Warren says, "You can't uninvent it," and there are some unintended consequences. As a tech investor looking for disruptive ideas, how are you framing this opportunity?
Well, we're framing this opportunity as significant. The challenge for many companies, we heard in the description of GEICO today, where when asked about telematics, which is basically analytics, the step before generative AI, as we're discussing today. Even there, Ajit mentioned that they have to still finish their digital transformation process with their core computing architecture before they get to core analytics, let alone get to generative AI. We'll see this go very, very fast in the tech industry itself, but it'll take a little bit more time to reach core industries that we're talking about today.
One of the things that really struck me, and you come to this meeting every year, so you hear these things. Warren kinda laid out the case when we asked about companies that are offering insurance, whether that be Tesla or some of the other auto companies also offering insurance. He pointed out that there have been probably 10 insurance companies that have launched and called themselves technology companies. "We're a technology company. We're a technology company. We're a technology company." Most of them have failed because they stink at actual underwriting. They're no good at taking risk and figuring out how to price it, which is what insurance is. He said everybody's a technology company. You can look at any of these companies, they all use technology.
As a tech investor, how do you figure out who's a tech company and who's just a company that uses technology? How do you differentiate?
Well, we focus on enterprise infrastructure. When we look at the big pieces starting to move around, like adding new infrastructure like generative AI, it means that you've got to change the mechanisms that connect all the wheels.
In generative AI, one of the big issues is going to be how you get all this data to keep feeding the machine and making it more intelligent. That's with APIs, and we built a company called MuleSoft that's part of Salesforce now that deals with APIs about 10 years ago. Now, they were not a Salesforce company, they were an API company. We're under the hood, and under the hood is what they call deep tech, which everybody says they're investing in these days. We try to look at the engineering of this versus the verticalization because we can't be experts in these industries, and this is where technology investors do go astray. We know technology. We don't know insurance. We don't know retail. We don't know education unless you're a specialty investor there.
Okay, but let me ask you one more question on that point. Apple, everybody thinks is a technology company. Warren Buffett started investing because he said it's not. It's a consumer products company. Is Apple a tech company, and do you think it still has advantages of a tech company? Is that why you would buy the stock?
Apple is a consumer company. It is. In the U.S., it has. For a while it was a luxury brand. Now it's a global brand. It is an enormously successful brand company, but it has to make technology work to do that. It also sells us that technology in a consumer appliance that's what it's done for 16 years. It's amazing that the iPhone is 16 years old. I think if you walk around and ask people to describe the technology they're walking around with, they can't describe the components of the iPhone, but they can describe their experience with that piece of technology and that makes it a consumer company.
You mentioned this is all going very fast. You mentioned generative AI a couple of times. Is it a qualitatively different thing or is it just what we've generally become accustomed to which is waves of, you know, innovation wash through, software gets better, gets smarter? You know, big data was a buzz phrase.
Yes.
A couple of years ago. How different is what we used to talk about as big data from AI?
All right. It does come in waves and there are failure waves that come first and we've been working on the AI wave for a long, long time, as long as I've been in technology which has been over four decades. What we now have is hyperscale computing. We have companies that are now part of this like Nvidia which really provides that infrastructure that we can do this. We're really moving to hyperscale computing which allows us to process this data really fast. If you've used ChatGPT, one of the magical things about it is there's no latency. It's just instant. We're going to couple this in the next wave called quantum computing which of course the big tech companies are working on.
Realistically it's allowing us to harness data in a very, very different way and also use what we call machine learning in a much more deeper way. When we combine all these hyperscale computing with massive amounts of data with the improvements in artificial intelligence itself, it is a significant wave. All those other pieces came along as little waves but this is a big one. Quantum will be big once it finally happens as well which is the next phase of hyperscale computing.
Ann, great to catch up with you. Thanks so much.
Thank you.
Enjoy the rest of the meeting.
Okay, a number of companies that are here in the showroom are marking sales milestones this weekend 'cause there's a lot of people here if you haven't noticed that already. One of those companies is See's Candies. It saw a record first hour of sales when it opened for business yesterday at noon and that's pretty amazing because if you look at the sales that they're doing through here, we got the chance to catch up with the CEO, Pat Egan in the See's booth here. That is a front and center location and it is worth it.
We are so proud of this place. We actually have more square footage. There's a little bit of jealousy going on here because we have so much square footage, but it's because we gotta sell all this pretty candy.
Yeah, I was gonna say look at some of the crowds over here.
Oh my God. Yeah.
This is why you have all the square footage.
Well last year was fast and hot and you can ask me questions about this. We had started even faster than this.
Last year, Mr. Buffett made a big deal about it.
He did.
In the annual letter this year.
Yes.
He said that you guys sold 11 tons-
11 tons of candy. Yeah.
of candy just on the two days of the shareholder meeting last year.
Yes.
$400,000? Does that add up to about?
Plus. Yeah. In a little bit, yes.
How long does it take your average store to get $400,000 in sales?
That would be a good several months.
Okay you do that in two days.
12 hours, several months.
Okay.
Yeah.
That's a good return.
Yeah.
1972 is when this purchase was made.
Yes.
Warren Buffett has talked about how $25 million they bought the company for. He was haggling, didn't wanna pay $30 million.
That's right. Yes. He got a great deal.
He says he's got more than $2 billion in pre-tax income.
Yep.
That's come from your company in the days since.
We're adding to that, yes.
What have you done for him lately?
Well, year over year we feel really fortunate. Getting through 2020 which was not our best year ever. 2021, our centennial year, we turned 100. Our best year ever by a mile, and then we built on that last year. This year we've started even better. Obviously, our costs, like everybody else, are going up. You asked me last year about our commodity costs.
Yeah
I gave you a different answer than I would give you this year, but we're definitely making our contribution.
What is happening with commodity prices this year with them?
They've gone up significantly.
Yeah.
They're actually, they're just finally starting to level off, but over the last nine months or so. Actually, when you asked me that question last year, it was we had actually bought so much on the forward market that we felt really good. Cost of butter, as an example, is up over 100% for us.
Wow!
Cost of sugar up over 100% for us, so it's definitely taken a little bit of a bite. We have enough volume, and we have enough history that we have been able to manage through that very well.
What about other inflationary pressures? Do you get hit with higher wages, higher energy costs?
All of the above.
Yeah.
You know, our customers and our employees are living life just like everybody else and running into the same challenges. We definitely wanna make sure we're taking care of our employees. Our benefits costs and everything else that goes with that have definitely gone up as well. We've been able to manage through it pretty well.
Sales in 2020 were down because stores were closed.
Correct.
People couldn't go into them.
Correct. Yeah.
What happened?
First quarter was great, but yeah, we closed very early on because we made the decision that we don't know what we're dealing with. If you go back to March 16, 2020, if you don't know what you're dealing with that moment in time, both for our customers and our employees, we chose to close our retail operations. We reopened after about a month and a half. We opened with phone service and buy online pickup in store, and then all of our shops were reopened by the fall.
Yeah, you actually had some really strong. Like, people were willing to spend on things.
Yes
if they were buying it online or doing other things going along those lines. They were paying premium for things.
Yes. Yeah.
Is that still the case with consumers, or are you seeing any weakness?
No. I think we still maintain really a high level. Our package count, for example, on e-commerce has gone up about double in the last couple years, and it's maintained. We hit a peak, and then we've maintained it. We haven't dropped off.
Is that at the expense of sales in stores?
No, actually.
that's gone up too?
Both are growing. E-commerce has been growing faster, but our shop sales have also been good.
Bobby Kotick is here as well. He's the CEO of Activision Blizzard, and he's a longtime visitor to Omaha for the Berkshire meeting. He's been coming lots and lots and lots of years. When's the first time you were here, Bobby?
Early 1990s.
Oh, wow. Why'd you come in the beginning?
Well, I was very fortunate. I had the chance to meet Warren in the 1980s because my college roommate's family sold Hochschild Kohn to Berkshire. I knew the Gottesmans and had the chance to meet him. You know, it's one of the great privileges of my life is that relationship that I have with Charlie and with Warren.
Last year, you were here at the annual meeting, and you had to leave a little early. I think there was a birthday party you were getting back for. Is this what happened?
I left around this time.
Yeah.
Then, our friend Pattie Sellers phoned me and said, "Are you still here?" I said, "No, I'm on my way to the airport." She said, "Oh, Warren just announced he owns, I think, 9% of your company," which was a big surprise to me. But, you know, one of the great votes of confidence that you could ever get.
Yeah. How'd you feel about that after knowing him for so long?
You know, like I said, I don't think there's anything. When I think about my business career, that announcement was one of the pinnacles of my business experience to know that Warren and Charlie had so much faith and confidence in the company.
Yeah. One of the things you said at the time was partially it was because he was doing a little bit of arbitrage. There was a deal from Microsoft. The stock was trading under the deal price, and he said, "Look," he was just looking at it and liked that. They did announce in the last quarterly results that they had sold some of the stock. I don't know if you've had any conversations with him, what you think about it, or what else is going on out there.
I've never had one conversation with him about it. You know, I just am grateful if they own 10 shares or they owned 9%, I'm grateful.
It's a lot more than 10 shares that they own. I think that their last, it was 6.7% stake that they own in the company.
Yes.
That's a big stake.
Well, they're probably the largest.
I think they may be your biggest shareholder.
largest shareholder.
Yeah, I think they probably are, too. We talked with you a week ago after the UK regulator basically said they didn't agree with the deal with Microsoft. Do you have any updates? I know that you and Microsoft are both appealing this. You guys are gonna fight this out. Any update on what you can tell us on that front?
Well, we've had a chance to read what the CMA had to say and, you know, the number of different bases for appeal. There's a technical basis that is irrationality, and this one is in the clearly irrational. You know, we'll appeal, and I think it's very nonsensical decision and we'll see what happens.
The appeal process is kind of convoluted. It's not like other places, and that's why there's been so much riding on this because in this case, the CMA is who you appeal to basically say, "Hey, this is illogical. This is irrational. Can you give me another decision?" Is that how it works, or is there a different way to go through it?
I don't know all the technicalities, but there are process issues. There are procedural issues. There's the purely irrational. I think then, yes, it would go back to the CMA, and then presumably they would probably accept the remedies that it seemed like they had already accepted.
In a situation like this, you obviously have to run the business as it is right now, as you still hope to anticipate that you'll be part of a bigger company. You know, how do you-
Sort of walk that line to a degree. I mean, what are the prospects of the business right now as an independent company? Are they different from if you're inside of Microsoft?
Well, we had in the first quarter, record performance.
Yeah.
All of our franchises are doing incredibly well. The business is moving along at a really fabulous pace. Our people are really excited. They're really motivated. They see all the prospects and opportunities. I think it's one of the nice things about this transaction. We're hopeful that we can complete it, but if it doesn't get completed, you know, by the end of the year, we'll be sitting on probably something like $17 billion-$18 billion of cash.
Including the $3 billion breakup fee?
Including the breakup fee, if that were to happen. I think, you know, we're in the enviable position of just thinking about being here and what we have. You know, like Call of Duty is Coca-Cola, and Candy Crush is American Express. We were toying with what GEICO is and, I think it's probably the closest to Warcraft. You know, all you need are three things like that that have the ability to generate high returns on invested capital over long periods of time.
Is it safe to say you are thinking about what you would do on either pathway at this point? Making sure that you've got a plan no matter what happens.
Well, remember, we've been owned before.
Yeah.
We had a controlled shareholder, and we're operating the business today fully independently, making all the thoughtful decisions. The only thing that we can't really do would be to allocate the big. You know, we're sitting on roughly $13 billion of cash today. That's the only thing that we really can't do, but other than that, we're running the business the way we ordinarily would.
You're saying you can't, you know, find new strategic uses for that cash while the deal is pending?
We can't, but we're also earning 5% on our cash balances.
Yeah, right.
So-
That's changed. Yeah.
We didn't get the 5.9. I wish we had gotten to that, but it was a moment in time.
On T-bills?
They loaded up on T-bills at 5.9%, yeah. Right.
We're still in the 5, which is just thinking, 18 months ago, we were in the 0.
Right.
Yeah.
So...
Even if you get past the CMA in the UK, the FTC has been pretty tough on this too, and Lina Khan has made some pretty tough statements even in the last week or so. Continues to say that there needs to be more regulation of companies, and that they're going to be taking a very hard line at this. I just wonder what you think that means broadly for mergers and acquisitions and for competition in the United States.
You know, I don't think it's great for America to have the government preventing you from what are sensible business combinations. When I look at Grail as a great example, this is an extraordinary company with incredible technology that actually can help prevent cancer.
Are you the Illumina?
Yeah.
Yeah.
And-
The deal that they tried to put back in.
I think what we wanna try and avoid our government doing is preventing things that are gonna create opportunities for innovation and growth, and especially for American companies and American workers who now have to compete on a global scale in a way that we never have before. I just hope that I think some rational thinking will start to come into government when it comes to protecting American consumers, American workers, and American businesses.
Bobby, wanna thank you for being with us today. It's always a pleasure, and we really appreciate your time today.
Thank you guys for having me. I really appreciate it.
We'll see you back in there, 'cause you're not leaving early this time, right?
No, I'm here for the duration.
Okay. Bobby Kotick. Right now we wanna get over to our Squawk Box supervising producer, Katie Kramer. She is live on the showroom floor right now. She's been checking things out over at the Oriental Trading booth. Katie, what are you learning? It's good to see you.
Good to see you guys too. You really get the festival feeling of Woodstock for capitalists when you're on the showroom floor. 20,000 sq ft of shopping experiences, activations, dozens of Berkshire portfolio companies have experiences here for shareholders. At Oriental Trading, they are celebrating retro this year. We have some rubber duckies of Warren in 1973 with a Duck Street Journal. We have a Charlie rubber duck. He's wearing a leisure suit that's also perfect for celebrating the retro look. A couple special guests actually. Flo the Flamingo from Oriental Trading, and probably the youngest shareholder here. How are you guys? Where are you from?
We're from Kansas.
Is this your first time at the annual meeting?
Second time.
Who's this handsome guy?
This is Logan. He was here last year, too. He was in utero still, though.
Welcome to Omaha, Logan. I think we're gonna do some shopping, and I'll send it back to you guys. Thanks so much.
All right, I think that boy needs some duckies. Let's make sure we get him some duckies and anything else we can find along the way. Katie, I don't know if you looked over your shoulder. You got somebody watching you.
I had a feeling.
You got a big guy just watching you guys. Yeah.
I definitely had a creepy feeling.
Katie, Charlie's fan.
Katie, thank you.
Are you a Charlie fan?
Aw. Thanks, guys.
There's a choice.
One of the shareholders said, "If you wanna be a hero around the office, go and get some of the trinkets and stuff.
the candy
in Oriental Trading. I said, "I'm not sure if I need to be a hero." That's all right.
In other words.
I'll go take a look.
Don't expect anything back.
I'll go take a look. That's fine. Meantime, Berkshire company Clayton Homes makes attainable housing, mobile, modular, or manufactured housing for a middle-class consumer. We tagged along for a tour of the model home Clayton is showing here at the Berkshire annual meeting. The company announced its move to build all new residential manufactured homes to Department of Energy Zero Energy Ready home specifications by 2024. CEO Kevin Clayton showed Warren Buffett around.
This home travels in one section down the road.
How do they get this down the road?
It's amazing. That's one thing that helps with the affordability. Less transportation costs, less setup costs, and then we'll build the breezeway and the garage on their site. The GSEs now are saying maybe we should allow a single section as well under the CrossMod program, which makes a lot of sense.
Do the trucks stop at Pilot then?
That's right, refuel.
Okay.
Yep.
Okay.
You'll see so many Berkshire products used throughout this home.
Yeah.
From all the flooring, insulation, the MiTek deck nails.
Yeah.
Warren doesn't make us buy from them.
No, I don't care why. There's no rule why.
We do it because they're the best.
There's no rules. Yeah.
Cost and quality.
Do what's best for Clayton and the customer.
Also, with mortgage rates more than doubled since what we've seen happening earlier in the year. Go ahead. You can roll anytime if you'd like. Since the Fed's first of 10 consecutive rate hikes in the last 14 months, finding affordable housing is obviously difficult for a lot of prospective buyers. Looking at the Clayton home with a price point of under $200,000, of course, that doesn't include the land, but that's for them to come out, set the house up, put it all, and get it ready to go. That's what caused Warren Buffett and Charlie Munger to actually reflect on their own homes.
Charlie lives in the house that he was building in 1950.
Nine.
Twenty-nine when I met him, and I had just moved into my house in 1958.
Yes.
We're both in the same houses. I don't know how many people that have changed their situation since they actually-
I was very lucky. I had a friend who built a marble palace in Beverly Hills with a marble stream that ran through the foyer. I went to dinner there, and I said, "You know, I don't need a marble stream running through my foyer.
No.
I think he fell into it eventually.
Charlie built a little house for me in the back.
Yeah.
I've got one house still. How many houses do you have, Charlie?
Seven.
What?
Seven.
7. Yeah. He's real estate poor.
Yeah. Charlie says he's got seven houses, but he said, "That's the ones my kids and my grandkids live in.
Right.
Where I think it's his house and then the place that he used to always go in Minnesota way up in the summertime. Those are the two places he goes, and he still goes there. He's been going there.
Yeah
every year since he was a kid.
I mean, over the course of 100 years, it's not that many houses to acquire, you know? You know.
This is true.
It's a reasonable pace maybe.
This is true.
Well, with us now is Berkshire Director Howard G. Buffett, also Chairman and CEO of the Howard G. Buffett Foundation, focusing on food security and conflict mitigation. His new book, Courage of a Nation, deals with his experiences in Ukraine. He's traveled to Ukraine seven times since the Russian invasion, and his foundation has donated $150 million to humanitarian efforts there with plans to double that this year. Howard, thank you for joining us.
Yeah, it's great to be here.
Wow. I mean, let's just start right there in terms of your assessment of your work there and just the state of things.
Yeah, I mean, it's a really tough place right now and I think the hardest thing to watch when you're there is a war on civilians and Russia has been very brutal about how they've implemented this invasion, and so you have a lot of people that are suffering. People go to bed. It doesn't matter where you are in Ukraine. You go to bed, you don't know, you know, if a missile's gonna hit you that night. That's a pretty tough situation to live in.
Howard, how many times have you been there?
Well, I was there once in 1991 when it was the Soviet Union.
Yeah
which is interesting to compare it to today, and then I've been there seven times, and I have three more trips planned this year.
How'd you get involved with it? How'd you meet up? Because you've met with the President, Zelenskyy.
Several times. Yeah. Well, when Russia invaded, it became clear to me right away it was gonna have a huge impact globally on food security.
Mm-hmm.
We started looking at where we would fit in. Of course, the most immediate things we've done have been in Ukraine, but we have also supported some of the grain going out with World Food Programme to Ethiopia and Yemen and some other places. I think that, you know, unless there's something significant that happens, this war could drag on for a while, and a lot of people are gonna suffer from it, and it's not good for the world. It's not good in terms of food security. It's not good in terms of how other countries are gonna cooperate.
Maybe we should back this up a little, just your expertise when it comes to this. You have a foundation that focuses on about three major causes. One of them is food security, and you know what you're talking about because you're a farmer too. You're not just a farmer in theory, you're one in practice who spends a lot of times out in the fields. By the way, traveling the world to try and find the best way to come up with new ways to grow crops.
Well, I was planting soybeans last week, so that might be your point. But yeah, I mean, look, we you know, you talk about global food security, and you think, you know, "What does it really mean?" You know, all of us are gonna be able to walk into a grocery store. We're gonna have access to food. You know, price might go up, but we can afford to buy it. You know, there's 3 or 4 billion people on this planet that don't have the same options we have. When you think about it, you know, we're gonna see the largest deficit in rice production this year. You're seeing the crops affected in some places in South America. Now, Brazil's done well.
At the end of the day, you know, the world needs a lot of food. Ukraine has been a major producer of that, you know, feeding over 400 million people a year. When you take that out of the equation, there's no way to just immediately step in and make it up.
Sugar prices are going to the moon right now too. I know that's also a production issue in part. You know, a year ago when we were here, it might have seemed as if things might get even more dire in the short term in terms of just global food prices and the ability of getting things around. There's at least a perception that it wasn't as bad as it could have been. Is that correct? I mean, that doesn't address the chronic issues but just over the past year.
Yeah, I think that's correct from the standpoint that you saw prices spike more.
Yeah.
come back a little bit. But I think part of that is related to, you know, they negotiated a deal, got the Black Sea open to the degree that some exports are going out. Not to the level that they would've been, you know, historically, but I think that's had some impact on things coming back down. I mean, you know, any little thing can trigger something. I think, you know, right now, there are a lot of people in the world that still don't have access to food, and they can't afford food. If you look at last year, just in Eastern Africa, World Food Programme estimated that a family food basket went up 55%. I can tell you it didn't come back down 55%. I mean, you have
The other thing you have to think about is a lot of these places when you start to talk about food security, you're talking about areas that are very volatile. They're not necessarily very stable. Some already are experiencing conflict. The trickle-down effect, which isn't such a trickle, I mean, it's bigger than that really, from Ukraine and not being able to export the types of commodities they typically export, it actually is creating some conflict around the world, and it will create additional conflict. It goes way beyond just food security.
Yeah. Maybe more of a waterfall effect than a trickle-down effect.
Yes, exactly.
Howard, while we're here, let's talk about Berkshire Hathaway.
Yeah.
your role at the company. You've been a director for a while, and part of what you're supposed to be doing there is maintaining the culture within and making sure that this place stays true to what your father, Warren Buffett, and Charlie Munger have laid out for how this is a different company. We had a lot of discussion this morning about succession. What did you think about that? What do you think the challenges are going to be on that front?
Well, I think you never know exactly what they're gonna be. I mean, in fact, typically, you'll be thinking about there are gonna be these certain things that are gonna come up, and something else will come up that you just haven't really anticipated. You know, that's what the board does, and that's what they're supposed to deal with. I think that, hopefully my dad lives a long time, you know, follow Charlie's example.
Mm-hmm.
He's around a long time. You know, the board will be faced with some tough decisions. You know, we got a great board. It's very cohesive. People understand what my dad has built, and they understand what my dad wants in the future. That's really not rocket science to do this. I mean, it's just really being disciplined and sticking with what the principles and values have been that have been established. That's really not that hard to do.
One, maybe longer term, concern that I've heard expressed is that, you know, under different management, maybe the company wouldn't have quite as easy a time as getting all these great acquisitions from people who wanna be able to say, "I sold my company to Warren Buffett.
I think you're gonna see Greg set an example quickly that nothing's changed at Berkshire. When people understand that nothing has changed at Berkshire, then they will still for the same reasons, you know. They may not have quite the same appeal as sitting down with my dad.
Sure.
If they're really looking for protection long term, or they're looking at the examples he gave this morning about how, you know, owners care about their employees, those things won't change, and I think that'll get established, probably quickly.
Howard, again, wanna thank you for joining us today. The book is called Courage of a Nation. You got it printed just in time.
Yeah, just for you.
It was a personal electronic book, but you got it printed.
Yeah.
There's tons of picture from your journeys there.
Yeah.
your travels, and we really appreciate your time.
Thank you.
Thank you.
Thanks.
All right, folks, another global hotspot came up in the morning session today. Warren Buffett and Charlie Munger being asked about steadily increasing tensions between the United States and China. Once again, Charlie Munger not mincing any words.
There's been some tension in the economic relationship of United States and China. I think that tension has been wrongly created on both sides. I think we're equally guilty of being stupid. If there's one thing we should do, it's get along with China, and we should have a lot of free trade with China in our mutual interest. I just can't imagine. It's just so obvious. There's so much safety and so much creativity that's possible. Think of what Apple has done by engaging in a partnership with China as a big supplier. It's been good for Apple and good for China. That's the kind of business we ought to be doing with China.
Moreover, everything that increases the tension between the two companies is stupid, and ought to be stopped on each side, and each side ought to respond to the other side's stupidity with reciprocal kindness.
That sounds like the solution to a lot of life's problems in all of our lives, right?
It does. Even if it's not necessarily realistic-
Yeah.
-under the current political-
Yeah.
Yeah, absolutely.
I'm trying to take it on a smaller scale.
That's right.
Figure out if I can use it.
That's the way to do it.
Things are about to heat up again. More questions are coming in in just about six and a half minutes.
Yeah.
I'm gonna scoot back inside.
All right.
Mike, I'll see you in just a little bit.
Absolutely. You only got, what? 35 more questions to get to.
That's right.
According to Warren's quota, so.
Exactly.
Gotta get over there. All right. More than 20,000 Dairy Queen treats will be sold here this weekend. Berkshire bought the fast food and ice cream shop 25 years ago for $600 million. Last year, it reached all-time record sales of $5.7 billion. Becky caught up with CEO Troy Bader on the floor yesterday.
This was a day where you got a lot of excitement, a lot of things happening. In fact, earlier today, Warren Buffett and Charlie Munger stopped by. What did they say to you when they came here?
They did. Actually, I have to confess, I wasn't here at the time. I was at a lunch with some of the other managers, but they said, "He's here." He actually had an opportunity to talk to some of our executives here, and they talked a lot about what the pandemic meant, what changed during the pandemic, how did technology change, how did the consumer change? So some really good conversations. Again, it shows how connected Warren is with even our business, which is wonderful.
Yeah, I will tell you, Charlie, I saw Charlie here while he was talking. Warren had gone in to talk to everybody. I was talking to Charlie. He said, "Wait a second. They're selling Dilly Bars for $1? How can they possibly charge that much? That's way more than they charge at the store, right?" I said, "No. How much do, Gary? How much do Dilly Bars bars really go for?
Well, it's gonna vary. Our franchisees set their pricing, but it's significantly more than a dollar.
That's what I told him.
They usually need to be north of $2.
That's what I told him. I told him $2, $2.50.
Yes.
Something along those lines, and he was shocked just at how far prices have come up. That's really speaking to inflation and a big issue that a lot of people have had to deal with.
Yeah.
That's something we've talked about last year, too. Where do things stand from an inflation front?
Inflation has been a real challenge over the last couple years. It's no surprise to anybody. We are seeing in our business, it's hitting us in a couple different ways. Obviously, it's hitting us from the cost of goods for our franchisees, the groceries coming in the back door, and how can they price accordingly to offset the inflation that they're experiencing, both in labor costs, but also with the groceries? That has been a real challenge, and the margins are getting thinner because you can't increase price at the same rate that we've experiencing from an inflation standpoint. The other piece that's hitting us is on the new restaurant development costs. Cost of equipment, you know, costs of construction have significantly increased, and it definitely is putting pressure on that end of the business as well.
Is this slowing your expansion plans, or do you just cough it up and pay in cash?
Yeah, I mean, people are, for the most part, taking a long-term view of development, and so we are continuing to move on. We opened about 300 new restaurants last year. We will be north of that number this year. The bulk of our growth is still gonna be in our international markets, which isn't new. But franchisees are pausing, but they're being very strategic and taking a long-term view.
Berkshire is the largest shareholder in both Occidental and Chevron. At the end of Berkshire's first quarter, its Chevron stake clocked in at more than $21 billion, but that was a drop of nearly $9 billion from the previous quarter, while at the end of March, Berkshire boosted its stake in Oxy to about 24% of that company. Joining me now to discuss Buffett's energy bets is CNBC.com reporter Eunice Yoon. Eunice, it's great to see you.
Great to see you too.
that decline in the Chevron stake
Yeah
was not just Chevron share price going down. They were a net seller of the shares.
Right. Chevron was down for 9% in the first quarter. I did the calculation. Berkshire did sell about $6 billion of Chevron, so he trimmed a little bit for the second quarter actually. He did that also in the fourth quarter. Berkshire was a net seller of stocks last quarter as well, about $10 billion worth of stocks. I was thinking about, you know, what he might have sold during the quarter. Do you think it could be Paramount? Because, you know, Paramount had a tough week last week, down almost 30%. You know, earnings missed.
Yes
dividend cut. In Japan with Becky, Buffett mentioned that, you know, streaming is not a very good business. I was wondering if this is just speculation.
Sure
If he thought this could be, Paramount could be bought or taken over because of the consolidations in the media industry, or he could have just dumped it in the last quarter. We'll see.
In fact, John Rogers of Ariel, who we spoke to this morning, who is also an owner of Paramount, said he was very eager to hear that as well.
Right.
There has been some speculation. We should be clear that, in the 10-Q, in the quarterly filing, they only disclose the very largest equity holdings.
Right. Top five.
We know that they were a net seller of about $10 billion of equities. You could say that Chevron was what? $6 billion or $7 billion of that or more?
Yeah. Yeah, $6 billion. Yeah.
there's some $4 billion in-
Right
in sales that we can only speculate on.
Right. Yeah.
We were talking about Activision as well.
Activision, yeah, it was one of his investing managers who bought Activision first before the Microsoft deal announcement. Then Berkshire, and then Buffett, he added to about $4 billion, and then he said it was a merger arbitrage play.
Sure.
Now that you know, the U.K. regulators, they just blocked the deal. The chances of the deal going through are pretty slim right now.
Yeah
We'll see what happens with that bet.
Did anything else stand out to you this morning in terms of the Q&A, in terms of how Buffett spoke about how he's thinking about his investments?
Yeah. I think there was a very interesting debate about value investing. You know, and Charlie and Warren, they kinda disagree on that too.
That's right.
Charlie put it very plainly. He said, you know, "Just get used to making less." Buffett, he was actually very optimistic. He said, "There's always opportunities, and what gives you opportunities is actually other people doing dumb things.
That's right.
Right? He's known for jumping into the market when people are panicking, when people are selling. He also talked about buying more under-the-radar opportunities, like what he did with Japan, you know. He bought five trading companies in Japan.
Yeah
a very large bet for Berkshire. He said in the room he's not done with Japan. He's looking for more.
He characterized that investment almost as incredibly obvious.
Right.
It was a no-brainer.
Right.
You could borrow in yen. We have, you know, more coming in in dividend yield than we are paying in in debt. He also, though, did describe his sale of Taiwan Semiconductor after only holding it for a short period.
Right. He kinda mentioned it was a consideration of the geopolitical tension. Nothing too serious, but there's some volatility around there. It is very rare to see him, you know, go in and out a position that quickly within the quarter. He spoke very positively about China. Charlie Munger put it like, he said, "The conflict between the U.S. and China is very, very stupid.
Yes.
We should encourage more free trade between the two countries.
They both seem to agree on that, although Charlie seems to think that there's a little more opportunity, at least in his own.
Right.
Investing in some domestic Chinese companies. Interesting. Now, he also, Buffett or Berkshire, bought back a fair amount of stock in the first quarter as well, right?
Yes.
$4.4 billion.
$4.4 billion. It's the most amount of buybacks since the fourth quarter of 2021.
Okay.
It's pretty significant. Berkshire only buys back shares when they think it's trading at a significant discount to intrinsic value. Now the Berkshire stock is almost back. Not that close, far away from its record high, almost at $500,000.
Yeah.
Yeah.
In fact, I think the stock now is valued about 1.4 times book value.
Right.
That's on the upper end of its historical range.
Right.
It doesn't capture the whole intrinsic value.
Right.
As they would calculate it.
Yeah.
It is quite fascinating. Not a lot of specifics about banks or financial loans.
No, no, not at all. Not a question directly about the cash holding. It was about $130 billion at the end of the last quarter. You know, I think Buffett has been waiting this long with interest rate at 0, but now interest rates are at 5%, so it will take something even more special for him to pull the trigger. He's happy to wait, and he's getting paid for waiting right now.
That's a great point. He did talk about how.
Yeah.
They just obviously on all their, the cash, all the float, they really do have an opportunity. It's baked in that they're gonna-
Right.
Have a lot more interest income. I did like the way he described the float, the amount of cash that comes in through their insurance business.
Mm-hmm.
He said, "It's like we have a bank with no customers, no employees.
Right.
Nobody can pull their money out.
Right.
Nobody can pull deposits out.
Right.
Sort of seeming to draw a contrast between actual banks right now.
Right.
Dealing with deposit flights.
Deposits and insurance business.
Yeah.
Very different.
Also likes to, I think, essentially, point out the strengths of his insurance business relative to anything that looks like a startup.
Right.
or a high-tech fintech.
Yes, especially GEICO, who had been struggling a little bit.
Yeah.
when compared to Progressive, its biggest competitor. Now it turned a profit. It turned an underwriting, a big-
Yeah.
Underwriting profit this quarter.
It was a big swing in the first quarter.
Yeah, a big swing. Ajit was very happy about it.
Exactly. He had a good story to tell, this year versus last year on that score. Yoon, thanks very much.
Thank you.
We'll talk to you again soon. We do want to return back. We're just moments away from the afternoon session of Q&A, but stick around for CNBC's post-show. Longtime shareholder and value investor Thomas Russo and actress Glenn Close will join us. Be sure to stick around for that. Buffett and Munger are retaking the stage for shareholder questions with Becky. They will be alternating questions from Becky, which came by way of shareholders, as well as live questions from investors that are out in the audience. Warren has committed to getting to 60 questions over the course of the day. We got to about 25 in the morning session. Charlie and Warren are now about to take the stage. Let's take you there, back to the arena.
Why not open the door when you come in? I have to just have it open?
Oh, just there. That's fine. Okay. Okay. Take your seats, please. Sales are terrific out there, so you're my kind of crowd. I've been getting reports we're breaking all kinds of records. We're gonna start off with question number 26, which goes to station two.
Hi, Warren and Charlie. My name is James from Malaysia. Given the recent challenge faced by the major U.S. bank, what is your overall outlook on the banking industry? How do you assess the risk and the opportunity in this section?
Well, anticipating a few questions on banks, I decided we should start using bank language here to describe the situation. Charlie. The situation in banking is very similar to what it's always been in banking, that fear is contagious always. Historically, sometimes the fear was justified, and sometimes it wasn't. My dad lost his job in 1931 because of a bank run, and they had a bank run on state banks. The head of the Omaha National Bank said, "Well, we're a national bank," and they didn't have a run on the national banks. Of course, they both faced the same problem. It used to be that if you saw people lining up at a bank, the proper response was to get into the line.
They'd always leave it. The story is that Sidney Weinberg of Goldman Sachs, during one of the great bank runs back in 1907 or thereabouts, had a job as a runner at Goldman Sachs and asked his boss if he could take the week off. The boss said, "Sure, not much is going on anyway." He got in line at whether it was the Knickerbocker Trust or wherever, and as he got toward the front of the line, he sold his place in line to somebody. He didn't have an account at the bank, but that was an asset. The banking system has changed so much over the years, and we did something enormously sensible, in my view, when we set up the FDIC.
As many as 2,000 banks had failed in one year back after World War I. I mean, bank runs were just part of the picture. If you have people that are worried about whether their money is safe in the bank and all trying to withdraw it, you can't run an economy very well. The FDIC was very logical. It's got changed over the years some, but here we are in, you know, 2023, and we actually see the FDIC pay off at 100 cents on the dollar to everybody or make it available on all demand deposits. Yet you still have people very worried about their periodically, geographically, all kinds of crazy ways, and that just shouldn't happen. The messaging has been very poor. It's been poor by the politicians who sometimes have an interest in having it poor.
It's been poor by the agencies, and I'd say it's been poor by the press. I mean, you shouldn't have so many people that misunderstand the fact that although there may be a debt ceiling, it's going to get changed. Although there's a $250,000 limit on FDIC, the FDIC and the U.S. government and the American public have no interest in having a bank fail or to have deposits actually lost by people. We had a demonstration project the weekend of Silicon Valley Bank, and the public is still confused. It really is something to have a law that became effective in 1934, although modified in some ways, not understood about something as important as the banking system. I don't think the American public is that dumb.
I made that offer over in Tokyo, incidentally, that I haven't heard from anybody that wants to take up my $1 million bet on whether the public will lose money in if they have a demand deposit at a bank, no matter what the size. That's the world we live in. It means that a lighted match can turn into a conflagration, or it can be blown out. Who knows what will happen. We don't have any worry. We keep our money in cash and treasury bills at Berkshire because we keep $128 billion or whatever it was at the end of the quarter, and we wanna be there if the banking system temporarily even gets stalled in some way. It shouldn't. I don't think it will, but I think it could.
I think that the incentives in bank regulation are so messed up and so many people have an interest in having them messed up that it's totally crazy. I mean, The Fannie Mae and Freddie Mac were doing 40% or so of the mortgage business in the United States. That is huge. They were regulated. Those, just those two companies were regulated by some group. I forget the, what they call it, but they had 150 people that were in charge of just figuring out whether Freddie and Fannie were doing the right thing. Well, I could have done it. You know, Charlie could have done it. You know, and I'm not sure they needed an assistant even to do it. It. But the incentives were all wrong.
and Freddie Mac, which were doing fine in August or apparently doing fine in July and August of 2008, were put into conservatorship, you know, early in September. The things that followed from that were just incredible. There are second order and third order and fourth order effects that are somewhat unpredictable as to what they will be and the sequence and all that. Things change, and if people think deposits are sticky anymore, they're just living in a different era. You know, you press a button. You don't have to get in a line and wait for days and have the teller counting out the money slowly in gold so that you hope the line goes away. You can have a run in a few seconds.
The way it hasn't been addressed properly is a problem, and who knows where it leads. You have to have a punishment for the people that do the wrong thing. If you take First Republic, for example, you could look at their 10-K, and you could see that they were offering non-government guaranteed mortgages to a jumbo amount at fixed rates, sometimes for 10 years before they change to floating. I mean, that's a crazy proposition. If it's to the advantage of the bank, they get it. They get the guy coming in and says, "I'll refinance at 1.5%, and then 1%." If it's advantage the other way, the fellow keeps it out 10 years. You don't give options like that, but that's what First Republic was doing.
It was in plain sight, and the world ignored it till it blew up. Some of the stock in some of these banks that were held by insiders was sold, and who knows whether they had a plan or at some point it was innocent or whether they started sensing what was coming. You do know that the directors are not going to be able to read some book or anything like that. They have the ability to hold the CEO accountable. If the CEO gets the bank in trouble, both the CEO and the directors should suffer. The stockholders of the future shouldn't suffer. They didn't do anything. It doesn't teach anybody any lessons or anything.
It teaches the lesson that if you run a bank and you screw it up, you're still a rich guy, and the clubs don't drop you, and the charity groups don't quit asking you to their benefits. The world goes on. That is not a good lesson to teach people who are holding the behavior of the economy in their hands. I think there's some work to be done, but I don't think it's. It's not a difficult problem. It's just we've screwed up the answer, and we screwed up the communication of it. Charlie?
Well, I'm so old-fashioned that I kinda liked it better when banks didn't do investment banking. That makes me very outmoded in the modern world.
The country decided it was contrary to public interest for a while, and then the banks wanted to get back into it.
Did they ever?
Yeah. No, I mean.
I don't think having a bunch of bankers, all of whom are trying to get rich, leads to good things. I think a banker should be more like an engineer. He's more, like, into avoiding trouble than he is getting rich.
Yeah, they could do fine.
They can do fine that way. I think we're gonna make a mistake when we create a bank where everybody who joins it plans to get rich.
Yeah.
It's a contradiction in values.
We came to that conclusion, I don't know, when Glass-Steagall was passed or anything, but then they wanna get back in. How many of you know, maybe I'm wrong on this, I haven't looked lately. The Federal Reserve actually was given the responsibility for setting margin requirements. They changed margin requirements a lot of times because it was known that people that borrow a lot of money cause a danger to the bank system, and you get too many in the picture and all of that sort of thing. What's happened? The banks figured out a thousand different ways to get so you borrow on 100% margin. You know, I mean, through derivatives and everything, it's just totally distorted, all the lessons that were learned in the 1929 crash and the-
Imagine taking banking into derivative trading. Who in his right mind would have allowed that?
Yeah. Well, there's more money in it.
Well, that's why they're in it.
Yeah.
It isn't necessarily a great social outcome for the rest of us.
That's what those Senate committees decided back in 1931 and 1932. Then in the late 1990s, particularly, very decent people, but, you know, Robert Rubin and some of the people, you know, they said, "This is the modern world." Here's what the modern world has turned out to hand us. Banking can have all kinds of new inventions, but it needs to have old values.
Well, if we do.
We don't know what's gonna happen, you know, because there are a lot of things that could happen out of the present situation. Depositors will not lose money. Stockholders and debt holders of the holding company and all that, they should lose money. The people borrowed on commercial real estate, and now it isn't. The loans aren't getting extended. They should leave. It's too bad. I mean, that's part of borrowing on 100% margin, which is what people have been doing in commercial real estate. You've got to have the penalties hit the people to cause the problems. If they took risks that they shouldn't have, it needs to fall on them if you're gonna change how people are gonna behave in the future. Okay, Becky.
This question comes from Davis Hance in Houston, Texas. He writes, "What do you think about the business models of the big banks as compared to the regional banks in the wake of the events at Silicon Valley Bank? And how does the perceived implicit guarantee of all deposits at all banks affect big banks and those regional banks?
Yeah. Well, I can say this. If you follow sound banking methods, which means not doing some things that other people do, a bank could be a perfectly decent investment. In fact, Charlie and I. It was me originally in 1969. We bought a bank at Berkshire, and we had $19 million invested in that bank, and we had $17 million, I think, invested in our insurance companies. If the Bank Holding Company Act of 1970 hadn't been passed, we might have ended up owning a lot of banks instead of a lot of insurance companies. We were looking at more banks, and Harry Keefe was taking us around Chicago, and there were other things we could do.
Bingo, they passed the 1970 Bank Holding Company Act, and we had to divest ourselves of that bank in 10 years, which we did.
By the way, it never had a bad debt.
Oh, it.
It never had an unnecessary cost. It made nothing but money with no risk. It never presented any deposit insurance risk to the government.
Zero.
It was a lovely, sound, constructive institution in this community, and any person who really deserved credit could get credit.
We were gonna buy more banks.
We were forced out of it.
We were gonna buy more banks. If we bought more banks, we probably wouldn't have expanded the insurance business. You know, the law changed, and so we divested, and we've done okay in insurance, but banking was more attractive to us. It was bigger, and there were more targets to buy. You could run a perfectly sound bank then and no negotiable certificates of deposit, all these things, all the inventions that came later, and you could still run it today, and you could earn a lot. You could earn good money, very good money, and we'd have bought more banks. We're precluded from doing that. We sold banks, bank stocks in the last
Well, we sold them first when the pandemic broke out, and then we sold some more in the last six months. We don't know where the shareholders of the big banks necessarily, or the regional banks or any banks are heading. I've got my bank, and I've got my own personal money, and I'm probably above the FDIC limit, and I've got it with a local bank, and I think I don't worry about it in the least. In terms of owning banks, events will determine their future. You've got politicians involved. You've got a whole lot of people don't really understand how the system works. I would say that you've had something less than a perfect communication between various people and the American public.
The American public is probably as confused about banking as ever, and that has consequences. Nobody knows what the consequences are because every event starts recreating a different dynamic. I mean, in physics, you know that pi is 3.14, you know, infinite number of numbers after that. No matter what happens, you don't know what has happened to the stickiness of deposits. Oh, it got changed by 2008. It's gotten changed by this. I mean, that changes everything. We're very cautious in a situation like that about ownership of banks. We do remain with one bank holding a deal. But we originated that deal with Bank of America. I like Bank of America.
I like the management, and I proposed the deal to them, so I stick with it. Do I know how to project out what's going to happen from here? The answer is I don't because I've seen so many things in the last few months which really weren't that unexpected to me to see, but which reconfirmed my belief that the American public doesn't understand their banking system. Some people in Congress perhaps don't understand it any more than I don't understand what the spaceship's called. I mean, there's all kinds of things I don't know about. If you're in Congress, you take a position on everything, and sometimes it's to your advantage, if you really understand it, not to say exactly what you feel. Here we are. Charlie, yeah.
Well, a lot has happened in banking in my lifetime. I welcomed all that early banking of the deserving immigrants by the early Bank of America. I think all the credit cards when they came in as original bank cards were a great contribution to civilization. The gamier it gets and the more it looks like investment banking, the less I like it as a citizen. I am deeply distrustful of situations in which everybody wants to get rich and envies everybody else. I regard that atmosphere as utterly toxic.
To people who like one story, which is again, a true story, and I'm not naming the name, and it wasn't Pete Jeffries because he might fit this name, but it wasn't Pete. Our hero, Gene Abegg, was going to have to retire at some point. We hired a future replacement. It's kind of a little problem I talked before about having the perfect business, and now we're gonna bring in somebody. We actually bring in somebody who went to Central High with Charlie, although-
My class.
Yeah. Charlie didn't know I was picking out this guy, and he wasn't.
If you'd asked me, we wouldn't have hired him.
Well, if I asked you, I probably wouldn't have hired anybody, but that's another question.
Yeah.
This guy comes over, a perfectly decent guy, but presentable, you know, looks like a banker and everything. Of course, the first thing he wants to do, we've got this wonderful bank, but we have the crummiest looking building in Rockford, and we don't need a great building. We just need a great banker. Naturally, this guy wants to build a new building. 'Cause we were the most profitable bank, but we didn't look like we were the most profitable bank. So I told him he could have any building he wanted as long as it was shorter than our nearest competitor. He lost interest totally. He wanted to be on the top floor of the biggest building in town.
I told him he could horizontally do anything he wanted, but he couldn't do it vertically. It taught me a lot about the guy's motivations in life. He didn't end up running the bank anyway. Anyway, that's all I know about banking, probably more. Station three.
Mr. Buffett and Mr. Munger. Hi.
Hi.
My name is Daphne. I'm 13 years old, and this is my 6th annual Berkshire Hathaway shareholder meeting. I've had the privilege to ask you both questions in years past. My question for you today is the following: As you know, the U.S. national debt is currently at an estimated $31 trillion, making up about 125% of the U.S. GDP. In the meantime, over the past few years, the Federal Reserve has telegraphed that they intend to monetize the debt by printing trillions of dollars, even as they insist that they're fighting inflation. Already, other major economies in the world, such as China, Saudi Arabia, and Brazil, are moving away from the U.S. dollar in anticipation of this. My question is, are we likely to face a time in the future when the U.S. dollar is no longer the global reserve currency?
How is Berkshire prepared for this possibility? What can we do as American citizens to attempt to shelter ourselves from what's beginning to look like the beginnings of de-dollarization?
Well, I should ask you to come up here and answer some questions. I mean, it's very interesting. I mean, we are the reserve currency, and I see no option for any other currency to be the reserve currency. I think that nobody understands the situation better than Jerome Powell. But he's not in control of fiscal policy. Every now and then, he drops a few hints. There was no question that when the pandemic broke out, I mean, it was a semi-warlike situation, but nobody knows how far you can go with a paper currency before it gets out of control, and particularly if you're the world's reserve currency. Nobody knows the answer to that.
You don't want to try and pick out the point at where it does become a problem because then it's all over. I think we should be very careful. I mean, you know, we all learned Keynesianism, and we applied it in World War II to the advantage of the country. We did everything we could to prevent inflation during the war. Then the war ended in August of 1945, and I think in January of 1946, and I'm not giving you exact figures at all now. But in January of 1946, I think the rate of inflation was at, you know, something like 1% or thereabout. By the end of the year, I think it was at, like, 15%. Again, I'm doing this from long memories.
It's easy for America to do us a lot. If we do too much, it's very hard to see how you recover once you let the genie out of the bottle and people lose faith in the currency. They behave in an entirely different manner than they do when they feel that if they put some money in the bank or have a pension plan or whatever it may be, that they're gonna get out something with roughly equal purchasing power. It just changes the economy. All kinds of things can happen then. I can't predict them, and nobody else can predict them, but I do know they aren't good. We will see. I do this as my...
You know, I voted for both parties, and it's not limited to politicians of either party or anything of the sort. People take positions. Some of them understand what they're doing, some of them don't understand what they're doing. You know, if they put me on some medical board, I don't understand what I'm doing. You know, it's not that there's nothing wrong with the fact that you can't master everything. We can't all be Isaac Newton, but you can't go around pretending you do or making decisions on it. We are not as well off in relation to curbing inflation expectations, which become self-fulfilling. We are not as well off as we were earlier, and Berkshire is better prepared than most investments for that kind of a period.
I said this in the annual report, but we aren't perfectly prepared because there's no way to perfectly prepare. You don't know what course of action will occur. It's a very political decision now. It's a tribal decision to some degree. You hope for leadership that actually will do something, recognizes the problem. America is an incredible society, rich. You know, we got everything going for us, but that doesn't mean we can just print money indefinitely. That as debt. It'll be interesting to see how it turns out. Charlie?
Well, at some point, printing money to buy votes will be counterproductive.
Yep.
We don't know exactly where that comes. If something is going to be dangerous and unproductive, you ought to keep a fair distance away. Now, if you have a culture that is exceptionally strong, like Japan, they have done some strange things there.
They couldn't have been a reserve currency.
No, of course not. Japan bought back most of the national debt and a lot of the common stocks and debt. It's just the Bank of Japan owns practically everything in Japan, and the country's working. It's in 30 years of economic stasis, but it's not going to help. I really admire Japan. I don't think we should try and imitate it. I don't think we're as good as Japan at taking.
They have a cohesive culture, and we don't, Charlie.
Yeah, that's exactly right.
Yeah.
In Japan, everybody's supposed to suck it up and cope, and in America, we complain.
I hope you come next year with a tougher question. Thank you. I predict I would love to be born again today in the United States. I mean, we can do a lot of dumb things and get away with it. We can't do an unlimited number. There are people who care about that. You know, you have to be willing to be extraordinarily unpopular. I mean, Paul Volcker, there are other Federal Reserve chair people that would not have done what he did. It's just too uncomfortable.
There used to be a politician in Nebraska, and if you asked him some really tough question, like, you know, "How do you stand on abortion?" Or he would look you right in the eye and say, "I'm all right on that one." And then he'd move next door. Well, that's what people have done basically on inflation. And they one way or another, they say, "I'm all right on that." And then they don't really think about what the consequences of their actions could be, particularly. And it's so much fun to. There's 435 of you to just be one of 435 instead of being the person actually responsible. Anyway, I am still next to the question of two superpowers and when you get into really destroying a planet.
Destroying the reserve currency of the world when there's really no substitute. Forget about all the toys, you know, I mean, it's a joke to think of any tokens or that sort. That's madness. It's also madness to just keep printing money. Yeah. We know how to do it. We actually came from a war money printing economy in World War II, which was required, and we suffered significant inflation. The price level, I mean, there are a million ways to judge it, but maybe 10 times what it was then or something like that. Well, that's getting close to the edge of where you don't wanna hold dollars anymore. You wanna hold something else. You wanna hold real estate. You wanna hold an interest in a business.
Your best defense is your own earning power. If you're the best doctor in town, if you're the best lawyer in town, if you're the best teacher in town, or even if you're the tenth best or ten, you're gonna make a good living. I mean, you know, the economy is productive and you will succeed with your talents, but you won't succeed by hoarding dollars. You'll just succeed by the fact that your value to the community, which is a rich community overall, is sustained. So the best investment is always in yourself. That's the answer I would give you.
Well, we have a situation where we've learned to print money in gobs and let a big chunk of our young people go right into wealth management. This is.
Like we did.
Yeah, like we did. Yes, we've been bad examples. I want to say that I didn't realize wealth management was gonna get so big when I went into it. I owe an apology for what's happened.
Yeah. Well, anyway, he did well. Becky.
This question comes from Gary Gambino in Parma, Ohio, who says he's been a Berkshire shareholder since 2004. He says the amount paid this year for the 41.4% stake in Pilot values the entire company at around $19 billion. That's about 6 times what BP is paying for TravelCenters of America, but Pilot's market share is just 3 times TravelCenters of America's. Was it a big mistake to base the final price on 2022 earnings, which has unusually high fuel margins? Yeah.
Well, that's a very good question, and the answer is that we arranged to buy it in three stages, with the third stage being at the option of the seller-owner of 20%. The first stage, we bought at what turned out to be a very attractive price. The second stage turned out to be a very good year for the diesel business, which means that the seller got a very good price. I would say that overall, we feel very good about the fact we own the 80% at the price that we do, but we would have rather owned better if we just bought the 80% to start with. The last 20%, the seller has the option, and that's always an unintelligent way of structuring something. We've had that arrangement with other.
Well, we've had it with the Nebraska Furniture Mart. We bought 80% of the Nebraska Furniture Mart on August 30, 1983, almost forty years ago, and it's worked out perfectly. When you give the other person the option, they've got some advantage. We have 80% now of a business we like very much. The comparison to TravelCenters of America is really spurious because TravelCenters of America is not only much smaller, but they rent all their properties. We have hundreds and hundreds of locations on the interstate that are zoned for commercial and maybe 15 acres or 20. There's nothing like it. They're not gonna move the interstate 2 miles to the right or something. You know, I mean, it was sort.
We've got a position that TravelCenters, I mean, you know, BP may or may not have made a fine deal. I've read the prospectus, and I can understand. I mean, it's a big source of output for BP. I like the management we have had at Pilot. I like very much the fellow who's coming in, that's the new CEO. I just have to tell you a little bit about Adam Wright, who's taking that job on. He came from Omaha. He wasn't selected because he came from Omaha. He came from Omaha. He came from North High, that's a public school that my wife graduated from. I've got grandchildren that graduated from there.
He went to University of Nebraska and almost set the rushing record in football, which will never be beaten because they've given up football. I think he rushed for maybe 3,600. He held three jobs while he went through there. He interned at MidAmerican 20 years ago. His mother worked to put him through school. I mean, it's just Horatio Alger squared, and we have him to manage Pilot. The Haslams have given us a wonderful business. They, Big Jim and I, but he's my vintage, I mean, great people. Here we are, and I'm very glad we own Pilot. I just wish we'd bought 100% of it when I first made the deal, but that was not the deal.
Well, it wasn't for sale.
It wasn't for sale.
Yeah.
Yeah. There's gonna be the last 20% of the Furniture Mart wasn't for sale when we bought it, so we bought 80% of it. That's worked out well. We've done various deals various ways. The best way to do it is just write people a check and get their stock. We did that with TTI. You can't always make the same deal. If we like the business well enough and the people well enough, we will tailor it differently, but our preference is to write a check and own the whole place and keep the management in place. Got anything to add on that?
No.
You know, it's really wonderful to watch something like Adam Wright work out. I mean, basically, you know, I don't know what his mother was earning, but he went to North High, which is probably four or five miles from here, public school graduate, and worked his way up. Went for a short period to Pacific Gas and Electric, and we brought him home to run Pilot. Pilot. Well, Pilot, the prices on diesel were way different last year. Pilot was close to $80 billion of sales last year. But more normal prices, it's significant. You know, it's half that or thereabout, maybe a little more. But he is.
I don't know how old Adam would be, but he's in his forties, and he came up through the organization that Greg Abel was involved with. Now here he is, running a very major business. To me, it's good at Berkshire to be able to do that. You know, somebody else may have gone to more prestigious business schools, I think. What? You know, we've seen what Adam can do. Okay. Station four.
Good afternoon, Mr. Buffett, Mr. Munger. My name is JC. I'm 15 years old, and I'm from Ohio. This is my fourth in-person Berkshire meeting. I have a lot of passion learning from your speeches, interviews, and articles. Thank you for sharing your wisdom all the time. Mr. Buffett, in your annual shareholder letter this year, you said that Berkshire's journey consisted of continuous savings, the power of compounding, the American tailwind, and avoidance of major mistakes. You have humbly admitted in the past that you have made many mistakes, but this is the first time that major mistakes stood out to me. Could you please advise us on what major mistakes we should avoid in both investing and in life? I would also like to have Mr. Munger's thoughts, too, please. Thank you very much.
Charlie said the major mistake you can make, then you're lucky to be in the United States. If you go around the world, you don't have a lot of choices in some places. You should write your obituary, then try and figure out how to live up to it. You know, that's something you get wiser on as you go along. The business mistakes, you just wanna make sure you don't make any mistakes that take you out of the game or come close to taking you out of your game. You should never have a night when you're worried about investing. I mean, assuming you have any money to invest at all. You should just spend a little bit less than you earn.
You can spend a little bit more than you earn, and then you've got debt, and the chances are you'll never get out of debt. We'll make an exception in terms of a mortgage on your house. Credit card debt, and we're in the credit card business big time, and we'll stay in the credit card business. Why get behind the game? If you're effectively paying 12 or 14 or whatever percent you're paying on a credit card, you know you're saying, "I'm gonna earn more than 14% on money." If you can do that, come to Berkshire Hathaway. It's, I hate to say this, but Charlie's around me, but it's straight out of Benjamin Franklin. I mean, it's not that complicated.
Well, I'll give you a couple lessons. You know, Tom Murphy, the first time I met him, said two things to me. He said, "You can always tell someone to go to hell tomorrow." That was great advice then. Think of what great advice it is when you can sit down at a computer and screw your life up forever by telling somebody to go to hell or something else in 30 seconds, and you can't erase it. You know, you haven't lost the option. You know, he said, "Praise by name, criticize by category." What makes more sense than that? I mean, who do you like that criticizes you all the time?
You don't need to vilify anybody to make your point on subjects of discussion. I'll give you another general piece of advice. I've never known anybody that was basically kind that died without friends. I've known plenty of people with money that have died without friends, including their family. I've never known anybody. You know, I've seen a few people, including Tom Murphy Sr. and maybe Jr., who's here. Certainly his dad. I watched him for 50 years. I never saw him do an unkind act. I didn't see him do very many stupid acts either. I mean, it wasn't that he was non-discriminating.
He just decided that there was no reason to do it. Wow, what a difference that makes in life. Charlie?
Well, it's so simple to spend less than you earn and invest shrewdly and avoid toxic people and toxic activities and try and keep learning all your life, et cetera, et cetera, and do a lot of deferred gratification because you prefer life that way. If you do all those things, you are almost certain to succeed. If you don't, you're gonna need a lot of luck. A lot of luck. You don't wanna need a lot of luck. You wanna go into a game where you're very likely to win without having any unusual luck.
I'd add one more thought, too. You need to know how people can manipulate other people, and then you need to resist the temptation to do it yourself.
Oh, yes. The toxic people who are trying to fool you or lie to you, who aren't reliable in meeting their commitments. The great lesson of life is get them the hell out of your life.
Yeah.
Do it fast. Do it fast.
I would add, what Charlie would totally agree with me. Do it tactfully if possible, too. Do get them out of your life.
Yes. Yeah, I don't mind a little tax. Or even a little financial cost, but the question is getting them the hell out of the life.
Okay. Becky?
All right. This comes from Roger Lee Tan. He says, "My name is Roger from Hong Kong, a long-term shareholder of Berkshire, admirer and follower of Mr. Buffett's and Munger's wisdom and principle. Both of you have said before that the most difficult problems in life are always people problems, and one of the key lessons you have learned to be able to live a happy life and a successful life is to stay away from negative people. My question is, what to do if those negative people are your families, the people whom you can't simply stay away from?
You minimize it. I mean, there's no question about it. Charlie gave an answer I thought was master of tact the other day when he says, "You always ought to interact with people who behave well." He says, "Of course, you have to make some exceptions to your family." It's true. You know, you really I don't know what it's like to have a drunken bully-ish probably father, but parent just generally. You know, how do you handle it?
It's very interesting that the MacArthur family, the very, very famous John MacArthur, the man who set up the MacArthur Foundation, had five kids, and four of them turned out to be superstars of one sort or another, and they had this crazy guy, generic drunken father. They all decided that the thing to do was to get the hell out of the house. You had this, the father of the MacArthur Foundation that did that along with three of the siblings out of five. You know, I was lucky. I mean, Charlie was lucky that it, you know, if you have a... I mean, our fathers all plenty of shortcomings in both of us, but, you know, it would still be there for us.
If you have one that won't be there for you know, it's a very tough problem. I think one way or another, I probably would have gotten through with that if I had that situation. I think my life would have been a lot different. Charlie?
I have nothing to add, but we're.
Okay. Station 5.
Hey, Warren and Charlie. Good afternoon. My name is Sudhakar Reddy Anaparthi. I'm from Bentonville, Arkansas, home of Walmart. I'm shareholder since 2019, and my daughters are shareholders since 2020. This is my first time coming to shareholders, and my question is, Walmart and Berkshire Hathaway has very great relationship with BNSF, McLane, and consumer goods like Fruit of the Loom and Garanimals and et cetera. My question is, Garanimals is exclusively sold at Walmart and Fruit of the Loom is sold at many other retailers. How does Berkshire Hathaway decides some items are sold at some retailers exclusively versus others are sold at many retailers?
Well, that's a good question. Obviously, you'd love to control. If you have a product, you'd love to control the distribution, and you're probably gonna get better gross margins if they ask for you by name. I mean, they just had an article about Bernard Arnault, who built LVMH, and, you know, he's got a blue box of Tiffany, and the blue box itself means something. Coca-Cola, the bottle meant something. In the 1920s, I think there was a study of that kind of hoop skirt bottle and blindfolded, a very high percentage of the population could recognize it was Coca-Cola. When they can recognize not only the product but the container, you know, you're going to have good gross margins.
If you're just another cola, and there've been hundreds of them, and even if you have distribution through something like Walmart, who has Sam's Cola, it just doesn't. It's not the same. I mean, here I am, you know. In 1886 or so, John Pemberton in Atlanta created it, and they spent very significant amount of money advertising. Now, on the other hand, Hershey's didn't spend any money on advertising. We have observed, Charlie and I both have observed so many products, so many methods of retail. We really think we know quite a bit about it, and we also know how much we don't know about it at the same time.
It doesn't mean that we wanna go into retailing ourselves, but it does mean we've learned to some extent what to avoid, and we've learned when somebody really has something. Garanimals has something. It's just that there's only so many, you know. Walmart does a great job of distribution for us, and it's a good product for Walmart. It's a good product for us. On Fruit of the Loom, they can sell lots of types of underwear, and they can do a big volume, but we're not going to make as much money relatively to capital employed or anything with a product that has a whole bunch of competitors. If they want Garanimals pajamas or something.
It's not the sort of product that causes people to drive 20 miles out of their way to buy it or anything of the sort. If you're in the Walmart, and you're picking out pajamas or something for the kid, and he or she wants a particular product, and it's reasonably priced and everything, and wears well and every. You know, we're happy to have it distributed through somebody with the distribution power of Walmart, and they're very happy to have the product. On balance, it's obviously better if you own See's Candies than if you own the no-name candy company. You know, particularly when people buy it as gifts a couple times a year.
I mean, they know that if they give their girlfriend, if they give someone in the hospital, if they give a gift at Christmas or going to a dinner, they know if they hand the box of candy to somebody, they don't say at the same time, "Here, I got a wonderful deal on this candy." I mean, it just kills the moment, right? What they really want to see is a smile on the other person's face that they're receiving it, and they get it. So, knowing what. See's box chocolates, A, are not remotely the market that soft drinks are. And the product does not travel particularly. Hershey's chocolate didn't travel. I mean, if you look at candy bars, what's popular in the U.K. isn't that popular in the U.S. and all kinds of things. Coca-Cola travels.
There are 200 countries, and roughly in probably 180 of them, it's a phenomenal product. How do you do it? Well, it helps if you started in 1886 and go from that point forward. So we've learned a lot. We got a lot to learn, but we did learn that something like Garanimals, we understood. When it came around, nobody ever heard of it. We bought it for a very low price, as it turned out, 20 years ago, and still nobody knows it other than we own it, and that's fine, but they know what Garanimals are. It has legs. It just keeps going year after year. Some things are like Pet Rocks. We're learning all the time. Charlie?
I have nothing to add.
Okay. You probably have never bought any Garanimals.
No, I never have. I don't even wear them.
He wouldn't fit. Okay, Becky Quick.
This question comes from Barry Laffer in New York City. Berkshire owns about 94 million shares of Paramount Global as of the last published data. This asset-rich company has disappointed on recent quarterly earnings reports and just this week slashed its dividend by 80%. How do you see the streaming wars evolving, and do you still have conviction in your investment thesis? Is your investment thesis based on the company being an acquisition target or based on its fundamentals?
Yeah. How would you like to manage my money for nothing? We are not in the business of giving stock advice to people. People who don't know anything about stocks can make a lot of money doing that. We don't think it's something we should give away. I will say this, it's not good news when any company passes its dividend or cuts its dividend dramatically. The streaming business is extremely interesting to watch because people love to use their eyeballs being entertained on a screen in front of them or a phone or whatever it may be. There's a lot of companies doing it, and you need fewer companies, or you need higher prices. Well, you need higher prices, or it doesn't work.
You don't lock in people when you get them to join up for the streaming period when your serial runs. I mean, you know, you keep them on for a while, but you can't lock them up. We'll see what happens. I mean, I had a gasoline station when I was 21 or 22, and it's about four or five miles from here. We had one competitor, and he determined our profit because we looked at his price every day, and if we cut the price, he'd match it.
Mm.
We couldn't raise the price. He did twice the gallonage, so he won. There's just basic business problems that you see with certain industries that you don't see with the other. Disney was unique in its animated, what it offered, you know, in the thirties and forties, and they wrote the stuff off at the first showing, and then they rejuvenated Snow White and all these other people every seven years, and that was fine. This is a different world. The eyeballs aren't gonna increase dramatically, and the time they can spend on it's not gonna increase dramatically. You got a bunch of companies that don't wanna quit. Who knows what pricing does under that.
Anybody tells you what they know, what pricing will do in the future is kidding themselves. Charlie? Charlie's had a lot of experience, incidentally, with Hollywood. I mean, he used to before I even met him.
I think the movie business is one tough business.
Yeah.
That's my view.
The talent will make the money, the agents will make the money. If you've got a theater, you know, the theaters are now doing 70% of the business that they did before the pandemic. Big hits, you know, have enormous grosses, but you can't reduce the supply. People have only got so many hours in the day. They've only got two eyeballs, and they got more choice than ever before. They've got stuff that's cheaper that offers them the same experience. Some of them like the experience, you know, particularly the big hits of going and. It isn't like you could double the number of people or double the eyeballs or anything like that. You've got a lot of people. The talent will always get paid.
When you essentially are packaging the talent one way or another, and you need to get higher prices, and you've got a lot of strong companies that don't wanna quit, that's an interesting equation.
Anyway, if you think the movies are tough, try to invest in a New York show on a conventional stage. There they think it's a breach of faith in that business to let the person who put up the money ever get any money back.
Yeah. Well, Charlie saw a lot of that, actually, when he-
Yeah. I don't like those businesses.
Tell him what happened on Cleopatra, Charlie. 'Cause it's a business that everybody's tempted to. They love the idea of going in it, you know, and they get a certain amount of psychic income.
I never owned any racehorses either.
Well, My father-in-law and I used to talk about claiming a horse at Excalibur, but we never quite got around to it. We had a lot of fun going to the track together. Okay, section six.
Good afternoon. My name is Hannah Hayes, and I'm a high schooler from Iowa. You said earlier today that transitioning to renewable energy has the people and capital to support it. With enough investment in renewables, the development of energy storage technology to soon meet Iowa's energy needs and support from the government to assist them through Inflation Reduction Act funding, why hasn't Berkshire Hathaway Energy truly invested in the future by accelerating retirement plans for the coal plants which have high operating costs and are currently Iowa's biggest carbon polluter and will continue to be until they're finally retired in 2049, which is too late to be curbing emissions, according to the IPCC?
Yeah. It's very interesting. We in Iowa have actually produced more wind energy than is used the total amount of energy used by our customers, but it's not producible 24 hours a day necessarily. There are problems. Incidentally, in Iowa, a significant majority of counties welcome us when we come around and wanna put in wind, and some don't want it. I mean, you know, it is. There's a not in my backyard someplace. There are other places where they love the money they get from a small plot of ground, and people they like the taxes that are paid. I would say that if there's one state in the union that stands out in the development, it's Iowa.
What's also interesting in Iowa is that we have one other major company. There's always loads of little co-ops and all kinds of things that sell electricity. We have one major competitor, and our prices are significantly lower. As a matter of fact, we are now in the Omaha Public Power District, and 3 miles or 4 miles away, we're selling electricity in Iowa. We are selling it cheaper, even though public power was invented in Nebraska, and it's been, I think it's, you know, George Norris did it back in the 1930s. You know, it's, it's Nebraska's resisted, to some extent, wind power more than Iowa. Like I said, our competitor or alternate source hasn't really pursued it the way we have.
I would say that our record in wind and solar has not been topped by any utility in the United States. Of course, it's been aided by the fact that most utilities pay out 70% or 80% of earnings in dividends. We haven't taken a common dividend out of it. We had a little, tiny preferred. We haven't taken a common dividend out of it, you know. For 20 years, we reinvested I don't know how many billion. That's the reason why the earnings have gone from $200 million to $4 billion, but we're not earning a higher rate of return on capital than we were when we started. We just put way more capital into the business as we went along, kept reinvesting the capital.
I wish Greg were here to tell you more details about it, but I would say that we'd really put a Berkshire Hathaway Energy's record against any utility in the United States. Charlie, you've watched it.
Well, I have, and, I'm not personally at all sure how bad the global warming is going to be. I think I don't think anybody knows for sure whether the seas are gonna rise 2 inches or 20 feet. I think there's a lot of false claims here in a world where much is not known.
Yeah, Wyoming. There is a lot of wind in Wyoming, and we are building transmission lines that extend out through the West. It was World War II, when they told us to do it, and we had a czar in Washington who could say, you know, "Just get it done," like they said to Henry Kaiser on building ships. You know, you can't believe how far ahead we would be now from where we are. We've got the money, we've got the know-how, and we do spend about this year, our depreciation in our utility company is on the order of $4 billion, and we spend maybe $3 billion additional to that, so maybe we spend $7 billion.
There are very few companies in the utility industry that are spending, you know, that percentage of their depreciation. We'd love to be spending more. There are people all over that don't want. They don't want the pipeline to go through their. They don't want the whatever it may be. That is the problem of a democracy. Even as I mentioned, within Iowa, you've got a great many counties that majority, great majority of the counties, I think, welcome the wind power, and you've got some counties that don't like them. We're obviously gonna work with the ones that wanna work with us. We do not have the ability to go in and tell anybody what to do on that.
There's a public utility commission in every state that basically governs what we earn on it, what we do, and that's the way the industry is developed. That's not bad unless you get into things that in effect you know extend. They're part of a countrywide system rather than a statewide system.
I think also that even if we weren't worried about global warming, it would make sense to.
Sure.
Shift to renewables to conserve our hydrocarbons. There are certain things hydrocarbons can do that nothing else can do, and there are only so much of them there. Why not be cautious in conserving them?
The cost, they've gotten so much more efficient, too. I mean, the wind stuff. I mean, if you look at what we're doing now, those towers are way more efficient. There's a lot of people that are talking about things that can't be done, and then there's.
There's a lot of nonsense in this field.
Yeah. Yeah.
If you like nonsense, this is the field for you.
Well, we're in the field, so
I know, I know.
Okay, Becky.
This is a question from Monroe Richardson. The Wall Street Journal reported in March that oil producers are producing less oil and may have reached their peak in the Permian Basin. Given the major positions of both Occidental Petroleum and Chevron in the Permian, would you please explain the rationale for Berkshire's significant holdings of both those companies, considering that future outlook for oil there?
Well, there's no question. It's really interesting about oil, and Charlie knows way more about oil than I do. When did you buy that royalty in near Bakersfield or wherever it is? That was before I met you, right?
Yes. No, it wasn't before. It was. Yes, it was. It was just before. You're right. Yeah. And that goddamn royalty's still paying me $70,000 a year.
What?
$1,000.
Yeah. Now, that's the opposite of the Permian. My dad bought $1,000 or $1,500 worth of royalties before he died in 1964. He left them to my mother. My mother left them to her two daughters, and my older sister died, and my younger sister's here today, and she gets these checks every month, and she knows about all these different fields and what they're producing. That's the reality of half of the oil production or something around that in the United States. Then the other half is shale. You know, if you've gone to the movies and ever watched Oil, you've never watched the things that are pumping out Charlie's royalties in California. You see these gushers of oil.
In the Permian, I'm like, "This should sink in on you." In the first day when you bring in a well, you know, it may be 12,000 barrels, it may be 15,000 barrels. And it's dangerous. At Occidental had one come in at, I think, 19,000 barrels or something like that one day. In a year and a half, it's a different business in effect. In the United States, it's interesting, we use whatever we use, maybe 11 and a fraction. We produce 11 and a fraction million barrels of oil equivalent a day. If shale stopped, I mean, it would drop to 6 million very fast.
Well, just imagine taking 5 million barrels a day out of the production in the world. Then we're also taking down our Strategic Petroleum Reserve. Strategic Petroleum Reserve is the ultimate oil field. You don't have to drill. It's just that we've got it. It was supposed to be strategic, but it gets involved in politics. When you're about the oil business, you're talking about different kinds of businesses, basically. We like Occidental's position in the Permian, and we wouldn't like that position if they got to minus. One day, it got to minus $30 a barrel. That was crazy, of course. If oil sells at X, you know, you do very well.
It sells at half of X, you know, your costs are the same, and it doesn't change the production, and it doesn't work as well. It also brings down the oil production of the United States very fast. We don't know what oil prices will be, but we do very much like the Occidental position they have. That's why we financed them a few years ago, and it looked like it was a terrible mistake, when the oil market just totally collapsed. Then it changed around, and we bought a lot of the common stock. In the last few months, they've reduced our preferred, which we don't like, obviously. I mean, we'd be disappointed in them if they didn't reduce it. It's intelligent from their standpoint.
We've taken, of the $10 billion preferred, we've gotten maybe $400-$500 million of it retired at 110% of par. Vicki Hollub is an extraordinary manager of Occidental. Her first job was with Cities Service. That was the first stock I bought in 1942. She knows what happens beneath the surface. I know the math of it, but I wouldn't have the faintest idea what to do if I was in an oil field. I mean, I can dig 2 feet down. I can in my backyard, and I can. That's my understanding of subsoil in the world.
I can't picture the field that Charlie has been collecting that monthly check from for 50-plus years, 60 years roughly. Or my sister getting various fields where they just keep pumping and pumping and pumping. We in the United States are lucky to have the ability to produce the kind of oil we've got from shale, but it is not a long-term source like you might think by watching movies about oil or something of the sort. Charlie, do you have anything?
Yeah, it really dies fast, those shale wells. If you like quick death in your oil wells, we have them for you.
Yeah. Occidental, they're doing a lot of good things.
Yeah. They drill a lot of new wells and the-
Yeah.
They're doing it at a profit, but it's a different kind of oil business.
It's just different. Yeah. Yeah. That's true of almost half the oil produced in the United States. There's times
There's a lot of oil down there that nobody knows how to produce. They've been working at it for like 50 years. They worked at the existing shale production for about 50 years before they figured it out. It was weirdly complicated when they finally were able to do it. There's only one type of sand that works.
Can you imagine a horizontal pipe, you know, maybe a mile and a half or something? I mean, it's just so different than what you think about the drive.
It goes laterally for 3 mi, 2 mi down.
Yeah.
How in the hell do you build two or three miles laterally when you're already two or three miles under the Earth? They've mastered a lot of very tricky technology to be able to get any oil out of these wells at all.
Yeah. We love the position with Occidental and-
Yeah.
We love having Vicki run it. They've been
There's a lot more oil down there if anybody can figure out another magic trick. That's all we need is another magic trick.
Occidental has some other things, too.
Yes, yes, but it.
The price of oil still is incredibly important in terms of the economics of shale oil. I mean, no question about that.
Well, if it's
We will incidentally. There's speculation about us buying control. We're not gonna buy control. We don't wanna. We've got the right management running it. I mean, we wouldn't know what to do with it. Charlie might know what to do with an oil field.
Admitting you're buying coal would be like going out and seeking to, what, acquire a cancer or something. You can't even borrow to expand a coal mine now. It's really. It got very unfashionable.
Yeah. We think, frankly, some of the things said are ridiculous. On both sides, in both extremes. I mean, it's just. I mean you're dealing with physics. You're dealing with the politicization of positions on something that's enormously important in terms of energy. It just lends itself to demagogues and fundraisers and advisory organizations and everybody in sight. We will make rational decisions, and we do not think it's un-American to be pro-producing oil.
There is no oil basin in the United States that compares to the Permian in terms of promise.
Yeah, we were lucky.
Well-
We didn't know it was there until.
Yes.
Not that many years ago.
It had sort of been used up, and then they always knew that shale oil was there, but they thought it was gonna stay unrecoverable forever.
The second or third stock I bought was Texas Pacific Land Corporation, and they owned all 3 million acres down there. They were grazing revenues of $10,000 a year or something like that, and they were sitting on this incredible amount of oil. Basically, that company is now actually part of Chevron, and it went through Texaco and did all kinds of things. There's still a Texas Pacific Land Corporation, but a lot of that property is fee owned by. Their minerals are owned by Chevron, which is some advantage, but it's an interesting subject, I'll put it that way.
We will not be making any offer for control of Occidental, but we love the shares we have, and we may or may not own more in the future, but we certainly have warrants which we got as part of the original deal on a very substantial amount of stock at around $59 a share. Those warrants last a long time, and I'm glad we have them. Okay. Station seven.
My name is Maxwell. I'm from Toronto, Canada. I have a question for Charlie regarding a statement you made in the past. You once mentioned that you would prefer to hire someone with IQ of 130 who believes it's 120 over someone with IQ of 150 who thinks it's 170. I understand that you were referring to Elon Musk. Given the recent success of his ventures such as Tesla, SpaceX, and Starlink, I'm curious to know if you still hold the view that Elon Musk overestimates himself. Thank you so much.
Well, yes. I think Elon Musk overestimates himself, but he has a. He is very talented, so he's overestimating somebody who doesn't need to overestimate to be very talented.
There's a Bill Maher program about a week old, maybe two weeks old, but he interviews Elon Musk, and Elon Musk does a terrific job toe-to-toe with Bill Maher. It is worth watching. Elon Musk is a brilliant guy, and I would say that, you know, he might score over 170. But he, you know, dreams about things and his dreams have got a foundation.
He would not have achieved what he has in life if he hadn't tried for unreasonably extreme objectives. He likes taking on the impossible job and doing it. We're different. Warren and I are looking for the easy job that we can identify.
Yeah. Yeah. If we can do it playing tic-tac-toe, we'll do it, you know? I mean.
We have a wholly different way of going about it.
A whole way. Yeah, yeah. We don't want to compete with Elon in a lot of things. I mean, you know, it.
We don't want that much failure.
It takes over your life and, I mean, in a way that it just doesn't fit us. You know, there have been important things done by Elon already and it requires. Fanaticism isn't the word.
Yeah, it is the word.
Okay. Well, it isn't quite the word, but yeah. It's a dedication to solving the impossible, and every now and then he'll do it. It would be torturous to me or Charlie. I like the way I'm living. I wouldn't enjoy being in his. He wouldn't enjoy being in my shoes either. Watch the Bill Maher interview. Okay, Becky.
This question comes from Foster Taylor. At the 2010 Berkshire annual meeting, you said the one question that you would ask of the Berkshire CEO would be about the distribution of cash to shareholders as the Berkshire cash pile grows larger and larger. Let me ask that question. Do you still feel confident of the future prospects for our over $100 billion in cash on hand, or are we getting closer to cash distributions?
Well, you know, the one thing if Berkshire shares are selling for less than we think they're worth, that's a pretty big way to distribute cash. What we'd really like to do is buy great businesses. If we could buy a company for $50 billion or $75 billion or $100 billion, we could do it, and we could do it, and our word's good. It's difficult with a public company because in effect, if you bid on a company, you make the bid, and their shareholders vote months later. That you're giving an option. If we're good for it, another guy has a way to
Thank you, yeah.
Tax for all kinds of things. They can get out of it, and you get paid 2% for that or 1% for that. That is not an appropriate price. On the other hand, Delaware will decide whether they should do it or not, and that's the way the world is. I mean, that's the law. It'd be easier to do with a private company. There aren't very many that are big. On the other hand, there's nobody else that can quite make a deal like we can under the right circumstances. There could be a situation where a bunch of very
A number of very decent companies have got a very uncomfortable borrowing structure, and money comes due to them at the exact wrong time, and that's when they pick up a phone, as did Tiffany and Harley-Davidson, and you name it. I mean, a whole bunch of companies in 2008. That sort of thing will happen again, whether it results in us getting the calls or what the world is exactly at that time. The one thing we know is that the number of phone calls that you can make at a time like that is very, very limited. There can be good companies.
They don't wanna sell the company necessarily, but they just may need $5 billion or $10 billion or $20 billion, depending on the company you're talking about. That can happen, and our own shareholders can be selling the stock too cheap, and we'll never do anything to make them sell it cheap. We'll tell them the truth about what the business is, but if market circumstances result in us being able to buy in $50 billion of our own stock, we'll buy it. We'll see what the world holds. I don't. We don't have the opportunities we used to have, but we've got enough, and we're making money with the things we have.
It isn't killing us to hold $130 billion of bills at 5% plus bond equivalent yields. Everybody says, "Well, yields are gonna go down in the future." I don't have the faintest idea what yields are gonna do in the future. You know, the prime rate was 21.5% in 1981 or 1982, and people were worried that it was gonna go totally out of control. Volcker kept it from happening, but if Volcker hadn't been in there, who the hell knows what would've happened? We're running Berkshire so that we'll do okay, and maybe we'll do a little bit better than okay. Charlie?
Okay, maybe fine.
Okay, station eight.
Hello, Mr. Buffett and Mr. Munger. My name is Carlos Sanchez, and I'm honored to be here from Guadalajara, Mexico. Mr. Munger, as a fellow lawyer, I have a question regarding corporate law. Considering your experience and success, if you were to offer guidance to someone like Ronald Olson when he was at the beginning of his career and before becoming Berkshire Hathaway's lawyer, what key principles or lessons would you suggest to help him excel in his profession?
Well, I'm not sure I quite caught all of that, but.
Yeah.
I don't think I have a lot of advice about how to succeed as a lawyer. I have a son-in-law who describes modern law practice in a big firm. He says it's like a pie eating contest where if you win, you get to eat more pie. I advise you to avoid that kind of a law firm. Life is too short to just do nothing but eat pie.
Yeah. Yeah, Charlie has not practiced law since, what, 1964 maybe or, whatever it was, but.
1962.
62. Charlie has given me 4 or 5 pieces of advice that don't really come from his legal background, but because he knows the system so well and you know, really did do quite well at Harvard Law School, despite his taunting of teachers and a few things. He has given me 4 or 5 solutions on things that nobody else in the world would have given me, law firm or otherwise. It's been within almost a nanosecond of when I described a problem to him. He just gave me the answer that nobody else would have come up with. I told you 1 of them last year, so I won't repeat it at this meeting.
We've got the best lawyer in the world in Charlie if it's something that really matters. There have been times when I've taken advantage of that. Charlie didn't wanna be a lawyer. He didn't wanna sell his time, maybe at $20 an hour or something, to people who he thought were making the wrong decisions, and he knew more about it than they did. That just did not strike him as a good way to go through life. I think he's probably right on that. I think he'd have really gotten to be miserable if he had to keep doing that. It's just no fun. It'd be like me giving investment advice to somebody or taking it from somebody.
I had to, you know, I just wouldn't wanna do it in life. Charlie figured that out, so we decided to work for ourselves and just work. Been happy, happily ever after.
We have no complaints.
Yeah. None. Okay, we're at Becky.
This question comes from Ryan Harding, and it's about the new 15% corporate minimum tax rate. As he sees it, its implementation is currently understood. He thinks that as he understands it to apply over rolling three-year periods and to be based on reported earnings. First, does the inclusion of unrealized gains and losses in reported earnings under the current financial reporting standards contribute to the calculation for corporate minimum tax rate purposes? Could it potentially convert some of those notional deferred taxes into cash taxes, even if a rise in the market price of a major holding is only temporary, but rather extreme? Second, could it reduce the effect of some of the renewable energy tax incentives and others?
Yeah. I think the answer on the second part probably is no, but I don't wanna say it is for sure because he's asking the same questions I ask of Marc Hamburg, who's the smartest guy on combining understanding of business, understanding the tax code, understanding SEC rules and everything else that you'll find in corporate America. These questions, the particular question on marketable securities, I don't think has been answered yet. I think that there are a number of things about the new tax act that were not enacted. I would say this. You know, we have said ourselves what we think the proper approach to operating income. We didn't design that because this tax law came along some years back.
We would think that you wouldn't include capital gains, unrealized capital gains, in. We've got enough, I think no matter how things turn out, you know, the 15% tax doesn't bother me in the least. We can figure ways once we know the rules where we will pay the 15% tax. You know, we were paying 52% taxes, federal income taxes when I bought control of the partnership of Berkshire Hathaway. I mean, the tax rate come down dramatically. The deferred tax that was embodied, for example, with Sanborn Map when I was involved in a system that was allowed under the tax law to avoid that tax. That was a huge tax, 52%.
We will live with this tax code, and we do not think corporations are overtaxed in the United States. You know, I think that the conversation about how we lose out to the world and all that sort of thing is really nonsense. We've got a new law that hasn't yet, the regulations haven't been written on. When we know what the game is, we will absolutely figure out a way to pay 15% every year, which generally we've been paying anyway. As I've pointed out, if there were 1,000 corporations in the United States that pay what Berkshire has been paying, nobody else in the United States, no individual, no corporation would ever pay any income tax, Social Security tax, gift tax, estate tax, anything else.
1,000 like Berkshire Hathaway would produce the revenue that's being produced by the federal government, that's being derived under the present tax code from everybody in the United States. I don't feel badly about that. I'd love to get it to what, it's 1/500th or something of the sort. What I'd like to do it at this rate, I'm happy to do it. I think we are privileged to live in the United States, but we also have to control spending. That's something that Congress doesn't quite want to, like, do, and they didn't like to do it when my dad went to Congress. They've dug in more as the years have gone by. Charlie?
Well, we covered this subject earlier.
Yeah. Okay. Station nine. Am I right on this? Yeah.
My name is Avalon Gross, and I am from Los Angeles, California. I am a shareholder, and it's my fourth year coming to the Woodstock of capitalism.
Well, yeah, we're glad you came.
Thank you so much for everything, Warren Buffett and Charlie Munger. What is the funniest story that you have never told about each other? Also, what is the hardest part of your business?
I'll answer the second. The second part of your question is that we don't have a hard business. We love our business. Every morning when I get up, I feel good. I don't know what's gonna happen that day. Maybe nothing will happen, but maybe something will happen. If nothing else, I'll roll some T-bills or something. I work with the greatest group of people you can imagine. I mean, we like each other, and nobody is after anybody else's job or anything of the sort. It's ideal working conditions, and it's five minutes from my home or thereabouts. So I haven't spent my life commuting. I just can't imagine having anything better.
Charlie's got a lot of funny stories you haven't heard, but we'll see which one he comes up with.
Well, I think Warren and I are naturally so ridiculous that we don't need very many funny stories. We each do things that are peculiar enough so that we can keep one another amused.
Tell them what you told the lawyer when we were buying Hochschild Kohn.
I don't remember. You tell them.
Well, you remember it was 1966, and we were down in Baltimore buying a department store, and we needed a lawyer. We needed a lawyer who was nearby and would do exactly as told. Charlie came up with a very good lawyer from Wilmer Cutler’s, I believe. I don't know whether Charlie remembers the instructions he gave the lawyer or not.
No, I don't.
Oh, well, Charlie told the lawyer, who we'd never met before, and he said, "Well," he says, "Treat Warren like." I was 36 at the time, or 35. He said, "Treat Warren like any other 90-year-old client." This guy knew exactly what he meant. We made the deal in a hurry, and then we went to the bank, First National Bank. I believe it was Maryland National Bank, actually. There was a fellow named Cammie Slack there, wasn't it, Charlie? We-
Yeah.
We wanted to borrow $6 million against a $12 million purchase. Cammie looked at us in bewilderment. He says, "You wanna borrow $6 million in this little old Hochschild Kohn?" Charlie and I said something to the effect, "Well, the Maryland National Bank was our first call, and if they didn't want to do it, we had another bank we could go to." Anyway, they lent us the money. When he said, "Little old Hochschild Kohn," we immediately started thinking, "Maybe this isn't the best deal we've ever seen in our lives." From that point on, we were trying to figure out how to sell it. We've had. We had as much fun.
David Gottesman was involved with us then, too, and we had as much fun out of deals that didn't work in a certain sense as the ones that did work. I mean, you know, if you knew you were gonna play golf and you were gonna hit a hole in one on every hole, you just hit the ball, and it went in the hole 300 yards away or 400 yards away, you would. Nobody would play golf. I mean, part of the fun of the game is the fact that you hit them into the woods, and sometimes you hit them, get them out, and sometimes you don't.
We are in the perfect sort of game, and we both enjoy it, and we have a lot of fun together, and we don't have to do anything we don't really believe in doing. I mean, we are not dictated to by any group, and so we get to follow our own. We get to forge our own destiny and, in a sense, forge our own principles by which we can run the company. That's a huge luxury in life. We don't wanna be president of any other company in the world or CEO or anything else where we have to conform to certain things that we really don't wanna conform to. Is that a fair description, Charlie?
Yeah, it is.
Yeah. Okay, Becky.
This question comes from David Kass, who is a professor at the business school at University of Maryland. He says, "At last year's annual meeting, Warren mentioned that Berkshire had taken a large stake in Activision Blizzard as a merger arbitrage play. Since the UK regulator has blocked its acquisition by Microsoft, has Berkshire reduced or sold its stake?
I think in terms of what we do with stocks, we don't give information except when required to, which is in the 13F or whatever we file. There's certain things you can actually figure out by looking at our 10-K around 10-Q, which we filed this morning, which you have to look pretty hard. I would say this. It's—I think Microsoft has been remarkably willing to cooperate with governing bodies, and I mean, they wanna do the deal, and they met the opposition more than halfway, but that doesn't mean that it gets done if a given country, in this case, the U.K., wants to block it.
They're in a better position to block it than the United States, but just the way the world works. That doesn't get solved by offering more money. I don't know how it turns out, but if it doesn't go through, I don't think it's through any shortcoming by either Microsoft or Activision. Not everything that should happen does happen. We ran into it when we bought and we made the deal with Dominion Energy 18 months ago, and they let us buy a good bit of what we wanted to buy.
U.S. government, in effect, said, "You can't buy something else," which I think we would have done a better job with than anybody else did, and in which the states involved did not object to it, which the customers didn't object to it. You don't take on the United States government, you know. You try and figure out things that you won't have a problem with. I think in that case, the U.S. government made a mistake. I think the British government's making a mistake in this case, but that's life in the big city, sure, I would say. What we do will depend on a lot of things. Charlie?
Well, I think what we do. Yeah, we. You kissed that one off beautifully.
Okay, station 10.
Hi, Warren. Hi, Charlie. My name is Anderson Fuller, and I'm from Avonport, Nova Scotia in Canada. Before I ask my question, I just wanna thank you for all you've done to give us insight into your minds as investors. So for me, the most compelling takeaway from Berkshire is you guys' emphasis on and successful use of properly aligned incentives. In my view, owning and leading a business has two essential benefits. First, you directly benefit as the company goes through your equity in it, and second, you have autonomy. Incentives for employees are a bit easier to understand, such as offering benefits, fair pay, and creating a strong culture, but I've always struggled to understand them at the highest level. Even though you say Berkshire gives its managers significant flexibility, it must be less than what they had when they were independent.
Additionally, you would think passion and a willingness to sell would be inversely correlated. How exactly does Berkshire bridge this gap and incentivize owners of its subsidiaries to give up these benefits to Berkshire? Thank you.
Well, what we really hope to find is managers who love their business but don't like a lot of what comes with it as a public company. I mean, if they have to spend a lot of time listening to people tell them what to do about this or that, and they can't afford to irritate them, or they have to go along with their trade association because, you know, whatever they may call it, because you don't wanna look like a free rider. Charlie and I solved that problem. I had five bosses in my life, and I liked all five of them, and two of them were just huge factors in making my life better. I like all five of them.
A couple of them are, you know, some people here, J. C. Penney, Cooper Smith. You know, I worked for 75 cents an hour, and I loved working at Penney. Well, I didn't love working at Penney, but I loved working for Cooper Smith and you know, it was 75 cents an hour, but I had to do what they told me to do, which was to sell men's shirts first, then men's clothing, then children's clothing, and so on. I loved working for the newspaper, and I had a great manager when I was in Nebraska. Got to work for Ben Graham. I mean, everything worked out, but there's nothing like working for yourself.
If you can't own a big company, working at Berkshire Hathaway or running a company is the closest thing you will get. You don't have to spend time courting analysts who you probably have contempt for in many cases. You don't have to spend time with banks getting money and particularly in terrible times. Yeah, there's all kinds of. You get a lot in the way of freedom that I would think would be meaningful to me, and it might be better if you own the whole place yourself, but maybe you've got siblings that want out. Maybe there's a million reasons why you may not be able to achieve that unless you sell to Berkshire. That's easier probably if you have a family business where people wanna go in different directions than it is with a public company.
There's still possibilities there. That's why I think if I owned a public company and it was worth great many billions of dollars and Berkshire Hathaway wanted to buy it and the shareholders were willing to vote it, I would, you know, considering the way I would feel about life. For one thing, I wouldn't wanna retire at 65. I'd wanna keep working. You know, there are reasons to sell to Berkshire, which Charlie and I, in certain positions, if we were on the other side, would take the deal. But it isn't for everybody. Charlie?
I think we have a pretty good one. We've been very lucky, and I don't know. It seems to me that most of the people who are gonna end up the way we did, they almost already know how to do it.
Well, the most important purchase in retrospect that we may have made was National Indemnity, not because specifically what it did, but what it led to. Jack Ringwalt controlled the company. I knew him and liked him, and he knew me. Once a year, he'd get irritated when the Nebraska Department of Insurance or somebody would come around, and he said they always came around when the Ak-Sar-Ben racetrack was open, you know, so they could. I mean, he had all these theories about why it was a pain in the neck to be regulated.
I told Charlie Munger, "Next time Jack is in that mood where he's ready to sell just because he's tired of fooling around with all these guys, be sure and find him." Charlie called me one day, and he says, "Jack is in heat." I said, "Bring him over." We made a deal. Well, that's why Jack sold, and he was happy after he made the deal, and I was happy after we made the deal. There's a man that controlled the business but just decided these people didn't seem to bother him as much once they were my problem and not his. You just can't tell when lightning will strike. That didn't do magnificent things for us initially, but just look at what it led to, you know.
You never, you know, if you knew how you were gonna shoot all 18 holes, it wouldn't be any fun playing. You wouldn't get on the first tee. I mean, it's the uncertainty, the fun of playing the game, the opponents, all kinds of things that make a game interesting. I think Charlie or I are in the most interesting game in the world. Okay, Becky.
Here's a question from Simon Withers in Perth in Western Australia. It's been a long time since we've heard about See's Candies and NetJets. Could you please give us an update on See's performance and when you project it will run out of places to open stores in the United States? Could you also give us an overview of how NetJets has performed since its acquisition and whether it's achieved the potential you saw at the time of that acquisition?
Well, with See's, it hasn't been a question of opening stores. We found out that we've had this wonderful brand that doesn't travel, you know. The mystique, the actual product, the feelings people have about some things, as we said before. I mean, it's limited to given markets. Dr Pepper sells at a huge rate in Dallas-Fort Worth and maybe at 10 times the percentage per capita that it has in Detroit or Boston. You say, "Well, how can that be with a product that's been around for a century and people travel and you have national advertising?" I'm not sure, but I keep learning more as I watch different brands. Charlie and I, our economics were so good in California that we tried to, in many cases, the same experiment over and over again.
It doesn't cost much to experiment. We've tried everything in the world to cause a brand to travel, and we always think we were right for the first week, and then we find out that the magic. We can beat any other candy store pretty much, but there aren't any candy stores more to speak of as the world has changed. See's is 101 years now. It has magic, and it has limited magic in sort of the adjacent West. You can almost say it's gravitational almost. You get to the East, and incidentally in the East, people prefer dark chocolate to milk chocolate. In the West, people prefer milk chocolate to dark. In the East, they can sell miniatures in dark.
I mean, there's all kinds of crazy things in the world that consumers do, but you wanna keep observing it because you do learn a little. With Charlie and I, the temptation to keep trying things because the economics were so good if we succeeded. We tried various things. Of course, every manager wants to try it as it comes along because they think it won't, you know, it should work, but it doesn't work. But that's what makes it very interesting. NetJets, we have really learned how to distinguish and justifiably distinguish a service to people so that You have to be very well-to-do to use it. If you're very well-to-do, you're in effect, you're spending your heirs' money.
I mean, that's what I told my Aunt Alice after she went from teaching to be worth millions and millions of dollars, and she came to see me. She'd never been married, and she said, "Can I afford to buy this fur coat?" In 1968 or 1969. I said, "Alice, you aren't buying it. Your nieces and nephews are buying it because that's who you're leaving your money to." Speaking on behalf of your nieces and nephews, I've said, "We want you to buy it." It's the same way, you know, do your heirs want you to fly around in NetJets, or do you want to leave a little more money to your foundation or your kids? The way to solve that one is to offer your kids a few hours themselves, and then their attitude can change.
It's in a class by itself. It's somewhat Ferrari has done in a different sort of way in cars. Ferrari sells 11,000 cars a year, I mean, maybe 12,000. You know, they're known throughout the world. We'll have a Chevy dealership in Boston or something. We'll sell as many cars, but we're not Ferrari. NetJets has 600. Well, counting Europe, I mean, it's maybe 650. But we're gonna buy 100 planes this year, and we won't sell any because we got a backlog, and we took a NetJets flight over to Tokyo, and we arrived in good shape, and we spent a couple of days there, and we flew back, and there's just nothing to it.
Now, you can say, well, you're getting sort of decadent and all that in your old age, but the money will go to philanthropy, and the money will probably be $100 billion or more. I figure the philanthropies want me to spend a few bucks on myself. All it has to do is be better than the last dollars that are spent by various philanthropies, which have plenty of problems finding things to do that make lots of sense. NetJets, there isn't a competitor. I mean, we looked at the other day, Wheels Up stock came out at $10 a couple years ago.
It was selling at $0.48 the other day, and they've got 12,600 people that have given $1 billion, a little over $1 billion on prepaid cards where they have given them money, and they get a certain number of hours later on. I think there's a good chance that some people are gonna be very disappointed later on when they have money to do NetJets. They know they'll get on the same planes with the same pilots as I and my family have flown on since before we bought the company. The decision wasn't shaped by some commercial objective.
A couple of years before, I'd never heard of NetJets, and Frank Rooney mentioned it to me, and I bought a share immediately. We bought the company. Well, my kids have to fly commercial sometimes because sometimes they get to use ours, too. But I've never flown anything else. Why would I? I mean, it's the gold standard. Nobody will match our fleet. I mean, if you've got 600 planes, you've got them a lot more places in the United States than anybody else will have theirs. I think we're the second largest fleet counting the commercial airliners. Our fleet's growing, like I say, at the rate of 100 planes a year or so. It's a marvelous company.
Adam Johnson has performed. You just can't believe what he's done with the business. It was a tough model for a long time, but he's brought it where it is, and we should have a wonderful company for forever. Charlie?
Well, NetJets has been remarkable. You can argue that it's worth as much as any airline now.
Oh, it's so different. Charlie, we had a hard time selling Charlie a NetJets membership. Then we figured the way to get him to buy a membership was to put a coach seat in the fuselage. That really knocked him off. I mean, I think he's the only one we sold on the basis of that.
I used to come to the Berkshire annual meetings on coach from Los Angeles, and it was full of rich stockholders, and they would clap when I came into the coach section. I really liked that.
I got to tell you, we semi corrupted him. He feels he kind of has to explain it, but he still flies the NetJets sometimes. It'd be crazy not to, you know. It's your heirs are paying for it. I mean, if you find me anybody whose estate came in at less than zero because what they spent on NetJets threw them into that position, let me know. I've never seen a case yet, and it won't be the case with the Buffett family. It's the residual bottom beneficiary that's paying for your membership. It's a little hard to get used to paying that much money, though, when you live like Charlie and I have most of our lives. Okay, we will go to section eleven.
Hello, my name is Humphrey Liu. I'm from Charlottesville, Virginia.
Ah.
First, I wanted to add my thanks to you and Mr. Munger and Mr. Buffett and all of Berkshire for throwing this grand event each year. Looking at the global trends, it increasingly does seem that zero-emission vehicles may have finally reached the cusp of mass adoption. Do you see any opportunities in this space, either in specific vehicle manufacturers or in related technologies?
I would say that Charlie and I were wrong ourselves with the auto industry. It's just too tough. You know, the Ford Motor Company, I mean, Henry Ford looked like he owned the world with the Model T. He brought down the price dramatically. He took up wages dramatically. He might have been with a different personality or some different views, he might have been elected president of the United States. I mean, there's a good book that came out on that recently that tells about the story of, tells a little about Nebraska in terms of it, but Henry Ford and Thomas Edison joining up, but maybe a year or two less. It'll—If you're interested in autos, you ought to read that book.
Henry Ford did that, you know, 20 years later they were losing money, and they had a guy with a gun in his pocket, I think Harry Bennett, you know, that was running the Ford Motor Company. It was on its way to the junkyard when the Whiz Kids came in. Henry Ford II, Hank the Deuce, as they called him, brought in Tex Thornton and my friend Arjay Miller. Milward, a few people. It's just. I was reading the other day, actually, the 1932 annual report of General Motors. It's one of the best annual reports I've read. It's a totally honest, you know, assessment of exactly where they were. They had 19,000 dealers then, and population, as I mentioned earlier, was about 120 million or so.
Now with 330 million people, all brands in the United States have, like, 18,000 dealers or something. It's just a business where you've got a lot of worldwide competitors. They're not gonna go away, and it looks like there are winners at any given time, but it doesn't get you a permanent place. Although, as I mentioned, I would say Ferrari is in a special place, but they only sell 11,000 or 12,000 cars a year. U.S. last year, I think there were 14 million something. It's not a business where we find it fascinating to be in. We like our dealership operation, but I don't think I can tell you what the auto industry will look like 5 or 10 years from now.
I do think that you're right that you know there's a change in the vehicles, but you won't see anybody that owns the market because they changed the vehicle. Charlie?
Well, the electric vehicle is coming big time, and that's a very interesting development. At the moment, it's imposing huge capital costs and huge risks. I don't like huge capital costs and huge risks.
We're subsidizing it in the United States, and we're actually doing it by putting in a pro-labor. I mean, it is subject to politics like you can't believe too. It's gonna be with us. We're not gonna quit driving cars. American public has a love affair with them. I think I know where Apple's gonna be in five or 10 years, and I don't know where the car companies are gonna be in five or 10 years. I may be wrong, but that's it. Charlie and I follow the auto business with intense interest. Charlie's firm was the specialist in General Motors on the Pacific Coast Stock Exchange, and that was a franchise, wasn't it, Charlie?
Yeah. We get it by working very hard. We can make a minor amount of money.
Yeah. It wasn't minor at the time, though.
It was.
Was it?
It was pretty minor at the time even.
Yeah. Well, that was pretty minor. Okay. Becky?
This question comes from Lindsey -Peter Schumacher in Cedar Rapids, Iowa. Does the current size of the Federal Reserve balance sheet concern you? In particular, the result of quantitative easing, the Federal Reserve expanded its balance sheet out of nothing. The net effect, in essence, is a form of single-entry accounting, creating something of value out of nothing other than a series of book entries. Wondering what Mr. Munger thinks about this as well.
Well, I don't think the Federal Reserve is the problem, and I think they can't solve the fiscal problem. I do not worry about the Federal Reserve. I think it's fulfilling the functions for which it was established. They have two objectives, and I would not have been one probably that would have changed the inflation objective to 2% a year from 0%. You know, I think that if you tell your people that you're shooting to depreciate your currency at 2% a year, that has a lot of implications, although it feels good to a lot of people.
A lot of people want a little inflation, but nobody wants a lot of inflation, except somebody who's got a lot of debts. I do not worry about the Federal Reserve balance sheet. I enjoy looking at it, and the numbers are big. I always like big numbers, but it is not. It's interesting. One of the most interesting figures to me is currency in circulation. I mean, it is gone. They were saying cash is trash back in 2007 and 2008, and all that cash is gonna disappear. Well, if you look at the Federal Reserve balance sheet, it's gone from $800 billion to $2.2 trillion. Most of that's in $100 bills, overwhelmingly.
If you figure it out, I think there's about $5,100 per person, babies, everybody in the United States. I would really like to know where all of that is. I mean, nobody's hoarding Eurodollars, you know, in South America or Africa or wherever. The demand for currency now, you know, it's some of it maybe used to be settle drug dealers' activities and all of that. But anybody thinks cash is trash ought to look at the Federal Reserve balance sheet. Actually, you can look at how many $5 bills and $2 bills and $1 bills and all that. The action has been in $100 bills. I mean, it is just astounding the way that $100 bills have spread.
Of course, we don't know where they are, and I don't know where they are, and I don't think the Fed can know exactly, but they probably make a lot better guess than I could. I do know it's happened, and you can watch it every week, and you'll watch currency in circulation probably grow a little bit. Believe me, cash is not trash, Charlie.
Well, I don't know where we're headed with all of this. It's been very extreme. I think that you could be pretty extreme in fighting depressions and so forth if you reverted afterwards to a period of some discipline. If you just.
Of what? I missed that.
Some discipline. If you're gonna just keep borrowing, printing money and spending it, I think eventually it causes bad trouble. You can see it in Latin America. Latin America let its currency get out of control all the time, and of course, it lagged the United States in economic achievement greatly. I think we pay a price if we ever give up our old ways entirely and go into a new world where we just try and print money to make it easier to get through the year.
We paid a price in World War II. I mean, everybody, school kids and everybody else, myself included. I mean, we bought what were originally called war bonds and defense bonds and savings bonds and all that. From 1940 to 1944 or 1945, you paid out $18.75, and you got $25 back, and every kid saved savings stamps and all that. When you got all through, you know, you had 120% of GDP in the national debt instead of 30% or 40%. We had a lot of inflation subsequently. A lot. The people that really bought those bonds in support of the war had a portion of their purchasing power taken away from them. Well, there wasn't anything wrong with that particularly.
when a country gets in the habit of doing that, I think it's tough to figure out where the breaking point is with society, but I don't think you wanna come anywhere close to it.
It's also tough to have a mass of people unemployed. That's the tension.
Yeah. Well, that's why the Fed has 2 objectives in terms of employment and inflation. But they are not the ones that created deficits. So far the system has worked pretty well, although like I say, it's been.
So far, the man who jumped off a tall building.
Yeah.
It's all right till he hits the ground.
There could be ways we can stop now at the third floor or the sixth floor. We don't know what floor it is, but we know it doesn't happen at the ground. The question, you know, politically, it's very tempting to vote appropriations, and it's not fun to vote taxes. Russell Long, head of the Senate Finance Committee, they got a building named after him now. He said, you know, "Don't tax you, don't tax me. Tax the guy behind the tree." Basically that is the attitude of, I mean, that it's the reality of what is useful in politics. So far this country's managed to work very well with a lot of things that could theoretically cause a lot of problems. It doesn't mean it doesn't guarantee us the future on it.
Being the reserve currency lets us do a lot of things, but it also creates a lot of consequences if we screw it up. Charlie?
Well, we're beating a subject to death, but it is a problem. I wish we had a solution.
Okay. Well, that will go to station one, should we?
Hello, Mr. Buffett and Mr. Munger. My name is Connor. I'm an economics student at the University of Nottingham. My question for you today is, during the pandemic, we witnessed supply chain shortages, especially from Asia. As a result, companies have chosen, with political tensions, to move production away. Should companies make these decisions, and should the government support them?
Charlie?
Well, that's a good question.
Yeah.
Obviously, it's logical if you're in business and you can make the thing in Mexico way cheaper. It's natural to open a factory in Mexico and get your parts cheaper, and a lot of the auto manufacturers have done exactly that. On the other hand, nobody wants to hollow out the whole country, so all the manufacturing jobs are elsewhere, and we're all living with a bunch of farmers, you know, like English colonies in 1820 or something. These ideas are, of course, in big tension. We don't have that much foreign production. Right, Warren?
Originally, Berkshire Hathaway as a textile manufacturer, it lost because the South became feasible versus the North. Of course, then eventually,
The South got expensive compared to China.
Sure. Society benefits and some people get killed in that sort of a situation. A rich society should take care one way or another of people that worked in our shoe factories, people working in our textile companies. I mean, if you worked in our textile operation in 1964 when we took it over, half our workers only spoke Portuguese. You know, they weren't getting great wages at all. Now you could do it in the South, and we were doomed to go out of business. It wasn't the fault of the worker in any way, shape, or form. It wasn't our fault. We kept trying to compete.
Well, it was TVA had cheap power down there.
Sure.
Textiles really congealed power.
Air conditioning changed everything, but the heat and the damp places were impossible. That's a lot of things. Then it moves offshore in many ways, and net, the country is better off because of it, but it displaces a lot of people who really can't do something else in life. You can't talk about retraining somebody that's 55 or 60 and speaks only Portuguese and really tell them they're gonna have a great future in New Bedford, Mass. So you don't wanna be glib about it. We can afford to take care of those people. We've got some systems that work reasonably well, but there's a tension between what about the person that doesn't do anything and all that kind of stuff. These are not easy problems to solve.
I would say that by and large, we want the whole world to prosper. We don't want the United States to be a country of extraordinary prosperity and have the rest of the world-
Starving.
No, it isn't gonna work, and it particularly isn't gonna work in a nuclear world. You have your own feelings about it as a humane person, but it can be done better, and we've got the resources to do it. I mean, the output of this country can be done with a lot fewer people and doing more specialized things. Of course, it has been. The work week in the United States, you know, in my lifetime has dropped dramatically, and people still feel busy. It will be the human lot to say, you know, "How can I get all these things done?" My mother didn't drive three kids anyplace.
I mean, you wanna go anyplace, if you were lucky, if you got old enough, you had a bicycle. The world just keeps looking at everything moving up as becoming sort of a base that leaves them somewhat dissatisfied. With our prosperity, we can do a lot of things we couldn't do in 1930 and including taking care of people that get despised by the fact that somebody else can do that work and improve their lot in life. We gotta make sure that we have the best system that takes care of the people who get despised by that. Doing that and building a system we have and everything, we'll make a lot of mistakes along the way, but we gotta keep moving in that direction. I think-
Really interesting thing about it is that Adam Smith was right, that the free market capitalism automatically, with a lot of property in private hands and free trade and all that, automatically creates GDP per capita that grows and helps everybody, including the people at the bottom. Helps everybody a lot. Inherent in the process is a lot of pain in that free market capitalism. For instance, of the Portuguese workers in the textile company in New Bedford. Nobody's ever figured out how to take all the pain out of it. We do have government safety nets to take some of the pain out, and we make those safety nets a little bigger as time goes by. Apart from that, if you try and take all the pain out, you'll also take all the gains out of it.
You won't have a growing GDP per capita. You'll have an economy like Russia's, which has been characterized as saying, "They pretend to pay us, and we pretend to work.
Yeah. The other systems haven't worked better, but.
Yeah
It also produces more and more disparities in wealth and people that do nothing but get assets under management without actually performing anything extra make fortunes. I mean, it's the job of government to keep the best aspects of capitalism while not causing people that only speak Portuguese to suffer in the process. I mean, the two aren't compatible politically over time, and we stumble along making progress on things like Social Security and all that. And we are a lot better off than we are when I was born.
Yet, the United States has done a very good job of this tension between capitalistic growth and a growing social safety net. We can be pretty proud of our country looking backward.
Yeah. That may be why we have 25% of the world's GDP, starting with a half a percent of the population in a few centuries. I mean, it's just a miracle. It wasn't because we were smarter. All you gotta say is there must be something to the system that's worked pretty well, even though it's produced a civil war and all kinds of things, you know, and women, you know, not getting a shot at anything, you know, even after they passed the Nineteenth Amendment. It's a work in progress. I think actually there's been progress, but it's mankind's nature to see the things wrong with it if you've.
Even worse, it's man's nature to take the progress as a right, not something to be earned or strived for, but something that should automatically just flow in over the transom. That attitude is poison. It doesn't do anybody any good.
Okay, now ask us an easy question, Becky.
This question comes from Doug DeSil. Since the accounting rules changed requiring Berkshire to report the change in fair value of its equity investments through the income statement, Mr. Buffett has repeatedly told shareholders to ignore those changes as they're not reflective of the long-term returns that those investments will produce. Recently, Mr. Buffett has argued that hold-to-maturity accounting used by the banks to avoid reflecting the changes in fair value of bank investment portfolios in the income statement and the shareholder equity account do a disservice to its various stakeholders. Can Mr. Buffett elaborate on why he views mark-to-market accounting differently for banks in comparison to Berkshire?
I believe in both cases in doing it on the balance sheet and not on the income statement. It's a very tough problem the auditors face, as in that, obviously, the income statement feeds into the balance sheet, but the balance sheet tells you whether deposits can be paid. It tells you a lot of things, and we show it on our balance sheet. We believe in showing market values on our balance sheet. We just don't believe in running it through the income account. In getting there, we would put it in other comprehensive income like it was for a long time.
I sympathize to some extent with a thorough extent with the audit group, but they have to really decide whether they want the balance sheet to represent values, except it doesn't reflect them on the upside. If we buy a See's Candies, it's worth way more money. It's conservative in that sense. Or whether they want to have an income account that becomes meaningless to people because it really changes every five seconds, you know. Well, the market's closed today, but you know, we have days. Well, I guess Apple was up, what? 7 or 8 points on Friday. I mean, that's $7 billion. I mean, then that's a crazy income account. It is a reflection of where we stand at that point.
Of course, if you're a bank where you're putting out money, billions and things that people sort of mortgages, I mean, primarily, they're a terrible instrument for a bank to own, but a great instrument for a consumer to buy and build into a whole society now in a way that was entirely different than the past. You've got to pay attention to whether they've gotten out of whack in terms of what the value of what they own and what can be demanded of them tomorrow morning. If we had all of our money that could be demanded from us tomorrow morning, we'd have to behave a lot differently than Berkshire does. I don't.
I really think the way to do it is the way you recommend doing, which is exactly what was being done until a few years ago. I recommend the shareholders look at it that way, but we're gonna follow the rules, obviously, that the SEC, you know, state authorities and everybody require of us. I'll still explain to the shareholders exactly what I would explain to my sister about what really counts at Berkshire. I think every management actually has an obligation to that. Instead of it, they go in the other direction and give them a lot of figures that are total nonsense. You know, I can't imagine some of them. You know, EBITDA, I thought, was about as bad as you could get, but they kept going, you know, and earnings before everything, EBE.
That doesn't change what I would tell my sister, who's here in the audience, I hope. I should tell all the shareholders, and we'll consistently do what is legal, and we'll consistently say what we think is right. Charlie?
Yeah.
We want owners who understand what they own. Now, that doesn't mean they have to understand the detail of it, but that's why we have people that have been around 50 or 60 years. That doesn't mean that they read the 10-Qs or anything like that, but they feel we're telling it to them like, you know, they live next door to us.
Yeah, I don't know what the accountants were thinking when they made that change. It strikes me as bonkers.
Yeah.
Absolutely bonkers. I don't see how anybody who understands how business is really operated and should be operated by owning managers would have made that accounting change. The accountants did it just because they had a wild moment.
25 years ago, I suggested to the audit profession that the audit committee ask auditors four questions. The shareholders would know a lot more about the company if those questions were asked, but it wasn't good for the auditors to be asked those questions because it might increase their liability if they answered them, and the client didn't want them to answer because the management didn't want them to.
No, they want a system where if they follow certain rules, they're safe. That's understandable. I don't think the past year, this rule requiring changes in marketable securities to go through the income account quarterly, they didn't do that to protect themselves from.
No.
-liability. They just did that for some crazy reason of their own.
Yeah.
You get a bunch of people who are all drawing a lot of pay out of a big, complicated system and rising in it like so many of our officers in the army. God knows what they'll do if you put them in a little room by themselves and tell them to invent new accounting standards.
Well, to our auditor, remember, that's Charlie talking. That's right. I agree with him 100%. He's 99. He can get away with more than I can get away with. Okay. Station two. What he said is enormously important. I mean, you gotta have some insights into what the hell really goes on.
Even if you're an accountant.
Yeah. Okay, station 2.
Dear Warren, dear Charlie. My name is Victoria Reitntrop. I am 22 years old, and I study in Munich at the CDTM, the Center for Digital Technology and Management. As your grandchildren are more in my age group, let me ask you. How do you transfer your wisdom to your grandchildren and heirs? How do you lead them to investing? Do you see value in investing as a family or individually? Thank you.
I'm gonna let Charlie do the answering on it. Well, I have more grandchildren, but I am quite philosophical about my grandchildren not thinking exactly the way I do. It seems to me that's almost the natural course of life. I just live my life my own way, and they can observe it as an example if they want to. If they don't, they can try some other way. I don't like it when they try some other way. I have to pretend that I like some of the boyfriends and girlfriends I don't like. But I just struggle through like everybody else. Usually I just bite my tongue and keep silent. That's my way of handling it.
Well, I would say that I think that in my case, my three children have grown a lot smarter in the last 30 years, and I think I've grown smarter. Well, I know, but you needed a lot of help. That is for sure. No, I would totally acknowledge that. That's why I had the room to go. I mean, I had plenty of room for improvement, but we all had a lot to grow. I worked a year for U.S. Steel, which was in their fabrication department in Los Angeles, a big operation. The thing was utterly doomed, and three years later, it went back to greenfields. The whole thing was razed to the ground. I did not see it coming. Now I would to be that ignorant and that.
As I was at that age, it was a sin. My professors, by and large, were even more ignorant than I was. Nobody had observed the basic economics of business in a scientific way at all when I was young. Well, if we're getting into confession time, I have to tell you, it's 3:30 P.M., so we don't wanna keep going on. Who knows what we'll be saying in another half hour. I thank you all very much for coming. At 4:30 P.M., we will have the shareholders meeting here. We're continuing to sell goods for another 20 or 25 minutes. We've already broken all kinds of records, but let's really make it tough for comparisons next year. Again, I thank you for coming.
Come next year, and maybe we'll figure out the answers to a few more of these questions.
That concludes the afternoon session of this year's Berkshire Hathaway meeting. Warren Buffett and Charlie Munger finishing a second 2.5-hour session, talking to shareholders, answering their questions. Welcome back to our special coverage of the Berkshire annual meeting. I'm Mike Santoli. Becky will be back with us shortly. When Warren and Charlie came back from lunch, the signs at the front of their table showed the audience they were ready to talk about the banking crisis. Buffett's sign said, "Available for sale." Charlie's sign said, "Held to maturity." Buffett seemed to lay the blame for the problems at the feet of everyone, from the bankers to the government and the regulators. Listen to what he said.
The messaging has been very poor. It's been poor by the politicians, who sometimes have an interest in having it poor. It's been poor by the agencies, and I'd say it's been poor by the press. I mean, you shouldn't have so many people that misunderstand the fact that although there may be a debt ceiling, it's going to get changed. Although there's a $250,000 limit on FDIC, the FDIC and the U.S. government and the American public have no interest in having a bank fail or to have deposits actually lost by people.
Warren also took his shots at First Republic, its management team, and how they ran their business.
You have to have a punishment for the people that do the wrong thing. If you take First Republic Bank, for example, you could look at their 10-K, and you could see that they were offering non-government guaranteed mortgages in jumbo amounts at fixed rates, sometimes for 10 years before they changed to floating. I mean, that's a crazy proposition. If it's to the advantage of the bank, they get the guy coming in and says, "I'll refinance at 1.5%, and then 1%." If it's to the advantage the other way, the fellow keeps it out 10 years. You don't give options like that, but that's what First Republic Bank was doing. It was in plain sight, and the world ignored it till it blew up.
Let's bring back in CNBC.com's Hugh Son. Hugh, you know, we were talking before lunch about the lack of commentary.
Yeah.
Regarding the banking crisis. Here, pretty blunt. In fact, it was pretty predictable. I thought they would come down on mismanagement of certain institutions. Really the takeaway is that depositors should feel safe. If they don't, it's because the message has been garbled. I suppose that means they're not in any real hurry to participate as investors necessarily in this group, in this area.
Yeah. I mean, I think the situation is there's an implicit guarantee, or at least that's what Warren Buffett seems to be saying, and it should be made explicit, apparently. When we talked about the tumult of the last week or so, two of the suggestions were either a temporary ban on short sales, or perhaps a radical expansion of FDIC coverage. He really addressed one of those two things that could perhaps arrest the declines in regional bank stocks. I mean, yeah, assailing everybody from regulators to we in the media to politicians makes for a pretty classic Warren Buffett rant, so we appreciated that.
I do think, you know, he really gets to the core of the issue here is, which is there is the possibility of future bank runs. He, in many different ways and several different times says, "I don't know how this story plays out." If Warren Buffett, with a six-decade, you know, history in investing very profitably in banks is saying, "I'm not getting involved at this point. I can. I have a $130 billion cash pile which we could deploy in the future if the situation requires," but they haven't done so yet. By the way, we've sold banks both recently and in the long term since 2020, what does that tell you?
I mean, it tells you he doesn't really have a whole lot of confidence in the sector at the moment, and I think that's the biggest takeaway. That's the implicit takeaway from this conversation.
Yeah. On the other hand, Hugh, the way you could also look at it from the other angle, which is he seems not to believe this is systemic. It almost underscores that point of view that says it's somewhat idiosyncratic. There's a handful of badly run institutions that got caught the wrong way on this. If depositors feel as if their money is safe, there's no need that it has to spill over, and we should get used to the idea of isolated bank failures.
Well, I'll push back a little bit with his comments that, you know, you can have a lit match turn into a conflagration. You could have the fire go away. I do think, you know, his position is ultimately this is a situation we don't know how it plays out, and that's concerning to me.
Yeah. Fair point, Hugh. Appreciate it. Thanks a lot for breaking it down. We also wanna welcome Becky back.
Hi. Thank you. I didn't hear everything you guys were talking about, but I think I get on the bank front.
That's right.
One of the things we've talked about here is how many different interesting people you can run into here. We've gotten used to running into leaders of business, but you never know who you can run into in Omaha. In fact, right now we've got Oscar-nominated actress Glenn Close. She happens to be a longtime attendee of the Berkshire Hathaway annual meeting. She's played a lot of famous roles, all kinds of things that are out there, everything we've ever seen from Alex Forrest in the original Fatal Attraction, Norma Desmond on stage in Sunset Boulevard, which was my personal favorite. I have to say I love that. But Glenn Close joins us right now.
Hi.
Thank you for joining us.
Thank you. I've played a lawyer, but I've never played an investor.
You play one in real life. You've been coming here for what? Almost a decade?
Yes. I think so. I think the first time I came was about 10 years ago.
Why?
Well, I think I was with somebody who, yes, I was a friend of Warren's, and she invited me to come. I was able to meet Warren and Charlie the very first time I was here and go to some dinners at their. I think they're just a phenomenon. I mean, it's truly phenomenal what goes on here. As an actor, they're one of the best stand-up duos ever.
Right.
They have a wonderful dynamic and, you know, this great insight into what's going on in the country and the world, financially and otherwise.
What did you think of what you heard today? What kinda jumped out at you as things that you're gonna take home?
Well, number one, I think the thing that always impresses me coming here is the respect that they have for their investors. It starts at 6:00 A.M. or 6:30 A.M. in the morning, and people are streaming into the building, and there are people from all over this country, all over Nebraska. They're just ordinary people. I think they're made to feel that they're part of something important. You don't ever feel that they're talking down to anyone.
Yeah.
They honestly want to try to explain as best they can their vision, you know, their reasons for what they do and it's absolutely fascinating. Warren's simplicity, I think he's a simple man with a mind like a computer. I mean, he is. I mean, I think one of the great minds and somebody who was the Oracle of Omaha and somebody that we really love as a human being as well as a businessman.
I always sit here, and I think that they take the most complex things and make them sound so easy. I walk out and maybe a few weeks later I think, "Well, wait a second, it's not as easy as I thought it was.
Yeah.
Have you ever changed anything about how you invest or what you put your money in based on what you've heard here?
I wish I had the kind of money that you need to really seriously invest. Well, actually, that's not true. I'm very conservative.
Yeah.
What I have, I would rather, you know, like, I would rather hang on to something that. Well, you're talking to the wrong person. I mean, I'm a Yankee.
Yeah.
You know, we're in for the long haul.
Yeah.
Yeah. I mean, they, of course, are very satisfied at the moment to have a lot of cash, have a cushion, and earn a little bit on it now versus what they could do a little while ago. I think a lot of individuals are in that situation too. Did you take anything from Warren's comments about the media business, the entertainment business, and how it's not all that great and predictable and maybe the, you know, not too clear on its future?
That's the conversation now.
Yeah, yeah.
I mean, we're in the middle of a writer's strike.
Yeah.
I mean, as an actor, I feel like we're in the Wild West. We, you know, all the rules are changing, and you want to protect yourself. You want to protect your craft. I feel very strongly about that. I think the more we look at screens, the more we get away from looking into two eyes and really feeling each other's humanity. The more you choose somebody from just a, you know, a self-made video, rather than letting the actor walk into the room, and it's not just about the part, but it's about who they are and how, you know, where they are in their craft. I think that's incredibly important.
You sound like you're on the side of the writers who are right now saying, "Wait, we wanna make sure that we're protected as the world changes and moves towards streaming, and that we're still gonna get paid for part of this.
Yeah. I'm certainly on their side, yeah.
Artificial intelligence is roiling all types of industries right now. It's certainly upending the business we work in. Lots of other places we've seen it. What about the business of Hollywood? Is that
Well, it's very frightening.
Changing those things?
Well, I've done a number of movies now where you go into a little booth that's 360-degree camera, and you're asked to do 30 different expressions. You know, "Smile.
Wow.
Then stand like this." They could totally recreate me.
Yeah.
They could have an AI version of me. Last night I called up my lawyer and said, "What happens to all those images?
Yeah.
Right.
After, you know, what do they do with them? Is it where they store them?
When are you gonna get paid off of it?
Yeah. Well, they can't. They supposedly can't use it without your permission, but it's still, you know, to go like this and like, "Ooh," and then, "Aah," you think, "I can do that in person, and I so hope if you need it enough to go into that file.
Yeah
get me to do it.
Well, of course, that's one of the big gulfs between the writers and the industry and the studios right now too, is the writers just said, "Look, promise us you're not gonna just give us a lump of AI-generated script and tell us to fix it," and the studios wouldn't commit to it. They just said, "We'll meet every year to figure it out.
I don't know. I think the thing that I find frightening is that we don't even know about our brains before we're letting loose.
Yeah
This incredibly powerful technology. We know what the, you know, the amount of depression, the amount of mental health issues that are at large in life now. Well, with all this is, there's just so much we can take in and deal with, I think.
Glenn, wanna thank you for your time today. It's really a pleasure getting to sit down with you.
It's lovely to meet you. Thank you.
Thank you so much.
I've been a fan before.
Yeah. It's good to meet you.
Thank you. Bye-bye.
All right. Buffett and Munger turn their attention to energy this afternoon. Berkshire upped its stake in Occidental to nearly 24% in late March, touching off speculation Berkshire could buy the company outright. Warren Buffett had this to say about that.
We will not be making any offer for control of Occidental, but we love the shares we have. We may or may not own more in the future, but we certainly have warrants on which we got as part of the original deal on a very substantial amount of stock at around $59 a share. Those warrants last a long time, and I'm glad we have them.
Yeah. That I mean, it came as a little bit of a surprise, Becky, maybe just in the idea that some folks thought that they were building toward an outright purchase of Occidental. He also did say he loves their position right now and-
The one thing I thought was interesting, he wasn't asked if they were going to buy a position. He offered that up himself.
That's a good point.
You know, we can only ask the questions that are sent in, that are written in. That wasn't part of the question, and he answered it anyway.
Yeah.
He clearly wanted to get it out there.
He must've anticipated that there was a bit of.
Yeah
speculation about that.
Right.
Well, let's bring in value investor Thomas Russo. He's been a Berkshire shareholder since 1983, with holdings for his clients and firm now worth more than $1 billion. Tom, it's great to see you again.
Thank you very much. It's great to be here.
What were your kind of big takeaways from the day?
I'm just so delighted to see Warren and Charlie so well and so with it and so quick on the answers and stay on thought. It was terrific. That was one thing.
In terms of any of the investment color that they gave about their positions, about what they're holding onto, what they're not that delighted about?
I think what they gave was more a sense of business as usual, especially in the area that's most important to them, which is the deployment of capital. They have to deploy the capital that's coming in, as you suggested, sort of $2 billion in how many days of the month are we into something?
Yeah, I think you said almost. I wrote those numbers down.
It was a stunning number.
Yeah, it was $6 billion or $7 billion that they had added.
Yeah
to between cash and T-bills.
Yeah
that they put through in the course of the month of April alone.
Yeah. Yeah, yeah.
It was something.
They talked about what did they get to buy it? They declared $7 billion for NAT, and I suspect Burlington will be somewhere close.
Mm-hmm.
They have Todd's business, where he's investing in this kind of whole new platform for technology, which I suspect will be built with an eye towards other parts of the company as well.
Yeah
to forecast demand.
The way he characterized Apple as being a better business than any one of their own.
Stunning.
Outright. Yeah.
Stunning. Stunning.
Yeah.
That's a big statement.
Yeah.
He backs it up with a big position. You know, he. By the way, I think they've already repurchased. Someone told me they've already repurchased $700 billion worth of Apple shares, and they just announced a $90 billion reload.
Oh, Apple. Yeah.
Apple, yes.
Boy, Apple's share count's down, I mean, tremendously in the last decade.
Yeah. Yeah, yeah.
Yeah.
It's a very recurring theme, which is deploying capital.
Right.
They did so as well with their smaller companies of Berkshire. One of the things that Greg has complimented Warren on is his ability to work with the independent companies that sit in these booths out here.
Derive from them a willingness to return their capital to Omaha.
One of the things that surprised me was just the idea that they could actually take, Warren said, I think $75 billion, even $100 billion dollars and acquire a company worth that much money.
Yes.
Now, they wouldn't wanna let it sitting out there. The problem with public companies is it's, you know.
Yes
You're putting an option on it-
Yes
to leave it out there for that long.
Yes.
They don't love that.
No, it's. The courts.
That's a big number.
The courts are fine.
Right. Yeah.
They have a cooling off period that's allowed and then they have to live with it. It's just, it was a deployment of capital. I have to start going back. You have to love the Jamie Lee Curtis movie. You come for the theater, and you also come for friends. I have my son here, my office is here. A group of people greet each other here each year, and that's sort of what we see. It's a terrific forum for then finally swapping ideas.
All right, Tom.
Hi
really appreciate you breaking it down with us after the meeting. Enjoy the rest of the weekend.
Thank you.
Good to see you.
Yeah. Thank you.
Sure.
Oh, wait one second.
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Before we close out our coverage of this year's Berkshire Hathaway annual meeting, we wanna make sure we leave you with some of the best sound from today's question and answer sessions. By the way, thank you all for joining us for this special day of coverage right here on CNBC and cnbc.com. Have a great night, everybody, and I'll see you back here from Omaha on Squawk Box on Monday morning.
I think that the incentives in bank regulation are so messed up, and so many people have an interest in having them messed up, that it's totally crazy. The messaging has been very poor. It's been poor by the politicians who sometimes have an interest in having it poor. It's been poor by the agencies, and I'd say it's been poor by the press. I mean, you shouldn't have so many people that misunderstand the fact that although there may be a debt ceiling, it's going to get changed. Although there's a $250,000 limit on FDIC, the FDIC and the U.S. government and the American public have no interest in having a bank fail or have deposits actually lost by people. A lot of things that could happen out of the present situation. Depositors will not lose money.
Stockholders and debt holders of the holding company and all that, they should lose money. If people borrowed on commercial real estate, and now the loans aren't getting extended, they should leave. It's too bad. I mean, that's part of borrowing on 100% margin, which is what people were doing, have been doing in commercial real estate. It. You've gotta have the penalties hit the people that cause the problems. If they took risks that they shouldn't have, it needs to fall on them if you're gonna change how people are gonna behave in the future. Apple, you know, has a position with consumers where they're paying, you know, maybe they pay $1,500 or whatever it may be for a phone, and these same people pay $35,000 for having a second car.
If they had to give up a second car or give up their iPhone, they'd give up their second car. I mean, it's an extraordinary product. We don't have anything like that we own 100% of, but we're very, very, very happy to have 5.6% or whatever it may be, and we're delighted every 0.1% that goes up. That's like adding $100 million to our earnings, I mean, our share of the earnings. They use the earnings to buy out our partners, which we're glad to see them sell out too. I am personally skeptical of some of the hype that has gone into artificial intelligence. I think old-fashioned intelligence works pretty well. It can do all kinds of things. When something can do all kinds of things, I get a little bit worried.
'Cause I know we won't be able to uninvent it. There's been some tension in the economic relationship of United States and China. I think that tension has been wrongly created on both sides. I think we're equally guilty of being stupid. If there's one thing we should do, it's get along with China, and we should have a lot of free trade with China in our mutual interest. I just can't imagine. It's just so obvious. There's so much safety and so much creativity that's possible. Think what Apple has done by engaging in a partnership with China as a big supplier. It's been good for Apple and good for China. That's the kind of business we ought to be doing with China. Moreover, with everything that increases the tension between the two countries is stupid, stupid.
Ought to be stopped on each side, and each side ought to respond to the other side's stupidity with reciprocal kindness. The world changing doesn't, or new things coming along don't take away the opportunities. What gives you opportunities is other people doing dumb things. I would say that the 58 years we've been running Berkshire, I would say there's been a great increase in the number of people doing dumb things, and they do big, dumb things. The reason they do it, to some extent, is because they can get money from other people so much easier than when we started. We will not be making any offer for control of Ocwen, but we love the shares we have.
We may or may not own more in the future, but we certainly have warrants on which we got as part of the original deal on a very substantial amount of stock at around $59 a share. The warrants last a long time, and I'm glad we have them. I think Elon Musk overestimates himself, but he is very talented, so he's overestimating somebody who doesn't need to overestimate to be very talented. He would not have achieved what he has in life if he hadn't tried for unreasonably extreme objectives. He likes taking on the impossible job and doing it. We're different. Warren and I are looking for the easy job that we can identify. Yeah. Yeah. If we can do it playing tic-tac-toe, we'll do it, you know? I mean.
We have a wholly different way of going about it. A whole way. Yeah, yeah. We don't wanna compete with Elon in a lot of things. I mean, it, you know. We don't want that much failure. Yeah.