Berkshire Hathaway Inc. (BRK.A)

ASM 2019 Part 1

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May 4, 2019

Thank you. Good morning and welcome to Berkshire Hathaway. And for those of you who have come from out of state, welcome to Omaha. The city is delighted to have you here for this event. And for those of you who came from outside of the country, welcome to the United States. So we've got people here from all over the world. We've got some overflow rooms that are taking care of people. And we will just have a few preliminaries and then we will move right into the Q and A period. We'll break about noon, for about an hour. We'll come back and do more Q and A until about 3:30, then we'll adjourn for a few minutes. And then we'll conduct the meeting. I understand that in the room adjacent that Charlie has been conducting a little insurgency campaign. I don't know whether you've seen these, but these are the buttons that are available for those of you who keep asking questions about succession. And Charlie wants to answer that question by getting your vote today. So it says this one says, maturity experience, why accept second best? Vote for Charlie. I, however, have appointed the monitors who have collected the votes, so I feel very secure. The first thing I'd like to do, Charlie is my partner of 60 years, Director and Vice Chairman, and we make the big decisions jointly. It's just that we haven't had any big decisions. So we haven't we're keeping them available for the next big one. Now, at the formal meeting today, we'll elect 14 directors, and you're looking at 2 of them. And I'd like to introduce the 12 that will be on the ballot at 3:45. And I'm going to proceed alphabetically. And if you will withhold your applause because some of them get sensitive if certain people get more applause than others. And if you withhold it until I'm finished, then you can applaud or not as you see fit having looked at these directors. So we'll start I might left, Greg Abels, who's both a Vice Chairman and a Director. Greg? Yes. Oh, there we are. Right. Okay. And going along alphabetically, Howard Buffett, Steve Burke, Sue Decker, Bill Gates, Sandy Gottesman, Charlotte Guyman, Ajit Jain, who is also Vice Chairman, Tom Murphy, Ron Olson, Walter Scott, and Merrell Whitmer. Now you can applaud. Now, this morning, we posted on our website the quarterly the 10 Q that's required to be filed with the SEC. We published it at 7 o'clock Central Time. And we also published an accompanying press release. And these figures, as usual, require some explanation. As we've mentioned in the annual report, The new GAAP rules generally accepted accounting principles require that we mark our securities to market and then report any unrealized gains in our earnings. And you can see I've warned you about the distortions from this sort of thing. And, you know, the Q1 of 2019 actually was much like the Q1 of 2018. And I hope very much that newspapers do not read headlines saying that we made $21,600,000,000 in the Q1 of this year against the loss of last year. These the bottom line figures are going to be totally capricious. And what I worry about is that not everybody, studied accounting in school. Or they can be very smart people, but that doesn't mean that they've spent any real time on accounting. And I really regard these bottom line figures, particularly if they're emphasized in the press, as doing as potentially being harmful to our shareholders and really not being helpful. And I call our operating earnings, which were up a bit. And forget about the capital gains or losses in any given period. Now they're enormously important over time. We've had substantial capital gains in the future. We have substantial unrealized capital gains at the present time. We expect to have more capital gains in the future there. They are an important part of Berkshire, but they have absolutely no predictive value or analytical value in the on a quarterly basis or an annual basis. And, I just hope that nobody gets misled in some quarter when stocks are down and people say Berkshire loses money or something of this sort. It's really a shame that the rules got changed in that way. But we will report. But we will also explain and we will do our best to have the press, understand the importance of focusing on operating earnings and that we do not attract shareholders who think that there's some enormous gain because in the Q1 the stock market was up. There's one other footnote to these figures that I should point out. It's already been picked up by the wires from our 7 o'clock filing. We report on Kraft Heinz, of which we own about 27% or so, we report on what they call the equity method. Now, most stocks, when you get dividends that goes into our earnings account and their undistributed earnings don't affect us. They affect us in a real way, but they don't affect us in an accounting way. We are part of a control group at Kraft Heinz. So instead of reporting dividends, we report what they call equity earnings. Kraft Heinz has not filed their 10 ks for the 2018 year with the SEC. And therefore, they have not released the Q1 of 2019 earnings. Now normally, we would include our percentage share of those earnings and we've done that every quarter up to this quarter. But because we do not have those figures, we've just we've not included anything. We received $0.40 times $130,000,000 of dividends in the Q1 from our shares, but that reduces our carrying basis. It is not reflected in the earnings. So that's an unusual item which we have mentioned specifically pointed out in our press release as well as included in our own, but there is nothing in here, plus or minus, for Kraft earnings Kraft Heinz earnings this year, whereas there was last year. And when we have the figures, obviously, we will report them. I think oh, yes. I wanted to mention to you, the Keywood Company, which has been a landlord since 1962, 57 years, has owned the building in which Berkshire is headquartered. Hewitt Company is moving their headquarters and in the process will be doing something with the building. And they very, very generously as they always have been, they came and said what kind of a lease would you like since we're leaving and we've always sort of worked these things out as we've gone along. And Bruce Gropak who runs Kiewit, said you just sort of you name your terms and what you'd like, so you no matter what happens with the building, you're all set. So I was about to sign a 10 year lease for the present space, but Charlie said 10 years might be long enough for me. But he said would like me to sign one for 20 years considering it. And so we we are entering a 20 year lease. And I confess to you that we now occupy 1 full floor, as we have for decades. And, the new lease provides for 2 floors. So I just want you to know that your management is loosening up just a little bit. And whether or not we fill them is another question. But we will have that. And I would like to say to Omaha that I think the fact that Berkshire has signed up for 20 years is very good news for the city over time. Okay. And now I would like to tell you something about the people that make all of this possible. This is totally a this is a homegrown operation. We started with a few people meeting in the lunchroom at National Indemnity many years ago. And I think we will probably set another record for attendance today. Yesterday afternoon, 16,200 people came in 5 hours, and that broke the previous record by a couple thousand. On Tuesday, the Nebraska Furniture Mart did $9,300,000 worth of business. And if any of you are in the retail business, you'll know that that's a yearly volume for some furniture stores. And here in Omaha, the 50th or so, largest market in the country, maybe even a little less, dollars 9,300,000,000 I think probably exceeds anything any home furnishing store has ever done in one day. And we have people pitching. And we have all of the people virtually all of the people from the home office. Some of them, they'll take on any task. We have a bunch of people from National Indemnity, for example, that come over and they've been some of the monitors around. And in terms of the Exhibit Hall, more than 600 people from our various subsidiaries give up a weekend, come to Omaha, work very hard. Tomorrow at 4 or 4:30, they or I should say today at 4 or 4:30, they will start packing up things and heading back home. And they come in. And I saw them all yesterday. And there were a bunch of very, very happy smiling faces. And they don't you know, they work hard all year and then they come in and help us out on this meeting. And then finally, if we could get a spotlight, I think Melissa Shapiro is on place here. She runs the whole show. I mean, Melissa, where are you? Melissa's name was Melissa Shapiro before she got married, then she married a guy named Shapiro. So now she is Melissa Shapiro Shapiro. But she can handle that sort of thing. She handles everything. And never totally unflappable, totally organized. Everything gets done. Everybody likes you when they get through. So it's marvelous to get a chance to work with people like this. I think it's a special quality that at Berkshire, I think other people would hire some group to put on the meeting and all be very professional and all of that. But I don't think you can get I don't think you can buy the enthusiasm and energy and and help the next guy, feeling that you've seen out on that, exhibition floor and you'll see as you meet people here at the hall and as you meet the people around Omaha, they're very, very happy that you're here. And with that, I would like to start on the questions. We'll do it just as we've done it in recent years. We'll start with the press group. They've received emails from a great many people, perhaps they can tell you how many, and, selected the questions they think would be most useful to the Berkshire shareholders. Yahoo is webcasting this as they've done for several years now. They've done a terrific job for us. So this meeting is going out both in English and in Mandarin. And I hope our results translate well, or our comments translate well. Sometimes we have trouble with English. But we're going to we'll start in with Carol Loomis, my friend of 50 years, but you'll never know it by the question she's going to ask me. I'm going to start very briefly. This is for the benefit of people who send us questions next year. There are kind of 2 things that you get wrong a lot of time. You can't send 2 part questions or 3 part, etcetera. We can't we need a 1 part question. And the other thing is the question really needs to have some relevance to Berkshire because Warren said when he started it that his hope was that shareholders would come out of the questions with a further education about the company. So keep those in mind for next year. Many people, a number of people wrote me about repurchases of stock and that's the question I picked for my first one. The question is this particular question comes from Ward Cookie, who lives in Belgium and who is still e mailing me this morning in reference to the Q1 report. And he asked, my question concerns your repurchase of Berkshire shares. In the Q3 of last year, you spent almost $1,000,000,000 buying Berkshire Lea stock at an average price of $207 But then you got to a period between December 26 April 11th when the stock languished for almost 4 months under 207 and yet you purchased what I think of as a very limited amount of stock. Even as you were sitting on an enormous pile of 112,000,000,000 My question is, why you did not repurchase a lot more stock, unless of course, there was for a time an acquisition of say, 80,000,000,000 to 90,000,000,000 on your radar. Yeah. The question, whether we had $100,000,000,000 or $200,000,000,000 would not make a difference or $50,000,000,000 dollars would not make a difference in our approach to of tying it to book value. But that became, really became obsolete. The real thing is to buy stock, repurchase shares only when you think you're doing it, and at a price where the remaining shareholders have had are worth more than the moment after you've repurchased it than they were the moment before. It's very much like if you were running a partnership and you had 3 partners in it and the business was worth $3,000,000 and one of the partners came and said I'd like you to buy back my share of the partnership for a 1,000,000,000 I started out with 1,000,000, I'll stay with 1,000,000 for 1,100,000 and we'd say forget it. And if he said 1,000,000 we'd probably say forget it unless and if he said $900,000 we'd take it because at that point the remaining business would be worth 2,000,001 and we'd have 2 owners and our interest in value would have gone from 1,000,000 to 1,050,000. So it's very simple arithmetic. Most companies adopt repurchase programs and they just say we're going to spend so much. That's like saying we're going to buy XYZ stock and we're going to spend so much or we're going to buy a company. We're going to spend whatever it takes. We will buy stock when we think it is selling below a conservative estimate of its intrinsic value. Now the intrinsic value is not a specific point. It's probably a range in my mind, that might have a band maybe of 10%. Charlie would have a band in his mind and it would probably be 10% and ours would not be identical but they'd be very close. And sometimes he might figure a bit higher than I do, a bit lower. But we want to be sure when we repurchase shares that those people who have not sold shares are better off than they were before we repurchased them. And, it's very simple. And in the Q1 of the year, you'll find we bought something over $1,000,000,000 worth of stock and that's nothing like my ambitions. But what that means is that we feel that we're okay buying it but we don't salivate over buying it. We think that the shares we repurchased in the Q1 leave the shareholders better off than if we hadn't the remaining shareholders better off than if we hadn't bought it. But we don't think the difference is dramatic and you will you could easily see periods where we would spend very substantial sums if we thought the stock was selling at say 25% or 30% less than it was worth and we didn't have something else that was even better. But we have no ambition in any given quarter to spend a dime unless we think you're going to be better off for us having done so. Charlie? Well I predict that we'll get a little more liberal in repurchasing shares. I was going to give you equal time but okay. John Brandt. Hi, Warren and Charlie. Thanks for having me as always. Every major North American railroad other than Burlington Northern has adopted at least some aspects of precision scheduled railroading, generally to good effect to their bottom line. Some believe that point to point scheduled service and minimal in transit switching is good for both returns on capital and customer service. Others believe precision railroading has done little for on time performance and its rigidity has jeopardized the compact that railroads have had with both regulators and customers. Do you and current BNSF management believe that it's now a good idea for BNSF to adopt precision rail eroding playbook or do you agree with its critics? Yeah. Precision railroading as it's labeled was probably invented by a fellow named Hunter Harrison. I think maybe it was at the Illinois Central Railroad at the time. There's a book that came out about a hunter who died maybe a year ago or thereabouts. And it describes his procedure toward railroading. It's an interesting read if you're interested in railroading. And he took that to Canadian National, CN. There are 6 big railroads in North America and he took that to CN and he was very successful. And actually Bill Gates is probably the largest holder of CN. So, and I think he's done very well with that stock. And then later, Canadian Pacific was the subject of activist and when they, as they proceeded, they, got 100 to join them and brought in an associate, Keith Rehould, who, and they instituted a somewhat similar program. Now, the same thing has happened at CSX. And all of those companies dramatically improved their profit margins. And they had varying degrees of difficulty, with customer service in the implementing of it. But, I would say that we watch very carefully. The Union Pacific is doing a somewhat modified version. But the we are not we are not above copying anything that is successful. And I think that there's been a good deal that's been learned by watching these 4 railroads. And we will if we think we can serve our customers well and get more efficient in the process, we will adopt whatever, whatever we observe. But we don't have to do it today or tomorrow. But we do have to find we have to find something that gets at least equal and hopefully better customer satisfaction and that makes our railroad more efficient. And there's been growing evidence that from the, from the, actions of these other 4 railroads There's been growing evidence that we can learn something from what they do. Charlie? Well, I doubt that anybody is very interested in unprecision in railroading. Well, Johnny, has Charlie answered your question? Yes. Thank you. Okay. Station number 1 from the shareholder growth on my part right. Good morning. My name is Bill Moyer and I'm from Vashon Island, Washington. And I'm part of a team called the Solutionary Rail Project. Interestingly, only 3.5 percent of the value of freight in the US moves on trains. Berkshire Hathaway is incredibly well positioned with its investments in the northern and southern transcon through BNSF to grab far more of that freight traffic off of the roads and get diesel out of our communities, as well as harness transmission corridors for your Berkshire renewable energy assets, for which you're obviously very proud. Would you consider meeting with us to look at a proposal for utilizing your assets and leveraging a public private partnership to electrify your railroads and open those corridors for renewable energy future? No, we've examined a lot of things in terms of LNG. I mean, obviously, we want to become more energy efficient as well as just generally efficient. And I'm not sure about the value of freight. You mentioned 3.5%. I believe I mean, I'm not sure what figure you're using as the denominator there because if you look at the movement of traffic by ton miles. Rails are around 40% of the U. S. We're not talking local deliveries or all kinds of things like, of that. But they're 40%, roughly by rail. And BNSF moves more ton miles than any other entity. We move 15% plus of all the 10 miles moved in the United States. But if you take trucking, for example, on intermodal freight, we're extremely competitive on the longer hauls. But the shorter the haul, the more likely it is that the flexibility of freight where a truck can go anyplace and we have rails. So the equation changes depending on distance hauled and other factors but distance hauled is a huge factor. We can move a ton mile 500 we can move 500 plus ton miles of freight for 1 gallon of diesel. And that is far more efficient than trucks. So the long haul traffic and the heavy traffic is going to go to, to the rails and we try to improve our part of the equation on that all the time. But if we're going to transport something 10 or 20 or 30 miles between a shipper and a receiver in there, you're not going to move that by rail. So we look at things all the time. I can assure you Carl Icze is in, well he's probably here now and he'll be in the other room. And he's running the railroad. You're free to talk to him. But I don't see any breakthrough like you're talking about. I do see us getting more efficient year by year by year. And, obviously, if trucks, driverless trucks become part of the equation that moves things toward trucking. But on long haul heavy stuff and there's a lot of it, you're looking at the railroad that carries more than any other mode of transportation and BNSF is the leader. Charlie? Well over the long term our questioner is on the side of the angels. Sooner or later we'll have it more like electrified. I think Greg will decide when that happens. Yeah. But we're all working on the technology. But, And we are considerably more efficient than 10, 20, 30 years ago if you look at the numbers. But one interesting figure, I think right after World War II, when the country probably had about 140,000,000 people against our 330,000,000 now, so we had 40% of the population. We had over a 1,000,000 and a half people employed in the railroad industry. Now there's less than 200,000 and we're carrying a whole lot more freight. Now there's obviously there's some change in passengers, but the efficiency of the railroads compared to, and the safety compared to what it was even immediately after World War II, has improved dramatically. Charlie, anything more? No. Okay. Becky? This is a question that comes from Mike Hebel. He says, The Star Performers Investment Club has 30 partners, all of whom are active or retired San Francisco police officers. Several of our members have worked in the fraud detail and have often commented after the years long fraudulent behavior of Wells Fargo employees should have warranted jail sentences for several dozen. Yet Wells just pays several penalties and changes management. As proud shareholders of Berkshire, we cannot understand Mr. Buffett's relative silence compared to his vigorous public pronouncement many years ago on Solomon's misbehavior. Why so quiet? Yes. I would say this. The As I see it, although, you know, I've read no reports internally or anything like that. But it looks to me like Wells made some big mistakes in what they incentivize. And as Charlie says, there's nothing like incentives but they can incentivize the wrong behavior and I've seen that a lot of places and that clearly existed at Wells. The interesting thing is to the extent that they set up fake accounts, a couple million of them that had no balance in them, that could not possibly have been profitable to 2 wells. So you're going to incentivize some crazy things. The problem is, I'm sure, is that and I don't really have any insider information at all. But when you find a problem, you have to do something about it. And and, I think that's where they probably made a mistake at Wells Fargo. They made it at Solomon. I mean, John John Goodfriend would never have played around with the government. He was the CEO of Solomon in 1991. He never would have done what the bond trader did that that played around with the rules that the federal government had about government bond bidding. But when he heard about it, he didn't immediately notify the Federal Reserve. And he heard about it in late April. And May 15th, the government bond auction came along. And Paul Mosier did the same thing he'd done before and game the auction. And at this point, John, good friend, you know, the destiny of Solomon was straight downhill from that step from that point forward. Because essentially, he heard about a about a pyromaniac and he let them keep the box of matches. And And at Wells, my understanding, there was an article in the Los Angeles Times maybe a couple of years before the whole thing was exposed. And, you know, somebody ignored that article. And Charlie has beaten me over the head all the years at Berkshire because we have 390,000 employees. And I will guarantee you that some of them are doing things that are wrong right now. There's no way to have a city of 390,000 people and not need a not need a policeman or a court system. And some people don't follow the rules. And and you can't incentivize the wrong behavior. You've got to do something about it when it happens. Wells has become, you know, exhibit 1 in recent years. But go back a few years, you know, you can almost go down. There's quite a list of banks where people behave badly. And And where they I would not say I don't know the specifics at Wells, but I've actually written in the annual report that they talk about moral hazard. They allow people to the shareholders of Wells got paid a price. The shareholders of Citicorp paid a price. The shareholders of Goldman Sachs, the shareholders of Bank of America, they paid 1,000,000,000 and 1,000,000,000 of dollars and they didn't commit the acts. And of course, nobody did go. There were no jail sentences And that is infuriating. But the lesson that was taught was not that the government bailed out because the government got its money back but the shareholders of the various banks paid many, many 1,000,000,000 of dollars. And I don't have any advice for anybody running a business except when you find out something is leading to bad results or bad behavior, if you're in the top job, you've got to take action fast. And that's why we have hotlines. That's why we get when we get certain anonymous letters, we turn them over to the audit committee or to outside investigators. And we will have I will guarantee you that we will have some people do things that are wrong at Berkshire in the next year, 5 years, 10 years, 50 years. You cannot have 390,000 people. And it's the one thing that always worries me about my job because I've got to hear about those things and I've got to do something about them when I do hear about them. Charlie. Well, I don't think people ought to go to jail for honest errors of judgment. It's bad enough to lose your job. And I don't think that any of those top officers was deliberately malevolent in any way. I just were talking about honest errors in judgment and I don't think Tim Sloan even committed honest errors of his judgment. I just think he was an accidental casualty that didn't deserve the trouble I wish that Stem Sloane was still there. Yeah. There is no evidence that he did a thing, but he stepped up to take a job that where he was going to get the pinata basically, for all kinds of investigations and rightfully well should be checked out on everything they do. All banks should. I mean, they get a government guarantee and they receive 1,000,000,000,000 of dollars in deposits. And they do that because of basically because of the FDIC. And, if they abuse that, they should pay a price. And if anybody does anything like a Paul Mosier did for example of Solomon, they ought to go to jail. Paul Mosier only went to jail for 4 months but if you're breaking laws, you should be prosecuted on it. If you do a lot of dumb things, I wish they wouldn't go away, the CEOs wouldn't go away so rich under those circumstances. But people will do dumb things. I actually proposed, I think it may have been in one of the annual reports even. I proposed that if a bank gets to where it needs government assistance that, basically the responsible CEO should lose his net worth and his spouse's net worth if he doesn't want the job under those circumstances. And I think that the directors I think they should come after the directors for the last 5 years. I think I proposed of all of everything they've received. But it's the shareholders who pay. I mean, if we own 9% of wells, whatever this has cost, 9% of it is being borne by us. And it's very hard to tie it directly. One thing you should know incidentally though is that the FDIC, which was started I think it was started January 1, 1934, but it was a New Deal proposal. And the FDIC has not cost the United States government a penny. It now has about $100,000,000,000 in it, and that money has all been put in there by the banks and that's covered all the losses of 100 and 100 and 100 of financial institutions. And I think the impression is that the government the government guarantees save the banks, but the government money did not save the banks. The bank's money as an industry not only have paid every loss, but they've accumulated an extra $100,000,000,000 and that's the reason the FDIC assessments now are going back down. They had them at a high level. And they had a higher level for the very big banks. So it when you hear all the talk about the political talk about the banks, they have not caused the federal government. They have they did there were a lot of actions that took place that should not have taken place. And there's a lot fewer now, I think, than there were in the period leading up to 2,008 and 'nine. But, some banks will make big mistakes in the future. Charlie? I've got nothing to add to that. Okay. Jay Gelb from Barclays. Barclays just had a proxy contest of sorts in there. That's right. I also have a question on Berkshire Hathaway I'm sorry on share buybacks. Warren, in a recent Financial Times article, you were quoted as saying that the time may come when the company buys back as much as $100,000,000,000 of its shares, which equates to around 20% of Berkshire's current market cap. How did you arrive at that $100,000,000,000 figure and over what timeframe would you expect this to occur? I probably arrived at that $100,000,000,000 figure in about 3 seconds when I got asked the question. It was a nice round figure and we could do it. And we would like to do it if the stock was we've got the money to to buy in $100,000,000,000 worth of stock. And bear in mind, if we were buying in $100,000,000,000 stock, it probably would be that the company wasn't selling at 500,000,000,000. So they might buy well over 20%. We will spend a lot of money. We've been involved in companies where the number of shares has been reduced 70% or 80% over time and we like the idea of buying shares at a discount. We do feel if shareholders if we're going to be repurchasing shares from shareholders who are partners and we think it's cheap, we ought to be very sure that they have the facts available to evaluate what they own. I mean just as if we had a partnership. It would not be good if there were 3 partners and 2 of them decided that they would sort of freeze out the 3rd maybe in terms of giving them material information that they knew that that third party didn't know. So it's very important that our disclosure be the same sort of disclosure that I would give to my sisters who were the imaginary, they are not imaginary, but they're the shareholders to whom I address the annual report every year because I do feel that you if you're going to sell your stock, you should have the same information that's important that's available to me and to Charlie. But we will if our stock gets cheap relative to intrinsic value, we would not hesitate. We wouldn't be able to buy that much in a very short period of time in all likelihood. But we would certainly be willing to spend $100,000,000,000 Charlie. I think when it gets really obvious we'll be very good at it. Let me get that straight. What did you say? When it gets really obvious we will be very good at it. Yes. I was hoping that's what you said. But, yeah, we will be good at it. But we don't have any trouble being decisive. We don't do it. We don't say yes very often, but if we something obvious, I mean, if Jay, if you and I are partners, and our business is worth $1,000,000 and you say you'll sell your half to me for 300,000, you'll have your $300,000 very quickly. Okay. Station 2. Good morning. My name is Patrick Donahue from Eden Prairie, Minnesota. And I'm with my 10 year old daughter, Brooke Donahue. Hi, Warren. Hi, Charlie. Hi. It's Brooke, is it? It is. It is. Yeah. First, I'm a proud graduate of Creighton University and I need to say a personal thank you for coming over the years to share your insights. And it's been a tradition since I graduated in 1999 to come to the annual meeting and thank you for a lifetime of memories. Thank you. The letter and had some questions regarding investments that have been made in the past. And she had made some interesting comments about what she thought was a lot of fun. So our question for both of you is, outside of Berkshire Hathaway, what is the most interesting or fun personal investment you have ever made. Well, they're always more fun when you make a lot of money off of them. Well, I bought one time I bought one share of stock in the ATLED Corp, that's spelled A T L E D. And Atlet had 98 shares outstanding and I bought 1. And not what you call a liquid security. And Antlid happened to be the word delta spelled backwards and a 100 guys in St. Louis had each chipped in $50 or $100 or something to form a duck club in Louisiana. And they bought some land down there. 2 guys didn't come up with there were 100 of them. 2 of them defaulted on their obligation to come up with 100 dollars So there were 98 shares out. And they went down to to, Louisiana and, they shot some ducks but apparently somebody shot, fired a few shots into the ground and oil spurted out and and those Delta Duck Club shares. And there's I think the Delta Duck Club field was still producing by bus stock in it 40 years ago for $29,200 a share. And it was it had that amount of cash and it was producing a lot and they sold it. If they kept it, that stock might have been worth $2,000,000 or $3,000,000 a share but they sold out to another oil the I went down and borrowed the money. And I bought it for my wife. And I borrowed the money. And the loan officer said, would you like to borrow some money to buy a shotgun as well. Charlie, tell them about the one you missed. Well I got 2 investments that come to mind. When I was young and poor I spent $1,000 once buying an oil royalty that paid me $100,000 a year for a great many years. But I only did that once in a lifetime. On a later occasion I bought a few shares of Belgrade Oil which went up 30 times rather quickly. And but I turned down 5 times as much as I bought. It was the dumbest decision in my whole life. So if any of you have made any dumb decisions look up here and feel good about yourselves. I could add a few, but Andrew? Warren and Charlie, this is a question, We got a handful of questions on this topic. This is probably the best formulation of it. Warren, you have been a long time outspoken Democrat. With all the talk about socialism versus capitalism taking place among presidential candidates, do you anticipate an impact on Berkshire in the form of more regulations, higher corporate taxes, or even calls for breakups among the many companies we own if they were to win? And how do you think about your own politics as a fiduciary of our company and at the same time as someone who has said that simply being a business leader doesn't mean you put your citizenship in a blind trust. Yes. I have said that you do not put your citizenship in a blind trust, but you also don't speak on behalf of your company. You do speak as a citizen if you speak and therefore you have to be careful about when you do speak because it's going to be assumed you're speaking on behalf of your company. Berkshire Hathaway, certainly in 54 years has never and will never made a contribution to a presidential candidate. I don't think we've made a contribution to any political candidate, but I don't want to say for 54 years that we don't do it now. We have we operate in several regulated industries and our our railroad and our utility is a practical matter. They have to have a presence in Washington or in the state legislatures in which they operate. So they have we have some a few, I don't know how many, political action committees, which existed when we bought it, when we bought the companies at subsidiaries. And I think that unquestionably they make some contributions simply to achieve the same access as their competitors. The trucking industry is going to lobby. I'm sure the railroad industry is going to lobby. But the general well, the rule is I mean that people do not pursue their own political interests with your money here. We've had 1 or 2 managers over the years, for example, that would would do some fundraising where they were fundraising from people who were suppliers of them or something of the sort. And if I ever find out about it, that ends promptly. But this my position at Berkshire is not to be used to further my own political beliefs but my own political beliefs can be expressed as a person, not as a representative of Berkshire, when the campaign is important. I don't I try to minimize it but I but, it's no secret that in the last election, for example, I raised money. I won't give money to PACs. I accidentally did it one time. I didn't know it was a PAC. But, I don't do it. But I've raised I've raised substantial sums. I don't like the way money is used in politics. I've written op ed pieces for The New York Times in the past on the influence of money in politics. I spent some time with John McCain many years ago before McCain, Feingold and on ways to try to, limit it. But the world was developed in a different way. On your question about the I would just say I'm a card carrying capitalist But I and I believe we wouldn't be sitting here except for the market system and the rule of law and some things that are embodied in this country. So I you don't have to worry about me changing in that manner. But I also think that capitalism does involve regulation. It involves taking care of people who are left behind particularly when the country gets enormously prosperous. But beyond that, I have no Berkshire podium for pushing anything. Charlie? Well, I think we're all in favor of some kind of government social safety net in a country as prosperous as ours. What a lot of us don't like is the vast stupidity with which parts of that social safety debt are managed by the government. It'd be much better if we could do it more wisely. But I think that also might be better if we did it more liberally. Yeah. One of the reasons we're involved in this effort along with JPMorgan and Amazon with Jamie Dimon and Jeff Bezos On the medical question is we do have as much money going, 3.3 trillion or 3.4 trillion. We have as much money going to medical care as we have funding the federal government. And that's it's gone from 5 to 17% or 18% while actually the amount going to the federal government has stayed about the same at 17%. So we hope we hope there's a some major private improve major improvements from the private sector because I generally think the private sector does a better job than the public sector in most things. But I also think that the private sector doesn't do something, you'll get a different sort of answer. And I think I think like to think that the private sector can come up with a better answer than the public sector in that respect. But I will probably it depends who's nominated but I voted I voted for plenty of republicans over the years. I've been ran for delegate to the Provo Chem National Convention in 1960. And I'm, but we are not I don't think the country will will go into socialism in 2020 or in 20 40 or 2016. Okay. Greg Warren. Warren, my first question, not surprisingly, is on share repurchase. Stock buybacks in the open market are a function of both willing buyers and sellers. With Berkshire having 2 shares of classes, you should have more flexibility when buying back stock. But given the liquidity difference that exists between the 2 share classes with an average of 313 Class A shares exchanging hands daily in the past 5 years, equivalent to around $77,000,000 a day and an average of 3,700,000 Class B shares doing the same equivalent to around 622,000,000 Berkshire is likely to have more opportunities to buy back Class B shares than Class A, which is exactly what we saw during the back half of last year in the Q1 of 2019. While it might be more ideal for Berkshire to buy back Class A shares, allowing you to retire shares with far greater voting rights, given that there's relatively little arbitrage between the two share classes and the number of Class B shares increase every year as you gift your Class A shares to the Bill and Melinda Gates Foundation and your Children's Foundations, Can we assume that you're likely to be a far greater repurchase of Class B shares going forward, especially given your recent comments about preferring to have loyal individuals on your shareholder list, which a price tag of $328,000 of Class A shares seems to engender? Yeah, we will when we're repurchasing shares, if we're purchasing substantial amounts, we're going to spend a lot more on the Class B than the Class A just because the trading volume is considerably higher. We may from time to time, well, we got offered a couple blocks in history going back in history from the Yochi estate and then when we had a transaction exchanging our Washington Post stock for both a television station and shares held A shares held by the Washington Post. So we may see some blocks of A, we may see some blocks of B. But there's no question, if we are able to spend $25,000,000 $50,000,000,000 or $100,000,000,000 in repurchasing shares, more of the money is almost certainly going to be spent on the B than the A. We don't there's no master plan on that other than to buy aggressively when we like the price. And as I say that the trading volume in the B is just a lot higher than the A in dollar amounts. Charlie? I don't think we care much which class we buy. Yeah. We would like we really want the stock, ideally, if we could do it, if we were small, once a year we'd have a price and we do it like a private company and it would be a fair price and people who want to get out could get out. And if other people want to buy their interest fine and if they didn't and we thought the price was fair we'd have the company repurchase it. We can't do that. But that's, we don't want the stock to be either significantly underpriced or significantly overpriced and we're probably unique on the overpriced part of it. But we don't want it. I do not want the stock selling it twice as what it's worth because I'm going to disappoint people. I mean, we can't make it. There's no magic formula to make a stock worth what it's selling for, but it sells for way too much. We don't from a commercial standpoint, if it's selling very cheap, we have to like it and we repurchase it. But, ideally, we would hope the stock would sell on a range that more or less is its intrinsic value business value. We now have no desire to hype it in any way and we have no desire to depress it so we can repurchase it cheap. But then that the nature of markets is that things get overpriced and they get underpriced and we will if it's underpriced we'll take advantage of it. Okay, Station 3. Hello, Charlie Mungo and Warren Buffett, my Idols. I'm Terry from Shanghai Judge P Fund, which aim to catch the best investment opportunity in net era. So my question is, as we all know 5 gs is coming. It is said that some mode of all industry will be challenged in 5 gs era. So what is the core competence that we should master if we actually wants to catch the best investment opportunities in this era? Thank you. Well, there's no core competence at the very top of Berkshire. The but we the subsidiaries that will be involved in developments relating to 5 gs or any one of all kinds of things that are going to happen in this world. You know, the utility of LNG at, in the railroad or all those kinds of questions. We have people in those businesses that know a lot more about them than we do and this is it you know we count on our managers to anticipate what is coming in their business and sometimes they talk to us about it. But we do not run that from a central on a centralized basis. And, Charlie, do you want to have anything to add to that? You know anything about 5 gs? I don't know. But you probably know a lot about 5 gs. No, I know very little about 5 gs. But I do know a little about China and we have bought things in China and I guess is we will buy more Yeah. But I mean, we basically want to have a group of managers, and we do have a group of managers who are on top of their businesses. I mean, you saw something that showed BNSF and Berkshire Hathaway Energy and Lubrizol all there. Those people know their businesses. They know what's they know what changes are likely to be had. Sometimes they find things that they can cooperate on between their businesses, but we don't try to run those from headquarters. And that may mean that may have certain weaknesses at certain times. I think net is it's been a terrific benefit for Berkshire. Our managers, to a great degree, own their businesses. And we want them to feel a sense of ownership. We don't want them to be lost in some massive conglomerate and nobody that where they get directions from this group which is a subgroup of that group and I could tell you a few horror stories from from companies we bought when they tell us about their experience under such an operation. So we the world is going to change in dramatic ways. Just think how much it's changed in the 54 years that we've had Berkshire. And some of those changes hurt us. They hurt us in textiles. They hurt us in shoes. They hurt us in department store business. Hurt us in the trading stamp business. These were the founding businesses of this operation. But we do adjust and we've got a group overall of very good businesses. We've got some that will be actually destroyed by what happens in this world. But that's, you know, I still am the card carrying capitalist and I believe that that's a good thing. But, you have to make changes. We had 80% of the people working on farms in 1800. And if there hadn't been a lot of changes and you needed 80% of the people in the country producing the food and cotton we needed, we would have a whole different society. So we welcome change and we certainly want to have managers that can anticipate and adapt to it, but sometimes we'll be wrong and those businesses will wither and die and we better use the money someplace else. Okay, Carol. This question comes from Vincent James of Munich, Germany. There has been a lot written about the recent impairment charge at Kraft Heinz. You were quoted as stating that you recognize that Berkshire overpaid for Kraft Heinz. Clearly, major retail chains are being more aggressive in developing house brands. In addition, Amazon has announced intentions to launch grocery outlets, meaning that as Mr. Bezos has often stated, your margin is my opportunity. The more fundamental question related to Kraft Times may be whether the advantages of the large brands and 0 based budgeting that 3 gs has applied are appropriate and defensible at all in consumer foods. In other words, will traditional consumer good brands in general and Kraft Heinz in particular any moat in their future. My question is to what extent do the changing dynamics in the consumer food market change your view on the long term potential for Kraft Heinz? Yes. Actually what I said was we paid too much for Heinz. I mean Kraft, I'm sorry. The Heinz part of the transaction when we originally owned about Hines, we paid an appropriate price there and we actually did what we had some preferred redeemed and so on. We paid too much money for Kraft. To some extent our own actions had driven up the prices. Now Kraft Heinz, the profits of that business, dollars 6,000,000,000 we'll say very, very, very roughly, I'm not projecting them out, not making forecasts, but 6,000,000,000 pretax on $7,000,000,000 of tangible assets is a wonderful business. But you can pay too much for a wonderful business. We bought See's Candy and we made a great purchase as it turned out and we could have paid more. But there's some price at which we could have bought even See's Candy and it wouldn't have worked. So the business does not know how much you paid for it. I mean it's going to it's going to earn based on its fundamentals and we paid we paid too much for the Kraft side of Kraft Heinz. Additionally, the profitability has basically been improved in those operations over the way they were operating before. But you're quite correct that Amazon itself has become a brand. Kirkland at Costco, dollars 39,000,000,000 brand. Now all of Kraft Heinz says $26,000,000,000 and it's been around for on the Heinz side it's been around for 150 years. It's been advertised 1,000,000,000 and 1,000,000,000 of dollars in terms of their products and they go through tens of 1,000 of outlets. And there's somebody like Costco establishes a brand called Kirkland and it's doing 39,000,000,000 more than virtually any food company. And that brand moves from product to product, which is terrific if a brand travels. I mean, Coca Cola moves it from Coke to Cherry Coke and Coke 0 and so on. But to have a brand that can really move and Kirkland does more business than Coca Cola does And Kirkland Act operates through 775 or so stores, they call them warehouses at Costco and Coca Cola's through millions of distribution outlets. So brands, the retailer and the brands have always struggled as to who gets the upper hand in moving a product to the consumers. And there's no question in my mind that the position of the retailer relative to the brands, which varies enormously around the world in different in different countries. You've had 35% even maybe 40% be private label brands and soft drinks and it's never got anywhere close to that in the United States. So it varies a lot. But basically retailers, certain retailers, retail system has gained some power and particularly in the case of Amazon and Walmart and their reaction to it and Costco and Aldi and some others I can name, has gained in power relative to brands. Kraft Heinz is still doing very well operationally, but we paid too much. We paid 50,000,000,000 would have been a different business. It'd still be earning the same amount. You can turn any investment into a bad deal by paying too much. What you can't do is turn any investment into a good deal by paying little, which is sort of how I started out in this world. But the idea of buying the cigar butts that only got that are declining for businesses or a bargain price is not something that we try to do anymore. We try to buy good businesses at a decent price and we made a mistake on the craft part of Kraft Heinz. Charlie? Well, we it's not a tragedy that out of 2 transactions, one worked wonderfully and the other didn't work so well. That happens. The reduction of costs, there can always be mistakes made when you've got places and you're reorganizing them to do more business with them, with the same number of people. And we like buying businesses that are efficient to start with, but the management, the operations of Kraft Heinz have been improved under the present management overall, but we paid a very high price in terms of the craft part. We didn't we paid the appropriate price in terms of Heinz. Jonathan? Internet based furniture retailers like Wayfair appear willing to stomach large current losses acquiring customers in the hope of converting them to loyal online shoppers. I've been wondering what this disruptive competition might do to our earnings from home furnishing retail operations like Nebraska Furniture Mart. If we have to transition to more of an online model, might we have to spend more heavily to keep shoppers without a corresponding increase in sales? The sharp decline in Q1 earnings from home furnishings suggest perhaps some widening impact from intensifying competition. Do you believe Wayfair's customers first, profits later model is unsustainable? Or do you think our furniture earnings will likely be permanently lower than they were in the past? I think furniture the jury is still out on that whether the operations which have grown very rapidly in size but still are incurring losses. How they will do over time. It is true that in the present market partly because of some successes like most dramatically Amazon in the past that investors are willing to look at losses as long as sales are increasing and hope that there will be better days ahead. We do a quite significant percentage of our sales online in the furniture operation that might surprise you. We do the highest percentage in Omaha and what's interesting is that we, I won't give you the exact numbers, but it's large. We do a significant dollar volume, but a very significant portion of that volume, people come to the store to pick up so that they will order something from us online, but they don't mind, they don't seem to mind at all. And they don't have to do it, but they get a pickup at the store. You know you learn what customers like just like people learned in fast food you know that people would buy a lot of food by going through a drive in that they don't want to stop and go into the place. We learned about customer behavior as it unfolds, but we did do now. On Tuesday, we did $9,200,000 of or $9,300,000 of profitable volume at the Nebraska Furniture Mart. And I think that company had paid in capital of $2,500 And I don't think anything's been added since. So it's working so far. The Q1, it's interesting, the Q1 was weak at all four of our furniture operations. But there's certain other parts of the economy. Well, just home building generally. It's considerably below what you would have expected considering the recovery we have had from the 2,008, 'nine period. I mean if you look at you look at single family home construction, the model has shifted, more to people living in apartment rentals. I think it's gone from 69 and a fraction percent. It got down to 63%. It's bounced up a little bit. But people are, they're just not building or moving to houses as rapidly as I would have guessed. They would have based on figures prior to 2,008 and 'nine and considering the recovery we've had and considering the fact that money is so cheap, and that has some effect on our furniture stores. I think we've got a very, very good furniture operation, not only at the Nebraska Furniture Mart but at other furniture operations. And we will see whether the models work over the long run. But I think they have a reasonable chance. Some things people we're learning that people will buy some things that they've always gone to the mall or to a retail outlet to buy that they will do it online and others don't work so well. Charlie? I think that we'll do better than most furniture retailers. I think that's a certainty. Overall, we've got some good operations there. And but we don't want to become a showroom for the online operations and have people come and look around the place and then order someplace else. So we have to have the right prices and we're good at that at the furniture market. Station 4. Warren and Charlie, my name is Brent Muio. I'm from Winnipeg, Canada. First, thank you for devoting so much time and energy to education. I'm a better investor because of your efforts, but more importantly I'm a better partner, friend, son, brother and soon to be first time father. There's nothing more important than these relationships and my life is better because you're willing to pass on your experience and wisdom. My path into finance was unconventional. I worked as an engineer for 12 years while 2 years ago I began a career in finance working for the Civil Service Superannuation Board, a $7,000,000,000 public pension fund in Winnipeg. I work on alternative investments which include infrastructure, private equity and private credit. I go to work every day knowing that I'm there to benefit the hard working current and future beneficiaries of the fund. Like most asset classes, alternative purchase multiples have increased. More of these assets are funded with borrow money and the terms and covenants on this debt are essentially non existent. With this in mind and knowing the constraints of illiquid closed end funds, please give me your thoughts on private alternative investments, the relevancy in public pension funds, and your view on long term return expectations. Yeah. If you had leveraged up investments in just common stock, And you'd figured a way so that you would have staying power if there were any market dip. I mean, you'd obviously have obtained extraordinary returns. I pointed out in my investing lifetime, you know, an index fund would do 11%. Well, imagine how you'd have done if you'd leverage that up 50%, whatever the prevailing rates were over time. So, leveraged investment in the business is going to be an unleveraged investment in a good business a good bit of the time. But as you point out, the covenants to protect debt holders has really deteriorated in the business. And of course, you've been in an upmarket for businesses and you've got a period of low interest rates. So it's been a very good time for it. My personal opinion is if you take unleveraged returns against unleveraged common stocks, I do not think what is being purchased today and marketed today would work well. But if you can borrow money, I think my assets that will yield 7% or 8% and you can borrow enough money at 4% or 5% and you don't have any covenants to meet, you're going to have some bankruptcies but you're going to also have better results in many cases. It's not something that interests us at all. We are not going to leverage up Berkshire. If we'd leveraged up Berkshire, we'd have made a whole lot more money obviously over the years. But both Charlie and I probably have seen some more high IQ people, really extraordinarily high IQ people destroyed by leverage. We saw long term capital management where we had people who could do in their sleep math that we couldn't do, at least I couldn't do, you know, working full time at it during the day. And I mean really, really smart people working with their own money and with years years of experience of what they were doing. And, you know, it all turned to pumpkins and mice in 1998. And actually, it was a source of national concern, just a few hundred people. And then we saw some of those same people after that happened to him once go out and do the same thing again. So it's I would not get excited about so called alternative investments. There's you can get all kinds of different figures, but there may be there's probably at least $1,000,000,000,000 committed to buying in effect buying businesses. And if you figure they're going to leverage them 2 for 1 on that, you may have $3,000,000,000,000 of buying power trying to buy businesses in a U. S. Market maybe something over 30,000,000,000,000 now but there's all kinds of businesses that aren't for sale in that thing. So the supply demand situation for buying businesses privately and leveraging them up has changed dramatically from what it was 10 or 20 years ago. And I'm sure it doesn't happen with your Winnipeg operation. But we have seen a number of proposals from private equity funds where the returns are really not calculated in a manner that well, they're not calculated in a manner that I would regard as honest. And so I it's not something if I were running a pension fund, I would be very careful about what was being offered to me. If you have a choice in Wall Street between being a great analyst or being a great salesperson, the salesperson is the way to make it. If you can raise $10,000,000,000 in a fund and you get a 1.5% fee and you lock people up for 10 years, you and your children and your grandchildren will never have to do a thing if you were the dumbest investor in the world. Charlie? Well, I think what we're doing will work more safely than what he's doing. And but I I wish him well. Yeah. Brent, you sound you sound actually you sound like a guy that I would hope would be working for a public pension fund because frankly, most of the institutional funds, Well, we had this terrible right here in Omaha. And you can get a story of what happened Omaha Public Schools Retirement Fund and they were doing fine. And until the manager started going in a different direction and the trustees here, perfectly decent people, and the manager had done okay to that point and it became They were smarter in Winnipeg than they are here. Well, that was pretty bad here. It's not a fair fight usually when a bunch of public officials are listening to people who are motivated to, who really just get paid for raising the money. Everything else is gravy after that, but, if you run a fund, you get even 1% you know of of of of a 1,000,000,000. You're getting $10,000,000 a year coming in. And if you've got the money locked up for a long time, it's a very one-sided deal. And I told the story of asking the guy one time in the past, how in the world can you why in the world can you ask for 2 and 20 when you really haven't got any kind of evidence that you are going to do better with the money than you're doing in the next fund. And he said, well, that's because I can't get 3.30. What I don't like about a lot of the pension fund investment is I think they like it because they don't have to mark it down as much as it should be in the middle of the panics. I think that is a silly reason to buy something because you're given leniency in marking it down. Yeah. And when you commit the money in the case of private equity often, you they don't take the money, but you pay a fee on the money that you've committed. And of course, you really have to have that money to come up with at any time. And of course, it makes their return look better if you sit there for a long time in Treasury bills, which you have to hold because they can call you up and demand the money and they don't count that. They count it in terms of getting a fee on it, but they don't count it in terms of what the so called internal rate of return is. It's not as good as it looks. And and I really do think that when you have a group sitting as a state pension fund. Warren, all they're doing is lying a little bit to make the money come in. Yes. Yes. That sums it up. Yes. Becky? This question is from Ken Skarbek in Indianapolis. He says, with the full understanding that Warren had no input on the Amazon purchase and that relative to Berkshire, it's likely a small stake, investment still caught me off guard. I'm wondering if I should begin to think differently about Berkshire looking out, say, 20 years. Might we be seeing a shift in investment philosophy away from value investing principles that the current management has practiced for 70 years? Amazon is a great company, yet it would seem its heady shares 10 years into a bull market appear to conflict with being fearful when others are greedy. Considering this and other recent investments like StoneCo, should we be preparing for a change in the price versus value decisions that built Berkshire? It's interesting that the term value investing came up because I can assure you that both managers who and one of them bought some Amazon stock in the last quarter, which will get reported in another week or 10 days. He is a value investor. The idea that value is somehow connected to book value or low price earnings ratios or anything, As Charlie has said, all investing is value investing. I mean, you're putting out some money now to get more later on and you're making a calculation as to the probabilities of getting that money and when you'll get it and what interest rates will be in between. And all the same calculation goes into it, whether you're buying some bank at 70% of book value or you're buying Amazon at some very high multiple of reported earnings. Amazon, the people making the decision on Amazon are absolutely much value investors as I was when I was looking around for all these things selling below working capital years ago. So that has not changed. The 2 people that one of whom made the investment in Amazon, they are looking at many hundreds of securities they can look at more than I can because they're managing less money and their universe, possible universe is greater. But they are looking for things that they feel they understand what will be developed by that business between now and judgment day in cash. And it's not sales, current sales can make some difference. Current profit margins can make some difference. Tangible assets, excess cash, excess debt, all of those things go into making a calculation as to whether they should buy A versus B versus C. And they are absolutely following value principles. They don't necessarily agree with each other or agree with me but they are very smart. They are totally committed to Berkshire and they're very good human beings on top of it. So, I don't second guess them on anything. Charlie doesn't second guess me on in 60 years, he's never second guessed me on an investment. And the considerations are identical when you buy Amazon versus some say bank stock that looks cheap statistically against book value or earnings or something of the sort. In the end, it all goes back to Aesop who in 600 BC said, you know, that a bird in the hand is worth 2 in the bush. And when we buy Amazon, we try and figure out whether or fellow that bought it tries to figure out whether there's 3 or 4 or 5 in the bush and how long it will take to get to the bush, how certain he is that they're going to he's going to get to the bush, you know, and then who else is going to come and try and take the bush away and all of that sort of thing. And we do the same thing and and it really it really despite a lot of equations you will learn in business school. The basic equation is that of ESOP and your success in investing depends on how well you are able to figure out how certain that bush is, how far away it is, and what the worst case is instead of 2 birds being there, only one being there and the possibilities of 4 or 5 or 10 or 20 being there. And that will guide me. That will guide my successors in investment management at Berkshire. And I think they'll be right more often than they're wrong. Surely? Well, I, Warren and I are a little older than some people. And Yeah. You are everybody. And we are not the most flexible probably in the whole world. And of course, if something as extreme as this internet development happens and you don't catch it, why other people are going to blow by you. And I don't mind not having caught Amazon early. The guy is kind of a miracle worker. It's very peculiar. I give myself a pass on that. But I feel like a horse is a ass for not identifying Google better. I think Warren feels the same way. Yeah. We screwed up. He's saying we blew it. And we did have some insights into that because we were using them at GEICO and we were seeing the results produced and we saw that we were paying $10 a click or whatever it might have been for something that at a marginal cost to them it was exactly 0. And we saw it was working for us. So we can see in our own operations how well that Google advertising was working. And we just sat there sucking our thumbs. So we're ashamed. We atone. We're trying to atone. Maybe Apple was atonement. When he said sucking her thumbs, I'm just glad he didn't use some other example. Okay, Jay. This question is on Berkshire's intrinsic value. Warren, in your most recent annual letter, you discussed a methodology to estimate Berkshire's intrinsic value. However, a major component of Berkshire's value that many investors find challenging to estimate is that of the company's vast and unique insurance business. Could you discuss how you value the company's insurance unit based on information Berkshire provides, especially since GAAP book value is not disclosed of the insurance unit? Well, our insurance business gives us a float. That's other people's money which we're temporarily holding but which gets regenerated all the time. So it's a practical matter. It has a very, very long life and it's probably a little more likely to grow than shrink. So we have and $24,000,000,000 that people have given us and it's somewhat like having a bank that just consists of 1 guy and people come in and deposit $124,000,000,000 and promise not to withdraw it forever. And we've got a very good insurance business. It's taken a very long time to develop it, very long time. In fact, I think we probably have the best property casualty operation all things considered in the world that I know of any size. So it's worth a lot of money. We think it's worth more to us and we particularly think it's worth more while lodged inside Berkshire, we'd have a very, very high value on that. I don't want to give you an exact number because I don't know the exact number, but any number I would have given you in the past would have turned out to be wrong on the low side. We have managed to earn money on money that is given to us for nothing and have the side earnings from underwriting and then have these large earnings from investing and it's an integral part of Berkshire. There's a certain irony to insurance that most people don't think about, but if you really are prepared and you have a diversified property casualty insurance business, a lot of property business in it, if you are really prepared to pay your claims under any circumstances that come along in the next 100 years, you have to have so much capital in the business that it's not a very good business. And if you really think about a worst case situation, the reinsurance, that's the insurance you buy from other people as an insurance company to protect you against extreme losses among other things, that reinsurance probably could likely be not good at all. So even though you think you're laying off part of the risk, if you really take the worst case example, as you're not laying off, you may well not be laying off the risk. And if you keep the capital required to protect against that worst case example, you'll have so much capital in the business that it isn't worthwhile. Berkshire is really the ideal form for writing the business because we have this massive amount of assets that in many cases are largely uncorrelated with natural disasters And we can we don't need to buy reinsurance from anybody else. And we can use that we can use the money in a more efficient way than most insurance companies. It's interesting, in the last 30 years, the 3 largest reinsurance companies and I'm counting Lloyd's as one company, although it isn't. It's a group of brokers assembled and underwriters assembled at a given location. But people think of Lloyd's as a massive reinsurance market, which it is, not technically one entity. But if you take the 3 largest companies and they're all in fine shape now, They're 1st class operations. But all three of them came close to extinction sometime in the last 30 years, reasonably close. And we didn't really have any truly extraordinary natural catastrophes. The worst we had was Katrina, whatever it was, 2006 or thereabouts, 2005. But we didn't have any worst case situation. And all three of those companies, which everybody looks at as totally good on the asset side, if you show a recoverable problem, 2 of the 3 actually made some deals with us to help them in some way. And they're all in fine shape now. But it's not it's really not a good business if you keep your for as a standalone insurer, if you keep enough capital to really be sure you can pay anything that comes along under any kind of conditions. And Berkshire can do that and it can use the money in ways that likes to use. So it's a very valuable asset. I don't want to give you a figure on it, but we would not sell it. We certainly wouldn't want to sell it for its its float value and if that float is negative, it's shown on the balance sheet as a liability. So it's extraordinary and it's taken a long time to build. It'd be very, very, very hard for anybody to, I don't think they could build anything like it. It just takes so long. And we continue to plow new ground. If you went in the next room, you would have seen something called 3, which is our movement toward small and medium business owners for commercial insurance and it's an online operation and it will take all kinds we will do all kinds of mid course adjusting and that sort of thing. We only just started up in 4 states, but 10 or 20 years from now, that will be a significant asset of Berkshire just like GEICO is growing from 2 and a fraction of 1,000,000,000 of premium to who knows, but well into the mid-thirty billion just with Tony Nicely and when I said in the annual report that Tony Nicely who is here today. Warren, is there anybody in the world who has a big casualty insurance business that you would trade our business for theirs? No, we really have taken a long time and it has taken some tremendous people. And Tony Nicely has created more than $50,000,000,000 with his associates and he's got 39,000 of them, more than probably more now because he's growing this year. He's created more than $50,000,000,000 that's GEICO of value for Berkshire. It's pretty much what you'd expect It's such an easy business taking in money now in cash and just keeping the books and giving a little of it back. There's a lot of stupidity gets into it and if you're not way better than average at it, you're going to lose money in the end. It's a mediocre business for most people. And it's good at Berkshire only because we're a lot better at it. If we ever stop being a lot better at it, it wouldn't be safe for us either. And Jeet Jain has done a similar thing. He has done it in a variety of ways within the insurance business. But I would not want to undo if somebody would have to give me more than $50,000,000,000 to undo everything he has produced for Berkshire. And he walked into my office on a Saturday in the mid-1980s. He had never been in the insurance business before. And I don't think there's anybody in the insurance world that doesn't wish that he'd walked into their office instead of ours at Berkshire. It's been extraordinary. It's truly been extraordinary. But we have Tom Nerney, we have Tim Kennessy, we have MedPro, we have Tom Nerney at U. S. Liability. We have at Guard Insurance, we only bought that a few years ago and that's a terrific operation. It's based in Wilkes Barre, Pennsylvania. We'd expect to find a great insurance operation in Wilkes Barre. But We've got a great insurance, really great insurance operation right here in Omaha, about 2 miles from here. And it was bought by us in 19 67 and it changed Berkshire. We built on that base. We've got a really got a great insurance business and I won't give you a number but it's probably a bigger number than you've got in your head for and it's worth more within Berkshire than it would be worth as an independent operation. Somebody can say, well, this little gem, if it was put out there, would sell at a higher multiple or something of that sort. It works much better as being part of a whole where we have had 2 tiny operations, 2 tiny insurance operations many, many years ago and they both went broke. The underwriting was bad, but we paid all the claims. We did not walk away. We paid every dime of claims and nobody worries about doing any kind of financial transaction with Berkshire. And today, on Saturday, about 9 in the morning, I got a phone call and people made a deal the next day committing, we're here to pay out $10,000,000,000 come hell or high water, no outs for material adverse change or anything like that and people know we'll be there with $10,000,000,000 and they know in the insurance business when we write a policy that may come be payable during the worst catastrophe in history or may be payable 50 years from now, they know Berkshire will pay. That's why we have got $124,000,000,000 afloat. Okay. Station 5. Hey Warren and Charlie. I'm Neil Narona. I'm 13 years old and from San Francisco. I feel like I see you in our living room a lot. My dad is constantly playing these videos of you at these meetings. And he teaches me a lot of lessons about you guys. But many of them require the delayed gratification skill. I want to know, is there any way that kids can develop the delayed gratification skill? I'll take it if you want me to. Sure. I'll take that because I'm a specialist and laid gratification, I've had a lot of time to delay it. And my answer is that they sort of come out of the womb with the delayed gratification thing or they come out of the womb where they have to have everything right now And I've never been able to change them at all. So we identify it. We don't turn it in. Charlie's had 8 children, so he's become more and more of a believer in nature versus nurture. You'll probably sign some nice old woman of about 95 out there in threadbare clothing. And she's delaying gratification right to the end and probably has 4,000 A shares. It's just these 2nd and third generation types that are buying old jewelry. It's interesting if you think about we'll take it to a broader point, but if you think of the long a 30 year government bond paying 3% and you allow for as an individual paying some taxes on the 3% you'll receive and you'll have the Federal Reserve Board saying that their objective is to have 2% inflation, you'll really see that delayed gratification if you own a long government bond is that, you know, you get to go to Disneyland and ride the same number of rides 30 years from now that you would if you did it now. The low interest rates for people who invest in fixed dollar investments really mean that you really aren't going to, you know, get have eat steak later on if you eat hamburgers now, which is what I used to preach to my wife and children and anybody else that would listen many years ago. So it's I don't necessarily think that that for all families in all circumstances that saving money is necessarily the best thing to do in life. I mean, you know, if you really really tell your kids they can whatever it may be, they never go to the movies or will never go to Disneyland or something of the sort because if I save this money 30 years from now, we'll be able to stay a week instead of 2 days. I think there's a lot to be said. We're doing things that bring you and your family enjoyment rather than trying to sever every dime. So, I advise delayed gratification is not necessarily an unqualified course of action under all circumstances. I always believed in spending 2 or 3¢ out of every dollar I earned, saving the rest. But I really I've always had everything I wanted. I mean, one thing you should understand, if you aren't happy having $50,000 or $100,000 you're not going to be happy if you have $50,000,000 or $100,000,000 I mean, a certain amount of money does make you feel and those feel around you feel better just in terms of being more secure in some cases. But loads and loads of money. I probably know as many rich people as just about anybody. And I do not I don't think they're happier because they get super rich. I think they're I think they are happier when they don't have to worry about money. But you don't see a correlation between happiness and money beyond a certain place. So don't go overboard on delayed gratification. Andrew? This question comes from a shareholder of yours for more than 20 years who asked to remain anonymous, but wanted me to start by saying, Warren and Charlie, I want to preface this question by saying it comes from a place of love for both of you and the beautiful painting you drawn for us in the form of Berkshire. But now, please update us on succession planning. And as you think about succession, would you ever consider having Greg and Ajit join you on stage at future annual meetings and allow us to ask questions of them and Ted and Todd as well so we can get a better sense of their thinking. That's probably a pretty good idea and we've talked about it. We have Greg and Jean here. And any questions that anybody wants to direct on them, it's very easy to move them over. And so we thought about having 4 of us up here. And this format is not set in stone at all. That, because you I can tell you that actually, the truth is, Charlie and I are afraid of looking bad. Those guys are better than we are. The, you could not have 2 better operating managers than Greg and Ajit. I mean, they it's just fantastic what they accomplished. They know their business is better. They work harder by far. And you were absolutely invited to ask questions that that to be directed over to them at this meeting. I don't think, yeah, this this format will not be around forever and if it's better to get them up on the stage, we'll be happy to do it. Ted and Todd, they're basically not going to answer investment questions. We regard investment decisions as proprietary basically. They belong to Berkshire and we are not an investment advisory organization. So that is counter to the interest of Berkshire for them to be talking about securities they own. It's counter to the interest of Berkshire for Charlie Ermey to be doing it. We've done better because we don't publish every day what we're buying and selling. I mean, if somebody's working on a new product at Apple or somebody's working at a on a new drug or they're assembling property or something of those sorts, they do not go out and tell everyone in the world exactly what they're doing every day. And we're trying to generate ideas and investment and we we do not believe in telling the world what we're doing every day except to the extent that we're legally required. But it's a good idea. Charlie? Well, one of the reasons we have trouble with these questions is because we're Berkshire is so very peculiar. There's only one thing like it. We have a different kind of unbureaucratic way of making decisions. There aren't any people in headquarters. We don't have endless committees deliberating forever and making bad decisions. We just we are radically different and it is awkward being so different and but I don't want to be like everybody else because this has worked better. So I think you're just going to have to endure us. We do think that it's a huge corporate asset which may only surface very occasionally and depending very much on how the world is around us, but to be the one place I think in the world almost where somebody can call on a Saturday morning and meet on Sunday morning and have a $10,000,000,000 commitment. And nobody in the world doubts whether that commitment will be upheld and it's not subject to any kind of welching on the part of the company that's doing it. It's got nothing involved other than Berkshire's word. And that's an asset that every now and then will be worth a lot of money to Berkshire and I don't really think it will be subject to competition. So, and Ted and Todd, in particular, are an additional pipeline and have proven to be an additional pipeline in terms of facilitating the exercise of that ability. I mean, things come in through them, but for one reason or another, I might not hear about otherwise. So they have expanded our universe. In the markets we've had in recent years, that hasn't been important. I can see periods where they would be enormously valuable. Just take the question that was raised by the fellow from Winnipeg about weak covenants and bonds. I mean, we could have a situation, who knows when, who knows where, who knows whether, but we could have a situation where there could be massive defaults in the junk bond type market. We've had those a couple of times and we made a fair amount of money off of them. But Ted and Todd would multiply our effectiveness in a big way if such a period comes along or some other types of periods come along. They are very, very, very useful to Berkshire. The call happened to come in on Friday from Brian Moynihan, CEO of Bank of America, and he's done an incredible job. But we have a better chance of getting more calls and having them properly filtered and everything appropriately filtered the next time conditions get chaotic than we did last time and that's important. Troy? Well, I do think it's true that if the world goes to hell in a handbasket that you people will be in the right company. We have got a lot of cash and we know how to behave well in a panic. And if the world doesn't go to hell, are things so bad now? And I also want to report that your vice chairman is getting new social distinction. I've been invited during this gathering to go to a happy hour put on by the bitcoin people. And I tried to figure out what the bitcoin people do in their happy hour and I finally figured it out. They celebrate the life and work of Judas Iscariot. Is your invitation still good? Well, Bitcoin, actually, on my honeymoon in 1952, my bride, 19, and I, 21, stopped in Las Vegas. We just got my aunt Alice gave me the car and said, Have a good time. And we went West. So we stopped in the Flamingo. And I looked around and I saw all of these well dressed they dressed better in those days well dressed people who had come in some cases, thousands of miles away. And this was before jets, so transportation wasn't as good. And they came to do something that every damn one of them knew was mathematically dumb. And I told Susie, I said, we are going to make a lot of money. Imagine people going to stick money on some roulette number with a 0 and a double 0 there and knowing the percent. They all could do it and they just do it. And I have to say, Bitcoin has rejuvenated that feeling in me. Okay, Greg? Warren and Charlie, while I understand Berkshire's need to trim its stake in Wells Fargo and any other banks you hold, each year in order to bring Berkshire's ownership stake below the 10% threshold required by the Federal Reserve for bank holdings given the ongoing share repurchase activity that's taking place in the industry. I was kind of surprised though to see you move to trim all of your holding where possible on a regular basis to eliminate the regulatory requirements that come with ownership levels above 10%, which in my view limits the investment universe that Berkshire, at least Warren, can meaningfully invest in longer term given that Warren manages a large chunk of Berkshire's $200,000,000,000 portfolio. Could you elaborate more on the regulatory impact for Berkshire holding more than 10% of any company's stock as well as how you feel about the Fed's recent proposal to allow investors like Berkshire to own up to 25% of the shares of the bank without triggering more restrictive rules and oversight. Basically, if that proposal were to come to fruition, would you be willing to forego that 10% threshold self imposed that you've done and put money to work in names that you're already fairly comfortable with? Yes, the 10%, there's a couple of reasons. That's the right answer. Yes. Yes. We will there's 2 factors beyond in the case of banks, there's the Federal Reserve requirement there. But many people probably don't even might not know about this, but if you own over 10% of a security common stock and you sell it within 6 months at a profit, you give the money over to the company. You're It's the short swing profit that you're not you give them and you match your any sale against your lowest purchase and I think if you sell it and then buy it within 6 months, I'm not as positive about that because I haven't really read the rule for a lot of years, but I think if you sell it, if you sell and then buy within 6 months and the purchase is below the price at which you made the sale, you owe the money to the company. There used to be lawyers that would scan that monthly SEC report that I used to get 30 or 40 years ago. They would scan it to find people that inadvertently had broken that rule and they would get paid a fee for recovering it for the company. So it restricts enormous, it restricts significantly your ability to reverse a position or change your mind or something of the sort. Secondly, I think you have to report within 2 or 3 business days every purchase you make once you're in that over 10% factor. So you're advertising to the world and the world tends to follow us some. So it really it has a huge execution cost attached to it. Nevertheless, and those are both significant minuses and they're both things that people generally don't think about. We did go over recently for example in Dell Airlines, that was actually an accident, but I don't mind the fact that all that we did. And if the Federal Reserve changes its approach, we won't have to trim down below that. We don't want to become a bank holding company and we don't want to. We went in many years ago and got permission with Wells but then our permission expired and we went in again a few couple of years ago and we spent a year or so. There were just a million questions that Wells got asked about us and so on. So it's been a deterrent. It will be less of a deterrent in the future, but it does have those 2 the short swing thing is less honors to us than it would be to most people who buy and sell stocks because we don't really think in terms of doing much But if we didn't have all these damn rules, we would cheerfully buy more, wouldn't we? Sure. Sure. Well, anytime we buy it, we do it cheerfully. But, the, yes, we and we will you'll probably see us at more than 10% in more things. And if the Fed should change its rules, there will be companies where we drift up over 10% simply because they're repurchasing their shares. That's been the case with Wells and it's been the case with an airline or 2 in the last year or so. If we like 9.5% of a company, we'd like 15% better. And you may see us behave a little differently on that in the future. Well, one more awkward disadvantage of being extremely rich. Yeah. And it really is. And people following you. I mean, the follower's problem and it couldn't be a real problem. Okay. Station 6. Hi. I'm Jeff Malloy from San Francisco, and this is my first shareholders meeting. Mr. Buffet and Mr. Munger, I'm 27 years old and aspire to be a great money manager like you 2 one day. I am considering starting my own investment fund, but I also recognize that I am young and have a lot to learn. My question to both of you is how did you know you were ready to manage other people's money and what general advice would you give to someone in my shoes? Thank you. Well, that's a very interesting question because I've faced that and I sold securities for a while, but in May of 1956, I had a number of members of my family. I'd come back from New York and they wanted me to help them out with stocks as I had earlier before I had taken a job in New York and I said I did not want to get into the stock sales business, but I wanted to I enjoyed investing. I was glad to figure out a way to do it, which I did through a partnership form, but I would not have done that if I thought there was any chance really that I would lose the money and what I was worried about was not how I would behave, but how they would behave because I needed people who were in sync with me. So when we sat down for dinner in May of 1956 with 7 people who either were related to me or one was a roommate in college and his mother and I showed him the partnership agreement. I said, you don't need to read this. There's no way that I'm doing anything in agreement with it. There's any way that, you know, you don't need a lawyer to read or anything of the sort. But I said, here are the ground rules as to what I think I can do and how I want to be judged. And if you're in sync with me, I want to manage your money because I won't worry about the fact that you will panic if the market goes down or somebody tells you something different. So we have to be on the same page. And if we're on the same page, then I'm not worried about managing your money. And if we aren't on the same page, I don't want to manage your money because you may be disappointed when I think that things are even better to be investing and so on. So I don't think you want to manage other people's money until you have a vehicle and can reach the kind of people that will be in sync with you. I think you ought to have your own ground rules as to what your expectations are when they should send you roses and when they should throw bricks at you, and you want to be on the same and that's one reason I never didn't have a single institution in the partnership because institutions meant committees and committees meant that. You had some ants that trusted you. What's that? You had some aunts who trusted you. Yeah. Well, and a father-in-law that gave me everything he had in the world, you know, but and I didn't mind taking everything he had in the world as long as he would stick with me, and wouldn't get panicked by headlines and that sort of thing. And so, it's very it's enormously important that you don't take people that have expectations of you that you can't meet. And that means you turn down a lot of people. It means you probably start very small and you get an audited record. And when you've got the confidence where if your own parents came to you and they were going to give you all their money and you were going to invest for them, you've got the kind of confidence that you'll say, I may not get the best record, but I'll be sure that you get a decent record over time. That's when you're ready to go on it. Let me tell you a story that I tell young lawyers who frequently come to me and say, how can I quit practicing law and become a billionaire instead? And so I say, well, it reminds me of a story they told about Mozart. A young man came to him and he said I want to compose symphonies and I want to talk to you about that. And Mozart said how old are you? And he said 22. And Mozart said you're too young to do symphonies and the guy said but you were writing symphonies when you were 10 years old He says, yes, but I wasn't running around asking other people how to do it. Carol, we wish you well. And, actually, we really do, because the fact you asked that sort of a question isn't to some extent indicative of the fact that you got the right attitude going in. It isn't that easy to be a great investor. I don't think we've got made it. This question is from Franz Trumburger of Austria and his son, Leon, who are both Berkshire shareholders. And it just seemed to me that in the years we've been doing this, nobody has ever asked this question as far as I know. Their question is Mr. Buffet, I believe it is correct that in its SEC filings, that is the Securities and Exchange Commission, Berkshire does not have to give information about foreign stocks it holds. Assuming we hold foreign stocks, could you please tell us what our 5 largest positions are? Another fellow wants investment information. We really aren't in the investment information business. We disclose what we have to disclose, but we could set up an advisory investment advisory firm and probably take in a lot of money, but we haven't done it and we aren't giving away what belongs to our shareholders for nothing. But he's correct that, I'm 99% sure he's correct and Mark Hamburg can correct me from our office, but we do not have to report foreign stocks and we do have in certain important countries, there's lower thresholds at which we have to report our holdings as a percentage of the company's stock outstanding. There's lower thresholds than there are in the United States. So in a sense, in certain stocks, I think when we bought Munich Re stock or bought Tesco stock, there are certain stocks we've had to report at before we would have had to report in the United States, but we will never unnecessarily advise if we plan to buy some land someplace, if we plan to buy a business, we are not about giving business information that's proprietary to Berkshire. We don't give it unless we're required by law. And he is correct that I'm virtually certain that we do not have to report our foreign stocks to on the SEC filings. They'll have to find his own holdings in Austria. I think this Mozart story may have encouraged that particular question from Austria, what stocks we're going to own in Austria. Okay. J. Muse:] Charlie, do you have any comments? J. Muse:] No. J. Muse:] I didn't think it would. Johnny? J. Muse:] Precision Castparts pretax profit margins, while perfectly fine relative to American Industry as a whole, continued to be almost 10 percentage points below where they were in the years preceding the acquisition, and I'm guessing they're lower than contemplated when the purchase price was determined. The annual report hints that unplanned shutdowns, the learning curve on new plane models, and a shift of oil and gas capacity to aerospace might all be temporarily depressing margins, but it's unclear what a reasonable long term margin expectation is for this unit. Now I know you won't want to issue a specific margin target or forecast, but I do have a question that I hope you can answer. Is the downward trend in earnings since 2015 mostly due to these transitory items or have the competitive structure of the industry and Precision's relationship with its customers changed to the point that meaningful increases from current margin levels are probably unlikely? Your prelude is quite correct. I mean, they are below what we had projected a few years ago. And my expectation, but I would have told you this a year ago and they have grown improved somewhat. My expectation is based on the contracts we have and the fact that initial the initial years in anything in the aircraft industry, for example, tend to be less profitable as you go further down the learning curve and the volume curve, tend to be lower in the near term. My expectation is that the earnings of Precision will improve fairly significantly. And I think I mentioned maybe to you last year, in those earnings, there is about $400,000,000 a year of purchase amortization which are economic earnings in our in my viewpoint. So but even including that 400,000,000 a year, which they would be reporting if they were independent and we don't report because we bought them and there's a purchase amortization charge. Even without that, they are below what I would anticipate by a fair margin within a year or 2. That's the present expectation on my part. Charlie? No, I don't have any. You'll have that question for me next year. Yeah. And I think I'll be giving you a different answer. Okay. Station 7. Good morning, Mr. Buffet, Mr. Munger. My name is JC. I am 11 years old and I come from China. This is my 2nd year at the meeting. Mr. Munger, it's great to see you again after the Daily Journal meeting in February. Mr. Buffet, you mentioned that the older you get, the more you understood about human nature. Could you elaborate more about what you've learned and how can the differences of human nature help you make a better investment. I would also like Mr. Munger to comment on that, please. Thank you very much. You should wait for Charlie's answer because he's even older. He can tell you more about being old, but I can't even. The, it's absolutely true that virtually any yardstick you use, I'm going downhill. And the, you know, if I would take a SAT test now and you could compare it to a score of when I was in my early 20s, I think it'd be quite embarrassing. And it's certainly Charlie and I can give you a lot of examples and there's others we won't tell you about how things decline as you get older. But I would say this, it's absolutely true in my view that you can and should understand human behavior better as you do get older. You just have more experience with it. And I don't think you can read. Charlie and I read every book we could on every subject we were interested in, you know, when we were very young and we learned an enormous amount just from what from others studying the lives of other of other people. And but I don't think you can really I don't think you can get to be an expert on human behavior at all, by reading books no matter what your IQ is, no matter who the teacher is. And I think that you really do learn a lot about human behavior. Sometimes you have to learn it by having multiple experiences. I think you I actually think I, despite all the other shortcomings and I can't do mental arithmetic as fast as I used to and I can't lead as fast as I used to, but I do think that I know a lot more about human behavior than I did when I was 25 or 30. You want one mantra. It comes from a Chinese gentleman who just died, Lee Kuan Yew, who is the greatest nation builder probably that ever lived in the history of the world. He said one thing over and over and over again all his life, figure out what works and do it. You just go at life with that simple philosophy from your own national group. You will find it works wonderfully well. Figure out what works and do it. And figuring out what works means figuring out how other people Of course. Behave. Of course. And Charlie and I have seen the extremes in human behavior in so many unexpected ways. Now we get it every night, extremes of human behavior. Yeah. All we got to do is turn on television. Yeah. I'm glad to use that example. Okay. Becky? Warren, you mentioned in response to an earlier question that Ajit and Greg are both here to answer questions, and so I thought I'd ask this question that comes from Will in Seattle. He says his question is for Mr. Ajit Jain and Mr. Warren Buffett. You have said that you communicate regularly about unconventional insurance contracts that expose the company to extremely unlikely but highly costly events. I'm curious about how you think about and safely price these unconventional insurance contracts. What analyses and mental checks do you run through your head to make sure that Berkshire Hathaway will profit without being unduly exposed to catastrophic risk? Furthermore, Mr. Buffett, would you want a future CEO to continue a similarly close collaboration with the chief underwriter? We will get a microphone to Ajit in the spotlight in just a second. And there he is. Ajit, why don't you answer first if you'd like to? Hi. Obviously, the starting point, I mean, these situations where there is not enough risk, not enough data to hang our hat on, It's more of an art than a science. We start off with as much science as we can use looking at historical data that relates to the risk in particular or something that comes close to relating to the risk that we're looking at. And then beyond that, if there is not enough historical data we can look at, then clearly we have to make a judgment in terms of what are the odds of something like that happening. We try we absolutely in situations like that, we absolutely make sure we cap our exposure so that if something bad happens or we got something wrong, we absolutely know that how much money we can lose and whether we can absorb that loss without much pain to the income statement of the balance sheet. In terms of art, it's a difficult situation more often than not, it's impossible to have a point of view and we end up passing on it. But every now and then, we think we can get a price where the subjective odds we have or something like that happening has a significant margin of safety in it. So we feel it's a risk that's worth taking. Then finally, the absolute asset test is I pick up the phone and call Warren. Warren, here's the deal. What do you think? Okay, your turn Warren. Rahul Gandhi Okay. It's not easy and you wouldn't want just anybody doing it for you. No. No. In fact, the only one I would want doing it for us on the kind of things we have sometimes received is a G. I mean, it's that simple. There isn't anybody like him. And Ajit said, we'll look at a worst case, but we are willing, if we like the odds and like you say, there's no way to look these up. We can tell you how many, you know, how many 6.0 or greater earthquakes have happened in the last 100 years in Alaska or California or so on. And there's a lot of things you can look up figures on. Now sometimes those are useful and sometimes they aren't, but there's a lot where you can get a lot of data. And then there's others that, well, after nineeleven, you know, was that going to be the first of several other attacks that were going to happen very quickly? There were planes flying that couldn't well, they couldn't land in Hong Kong as I remember, I think it was Cathay Pacific, couldn't land in Hong Kong the following Monday unless they had a big liability coverage placed with somebody. I mean, the world had to go on. The people that held mortgages on the Sears Tower and all of a sudden wanted the coverage. I think that actually was one, but they were just pouring in of people that hadn't been worried about something a week earlier and now they were worried about things involving huge sums. And there were really only a couple of people in the world that would even listen and had the capacity to take on a lot of the deals we were proposed. And there's no book to look up. So you do, there's a big element of judgment. Ajit and I, I mean Ajit is a 100 times better than I am, but we do tend to think alike on this sort of thing. You don't want to think too much alike, but we think alike. I've got a willingness to lose a lot of money. And most, well, virtually every insurance company, if they get up to higher limits, they've got treaties in place and they can only take this much. So the world was paralyzed on that. We don't get those now obviously, but we do occasionally get inquiries about doing things that really nobody else in the world can do. It's a little like our investment situation, only transferred over to insurance. We don't build the business around it, but we are ready when the time comes. And Ajit is an asset that no other company in the world has. And we work it. And we actually enjoy a lot talking to each other about these kind of risks because he'll ask me to think about what the price should be and he'll think about we don't tell each other ahead of time And then I'll name it and then he'll say, have you lost your mind, Warren? And then he'll point something out to me that I've overlooked. It's a lot of fun and it's made us a lot of money. And the shareholders of Berkshire Hathaway are extraordinarily you can't hire people like Ajit. I mean, you get them once in a lifetime. Charlie? I don't think we helped him very much. It's really difficult. There will be a time when I mean, I probably won't be around it, but there will be a time occasionally just like in financial markets when things are happening in the insurance world and basically Berkshire will be the only one, virtually the only one people turn to. But, and and But in the past, Ajay, talking to you, has added more than $50,000,000,000 to the balance sheet of Berkshire by making these oddball calls. And if he hadn't talked to me, it'd be probably $49,900,000,000 Yeah. But you don't want to try Don't try this at home. I mean Yes. This is that doesn't mean it's easy. No. And it's not very teachable. I mean No, it isn't very teachable. You're right. No, it is not something that Berkshire has some secret formula someplace for it. It basically is a very unusual talent with the G and we're not holding anything back. It's hard. Okay, Jay? This question is on Berkshire's relationship with 3 gs Capital. Kraft Heinz's recent challenges have raised questions about whether Berkshire's partnership with 3 gs has become a weakness for Berkshire. Warren, what are your thoughts on this? And would Berkshire be open to partnering again with 3 gs in a major acquisition? Yes, they are our partners and we joined them at a one page agreement, which I haven't even actually ever reread. I mean, Georgi Paolo is a good friend of mine. I think he's a marvelous human being, and I'm pleased that we are partners. It's conceivable that something would come up. They have more of a taste for leverage than we do and they probably have more of a taste for paying up, but they also are in certain types of situations, they'd be way better operators than we would. They go into situations that need improvement and they have improved them, But, I think both they and we, I know we, did underestimate not what the consumer is doing so much, but what the retailer is. And at See's Candy, we sell directly to the consumer, but at Kraft Heinz, they're intermediaries. And and those intermediaries are trying to make money, we're trying to make money, and the brand is our protection against the intermediaries making all the money. Costco tried to drop Coca Cola back in I think 2,008 and you can't drop Coca Cola and not disappoint a lot of customers. Snickers bars are the number one candy that Mars makes them and they've been number 1 for 30 or 40 years. And if you walk into a drugstore and the guy says, I've got the Snickers of $0.75 or whatever it might be, and I've got this special little bar we make, my wife and I make in the back of the store and it's only $0.50 and it's just as good. You don't buy it. You know when you're at some other place the next time you buy the Snickers bar. So brands can be enormously valuable, But many of the brands are dependent, most of them. GEICO is not. GEICO goes directly to the consumer. If we save the consumer money on insurance, they're going to buy it from us. And our brand, you know, we'll spend well over a $1,500,000,000 on advertising this year and you think my God we started this in 1936 and we were saying the same thing then about saving 15% in 15 minutes or something. It was not exactly the same, but that brand is huge. And we have to come through on the promise we give, which is to save people significant money on insurance with a great many people. That brand is huge, and we're dealing directly with the consumer. And when you're selling Kool Aid or ketchup or Heinz 57 sauce or something, you are going through a channel and they would as the phrase was used earlier today, our gross margin is their opportunity and we think that the consumer is going to force them to have our product and that we will get the gross margin and that fight, that tension has increased in the last 5 years and I think it's likely to increase in the next 5 or 10 years and Charlie is the director of a company that has caused me to think a lot about that subject. Charlie? Well, what I think is interesting about the 3 gs situation is a long series of transactions that worked very well. And finally, there was one transaction at the end that didn't work so well. That is a very normal outcome of success in a big place with a lot of young men who want to get rich quick. And it just happens again and again. And it's you want to be careful. It's so much easier to take the good ideas and push them to ratchet excess. Yes. No idea is good at any price and the price element is probably something that we worry more about generally than our partners, but we are their partners in Kraft Heinz, and it's not at all inconceivable that we could be partners in some other transaction in the future. Okay. Station 8. Hello, Warren and Charlie. Consumer tastes are changing. I think if we asked how many people here in the arena have eaten Velveeta cheese in the last year or so, there'd be only a small handful, maybe more for Jell O. 3 gs's playbook of cutting R and D looks to have stifled new product development amidst changing preferences. So here's my question, Why continue to hold when the mote appears to be dry, or do you think it is filling back up? Well, I don't think the problem was that they cut research or something. I think the problem was they paid a little too much for the last acquisition. Yeah, Jell O, I can't give you the exact figure. There are certain brands that may be declining 2% a year, 3% a year in unit sales and there's others that are growing 1% or 2%. There's not dramatic changes taking place at all. Kraft Heinz is earning more money than Kraft and Heinz were earning 6 or 7 years ago. I mean, and the products are being used in a huge way. Now, it's true that certain that there are always trends going to some degree, but they have not fallen apart remotely, and they have widened the margins somewhat, but it is tougher in terms of the margin and the price negotiations probably to go through to the actual consumer that has become a somewhat tougher passageway for all food companies than it was 10 years ago. It's still a terrific business. You mentioned Jell O or Velveeta. Charlie works at my grandfather's grocery store in 1940. I worked here in 1941. And if they were buying those products, then they buy the products now. The margins are still very good. They earn terrific returns on invested capital, but we paid too much in the case of Kraft. You can pay too much for a growing brand. I mean, you can pay way too much for a growing brand. It's probably easier to be sucked into that. So I don't I basically don't worry about the brands. Certain of them are very strong and certain number are declining a bit, But that was the case 10 years ago. It will be the case 10 years from now. But it's not there's nothing dramatic happening in that. Okay. We'll take one more, and then we'll break for lunch. Andrew? Thank you, Warren. Question on technology and the company's biggest holding now. Given that Apple is now our largest holding, tell us more about your thinking. What do you think about the regulatory challenges the company faces, for example? Spotify has filed a complaint against Apple in Europe on antitrust grounds. Elizabeth Warren has proposed ending Apple's control over the App Store, which would impact the company's strategy to increase its services businesses. Are these criticisms fair? Well, again, we're not the I will tell you that all of the things points you've made, I'm aware of and I like our Apple holdings very much. I mean, it is our largest holdings. And actually, what hurts in the case of Apple is that the stock has gone up and we'd much rather have the stock and I'm not proposing anything be done, but we'd much rather have the stock at a lower price so we could buy more stock and importantly if Apple and they authorized another $75,000,000,000 the other day, but let's say they're going to spend $100,000,000,000 in buying in their stock in the next 3 years. You know, it's very simple. If they buy the 200, they're going to get 500,000,000 shares. They've got 4,000,000,000 600,000,000 out now, and so they'll end up with 4,100,000,000 under that circumstance. They're buying it at 150, they buy in 667 1,000,000 shares and instead of owning what we would own in the first case, we've now the divisor would be less than $4,000,000,000 and we'd own a greater percentage of it. So in effect, a major portion of earnings, at least possibly, it's at least been authorized, will be spent in terms of increasing our ownership without us paying out a dime, which I love We are a business, a wonderful business. And, the recent development when the stock has moved up substantially actually hurts Berkshire over time. We still do, in my opinion, we'll do fine, but we're not going to get into, we're not going to dissect our expectations about Apple for people who may be buying it against us tomorrow or something. We don't give away investment advice on that for nothing. But we have all the things you've mentioned, obviously, we know about. We know some. We've got a whole bunch of other variables that we crank into it, and we like the fact that it's our largest holding. Charlie? Well, in my family, the people who have Apple phones, it's the last thing they'll give up. Not a bad item to have. And the other thing we won't give up is lunch. And we'll we'll now adjourn and we'll reconvene at at 1 o'clock or thereabouts. See you a little later.

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