Berkshire Hathaway Inc. (BRK.A)

ASM 1994 Part 1

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Apr 25, 1994

Am I live yet? Yeah. Morning. We were a little worried today because we weren't sure from the reservations whether we could handle everybody, but it looks to me like there may be a couple of seats left up there. But I think next year, we're going to have to find a different spot because it looks to me like we're up about 600 this year from last year. And to be on the safe side, we will seek out a larger spot. Now, there are certain implications to that because as some of the more experienced of you know, a few years ago, we were holding this meeting at the Joslin Museum, which is a temple of culture. And we've now, of course, moved to an old vaudeville theater, and the only place in town that can hold us next year, I think, is the Exarban Coliseum, where they have Keno and racetracks. So we are sliding down the cultural chain just as Charlie predicted years ago. He he saw all this coming. Charlie I I have some rather distressing news to report. There are always a few people that vote against everyone on the slate for directors, and there maybe a dozen or so people do that. And then there are others that single shot it, and they pick out people to vote against. And this will come as news to Charlie. I haven't told him yet, but he is the only one among our candidates for directors that received no negative votes this year. Oh, the whole year. No need to applaud. I tell you, when you lose out the title of Miss Congeniality to Charlie, know you're in trouble, isn't it? Now, I'd like to tell you a little bit how we'll run this. We will have the business meeting in a hurry with the cooperation of all of you, and then we will introduce our managers who are here. And then we will have a Q and A period. We will run that until 12 at which point we'll break. And then at 12:15, if the hardcore want to stick around, we will have another hour or so until about 1:15 of questions. So you're free to leave, of course, any time, and I've pointed out in the past that it's much better form if you leave while Charlie is talking rather than when I'm talking, but the, feel free anytime, but it it you can you if if you're panicked and you're worried about being conspicuous by leaving, you will you will be able to leave at noon. We will have buses out front that will take you to the hotels or the airport or to any place in town in which we have a commercial interest, and we encourage you staying around on that basis. Let's have the let's get the business of the meeting out of the way, and then we can get on to more interesting things. I will first introduce the Berkshire Hathaway directors that are present in addition to myself. And I first of all, there's Charlie, who is the vice chairman of Berkshire. And if the rest of you will stand, we have Susan T. Buffett, Howard Buffett, Malcolm Chase III, and Walter Scott Junior. And that's it. Also with us today are partners in the firm of Deloitte and Touche, our auditors, Ron Burgess and Mr. Craig Christensen. They are available to respond to appropriate questions you might have concerning their firm's audit of the accounts of Berkshire. Mr. Forrest Cruthers, Secretary of Berkshire, he will make a written record of the proceedings. Mr. Robert M. Fitzsimmons has been appointed inspector of election at this meeting. He will certify to the count of votes cast in the election for directors. The named proxy holders for this meeting are Walter Scott Jr. And Mark D. Hamburg. Proxy cards have been returned through last Friday, representing 1,035,680 Berkshire shares to be voted by the proxy holders, as indicated on the cards. That number of shares represents a quorum, and we will therefore directly proceed with the meeting. We will conduct the business of the meeting and adjourn to the formal meeting and then adjourn the formal meeting. After that, we will entertain questions that you might have. First order of business will be a reading of the minutes of the last meeting of shareholders. I recognize mister Walter Scott Junior, who will place the motion before the meeting. I move that the reading of the minutes of the last meeting of the shareholders be dispensed with. Do I hear a second? Motion has been moved in a second. Are there any comments or questions? Hearing none, we will vote on the motion by voice vote. All those in favor, say aye. Opposed? Motion's carried. And it's a vote. Does the secretary have a report of the number of Berkshire shares outstanding entitled to vote and represented at the meeting? Yes. I do. As indicated in the proxy statement that accompanied the notice of this meeting that was sent by 1st class mail to all shareholders of record on March 8, 1994, being the record date for this meeting there were 1,177,750 shares of Berkshire common stock outstanding with each share entitled to one vote, our motion is considered at the meeting. Of that number, 1,035,000 680 shares are represented at this meeting by proxies returned through last Friday. Thank you. We will proceed to elect directors. If a shareholder is president who wishes to withdraw a proxy previously sent in and vote in person, he or she may do so. Also, if any shareholder that is president has not turned in a proxy and desires a ballot in order to vote in person, you may do so. If you wish to do this, please identify yourself to meeting officials in the aisles who will furnish a ballot to you. With those persons desiring ballots, please identify themselves so that we may distribute them. Just raise your hand. Okay. I now recognize mister Walter Scott Junior to place a motion before the meeting with respect to election of directors. I move that Warren Buffett, Susan Buffett, Howard Buffett, Malcolm Chase, Charles Munger and Walter Scott be elected as directors. Is there a second? It's been moved and seconded that Warren E. Buffett, Susan D. Buffett, Howard G. Buffett, Malcolm G. Chase III, Charles D. Munger, and Walter Scott Junior be elected as directors. There any other nominations? Are there any discussion? The motion of nominations are ready to be acted upon. There are any shareholders voting in person that they should now mark their ballots and allow the ballots to be delivered to the inspector of elections. Seeing none, would the proxy holders please all submit to the Inspector of Elections the ballot voting, the proxies, in accordance with the instructions they have received. Mister Fitzsimmons, when you're ready, you may give your report. My report is ready. The ballot of the proxy holders received through last Friday cast not less than 1,035,407 votes for each nominee. That number far exceeds the majority of the number of all shares outstanding, and a more precise count cannot change the results of the election. However, the certification required by Delaware law regarding the precise count of the votes, including the votes cast in person at this meeting, will be given to the secretary to be placed with the minutes of this meeting. Thank you, mister Fitzsimmons. Warren E. Buffet, Susan T. Buffet, Howard G. Buffet, Malcolm G. Chase III, Charles D. Munger, and Walter Scott Jr. Have been elected as directors. Does anyone have any further business to come before this meeting before we adjourn? If not, I recognize mister Walter Scott Jr. To place a motion before meeting. I move the meeting be adjourned. Second? Motion adjourned has been made. And the second, we will vote by voice. Is there any discussion? If not, all in favor, say aye. Aye. Opposed, say no. The meeting is adjourned. It's democracy in middle America. Now, I'd like to introduce some of the people that make this place work to you. And if you would hold your applause until the end because there are quite a number of our managers here that I'm not sure which ones for sure are here. Some of them may be out tending the store as well. But first of all, from Nebraska Furniture Mart, Louis, Ron, and Irv Blumkin. I'm not sure who's here, but would you stand, please, any of the Blumkins that are present? Okay. We've looks like an Earth. I can't quite see it. Yeah. From Borsheim, Susan Jock here? Susan? There she is. Susan had a record day yesterday. She just Susan became CEO just a few months ago and she's turning in records already. Keep it up. From Central States Indemnity, we have the Kaisers. I'm not sure which ones are here, but there's Bill Sr, Bill Jr, John, and Dick. The Kaisers stand up. I think I can see him. John Don Werster from National Indemnity Rod Elbrud from the Home State Companies Brad Kinsler from Cyprus, our workers' comp company Ajit Jain, the big ticket writer in the East and Mike Goldberg, who runs our Real Estate Finance Group and also generally oversees the insurance group Mike Gary Heldman from Fetchheimer's Chuck Huggins from C's, the candyman Stan Lipsey from the Buffalo News. Chuck's been with us, incidentally, 20 odd years. Stan's been working with me for well over 25 years. Frank Rooney and Jim Isler from H. H. Brown, Dave Hillstrom from Precision Steel Ralph Schae from Scott Fetzer Peter Lundner, who was with our newest acquisition, Dexter Shue and Harold Alfond, his partner, couldn't be with us because his wife is ill And finally, the manager that's been with Charlie and me the longest, Harry Bottel from K&W. Harry, you here? There he is. There's Harry. Harry saved our bacon back in 19, what, 62 or so when, in some mad moment, I went into the windmill business and Harry got me out of it. That's our group of managers, and I'd appreciate it if you give them a hand. I have one piece of good news about next year for you, in addition to moving to larger quarters. Going to add nonstop air service from New York, Washington, and Los Angeles here in the next few months Midwest Express. So I hope they do very well with it, and I hope that makes it easier for you to get into town. Now, in this for the next 2 hours and 15 minutes or so, we'll have a session where we will take questions. We have 7 zones, 3 on the main four. We'll go start over there with zone 1 and work across. On the main four, if you'll raise your hand, the person who is handling the mic will pass it to you and we'll try to not repeat any individual in any one zone until everyone in that zone has had a chance to ask one question. So after you've been on once, let other people get a shot. When we move up to the lows, we have one person there. And in the case and then we have 3 in the balcony, which is essentially full now. And we would up there, we would appreciate it if you would you leave your seat and go to the person with the mic. It will be a little easier in both the loge and the balcony to handle it that way. And if you'll go a little ahead of time, that way if there's a line of 2 or 3, you can line up for questions in both the loge and balcony. So whatever you'd care to ask, if you want an optimistic answer, you'll, of course, direct your question to Charlie. And if you'd like a little more realism, you'll come to me. And let's start over in zone 1. Sometimes we can't see too well from up here, but in fact, I can't even see the monitor right now. Do we have one over there? And if you'll identify yourself by name and your hometown, we'd appreciate it. My name is Michael Mullen from Omaha. Would you comment on the use of derivatives? I noticed, Dell Computer stock was off 2 and a half points Friday with the loss in derivatives. The question is about derivatives. We, we have in this room, the author of the best, the best thing you can read on that. There was an article in Fortune about a month ago or so by Carol Loomis on derivatives and far and away is the best article that's been written. We also have some people in the room that do business in derivatives from Solomon. And it's a very broad subject. As we said last year I think someone asked what might be the big financial story of the '90s and we said we obviously don't know, but that if we had to pick a topic, that it could well be derivatives because they lend themselves to the use of unusual amounts of leverage and they're sometimes not completely understood by the people involved. And any time you combine ignorance and borrow money, you can get some pretty interesting consequences, particularly when the numbers get big. And you've seen that, of course, recently with the recent Procter and Gamble announcement. Now, I don't know the details of the P and G derivatives, but I understand, at least from press reports, that what started out as interest rate swaps ended up with P&G writing puts on large quantities of of, U. S. And I think one other country's bonds. And any time you go from selling soap to writing puts on bonds, you've made a big jump. And it it it the ability to borrow enormous amounts of money, combined with a chance to get either very rich or very poor very quickly, has historically been a recipe for trouble at some point. And that derivatives are not going to go away. They serve useful purposes and all of that, but I'm just saying that it it has that potential. And, we've seen a little bit of that. I can't think of anything that we've done that would do you think of anything we do that approaches derivatives, Charlie? Directly? No. No. I may have to cut them off if he talks too long. Is there anything you would like to add to your already extensive remarks? My name is Hugh Stevenson. I'm a shareholder from Atlanta. My question involves the company's investment in the stock of cap cities. It's been my understanding in the past that was regarded as one of the 4, quote unquote, permanent holdings of the company. I saw I was a little bit confused by the disposition of 1,000,000 shares. Could you clarify that? Was my previous misunderstanding incorrect or has there been some change or is there a third possibility? Well, we we have classified, the Washington Post Company and and and Cap Cities and GEICO and Coke in the category of permanent holdings. And but in the case of 3 of those 4, the Washington Post Company I don't know, maybe maybe 7 or 8 years ago, GEICO some years back, and now Cap Cities. We have participated in tenders where the company has repurchased shares. Now the first two, the Post and and GEICO, we participated proportionally. That was not feasible and incidentally not as attractive tax wise anymore. The 1968 Tax Act changed the desirability of proportional redemptions of shares from our standpoint. That point has been missed by a lot of journalists in commenting on it, but it just so happens that the commentary that has been written has been obsolete in some cases by 6 or 7 years. But we did participate in the Cap Cities tender offer, just as we did in the Post and and GEICO. We still are by far the largest shareholder of Cap Cities. We think it's a superbly run operation in a business that that that is looks a little tougher than it did 15 years ago, but looks a little bit better than it did 15 months ago. Charlie, you have anything on? No. He's thinking it over now, though, before. A zone freight. Good morning. My name is Howard Bask. I'm from Kansas City. And I've got a theoretical value question for you. If you were to buy a business and you bought it at its intrinsic value, what's the minimum after tax free cash flow yield you'd need to get? Well, your question is if we were buying all of the business and we were buying it at what we thought was intrinsic value, what was the minimum Correct. Present earning power or what the minimum discount rate of future streams? No. What's the minimum current after tax free cash flow yield you'd We we could conceivably buy a business. I don't think we we we would be likely to, but we could we could conceivably buy a business that had no current after tax cash flow, but we would have to think it was had a tremendous future. But we would not find, obviously, the current figures, particularly in the kind of businesses we buy, tend to be representative, we think, of what's going to happen in the future. But that would not necessarily have to be the case. You can argue for example, in buying stocks, we bought GEICO at a time when it was losing significant money. We didn't expect it to continue to lose significant money. But if we think if we think the present value of the future earning power is attractive enough compared to the purchase price, we would not be overwhelmed by what the 1st year's figure would be. Charlie, do you want to add to that? Yeah. We don't care what we report in the 1st year or 2 of after buying anything. Well, I would say that that, in a world of 7% long term bond rates, that, we would certainly want to think we were discounting future after tax streams of cash at at at least a 10% rate. But that that will depend on on the certainty we feel about the business. The more certain that we feel about a business, the closer we're willing to play it. We have to feel pretty certain about any business before we're even interested at all. But there's still degrees of certainty. And if we thought we were getting a stream of cash over the next 30 years that we felt extremely certain about, we would use a discount rate that would be somewhat somewhat less than if it was one where we thought we might get some surprises in 5 or 10 years. A possibility existed. Charlie? Nothing to add? Okay. Zone 4. Morris Spence from Omaha, Nebraska. You've made comments on several occasions about the intrinsic business value of the insurance operations. In this year's report you state that insurance business possesses intrinsic value that exceeds book value by a large amount, larger in fact than is the case of any Berkshire other Berkshire business. I was wondering if you would explain in greater detail why you believe that to be true. Well, I it's very hard to quantify, as as as we've said many times in the report. But I think that it's clear that even taking fairly pessimistic assumptions that the excess of intrinsic value over carrying value is higher, by some margin for the insurance business. And I think that the table in the report that shows you what our cost to float has been over the years and also what the trend to float has been over the years, would unless you thought that table had no validity for the future, I think that that table would tend to point you in the direction of, of saying the insurance business does have a very significant excess of intrinsic value over carrying value. Very hard number to put something on, but and you don't want to extrapolate that table out, but I think that table shows that we started with maybe $20,000,000 a float and that we're up to something close to 3,000,000,000 a float and that that float has come to us at a cost that's extremely attractive on average over the years. And just to pick an example, last year when we actually had an underwriting profit, the value of that float was something over $200,000,000 and that figure was a lot bigger than it was 10 years ago or 20 years ago. So that's that is a stream. Last year was unusually favorable, but that is a very significant stream of earnings, and it's one we feel we have reasonably good prospects in. So we feel very good about the insurance business. Okay. Zone 5. Yes. My name is, excuse me, Cy Rademacher from Omaha. Is there any point at which your stock would rise to the point where you might split the stock? Surprise, surprise. I think I'll let Charlie answer that this year. He's so popular with the shareholders that I can afford to let him take the tough questions. I think the answer is no. I think the idea of carving ownerships in an enterprise into little tiny $20 pieces is almost insane. It's quite inefficient to service a $20 account I don't see why there shouldn't be a minimum as a condition of joining some enterprise. Certainly, we'd all feel that way if we were organizing a private enterprise. Yes. We would not carve it up in $20 units. We find it very it's interesting because every company finds a way to fill up its common shareholder list. And you can start with the As and work through the Z. And every company in the New York Stock Exchange, one way or another, has attracted some constituency of shareholders. And frankly, we can't imagine a better constituency than is in this room. I mean, we have we don't think we can improve on this group. And we followed certain policies that we think attracted certain types of shareholders and actually pushed away others. And that is part of our eugenics program here at Berkshire. Yeah. Just look around this room and as you mingle with one another, this is a very outstanding group of people. And why would anybody want a different kind of a group? Yeah. If we cause if we follow some policies that cause a whole bunch of people to buy Berkshire for the wrong reason, the only way they can buy it is to replace somebody in this room or or in this larger metaphorical room of shareholders that we have. So someone in one of these seats gets up and somebody else walks in. The question is, do we have a better audience? I don't think so. So I think that I think Charlie said it very well. Zone 6? Mr. Buffet, my name is Rob Naugh. I'm from Omaha, Nebraska. My question is given the recent announcement of Midwest Express and their nonstop jet service between the East and West Coast, Will this cut down on your use of the indefensible? And will you use more commercial air travel? This is a question planted by Charlie. I think you should know. I take it to the drugstore at the moment. And I, no, it's just a question of when I start sleeping at the hangar. Nothing will cut back on the Indeventure. It's being painted right now, but I told them to make it last a long time. Charlie, though, was pointing out the merits of other kinds of transportation last night at the meeting of our managers. He might want to repeat those here. Well, I just pointed out that the back of the plane arrived at the same time as the front of the plane, invariably. He's even more of an authority on buses, incidentally, if anybody has it. Zone 7? Mr. Buffett, my name is Alan Maxwell from Omaha. I've got, two questions. What is your next goal in life now that you're the richest man in the country? That's easiest, be the oldest man in the country. Secondly, you talk about good management with corporations and that you try and buy companies with good management. I feel that I have about as much chance of meeting good managers other than yourself as I do bringing Richard Nixon back to life. How do I, as an average investor, find out what good management is? Well, I think you judge management by by 2 yardsticks. 1 is how well they run the business, and I think you can you can learn a lot about that by reading about both what they've accomplished and what their competitors have accomplished and seeing how they have allocated capital over time. You have to have some understanding of the hand they were dealt when they when they themselves got a chance to play the hand. If you understand something about the business they're in and you can't understand it in every business, but you can find industries or companies that where you can't understand it, Then you simply want to look at how well they have been doing in playing the hand, essentially, that's been dealt with them. And then the second thing you want to figure out is how well that they treat their owners. And I think you can get a handle on that, oftentimes. A lot of times, you can't. I mean, there are many companies that obviously fall in somewhere in that 20th to 80th percentile. It's a little hard to pick out where they do fall. But I think you can usually figure out, I mean, it is not it's not hard to figure out that, say, Bill Gates or Tom Murphy or Don Kuehl or people like that are really outstanding managers. And it's not hard to figure out who they're working for. And I could give you some cases on the other end of the spectrum too. It's interesting how often the ones that, in my view, are the poor managers also turn out to be the ones that really don't think that much about the shareholders too. The 2 often go hand in hand. But I think reading of reports reading of competitors' reports, I think you'll get a fix on that. In some cases, you don't have to you know, you don't have to make a 100 correct judgments in this business or 50 correct judgments. You only have to make a few. And that's all we try to do. And generally speaking, the conclusions I've come to about managers have really come about the same way you could make yours. I mean, they've come about by reading reports, rather than any intimate personal knowledge or knowing them personally at all. So it you know, read the proxy statements, see what they think of, see how they treat themselves versus how they treat the shareholders, and, and look at, what they have accomplished considering what the hand was that they were dealt when they, when they, when they took over, compared to what is going on in the industry. And I think you can figure it out sometimes. You don't have to figure it out very often. Charlie? Nothing to add. Okay. We're back to Zone 1. Hi there. My name is Liam from Palo Alto, California. In meeting Ajay Jain, I've been very impressed over the years. I think I even met his parents once. They came from India. Please comment on your deepest impressions of his personality and managerial skills, and also how you go about exactly keeping somebody with such fine skills within the fold. You might go to Walt Disney someday and pull down $200,000,000 Well, if he gets offered $200,000,000 we may not have to compete too vigorously at that level. We basically try to run a business so that that we Charlie and I have 2 jobs. We have to identify and keep good managers interested after we've figured out who they are. And that often is a little different here because I would say a majority of our managers are financially independent so that they don't go to work because they are worried about putting kids through school or putting food on the table. So they have to have some reason to go to work aside from that. They have to be treated fairly in terms of compensation, but they also have to figure it is better than playing golf every day or whatever it may be. And so that's one of the jobs we have. And we basically attack that the same way we look at what they do the same way we look at what we do. We've got a wonderful group of shareholders. Before I ran this, I had a partnership. I had a great group of partners. And essentially, I liked to be left alone to do what I did. I liked to be judged on the scorecard at the end of the year rather than on every stroke, and not second guess in a way that was inappropriate. I liked to have people who understood the environment in which I was operating. And so the important thing we do with managers generally is to find the 400 hitters and then not tell them how to swing, as I put in the report. The second thing we do is allocate capital. And aside from that, we play bridge. It's pretty much what happens at Berkshire. So with any of the managers you might name here, we try to make it interesting and fun for them to run their business. We try to have a compensation arrangement that's appropriate for the kind of business they're in. We have no company wide compensation plan. We wouldn't dream of having some compensation expert or consultant come in and screw it up. We try to some businesses require a lot of capital that we're in, some require no capital. Some are easy businesses where good profit margins are are are a cinch to come by but but we're really paying for the extra beyond that. Some are very tough businesses to make money in. And it would be crazy to have some huge, framework that we tried to place everybody in that where one size would fit all. People generally are compensated relating in some manner that relates to how their business does as opposed to there's no reason to pay anybody based on how Berkshire does because no one has responsibility for Berkshire except for Charlie and me. And And we try to make them responsible for their own units, compensated based on how those units do. We try to understand the businesses they're in so we know what the difference between a good performance and a bad performance. It's and that's about that's how we work with people. We've had terrific luck over the years in retaining the managers that we wanted to retain. And it's I think largely, it's because particularly, they sell us a business that, to a great extent, the next day, they're running it just as they were the day before. And and they're having as much fun running their business as I have running Berkshire. Charlie? CHIEF Well, I've got nothing to add. But I think it's that concept of treating the other fellow the way you'd like to be treated if the roles were reversed. It's so simple when you stop to think about it. But, it's a rare evening when Azid and Warren aren't talking once on the phone. It's more than a business relationship, at least it seems that way to me. Yeah. Well, it does. It stays that way too. And by the way, we like our businesses, our relationships to be more than a business relationship. Charlie and I are very we basically it's a luxury, but it's a luxury that we should we should try to nurture as we get to work with people we like. And it makes life a lot simpler. It probably helps on that goal of being the oldest living American too. Yeah. And we tend to like people we admire. Yes. Who do we like that we don't admire, Gerard? Start naming names. Do these people have names? Zone 2. My name is Peter Bavlin from Sweden. How do you perceive Guinness long term economics growth wise? Fitz, is that would you repeat that, Fitz? Was it what firm growth wise? Guinness. Guinness. Oh, Guinness. I'm not as much of an expert on Guinness's products as Charlie is. We approved that. You didn't hear me. He said, I proved that. I made the decision to buy Guinness and Guinness is down somewhat from actually, the price in pounds is about the same, but the pound is at about 1.46 or 7 against an average of 1.80 something. So we've had a significant exchange loss on that. The Guinness is despite the name the main product, of course, is scotch, and that's where most of the money is made. Oh, they make good money in brewing, but distilling is the main business. And, you know, the usage of scotch, particularly in this country, the trends have not been strong at all. But that was true when we bought it too. There are some countries around the world where it's where it's grown, and there's there's certain countries where it's a huge prestige item. I mean, in certain parts of the Far East, the the more you pay for scotch, the, the better you think people think of you, which I don't understand completely, but I hope it continues. But the scotch worldwide scotch consumption has not been anything to write home about. Guinness makes a lot of money in the business, but I would not I don't see anything in published history that would lead you to believe that the growth prospects in terms of physical volume are high for Scotch. The Guinness itself the beer actually has shown pretty good growth rates in some countries, actually from a very tiny base in the US as well. But, they will have to do well in in, distilling or I mean, that that that will govern the outcome of Guinness. I think Guinness is well run, and, it's a it's a very important company in that business. But I wouldn't count on a lot of physical growth. Charlie, what any consumer insights? No. Zone 3? Mr. Buffet, my name is Arthur Collius from Canton, Massachusetts. I'd like to know how you respond to the question that my associates asked me when they say that Berkshire Hathaway has been a good investment up to now, But what happens to your investment if, God forbid, something happens to mister Warren Buffett? Well, I'm glad you didn't say Charlie Munger. No, there Berkshire will Berkshire will do just fine. We've got a wonderful group of businesses. I've told you the 2 things I do in life, and in terms of the managers we have, you'd have to come in and really want to mess it up, I would think. And we don't have anybody like that in terms of succession plans at Berkshire. And then there's the question of allocation of capital. And, you could do worse than just adding it to some of the positions that we already had. The ownership if I die tonight, the ownership structure does not change. So you've got the same large block of stock that has every interest in having good successor management as I would have. I mean, there would be no greater interest. And it is not it's not a complicated business. I mean, you ought to worry more about if you own Microsoft, about Bill Gates, I think, or something of the sort. But this this place is you know, we've got a group down here that are running these you didn't see me out at Porsche. I'm selling any jewelry the other day. I mean, that's somebody else's job. So I it is not it's not very complicated. Incidentally, I think I'm in pretty good health. I mean, this stuff will do wonders for you if you'll just try it. Charlie, do you want to add anything? Yeah. I think the prospects of Berkshire would be diminished, obviously diminished if Warren were to drop off tomorrow morning. It would still be one hell of a company. I think it would still do quite well. I used to do legal work when I was young for Charlie Skoures. I heard him once say, My business, which was movie theaters like this one, was off 25% last year and last year was off 25% from the year before and that was off 25% from the year before. And then he pounded the table and he'd say, but it's still one hell of a business. It's not a formula we want to test. It's not a no. It is one hell of a business that we've got here. I mean, it and if you saw what happened at Berkshire headquarters, you would not worry as much. There's very little going on there that contributes to things. We're right now at our peak of activity. This is it. Zone 4. First of all, my name is Al Martin and my wife, Terry, is here with me. And I appreciate the invitation to attend this meeting. I was a little bit dubious and quite excited at that game Saturday night. I didn't know which side was going to throw the game to the other one. But, I did find out at the end. The first question, actually was somewhat answered, but not fully. Has the Board considered a reverse split? My experience has been that Would you like to make that a motion? There was a motion for a reverse split. I would say a 2 for 1 because if it were 3 or 4 for 1, I might end up with no shares or fractional shares. But anyway, my experience has been that all of the stocks that have split have gone down in the next 2 or 3 months or the next 2 or 3 years, including one which you are drinking, which is a flat Coke. Also I have observed a Merck over the last several years to be hitting a low, which is split 3 for 1. So I think that, you know, the reasons for splitting stocks are to make it affordable. I found that, every stock ever bought was never affordable. I found the reason I bought it was because I couldn't afford not to buy it. So that's a different philosophy. I guess that's somewhat shared indirectly with the Board's running the stock. The second question, which has to do with Hope it's as easy as the first question. Well, I didn't want to wait for an answer to the first question for that reason because it could be complicated and confusing and so forth. The second question has to do with, could the Board consider looking into a commodity broker or a lawyer or both that could take action similar to Hillary Clinton's? I think, you know, making your net worth go up by a factor of 5 overnight is more than enticing. Some of us might even want to wait for 10 months to a 100 to 1 return on the money. Well, I want to say I want to say to you, when I saw that 5 530% in one day, it it Charlie has never done that for us. I mean, it it it really caused me to reassess succession plans at Berkshire. And Hillary may be free in a few years. I hope you're applauding over coming to Berkshire, not being fair, but I'll I'll leave that up there. Okay. That was their second question. That was my second question. Of course, in my experience, it's been that, most of us have thought through this situation and, and I guess it's pretty speculative. But I found out that the rules and laws that are made for trading are interpreted rather than enforced. I think that applied to this particular case. So let's go on to the third question. All right. They're getting easier. This one is real easy. My wife was a collector of blue chip stamps for many, many years. And she bought some stamps with her. What should she do with them? Well, that that we can give you a definitive answer to that. Charlie and I entered this trading stamp business to apply our wizardry to it in, what, 1969 or so, certainly? Yes. We were doing what then, about $110,000,000 No. It went up to $120,000,000 Okay. And then and then we arrived on the scene and we're going to do, what, about 400,000 this year? Yes. Yeah. That shows you what can be done when your management gets active. We have presided over a decline of 99.5%. Yeah. But we're waiting for a bounce. And I would say this: The trading stamp business, as those of you who have followed it all know, it only works because of the float. I mean, there are a very, very high percentage of the stamps in the sixties were cashed in. We have some years that we've gone up to 99%. I believe we sampled the, the returns because they were given out in such quantity. But our advice to anyone who has stamps is to save them because they're going to be collectors' items. And Going back into another year, to point on the split, I think Going back into another year to point on the split, I I think most people think that the stock would sell for for more money split. A, we wouldn't necessarily think that was advisable in the 1st place, but we in the 2nd place, we don't think it would necessarily be true over a period of time. We think our stock is more likely to be rationally priced, over time following the present policies than if we were to split it in some major way. And we don't think the average price would necessarily be higher. We think that the volatility would probably be somewhat greater. And we see no way that volatility helps our shareholders as a group. Zone 5. I am Peg Gallagher from Omaha. Mr. Buffett, are you interested in influencing mister Greenspan at the Fed to stop raising interest rates? Well, I I wouldn't have any influence with him. He he was on the board of Cap City some years ago, and I know him a bit. But but, I don't think anyone would have any influence, with Mr. Greenspan on that point. But I I generally think that his his actions have been quite sound during this period as Fed chief. I mean, it's part of the job of the Fed, as as Mr. Martin said many years ago, is to take away the punch bowl at the party occasionally. And, that's a very difficult a difficult policy to quantify working with markets day by day. And of course, it's always been the job of the Fed basically to lean against the wind, which of course means if the wind changes, you fall flat on your face. But that's another question. But the, I don't I think what what he has done has probably been somewhat appropriate. I think he's probably been surprised a little bit as to what has happened with with long term rates as he's nudged up short term rates. I think he was hoping that, this is just a guess on my part that action sort of early in the cycle on the short term rate front would, would might make people feel more confident about the longer term rates and, therefore, that the yield curve would flatten some. I don't know that. And he may have been a little surprised on that. But it's not an easy job he had, so I would not second guess him myself. Charlie, how do you feel about him? Fine. Greenspan is safe. Zone 6. Mr. Buffet, I'm Lee Miller from St. Louis. There was an article in the April 18th Burns that, attempted to calculate the value behind each Berkshire Hathaway share. I'm sure you have some views on that and I'd be very interested in your perspective on that issue. Yeah. There was an article about a week or so ago in Barron's the same fellow who wrote an article about 4 years ago reaching pretty much the same conclusion. And I hope he hasn't been shored in between, but the I would say this: It is not the way I would calculate the intrinsic value of Berkshire, but everyone in the securities markets makes choices on that. Every day, somebody sells a few shares of Berkshire and someone buys. And you know, they are probably coming to differing opinions about, about valuation. I would say that I found it strange that, that that apparently, he forgot we were in the insurance business, but that's not it really doesn't make any difference. I mean, what we don't pay any attention to what people say about Coca Cola stock or Gillette stock or any of those things. I mean, on any given day, 2,000,000 shares of Coca Cola may trade. That's a lot of people selling, a lot of people buying it. If you will talk to one person, you'd hear one thing and talk to another. You really should not make decisions in securities based on what other people think. If you're doing that, you should think about doing something else because it's it's a public opinion poll will just it will not get you rich in Wall Street. So you really want to stick with businesses that you feel you can somehow evaluate yourself. And I don't think I mean, Charlie and I we don't read anything about what business is going the economy is going to do or the market is going to do or what anybody anytime I see some article that says these analysts say this or that about some business, it just it doesn't mean anything to us. You cannot get rich with a weather vane. Zone 7? I'm Edward Barr from Lexington, Kentucky. And I'd like to ask, given the amount of capital in the banking industry, do you think that more banks should be buying back significant amounts of their stock, like SunTrust, versus just the token amounts that they're buying back or just the authorized amounts? And then also related question in banking, are banks too focused on goodwill amortization when declining to buy other banks for cash, thereby using purchase accounting versus the normal practice in the industry of pooling accounting, even when the stock that they issue may be depressed or undervalued? Well, the first question about the capital in the industry, that you really have to look at that on a bank by bank basis. And there is a lot more repurchasing of shares by banks taking place. You mentioned SunTrust, but National City is they bought it back, I think, 5% of their National City of Cleveland bought back 5% of their stock in the Q1. There's much more repurchasing going on, and that's simply a judgment call by management that as to the level of capital they need going forward and what level of capital enables them to earn the return on equity that that, they think appropriate and whether they what they feel like paying for their own shares. So I I think you have to look at that on case by case. We certainly like it. If we were to own a bank, we would or own shares in a bank. We would like the idea of the bank repurchasing its stock at a price that we thought was attractive. We would think that they probably knew more about their own bank than some other bank they were going to buy and that if the numbers are right, it's an attractive way to use capital. Your second question about goodwill amortization, and purchase accounting versus pooling, we care not at Berkshire, it absolutely makes no difference to us what accounting treatment we get on something. We are interested in the economics of a transaction. Some banks some businesses generally most businesses perhaps prefer pooling because they don't like to take a goodwill amortization charge. We think our shareholders are smart enough, particularly if we make it clear to them, the accounting consequences. We think they're smart enough to look through the economic reality of what Berkshire's businesses are all about. And I think that some managements sell short their own ownership group by by doing various kinds of financial acrobatics in order to have the charges come in a certain way rather than as you point out, often they might be better off buying for cash rather than using their own stock as currency, but they may prefer to use their own stock because they avoid goodwill charges. We've written a few things on goodwill in the past and past annual reports that might get to that subject. We don't care what accounting we sort of rewrite the accounting for any business that we're looking at because in our in our heads, we want to have, in effect, a standardized way of looking at businesses. And if one company goes through pulling transactions and another goes through purchase transactions, we're going to recast them in our own mind so that there's comparability. Charlie? Yeah. The the published accounting results are in accordance with standard convention and they're a place to start economic analysis. The figures are frequently quite silly on a functional basis. I'm not criticizing accounting inventions except for some. Yeah. But think it's just a place to start thinking about economic reality. By their nature, they can't tie perfectly. They can't even tie very well to economic reality. We regard it as a negative when we find a management that's preoccupied with accounting considerations. But we find it so frequent that we can't we can't afford to use it as a as a total exclusionary factor. It really surprises me how many managements, focus on accounting and and the time they spend on it, the it's really unproductive. And if you find a management that doesn't care about the accounting but does explain to you in clearer terms what's going on, I think you should regard that as a plus in owning a security. Zone 1. Mr. Buffet, my name is Bill Ackman. I'm from New York City. And my question relates to the appeal of Salomon Brothers as an investment. You talked earlier about leverage and the dangers of leverage. Solomon is a business which is levered 30 to 1, which has very narrow margins and earns relatively modest return on equity in light of the amount of leverage that they use. What is the appeal of the business to you? We have here today the Chief Executive of Solomon, Inc, the parent company, and also the Chief Executive of Solomon Brothers, the investment banking arm. And I would say one of the things we Charlie and I feel extraordinarily good about are the 2 fellows that are running that operation. They did an exceptional job under extraordinarily difficult circumstances, as did John McFarlane, who's also here today. The 3 of them I mentioned 4 people in the annual report. And Solomon wouldn't be here today without those 3. And it wouldn't be the company in the future that it's going to be without them. And they did an absolutely a like. In another way, it uses even more than it looks like. But it the test will be, a, whether they control that business in a way that that leverage does not prove, dangerous and secondly, what kind of returns on equity they earn while using it. You certainly should expect to earn somewhat higher returns on equity when you significant amounts of borrowed money than you would in a business that's, a significant amounts of borrowed money than you would in in a business that's that's an extremely plain vanilla business. But I don't know whether you've met Bob and Derek, but I think you'd feel better about having leverage in their hands than about any other hands you can imagine. Charlie? Why don't we have those 3 gentlemen stand up? Yeah. You ought to give them a hand. They may have done a job for, Berkshire in this last year. Yeah. I'll leave the applause for them. Where are they? There they are. I've mentioned this before, but I I it's worth mentioning again. Derek took on the job of being the operating head of Salomon Brothers on on, what, August 18, 1991. He didn't know what he couldn't know what he was getting into exactly. He 2 months later or 3 months later, we never had a conversation about compensation. He did not ask me for Berkshire or my guarantee for indemnification because he was walking into unknown legal problems. We didn't know what the we would finally uncover. And he worked, incredible hours to keep that place together, which was not easy. Bob Denham, I called, I guess, on the 20 3rd or so. 20th. I called him on a Friday. I got home on a Saturday, 24th August. He was living a nice, pleasant, peaceful life in California and had a first class law firm, good group of clients. Wife had a good job there, and I told him I was in a mess and there wasn't any second choice. And 3 days later, he was back in New York and living in a small apartment in Battery City and handling the general counsel's job at Solomon. They found John MacFarlane on that Sunday on 18th. I think he was running on a triathlon or something. I'd practice the Charlie and I follow, but and he was yanked from that and came down. And I think John lives over in New Jersey, but he holed up in the downtown athletic club. And it was his job to keep funding what was then $150,000,000,000 balance sheet, during a period when people right and left were canceling is not because we weren't a good credit, but because they just didn't want to have anything to do with us for a while. And the World Bank and the State of Texas Pension Fund and CalPRA, all these people were shutting off funding at a time and funding in a business, as the gentleman just indicated, is the lifeblood of an enterprise like Solomon. And so those 3 deserve an enormous hand by really by the Solomon shareholders, but by this group in turn because we have an important investment in it. So I thank them publicly. I'm Kelly Ransom from San Antonio, Texas. And I wondered if, you could comment on the mutual savings and loan. There was just a footnote that the, deposits had been assumed by a federal savings bank. And also, what about the annual report for WESCO Financial that I know it used to be in the annual report for Berkshire. Just wondered if you could comment on that, please. The question is about we our 80% owned subsidiary Wesco Financial sold its ownership and mutual savings and loan to Pasadena last year. I'll and I'll let Charlie comment on that. And then the second question is about the WESCO report, which is available to any Berkshire shareholder simply by writing WESCO. But we we found that the stapling problems and other things made it a little difficult to to keep adding that every year to the report. So now we just we make it available to anyone who would and Berkshire who would like to have it. But Charlie, do you want to comment on the sale of mutual? Yes. The savings and loan business became very much more heavily regulated after the huge nationwide collection of scandal and insolvency and so on. And meanwhile, we had a very small Savings and Loan Association and the combination of the new regulation and the fact that it was a very small part of our operation made us decide that we were better off without it. That does happen from time to time in Berkshire. We do exit once in a while. By the way, we would reserve the right to change our mind. I always liked Lord Keynes when he said he got new facts or new insights. Well, he changed his mind and then he'd say, what do you do? So we changed our mind. They asked our directors at Mutual to start going to school on Saturday, didn't they, Charlie, or something? I think that helped change our mind about Mutual. There's a time to vote with your feet. And even your wallet. Chicago. Can you speak to some of the economic characteristics of the shoe industry, that allowed the business to be profitable and in your view attractive? I didn't hear that. Did you hear that, John? He wanted you to comment on the merits of the shoe industry. Well, I think our feelings for the shoe industry are very clear from what's been happening the last few years. We think it's a great business to be in as long as you're in with Frank Rooney and Jim Isler and Peter Lunder and Harold Alfoot. Otherwise, it hasn't been too good. The we we have a couple of extraordinary shoe operations and but they're not extraordinary because we get our leather from different steers or, anything of the sort. It's, we have 2 companies, really 3 now that Lowell's been brought into, but that have truly extraordinary records. I think those same managements would have been enormous successes in in in any business they've gone into, but they have gone into the they are in the shoe business. And the companies, earn unusual returns on equity. They earn unusual returns on sales. They've got terrific trade reputations. And I think that to the extent we can find ways to expand in the shoe business while employing those managements, we'll be very excited about doing so. It isn't because we think that the shoe industry is any cinch, you know, per se or anything of the sort, but we've got a lot of talent employed in the shoe business. And whenever we've got talent, we like to try and figure out a way to give them as big a domain as we can. And, it's not inconceivable that we would expand the shoe business, perhaps even significantly over time. Zone 4. Yeah. Thanks, My name is Stuart Hartman from Sioux City. After the brevity of the last question from Section 4, I'll try to be extremely brief. Given the scrutiny that the tobacco business is going under right now, number 1, what do you see as the business prospects for those huge cash cows? And at any point, would that be attractive to you given their liability? Question is about the future of the tobacco business? I don't I probably know know more about that than you do because it's, it's fraught with questions that relate to societal attitudes, and you can form an opinion on that just as well as I could. But I would not like to have a significant percentage of my net worth in the tobacco business myself, but they may have better futures than I envision. I don't really think that I have special insights on that. Charlie, do you no. So you have to come to a conclusion as to how society is going to want to treat and the present administration, for that matter. And the economics of the business may be fine, but that doesn't mean it has a great future. Zone 5. I'm Harriet Morton from Seattle, Washington. I'm wondering, when you are considering an acquisition, how you look at the usefulness of the product? In looking at any business? Yes. Yeah. Well, obviously, we we look at what the market says as the utility. And the market the market has voted very heavily for Dexter shoe, just to be an example an example. I I don't know how many how many pairs of shoes they were turning out back in 1958 or thereabouts, but but year after year, people have essentially voted for the utility of that product. There are 7 50,000,000 or so 8 ounce servings of 1 product or another from the Coca Cola Company consumed every day around the world. And there are those of us who think the utility is very high. I can't make it through the day without a few. But there are other people that might rate it differently. But essentially, people are going to get thirsty. And and if this is the way they take care of their thirst better than and they prefer that to other forms, then I would rate the utility high of the product. But I think it's hard to argue with with the market on that. I mean, people some people may think that, you know, listening to a rock concert is is not something of high utility. Other people may think it's terrific. And so, we would judge that. I don't think we would come to an independent decision that there was some great utility residing in some product that had been available to the public for a long time, but the public had not endorsed in any way. Charlie? MR. Well, I think that's right. But I'd say, average stock, we're in a bunch of high utility products. I mean, nurses shoes, work shoes, casual shoes. We don't have a lot of what Italian pumps. Don't rule it out, Charlie. We may be here next year defending. All right. So I just say if you judge the existing portfolio as indicating what the future is likely to be like. Well, certainly a lot of essentials were sold out of Boruchaim yesterday. Yes. I hear my family clapping. Zone 6. We have no question up here. Okay. Zone 7. Good morning, Mr. Birx or, Buffett. Good morning, sir. I have a niece here who has a son named Berkshire. I'm Chris Blunk from Omaha. My first question is, in years past, we've had samples of various products. When are we going to have some Guinness? Some what now? Guinness samples? My second question is, in light of the multiple disasters that have taken place in LA, has that had any impact on the caps for Berkshire? On our super cat business? Yes. The, the L. A. Earthquake, which is originally I believe the first estimate of insured damage was 1,500,000,000 which struck us as kind of ludicrous. But as now as by the last official estimate, the one we use that's a trigger in our policies, I think, is either $4,500,000,000 or $4,800,000,000 But it's going to be higher than that. Our losses are fairly minor. If it gets to $8,000,000,000 of insured damage, that would trigger another policy or 2. But I would say that the L. A. Quake, which did considerably more damage, I think, than people would have anticipated from a 6.7 for various reasons having to do with how quakes operate, That quake is not going to turn out to be of any of any real it's not the kind of super cat that a $15 or $20,000,000,000 hurricane which hit Florida or Long Island, or New England would be. That's the kind of we could lose or we could pay out $6 or $700,000,000 in sort of a worst case super cat. Now, our total premiums this year might be, say, 250,000,000 or something in that area. So one super cat in the wrong place would be would produce and and there could be more than 1 could produce, we'll say, a $400,000,000 or thereabouts underwriting loss from that business. The L. A. Quake is peanuts on that scale, but it wouldn't have taken a whole lot more in terms of numbers on the Richter scale if it happened to have an epicenter where it did and be of the type that it was relatively shallow that we could have had that sort of thing happen. I think that the insurance industry has vastly underestimated maybe maybe not now maybe not now, but up until a few years ago the full potential of what a what a super cat could do. But Hurricane Andrew and the L. A. Quake may have been something of a wake up call. They were far from a worst case situation. A really big, Type 5 hurricane on Long Island would end up leaving a lot of very major insurance companies in significant trouble. We define our losses. Essentially, 700,000,000 sounds like a lot of money. It is a lot of money, but there are limits on our policies. That is not true of people that are just writing the basic homeowners or business. They those losses could go off the chart. There were certain companies in the L. A. Quake that thought they had a what they call a probable maximum loss, for California quakes. And it and the L. A. Quake, which was far from the worst case you can imagine, turned out to far exceed those probable maximum losses. So I think the the industry has had and may still have its head in the sand a little bit in terms of what can what can happen, either in terms of a quake in California or more probably in terms of a hurricane along the East Coast. So far this year, we're we're in reasonable shape, but that doesn't mean much because, by far, the the larger the larger exposure is in hurricanes. And and, essentially, 50% of the hurricanes hit in September, and about I think it's about 15% would be in August, close to 15% in October. So you have 80% roughly in those 3 months, and then there's a little tail on both sides. But that's when you find out whether you've had a good or bad year in the super cat business, basically. It's a business we like at the right rates because there are very few people that can afford to to write it at the level that the underlying company the the reinsured companies need it. And we are in a position, if the rates are right, to do significant business. Charlie? MR. Nothing to add. Zone 1. Clayton O'Reilly from Jacksonville, Florida. This is a little different than all the other questions, but what were the 3 best books you read last year outside of the investment field? 1, even 1 will do. I'll, I'll give you I'll I'll I'll I'll I'll I'll I'll tie out a book first that I've read but that isn't available yet, but it will be in September. The the woman who wrote it, I believe, is in the audience, and it's Ben Graham's biography, which will be available in September by Janet Lowe. And I've read it, and I think those of you who are interested in investments for sure will enjoy it. She's done a good job of capturing Ben. One of the books I enjoyed a lot was written also by a shareholder who's not here because he's being sworn in, I believe, today or tomorrow maybe tomorrow as head of the Voice of America. And, that's Jeff Collins' book, which is on the people versus Clarence Darrow. It's the it's the, it's the story of the Clarence Darrow trial for for essentially jury bribery in in Los Angeles back around 1912 when the McNamara brothers had, bombed the LA Times. And it's a fascinating book. Jeff uncovered a lot of information that previous biographies of Darrow didn't have. I think you'd enjoy that. Charlie, hang on. Well, I very much enjoyed Connie Brook's biography, Master of the Game, which was a biography of Steve Ross who headed Warner and later was, what, co chairman of Time Warner. Yeah. He's a little more than co chairman. And she's a very insightful writer and it's a very interesting story. I am rereading a book I really like which is Van Dorn's biography of Benjamin Franklin which came out in 1952. I had almost forgotten how good a book it was. And that's available in paperback everywhere. We've never had anybody quite like Franklin in this country. Never again. He believed in compound interest too, incidentally, as you may remember. What do you we set up those 2 little funds, 1 in Philadelphia and 1 in Boston? Right. Yes, to demonstrate the advantages of compound interest. I think that's the part Charlie is rereading. Zone 2? Thank you for teaching me, teaching so much to all of us about business. My name is Mike Asail from New York City. You mentioned earlier that, Berkshire's shoe business was great, but that other shoe businesses were not so good. What are the uncertainties of the global brand leaders that the Berkshire seems to like? They like Coke and Gillette. The global brand leaders in the shoe business being Nike and Reebok, What are their uncertainties in terms of long term competitive advantage, business economics, consumer behavior and the other risk factors that you mentioned in the annual report this year? Thank you. So you're really asking about the future prospects of Nike and Reebok? Yeah. I don't know that much about those businesses. We do have one person in this audience, at least, who owns a lot of Reebok. But I I I'm not expressing a negative view in any way on that. I just I don't understand that the I don't understand their competitive position and the likelihood of permanence of their competitive position over a 10 or 20 year period as well as I think I understand the position of Brown and Dexter. That doesn't mean I think that it's inferior. It doesn't mean that I think that we've got better businesses or anything. I think we've got very good businesses, but I'm not I'm not I haven't done the work, and I'm not sure if I did the work, I would understand them. I think they are harder to understand, frankly, and to develop a fix on than our kinds, but they may be easier for other people who just have a better insight into that kind of business. Some businesses are a lot easier to understand than others. And Charlie and I don't like difficult problems. I mean, we if something is hard to figure, I mean, we'd rather multiply by 3 than by pi. I mean, it's just easier for us. Charlie? Well, that is such an obvious point. And yet so many people think if they just hire somebody with the appropriate labels, they can do something very difficult. That is one of the most dangerous ideas a human being can have. All kinds of things just intrinsically create problems. The other day, I was dealing with a problem and I said, this thing, it's a new building. I said, This thing has 3 things I've learned to fear: an architect, a contractor, and a hill. And if you go at life like that, I think you at least make fewer mistakes than people who think they can do anything by just hiring somebody with a label. Excuse me. Go ahead, sir. You don't have to hire out your thinking if you keep it simple. You don't have to do and we've said this before, but you don't have to do exceptional things to get exceptional results. And some people think that if you jump over a 7 foot bar, that the ribbon they pin on you is going to be worth more money than if you step over a 1 foot bar. And it just isn't true in the investment world at all. So it, you can do very ordinary things. I mean, what is complicated about this? But, you know, we're $3,000,000,000 pretax, better off than we were a few years ago because of it. There's nothing that I know about that product or its distribution system, its finances, or anything that really 100 of 1000 or 1000000 of people aren't capable of that they don't already know. They just just don't do anything about it. And similarly, if you get into some complicated business, you can get a report that's a 1,000 pages thick and you've got PhDs working on it, but it doesn't mean anything. You know, what you've got is a report, but you don't you won't understand that business, what it's going to look like in 10 or 15 years. The big thing to do is avoid being wrong. There are some things that are so intrinsically dangerous. Another of my heroes is Mark Twain who looked at the promoters of his day and he said, A mine is a hole in the ground owned by a liar. And that's the way I've come to look at projections. Basically, I can remember Warren and I were offered $2,000,000 worth of projections once in the course of buying a business, and the book was this thick. And for nothing. And then we were given it for nothing and we wouldn't open it. We'd almost pay $2,000,000 not to look at it. It's ridiculous. I do not understand why any buyer of a business looks at a bunch of projections put together by a seller or Or his agent. Or his agent. I mean, it you can almost say that it's naive to think that that has any utility whatsoever. We just are not interested. If we don't have some idea ourselves of what we think the future is to sit there and listen to some other guy who's trying to sell us the business or get a commission on it, tell us what the future is going to be, It it like I say, it's very naive. Yes. And 5 years out. Yes. We had a line in the report one time, don't ask the barber whether you need a haircut. And it's quite applicable to projections of by sellers of businesses. Zone 3. Mr. Buffet, Greg Ulrich from Washington, D. C. In the last year, United Airlines and Northwest have resolved some of their financial problems by moving ownership over to the employees. With U. S. Air's current positions, problems, what do you see as occurring with U. S. Air? And do you see any movement toward employee ownership? And how will that affect Berkshire's interest in the company? Well, US Air has a cost structure which is non viable, in today's airline business. Now, that in an important way involves its labor costs, but it involves other things too. But it certainly involves its labor costs. And they've they've stated this publicly. And, I think and they have they have they are talking with their unions about it, and they're talking with other people about other parts of their cost structure. And I think you'll just see that what what unfolds in the next, relatively few months because there isn't a question that, that the cost structure is out of line. I think the cost structure could be brought into line, but whether it will be brought into line or not is another is another question. And looking backwards, the answer is not to get into businesses that need to solve problems like that. But that was a mistake I made, and I think in Seth Schofield, you've got a manager who understands that business extremely well, who probably is as in my view anyway, is as, well regarded and trusted by people who are going to have to make changes, as anyone could be in that position. But that may not be enough. I mean, that that, there's enormous tensions when you need to take 100 and 100 of 1,000,000 of dollars out of the cost structure of any business and when you need cooperative action all by various groups, each one of which feels that maybe they're having to give a little more than some other group and understandably feels that way. You know, that is that is an enormously tough negotiating job. I think Seth is as well equipped for that as anyone. But I would not want to I, you know, I cannot predict the outcome. Charlie, do you want to? Well, if I were a union leader, I would give Seth whatever he wants because he's not the kind of a fellow who would ask for more than he needs. It's perfectly obvious that's the correct decision on the labor side. But whether the obvious will be done or not is in the lap of the gods. It's a lot of people with a lot of different motivations. And I mean, those are really tough, tough questions. I mean, we we Charlie and I have been involved with that sort of thing a few times. And frequently, it works out, but it it it's it's not it's not preordained. Zone 4? My name is Sheldon Zizook from Chicago, Illinois. I have two questions. The first one is concerning, mister Munger. We know what Mr. Buffett's retirement plans are. I was wondering what your plans for the future concerning Berkshire, Aaron. I've always preferred the system of retirement where you can't quite tell from observing from the outside whether the man is working or retired. He does it well too. A problem in many businesses, particularly the more bureaucratic ones, is that your employees retire but they don't tell you. I think I can speak for Charlie on this. So Charlie and I are not in any hurry to retire. He's trying to outlast me, actually. Thank you. My second question is, I was just curious why you sold a portion of, cap cities. We thought that, we thought it was a good idea for Cap Cities to have a tender offer. They, they had cash that we thought that they could not use in any they were not likely to be able to use in a better way than repurchasing their own shares because they they do have some very good businesses. They and we felt that a tender offer would not be successful in terms of attracting a number of shares unless Berkshire were tendering. We felt the price was reasonable to tender at. It turned out that the business was getting stronger during that period. Various things were happening in media. So there were only 100,000 shares or so tendered outside of our 1,000,000. That isn't necessarily what we thought was going to happen going in, but that is what happened. It's acceptable to us, but, but that doesn't mean that it was the desired outcome. We would not have tendered all of our shares or anything of the short. We wanted to remain a substantial shareholder of Cap Cities. We've always we've most of the time, we've favored Cap Cities buying in its stock, and it's bought in a fair amount of stock since the ABC merger took place in 19 started in 1986. Zone 5. Good morning. My name is Matt Voke. I'm from Omaha. Last year's meeting, you made reference to structured settlements. I was wondering how is that business progressing for you? The question is about the structured settlement business, which is a business in which Berkshire guarantees, in effect, an annuity to some claimant of another usually of another insurance company, who suffered an injury and instead of getting a lump sum now, wants to get a stream of payments over many years in the future, sometimes going out 75 years. We have, set up a life company to do that business. We formerly did it all through our property casualty companies. And we have done some business but it isn't it's not been a big business yet, and it may never be a big business. It's a perfectly satisfactory business but it's not an important item at present in the analysis of, of Berkshire's value. Are you getting having a problem with sound out there on this or not? Just no. Zone 6. My name is David Samra. I'm from San Francisco, California. In your annual report, I noticed you mentioned Wrigley as being a company that has worldwide dominance, somewhat like Coca Cola and Gillette. And was curious to know if you had looked at the company in any detail. And if so, whether or not, if you decided not to invest, what were the reasons why? Well, we wouldn't want to comment on a company like that because we might or might not be buying it. We might or might not be selling it. And we might or might not buy or sell it in the future. And since it falls under that narrow definition of things that we don't talk about, I I you know, we we it's a good illustration of a company that has a high market share worldwide. But you can understand the Wrigley company just as well as I can. I have no insights into, into the Wrigley company that you wouldn't have. And, and, And I don't I wouldn't want to go beyond that in giving you our evaluation of the company. I hate to disappoint you on those, but on specific securities, we we are not too forthcoming sometimes. Charlie? I'm good at not being forthcoming. Mr. Buffett, Kathleen Ambrose from Omaha. I have a question regarding global diversification just in general. What do you look for in a company? And if so, as far as Europe or Latin America, if you'd like to be specific? Yeah. The question is about global diversification. All we want to be in is businesses that we understand, run by people that we like, and priced attractively compared to the future prospects. So there is no specific desire to either be in the rest of Europe or the rest of the world or Far East or, to avoid it. It's simply a factor that that it's not a big factor. There may be more chances for growth in some countries. We 80% of Coca Cola's earnings, roughly, will come from outside the United States. 80% of Guinness's earnings will come from outside the United States, but they're domiciled outside the United States, whereas Coca Cola is domiciled here. Certainly, in many cases, there are markets outside the United States that have way better prospects for growth than than the U. S. Market would have, but they probably have some other risk to them that that that this market may not have. But we you know, we we like the international prospects, obviously, of a company like Coke. We like the international prospects of a company like Gillette. Gillette earned 70% of its money outside this country. So if you look on a look through basis, Coke, we might this year get something like $150,000,000 of earnings, indirectly for Berkshire's interest from the rest of the world just through Coca Cola alone. But we don't make any specific we don't think in terms of I like this region, so I want to be there or something of the sort. It's something that's specific to the companies we were looking at, and then we'll try to evaluate that. Coke is expanding in China. Well, at, you know, that I think I forget what they showed last year, maybe 38% growth or something like that in cases. Maybe it's nice to have markets like that that are relatively untapped. Actually, Gillette is expanding in China in a big way, and the Chinese don't shave as often. And and more of them are what they call dry shavers and wet shavers there, which is electric shavers. But but, you know, maybe we could stick something into Coke that would come. Maybe a little synergy at Berkshire finally. Who knows? Good morning. I'm Marshall Patton from Bandera, Texas. And, back to the insurance losses, what is the comparison between natural disasters and such as the earthquake and so on and the, LA riots? Well, I'm not sure what the connect they obviously can both lead to 2 super cats that we insure against because if there is enough insured damage, it's likely to trigger payment under some of our policies. It would take some really big riot damage to get to our levels because normally we don't kick in now until an event gets up to at least $5,000,000,000 or so of insured damage under a very large majority of our policies. Something like a quake causes a fair amount of damage that is not insured because to the extent that it's highways and things of that sort, public buildings, a lot of that is not insured. But you get interesting questions on this. Usually, we insure an event. But what's an event? If you go back to the riots that occurred after Martin Luther King was shot. He had riots in dozens of cities. Is that one event or is that a multiple number of events? I mean, they're just started by different people but maybe arising from a common cause. Some of those things aren't actually very well defined even after 100 of years of insurance law and custom experience of that. But I would say that rioting is very unlikely to get to a level that triggers our policy. The big risks we face are quake and hurricanes. And hurricanes are more significant risks than quake. They call them typhoons in the Pacific Ocean. But floods, tremendous damage from floods last year, but basically there's not a lot of private flood insurance bought. So the insured losses do not get large. Just watch the weather channel. Zone 2. Diane West from Corona Del Mar, California. I know, Mr. Buffet, that you've said that you don't read what other people say about the market or the economy. But do either you or Charlie have an opinion about how you think things are going to go? Are you bullish or bearish? You may have trouble believing this but I Charlie and I never have an opinion about the market because it wouldn't be any good and it might interfere with the opinions we have that are good. If we're right about a business, if we think a business is attractive, it would be very foolish for us to not take action on that because we thought something about what the market was going to do or anything of that sort because we just don't know. And to give up something that you do know and that is profitable for something that you don't know and won't know because of that, it just doesn't make any sense to us and it doesn't really make any difference to us. I mean, I bought my first stock, I think, in probably April of 1942 when I was 11. And since then, I mean, actually World War II didn't look so good at that time. I mean, the prospects they really didn't. I mean, we were not doing well in the Pacific and I'm not sure I calculated that into my purchase of my 3 shares. But I mean, just think of all the things that have happened since then, atomic weapons and major wars and presidents resigning and all kinds of things, massive inflation at certain times. To give up what you're doing well to because of guesses about what's going to happen in some macro way just doesn't make any sense to us. The best thing that can happen from Berkshire's standpoint, we don't wish this on anybody, but is it over is to have markets that go down a tremendous amount. I mean, we are going to be buyers of things over time. If you're going to be buyers of groceries over time, you like grocery prices to go down. If you're going to be buying cars over time, you like car prices to go down. We buy businesses. We buy pieces of businesses, stocks. And we're going to be much better off if we can buy those things at an attractive price than if we can't. So we don't have any fear at all. I mean, what we fear is an irrational bull market that's sustained for some long period of time. You as shareholders of Berkshire, unless you own your shares on borrowed money or are going to sell them in a very short period of time, are better off if stocks get cheaper because it means that we can be doing more intelligent things on your behalf than would be the case otherwise. So I but we have no idea what and we wouldn't care what anybody thought about it. I mean, most of all ourselves. I mean, that's it. Charlie, do you have any? No. I think the if you're agnostic about those macro factors and therefore to vote all your time to thinking about the individual businesses and the individual opportunities. It's just it's a way more efficient way to behave at least with our particular talents and lacks thereof. If you're right about the businesses, you'll end up doing fine. We don't know And we don't think about when something will happen. We think about what will happen. It's fairly it's not so difficult to figure out what will happen. It's impossible in our view to figure out when it will happen. So we focus on what will happen. This company in 18, 90 or thereabouts, the whole company sold for $2,000 Got a market value now of about 50 odd 1000000000. Somebody could have said to the fellow who was buying this in 18/90, you know, you're going to have a couple of great world wars and you know, you'll have the panic of 1970. How all these things will happen? Wouldn't it be a better idea to wait? We can't afford that mistake, basically. Yeah. Zone 3? Mr. Buffet, Mr. Munger, last year I'm Tim Medley from Jackson, Mississippi. Last year, the question was asked about your preference for purchasing entire businesses versus parts of public companies. You mentioned you prefer to buy private businesses because of the tax advantages and your attraction to the people in those businesses. Are you finding today that there are better purchases within the private market versus in the public securities market? Well, I would answer that no. We do not we very seldom find something to buy on a negotiated basis for an entire business. We have certain size requirements. Big limiting factors has to be something we can understand. I mean, that eliminates 95% of the businesses. And we get we don't pay any attention to them. We get lots of proposals for things that are just totally outside the boundaries of what we've already said we're interested in. We prefer to buy entire businesses or 80% or greater interest in businesses partly for the tax reasons you mentioned. And frankly, we like it better. We just it's the kind of business we would like to build if we had our absolute brothers on it. Counter to that is we can usually get more for our money in wonderful businesses in terms of buying little pieces of them in the market because the market is far more inefficient in pricing businesses than it is the negotiated market. You're not going to buy any bargains. And I mean, you shouldn't even approach the idea of buying a bargain and then a negotiated purchase. You want to buy it from people who are going to run it for you. They want to buy it from people who are intelligent enough to price their business properly and they are. I mean, that's the way things are. The market does not do that. The market in the stock market, you get a chance to buy businesses at foolish prices. And that is why we end up with a lot of money in marketable securities. If we absolutely had our choice, we would own a group of we would own 3 times the number of businesses we own outright. We're unlikely to get that opportunity over time, but periodically, we'll get the chance to find something that fits our test. And in between, we will when the market offers us the right prices, we will buy more either businesses we already own pieces of or we'll buy 1 or 2 new ones. Something's usually going on. There are tax advantages to owning all of them, but that's more than offset by the fact that you'll never get a chance to buy the whole Coca Cola company or the whole Chile company. Businesses like that, the sensational businesses are just not available. Sometimes you get a chance to make a sensible purchase in the market of such businesses. Charlie? Well, I think that's exactly right. And if you stop to think about it, if 100% of a business is for sale, you've got the average corporate buyer is being run by people who are who have the mindset of people buying with somebody else's money and we have the mindset of people buying with our own money. And there's also a class of buyers for 100% of businesses who are basically able and shrewd financial promoters. I'm talking about the leveraged buyout funds and so on. And And those people tend to have the upside but not the downside in the private arrangements they've made with their investors. And naturally, they tend to be somewhat optimistic. And so we have formidable competition when we try and buy 100% of businesses. Most managers are better off in terms of their personal equation if they're running something larger. Now they're also better off if they're running something larger and more profitable. But the first condition alone will usually leave them better off. We're only better off if we're running something that's more profitable. We also like it if it's more larger if it's larger too. But our equation actually our personal equation is actually different than a great many managers in that respect. Even if that didn't operate, I think most managers would enjoy running something larger. And if you can pay for it with other people's money, I mean, that gets pretty attractive. How much would let's just say you're a baseball fan. Well, how much would you pay to own whatever your hometown, the Yankees? You might pay more if you were writing a check on someone else's bank account than if you were writing it on your own. But no one to happen. And in corporate America, animal spirits are there and those are our competitors on buying entire businesses. In terms of buying securities, most managers don't even think about it. It's very interesting to me because they'll say that they'll have somebody else manage their money in terms of a portfolio of securities. Well, all that is is a portfolio of businesses. And I'll say, Well, why don't you pick out your own portfolio? They'll say, That's much too difficult. And then some guy will come along with some business that they never heard of a week before and give them some figures and a few projections and the guy thinks he knows enough to buy that business. It's very puzzling to me sometimes. Zone 4. It's hard to hear. Is the mic on there? It's on. Okay. I can hear that fine. Let's try it one more time. Dan Raider, San Mateo, California. This is a question for Mr. Munger. In your most recent letter to shareholders in WESCO's annual report, you calculated the intrinsic value of WESCO at about $100 per share and compared that to the then current market price of WESCO of about $130 per share. In the same letter, you stated that it was unclear whether at then current market prices, Berkshire or Wesco presented a better value to prospective purchasers. In light of that, would you compare the intrinsic value of Berkshire to its current market price? Well, the answer to that is no. Berkshire has never calculated intrinsic value per share and reported it to the shareholders and WESCO never did before this year. We changed our mind at WESCO because we really thought some of the buyers had gone a little crazy and a lot of things were being said to prospective shareholders that in our opinion were unwise and we don't really like attracting, even though we've had nothing to do with it. We don't like attracting people in at high prices that may not be wise. So we departed from our long precedent and we did in the Westco report make an estimate of intrinsic value per share. We're not changing the general policy. That was just a one time quirk. Well, and also I think it's true that the WESCO intrinsic value per share can be estimated by anyone within fairly close limits. It just isn't that complicated because there aren't a number of businesses there that have values different than carrying values or where they are. They're all footnoted in terms of numbers. So it'd be almost impossible to come up with numbers that are significantly different than the number Charlie put in there. Berkshire has assets that number one of which would be the insurance business that it's clear have very significant excess values. But one person might estimate those at maybe 3 times what somebody else would estimate them at. That's less true of our other businesses, but it's still true in a way so that Berkshire's range would be somewhat greater. And as Charlie we basically we don't want to disappoint people. We also don't want to disappoint ourselves. But we have our own yardsticks for what we think is doable. We try to convey that as well as we can to the people who are partners in the business. And I think that we saw some things being published about WESCO that simply would might have led to probably did lead to some expectations that simply weren't consonant with our own personal expectations. And that leaves us uncomfortable. Zone 5. Hello. My name is Charles Pyle from Ann Arbor, Michigan. I'd like to ask you to expound on your view of risk in the financial world. And I asked that against the background of what appear to be a number of inconsistencies between your view of risk and the conventional view of risk. I mentioned that in a recent article, you pointed out an inconsistency in the use of beta as a measure of risk, which is a common standard. And I mentioned that, derivatives are dangerous and yet you feel comfortable playing a derivatives through Solomon brothers and, betting on hurricanes is dangerous, and yet you feel comfortable playing with hurricanes through insurance companies. So it appears that you have some view of risk that's inconsistent with what would appear on the face of it to be the conventional, view of risk. Well, we do define risk as the possibility of harm or injury. And in that respect, we think it's inextricably wound up in your time horizon for holding an asset. I mean, if your risk is that you're going if you intend to buy XYZ Corporation at 11:30 this morning and sell it out before the close today, I mean, that is in our view, that is a very risky transaction because we think 50% of the time you're going to suffer some harm or injury. If you have a time horizon on a business, we think the risk of buying something like Coca Cola at the price we bought it at a few years ago is essentially is so close to nil in terms of our prospective holding period. But if you ask me the risk of buying Coca Cola this morning and you're going to sell it tomorrow morning, I say that is a that's a very risky transaction. Now as I pointed out in the annual report, it became very fashionable, in the academic world and then that spilled over into the financial markets to define risk in terms of volatility, of which beta became a measure. But that measure that is no measure of risk to us. The risk in terms of our super cat business is not that we lose money in any given year. We know we're going to lose money in some given day. That is for certain. And we're extremely likely to lose money in a given year. Our time horizon of writing that business would be at least a decade and we think the probability of losing money over a decade is low. So we feel that in terms of our horizon of investment that that is not a risky business and it's a whole lot less risky than writing something that's much more predictable. Interesting thing is that using conventional measures of risk, something whose return varies from year to year between plus 20% and plus 80% is riskier as defined in something whose return is 5% a year every year. We just think the financial world has gone haywire in terms of measures of risk. We look at what we do. We are perfectly willing to lose money on a given transaction, arbitrage being an example, any given insurance policy being another example. We are perfectly willing to lose money on any given transaction. We are not willing to enter into transactions in which we think the probability of doing a number of mutually independent events of a but of a similar type has an expectancy of loss. And we hope that we are entering into our transactions where calculations of those probabilities have validity. And to do so, we try to narrow it down. There are a whole bunch of things we just won't do because we don't think we can write the equation on them. But we basically, Charlie and I, by nature, are pretty risk averse, but we are very willing to enter into transaction. If we knew it was an honest coin and someone wanted to give us 7 to 5 or something of the sort on one flip, how much of Berkshire's net worth would we put on that flip? Well, we would it would sound like a big number to you. It would not be a huge percentage of the net worth, but it would be a significant number. We will do things when probabilities favor us. Charlie? Yeah. I would say we try and think like Fairmount and Pascal as if they'd never heard of modern finance theory. I really think that a lot of modern finance theory can only be described as disgusting. Good morning. I'm Paul Miller from Kansas City, Missouri. I've got 2 questions. First, not too long ago, I believe it was Fortune Magazine that ran an article regarding personal tax rates. And at the risk of misquoting you, my recollection is that, you favored higher personal rates, rates even higher than those proposed by those in Washington. The second question is I've heard Berkshire Hathaway referred to as nothing more than a high priced rich man's mutual fund. Would you care to comment on that also? Well, on tax rates, if you ask me what I personally favor, I personally favor a steeply progressive consumption tax that has a little more attention being paid to it now, although the steeply progressive might be modified by most of the advocates of the consumption tax, maybe to mildly progressive or something of the sort. There's a non Domenici proposal along that line. And there are other people that are talking about it more. It may be examined by the new Kerry Danforth Commission, which we've got a member in the audience. But I believe in one way or another, I believe in progressive taxes. And so I am not shocked in terms of my own situation and I don't think Charlie is particularly about having a progressive income tax, although like I say, I think society would run better over time if it were a progressive consumption tax instead. Do you want to comment on the tax situation, Euron? Well, I think there is a point at which income taxes become quite counterproductive if the progression is too high. But I don't think we're there yet. We think, at least I think, I'm extraordinarily well treated by the society. I think most people with high incomes are. I think if you transported most of them to Bangladesh or Peru or something, they would find out how much of it is them and how much is a society. And I think there is nothing better than a market system in terms of motivating people and in terms of producing the goods and services that the society wants. But I do think it gets a little out of whack in terms of what the productivity may be of an outstanding teacher compared to somebody who is good at figuring out the intrinsic value of businesses. I don't have a better system on the income side, but I think society should figure out some way to make those who are particularly blessed in a sense to have talents that get paid off enormously in a market system to give back a fair amount of that to the society that produces that. The question about Berkshire being a I think it was a rich man, mutual fund or something like that. We don't look at it that way at all. We look at it as a collection of businesses and ideally, we would own all of those businesses. So it's to the extent that a mutual fund owns stock in a lot of companies and diversifies among businesses and we try to own a lot of businesses ourselves. I guess that's true but I guess you could say the same thing of General Electric or an operation like that. We are more prone to buy pieces of businesses than the typical manager. But we are trying to do in a sense the same thing Jack Welch is trying to do at General Electric, which is try to own a number of first class businesses. He gets to put the imprint of his own management, which I think is very good, on those businesses. And we are more hands off both in the businesses we own outright and in the ones we own pieces of. But we're going at it the same way. And General Electric has been very successful under Jack's leadership and doing it his way. We think in terms of what we bring to the game and the problems of putting money to work all the time that our own system is will work best for us. John? Yes, I've got nothing to add to that. Zone 1. Hello, I'm Christopher Davis from New York City. I'm interested in that many of the holdings of Berkshire are in industries that are perceived as interest rate sensitive industries, including Wells Fargo, Solomon, Freddie Mac, even GEICO. And yet you have an admitted sort of ambivalence towards interest rates or changes in interest rates. And it therefore seems that you don't feel that those changes affect the fundamental attractiveness of those businesses. I thought maybe you could share your thoughts on what you see in these businesses that the investment community as a whole is ignoring? Well, the value of every business, the value of a farm, the value of an apartment house, the value of any economic asset is 100% sensitive to interest rates because all you are doing in investing is transferring some money to somebody now in exchange for what you expect a stream of money to be to come in over a period of time. And the higher interest rates are, the less that present value is going to be. So every business by its nature, whether it's Coca Cola or Gillette or Wells Fargo, is in its intrinsic valuation is 100% sensitive to interest rates. Now the question as to whether a Wells Fargo or a Freddie Mac or whatever it may be, whether their business gets better or worse internally as opposed to the valuation process because of higher interest rates, that is not easy to figure. I mean, GEICO, if they write their insurance business at the same underwriting ratio in other words, they have the same loss and expense experience relative to premiums benefit by higher interest rates obviously over time because they're a float business and the float is worth more to them. Now, externally, getting back to the valuation part, present value of those earnings also becomes less than but the present value of coach earnings becomes less in a higher interest rate environment. Wells Fargo, it's whether they earn more or less money under any given interest rate scenario is hard to figure. There may be one short term effect and there may be another long term effect. So I do not have to have a view on interest rates and I don't have a view on interest rates to make a decision as to an insurance business or a mortgage guarantor business or a banking business or something of those sort relative to making a judgment about Coke or Gillette. Charlie? I've got nothing to add. Zone 2. Hello. I'm Benjamin Barron from New York. Could you speak about your insurance business a little bit and especially the retroactive policies you've been writing? We speak about the did you say the reinsurance business? Reinsurance. Well, I heard the retroactive part, but the first part. Reinsurance and the retroactive and also the market in Bermuda and how you see it as one of your potential markets? I think the retroactive market is what's called retroactive insurance has been pretty well eliminated by developments in accounting. So I would not expect us to really have any volume in retroactive type policies. Now when we write workers' comp with a policyholder dividend, in effect, that's a retroactive policy. But that's a relative that's a small part of Berkshire's business. Did I answer what you were driving out there? Pardon me? You get the insurance? Can you comment on the development of the insurance business in Bermuda? Oh, Bermuda is simply a new competitor. They're not so new. I mean, there have been companies in Bermuda before. But in the last 15 months, 18 months, maybe there's been $4,000,000,000 plus raise. And because for tax reasons maybe other reasons as well but certainly for tax reasons, that capacity has been concentrated in Bermuda based, Bermuda domiciled But essentially, there's no great difference between that type of competition and other reinsurers' competition except for the fact that that capacity is new and the money's just been raised. And so there may be some greater pressure on the managers of those businesses to go out and write business promptly than on somebody that's been around for 50 years. But it's no plus for us anytime new capacity enters any business that we're in and that certainly goes for the reinsurance business. Reinsurance business by its nature will be a business in which some very stupid things are done en masse periodically. I mean, you can be doing dumb things and not know it in reinsurance and then all of a sudden wake up and find out, you know, the money is gone. And it's the it's what people have found out and I used that line in the report a year ago. It's what people have found out that were speculating on bonds with the low margins recently that, you know, you don't find out who's been swimming naked until the tide goes out. And essentially that's what happens in reinsurance. You don't you really don't find out who's been swimming naked till the wind blows. Zone 3. Right now, we are reading about various analysts and how you should, in their individual opinion, adjust your more cash, more stocks, more bonds because of. How does Berkshire Hathaway feel about times of relative financial insecurity? Do you arrange for more cash reserves looking forward to a time when you might be able to buy? Or do you go along your path? I think the question is do we get sort of get into asset allocation by maintaining given levels of cash depending on some kind of outlook or something of the sort? We don't really think that way at all. If we have cash, it's because we haven't found anything intelligent to do with it that day in the way of buying into the kind of businesses we like. When we can't find anything for a while, the cash piles up. But that's not through choice. That's because we're failing at what we essentially are trying to do, which is to find things to buy. And we make no attempt to guess whether cash is going to be worth more 3 months from now or 6 months from now or a year from now. So it is you will never see we don't have any meetings of any kind anyway at Berkshire but we would never have an asset allocation meeting. We would would keep looking. I mean, Charlie's looking. I'm looking. Some of our managers are looking. We're looking for things to buy that meet our tests. And if we showed no cash or short term securities at year end, we would love it because it would mean that we'd found ways to employ the money in ways that we like. I think I would have to admit that if we have a lot of money around, we are a little dumber than usual. I mean, it tends to make you careless. And I would say that the best purchases are usually made when you have to sell something to raise the money to get them because it just raises the bar a little bit that you jump over in the metal decisions. But we have I don't know what we'll show, but certainly well over $1,000,000,000 of cash around. And that's not through choice. That is a that you can look at that as an index of failure on the part of your management. And we will be happy when we can buy businesses or small pieces of businesses that use up that money. Zone 4. Gentlemen, my name is Richard Surcer from Tucson, Arizona. I understand that 40% of all home mortgages have been securitized by Fannie Mae and Freddie Mac, the duopoly. I would, at the risk of asking you for a projection since you talked about projections before, I'd be interested in understanding what you think will happen to that market share over time for this duopoly. Thank you. Well, the answer to that essentially certain to go up because the economics that those two entities possess compared to other ways of intermediating money between investors and people who want to borrow. No one else has those economics. So what holds the share of Freddie Mac and Fannie Mae down is the fact that they are only allowed to loan roughly $200,000 on any mortgage. That's a limiting factor. It's probably been a good thing for them that it has been a limiting factor but they are shut out of part of the market. But the market that they are in, they essentially have economics that other people can't touch for intermediating money, including the savings and loan business that we were in. We had a business that intermediated money, went out and got it from depositors and went it to people who want to borrow on a home. Freddie Mac and Fannie Mae do it the same way. They don't do exactly the same way, but they perform the same function. And they did it they could do it so much more cheaply than we could do it by having branches or anything of the sort and paying the insurance fee we paid. They're going to get the business. They should get the business. And so their market share will grow. Charlie? Well, I think that's right. You're doing great. Zone 5. Good morning. I'm Sarah Pruitt from Milwaukee, Wisconsin. And I wondered if you feel that the speed with which information is available and disseminated today has affected your business buying decision process? And do you believe that speed has caused you to miss opportunities? Question about seas expanding? No. There's the speed of information today affect our decision making process? I would say that we perform about like we were doing 30 or 40 years ago. I mean, we read annual reports. It isn't the speed of information really doesn't make any difference to us. It's the processing and finally coming to some judgment that actually has some utility that is that it's a judgment about the price of a business or a part of a business of security versus what it's essentially worth. And none of that involves anything to do really with quick information. It involves getting good information. But usually that it's not we're not looking for needles in haystacks or anything of the sort. You know, we like haystacks, not needles basically. And we want it to shout at us. And I would say that well, virtually everything we've done has been reading public reports and then maybe asking questions around to ascertain trade positions or product strengths or something of that sort. But we never have to we can make decisions very fast. I mean, we get called on a business or we can make up our mind whether we're interested in 2 or 3 minutes. I mean, that takes no time. We may have to do a little checking on a few things subsequently. But we don't need to get I can't think of anything where we really need lots price data or things like that extremely fast to make any decisions. We've got good management information systems in our operating businesses but that's just another thing. It's a question of keeping inventories where they should be and all of that sort of thing. I don't think the invest I think you could be in some place where the mails were delayed 3 weeks and the quotations were delayed 3 weeks and I think you could do just fine in investing. Zone 6. James Pan, New York City. I have a 2 parter question. One, do you think the stock price of Berkshire Hathaway is trading within 15% of its intrinsic value currently? And 2, if you think Berkshire Hathaway is undervalued with the amount of cash you have on your balance sheet, would you consider a buyback? The answer about a buyback is that we generally have felt that market conditions that would make Berkshire attractively priced are probably going to make other things even more attractively priced because we think our shareholders are more rational than the shareholders of many companies. It's more likely that we will find some wonderful business at a silly price than we will find Berkshire at a silly price as we go along. So that tends to eliminate repurchases. But it doesn't rule them out. It just but it explains why the circumstances will not arise very often where repurchases would make good sense. In terms of giving you a number on intrinsic value, I don't want to spoil your fun. I mean, you really should work that one for yourself. Charlie is the expert on the do you have any comment for him, Charlie? Well, your attitude on that subject reminds me of a famous headmaster who used to address the graduating class every year and he'd say, you know, he says, 5% of you people are going to end up criminals. And he says, I know exactly who you are. And he said, I'm not going to tell you because it would deprive excitement. If you stop to think about it, the companies that constantly told their shareholders what the intrinsic value was, where the real estate holding companies in corporate form and I must say that the amount of folly and misbehavior that crept into that process was disgusting. We would be associating with a bad group if we were to change our ways. Bill Zeckendorf Sr. I think was probably the first one to do that with Webb and Knapp back in the late 50s. I still have those annual reports and he would announce, you know, like to 8 decimal places what the intrinsic value of web and app was and he did it right till the day they filed for Chapter 11. I remember that well because somebody said that he fell into bankruptcy and somebody else said, how can you fall off a pancake? Beware of people that give you a lot of numbers about their businesses. I mean, in terms of projections or valuations or that sort of thing. We try to give you all of the numbers that we would use ourselves in making our own calculations of value. We really if you read the Berkshire reports, you essentially you have all the information that Charlie and I would use in making a decision about the security. And if there's anything really lacking in that respect, we would truly appreciate hearing from you because we want to have that kind of information in the report. But then we want you to make the calculation. But we've stuck I mean that material for example on the float in the insurance business, we consider that quite relevant obviously because we use up almost a page printing it. It's pretty serious stuff at Berkshire. But that is relevant. I mean, your interpretation may be different than the minor Charlie's, but that those are important numbers. And we could give you a lot of baloney about satisfied policyholders, you know. And Lincoln, Nebraska wouldn't tell you a thing about what the company is worth and have pictures of them and happy, you know, receiving the check from the agent, all of that. We're not going to do that. Zone 1. Mike Macey from Indianapolis. I have really enjoyed reading your annual letters and your annual report. And I have gone back and read all the older ones, too. They are terrific. I have also enjoyed reading the 2 books by Peter Lynch. And I see a lot of commonalities between the 2 of you, the way you think and your philosophy, etcetera. I'd certainly appreciate it if you'd make a few comments on what you think of Peter Lynch, the things he says in his two books and the advice that he gives to investors. Well, I know Peter. I don't know him well, but we play bridge together in Omaha as a matter fact. And I like him personally and obviously he has an outstanding record. And he has written those two books which have been bestsellers about his investment philosophy. I don't really have anything I'm not going to embroider on his. There's certainly a fair amount of overlap. There's some difference. Peter obviously likes to diversify a lot more than I do. I mean, he owns more stocks than the names of companies I can remember. I mean, but that's Peter. And I've said in investing in the past that there's more than one way to get to heaven and that there isn't a true religion in this, but there's some very useful religions. And Peter's got one and I think we've got one that's useful too and there is a lot of overlap. But I would not do as well if I tried to do it the way Peter does it and he probably wouldn't do as well if he tried to do it exactly the way I do it. I like him personally very much. He's a high grade guy. Zone 2? Mr. Buffet, Mr. Munger. My name is Dave. I'm a senior editor at a business insurance magazine. 2 part question for you. Can you, explain a little bit regarding your primary insurance operations, what drove up written premiums by more than 50% last year? And if you expect that to continue this year, and then regarding your earlier comments on the stupid things, reinsurers can do in mass, Can you explain what potential pitfalls that the new cat facilities in Bermuda will have to avoid that you feel Berkshire Hathaway they're they're a little distorted because we bought central states' indemnity. What would it be like in the year in 92. So there's a lot more premium volume in there for central states in 90 3 than there was in 92. Our basic National Indemnity's basic insurance, which is auto and commercial auto and general liability, Premium volume was fairly flat. The home state operation fairly flat. Cypress up somewhat. But those numbers were not anything like the changes. So our business last year, pro form a for including central states indemnity for all of 92 would not have shown a dramatic change. There really hasn't been much happened in our primary business except that it's been run it's done very well, but it is not growing or and it could grow in certain kinds of markets very substantially. But it is not growing in this market and it did not grow last year, although its underwriting was very good. In the reinsurance business, I think essentially the difference in our reinsurance business from many others doesn't include them all in a place like Bermuda is that is essentially the difference that may exist in our operations and securities versus other people. We will offer reinsurance at any time in very large quantities at prices we think make sense. But we won't do business if we don't think it makes sense, just like we will buy securities to the extent of the cash we have available make sense to make sense to us. I think for most managements, if the only thing they're in is the reinsurance business, they may like it better when prices make sense, but they will I think they will be prone to do quite a bit of business when prices don't make sense as well because there's no alternative except to give the money back to the owners and that is not something that most managements you know, do somersaults over. So I think we are in a favored position essentially being having the flexibility of capital allocation that lets us take the lack of business with a certain equanimity that most managements probably can't because of their sole focus on the business. Rates will get silly in all likelihood after a period when nothing much happens, when you've had a couple of years of good experience. We price to what we think is exposure. We don't price to experience. I mean, the fact that there was no big hurricane last year, I forget the name of the one that was coming in at North Carolina and and veered out essentially. But to us, it has nothing to do with the rates next year, whether that hurricane actually came in in a big way or veered out into the Atlantic again. I mean, we are pricing to market tends but the market tends to price and respond to experience and generally to recent experience. That's why all the retrocessional operations in London, you know, and the spiral went busted because they priced, in our view, they priced to experience rather than to exposure. It's very hard not to do that, to be there year after year with business coming by and investors expecting things of you and not do that. But we will never knowingly do that. We may get influenced subconsciously in some way to do that but we will not do that any more than we will accept stock market norms as being the proper way for us to invest money in equities. Basically, when you lay out money or accept insurance risks, you really have to think for yourself. You cannot let the market think for you. Charlie? Yes. I think Berkshire it's basically a very old fashioned kind of a place and it tries to exert discipline to stay old fashioned. And I don't mean old fashioned stupid. I mean, you know, the eternal verity, so to speak, basic discriminations regarding human nature, all very old fashioned. And if you just do that with a certain amount of discipline, I think it's likely to work out quite well. David Gottesman from New York. It's no wonder that this meeting draws stockholders from all over the country. And despite the talk about age today, I'm happy to say this meeting gets better every year. Berkshire stands unique in American Business as a company whose name has become synonymous with management excellence. Unlike many American corporations, we as stockholders don't have to worry about reorganizations, large massive restructurings, overstated earnings and overpaid executives with strategic visions. Instead, year in and year out, we enjoy the benefits of the common sense and brilliance of Charlie and Warren. What did you say your name was? I want to add to that, to say nothing of your good humor. It's easy to take such consistently outstanding results for granted, but we in this room are the direct beneficiaries of their efforts. By our presence here today, we show our appreciation to them for their exceptional performance, but we can also demonstrate it in another way. I would like to suggest we give them a rousing hand of applause for a job well done. Thank you. That was Sandy Gottesman. We worked together for 30 odd years and he's finally got that down. I appreciate that, Sandy. With that, we will adjourn and anyone who wants to stay around, we'll reconvene in 15 minutes and then we'll be here till about 1:15. And for the rest of you, there's buses, candy, etcetera, world books out there. Thank you.

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