Berkshire Hathaway Inc. (BRK.A)

ASM 2005 Part 2

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Apr 30, 2005

Okay. We're going to start in just a minute or 2 if you have a chance to sit down. Okay. Let's, let's go to Station 9. And I'll, We will go till 3 o'clock. We'll break until 3:15 when we'll convene the business meeting. No one has submitted any proposals for that meeting. So it may be relatively short. At 4 o'clock, Charlie and I will meet in another room here. I'm not sure where. With any of those of you from outside North America that are here, we would like to especially thank you for coming this long distance. So with that, we'll go to Area 9. Good afternoon. My name is Ken Goldberg from Sharon, Massachusetts, Massachusetts having the distinction of being the birthplace of Benjamin Franklin. And thanks to New Jersey, the only state in the union where one cannot buy GEICO Auto you warned about the dangers of inflation and cautioned that shareholders should fully take inflation into account when evaluating the performance of a business. To what degree do you expect a large decline in the value of the dollar to trigger inflation that would adversely impact Berkshire's equity holdings and its businesses? And to what extent should we calibrate Berkshire's overall performance against the backdrop of a weakening dollar? Well, we think, by and large, we have businesses that will do pretty well on inflation. But inflation destroys value, but it destroys it very unequally. The best business to have during inflation is one that retains its earning power in real dollars without commensurate investment to in effect fund the inflation produced nominal growth. The worst kind of business is where you have to keep putting more and more money in to a lousy business. In effect, the airlines have been hurt by inflation over the last 40 years because now they have to put a whole lot of money in a lousy investment, which is a plane compared to 30 or 40 years ago and they have to stay in the game. They have to keep buying new planes and the new planes cost far more now and the returns continue to be inadequate. So the best protection is a very good business that does not require big capital investment. And the best investment of all, I mean, if you're the leading brain surgeon in town or the leading lawyer in town or the whatever it may be, you don't have to keep re educating yourself to be that in current terms. You bought your expertise when you went to medical school or law school in old dollars and you don't have to keep reinvesting. And you retain your earning power in current dollars. We, Charlie and I are always suspicious that inflation will regain some of the momentum it had a couple of decades ago. We always think it's in sort of remission. We thought the talk about deflation was total nonsense. And certainly the trade picture is one that you would think would accentuate any inflationary trends that might otherwise be experienced. I mean, obviously, the price of oil in euros has gone up far less than the price has gone up in dollars. And you and I are buying gasoline in dollars. So we have seen a bigger increase in our fuel costs because of the decline of the dollar than we would have seen if we lived in Europe or some other or Australia for that matter. So it's inflation is always a factor in calculating the kind of investment, kind of business that we want to buy. But it doesn't it isn't like it crowds out all other factors. I mean, it's always been with us. We'll think about it always. See's Candy has done fine during an inflationary period because it does not have huge capital investments that have to be made in current dollars. Other businesses we have, The public utility business, for example, it costs a lot more money to maintain capital expenditures now in dollar terms than it would have 30 years ago. So you have to keep putting more and more money into a public utility. And you better hope that the rate of return allowed is commensurate in times of high inflation, the same way that it might have been in low inflation with a lower rate of return. Charlie? Yes. Well, so far the facts that are driving the dollar down in relation to other currencies have been restraining inflation in the United States. In other words, it's the competitive export advantages of the other people that have so far restrained inflation here. So it's Yes, you're paying less for shoes. We got killed in the in parts of our shoe business. And 30 years ago of the 1,000,000,000 plus pairs of shoes used in the United States, a very high percentage were made here and now virtually none are. But if they were all being made here, you would be paying more for shoes. There's no question about that. Number 10. Thank you. I'm a physician from St. Louis and I want to thank you and everyone here because I'm one of these doctors that really doesn't know anything about money or finance. The money comes in, but I don't know what to do with it. I'm not able to really evaluate the financial strength of the company, but I can evaluate the ethical strength of the company and that's why I feel real comfortable. I think most of us here having our savings in Berkshire Hathaway. Thank you. This question is probably been asked in different ways already, but several years ago fellow I know who was had been manager of Magellan Fund warned that we were going to have a terrible decade or so in the stock market because of all the things people have brought up so far, the increasing interest rates and runaway spending and decreasing dollar and stagflation maybe right around the corner, social security problems and even what Charlie Munger referred to is that most of our best and brightest graduates I find are going into money management rather than they're not becoming doctors or molecular biologists or PhDs in chemical engineering. And so, in view of the fact that a year or 2 ago people there was still an aboleons of emotion about the stock market going up and making everyone rich just by having their money in the stock market. It seems like that a buoyancy has dropped and I'm hearing in anticipation of a bear market. And you wrote, I think several years ago that it's hard to make money in a bull market and the real opportunities come in a bear market. So I'm wondering if you would give us a clue as to what your strategies are going to be if it's really true that the market gets dismal over the next few years? Well, if the market gets cheaper, we will have many more opportunities to do intelligent things with money. Now whether we will blow on the money in the meantime or something is another question. But but, you know, we are going to be buying things one thing or another, operating businesses, stocks, high yield bonds, whatever. We're going to be buying things for as long as I live. Just as long, just like I'm going to be buying groceries. Longer than that one. Yeah. Charlie is just waiting to take over after I hear you. And I'm going to be buying groceries the rest of my life. Now, would I rather have grocery prices go up or down if I'm going to be buying groceries tomorrow and next week and next month and next year? And the answer is obviously, if I'm a net buyer, I would I will do better if prices are lower. We have no we're not good at forecasting markets. I mean, we, in a general way, knew that we were getting enormous bargains in the mid '70s. We knew that the market went crazy to some extent in the late '90s. But we don't have much we don't spend any time Charlie and I spend no time thinking or talking about what the stock market is going to do because we don't know. We do know sometimes that we're getting very good value for our money when we buy some stocks or some bonds as it may be. But we are not operating on the basis of any kind of macro forecasts about stocks. And there's always a list of reasons you gave a few. There's always a list of reasons why the country will have problems tomorrow and there but there's always a list of opportunities which don't get mentioned quite as often. So we don't sit down and make a list of the bad things that are happening in the economy and the good things that are happening and therefore expecting the stock market. It might not it doesn't behave that way even if you could correctly forecast some of the bad things or good things. Overall, I'm an enormous bull on the country. I mean, over time, I mean, this is the most remarkable success story in the history of the world, if you think about it. I mean, in 17/90, we had less than 4,000,000 people in this country. We had there were 290,000,000 people in China. There were 100,000,000 people in Europe. And they all had the same intellect we had. They were in the same general climate. They had lots of natural resources. And 215 years later, that those 3,900,000 people I think actually, have 30% or so of the world's GDP. So it does not make sense to bet against America. That doesn't mean all our policies are smart or anything. But I would not I do not get pessimistic on the country. I worry about the I mean, the big worry is what can be done by either terrorists or governments that have access to nuclear, chemical or biological weapons. But in terms of the basic economics of the country, your children are going to live better than you live and your grandchildren are going to live better than your children live. And we do not focus on macro factors. Charlie? Well, I agree with you that the economics of the country are probably going to increase for a considerable period ahead. But I suspect that in very important ways we are at or near the apex of a great civilization. You heard it here first folks. If you leave the NCB, nuclear chemical biology law, but I do not feel that way. But you get to see which one of us is right 20 or 30 years from now. But I have seen more people pass up opportunities because they get focused on a single economic variable or a single problem that the country faces. And they forget about about the good thing. I mean, if you can buy very good businesses at attractive prices, it's crazy to say, I think I'll sit this out because it might get a little cheaper next year or something of the sort and because the world's going to go to hell. We just we've never operated that. We've never decided not to buy a business we like because of a macro view, have we? Not yet. Okay. It's hard to get him to really agree with you. I've been working on it for years. Number 11. Hello. My name is Randall Bellows. I'm from Chicago. And many years ago, Warren, my wife did a portrait of you drinking a can of Coke. Next year, I'll bring one drinking a can of Bud. I think you better stick with Coke. Okay. I would like you to speculate on a couple of questions. The first is, given the competitive disadvantage of General Motors and Ford with their huge health care liability costs for their employees and retirees, What do you think might happen there? Do you think there might be a bankruptcy to get rid of the liabilities or a government bailout? And along that line, Charlie, you spoke several years ago about tort issues. Do you feel there's anything coming in the way of asbestos reform or correction for those issues and the insurance companies that have been paying those 1,000,000,000? Thank you. Well, I would say that Rick Wagner at General Motors and Bill Ford at Ford both have been handed by managers of the past extremely difficult hands to play. They're not they're not the consequences of their own doing at all, but they have walked into what people call legacy situations. But they have they have inherited a cost structure brought about by contracts that were put in place maybe decades ago that make it very difficult for them to be competitive in today's world. I mean, just imagine if Ford or General Motors had signed contracts that made them pay several $1,000 a tonne more for steel than their competitors did. I mean, people would immediately feel that was untenable. So General Motors and Ford are in the position of having commitments, which are in strong contractual terms to pay sums for retired particularly workers in both the annuity field and in the health field that are staggeringly high compared to some of their competitors. And their competitors can buy steel at the same price and they can buy aluminum at the same price. They can buy rubber at the same price. And when you get all through with it, if they have huge advantages on the on the health care and the annuity side, it's not going to be a fair fight. And those contracts to some extent go back to when General Motors had, for example, 50% plus of the US auto market and now it has 25 percent. But I think even if it had 50% today, it would be having trouble. So it's a very, very tough situation. I'm not sure what I would do if you put me in charge of, I mean, as Bill Buckley said many years ago when he ran for Governor of New York or Mayor of New York, they said what's the first thing you're going to do if you get elected? He said I'll ask for a recount. Well, that's a little the way I would feel if I got elected CEO of General Motors. From the standpoint of the UAW, you know, they have a contract. They made a deal and they've got $90,000,000,000 in the pension funds. Kind of interesting. The pension fund of General Motors possesses roughly $90,000,000,000 The healthcare fund has a little more too, another 20 some 1000000000 as I remember. The whole equity of General Motors is selling for about 14,000,000,000 So after all these years, there's $90,000,000,000 set aside for the retirees and there's $14,000,000,000 of equity value that's been heading south for the owners. And it would seem that if General Motors had a had a steel contract that called for let's say there's a ton of steel in every in every car. I'm not saying there is, and if they were paying $2,000 a tonne over market or what their competitors were paying, people would say that that is not a viable situation for the long term. But they're in a similar situation because of contracts they voluntarily signed. And part of the reason they signed those undoubtedly was that they bore no accounting consequences at the time. It's a terrible mistake for managers not to think in terms of reality rather than the accounting numbers. But back in the 60s, you did not have to account for pensions on an accrual basis. And up till the nineties, you didn't have to account for health care, or the late eighties, whenever it was, on an accrual basis. And so people said, well, if we don't have to count it, it doesn't it isn't real. Well, believe me, it's real. And the managers today are are facing the consequences of that. So, you know, it's they've got very tough hands to play. And, you know, I read about it in the papers. I don't know what's going on there necessarily. But something will have to, in my view, something will have to give in that matter. And before you answer the asbestos thing, Charlie, what do you think about them? Warren gave a very optimistic prognosis in my view. I think just because it hasn't happened yet doesn't mean that the problem isn't real. If you jump out of the window in the 42nd floor and you're still doing fine on the way down as you pass the 20th, it doesn't mean you don't have a serious problem. If I were the Governor of Michigan or the President of the United States or a Director of General Motors or Ford or a family member of Ford, I would want to address the problem right now. I do not think it's getting better or that Yehudi is going to come over the mountain with a magic wand and make it go away. I think it would be better faced. Do you want to try the asbestos? Give us another cheery. Around the office, he's known as Pollyanna. Well, asbestos thing is involved terrible behavior by some lying doctors, terrible behavior by a bunch of lawyers and so on and purging and gutless behavior by certain important courts and even more gutless behaviour by politicians who take care of themselves first naturally. And it's these are the forces that are bearing on a problem. It's obviously not going to be handled very well. So it's a perfectly terrible situation. You keep hoping that it will be so obviously bad that will finally be addressed. Some of that happened in California. The workman's comp system in California had immense fraud in it, particularly egregious fraud by lots of doctors and lots of lawyers and lots of claimants. And it was so awful that it affected the whole employment prospects in California. And with the Schwarzenegger revolution, that was partly corrected. I would say maybe 15% corrected. And but it took 500 push ups, Charlie. What? 500 push ups unless it's 100%. Yeah. So I think that if it gets bad enough, there is some possibility there will be more correction. In a sense, it's totally crazy for a court system to be paying tonnes of money to people that have smoked 2 packs of cigarettes all their life and have one little spot on a lung that no honest doctor would know what the hell it caused and they aren't yet sick and they're nearly dead anyway from their other behaviors and longevity. And it's just it never should have been allowed. But once you get a powerful political force, even judges fear consequences and it's very easy just to drift along with an evil system. Luckily, we aren't using this particular there are 2 kinds of asbestos, one of which is virtually harmless and the other which caused all this damage. And we stopped using the damaging asbestos and eventually the asbestos problem will go away. But how many people it will leave in some kind of financial wreckage before the storm is over, I can't tell. I don't think the last Indian is with the dust, do you, Warren? I think that but the behavior is so terrible. It's that kind of behavior that makes me talk about apexes of the civilization. Number 12. Mr. Buffet and Mr. Munger, my name is Mark Rabanov from Melbourne, Australia. I think it's rare for diverse collections of businesses to be successful. And I believe an important part of Berkshire's success has been your skillful oversight of the wholly owned subsidiaries. My question is, what advice would you give to your successor in managing our diverse portfolio of businesses? Well, it's a very good point that Charlie and I have been known to rail a bit about companies that go and buy this business and that business. And of course, that's exactly what we've done ourselves over the years. I think the motivations have been somewhat different perhaps than in many of the cases. And then I think the way we've approached it has been different. We've we have been reasonably successful, although we've had some notable failures, but we've been reasonably successful in creating a climate where the people who built the businesses continue to run them with the same enthusiasm and energy after they sell to us that they possessed early on. And I think that you can find all kinds of illustrations in the histories of businesses that diversified. I mean, Gillette bought 20 some businesses. I remember back in the 60s, Coke bought all kinds of businesses. And certainly the cigarette companies did all kinds of people, the oil companies for a while were doing it. And generally the experiences were not very good when they got outside of their own fields. But I think when those companies bought businesses, they really thought they were going to take them over and run them themselves. And Charlie and I are under no illusions that we can run the businesses that we buy as well as or nearly as well as the people that have been running them over time. And we don't have group vice presidents in Omaha. We don't have a whole bunch of of directives going out. We don't we don't have companies that that were run one way and then we're going to run them entirely differently and have reporting in all kinds of special ways to us and have a human relations department and a public relations department and the legal department, all kinds of things in Omaha telling them how to run their businesses. We think that destroys can destroy many good businesses. It certainly can destroy the incentive of the people that have already gotten rich to stay around and make us rich in turn. So I think that has been an important difference. I think it's been demonstrated well enough to all of those around Berkshire that it's been a very good place generally I think for people in terms of how they feel about working there and I think they recognize it works. So the successor to me will come from within Berkshire. They will have seen how it worked. They will believe in it. They will be surrounded by people who have worked in this manner. And I don't think it will be the most difficult job in the world to keep that engine going down the tracks at 90 miles an hour. I mean, they it isn't like they have to create the system. They will inherit a system. And and I would be amazed if any of the 3 successors that we will talk about with the directors on Monday, If any of them would not recognize the inherent special values in the system as it now works and take up one of these other models that clearly has been disastrous for one company after another that's diversified. Charlie? Yes. I don't agree with you that the success at Berkshire has come from our oversight of the subsidiary companies. It's come from our lack of oversight of the subsidiary companies. And I think our successors will be able to provide the same wonderful lack of oversight that we have provided. And if you're not going to use a lot of oversight, you've got to be very careful in what you bring into your corporate family and you've got to be very careful in treating honorably and well the people who are running the business, businesses over which you're not giving any oversight to speak of. And I think our system is it's very different from a General Electric system. And I think their system works very well for them, but I don't think it's the only system in the world that works in corporate capitalism. And I think the Berkshire system will work very well after we're gone. It's a very simple system. I mean, GE works exceptionally well. But when I go back to some of the conglomerates and that's not a term that I shrink from, but most people do because they think it brings down their PE or something, but we are a conglomerate. And I hope we become more of a conglomerate. The we don't we haven't succeeded because we had great complicated systems or some magic formulas we apply or anything. We've we've succeeded because we don't have we have simplicity itself. We take people that know how to play their game very well and we let them play the game. And it's just worked in one field after another and every now and then we make a mistake And we'll there'll be more mistakes made. But overwhelmingly, it works. And it doesn't require some great business insight or anything like that in terms of whoever's running this place to keep that kind of machine in motion. I mean, it is it is not it is not complicated. The big the bigger worry would be that the culture would get tampered with in some way and people would try to oversteer basically. But but that won't happen. Our Board won't let it happen and the ownership won't let it happen. And I think we've got something that'll work for a very, very, very long time. And that's why I'm comfortable with the fact that every share I have will go to a foundation that I care about getting good financial results in the future and I'm quite happy to have them have 100% of their money in Berkshire. Number 1. Jonathan Mills from London, England. What has been the single best investment of your careers? And why do you consider it to be the best excluding Berkshire Hathaway itself? Yes, well, probably the best investment if you're talking about business was getting Charlie as a partner. He works cheap too. We've had you can't measure it by dollar terms because obviously we're doing bigger things now than early on. I mean, seas was an enormously important part of our success. It doesn't contribute a huge percentage of our net income now, but it provided income that let us buy other things in the past. It taught us a lot of lessons about business, all kinds of things. So we've probably in terms of what it's done already and where it's going to go over time, probably the single best investment was the first half of GEICO, which we purchased for $40,000,000 Now the second half cost us 2,000,000,000. I'm glad I didn't buy it in thirds. But, you know, that 40,000,000 will, for half the company will turn out very well. But GEICO, some of our businesses have growth potential, some don't. And we don't require growth potential as part of a business. If a business makes good money and we can use it to buy other businesses, one of the advantages of the Berkshire system is we have a tax efficient and kind of frictionless way of moving money to the best opportunities. And GEICO internally has still enormous possibilities for growth. Incidentally, we've I watched that movie and I kept touting the American Express card. But here is our GEICO card, which I'm sure all of you are eligible for. And I don't advise people using credit cards to revolve, but the truth is that people do. So use a GEICO card if you're going to behave in, if you're going to charge anything, I I still advise you to pay off your account before you before it starts revolving. And I think it's a terrible mistake for people to get hooked on revolving credit at high interest rates. And I that's the first thing I tell students is that if they don't remember anything else, I say just you know, don't fool around with charge cards and and run up balances that that keep getting larger and larger. But GEICO has well over 6,000,000 customers now. As was mentioned, we entered New Jersey year. We're adding very rapidly there. It's a great, great business model and it's run by a superb human being and businessman, Tony Nicely. And I think it's got a huge potential. But I love them all. Well, but GEICO after all cost $2,000,000,000 for the second half and a significant number of tens of 1,000,000 for the first half. Now the search expenses that brought us Ajit Jain, now there was an investment that really paid a dividend. I can think of no higher return investment that we've ever made that was better than that one. And I think that's a good life lesson. In other words, getting the right people into your system can frequently be more important than anything else. Okay. Let's try number 2. Maggie Gilliam from New York City. As someone who visited the New York Stock Exchange at a very early age and have been touting its merits over the years, could you comment a little bit about what you think of the shenanigans going on currently? Well, we're at this exchange. Warren, you're so good at this. You mean it shenanigans? I personally think it would be better if the New York Stock Exchange remained as a neutral, and it's not strictly a non profit, earn some money, but as a not for big profit, we'll put it, institution. I mean, the Exchange has done a very good job over centuries. It's one of the most important institutions in the world. And the enemy of investment performance is activity. And the creator of profit in a profit minded exchange is activity. So I personally would rather not have an exchange which is trying to increase its earnings per share annually and thereby wanting to encourage people to trade more actively and create more income for itself. That will not be in my view good for the American investor. So I think that the exchange of yesterday may be better for the American investor than what looks like it may be the exchange of tomorrow. Now there may be all kinds of reasons that people find compelling why they want to turn it into a for profit exchange. But I know the American investor will not be better off if volume doubles on the New York Stock Exchange. And I know that the New York Stock Exchange is a for profit institution. We'd be trying to figure out ways to have that volume increase and to perhaps even charge more money one way or the other. I mean, the profit of an exchange, the profit of people working on them, in a sense, that's the frictional cost of capitalism. That's coming out of the earnings of the businesses. And, IBM or General Motors or General Electric will not earn more money because stock turns over more frequently. But any for profit exchange will earn more money and I do not like the idea of the exchange getting on the side that's against the long term interest of investors. Charlie? Well, I feel on this one the same as you do but much more strongly. I think we have lost our way when people like the governors of the stock exchange and the CEO failed to realize that they had a duty to the rest of us to act as his exemplars there was of the right behaviors. Once your activity is that freighted with public significance, I think you've got a duty to create the right appearances. You have a duty as an exemplar. I mean, you do not want your 1st grade school teacher to be fornicating on the floor or drinking booze in the classroom or and, and similarly, I don't think you want your stock exchange to be all over the headlines with wretched excess. And I certainly don't think you want to turn the stock the major stock exchange of the country into even more of a casino than it is already. I think we have totally lost our way on this stuff. And I agree with Warren that it ought to be a public institution that cares deeply about its duties as exemplar. I wish I'd gone to 1st grade where he did. I didn't hear that. I wish I'd gone to 1st grade where you didn't. I know. Number 3. Good afternoon, gentlemen. My name is Glenn Strong. I'm from Canton, Ohio. I want to extend a warm thank you to Warren's daughter Susan for the fine introduction that she provided for this gathering. Thank you. Also a special thank you to your wife, Susan. I thank her for the contributions that she made to the company and for the outstanding example that she obviously set for her husband and the many people that she must have come into contact with. Today, I'm asking for your opinion on Social Security. Shall we call it the government sponsored Ponzi scheme for retirees? I am interested in your views on private accounts, age adjustments for retirees and tax adjustments for the employees. What would you promote if you were in the Oval Office? Thank you. Yeah. The Social Security was introduced in the what 36 or 37. My grandfather used to have Charlie bring 2 pennies to work at the Buffet and Son grocery store on Saturday in order to pay his share of social security. He didn't want Charlie any false ideas that there was a free lunch in this world. And he gave him a half hour lecture on the evils of socialism. So we've had a lot of exposure to social security and the various arguments on it. It was proposed, of course, as insurance because basically that was the only way Roosevelt could get it passed. The idea of transfer payments did not would not have washed in the 30s certainly. And I think the first woman you know, and I think the first woman that received a social security check paid in a total of $22 or something and got $24100. So it wasn't insurance. It wasn't insurance at all. Then a transfer payment by the people who are in their productive years to the people who are past their productive years. And we'll get into definitional requirements terms as to whether it's 65 or 67 now you're past productive years. But essentially it's a transfer payment. I basically believe that anything that would take Social Security payments below their present guaranteed level is a mistake. I think that in this country, extraordinarily rich country, that the people in their productive years can take care of those outside in both areas even though the ratio of productive to nonproductive has changed and is changing. But we take care of our young And a rich country takes care of its young and it takes care of its old. And incidentally, in taking care of its young, when we educate 5 children in the family we don't expect that family to pay you know 5 times the tax or something like that. We recognize that in taking care of the young that it should not be based on a per capita basis or based on the size of the family. We we provide good school. We try to provide good schools and health and everything for the young overall as part of our overall responsibility. I believe that a rich country should be doing the same for the older people. There are you know, Charlie and I came into this world wired in a way that enables us to get very, very, very rich, rich far beyond any possible needs we could have. And not everybody's wired the same way. Now if you come into this world wired with an IQ of 85 or something of the sort or or disabled or whatever it may be, you know, you are not going to do as well in a market economy remotely as well as we do. But you still you still provide much of what makes Charlie and I very rich. And when it comes to fighting in Iraq or something of the sort, that becomes an equal opportunity type thing. But when it comes to making a lot of money, it's not equal opportunity in this country. So I believe that a rich country like ours should not give lower benefits than what takes place now. And I certainly don't think that we've got all kinds of mechanisms for saving that are extremely good. We have 401s in this country. We have taxes on dividends and capital gains at 15%. So the money I earn gets taxed at a lower rate than the money that a receptionist in our office may earn. And I would not be doing so well if I were stuck over in Bangladesh or someplace. So this society is providing huge benefits to me that other societies would not. And I think that the obligation for the people who do well in this society is to provide a reasonable level of sustenance for those beyond their productive years. We've got the capability to do it. Right now, we quit taxing for Social Security of $90,000 But and that means that everybody in my office is paying or most of them are paying 12.4 percent 12.2 percent or 12.4 percent, counting what the company contributes toward this. People talk about double taxation of dividends. They're getting taxed for social security and they're getting taxed for income on their income. And they're paying a higher rate or an equal rate overall, in many cases, to the same rate compared to the rate that I pay. And I think that's sort of nonsense in the society. So I don't want to do anything, anything that hurts the level of the bottom 20% or 30% in terms of their income. I see people living with fear about health care, living with fear about running out of money in their old age. And I think a society should try to minimize the fear that their, inhabitants experience. And that doesn't mean just fear of getting mugged or something. It means fear that the last 25 years of their life, they're not going to have much income. So I would and the degree to which the administration or other people are worrying about the deficit in Social Security 25 years out when they have a $500,000,000,000 deficit excluding the Social Security surplus now. I mean, it just strikes me as nonsense. Here we are deploring something that's going to happen in 20 years. That's a fraction of what is happening right now while they're cheering, you know, basically and talking about further favoritism in the tax law. So I have great trouble with people that say that the system can't sustain. Right now 4 and a fraction percent of our GDP goes to Social Security. 50 years from now 6 percent, no 6 and a fraction percent. Well, believe me, our GDP will be far larger 50 years from now. And going from 4% to 6% does not strike me as a terrible prospect. If you ask me what I would do to change it now, I would means test it. I would lift the $90,000 way up. In fact, I might apply it on all income, then you'd really get people's attention. But and I would gradually, and we're in the process of doing this, but I would certainly increase the retirement age. I mean the world in 2005 is much different than the world in 1937 in terms of longevity Democratic chairman. And the odd part of Berkshire on this issue was that the right ring Republican who is speaking feels more strongly than Warren that the Republicans are out of their cotton picking minds to be taking on this issue right now. I do not if the country is going to get richer at 1% or 2% per annum for a long time ahead, and it's gonna have more old people who are living longer and spending money on medical care. The idea that eventually a higher share of GDP would be going through social security to retirees and so on that we now have is not anathema to me. It's exactly, it's an exactly logical way to be spending money under different circumstances. And if the government runs out a little short of money as it gets more social security obligations, I see nothing wrong with having some consumption taxes or whatever to pay in a reasonable way for what is a very reasonable expenditure. Social Security is very successful successful. Apart from the disability element, which is relatively small, there's practically no fraud. It's hard to fake being dead. And furthermore, it's a reward for work. All kinds of people are working in this country because they want to eventually qualify for Social Security just as many people are doing dangerous military service because they want the pension that will come eventually. So Social Security is a very capitalistic institution with profoundly good effects. It's one of the most successful things the government has ever done in terms of efficiency and good effects and in a Republican administration that may shortly have to do something really unpleasant like face down North Korea or Iran over atom bombs is wasting its goodwill over some twaddle that a bunch of economists that haven't thought it through properly devoutly believe. It's a very sad occurrence. Number 4. Thank you. Bill Ackman from New York, New York. For the handful of AAA rated companies, AIG, Fannie Mae, Freddie Mac, and MBIA are under formal investigation for accounting shenanigans and are in the process of restating their financials. Like Charlie said before, I think of a AAA rated company as an exemplar, a company that should behave with the highest accounting and ethical standards. My questions this leads me to are how can investors comfortably invest in any financial service company when even when a decent percentage of the AAA rated companies have false and misleading financials? And I guess the follow-up question is why don't the rating agencies do some independent due diligence, from an accounting standpoint so that they can help serve as a watch on this issue? Well, financial companies are more difficult to analyze than many companies. I mean, the it is more if you take the insurance business, the biggest single element that is very difficult to evaluate, even if you own the company, is the loss and loss adjustment expense reserve. And that has a huge impact on reported earnings of any given period. And the shorter the period, the more the impact can be from just small changes in assumptions. We carry, we'll say, 45,000,000,000 of loss reserves. But, you know, if I had to bet my life on whether 45,000,000,000 turned out to be a little over, a little under, I mean, it's a it'd be, I think, a long time. And you could just as easily have a figure of 45 and a half 1000000000 or 44 and a half 1000000000. And if you were concerned about reporting given earnings in a given period that would be an easy game to play. In a bank, you know, it basically is what whether the loans are any good. And I've been on the boards of banks and that's, you know, I've gotten surprises. It's tough to tell. It's financial companies. If you're analyzing something like WD 40 or See's Candy or our brick business or whatever, you know, they may have good or bad prospects, but you're not likely to be fooling yourself much about going on currently. But with financial institutions, it's much tougher. Then you add throw in derivatives on top of it. And you know, it's no one probably knows perfectly what some of it or even within a reasonable range the exact condition of some of the biggest banks in the world. But that brings you back to the due diligence question of the agencies. You had very high grade, very smart, financially smart people on the boards of both Freddie and Fannie. And yet, you know, one was 5,000,000,000 and one was apparently 9,000,000,000. Those are big numbers. And I don't think those people were negligent. And it's just it's very, very tough to know precisely what's going on in a financial institution. Charlie and I were Directors of Solomon and Charlie was on the audit committee. And I forget the size of a few of those things that that that you found, but, you know, what what what wasn't found. And that doesn't mean the people below are crooks or anything like that. It just means that it's very tough 1,000 and 1,000 and 1,000 of complicated transactions, sometimes involving the computations, involving multiple variables. It can be it can be very hard to figure out where things stand at any given moment. And of course, when the numbers get huge on both sides and you get small changes in these huge numbers, they have this incredible effect on quarterly or yearly figures because it all comes lumped in those adjustments come lumped in a short period of time. So I just think you have to accept the fact that insurance, banking, finance companies, we've seen all kinds of finance company, both frauds and and and just big, big mistakes over time, just one after another over the years. And it's just a more dangerous field to analyze. It doesn't mean you can't make money on it. We've made a lot of money on it, But it's difficult. Now obviously, a GEICO where you're insuring pretty much the same thing, auto drivers, and you get your statistics are much more valid in something like that than they will be if you're if you're taking something that, like asbestos liability, you're subject to far greater errors in estimation. Doesn't mean that people aren't operating in good faith. But I would take just take the asbestos estimates of the 20 largest insurance companies. I will bet you they're way off, but I don't know in which direction. And that's that's sort of the nature of financial companies. I wouldn't fault the rating agencies in terms of not being able to dig into the financials and find things that, you know, all of the companies that you've talked about have had big name auditors and, our auditors at Berkshire, how many hours did they spend last year? I don't know what it would be, probably 60, 7000 hours. And I'm sure at other if you take major banks, they're spending more than that. But can they be certain of the numbers? I doubt it. Charlie? Yeah. Warren is obviously correct that where you've got complexity, which by its very nature provides better opportunities to be mistaken and not have it come to notice or to be fraudulent and have it not be found out, you're going to get more fraud and mistakes than you are if you're selling a business where you shovel sand out of the river and sell it by the truckload. Just as a business that sells natural gas is going to have more explosions than a business that sells sand, a business like these major financial institutions by its nature is going to have way more problems and that will always be true and it's true when the financial institutions are owned by governments. In fact, some of the worst financial reporting in the world is done by governments and governments institutions like government banks in China, etcetera. So if you don't like the lack of perfect accounting and financial institutions, you're in the wrong world. Number 5. Good afternoon, Mr. Buffett, Mr. Munger. Thank you very much for your wisdom and all your investment advice. I'm Adrian Churn. I'm from Hong Kong. Back in the old days in Hong Kong, when somebody turned 100, they got to have tea at Buckingham Palace with the Queen. I don't know what you have here in America, but I hope that in 2,030, we come back to watch you do 50 push ups at the White House. It's not the way to bet. Will you settle for 10? My question comes in 2 parts. Firstly, in 1968, 'sixty nine, you liquidated all your partnerships. And I guess aside from your holdings in Berkshire Hathaway, you got completely out of the market and stayed out. In 2000, 2001, you mentioned to us that in the coming decade, the markets would go at best nowhere. However, despite $50,000,000,000 in cash, you and therefore us remain substantially invested in the market. So my first question was, how and why is the investment climate different today than in 1968, 69 that makes you comfortable remaining substantially invested? Yeah. Well, we do own certain securities which we wouldn't we probably wouldn't buy at these prices. Some of them we would, some of them we wouldn't. We're not unhappy with anything we own. We're not happy with putting more money in. So we're in a zone in some of those securities that where we wouldn't buy and we wouldn't sell. Now part of it, that decision relates to the kind of quantities that we deal in. I mean if we owned 100 of shares of each one of the stocks that we own many 1,000,000,000 of dollars worth, it would be an easier decision to go in and out. But we would face significant costs including taxes, but in top of taxes and going trying to go in and out of the big positions we have. And basically, we like the businesses. So, we are not unhappy. We may feel like we wouldn't want to buy more here, but we are not unhappy about being in the businesses in which we have big equity holdings. Now notwithstanding all of that a lower percentage of our intrinsic value is represented by the common stocks we own than just about at any time of our of our history with the exception of a couple that will the period right there at the end of 1969 when we liquidated the partnership. So we have not made any big statement by purchases of stocks or the ownership of stocks that says we in any way says that we think that this is a particularly attractive time to own them. But we are not unhappy with Coca Cola. We are not unhappy with American Express. We're not unhappy with we're not unhappy with Wells Fargo or Moody's. Those are very very good businesses that we own. Will we be buying them at today's prices if we, you know, well the answer is we're not. We've got money and we may buy more later on. We're more likely to buy more later on than to sell those sort of investments. But there is a zone which because of size, because of taxes where we would neither be a buyer nor a seller. And we do not see lots of attractive stocks, but we also don't think that there's as much silliness in the market by far as there was 5 years ago roughly. Charlie? Yes. One of the things that's interesting about Berkshire lately is that if you take the last 4 or 5 things we did in the stock market with a goodly number of 1,000,000 but 1,000,000,000 really, but small in relation to Berkshire's overall size. Our record is much like it used to be in some of the best days. Where we were able to move around with small amounts of money, the results were quite respectable. But where we were facing the problems of being enormously rich, where we were prevented from the nimble moneymaking record of the past. I don't think that's a permanent state of affairs but it's never going away either. But it Explain that one. Well, what I mean is that I think we may be able to deploy And and better small than nil and small is still billions. Number 6. Good afternoon. My name is Mike McGowan. I'm from Pasadena, California. I had a pretty good question on Prop 13, but watching the movie, I don't think I'll ask it. Good. What I'd like to ask about, I guess, is one quibble and then a question. The question being about financial education or study of financial history that might help people in handling these markets or in just dealing with investing at or near the apex of Western civilization. When you mentioned your dad's lectures about buy gold back in the 1930s and then saying, well, 60 years later, it hasn't done very well. Gold was pretty much pegged at a set price back in the '30s for years and they didn't really let it loose until 1971 and then it caught up and then it's kind of bounced around. If you looked at gold maybe now and derivatives and real estate bubbles and lots of other things, maybe gold wouldn't be such a bad investment looked at in current terms. So my question would be, do you consider that you have some sort of an obligation or duty as financial exemplars to maybe pay a little attention to that classical kind of gold is the benchmark or the bedrock of a financial system to some extent. And that it might be nice to talk about it in your at least your annual letter to your stockholders about how people might protect themselves in what's a fairly bubbleless kind of environment from really the decline in purchasing power or problems caused by the financial domination that we have today? Thanks. Yes. I would say that gold would be weighed out on my list as a store of value. I mean, I would much prefer I would much prefer owning 100 acres of land near here in Nebraska or an apartment house or an index fund. Gold, we'll say was freed up 30 odd years ago, but it adjusted to a market that still if you go back if you go back to 1900, you know, you were talking $20 gold. When you take 20 to 400 in a 100 years the Dow went from 60 to what 12 or 13,000 and then 12,000 or whatever it might have been in that same period and paid you dividends during the time you owned it. It was 66, I think, at the start of the century. And I forget when it entered, but it's $11,000 or $12,000 And like I say, it was paying you something every quarter during that period. And if you owned gold, you paid $20 in $1900 or thereabouts, and then you will say you had $400 100 years later. And in the meantime you paid insurance and perhaps some storage cost, it really is not a it's not a store of value. And it's, I'm not arguing for paper money. But if you're worried about paper money, and I think, you know, it makes a lot of sense to worry about paper money over long periods of time, but it's just it's just about, you know, it's just about the last thing I would want to own under those circumstances. And it has a farm has utility, an apartment house has utility, a business, you know, will produce earnings, and to some businesses will produce them in real terms as I go along. And I'd rather have the ability to sell people a pound of candy 20 years from now. And if they're dealing in seashells, I'll get an appropriate number of seashells instead of paper money for it. But I just don't I don't see I don't see, gold as a store of value. And it's the truth is it hasn't worked very well. But forget about whether it's worked well the last 100 years or the last 50 years or the last 10 years. I see no reason why it would work well in the future. I forget whether we're turning out about 3 or 4000 tonnes of gold a year. And we take it out of the ground in South Africa and we put it in the ground at Fort Knox or someplace, you know, or the New York Fed. I mean, and it doesn't do much along the way for anybody. So I don't know, Charlie, how do you feel about gold? Well, I think gold was and similar items. That was a great thing to have if you were a well-to-do Jewish family in Vienna in 1935 because you had hazards where that gold had enormous utility to you. But for Berkshire Hathaway sitting here in 2,005, it just doesn't interest us at all. Number 7. My name is Al Henderson from Minnesota. I'd like to thank both of you for being yourselves and doing so much for all of us and to help enrich ourselves and everyone else. My question I have is actually you have already referred to it that you do devote very little time to looking at the total market and look for individual opportunities most. But I was wondering in the past you made some excellent presentation on points to consider in projecting reasonable 10 year returns for the stock market and had advised reduced expectations. Where do we stand now on your stock market and economic measurements and expected 10 year returns? Yeah. Every now and then, I mean, and I really very infrequently, you probably can say something intelligent about markets as a whole. I mean, you do see circumstances that are extreme enough that you can make a statement that is likely to look reasonably intelligent 5 or 10 years later. And I've seen a few of those times in my lifetime. I mean, I've spoken out a couple of times and I did in 'sixty nine and 'seventy four and a few times. Most of the time, you know, you're in some in between zone. Obviously, you get more for your money in equities now than you got say in the summer of 1999 which is when I delivered a talk out of Sun Valley that later got turned into an article for Fortune But that was an I spoke out then because it was extreme. I mean, I knew in a general way that I was going to be right, particularly in certain aspects of the market. But I didn't know when and I didn't know how right or anything of the sort. And you could have done the same thing in the other direction back in the mid '70s. I think that if you had to make a choice between owning long term bonds, which are now yielding the treasury only a little over 4.5%, or owning equities for the next 20 years and you couldn't make it change that decision, I would certainly prefer equities. But I think people that have expectations that they can earn more than 6% or 7% in equities and certainly when they start expecting double digits. I think the degree that when they have expectations they can do that or that they can find somebody else to do it for them, I think they're making a big mistake. But 6% or 7% is not the end of the world at all. In fact, it and it gets treated better tax wise right now than it has almost any well, really any time in my lifetime. So I don't think we're in bubble type at all valuations in equities, and I don't think we're anywhere close to remotely close to to bargain valuations. And I don't think it's an extreme enough period that you can speak out in some very definitive way about the outlook. But if you if you told me I had to go away for 20 years and choose between what's obtainable in an index fund of equities or or be committed to long term bonds, I would rather take equities. But I think you will get a chance to do something that is more screamingly intelligent in not too many years and maybe a lot shorter than the alternatives that you're offered now. Charlie? Well, I can't improve on that at all. And then we'll go to number 8. Hello. My name is Hamid Rezapour from Orinda, California. I had a question about real estate. And I know this question was asked in previous shareholder meetings about how come Berkshire doesn't invest in real estate. And I believe the answer was that we like operating business. So I want to make my question a little bit more specific towards commercial real estate. So, considering the characteristics of larger size commercial real estate investments like REITs that can have the behavior and financial returns of an operating business. Why not invest in real estate? Is it because you just don't like the returns or the business is just not attractive? Yes. Well, Charlie got a start in real estate, right, Charlie? Yes. I would say number 1 that in a corporation like Berkshire that's taxable under Subchapter C of the Internal Revenue Code, owning real estate is grossly disadvantaged compared to owning it directly by individuals such as yourself. That's number 1. And number 2, real estate, investment real estate is having bubble valuation problems of its own right now. All my rich friends who own real estate are selling their worst properties and they're getting bids that come in higher than their highest expectations and people are competing to take these things off their hands. I do not find it exciting and it certainly doesn't fit Berkshire. Name me a lot of C Corporations that have been passive holders in real estate and have done well over a whole lot of years. It's almost a null class. Yeah. Charlie and I I mean, both more Charlie than I we've had certain personal real estate investments over time. And it's a field that, in general we understand. We don't bring that much special to the game, but we understand it. We made money in it. And actually, at the time that the NASDAQ about hit its high, REITs were quite cheap in my view. And I would I have less than 1% of my net worth outside of Berkshire, basically, I had it I had that portion all in REITs. They're all small ones at that time. And but they were selling at discounts at that time. They were selling at discounts to the values of properties, and those values of properties were much more conservatively figured than today. Today, you have very fancy prices on real estate. And on top of that, you have the REITs often selling at a premium, though. So I regard REITs as quite unattractive now, certainly compared to 5 or 6 years ago. But that's a nice that's a group of But for an individual, you regard them as unattractive. Yeah. And for a corporation that much more so. Yeah. Right. Right. The situation has changed dramatically from 5 or 6 years ago. I mean, the stock market, in many respects, from the 1999, 2000 period is down significantly. REITs are up significantly. REITs were very unpopular 5 or 6 years ago. Now they're popular. And it's better to pay attention to something that is being scorned than something that's being championed. And there's really been a big change in the REIT situation in the last 5 or 6 years. And the REITs have phony accounting. Otherwise, we love them. You don't want to bring up anything in these meetings. Number 9. Good afternoon. My name is Carlos Lauk. I'm from Lawrence, Kansas. The U. S. Has had a dominant role in the world economy for about 100 years. Its dominance resembles that of an economic monopoly. Would you say that the US is, quote unquote, a castle with a moat? And if so, how can we make the moat any bigger? Thank you. Yeah. Well, the U. S. Has been pretty remarkable, as I indicated in my earlier comment. I mean, you know, essentially the same population pool pretty much and and they've garnered over this 215 year period a remarkable share of the world's wealth. And it's an interesting question as to just why this group of people here have been able to do so much better than the rest of the world considering we're not any smarter or anything of the sort. It's not an economic castle anymore. I wouldn't I wouldn't call it that. What we do is no secret. And I think that the relative importance of America, I mean, when you know, we have we have been a dominant factor in the world and post World War 2. I think it will decline somewhat, although I'm not an alarmist on that. But I think to some extent, the rest of the world or much of the rest or some of the rest of the world is catching on and adopting sort of best practices, as they say, in industry. And our our castle will grow in size, but there will be more castles around it. And I basically think that's a very good thing for the world. I think the more prosperous generally the rest of the world is, the better generally it will be for us. And I've talked about our trade problems. The more trade we have, the better. We had 1,100,000,000,000 of real trade last year in the country. We would have with the world. And then we had another 600,000,000,000, 6 tenths of a 1,000,000,000,000 that unilaterally we bought. Well, I I would love to see the 1.1 trillion grow and grow and grow. It'd be good for us and good for the rest of the world. But I don't think that our prosperity will come in the future will come at the expense of the rest of the world at all. And I do think that there were parts of the world that will grow economically from a lower base but much faster than the US. And basically, I think that's that's a good thing. I mean, there are 6,000,000,000 people in this world and a lot of them don't live very well. And I would hope that 20 or 50 years from now that a higher percentage of them would live well and that but I don't think it comes out of our hide at all. Charlie? Well, I don't think it comes out of our hide in that sense. But if we are now the richest and most powerful nation in the world and 50 or 100 years from now we're a poor third some country in Asia, Sure, we're richer but it's a peculiar type of richness where you've lost your relative position in the world. It's not all I think if I had to bet, I would bet that the part of the world that does best is Asia in terms of percentage gains per annum. And I think it might do amazingly well if it doesn't blow up in some way. And if it does amazingly well, it will eventually be a much richer place than ours. Number 10. Good afternoon, gentlemen. I'm Thorsten Kramer from Cologne, Germany. You have criticized the extraordinary large stake that the financial sector in the United States is currently representing in relation to GDP, which is also reflected in a total credit volume exceeding GDP by roughly 2 50%, significantly up from the level we have seen a decade ago. The current account deficit and budget deficit running at 6% of GDP in combination with a still accommodating easy money policy and high asset prices will have to be consolidated sooner or later. How do you think the adjustment will take place? What are your 2 most likely scenarios how these huge imbalances might be consolidated? And is the dollar devaluation scenario your most favorite one? Well, as I said earlier, I don't see how the situation resolves itself with a stronger dollar. Most people still seem fairly sanguine about the fact that there won't be anything terribly bumpy about it, that there'll be the so called soft landing. And I don't know whether that'll be the the case or not, but I would say that we're running the risk of having markets that could get chaotic if certain events converged superimposed upon those factors that you just listed. But I don't I'm not an Armageddon type at all on the economy. I mean, the things you named are are important factors. I think that absent something happening in the terrorism field, I think that, you know, the citizens of the United States on balance will be living better 10 years from now than now and 20 years from now than now. But I do think that we're following policies that are unwise But we've done that plenty of times over history. I mean, Peter Lynch has always said, you know, buy a business that's so good that an idiot can run it because sooner or later one will. We've got a country that's so good that we can have policies that that are counterproductive, and we'll still come out okay. Just think of what we've had over the years. I mean, you know, Warren Harding, Chester Arthur. We've had a lot of a lot of things in this country. We had a civil war. We had all kinds of things over the years, but but the society has marched forward with some fits and starts, but still at a very significant clip. The real GDP per capita is 7 times in the US what it was a 100 years ago. Just think of that 1 century in the human pageant and a sevenfold increase in GDP per capita. It's remarkable. So I I acknowledge consumer debt doing what it's done and the trade deficit being what it is, and I think that those things, particularly the trade deficit, should be addressed and promptly, but I I don't think they pull down the whole place. They may create very severe dislocations in financial markets from time to time, but that's been the history of this country. I mean we have had very dramatic things happen in financial markets over the years and the country the country survives despite that and sometimes there's great opportunity in those dislocations. There's likely to be. So I'm not pessimistic about the US at all. I can't imagine any place that I would rather be. But whether when you say the 2 most likely outcomes, I think the eventual outcome is that the country does fine. But I I think I I there's a significant possibility in that that you do have some chaotic financial markets at one time or another, but we've had them historically. Charlie? We don't have any great record as macroeconomic predictors. And I don't see any reason why we should really start now. Obviously, there are more chances for convulsion now. I mean, everybody from Paul Volcker on has looked at the current figures and said we could have some kind of convulsion as a consequence of forces now and being. Apart from knowing that, we have no contribution to make. Yeah. I do think, as I mentioned earlier, that far greater sums relatively in all in one asset class after another are held by people who were really on a hair trigger type mechanism. So the creation of lots of new financial instruments, the piling up of huge amounts by intermediaries or agency activities in terms of money management, I think they lend themselves to more explosive outcomes on any given day than might have been the case some years back when I was selling utility stocks to people a 100 shares at a time in all. I mean, those that money was not on a hair trigger basis. But as you turn it over to fund managers who think their job is to beat the S and P in on a short term basis, you are getting very short time horizons on huge amounts of money. And those people may think they are operating independently in one sense, but they're responding to the same stimuli. And they can, as they did in the fall of 1998, they can all head for the exits or try to head for the exits at one time. And the thing about financial instruments is there is no exit. I mean, the only way that you get rid of a financial the only way you leave your seat in a burning theater in financial markets is to find somebody else to take the seat. And that is not always easy. I think go ahead. I think it's also true that the amount of credit being used not only by hedge funds but by ordinary investors is way heavier than most people realize. It wasn't even controversial in this country. When we came to introduce single stock futures and what commonly traded puts and calls. And ordinary people got in trouble. If I'd been running the country, I never would have allowed that. I don't know what good it does for the country to have a wonderful lot of trading and puts and calls. 1 of my children knew a nice man who had a $2,500,000 house and $5,000,000 worth of wonderful securities, but he couldn't live as comfortably. He never worked as he liked to live on the income from his $5,000,000 of securities. And he got in the habit of picking up easy money with the credit systems of the world. He kept selling naked puts secured by his account, including puts on a whole lot of internet stocks. And in due time, he didn't have the $5,000,000 of securities and he didn't have the house and he now works in a restaurant. That kind of self destruction wasn't possible before we created all these wonderful trading opportunities involving credit. It was not a smart thing for this country to do to legalize gambling everywhere and to bring it in a more facile form into our investment practices. Is there anyone we've forgotten to offend? We don't want to miss anyone. Number 11, please. Good afternoon, Mr. Chairman, Mr. Vice Chairman. My name is Andy Peek. I'm from Weston, Connecticut. Recently, we have seen a number of corporate boards take forceful actions, Hewlett Packard and Boeing for example. We have also seen board members from WorldCom pay large amounts to personally settle lawsuits. Today, we see Morgan Stanley embroiled in a bitter battle largely based on divergent views of how to govern the firm. What responsibilities do directors have in this new environment and what do you look for in your directors? Charlie, why don't you take that one first? Well, we are completely out of step with modern practices with directors. The modern practice is to have one from each diversity category and to have a whole lot of people who need more or less the $100,000 or $200,000 per year that they're paid for being a director. And people think this makes the system better. At Berkshire, all the directors are rich and they own a lot of stock in Berkshire and they're all very smart and they don't get any liability insurance provided by Berkshire. So we've been waiting for our system to spread but we seem to be losing. Yeah. It's it's it's a tough job at times to be a director. The the the real problem that you can face and often and may often face is when you're dealing with mediocrity. I mean if you if you have a baseball team and you have a 240 hitter in the majors, 240 hitter in the majors is still a pretty good baseball player but if your job is to have a winning team you get rid of them and you find somebody that can bet 280 or 290 in fielders as well. In business, the tough part is to get is to get rid of something a notch or 2 above mediocrity, but but but not the best one that could be found. And and, when a when people meet every couple of months, they come from different parts of the country, and they have the normal social instincts. They don't like to have rump meetings or to sort of talk behind people's backs. It's very difficult for a group and particularly if it's a group like Charlie described where a significant number of them, the directors' fees they earn are important to their well-being and they like to they'd love to be recommended for another board and add $100,000 a year to their income, it's very difficult for somebody to lead a charge and all of a sudden start at the meeting or trying to arrange a rump meeting of some sort to say, you know, we really think this guy at the head of the table is no good. And changing dealing with mediocrity is or like I say, a notch above it is a difficult is a difficult problem, if you're a board member. And we believe that, you know, independence is a state of mind. I mean, it and and it's it's a willingness but not the eagerness to challenge the ideas of others. And to if you see a merger that doesn't make sense and Charlie and I have seen a lot of them and we've been on the boards and sometimes we've spoken up and sometimes we haven't spoken up. To be able to the group around you in terms of social behavior can only tolerate a certain amount of obnoxiousness on the part of you yourself. You have to sort of ration it out. And so you save yourself for big ones and then it's not necessarily an easy equation. And certainly I would say of the things I've seen proposed in the way of major acquisitions and a significant percentage of them I wouldn't do myself. Would I overrule somebody else? I wouldn't get the votes probably anyway. And and it's a very difficult thing to do. You occasionally fire a bullet if you think it's important enough and usually it doesn't do any good. So I we have a group that has every one of them has significant money invested in Berkshire. They all bought it in the market just like you did. I mean nobody I mean I've been on all these boards and they keep handing me things and and you know I had shares of this one and that one are given to me or options or whatever, matching charitable contributions, all kinds of things. But we have real owners on our Board. And what they make for being Board members is really inconsequential, as I get reminded occasionally, Compared to their investment and they're friends of mine, they're smart, they're very smart. I mean they are handpicked in terms of business brainpower and quality of human being. And I really think that, you know, we have the best board in the country, but the people that want who make their evaluations by checklists, you know, whether either in terms of diversity or in terms of supposed independence, although I don't know how anybody that's getting half their income from Board memberships can be independent. You know, we don't we may not stack up so well, but it's the kind of Board that I want to have, knowing that if I die tonight that virtually everything I have goes to a foundation. I want to have that foundation have as much money over the years to spend as possible. And there is no group of people I'd rather have in charge of the decision subsequent to my death than the people that we've got on our arm. Now the answer is that Charlie and I and managing Berkshire try to do things, put money in things that we understand. And when I mean understand, I mean that we where we think we know in a reasonable way what the economics will look like in 5 or 10 or 20 years. And Bill is a lot smarter about a whole lot of things than I am, but but it's still Charlie and I that have the responsibility for managing the money and we'll stick within what we consider to be our circle of competence. And the fact that somebody else's circle is wider or different, that's the way the world is. I'll listen. Any idea Bill has, believe me, I will listen to him. I mean, he is a he's not only a smart manager, but he's a smart investor. And I think actually our ideas on investment overlap to quite an extent. But I still wish I'd bought a little Microsoft when I first met him. Charlie? I think what has happened at Berkshire is just wonderfully for the good. And I do think we have a perfectly marvelous Board. What makes me sad, as I said earlier, is I don't see more of the same practice followed elsewhere. A director getting $150,000 a year from a company who needs it is not an independent director. That director automatically becomes an inside director. And so it's a typical government intervention. It's just it says it's doing one thing and it does another. Yeah. I have never I've been on 19 boards. I've never seen a director where the director's fees were important to them object to an acquisition proposal, object to a compensation arrangement of the CEO. It's just never happened. And in my experience and they do not they frequently do not behave as they would if they own the place. And basically, we want people that behave as if they own the place. The correct system is the LAU Root system. LAU Root who had 3 different cabinet appointments if I remember right, said no man was fit to hold public office who wasn't perfectly willing to leave it at any time. And if Elihu Rutt didn't approve of something the government asked him to do, he could always go back and be the most sought after lawyer in the world. He had an identity to go back to and he didn't need the government's salary. And I think that ought to be more the test in corporate directorships. Is a man really fit to make tough calls who isn't perfectly willing to leave the office at any time? My answer is no. Yeah. We have one of our directors who was who's been removed twice from compensation committees of other corporations because he had the temerity to actually question whether the compensation arrangement being suggested was the appropriate one. I mean, it's not it's being put on the Comp Committee of American Corporations. As I've said, they're not they're looking for chihuahuas and and and not Great Danes and Bilbermans and and I hope I'm not insulting any of my friends that are on comm committees. You're insulting the dogs. Okay. Number 1. Hello. I'm Rory Johnson. I'm from Suffolk in the U. K. Do you have or are there any appropriate criteria beyond purely financial returns in assessing the success or otherwise of your investments? Well, I would say that the financial returns achieved in a way that we want them to be achieved are the determinant of whether we've made an intelligent commitment. Now we don't get rid of companies that don't meet our original expectations. There's a section in the back of our annual report on the economic principles, and I forget which one it is. It's toward the end. But we say that Charlie and I have this quirk which business schools would teach is a mistake. And that if we have a business that's underperforming and we could sell it and put and achieve greater returns someplace else, we don't do it. We say that if a business is going to permanently lose money, we'll get rid of it. If it has major labor problems over a period of time, we might rid of it. But we are not going to engage in what we call gin rummy type management, where we pick up one card and discard another. And so we will not if a business has been disappointing to us, but we like the people there and we're not having not because of labor problems and we're not going to have to put money in incessantly, We will stay with it when business school theory and management theory would say get rid of it and do something else. We don't disagree with the people that that do it that way. It's just that we don't want to live our lives that way. And if we owned 100% of Berkshire, we wouldn't do it that way. And we don't we just we want the shareholders to know that we have this mindset that may produce slightly suboptimal returns because of our attitude, but that's the way we're going to play it. And we tell people ahead of time that that's the way we're going to play it. We like being associated with the managers that we are, even the ones that are facing headwinds. I mean, in a sense, you almost identify more with the ones that are facing headwinds because they're doing a hell a job under very tough conditions. And every business decision or investment decision is going to work out perfectly, and some businesses are going to run into unexpected surprises. Today I would say that how the people behave with us after we buy the business as an important part of how we feel about the whole relationship as well as the returns achieved. Charlie? Yes. I think he's asking in part, are there some businesses we won't have as subsidiaries in Berkshire even though they're wonderful businesses? Or is that we're rejecting some business opportunities on moral grounds? Yeah. Well, we've referred in past meetings to one we did on a basis. We will own stocks of companies where we wouldn't want to own the whole business. I mean, you know, you can, I'm not sure that the logic is perfect on that, but we would not have trouble owning stock in a cigarette company. We wouldn't want to manufacture cigarettes. We might own a retail company that sells cigarettes. I mean, there's all kinds of gradations. But we do not there are things we don't want to own and be responsible for their businesses where we have no problem owning their stocks or bonds. And some years back, Charlie and I went down to Warner Memphis. Yeah. Yeah. We looked at a we were invited down and we looked at a company that made a product that that, perfectly legal. Probably one of the best businesses I've ever seen in terms of the economics of it. Absolutely. Still doing very well. And we met in the room with we went to a hotel. We met in the room with the people that had the business. And people were perfectly decent people. And they described the business to us. And we went down in the lobby. And as I remember, we sat down in the lobby and we just decided that we didn't want to be in that business. And, you know, the lines are not perfect on this sort of thing. I mean, it, I'm sure that there may be ads in the Buffalo News that are selling some investment service or something that I would cringe at if I knew the people involved or what they were selling. And if you own a big retail establishment, a retailer, general merchandise, you know, you're probably going to be selling cigarettes when you don't think that you should smoke yourself or that your children should smoke. And it's they're not perfect. But we have turned down some, the most dramatic being that one because we went took us a trip of 1,000 miles or so to finally face up to the fact that we didn't want to own it. Charlie, do you have anything to add on it? No. But that was interesting because we were young and poor then by modern standards. And we're very human and we could see it was just like putting $100,000,000 in a bushel basket and setting it on fire as we walked away. And so You made me feel bad. We made the decision all right and with no difficulty, but there was a certain twinge. Number 2. My name is Jay Dwight. I'm from a small town in Maine called Wilton, Maine. My question comes more of a request. And could Charlie Munger create a curriculum or or a list of reading and experiences, which he believes would lead to his concept of worldly wisdom. This would serve 3 great purposes. 1, it would pass on the most valuable possession that is your knowledge and experience to us and to others in the future. 2, it would preserve and enhance that wealth beyond the material riches endowed on future generations. And 3, it would begin to remedy the stunted educations of those like Mr. Munger are plunging along with ordinary will with time to improve ourselves? Thank you. Well, of course, Peter Kaufmann has tried to do that in that book that he stitched together out of my old speeches was a lot else. And I didn't want to do it. And he went and saw Warren and Warren got enthusiastic and Warren suggested this ridiculous name, Poor Charlie's Almanac. And between the 2 of them, they really got me to do it. But the whole idea of doing it is with just the motivation you're talking about. I think if you assimilate everything in that simple book, you will know a lot more than about 95% of your compatriots. And it's not that hard to do. So Peter Kaufmann has made it easy for you. Yeah. I couldn't be more enthusiastic about what you suggested, and it's been done. And it's a sensational book. And anybody that reads it is going to learn a whole, whole lot and and about life. And And you'll learn even get you to read it. I'll tell you, you'll even learn something about making money. The and it's right next door here. They haven't sold out. Number 3, please. Good afternoon. Scott Jeffords from Davidson, North Carolina. The major pharmaceutical companies have faced a myriad of fundamental and legal challenges in recent years. With that in mind and given the apparent ongoing nature of those obstacles, how should investors be thinking about the long term prospects for this very important industry? Well, my answer is I don't know, but maybe Charlie will and it's a terrific question. It's just that that industry is in a state of flux. Now it does very important things for mankind. It's historically earned good returns, very good returns on invested capital, but it's going it could well be that the world will unfold differently for those companies in the future than the past. It may that may not be the case. And I don't think I'm really qualified to to give you a good answer on that because much of it is in the political realm. And and my judgment about the politicians will do is probably not better than yours. Charlie? I share Warren's agnosticism on the subject. We just throw some decisions into the too hard pile and go on to others. And so now there's a lot of wisdom in that remark. I mean, there are things there are things in life that you don't have to make a decision on and that are too hard. And many years ago, in one of the reports, I said one of the interesting things about investment is that there's no degree of difficulty factor. I mean, if you're going to go diving in the Olympics and try and win a gold medal, you you get paid more in effect for certain kinds of dives than others because they're more difficult and and they properly adjust for that factor. But in terms of investing, there is no degree of difficulty. If something is staring you right in the face and the easiest decision in the world, the payoff can be huge. And we get paid not for jumping over 7 foot bars, but for stepping over 1 foot bars. And the biggest thing we have to do is decide which ones are the 1 foot bars and which ones are the 7 foot bars. So when we go to step, we don't pump into the bar. And that is something that I think we're reasonably good at. Now maybe we cast out too many things as being too hard and thereby narrow our universe. But I'd rather have the narrow the universe be a little too interpreted as being a little too a little smaller than it really is than being interpreted as larger than it is? John. Obviously. 4. Good afternoon. I'm Whitney Tilson, a shareholder from New York City. One of the things I find most refreshing and admirable about you as corporate leaders is, is that you're very candid about making mistakes. And as you put it last year, Mr. Munger, rubbing your noses in it. Last year, Mr. Buffet, you talked about the $10,000,000,000 mistake of starting to buy Walmart and then stopping after it had ticked up a little bit. Today, you seem to allude to a somewhat similar mistake. You bought a stake in China. Then after it was disclosed that you owned it, it popped up a bit. And obviously, in hindsight, you could have made a lot of money had you continued buying it. If these emotional traps, I think you called it anchoring at last year's annual meeting, are the traps that even people as experienced as you gentlemen are, occasionally fall into, I sort of wonder what hope do the rest of us have. So my question is, is, you know, how do you what are the mental tricks you have or how do you overcome these behavioral and emotional traps like anchoring? And what advice do you have for us? Well, that's a good question. And of course, the first step is in recognition of the fact that they can be traps and that you will be affected by them. And you will make some mistakes because of them. But, Charlie and his and poor Charlie's almanac, which I probably do take credit for the name of. And, they, he talks about the various psychological traps that people fall into. And and simply reading that section, you will come away wiser than than before you started on it. We will our personalities are such that Charlie and I probably are a little less prone to some of those mistakes than other people are. But as our record clearly indicates, we still are prone to them. And we make them and we'll make them again. We're probably a little less inclined to make some of them than we were 30 or 40 years ago. But the nice thing about it is though is that if you make fewer of those mistakes than others, they will continue making their share and you'll get very rich. Charlie? Yes, you don't have to have perfect wisdom to get very rich. All you've got to do is have slightly more than other people on average over a long time. It's the old story about the guy outrunning the bear. I mean, I don't have to outrun the bear. I just have to outrun that other fellow. And these and oil, why do you think the tenure is still the yield is 4.2% And is it that the market sees signs of deflation coming in the future? And in addition to that, if you thought rates would stay at this level for an extended period, would you have a more favorable view of the market? Well the answer to the second part is yes. I mean if somebody guaranteed me that the 10 year rate would never go above 4.2% for the next 50 years. We would have to readjust, recalibrate every decision we make around Berkshire. I think it was Alan Greenspan. I don't know whether you saw him at the 10 year or what is the closest thing now to the 30 year. We don't issue 30 years anymore. But the he referred to it as a conundrum. And after I looked it up, I decided I agreed with him. I don't understand it. But that's okay. There's a lot of things in financial markets I don't understand. And that doesn't mean I have to make a decision. I don't have to either go long or go short the tenure. Although by keeping as much money as we do short, we are in effect at least making the decision that we don't want to be long, long bonds. That doesn't mean we think it necessarily would be smart to be short them, but we do not want to be long, longer bonds. And I if you told me 2 years ago that every move that the Fed would make in the last 2 years and you told me all the other variables that would take place and you'd asked me what the 10 year rate would be at this time, I would have been very wrong. So it's not a game I've excelled at so far. I'm puzzled by it. And we'll see where it is next year when we meet. Charlie? Yeah. I think the one thing you can confidently predict is there won't be some automatic and rational correlation between inflation and interest rates. There will be weird diversions. Do you want to elaborate on how how these weird things will manifest in the future? No. All I know is that all I know is it happens. Yeah. Frequently very surprising. Well, it surprised us on this so far, isn't it? Sure. Number 6. Hi. Glenn Tung from New York City. I hope this does not overstate your ground rules. I've read what you have written about finance reinsurance in the annual report. There's been much erroneous stuff written recently about finite reinsurance. Can you simply explain the product and its importance to Berkshire? Yes. Well, it's a good question because the term has been used finite reinsurance and basically almost all insurance is finite. I mean, if you have a $200,000 homeowners policy or if you have 100, 300 auto liability, that's a finite policy. The insurance company will pay you that much and pay you no more. And with the exception of workers' comp, and maybe there's something else I'm forgetting about, but basically all insurance is denominated in some amount with a limit. That 500,000,000 we rode on that airport. I mean we can lose 500,000,000 but I don't think we can lose 501,000,000. And so the I think the term finite has gotten, it's gotten to be convenient to use without anybody totally describing it well. I actually when the SEC sent out its first request for information, I think they called it non traditional insurance. And I think that may be a better term to use in terms of what's being looked at. And there is nothing wrong, I mean, nothing wrong at all with finite insurance. We're issuing finite insurance policies every day on our auto policies and everything else. And there's nothing wrong, in my view, at all with retroactive contracts. For example, we wrote, a few years back, we wrote a, and this is very rough, but it's been in the press so that I'm not violating any confidences of clients. We wrote a contract as I remember and I may be just a little off on this, that to pay when when INA was being sold to ACE, we to pay 2a half 1,000,000,000 of claims from the past. And I think we got a premium around 1 and a quarter 1,000,000,000 on it. Now we were making a an estimate or a guess as to whether the whole $2,500,000,000 would be paid, how fast it would be paid and a lot of things. And ACE, on the other hand, was getting rid of 2,500,000,000 of potential liabilities and they did not have the capital strength of Berkshire. That contract went before the Pennsylvania insurance department and was approved. I mean it it had value to both parties. It had, you can argue it had value to the public and that Berkshire was a stronger insurer. Actually in the Q1 of last year in our 10 Q, you will see that we recorded a loss of $100,000,000 because the payment pattern on that contract turned out to be faster than we anticipated. I mean, there was risk involved, but it was all retroactive and perfectly proper contract in my view, or I think anybody's view. And we would do more of that business. In fact, we looked at a very, very big one here recently. What I think and understandably, the authorities are looking for is that contracts that had no purpose and that were possibly misused by some party in accounting. And the facts on that remain to be seen. But I think calling it finite, it just isn't the right descriptive word. I think that, like I say, nontraditional, we have a lot of non we issue nontraditional products all the time. I mean, I talked last year about the $1,000,000,000 thing for PepsiCo. That certainly isn't traditional, but it's real insurance. And the question is whether risk is transferred, but the risk on the ACE contract, for example, was several. One is we had a risk as to whether the whole 2 point $5,000,000,000 would be paid. 2nd was how fast it would be paid. And the 3rd risk is what you can do with the money in between and money hasn't been worth very much to us lately. So there was risk in that and that's what insurance is all about. Charlie? Well, I certainly agree with you about the word finite reinsurance. It's absolutely, you could hardly not invent a worse word to use to describe a new class of insurance. It's just a meaningless rubric. And of course non traditional is imperfect too because we have traditionally issued non traditional insurance. But we have to use some words to describe what's happening. There's no question about the fact that the corporate world has gotten more and more interested over the last 10 years in having regularity in earnings reports and they've turned to a huge variety of ways to try and do that and reinsurance is a very minor part of the whole picture. But there has been more, more reinsurance sought because people were more anti volatility in terms of reported results. But of course insurance is a way to reduce volatility, a perfectly proper way. I mean if you pay $1,000 a year on your auto and premiums for the next 30 years, it isn't you are going to have a more regular income stream than if you wait and have $125,000 accident 1 year and don't pay the premiums in the other years. I mean people have bought insurance to reduce the volatility in their own personal results and their own business results. So reducing volatility per se is not is not bad at all. It's the reason there are $400,000,000,000 worth of insurance premiums paid in this country every year. But that doesn't, you know, you can also get into abuses of that and that's what the people are looking to find and see what the real situation is. Number 7. Well, it's more it's more nerve wracking than I thought it would be. Hello Warren, Charlie. My name is Aki Progakis. I'm from Montreal, Canada. Warren, I wrote a letter back in January. I wrote a letter to you recommending a beautiful Canadian retail company in which I described my analysis to you. I'd like to thank you for taking the time to respond to me. You said some nice kind words. It meant a lot to me. And I think you're an amazing individual. My question goes simple. What is the single most difficult decision you've had to make in your lifetime whether it be business or personal? I want to let Charlie answer that one first. Yeah, I would argue that that may be one that you shouldn't ask. Or let's put it this way, I think you should answer it with several interesting examples before you ask us to answer. That's a little nerdy John. It's interesting. As Charlie was talking, I was I can't think of a lot of difficult I can think of a lot of wrong decisions I've made. But I certainly can't think of anything I agonized over making for any long period of time. Like I say, that isn't I mean, it's calling balls and strikes. I mean, you got a second there. And if you don't do it, that you're no longer an umpire. So I made plenty of wrong decisions. I'm going to make plenty more. That's just part of the living. But I don't think in terms of being difficult, as measured by the time it took me to do it or the not a lot of them pop to mind. And if they do, I'll probably I'll probably give you the same answers, Charlie. Charlie, if you thought of any more there while we were talking. Let's go on to another. Okay. That was not a bad decision. Number 8. But thank you. Good afternoon. My name is Franklin Gren. I'm from Philadelphia. And I'm interested in real estate. You've already covered many different areas today about real estate, such as the real estate bubble, the long run performance most people have obtained in their personal holdings of real estate, the GSEs, the REITs. But one of the things that appears in today's newspaper is quoting Mr. Buffet about building a brokerage powerhouse. And that seems to say that you envision changes in the way in which people buy and sell their houses and other kinds of related things. So I was wondering if you could tell me a little bit more about that area of where you envision Berkshire Hathaway going? Yes, I'll be glad to. But the we are hoping to build a powerhouse that built very much on the model of today. In other words, we do not envision big changes in residential real estate brokerage, which is what we're in. We as we put in they talk about sides in real estate, the buy side and the sell side. We participated in sides that totaled $50 odd 1,000,000,000 last year and we are the 2nd residential real estate brokerage firm in the country. But we expect that business really to be conducted quite similarly in the future to how it has been in the past. Now there are people that disagree with that and think the way more will happen via the internet. But you know the purchase of a home is the single most important transaction for most people in their lifetimes. It's it can be partly emotional. It's partly something that they appreciate people guiding them through. It's something where I think 1 on 1 will be very important in the future as it has been so far. And in this country, there are going to be 1,000,000 and 1,000,000 and 1,000,000 of homes that get sold every year just in terms of people moving and dying and moving up in their economic potential. So there will the real estate brokerage business is going to be a very, very big business and I think it will tend to be a very local business. And we have bought leading local firms in a number of markets and they have retained their individual identity. We have not gone for a Century 21 or something approach where we put them all under the umbrella of a single brand. Rather we have these individual brands in given communities. And they're usually very strong brands in each community. But we've only scratched the surface. And I would expect, and it has nothing to do with the potential for real estate or anything, it just relates to the fact that tens and tens and tens of millions of people own their own homes and some are going to move around every year. And there's I think that they're going to continue to have a real estate broker involved in most of the transactions. And we would like to be very big in that business. We already are big, but we're going to I would think it's almost certain that we will be a lot bigger in that business 5 or 10 years from now. I mean, a lot bigger than we are now. And it's a question of acquiring these firms. Generally they're proprietorships, they're owned by a single individual or a family. And they come up periodically because of the family circumstances or the individual circumstances of somebody. But there's there's a lot of them out there and we're a logical buyer and we've been found to be a good owner. So I think it's going to be a good sized field for us over time. Charlie? Yeah. We voted by buying the brokerage operation instead of the real estate. Obviously, we regard it as having better economics than the underlying real estate which Berkshire could buy. Number 9. Hello. My name is Martin White. I'm in the insurance business in London, and quite separately, together with other volunteers, I also help to run the only independent lobby group for private shareholders in the UK. I would like to ask you your thoughts on 2 aspects of worldwide solvency and how assets and liabilities are recognized in everyone's accounts. I suppose both are about whether the regulators have the bottle to do the right thing in spite of possible complaints from companies. One aspect is about how insurance liabilities and assets are valued for solvency purposes and the discussions that are going on to develop new accounting standards worldwide. The other aspect is about derivatives, the potential weapons of financial mass destruction. For those derivatives which don't have quotes, I suspect we could find out how big a black hole there might be if the regulators around the world required everyone to report at the same date for each derivative they have their current recognized asset or negative asset, and most importantly, who the counterparty was. So the regulators, sharing information collected from both sides, could see what the worldwide aggregate misstatement was. On insurance solvency, if we started with a fair attempt at mean discounted liabilities and then added a large chunk for safety and for reinsurance assets, did the same, discounted, but this time the safety chunk was deducted. Life would be a lot simpler, and there would be a lot more consistency and, I suspect, safety than under the current undiscounted regime. I think both problems need regulatory attention. What are your thoughts? Well, on the subject of discounting reserves, which essentially means taking what you expect to pay in the future and then taking the appropriate interest rate and carrying at some lower figure now because you don't have to pay now, but later. I can certainly make the purest argument, the argument of the purest for the fact that that might be the most accurate way. And certainly, of course, in the life insurance field that it's prevalent. But I would say there has been such a tendency of managements to understate reserves worldwide and in some cases by extraordinary amounts that I think anything that pushes in the direction of carrying those reserves at even lower amounts, and I realize you're suck in that part about the healthy bumping of them too. But I think anything that that any accounting that lets gives people a rationale for making reserves even lower than they have been, unbalanced is dangerous. That there is such a tendency on what they call long tail business or business where you don't expect to actually make the payments for a few years or more. I think there's such a tendency to view those with optimism, particularly when somebody is going to retire in a couple of years or their options are about to run out or whatever it may be, that I don't like giving them the extra leeway of discounting on top of that. The derivatives question you raised is really interesting, but it would be mind boggling in to implement. I mean, it's always fascinating to me how people can write a derivative contract you know and both sides of it the trader will be perhaps at least showing a profit on it by the end of the month or something of the sort. And usually the contracts aren't that precisely matched because you have all kinds of other contracts that bear on the one you're doing. But I would say that the traders estimate and maybe the auditors estimate of the value of all derivatives contracts outstanding in the world would end up with quite a large positive sum for something that essentially will wash out as a zero sum. And I can tell you from the fact that I inherited a book of 23,000 contracts that's far, far, far from the largest or the 2nd largest or the 3rd largest in the world. And the complexity of those contracts and the complexity of unwinding them now, we're 3 years into it and we've done an awful lot of it, but we've been operating in a benign environment. I don't think any regulator and I'm not sure any auditor, when you get up to really extensive derivative books, in effect can get their minds around evaluation. I know that as I pointed out in our report, ours were supposedly mark to market and people think of that as something that you just go out and hit bids and within a few days wind up something. And if you're trading government bonds, you can do that. And if you're trading actually active equities, you can do it. But when you start trading derivatives, it's unbelievable what what you can find. And I've had a couple of experiences with that. Charlie, what are your thoughts? Well, my thoughts are that stupid and dishonorable accountants allowed the genie of totally improper accounting to come out of the bottle and descend in the derivative books of the world. Once that has happened and people have used it to create masses of assets and masses of earnings reports and bonuses and status and so on and so on and so on. Getting the genie back in the bottle is no small task because you have these huge vested interests who are fighting you. And what ordinary housewife is she puts the toast in in the morning is thinking, my god, I've got to do something about derivatives. So the people that are have vested interests in the current system are powerful and the rest of the people don't care and so this evil genie stays out of the bottle and does more and more mischief with each passing day. If you're trying to fix this, you are going to have a very interesting life. It's 3 o'clock now. If you haven't had enough, Charlie Rose has a show on Channel 12 tonight on at 8 o'clock where there's another hour and a half of interviews he did with me and with Bill Gates and various people. So with that, I thank you all for coming. We'll have the business meeting in 15 minutes, and I hope I see you next year. Thank you. Bye.

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