Berkshire Hathaway Inc. (BRK.A)

ASM 2019 Part 2

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May 4, 2019

And it looks like we're ready for Greg. Morning, Charlie. I have a follow-up on the railroad business. By nearly all measures, BNSF had a solid year in 2018. Full year revenue growth of 11.5% was better than the 7.5% top line growth in Union Pacific, which is BNSF's largest direct competitor came up with. With Burlington Northern seeing both larger increases in average revenue per car unit and total volumes than its closest peer. Even so, Burlington Northern once again fell short of Union Pacific when it came to profitability with its operating ratio declining 130 basis points to 66.9 percent while Union Pacific's ratio fell only 120 basis points to 62.7 percent further cementing the spread that exists between the two companies margins at more than 400 basis points. Can you explain what is driving the difference in market. Thank you, Steve. Thank you, Steve. Thank you, Steve. Thank you, Steve. Thank you, Steve. Thank you, Steve. Thank you, Steve. Thank you, Steve. Thank you, Steve. Thank you, Steve. Thank you, Steve. Thank you, Steve. Thank you, Steve. Thank you, Steve. Thank you, Steve. Thank you, Steve. Thank you, Steve. Thank you, Steve. Thank you, Steve. Thank you, with the same customers in the western half of the United States. And while you noted that Burlington Northern is in a wait and see mode with regards to precision scheduled railroading, we've heard the same line historically with regards to GEICO's approach to telematics. What worries me here is that the potential now exists strong growth in the market. And we're very pleased with the progress we've made in the past. And we're very pleased with the progress we've made in the past. Some of which Union Pacific could eventually use to get more price competitive? Well Warren knows the answer to that a lot better than I do. My guess is that they work a little harder than we do at building the rates. But, Warren, you answer that. Yeah. Well, we it's true that we we received the lowest ton mile revenue of any of the 6 big railroads in North America and there's some explanation for that, obviously, significant explanation in the particular types of hauls we have and that sort of thing. We do have longer hauls generally. But the answer, Union Pacific's profit margin, they talk about operating ratios, but that goes back to the Interstate Commerce Commission. It's really profit margin, pre tax, pre interest profit margin. And the Union Pacific, at one time, probably 15 or maybe a little more years ago, they really went off the track, so to speak. But they've done a very good job of getting, well, they've got a lot of underpriced coal contracts worked out as did we. But they've also done a very good job on expenses and there's no fundamental reason why the BNSF franchise, I always liked the Western Railroads better than the eastern, not by a dramatic margin, but I think the west will do better in terms of ton miles over time in the eastern roads and we've got some great routes, some of which were underwater in March for a while, and we pay a lot of attention to what's going on at the Union Pacific as we should, and the, future it's not like we're losing business to anybody, but they have been operating more efficiently in effect than we have during the last few years and like I say we take notice of it. They've cut a lot of people, I mean, right here in Omaha and, we'll see what that does in terms of passenger or in terms of shipper satisfaction, but we are measuring ourselves very carefully against what they do and if changes are needed, we'll do them. We've got a wonderful asset in that business and when I bought it, I said it's for 100 years. It's for a lot more than 100 years. It is a very, very fundamental business and we've got a wonderful franchise and we should have margins comparable to other railroads. Tony? I don't know much about it. Hi, Warren and Charlie. My name is Rob Lee from Vancouver, Canada. Could you please share with us what do you value the most in life now? Thank you. Well, I like to have a little more of It's the 2 things you can't buy, time and love, and that I value those for a long time and I've been very, very, very lucky in life and being able to control my own time to extreme degree. Charlie's always valued that too. That's why we really wanted to have money was so we could do what we damn please basically in our life. It wasn't 6 houses or boats or anything. Well, Charlie's got a boat, but it doesn't do us that much good, but time is valuable and that's, and we are very, very lucky to be in jobs where physical ability doesn't make any difference and we've got the perfect job for a couple of guys with aging bodies and we get to do what we love to do every day. I mean I literally, I could do anything that money could buy pretty much and I'm having more fun doing what I do than doing anything else and Charlie is designing dormitories and I mean he's got an interesting life and he brings a lot to it. He still reads more books in a week than I get done in a month and he remembers what he reads. So we have got it very good, but we don't have unlimited time and whatever we do to free up the time to do what we like to do and we both maximize that in our lives, We do. Anybody's lucky if he gets so where he spends his time at he really likes doing. That's that's a blessing. Yeah. We've had so much good luck in life. It's it sort of blows your mind is Starting with being born in the United States and Canada would be fine too incidentally. I don't want to offend anybody. Okay. Carol? This question is from Brian Neal, who writes from the Mayo Clinic Education site. Berkshire owns approximately $200,000,000,000 in publicly traded stocks. I appreciate the disclosure of Berkshire's holdings, but I am disappointed by the lack of specific performance information. Since investing in publicly owned stocks is so much a part of Berkshire's business, why do you not tell us every year how our portfolio performed? Well, I would say it could be calculated fairly easily. And it's about 40% of Berkshire's value, but 60% is the businesses and if you look at the top 10 stocks, I would guess, you're down to where beyond those 10 stocks, you're talking about less than probably less than 10% of Berkshire's value. So again we're not in the business of explaining why we own a stock. We're not looking for people to compete to buy it. We have a portfolio of companies where I would say that of that $200,000,000,000 or so, at least $150,000,000,000 of them are buying in their stock and increasing our interest every year. And why in the world should we want to tell a whole bunch of people to go out and buy those stocks so that we end up paying or the company on our behalf ends up paying more money for them. I mean, people get very happy when their stocks go up. But if we are going to own whatever, whether it's Bank of America, whether it's Apple, whether it's any of the big holdings, we will do considerably better in the next 10 years if their stocks do terribly during certain periods and that they buy lots of stock in. It's just exactly like buying it ourselves except we're using their they're they're using our money but it's so elementary And why in the world would we want to go out and tell the world that these stocks should go up so that maybe they can sell or something when it costs us money and we're not going to be able to move in and out of the stocks to our advantage. So our holdings are filed quarterly. Our domestic holdings as it was pointed out earlier filed quarterly, but we would rather not tell the world what we own anymore than we'd like to tell them what our strategy is at NetJets or what we're going to do at Lubrizol and what we're working on the way of better advances in additives or whatever it may be or where we plan to build a new store for the furniture mart or something. That's proprietary information and we have to disclose a certain amount, but we're certainly not going to be touting the stocks to other people. In terms of calculating our performance, you can take the top 10 or 12 stocks and anybody can make the calculation. At the end of the year, the Wall Street Journal runs all the papers run something where it says a year to date performance or something of the sort. So that's a simple calculation. Charlie? I've got nothing to add to that. Okay. Jonathan. No one's ever asked a question about flight safety, but perhaps this year is somewhat topical given the 737 MAX controversy. The New York Times spoke to engineers who said that Boeing explicitly designed the MAX in a manner that allowed airline customers to avoid paying for simulators to train their pilots. Do you expect the worldwide regulatory and commercial response to the MAX's problems to result in increased demand for flight safety simulators? And could you please more generally discuss flight safety's competitive position and growth prospects? Yeah. Well, Flight Safety is their specialty would be with corporate pilots. They train our NetJets pilots for example. They have a major facility with simulators for that. I don't think what's happened with the 737 MAX will have any particular effect. I mean we have I don't know how many of the Fortune 100 companies that we do business with, but it's a very significant percentage and they train their pilots with flight safety because we have got the talent, the simulators like nobody else has for that business. And, Charlie, didn't you have that friend of yours that was trying to get out and Yolksi to pass him when he shouldn't? Well, remember that story of your friend that wanted to have flight safety? Oh, yes. Yeah. Why don't you tell him, I mean, Al Yolci, who started life safety with a few $1,000 and a little visual simulator or whatever it may have been at LaGuardia, I mean, he really cared about saving lives and he made a lot of money in the process, but he was dedicated throughout his lifetime to truly train better pilots and reduce the chance of accidents dramatically. It was a mission with them and that spirit still continues and as I say, I can't tell you the percentages, I don't know, but I know it's very high of certainly the corporate business. We have a lot of government business. We have some airline business and all of that but I don't expect any great change in the flight training business, but tell them tell them about your friend Charlie. Well, of course people pass those tests with flying colors and they some of them just barely pass and one of my friends just barely passed and they called me told me It's, it's an art in the business Life safety would not They care about everything. They care. They watch the details. They care. And it is a those simulators can they can cost over $10,000,000 I mean, just, and they're dedicated obviously to a given model of plane. You might find it interesting at NetJets, our pilots only fly one model. I mean most charters and all those I'm sure that initially they could fly other models and all of that, but we just want them to be flying one model and we give them a maximum amount of training annually. When I bought the company for Berkshire in I think it was 1998 or thereabouts, you know, the thought obviously bothered me that I would have a significant percentage of people would be friends of mine that were using it you know and you'd hate to have anything happen. I use it, my family uses it, our managers use it and, there's nobody that cares more about safety, but I don't see them than a net jet. It's a 1st class operation and many people. You never killed a passenger. They had one pilot who hit a glider at 16,000 feet and it was kind of a difficult landing. It was more than a difficult one. They never killed a it was a woman pilot. Yeah. And she was flying the next day. The copilot was kind of taken out of operation, but this woman ended up almost with a control panel in her lap because this guy had turned off his battery and hit one of our Hawkers. And she had one shot at the runway and she brought it in and we have had some remarkable, remarkable training and pilots there. You should ask for her if you're flying on that jet. Station 10. Mr. Buffet and Mr. Munger, hi. My name is Daphne. I'm from New York and I'm 9 years old. And I'm excited to be at the meeting and this is my 3rd year. Wow. You should be rich by now. You have often said that investors are well served by identifying business with a wide moat where the castle behind the moat is run by a king or queen who can be trusted to make good decisions. In the past, you have applied this advice by investing in businesses with world class strong brands such as Coke, American Express and Seas as well as media companies that has helped these brands protect and widen their moats such as cap cities, ABC and the Washington Post. In the past, you have also generally avoided investing in technology companies pointing out how quickly technology changes and how hard it is to build a circle of confidence in it. Today, we seem to be in a world where some of the most dominant companies in the world are technology companies and we have built powerful platforms such as Amazon, Google, Facebook and wide modes, strong brands and are led by brilliant and entrepreneurs. That's good. My question to you is this. If Berkshire is to honor its tradition of investing in wide moats and strong brands and especially in companies that are also account capital efficient. Do you think that Berkshire needs to explain its investing lens to include more of these leading technology platforms? In other words, do you believe that you need to adapt your model of wide moats and strong brands to embrace, not avoid technology? I think the answer is maybe. I think the answer is to put her on the board and it will bring down the average age enormously. We won't get criticized as much. You're exactly right in that, we do like moats and we used to be able to identify them in a newspaper that was the only newspaper in town or in TV stations where we felt the dominant positions and we felt the product was underpriced in terms of advertising. We saw it in brands sometimes and it is true that in the tech world if you can build a mode, it can be incredibly valuable. I have not felt the confidence that I was the best one to judge that in many cases. It wasn't hard to figure out who was winning at any given time or what their business was about, but there were a huge number of people that knew more about the game than I did and we don't want to try and win in a game we don't understand. We may hire people such as Ted and Todd that are better at understanding certain areas of investing than I am or maybe even Charlie is. But the principles haven't changed. You're right that some of the old ones have lost their moat and you're right that there are going to be companies in the future that have them that will be enormously valuable And we hope we can identify one every now and then, but we won't. We'll still stay within what we where we think we know what we're doing and obviously we'll make mistakes even within that area. But we won't go into something because somebody else tells us it's a good thing to do. I mean, we are not going to subcontract your money to somebody else's judgment. You can take your money and follow somebody else's judgment, but we're not in the business of thinking that if we hire 10 people with specialties in this area that it will lead to superior investment results and we do worry that we may we could blow a lot of money that way. So we will do our best to enlarge the circle of competence of the people at Berkshire so that we don't miss so many. But we will miss a lot in the future. We have missed a lot in the past. The main thing to do is to find things where our batting average is going to be high. And if we miss the biggest ones, that really doesn't bother us as long as the things we do with money work out okay. Charlie? Well, I think we've still got an awful lot of companies with big moats and a lot of them are very and some of our industrial brands were just incredibly strong in the niches we're in. So you, Berkshire shareholders don't need to worry about. We're just one big morass of unproviderability or anything like that. But we have not covered ourselves with glory in the new fields. We won't end up all in buggy whips or anything. But it's a very good question and it's what we focus on all of the time. We're trying to improve. And we hope we see you back here for your 4th next year. Becky? This question comes from Stuart Boyd, who is a chemical engineer from Australia. He says currently Berkshire would be incredibly difficult for an activist investor to target because number 1, Warren, your ownership stake is large. Number 2, shareholders appreciate the business is more valuable operating under the Berkshire umbrella rather than being sold off in pieces. And number 3, the sheer size or market capitalization of Berkshire is an entry barrier for most activist investors. Warren and Charlie, after your ownership has been completely distributed, will Berkshire be more vulnerable to activist investors? I am guessing this isn't something that keeps you up at night, but thought it was worth asking. No, it's going to happen quite a few decades after my death. I don't think I'll be bothered much for it. Well, anything can happen. It's a low probability. It can't happen for a lot of years in terms of the way my stock gets distributed and in terms of the way other stock is held. But in the end, Berkshire should prove itself over time. There are no perpetuities that it needs to deserve to be continued in its present format. It has a lot of attributes that are maximized by being in one entity which people don't fully understand. I think if you spin off something that would command a high PE that therefore value has been unlocked which is totally nonsense. I mean it's already built in. One day out you might have an extra 3% or 5% in price, but over the years we want to keep the wonderful businesses. But eventually I think the culture will remain one of a kind. I think that we will be able to do things other people can't do. I think that the advantages of having them in one spot will likely be significant over time and if that happens, no activist is going to take it over and if the model does not work for some reason over a long greater time, then something else should happen. Charlie? Nothing more. Okay. Jay. This question is on GEICO. Progressive is gaining the most market share among the major auto insurers based on its presence in the direct and independent agency channels, as well as now bundling its auto and homeowners insurance coverage. How does GEICO plan on responding to competitive threats so that it can retain its place as the 2nd largest auto insurer? I was hoping we could also hear on this topic from Ajit or GEICO's management. Thank you. Okay. The Progressive is a very, very well run business. GEICO is a very well run business and I think they will for a long time be the 2 companies that the rest of the auto insurance industry has trouble losing share to. But there is, I think I've always thought for a long, long time Progressive has been very well run. They have an appetite for growth. Sometimes they copy us a little. Sometimes we copy them a little. And I think that will be true 5 years from now and 10 years from now and we sell substantial amounts of homeowners insurance. We have an agency arrangement with that. We were in the business of writing it ourselves until Hurricane Andrew when a decision was made. We didn't control it then, but the decision was made that the homeowners essentially, you could lose as much in 1 year as you made in the previous 25 years and the flow isn't as large. So we became a company that placed our customers' desire for homeowners with several other large and solid organizations. The big thing is auto insurance. And we grew in the Q1 about 340,000 policies net which will look quite good compared to anybody but Progressive. And, that was quite a bit more than last year, but not as good as 2 years ago. And the combined ratio, the profit margin was in the 9 point area. So I feel extremely good about GEICO. I mean what has been built there by Tony and his people is perfect, but I would feel fine. We don't own any Progressive, but I think Progressive is an excellent company and we will watch what they do and they will watch what we do and we will see 5 years from now or 10 years from now, which one of us passes State Farm first. Charlie? Oh, and G, would you like? Well, the underwriting profit is really a function of 2 major variables. One is the expense ratio and the other is the loss ratio without getting too technical. GEICO has a significant advantage over They have, I think, about a 12 point advantage over GEICO. So net net, Progressive is ahead by about 5 points. GEICO is very aware of this disadvantage on the loss ratio that they are suffering, and they're very focused in trying to bridge that gap as quickly as they can. They have a few projects in place and sometimes GEICO is ahead of Progressive. Right now Progressive is ahead of GEICO. But I'm hopeful they'll catch up on the loss ratio side and maintain the expense ratio advantage as well. Thank you. GEICO has gained market share essentially. I'd have to look at the figures for sure, but virtually every year since Tony took over and I would that significant money that GEICO increases its market share in the next 5 years and I think it will for sure this year. So, it is a terrific business and Progressive is a terrific business. And, well, as Ajit says, we've got the advantage in expenses and we will have an advantage in expenses. And then the question is, are we they have a very sophisticated way of pricing business and the question is whether we give some of that 5 points back or 6 points back in terms of loss ratio and we are working very hard at that, but I am sure they are working very hard to improve their system. So to some extent it's a 2 horse race and we've got a very good horse. But Warren, in the nature of things, every once in a while somebody is a little better at something than we are. You've noticed? Yeah, I have noticed. Yes, I would settle for 2nd place in a lot of the business. Okay, Station 11. Mr. Buffet and Mr. Munger, thank you for taking my question. My name is Feroze Caium and I'm from Mississauga in Canada and now live in New York. My question is how to best emulate your success in building your circle of competence. Given the environment today in investing is a lot more competitive than when you started out, what would you do differently if anything at all when building your circle? Would you still build a very broad generalist framework or would you build a much deeper but narrower focus say on industries, markets or even a country and if so which ones would interest you? Thank you. Yes. Well, you're right. It is much more competitive now than when I started. And you would, when I started I literally could take the Moody's Industrial Manual, the Moody's Bank Financial Manual and I could go through page by page and at least run my eyes over every company and think about which ones I might think more about. It's important. I would just do a whole lot of reading. I would try to learn as much as I could about as many businesses and I would try to figure out which ones I really had, some important knowledge and understanding that was probably different than overwhelmingly most of my competitors and I would also try and figure out which ones I didn't understand. And I would focus on having as big a circle as I could have and also focus on being as realistic as I could about where the perimeters of my circle of competence were. I knew when I met Lorimer Davidson in January of 1951, I could get insurance. I mean, what he said made so much sense to me in the 3 or 4 hours I spent with him on that Saturday. So I dug into it and I could understand it. My mind worked well in that respect. I didn't think I could understand retailing. All I had done was work for the same grocery store that Charlie had and neither one of us learned that much about retailing except it was harder work than we liked. And you've got to do the same thing and you've got way more competition now. But if you get to know even about a relatively small area more than other people do and you don't feel the compulsion to act too often, you just wait till the odds are strongly in your favor. It's still a very interesting game. It's harder than it used to be. Charlie? Well, I think the great strategy for the great mass of humanity is to specialize Nobody wants to go to a doctor that's half proctologist and half dentist you know. And, and well and so the ordinary way to succeed is to narrowly specialize. Warren and I really didn't do that. And that and we didn't because we prefer the other type of activity. But I don't think we can recommend it to other people. Yeah. It was a little more treasure hunting in our day. And it was easy to spot the treasure. We made it work. It was kind of a lucky thing. Yes. It's not the standard way to go. The business, at least I best understood, actually was insurance. And I had very little competition. I went to the insurance department in Harrisburg, Pennsylvania. I remember one time I drove there just to check on some Pennsylvania and this is when you couldn't get all this information on the Internet. And I went in and I asked about some company and the guy said you're the first one that's ever asked about that company. And there wasn't a lot. I went over to the Standard and Poor's library on Houston, Houston Street, as they call it, and we go up there and ask for all this obscure information and there wasn't anybody sitting around there. They had a bunch of tables that you could sit and examine things through. So it was less competition. But if you know even one thing very well, it will give you an edge at some point. It's what Tom Watson Sr. Said at IBM. I'm no genius but I'm smart in spots and I stay around those spots and is basically what Charlie and I try to do and I think that is probably what you can do but you will find those spots. Yeah, we did it in several fields. That is hard. We got our head handed to us a few times too. Okay. Andrew? Thanks Warren. Governance question from a shareholder. Larry Fink of BlackRock has predicted that in the near future, all investors will be using ESG, environmental, social, governance metrics, to help determine the value of a company. I'm worried we don't score well on everything from climate to diversity to inclusion. How well do you think Berkshire measures up on those metrics and are they valuable metrics? I think in reality we measure up well, but we don't participate in preparing reports for anybody that asks about it and we have this idea that even though all shareholders are equal, we sort of we prefer individuals to shareholders. We actually prefer people we know as co owners and we don't want to be preparing a lot of reports and asking 60 subsidiaries each to do something, whether they'll set up a team and then mail things to headquarters and then we'll supply them to somebody who if our stock goes up, some is probably going to sell it anyway. We want our managers to do the right things. We give them enormous latitude to do that. And I think that our batting average really is quite good. You saw in the movie, we talked about having 100% of the electricity we sell in Iowa will come from essentially wind generation. Now that doesn't mean that we get to do it 24 hours a day. We sell some and we buy it. But essentially, we will be creating as much wind energy as all of our customers use electricity. There's one competitive there's one other utility electric utility about our size and roughly our size in Iowa and they have practically no wind resources. And the wind blows where they exist too. But we will have that 100%. As a matter of fact, it's a moving target because we do so well, partly we do so well on wind generation that a number of the high-tech companies want to locate in Iowa and get clean energy from us at very low prices and therefore the moving target becomes our growth in customers in that area. But we're not going to put out a we are not going to spend the time with the people at Berkshire Hathaway Energy responding to questionnaires or trying to score better with somebody that is working on that. It's just we trust our managers and I think the performance is at least decent and we keep expenses and needless reporting down to a minimum in Berkshire. We do not get I mentioned this in the annual report. I don't I can't imagine another company like it, but here we are, $500,000,000,000 of market capitalization. We do not have a consolidated P and L monthly. We don't need it. I can't imagine any other organization doing that but we don't need it and we're not going to tie up resources, people resources, doing things we don't need to do just because it's the sort of standard procedure in Corporate America and Corporate America is very worried about, in general they're very worried about whether somebody is going to upset their apple cart with activists and everything. So they want to be very sure that every shareholder is happy on issues like that. In the end, fortunately, we don't have to worry about that. So we don't have to run up a lot of expenses, doing things that don't actually let us run the business better. Charlie? Well I think in Berkshire the environmental stuff has done one level down from us and I think Greg Abow is just terrific at it And so I think we score very well When it gets to so called best corporate practices, I think the people who talk about them don't really know what the best practices are. They just know what they think are the best practices And they determine that based on the whole cell, not the whole work. And so I like our way of doing things better than theirs and I hope to we never follow their best practices. I'd like to point out one thing on independent directors. I mean, I have been on 20 public company corporate boards, not counting any virtual subsidiaries. So I've seen a lot of corporate boards operate and, the independent directors in many cases are the least independent. I mean, if the income you receive as a corporate director, which typically may be around 250,000 a year. Now if that's an important part of your income and you hope that some other corporation calls the CEO and says, how's so and so as a director and your CEO says, oh, he's fine. It never raises any problems. And then you get on another board at 250,000 and that's an important part. How in the world is that independent? I mean, I really, just an observation, I can't recall particularly any independent director where their income was from the Board was important to them, I can't recall them ever doing anything in Board meetings or committee meetings that actually was counter to the interest. You know what? They put them on the COP Committee. I mean, they are just not going to upset the apple cart because of what they are and I would probably behave the same way, in the same position. I mean, if 250,000 years is important to you, why in the hell would you behave in a way that's going to cause your CEO to say to the next CEO, say this guy acts up a little bit too much, you know, you really better get somebody else. It's the way it works, but they've got these things. It works a little worse than Warren's telling you. Yeah. Charlie and I. It's really awful. It was awful. I mean we and only at one layer, we occupy the niche for pomposity very well ourselves. We don't need any more of it. Charlie and I were on one Board. Well, I was on one Board actually a long time ago where we owned a very significant percentage of the company and the rest of the Board was almost exclusively customers of the company, but not owners. They had absolutely token holdings. And at one point, we were looking at something where a tax decision was being made in terms of distribution of some securities and it was a lot of money was involved. And one of the other directors said, well, let's just swallow the tax. Well, his swallowing amounted to about $15 or something or something or something. I said, let's parse this sentence out. Let's swallow the taxes. Let us swallow the tax. So who wants to swallow an equal amount to me? It's, you know, it's you don't get invited to be on boards if you belch too often at the dinner table. Well, Jim Stamps, we had a director who said, I don't see why you guys should be so important just because you own all the shares. Yeah. Charlie and I used to have to cool off after the blue chip stamps meeting. We and Rick Aaron owned what percent probably? Yeah. 50%. Yeah. 50% and they appointed all the They were all members of the Rotary Club. It came out of a government settlement or something. And it was not an ideal form of decision making and they just had a different calculus in their mind that they didn't and I can understand it, but I'm not going to replicate it. Okay, Greg. Warren and Charlie, U. S. Electricity demand has flatlined during the past decade, but could potentially pick up over the next decade with 3 emerging sources of demand, electric vehicle charging, data centers and cannabis cultivation expected to account for more than 5% of total U. S. Electricity demand. Utilities will have to work hard to benefit from this new demand though, much of which is likely to accrue to states in the South Atlantic, Central West and Mountain regions, with the greatest benefit going to firms that invest in grid expansion, smart networks, reliability and renewable energy. While Berkshire Energy has been aggressive with its capital investments and already has some of the lowest electricity rates in the areas where it competes, it seems like the firm is winding down its annual spending at a time when more might actually be required with annual spending expected to fall from around $6,000,000,000 on average annually to around $4,000,000,000 in 2021, with 2 thirds of that spending being more maintenance driven than growth. Is there any one area where you feel Berkshire Energy might need to commit more capital over the next decade to ensure that it captures its future expected demand growth much as it already has with wind power in Western Iowa, which is now populated with a lot of data centers. And for territories where demand growth is expected to be the strongest but where Berkshire does not have a presence, are there any avenues aside from acquisitions for the company to put capital to work? I am going to throw that over to Gene in just a second, but I will tell you that we have 3 owners of Berkshire Hathaway Energy. We are the 91% owner and there are no 3 owners that are more interested in pouring money into sensible deals within the utility industry or are better situated in terms of the people we have to maximize any opportunities. We have never had a penny of dividends in whatever it is close to 20 years of owning MidAmerican Energy and other utility companies pay high dividends. They just don't have the capital appetite essentially that we do. So it's just a question of finding sensible projects and I would say that there's no group that is as smart about it, as motivated about it as our group. And with that, I'll turn it over to Greg. In short, we're about as good as you can get. You should worry about something else. But Greg, could you stand up and talk about we really hope to spend a lot of money and energy. Yes, afternoon. Yes, Greg, you touched on it. A couple of critical areas we go forward is to look realistically in the 2021, 2022 timeframe because as you've touched on we've got a great portfolio as we finish out 2019 2020 and it's really been focused on building the renewable energy projects in Iowa, expanding the grid. But equally we do have those opportunities in our other utilities. The footprint in Iowa realistically is getting pretty full as we had 100 percent renewables. Warren touched on it. Every time we get a new data center that means we can build another 300 megawatts of renewables. We'll continue to do that. But when you look at Pacific Corp where we serve 6 states in the northwest, we've really just embarked on an expansion program there. The first part was to build significant transmission to expand the grid and then start to build renewables. But just to give you some perspective of the regulation that exists in place, we started that project in 2,008 and we're realistically building the first third of it. But we do have the planning in place for the 2nd phase and the 3rd phase That's what you'll see come into place in 2021 2023. And the reality is we'll continue to do that in NV Energy with really again the focus being on both grid expansion, so we can move the resources and then supplementing it with renewables. So it's exactly what you've touched on and we haven't identified the specific projects yet so we never put them in our capital forecast that we disclose to folks. But as they firm up and we know they're they will go forward, clearly you'll see some incremental incremental capital and that's capital we clearly earn on behalf of the Berkshire shareholders as we deploy it. Thank you. We will put a lot of money into energy. Yes. We're really in marvelous shape in this department. Incidentally and Walter Scott, I mean, he gets excited looking at all these projects and goes out and visit them. He knows way more about the business and he's forgot more about it than I'll ever know. But we've got a great partnership. We've got unlimited capital. We've got we'll continue to have it and there's needs for huge capital in the industry. So I think 10 years from now or 20 years from now, we will be our record will be looked at and there will be nothing like it in the energy business. Greg is there anybody ahead of where we are in Iowa in terms of energy? Charlie, there's realistically no one ahead of us in the US, let alone Iowa. When you look at the amount of energy we produce relative to what our customers consume, we really do lead the nation in Iowa. And are our rates about half that of our main competitor in Iowa to boot? Exactly. We're right in that range. If this isn't good enough for you, why we can't help you. Incidentally, I mean we sell electricity 5 miles from here. Is that correct? Right across the river. Yes, right across the river. And the wind blows the same and all that sort of thing. And the public power district here with all Nebraska going back to George Norris has always been a public power state that there's no capitalism doesn't exist in the electric utility field in Nebraska. So they have had the advantage of selling tax exempt bonds. We have to sell taxable bonds, which raises costs to some degree. They have a big surplus, which they don't have to pay any dividends on or anything else. And our rates are cheaper than theirs, basically. I mean we're very proud of our utility operation. Carol? Warren, you are a big advocate of index investing and of not trying to time the market. But by your having Berkshire hold such a large amount of cash and T bills, it seems to me you don't practice what you preach. I'm thinking that a good alternative would be for you to invest most of Berkshire's excess cash in a well diversified index fund until you find an attractive acquisition or buyback stock. As you've done that over the past 15 years, all the time keeping the $20,000,000,000 cash cushion you want, I estimate that at the end of 2018, the Company's $112,000,000,000 balance in cash, cash equivalents and short term investments in T Bills would have instead been worth about $155,000,000,000 dollars The difference between the two figures is an opportunity cost equal to more than 12% of Berkshire's current book value. What is your response to what I say and for I forgot to say the question is from Mike Elsvar who is with the Colony Group located in Boca Raton, Florida? That's a perfectly decent question and I wouldn't quarrel with the numbers and I would say that that is an alternative for example, that my successor may wish to employ because on balance I would rather own an index fund than carry Treasury bills. I would say that if we'd instituted that policy in 2007 or 2008, we would have been in a different position in terms of our ability to move late in 2008 or 2009. It has certain execution problems with 100 of 1,000,000,000 of dollars than it does if you were having a similar policy with a 1,000,000,000 or 2,000,000,000 or something of the sort. But it's a perfectly rational observation and certainly looking back on 10 years of a bull market, it really jumps out at you. But I would argue that if you were working smaller numbers, it would make a lot of sense and if we were working with large numbers, it might well make sense in the future at Berkshire to operate that way. You know, we committed $10,000,000,000 a week ago and there are conditions under which and they're not remote. They're not likely in any given week or month or year, but there are conditions under which we could spend $100,000,000,000 very, very quickly. And if we did, if those conditions existed, the capital is very well deployed and much better than in an index fund. So we've been, we're operating on the basis that we will get chances to deploy capital. They will come in clumps in all likelihood and they will come when other people don't want to allocate capital. Charlie, what do you think about it? Well, I played guilty to being a little more conservative with the cash than other people. And, but I think that's all right. We could have put all the money into a lot of securities that would have done better than the S and P with 2020 hindsight. Remember, we had all that extra cash all that period if something came along in the way of opportunities and so on. I don't think it is a sin to have to be a little strong on cash when you are as big a company as we are. We don't have to I watched Harvard use the last ounce of their cash, including all their prepaid tuition from the parents and plunge it into the market at exactly the wrong moment and make a lot of forward commitments to private equity. And they suffered like 2 or 3 years of absolute agony. We don't want to be like Harvard. Plus timber and a whole bunch of that. Well, I mean, Yeah. Yeah. We're not going to change. We do like having a lot of money to be able to operate very fast and very big. And maybe we know we won't get those opportunities frequently. I don't think certainly in the next 20 or 30 years, there will be 2 or 3 times when it will be raining, gold and all you have to do is go outside. But we don't know when they will happen and we have a lot of money to commit. And I would say that if you told me I had to either carry short term Treasury bills or have index funds and just let that money be invested in America generally, I would take the index funds, but we still have hopes. And the one thing you should very definitely understand about Berkshire is that we run the business in a way that we think is consistent with serving shareholders who have virtually all of their net worth in Berkshire. I happen to be in that position myself but I would do it that way under any circumstances. We have a lot of people who trust us, who really have disproportionate amounts of Berkshire compared to their net worth if you were to follow standard investment procedures and we want to make money for everybody, but we want to make very, very sure that we don't lose permanently money for anybody that buys our stock somewhere around intrinsic business value to begin with. We just have an aversion to having a 1,000,000 plus shareholders, maybe as many as 2,000,000 and having a lot of them ever really lose money if they are willing to stay with us for a while. And we know how people behave when the world generally is upset and they want to be with something. I think they want to be with something they feel was like the rocket and brawler and we have a real disposition toward that group. Of those homes who need mortgages on a somewhat more level playing field with those buying site built homes. How positive an effect do you expect these new programs to have on manufactured home demand? And how might the programs affect Clayton's sizable profits from lending? Will Clayton sell more loans to Freddie and Fannie? And does that help profits even if spreads compress? Well, it may not help profits but it would definitely is good if the Freddie and Fannie are authorized to do more lending against manufactured homes. Manufactured homes are a very reasonable way for people to get decent housing and have a home And they are hard to finance to some degree. The local banks frequently do it, but the big lenders haven't wanted to do what they are. There is the possibility or the likelihood that Freddie and Fannie are going to expand. We already sell I don't know whether it's $10,000,000 a month of loans or something like that to Freddie and Fannie, but it would be very good for America in my view if Freddie and Fannie did more in that area. Obviously, we would sell some more homes but we would lose financing and we might come out behind. We might come out ahead. But I think it would be a good thing to do. Charlie? Well I think Freddie and Fannie will finance more and more homes and I think they'll do more and more of it through Clayton and they'll do it because Clayton is very trustworthy and will do a very good job at making good housing at cheap prices for people And I think Clayton will get bigger and bigger and bigger as far ahead as you can see. And the guy is young. He doesn't look like more than me. Not at all. We've got a terrific managerial group at Clayton and we're expanding our site build homes. We just closed on a builder a couple of few days ago and we now have 9 different, I believe 9 different site build home operations and we didn't have any a few years ago. And we think extraordinarily well of Kevin Clayton and his group. Our directors met last year in Knoxville and viewed the Clayton operation for the 2nd time. So we like the idea of Clayton expanding and we like the idea of more people having very affordable housing. During the 2000 and eight-two thousand and nine recession, our borrowers who had very low FICO scores on average, I mean, compared to typical homebuyers, and if they kept their jobs and they made the payments. I mean, they wanted that home and the home was an enormously important item to them. And we had various programs that helped them as well, but our loan experience was far better than people anticipated under the stress that existed then, but it was because a home really means something to people. And absent losing jobs or sickness and like I say we have some programs to help people, they make the payments and they have very decent living, but they would get that even cheaper if Freddie and Fannie expanded their programs and like I say, I hope they do. Okay, Station 2. Hi. Hi, Warren. Hi, Charlie. My name is Carrie, and this is my daughter Chloe. She's 11 weeks. It's her very first Berkshire meeting. We're from San Francisco, and we have a question on employment for you. As both a major employer and a producer of consumer goods, what do you make of the uncertain outlook for good full time jobs with the rise of automation and temporary employment? Well, if we'd asked that question 200 years ago and somebody said with the outlook for development of farm machinery and tractors and combines and so on, meaning that 90% of the people on farms were going to lose their job, it would look terrible, but our economy and our people, our system has been remarkably ingenious in achieving whatever we have now, 160,000,000 jobs, when throughout the period ever since 17/76, we've been figuring out ways to get rid of jobs. That's what capitalism does and it produces more and more goods per person and we never know exactly where they are going to come from. I mean, I don't know what you were, whatever occupation. Well, if you were in the passenger train business, I mean, you know, you were going to do that was going to change. But we find ways in this economy to employ more and more people. And we've got now more people employed than ever in the history of the country even though company after company and particularly in heavy industry and that sort of thing has been trying to figure out naturally how to get more productive all the time which means turning out the same number of goods with fewer people or turning out more goods with the same number. That is capitalism. I don't think you need to worry about American ingenuity running out. You look at people in all kinds of businesses and they like to make money but they really like to be inventive. They like to do things. And this economy, it works. It will continue to work. And it will be very it's very tough in certain industries and there will be dislocations. We won't be making as many horseshoes and that sort of thing when cars come along and all of that. But we do find ways now to employ whatever we're employing 155, whatever it is, 1000000 people and supporting a population of 330,000,000 people when we started with 4,000,000 people with 80% of the labor being employed on farms. So, this system works and it will continue to work. And I don't know what the next big thing will be. I do know there will be a next big thing. Charlie? Well, we want to shift the Scott work to the robots to the extent we can. That is what we have been doing as Warren said for 200 years. Nobody wants to go back to being a blacksmith or scoping along the street, picking up the horsemen or whatever the hell these people used to do. We are glad to have work eliminated and a lot of this worry about the future comes from leftist who worry terribly that, that, the people at the bottom of the economic pyramid have had a little stretch when the people at the top got ahead faster. That happened by accident because we were in so much trouble that we had to flood the world with money and drive interest rates down to 0. And of course, that drove asset prices up and helped the rich. Nobody did that because they suddenly loved the rich. It was just an accident and it will soon pass. We want to have all this productivity improvement and we shouldn't worry a little about the fact that one class or another is a little ahead at one stretch. Charlie and I, we worked in a grocery store and when people ordered a canopies, we had ladders that we climbed up to reach the canopies and then we placed it in a folding box and then we put it on a truck. And if you looked at the amount of food actually transferred between the producer and the person who consumed it and the number of people involved in the transaction. It was, I don't know whether it was 1 third or 1 quarter or 1 fifth as efficient as the way, the best way now to get food delivered to you. And And food was worse. And my grandfather was distressed about the fact that this particular credit and delivery kind of store would be eliminated and it was eliminated, but society pressed. It's coming back. Pardon? It's coming back. It's coming back more efficiently. Anyway, we've seen a little creative destruction. And frankly, we're glad that it freed us up to go into the investment business. It worked out better for us. Becky? This question comes from Brian Gust of Grafton, Wisconsin. He's talking about regulators and politicians and says, the Berkshire Hathaway investment portfolio holds several large financial institutions that are heavily regulated and are politically charged. Do you feel that in some cases, the regulators and or politicians are running the big banks instead of the CEO and the Board of Directors? Sure. But not too much. No, insurance has been regulated. It happens to be regulated primarily on a state basis, but insurance has been regulated ever since we went into it. And it hasn't, when I looked at GEICO it was doing 7,000,000 of business and it will do $30 odd,000,000,000 of business. Now it's been regulated the whole time and regulation can be a pain in the neck generally, but on the other hand we don't want a bunch of charlatans operating in insurance business and insurance actually lends itself to charlatans because you get handed money and you give the other guy a promise. And I like the fact that there is regulation in the insurance business or the banking business. It doesn't mean it can't drive you crazy sometimes or anything of the sort, but those businesses should be regulated. They're too important at any time you can take other people's money and they go home with a promise and you go home with the money, I don't mind a certain amount of regulation in those businesses. John? Yeah. Well, if you're using the government's credit because you have deposit insurance, there's an implicit bargain. You can't be too crazy with what you do with the money. That is perfectly reasonable. And I absolutely believe that we should have a regulation system that involves supervision of risk taking by banks. It got particularly bad in the investment banks at the peak of the real estate crisis and the behavior was there is only one word for the behavior. It was disgusting and it was pretty much everybody. It was hardly anybody who stayed sane in that boom. They felt the other guys doing dumb things. I've got to do it too or I've been left out. What a crazy way to behave. And so, sure, there's some intervention, but probably has to be. Do you want a Food and Drug Administration? You You'll be unhappy with how they do it if you're in the business and all of that. I find any kind of regulation irritating, but nevertheless, it's good for the system. And actually, a number of regulators, I would say that they have really been quite sensible of a lot of regulation. You don't feel that way when you are being told how to run your business, but as Charlie says, you wouldn't want to be a bank that ran in an unregulated system where anybody could come in and do all kinds of things that would actually have consequences that drew you into their the problems that they created themselves. We had the Wild West in banking long ago and it produced a lot of problems in the 19th century. Jay? For the past several years in Berkshire's annual shareholder letter, there's been increasingly less detail provided on its operating businesses and financial performance. For example, the company is no longer providing details on the finance and financial product segment or a balance sheet for the manufacturing service and retail segment or a breakdown of float by unit in the insurance business. For a company as large and diversified as Berkshire, why are investors being provided less information than previously? Well, I don't think we actually provide less information. We may present it in a somewhat different form from year to year. Just this year, for example, I started my letter, as usual in my mind, saying, Dear Doris and Bertie, my sisters, to tell them what I would tell anybody that had a very significant proportion of their net worth in Berkshire who was intelligent, did not know all the lingo of our various businesses that would read a lot of words because they did have a large investment. So if I explained anything and did a decent job, they would understand what I was talking about. And, I tell them that in the language that I think will be understandable to a significant percentage of a 1000000 plus people who have all kinds of different understanding of accounting and all that sort of thing. I tell them information I would want to hear on the other side. Now if I was a competitor and I wanted to know what one of our furniture store was earning or something of the sort, I might love it, but it doesn't really make any difference. If you're talking about a $500,000,000,000 organization, If you understand our insurance business and in terms of giving you the picture, I think in 3 or 4 or 5 pages, Actually, we have got a whole bunch of stuff required by the SEC about loss reserve development. I think you can write a 300 page report that gives a whole lot less information than a 50 page report and you lose people. So I try to tell them, like I say in my mind, it's my sisters, I try to tell them what I would tell them if we had a private business and they own a third of it each and I own a third and once a year they like to get filled in and they don't know what a combined ratio means because it's a dumb term that everybody uses and importantly, call it a profit margin. They don't know what the operating ratio is in the railroad business and it's an obsolete term. It would be better to call that a profit margin, but the lingo, we're not writing it for analysts. We are writing it for shareholders and we're trying to tell them something so they can make an addition. They can not only get the picture as to what we own now, but how we think about the operation, what we're trying to do over time. And we try to do the best job we can every year. And I don't think it I think if somebody is terribly interested in the details, they really are missing the whole picture. Because you could have known every detail of our textile business in 1965, but we could give you the information as how much we made from linings and how much we made from handkerchiefs. And it would be in a different world. I mean, the important thing was how we looked at running money and what we would do about things over time and, it just you could have gotten very misled. If you read it in 1980 or 'eighty five and you look for great detail on how See's Candy was doing and as they moved eastward, we'll tell you that overall that fell in terms of moving out of the territory, but going into a whole lot of detail that might be very interesting to an analyst, but really for the shareholder, they've got to make a decision as to who's running their money and how they're running it and what they've done over time and what they hope to do in the future and how to measure that. And again, we are writing it for the individual. Charlie? Well, I suppose I should be watching every tiny little business down to the last nickel, but I don't and I don't want that much detail and I think our competitors would like it and it wouldn't do our shareholders any good. So we'll probably just keep reporting the way we do. You can see how flexible we are here. Station 3. Hello, Ms. Baffert and Ms. Mungo. I'm Shashi Jingjing from China International Capital Corporation Limited. Last week, China announced 12 new measures on further opening up the financial industry. All these measures will allow me more invested institutions to enter into Chinese financial market and to ensure the policies of foreign investment to be consistent with those of domestic investment. What do you think about these new measures? Do you believe the foreign financial institutions will have more pricing power over the Chinese stock markets in the future? Do you have any plans to set up a company in China? If so, what time? Thank you. Well, we've got one now. Dairy Queen is all over China. And it's working fine. And we didn't wait for new laws. We did it under the old laws. But we're not that big net in China, right Warren? We're not that big what? In China. No, but we had something that could have happened that would have been quite sizable. China, it's a big market and we like big markets. I mean, we really can only deploy capital in a major way, maybe in 15 or so countries just because of the size. But generally, I think the climate is getting better. It really makes sense for the 2 countries to get along Think of how stupid it would be if China and the United States didn't get along Stupid on both sides, I might add. Yeah. We've done well in China. We haven't done enough. Andrew? Warren, this is a question from a member of the House of Lords in Westminster who happens to be here today, who also is a shareholder of the company. This is Lord Gaudia, who says you've written, we hope to invest significant sums across borders. So what's your appetite to invest in the U. K. And Europe? And how will Brexit impact that? And while we're at it, what's your advice for solving UK's Brexit dilemma? That's yours, Warren. Well, I can I will tell you this? I mean, I gave an interview to the Financial Times that I don't do that very often, but one of the considerations I have is that I would like to see Berkshire Hathaway, better known in both the UK and Europe. And the Feet audience was an audience that I hoped would think of Berkshire more often in terms of when businesses are for sale. Our name is familiar, I think, pretty much around the world in at least financial circles, but there is no question anybody's going to sell a large business in the United States. They're going to think of Berkshire. They may decide for other reasons they'd rather do it differently. But they will think of VirTra and I don't think, obviously that is not as true around the world. We've had some very good luck with a few people that have thought of Berkshire, such as at Iskra and actually Berkshire Hathaway Energy had one of its base holdings from way back was in the UK. But I was looking in doing that interview. I was willing to spend 3 hours with the Feet reporters in the hope that when they write the story that somebody someplace thinks of Berkshire that wouldn't otherwise think of it. And we'd love to put more money into the UK. I mean, if I get a call tomorrow and somebody says, you know, I've got an X $1,000,000,000 found company that I think might make sense for you to own and that I would like to actually have as part of Berkshire. I will get on the plane and be over there but I'll have to tell me what their price ideas are and what its earnings. I'm not interested in going over and talking about it and pricing it for them and then not making a deal. We like to make deals when we actually get into action. We're hoping for it and we're hoping for a deal in the UK and or in Europe. No matter how Brexit comes out. I think it I don't I'm not an Englishman, but I have a feeling it was a mistake to vote to leave, but I don't think it's I don't think it doesn't it doesn't destroy my appetite in the least for making a very large acquisition in the UK. Charlie. Well, all my ancestors came from Northern Europe, so I'm very partial to the place. On the other hand, if you asked me how I would vote on Brexit if I lived in Britain, I don't even know It just strikes me as a horrible problem and I'm glad it's theirs, not mine. But if I called you tomorrow and said we had a deal in UK, you'd tell me? Well, I would go in a minute. Yeah. Those are my kind of people. I understand them. Okay. Greg. Warren, just want to kind of maybe follow-up on those past two questions because there is sort of a theme there. It seems to me that there's definitely more of a home country bias when we look at the acquisitions and investments that Berkshire has done historically. And while there's definitely value in sticking with what you know and feel the most comfortable with, it seems like you've gone from a model that was originally focused on putting boots on the ground to find investment and acquisition opportunities to one where you're seemingly more content to have sellers or the representatives call you or drop by the office, basically more of a pull model than a push model. There's nothing wrong with this, but I just wonder if the opportunity cost that comes with this type of model is that Berkshire misses out on a lot of overseas business where owners are unaware of your willingness to step up and buy them outright and allow them to run their companies under the Berkshire umbrella and missing stocks investment opportunities because Berkshire is not necessarily familiar enough with the local market. At this point, do you think Berkshire would benefit from putting more boots on the ground in these markets? Actually, it must have been after we bought his car, Eitan Wertheimer convinced me that we should get more exposure in Europe. And he helped out in doing that. I went over. He arranged various meetings. We've had a lot of contact. It isn't that they're not aware, and we do hear about some, but we do have the problem they got to be sizable. I mean, if we do a $1,000,000,000 acquisition and it makes $100,000,000 or thereabouts pretax, dollars 80,000,000 after tax, If we really know the business and we're sure we're not going to have a problem with the people running it, being motivated in the future and doing a similar job as to when they had their own money and everything. It's nice to add 80 $1,000,000 to $25,000,000,000 but you can't afford to spend lots of time doing that. And we've we gained something by having Todd and Ted do some looking at things, screening, that sort of thing, but in the end, you want somebody that some family that's home to held their business in Europe or in the UK for 50 or 100 years that can make a deal and that wants to do it with Berkshire. I If they're looking to get the most money, if they want to have an auction, we're not going to win and we're not going to participate because we're not going to waste our time on it. If we form an acquisition crew, something. I've watched so many institutions in operation that if your job every day is to go to work and screen a bunch of things with the idea that you're the strategic department or acquisition department, you're going to want to do something. I want to do something, but I don't want to do something unless Berkshire benefits by it and clearly benefits by it and it's generally a suicide. Warren, our problem is not like a boots on the ground. Our problem is the people on the ground are paying prices that we don't want to pay. Yeah, that's our problem. We can spend that problem is not going to be cured by boots. We can spend $100,000,000,000 in the next year. That is not a problem. No. Spending it intelligently is a huge problem. And our competitors are buying with somebody else's money and they get part of the upside and they acknowledge the downside. That is hard to compete with people like that. Yes. They'll leverage it up. They'll make a lot of money if it fails and they'll make even more money if it succeeds. And that's not our equation. No. And that has that isn't always that way, but it's certainly that way now. It's probably It's not in the shareholders' interest that we get to be like everybody else. Okay. Station 4. Mr. Buffet and Mr. Munger, thank you so much for the wisdom you've shared with us over the years. This is Stephen Wood from New York. And, Mr. Buffet, thank you very much for your feedback, your very generous feedback last August on the book that I'm writing. I just had one follow-up, if I may. In studying the most significant value creators of all time, it is very evident that the major compounding effect happened later, at the later stages of the careers, or in Vanderbilt's case, even beyond his own career. So, your recent investments have suggested to me that you are designing Berkshire to being a steady compounding machine that should continue to create value for a very long time. Would you both please elaborate on this compounding machine and the machine's ability to continue to adapt to keep this value creation durable? And then is this legacy one of your sort of primary motivations when you wake up every day? I would say it is the primary motivation, but it's been that for a very, very, very long time. No matter what was going right in my life, the things that were going badly, I'm sure I could not feel good. I don't need to be spending my time working on something that makes me feel bad about the results when we get through. And it's something that's doable. I mean the culture is stronger now than it was 10 years ago and it was stronger than 10 years previously. It moves slowly but it goes in the right direction. And when we get chances to deploy the capital, we've always tried to make any entity, whether it was the partnership or the Fortune Now or Blue Chip Snaps where we owned it or even diversified, redeemed. We wanted them all to be compounding, in effect, be compounding machines. That's why people gave us capital. That's why we put our own capital in. And if we fail that, we feel we really felt like we'd failed it, make any difference how much money we made from fees or anything like that. We knew what our yardstick was. So that will continue. I think Berkshire is better situated than it's ever been except for the fact that size is a drag on performance and I probably wrote that 40 years ago. I wrote it actually when I closed the partnership to new money when we had like $40,000,000 in it. I just said that really the new that additional capital would drag down returns from a $40,000,000 base. So you can imagine how I feel with $368,000,000,000 base of capital and Berkshire now. But this culture is special. It can work. It won't be the highest compounder by a long shot against many other businesses. I think it will be one of the safest ways to make decent money over time. But that will depend on the people that follow us. Charlie? Well, we came a long way from very small beginnings and the fact that it slows down a little when it becomes monstrous is not my idea of a huge tragedy. I and I think we will continue to do very well in the future. We had nothing like the energy operation, you know, 20 years ago and it's a powerhouse. We had nothing like Kevin's operation in the home building 30 years ago and it will soon be the biggest well, even now it is better than anybody else in the country, you know, both types of housing, isn't it, houses? I think so. And we have a lot going for us and I'm satisfied. I think it's going to continue reasonably. And it would ruin our life if we did it terribly. So that's what we wake up thinking about in the morning. But I wouldn't want to be in a business where I was going to let down other people. I think it would be crazy to do something like that even if you weren't rich in 'eighty eight. So, but we are motivated to have something that is regarded as something different than others and we are actually in a world where so much money is institutionalized. I like the idea of having somebody that's actually owned by individuals in very significant part who basically trust us and don't worry about what the next quarter's earnings are going to be. I think it's different than much of capitalism and I think it's something that Charlie and I feel good about. Yes, absolutely. Carol? This question comes from Stefan Jabode of Danville, California and it raises a question I've certainly never heard before. Mr. Buffet, in the past you have recommended low cost S and P and again today, the S and P 500 Index Funds as reliable long term investment vehicles. These funds have certain inherent structural advantages such as low costs and automatic reshuffling of their holding. But Berkshire also has certain structural advantages, such as financial leverage from the float and diverse capital allocation opportunities. I think of Berkshire as being ahead in this game. For example, it seems to me that if Berkshire's overall operating business and investment performance were to exactly match the total return of the S and P index over a 10 year period, Berkshire's growth in intrinsic value would outperform the S and P 500. If you agree, could you estimate by how many percentage points? Well, the answer is I won't estimate anything. But, If we just own stocks and we own the S and P, our performance would be significantly worse than the S and P because we would be incurring a corporate tax which would now be 21% on capital gains plus possibly some state income taxes and effectively our tax rate on dividends is, depends where they are held, somewhere between 10.5% or 11% 13%. So Berkshire is a mistake, it's at a corporate disadvantage simply by the way the just passes through to shareholders. So I wouldn't, I don't know whether we'll outperform the S and P 5 100 or not. I know that we'll behave with our shareholders' money exactly as we would behave with our own money and we will have basically tie our fortunes in life to this business and we will be very cognizant of doing anything that can destroy value in any significant way, but we will probably if there were to be a very strong bull market from this point forward we would probably underperform during that period. If the market 5 years from now or 10 years from now is at this level or below we will probably over perform but I don't think that I want I don't quite understand the question in terms of when it says total return of the S and P over a 10 year period and Berkshire's growth in intrinsic value would outperform. I don't know whether that will happen or not. Charlie? Well, there would be one big advantage for the shareholders that pay taxes and that is that the Berkshire shareholders even if we just match the S and P we'd be way ahead after taxes We all have a pretty decent role in life and a pretty good position. We shouldn't be too disappointed. No. If we could have structured going back to our partnership days, we could have structured things so that actually over a period of time doing the same things we did would have come out somewhat more favorably for shareholders if we kept it to the original partnership group. But the present forum hasn't worked badly although we haven't had periods when our corporate capital gains tax as opposed to the individual, I think it got up to 39% a couple of years or 1 year and certainly was 35% for a long time. And then on top of that we had state income taxes in some cases and they exceeded well I mean if you owned a pass through fund you did not have that level of possible double taxation. Now if you hold your stock forever you don't pay it, but if you actually sell your stock you've had a double tax effect. We're not complaining in any way shape or form. This country has treated us incredibly well and we've had this huge tailwind which I wrote about in the annual report and it wouldn't have happened in any other country. So, In Nevada several casinos have cut the cord with our NB Energy subsidiary and are seeking their electricity needs elsewhere even though they had to pay huge exit fees. I have 3 questions about this phenomenon. One, do you believe that these are rational choices or were they made for non economic reasons? 2, what can NVD do, if anything, to stem the tide of defections? And 3, is this something that could happen in other states where you operate regulated utilities or is the situation in Nevada somehow unique because of supersized customers that have more leverage in the power market than smaller industrial customers in other states? And I don't know whether that's a question for you or Greg, but I'd be happy to hear from either of you. It's a question for Greg. Thanks, Jonathan. So just for everybody, I think they heard the question from Jonathan, but we've owned the utility there for approximately 5 years. When we inherited the utility, we knew it had some fundamental issues around its customers. The relationships were really strained from day 1, because they've had a history of continuing to increase rates, and they really weren't delivering renewable energy or meeting the customers needs or expectations. So we knew we had some challenges there. As we sit here today we've had 5 customers leave our system. Those customers still use our distribution services. So the only thing we do not provide them is the power. So we have lost an opportunity to sell them power, and we've lost the associated margin on that. And we are disappointed with that. We do recover substantial fees as you noted. How the commission looked at it was well you lose this customer, we'll give you effectively 6 years of profit on that and by then you should have grown back into your normal load. And actually it's a fair outcome. Our load is higher than it was relative to when those customers have left. So we've grown through that and it's consistent with their belief. The fundamental issue and you've touched on it, consistent with their belief. The fundamental issue and you've touched on it, why are they leaving? There are economic reasons for them leaving. And the fundamental reason is in year 7, they no longer bear sort of the societal costs that are being posed by the state. They don't have to bear the cost of renewable energy. They don't bear the cost of energy efficiency. And they viewed it as sort of the time to exit out of that model. We do have a variety of legislation that's going to levelize the playing field. We've had a number of customers that announced they were leaving now have entered into long term agreements with NV Energy. And I really do believe our team has the right model, which we're much more focused on delivering a great value proposition to our customers. So it has to include price, but equally we're building substantial renewable energy there now and long term our team will deliver a great proposition to them. And I think that and NV Energy, it will prosper in the long term. We're going to be happy with it as a long term investment. Thank you. Greg, could you give the audience a rough approximation of what say in the 10 years or whatever it may be before we bought Nevada Power, what had happened with rates, what has happened with rates under us and what has happened with coal generation under us? Right. Yeah, that's great. So it's So Warren is really expanding on what we are the focus we brought to delivering something to the customer. So if you looked at the prior 10 years, they pretty much had a rate strategy that every 2nd year their rates would go up sort of by the cost of inflation. And that pretty much materialized year after year. We came in immediately just like we've done in Iowa. So we've built all that renewable in Iowa and we've never increased rates since the date we acquired it, 1999. So rates have been stable and we don't ever see raising rates in Iowa till probably 2,030 or 2,031. Our team took a very similar approach in Nevada, which was to stabilize it. So rates are down probably 5% to 7 percent since we've owned them. So we haven't had rate increases. We've announced substantial rate increases again that will take effect every 2 years. So just like we used to be able to have rate increases, we have a view of when we'll decrease the rates. The rates will go down again in 2,002. We've I mean in 2 years. And then on top of that, there's been an approach to eliminate coal as Warren touched on. So fundamentally when we acquired it, all their coal fleet was operating. We have retired a portion of the coal fleet already and by, I believe it's within a year this 2023, will have eliminated 100% of their use of coal in that state. And it was a substantial portion of their portfolio in the past. So, team has done a great job. Thank you. Station 5. Yes. Hi. My name is Aaron Lanny. I'm a portfolio manager at a company called Medici out of Montreal, Quebec. My question is actually for Todd and Ted, if possible. So according to Warren, you lagged slightly behind the S and P 500 since joining Berkshire. So what recent changes, if any, have you implemented to increase your odds of beating the S and P in your respective stock portfolios over the next 10 years? Yeah. I'm not sure whether Todd or or Ted are here, but I will tell you but then I'll make this to final report on it. But on March 31 actually one is modestly ahead, one is modestly behind but they are extraordinary managers. It has not been, it was a tough, it's been a tough period to beat the S and P and like I say one is now ahead of the S and P over that period, once modestly behind. They've also helped us in just all kinds of ways. What taught us in connection with the medical initiative we have with JPMorgan and Amazon. I mean I don't know how many hours a week he's worked totally on that. The things they brought to me, what Ted did in terms of the Home Capital Group, where we have essentially in a major way what we stabilized a financial institution that was under attack and experiencing runs in Canada and he did the whole thing. I heard about that on a Monday and on Wednesday we put an offer before the company and previously to that they probably had dozens and dozens of people coming over them and meanwhile they were struggling and it was remarkable what he did and I think it's appreciated in the Toronto area. So we are enormously better off because the 2 are with us and while we have that measurement like I say I'll just put it this way, they're doing better than I am anyway. So if you ask me to report on them all the time I'll have to report on myself all the time and I'm that would be embarrassing compared to how they do. They are very, very smart. They've been smart with their own money over the years. They've been smart in running other people's money over the years and they've made us a lot of money but they made it during a market where they made a lot of money in the S and P as well. Charlie? No, I'm fine. Okay. Becky? This question comes from Leidorzluf, Yossizluf, and Dan of Israel. And they write to both Mr. Buffet and Mr. Munger, do you think that Amex's share of mind is enough to win the credit cards race? How do you see Amex's competitive position now compared to the past? And who is the most threatening competitor now compared to the past? Yes, everybody is a competitor and including now Apple that has just instituted a card I guess in conjunction with Goldman Sachs, everybody there will always be in my view many, many competitors in the business. Banks can't afford to leave the field. It's a growing field. They build up receivables on it. But I wouldn't think of the credit card business as a one model business anymore than I would think of the car business as essentially being one model. I mean Ferrari is going to make a lot of money but they're going to have just a portion of the market. Well Amex is growing around the world with individuals. It's growing around the world with small businesses. You just saw the contract they made with Delva which is probably the ideal partner that runs what for 8 or 9 whatever it may be 9 or 10 years actually. It's you know the billings go up per capita, they go up, the coverage spreads, and they're going to have loads of competition and they always will. But they had you know that that's something JPMorgan you know took on the platinum card and was a competitor and the platinum card had highest renewal rates that they had and they increased the price I think from $4.50 to $5.50 during a competitive battle and retention improved and new business improved and 68 percent are, so the new business was millennials. It is not an identical product with anything else and as a premium card it has a clientele which is large. It may only be it may be X percent of the market, it may be 3 quarters of X percent or whatever it may be. It isn't for the person that likes to have 5 cards and look every day at which one provides the most rewards that day or in what gas stations or something of the sort, but it's got a very large constituency that has a renewal rate, a usage rate that's the envy of everybody else in the industry. So I like our American Express position very well. Charlie? Charlie, anything? I don't know what you're asking. Yes. I don't know why. I think we own the world as long as the technology stays the same. We it's an interesting thing. I have no opinion about technology. This year, the technology is not the whole thing. I mean, fortunately, if you look at credit card usage, there are a lot of different things motivating different people that use different various types of payment systems and there are a lot of them that are growing. There are some of them that are marginal and American Express is an extraordinary operation. I think this year our share of the earnings by next year our share of the earnings of American Express will be equal to the cost of our position. We'll be earning 100% on what that position cost us and I think it will grow and I think the number of shares will go down and our interest will go up without us laying out a dime. So it's a As you say, we own the world if it doesn't change. Well, even if it changes something, the world has changed a lot. American Express was formed in 18/50. No, I am talking about WeChat. You can talk about all kinds of competitors. But the American Express actually was an Express company formed in 1850 like I said by Wells and Fargo of all people. And for a while they carried these big trunks around the valuables and then the railroads came along and that wasn't work very well anymore. So they went to the Travelers' Chex and it's a very interesting thing. In 19 50, when I was living at 116th and Broadway, they were down at 65 Broadway and they were the most important name in travel. We're synonymous with the integrity of their travelers checks and the whole company in a record year for travel earned $3,000,000 $3,000,000 what a bond trader earns. Now, in my lifetime, that's what they've done with and their hand going in was the traveler's check which is more or less disappeared, but the Travelers' the American Express, the power of that brand intelligently used going into the credit card business where they entered much later than the Diners Club, later than carte blanche, but they came to dominate the luxury end of the credit card business. It's a fantastic story and I'm glad we own 18% of it. Okay. Jay? I'm actually going to ask something about Occidental Petroleum. I'm surprised it hasn't been asked yet. So, Berkshire is committed to providing $10,000,000,000 of financing in the form of an 8% preferred share and attached warrants for Occidental's proposed acquisition of Anadarko. This is the first time Berkshire is committed to such a large preferred share investment since the acquisition of Haines in 2013. What did you find attractive about the Occidental deal in terms of its business? And should we expect other large financing transactions in the future as a way for Berkshire to deploy a portion of its excess cash? I don't think the Occidental transaction will be the last one we do. There may be 1 in a month, there may be enough. There may be 1 3 or 4 years from now it won't be identical. I hope it's larger but the point is we're very likely to get the call because we can do something that really I don't think no institution can do it. I mean they've got committees that have to pass on it and they want to have so called MAC clauses, material adverse changes. They want to do this and that. And if somebody wants a lot of certain money for a deal, they've seen that I can get a call on Friday afternoon and they can make a date with me on Saturday and on Sunday it's done. And they absolutely know that they have $10,000,000,000 and we're not going to tell them how to structure their transaction or do anything else. They've got it and there will be times in the future when something not identical but similar comes along and we're the one to call and I hope it's larger than 10,000,000,000. Dollars It could be we'll do in the next 5 years. It could be we'll do a lot of money, additional money and things similar to this, not identical and it could be that nothing will happen. But if there are any $10,000,000,000 or $20,000,000,000 or maybe even $50,000,000,000 2 day transactions that are in the world. Believe me they will think of Berkshire Hathaway for sure in terms of what number to call. Troy? Well I like it. I called Charlie as soon as we made the day. I called Ron Olson first because I was worried that he might have a conflict, and in about 10 minutes he had, I told him it had to be done by Monday night and Corvath was being told the same thing by Occidental and it was very light on Monday night, but all the papers were put in order and Bunker Tolls was in Los Angeles and Gorbaz was in New York and I was in Omaha and I didn't do that much. Mark Hamburger did a lot of the work. He was at work on Sunday on other things when I went down to meet with the accidental people. And it was the product of people who understood us, understood how we operate and both with an incentive to put all the manpower necessary on the job and like I say, I think their Board of Directors met at 10 o'clock on Monday night to approve it, but they could announce it Tuesday morning and that's what they wanted to do and Wood Berkshire they could do it. Okay, Station 6. Good afternoon. My name is Tony McCall and I'm from Montgomery, Alabama. And my question is about your discipline risk evaluation approach and how you balance that with the fact that perseverance and determination and grit are often necessary for success. Well, I'm not I certainly like determination and grit with the people we work for, but we don't have any formula that evaluates risk, but we certainly make our own calculation of risk versus reward in every transaction we do and it's true whether it's marketable securities, that's true whether it's private investments, that's true whether it's making an investment in a business. And sometimes we're wrong and we're going to be wrong sometimes in the future. You can't make a lot of decisions in this business without being wrong, but we don't think the procedure or the results would be changed favorably by having lots of committees and lots of spreadsheets and that sort of thing. If I had a group under me, they would try and figure out what I wanted the answer to be and they would tell me what I wanted to hear and I have watched that approach at 20 public companies and what the CEO wants to do they may spend a lot of time getting there but the investment banker gets there and the internal committees get there or the internal operations get there. The calculations are the same as the insurance business with the GE. The GE gets calls on insurance deals and you have to think through that deal. The main thing is, are you reasonably sure that you know what you're doing? And it gets past that hurdle, then we go on to figure out the math of gain versus loss and how much loss we can afford to take in anything and we're willing to take what sound like large losses if we think that the rewards are more likely and proportional. I got nothing. It's very disappointing. We have no formulas around Berkshire. We don't sit down and write a bunch, have people work till midnight calculating things and putting spreadsheets together and if the hurdle rate is 15% or something, having them all come out at 15.1% or 15.2% because that's what's going to happen. You're going to get the numbers you want to hear to an extreme degree. The proposals we received from the investment world, I've got to tell you about one because illustrates go on. We received a proposition the other day and I'll disguise the numbers a little bit so nobody can pick it out. But it it was a private company and we'll say it was earning $100,000,000 a year. But the seller of the business and the investment banker suggested that we should look at the earnings as being $110,000,000 a year because as a private company, they had to pay their top people in cash, which was expensed, but we could pay them in stock options and things like that, which weren't expensed or were explained as not really counting and therefore we could report 110,000,000 dollars if we gave away something we didn't want to give away. But essentially by sort of lying about our accounting, we could add $10,000,000 in earning and they wanted us to pay them because they couldn't do it and we could do it and therefore at this point they're losing me of course totally, but it's just astounding the accounting games that are played, all the adjustments are why the place should really be will be earning more than before. It's a business. We also had one that came in from a private equity firm and by mistake, we got the email that was sent to the manager from the email from the private equity firms, owned it, the manager in terms of making projections for it and they told them to add 15% because they say Buffett was discounted by 15% or 20% anyway. So just to add 15% to offset his conservatism. It's not an elegant business as Charlie will tell you. You have any better stories, Charlie? It's bad enough. Okay. Andrew? It's really very bad enough. Thank you, Warren. I think this is Why don't we allow our leading citizens lying and cheating? Andrew? I believe this is my final question, and admittedly it's a 2 parter, but it's the same topic. Elon Musk says that Tesla will start to offer insurance for its cars and can price it better than a typical insurance company because of the data it collects from all the vehicles on it the road. You've talked about the threat of autonomous vehicles on the insurance business, but what about the threat to GEICO of automobile companies themselves getting into the insurance business? And on a very similar topic, Tesla recently announced that they're shifting to an online only sales model, and several traditional auto dealerships are also reducing their property holdings as car buyers increasingly use smartphones and the internet to shop for cars. What does this portend for Berkshire Hathaway Automotive? Actually General Motors had a company for a long time called Motors Insurance Company and various companies have tried it. I would say that the success of the insurance company of the auto companies getting into the insurance business are probably about as likely as the success of the insurance companies getting into the auto business. I worry much more about Progressive than all of the auto company possibilities that I can see in terms of getting insurance business. It's not an easy business at all and I would bet against any company in the auto business being any kind of an unusual success. The idea of using telematics in terms of studying people's drivers, that's spreading quite widely and it is important to have data on how people drive, how hard they break, how much they swerve, all kinds of things. So I don't doubt the value of the data but I don't think that the auto companies will have any advantage to that. I don't think they'll make money in the insurance business. Using the Internet to shop for cars is like using internet for shopping for everything. It's another competitor and there's no question that people will look for better ways. The gross margin on new cars is about 6% or thereabouts. So there's not lots of room in the game but that will be a method and that will sell some cars and that there are it's another competitor. But I don't think it destroys the auto dealer who takes good care of the customers and is there to service the customers. It's not an overwhelming threat but it's obviously something that's going to be around and we'll sell some cars. Charlie? Again, nothing. Okay. Greg? Warren, a lot of Berkshire's success over the years has come from the fact that you and Charlie have had the luxury of being patient, waiting for the right opportunities to come along to put excess capital work even if it has led to a buildup of large amounts of cash on the balance sheet. This has historically worked out well for shareholders as you and Charlie have been able to take full advantage of the disruptions in equity and credit markets or special situations like we saw with the Oxy deal to negotiate deals on terms that ultimately benefit Berkshire's shareholders. That said, there is an opportunity cost attached to your decision to hold on to so much cash, one that investors have been willing to bear, primarily by foregoing a return of excess capital as dividends and share repurchases as well as seeing lower returns on cash holdings. As we look forward, how certain can we be that this will still be the case once you're no longer running the show, especially if Berkshire's returns are expected to be lower over time? And is it not more likely that the next managers of Berkshire will have to manage the eventual migration of Berkshire from an acquisition and investment platform to a returning capital to shareholders vehicle? Well, that's certainly a possibility. I mean, it's a possibility under me. It's a possibility under the successor. It's a question of can you invest truly large sums reasonably well. You can't do it as well as you can do small sums. There's no question about But, we will have to see how that works out over many years because certain years lots of opportunities, huge opportunities present themselves and other years are totally dry holes. So that's not a judgment you can make in a 1 year period or a 3 year period. It's certainly a judgment you can make over time though and I personally, my estate will have basically nothing but Berkshire in it for some time as it gets dispersed to philanthropies and I have a section in there which says to the trustees in effect who manage it. I have a section in there that says ignore the you are exempted from my standpoint from the law that trustees normally should diversify and do all of that sort of thing and I want the entire amount that they have to be kept in Berkshire as they distributed over time to the philanthropies and I don't worry at all about the fact I would like to have a very large sum go to the philanthropies and I don't worry at all about the fact that it essentially will all be in Berkshire. I'm willing to make that decision while I'm alive which will continue for some years after I die. So I have a lot of confidence in the ability of the Berkshire culture to endure and that we have the right people to make sure that that happens. I am betting my entire net worth on that and that doesn't give me pause at all. I rewrite my will every few years and I write it the same way in respect to the Berkshire Holdings. Charlie? Well I don't own any indexes and I have always been willing to own just 2 or 3 stocks and I have not minded that everybody who teaches finance in law school and business school teaches that what I'm doing is wrong. It isn't wrong. It has worked beautifully. I don't think you need a portfolio of FD stocks if you know what you are doing and I hope my airs will just sit. Buyers hope that I will change my will. Okay. Station 7. Hi. Good afternoon, Mr. Buffet and Mr. Munger. My name is Bill He and I'm from Vancouver, Canada. You 2 make up an iconic duo. And growing up, I found your investment strategies very admirable. And so my question is, how do you deal with conflicts when they arise between the 2 of you? Are you applying personal conflicts in terms of doing something ourselves versus having Berkshire do it or, between the 2 of you, Charlie and I literally and people find this hard to believe, but in 60 years we've never had an argument. We have disagreed about things and we'll probably keep occasionally disagreeing about this or that. But if you define an argument of something where emotion starts entering into it or anger or anything of the sort, it just doesn't happen. I think that Charlie is smarter than I am but I also think that there are certain things where I've spent more time on him than he has and sometimes we both think we're right. And generally I get my way because Charlie is willing to do it that way and he's never get second guess me when things have been wrong and I wouldn't dream of second guessing him if he were doing something that was So it turned out to be wrong. We will never have a conflict basically. Charlie? Well, the issue is how long how we get along. The issue is how is the economy going to work when we're gone. And the answer is fine. It's going to work fine. We're lucky that you know I ran into him when I was what 20 8 years old. I both worked in the same grocery store and they grew up less than a block away from where I now live and everything but I did not know who Charlie Munger was until I was 28. But clearly we're in sync in how we see the world and we're in sync on business decisions basically. Charlie would do fewer things than I would but that's because I'm spending my time on this while he's designing dormitories or something. And we both keep busy in our own ways and we have a lot of fun dividing the labor like we do. But you really want to work. I mean having the right partners in life, particularly the right spouse, but having the right partners in life is enormously important. I mean it's more fun with a partner both in personal life and in business life and you probably get more accomplished too but just have a better time. It would not be any fun to do work in a room and make a ton of money trading around securities but never working with another human being. So I recommend finding, well Charlie gave some advice in the movie, I think. The best person will have you or something like that. Sort of a limited objective. It's not hard to be happy if you are a collector and don't run out of money. Collecting is intrinsically fun. Just think, how many people who you would know in your whole life who were collectors who didn't run out of money, who weren't happy collecting. That's what we have been collecting all our lives. It's a very interesting thing. There's always a new rock to be turned over and it's interesting Yeah, and certainly we've collected friends that make our lives better and that we have a good time with. And it's very important who you select as your heroes or your friends and I've been lucky in this. I mean it was only because of the doctor named Eddie Davis and his wife that Charlie and I even met. But if you keep doing enough things, some will work out. Very lucky and the best ones are ones that involve lifelong involvement with other people. And we've got some of our directors, a number of our directors that have had similar impacts on me. So I recommend that you look for somebody better than you are and then try to be like they are. It's funny, you know, we've lost people along the way and I lost Warren's secretary. I thought, my God, she was so wonderful. Gladys, we will never get another one. Becky is better. And then we had Vern McKenzie, who is a wonderful Chief Financial Officer. He has gone and The incurring incumbent is better. We've been very lucky and maybe the shareholders will be lucky a few more times. Okay, Station 8. Hi Warren. Hi Charlie. My name is Jacob. I'm a shareholder from China and also a proud graduate of Columbia Business School. Thanks for having us here. My question is, our world is changing at a faster pace today versus 40 years ago and even more so going forward. Under this context for each of us individually, shall we expand our circle of competence continuously over time or shall we stick with the existing circle but risk having a shrinking investment universe? Thank you. Well, obviously you should, under any conditions, you should expand your circle of competence. If you can. If you can. Yeah, and I've expanded mine a little bit over time. But you can't, you ought to be pretty cautious. Yeah, You can't force it. If you told me that I had to become an expert on Physics or you know. Dance might be the lead in the ballet one. That would be a sight. Yeah. Well, that's one of the I think it now. That's one you may be thinking about, but I that didn't even occur to me. But it's ridiculous. That doesn't mean you can't expand it at all. I did learn about some things as I've gone along a few businesses. In some cases I've learned that I'm incompetent which is actually a plus and you've discarded that one. But it doesn't really the world is going to change. It's going to keep changing. It's changing every day and that makes it interesting. And as it changes certainly within what you think is your present existing circle, you should be the master of figuring that one out or really isn't your circle of competence and if you get a chance to expand it somewhat as you go along, I've learned some about the energy business from Walter and Greg as we work together, but I'm not close to their level of competence on it. But I do know more than I used to know. So you get a chance to expand it a bit. Usually, I would think normally your core competence is probably something that sort of fits the way the mind is working. Some people have what I call a money mind and they will work well in certain types of money situations. It isn't so much a question of IQ. The mind is a very strange thing and people have specialties whether in chess or bridge I see it in different person. People that can do impossible what seem to be impossible things and they're really kind of, as Charlie would say, stupid in other areas. So just keep working on it, but don't think you have to increase it and therefore start bending the rules. Anything further, Charlie? No. Station 9. We're just about. Yes, we got time for a couple more. My name is John Durso and I'm from New York. Mr. Buffet, you've said that you could return 50% per annum if you were managing a $1,000,000 portfolio. What type of strategy would you use? Would you invest in cigar butts, I. E. Average businesses at very cheap prices or would it be some type of arbitrage strategy? Thank you. It might well be the arbitrage strategy but in a very different perhaps way than customary arbitrage is a lot of it. One way or another, I can assure you if Charlie was working with a million or I was working with a million, we would find a way to make that with essentially no risk, not using a lot of leverage or anything of the sort, but you change the 1,000,000 to 100,000,000 and that 50 goes down like a rock. There are little fringe inefficiencies that people don't spot and you do get opportunities occasionally to do but they don't really have any applicability to Berkshire. Charlie? Well, I agree totally. It's just what you used to say that large amounts of money they develop their own anchors Yeah, you're just it gets harder and harder I've just seen genius after genius with a great record and pretty soon they got 30,000,000,000 and 2 floors of young men and away goes the good record. It's just the way it works. But Charlie as the money goes up. When Charlie was a lawyer initially I mean you were developing a couple of real estate projects. I mean you find if you really want to make $1,000,000 or 50 percent of our 1,000,000 and you're willing to work at it, That's doable, but it just has no applicability to managing huge sums. Wish it did, but it doesn't. Yeah. Lee Loo using nothing but the float on his student loans had $1,000,000 practically shortly after he graduated as a total scholarship student. He found just a few things to do and did them. Okay. Station 10. Hello, Warren, Charlie. I'm Luis Cobo from Panama. I'm a proud Berkshire Hathaway shareholder since 10 years ago. And I've been looking at C's Candies and I'm a pretty good fan of them. And I see Charlie's as well through our meeting. And even with all our consumption and the company has given us generous profits over the past decades, What do you think the company has not grown to the scale of Mars or Hershey's? And what do you think we could do to make this company grow and become a bigger part of our company being such an amazing product? Well, we've probably had a dozen or so ideas over the years and we used to really focus on it because it was much more sizable part of our business. In fact, it was practically our only business is Heidram Insurance. And like I say, we've had 10 or 12 ideas. Some of them we've tried more than once and as we've had a new manager, they've tried them and the truth is none of them really work. And the business is extraordinarily good in a very small niche. Boxed chocolates are something that everybody likes to receive or maybe give us a gift, both sides of it, and relatively few of the people go out and buy to consume themselves. If I leave a box of chocolates open at the office, we only got 25 people, but it's gone. You know almost immediately if I take it as a gift to somebody they're happy to get it. And if you leave the box open at a dinner party again they're all gone. But those same people that so readily grab it when it's right there in front of them do not walk out to a candy store very often and buy it just to eat themselves. They're not going to buy. It's very much a gift product. It does not grow worldwide. Very interesting thing. People in the last time I checked people in the West prefer milk chocolate. People in the East prefer dark chocolate. People in the West like big chunky pieces. People in the East will take miniatures and we've tried to move it geographically many, many, many, many times because it would be so wonderful that when it works, it works wonderfully, but it doesn't travel that well. If we open a store in the East we get enormous traffic for a while and everybody says we've been waiting for you to come and then it finally we end up with a store that does £X per year when we need 1.5x in the same square footage to make terrific returns and we have tried everything because the math is so good when it works and overall we have a business that doesn't grow. Chocolate consumption generally doesn't grow that much. But obviously, go ahead, sir. Yeah. Well, we fail in turning our little candy company into Mars or Hershey's for the same reason that you failed to get the Nobel Prize in physics and achieve immortality. It's too tough for us. But we put $25,000,000 into it and it's given us over $2,000,000,000 of pretax income, well over $2,000,000,000 and we've used it to buy other businesses. And if we were the typical company and bought that business and tried desperately to use all the retained earnings within the candy business, I think we'd have fallen on our face. I think it just illustrates that all these formulas you learn are having a strategic plan to use all the capital. Some businesses work in a fairly limited area. Others really play out over. Does Doctor Pepper has, I don't know what the percentage is now, but it might be a 10% or 12% market share or something like that in Dallas or maybe it's 8%, and you go to Detroit or Boston and it's less than 1%. I'm not sure about the numbers currently, but you would think in a mobile society with Doctor Pepper having been around since the time Coke was founded in 18/86, It's amazing how certain things travel, certain things don't travel. You know the candy bars you mentioned Hershey, I mean Cadbury doesn't do that well here and Hershey doesn't necessarily do that well in the UK and here we are we all look alike but somehow we eat different candy bars. It's very interesting to observe and the idea that you have some formula for businesses that provide that each one should pursue the course they're on because they made it an X, they should try to find other ways to make it an X work quite well and defined it in A, B, C, D, E or F, which is like the money is fungible. And I think actually it has worked very much to our advantage to have that philosophy. Anything further, Charlie? I once told a very great man at dinner after he'd written a very great book, I said, you know, you are never going to write another great book like that. And he was deeply offended and I have read his 4 subsequent bits and books and I'm totally right. To write one great book is a lot to do in one lifetime and people aren't holding back on you when they don't do more. It's hard. But you ought to make the most of the ones first when you got it. Yes. You're lucky. Yes. We were very fortunate. I would have blown the chance to buy See's Candy. But Charlie said don't be so cheap basically and we still got it at a pretty good price. And we've learned a lot. The worst we've learned over the years, and if we hadn't, the record would be so much worse. At any given time, what we already knew was not going to be enough to take us to the next step. That's what makes it difficult. Think of all the people you know that have tried to take one extra step and have fallen off a cliff. Well, on that happy note, we will conclude the meeting. Thank you. Thank you. Thank you. But say save some of it for next year we may need it then so that yeah just just give us a carry forward on the rest of it and thank you we'll come back at 3:45. We will conduct the business meeting and it doesn't we have no nothing on the proxy to vote on but we will be back here in 15 minutes. And, if you enjoy a process, you can stick around and watch us reelect our Board. Thank you. Thanks for coming. The meeting will now come to order. I am Warren Buffett, Chairman of the Board of Directors of the company and I welcome you to this 2019 Annual Meeting of Shareholders. This morning, I introduced the Berkshire Hathaway directors that are present. Also with us today are partners in the firm of Deloitte and Touche, our auditors. Jennifer Taundice is Assistant Secretary of Berkshire Hathaway and she will make a written record of the proceeding. Becky Hammack has been appointed as the Inspector of Elections at this meeting and she will certify to the kind of votes cast in the election for directors and the motions to be voted upon at this meeting. The named proxy holders for this meeting are Walter Scott and Mark Hamburger. Does the Assistant Secretary have a report of the number of Berkshire shares outstanding entitled to vote and represented at the meeting? Yes, I do. As indicated in the proxy statement that accompanying the notice of this meeting that was sent to all shareholders of record on March 6, 2019, the record date for this meeting, there were 724,765 shares of Class A Berkshire Hathaway common stock outstanding, with each share entitled to one vote on motions considered at the meeting and 1,371,000,000 697,551 shares of Class B Berkshire Hathaway common stock outstanding, with each vote entitled to 1 10,000 of one vote on motions considered at the meeting. Of that number, 503,181 Class A Shares and 839,707,642 Class B Shares are represented at this meeting by proxies returned through Thursday evening, May 2nd. Thank you. That number represents a quorum and we will therefore directly proceed with the meeting. First order of business will be a reading of the minutes of the last meeting of shareholders and I recognize Mr. Walter Scott, who will place a motion before the meeting. I move the 3 minutes, the last meeting of shareholders be dispensed with and the minutes be approved. Do I hear a second? I second the motion. The motion has been moved and seconded. We will vote on the motion by voice vote. All those in favor, say aye. Opposed? The motion is carried. The next item of business is to elect directors. If a shareholder is present and who did not send in a proxy or wish to withdraw a proxy previously sent in, you may vote in person or for the election of directors and other matters to be considered in this meeting. Please identify yourself to one of the meeting officials in the aisle so that you can receive a ballot. I recognize Mr. Walter Scott to place a motion before the meeting with respect to election of directors. I move that Warren Buffett, Charles Munger, Greg Abel, Howard Buffett, Stephen Burke, Susan Decker, William Gates, David Gottesman, Charlotte Gayman, Ajit Jain, Thomas Murphy, Ronald Olson, Walter Scott and Merle Whitmer be elected as directors. Is there a second? I second the motion. It's been moved and seconded that Warren Buffett, Charles Munger, Greg Abel, Howard Buffett, Steve Burke, Susan Decker, Bill Gates, David Gottesman, Charlotte Guyman, Ajit Jain, Tom Murphy, Ron Olson, Walter Scott, Merrill Whitmer be elected as Directors. Are there any other nominations or any discussion? The nominations are ready to be acted upon. If there are any shareholders voting in person, they should now mark the ballot on the election of directors and deliver that ballot to one of the meeting officials in the aisles. Ms. Amick, when you're ready, you may give your report. My report is ready. The ballot of the proxy holders in response to proxies that were received through last Thursday evening cast not less than 543,703 votes for each nominee. That number exceeds a majority of the number of the total votes of all Class A and Class B shares outstanding. The certification required by Delaware law of the precise count of the votes will be given to the secretary to be placed with the minutes of this meeting. Thank you, Ms. Amick. Warren Buffett, Charles Munger, Greg Abel, Howard Buffett, Steve Burke, Susan Decker, Bill Gates, David Gottesman, Charlotte Guymon, Ajit Jain, Tom Murphy, Ron Olson, Walter Scott and Merrill Whitmer have been elected as directors. We now have a motion from Walter Scott. I move the meeting be adjourned. Is there a second? I second the motion. Motion to adjourn has been made and seconded. We will vote by voice. Is there any discussion? If not, all in favor say aye. Aye. All opposed say no. This meeting is adjourned. Thank you all. I hope I see you next year.

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