Okay, if you'll take your seats, we'll get underway. Next up is Cliff.
Thank you. Berkshire has an online portal for commercial insurance business. I believe it's coveryourbusiness.com. Is there an opportunity in commercial lines to go direct, akin to what we've seen GEICO do in personal auto insurance?
Yeah. The answer to that is we'll find out. We have actually two online arrangements. I'm not sure whether they're both up yet. One, I believe it's called BIG. I think we got that domain name, B-I-G, and that will be run by the Applied Underwriters, which is a subsidiary of ours that writes workers' comp. The other is run by Ajit. Then actually, we do commercial auto, some commercial auto, through GEICO as well. We will learn soon. I guess my message about inherited wealth is getting delivered here. Kid probably wants to put himself up for adoption now. We have been a little bit, and we will be experimenting more with various insurance lines. When you look at what has happened, just take Amazon.
You want to try a lot of things. It amazed me how fast the inquiries on personal auto migrated from phone to the internet. I would've thought that the younger people would do it, but that people like myself would be very slow to do it. The adaptation by the American public of internet response has really been pretty incredible and shows no sign of slowing down. The answer is, we'll try various things, and we'll make some mistakes, and my guess is that 10 and 20 and 30 years from now, it'll be a lot different. Station 8.
Hi, my name's Matt Claiborne from Columbus, Ohio. Thank you for putting this on for all of us. My question is, you've said before that your role will be divided into parts for your succession, one of which is the responsibility of maintaining culture by having Howard as non-executive chairman. What is the plan for how Berkshire will maintain its culture when Howard no longer fills the role, and what should shareholders watch for to make sure that the culture is being properly maintained decades from now when I am your age?
Yeah. Well, that's a question we've obviously given a lot of thought to. Although I hope that Howard is made chairman just for the reason that if a mistake is made in selecting a successor, it's easier to correct it if you have a non-executive chairman. That's a one in 100 or one maybe in 500 probability, there's no sense ignoring it totally. It's not a key factor. By far, the main factor in keeping Berkshire's culture is that you have a board, you'll have successor board members, you have managers, and you'll have successor managers, and you have shareholders that clearly recognize the special nature of the culture, that have embraced the culture. When they sold their businesses to us, they wanted to join that culture.
It thrusts out people that really aren't in tune with it. There are very few of them, and it embraces those who enjoy and appreciate it. I think to some extent, we don't have a lot of competition on it, so it becomes very identifiable. It works. I think the chances of us going off the rails in terms of culture are really very slight, regardless of whether there's a non-executive chairman or not. That's just a small added protection. I think that the main problem that Berkshire will have will be size. I thought that when I was managing money, when I first started managing money. Size is the enemy of performance to a significant degree.
I do think that the culture of Berkshire adds significantly to the value of the individual components viewed individually. I don't see any evidence that there'd be any board member, any managers, or anything that could in any way really move away from what we have now for many decades. Charlie?
Well, I'm even more optimistic than you are.
I've never noticed it. I really think the culture is going to surprise everybody by how well it lasts and how well they do. They're going to wonder why they ever made any fuss over us in the first place. It's going to work very well. We've got so many good ingredients in place just in terms of the businesses and the people already here, at the companies. That's what I'm saying. Yeah. There's just so much power in place. Another thing that's interesting is how little turnover we get in it, too. The number of managers that have been needed, we've had to replace in the last 10 years are very few. Without a retirement age, I tend to bring that up at every meeting to reinforce the idea.
Without a retirement age and with people working because they love their jobs, they like the money as well, their primary motive is that they really like accomplishing what they do in their jobs. That means that we get long tenure out of our managers. The turnover's low. The directors are not here for the money. We have great tenure among the directors, I would argue that's a huge plus. It's going to go on a very long time. Andrew?
Thank you, Warren. The following question comes from Aritz Galdos, several other shareholders asked similar questions that are part of this as well. It's a bit of a multi-part question.
Uh-uh.
About two dozen men and women work with you, Warren, at our corporate office. I see from last year the quality of the picture has been improved in the annual report, so congratulations on that. However, looking at it, there is something that comes to anyone's attention and is the lack of diversity among the staff. A 2015 analysis by Calvert Investments found that Coca-Cola was one of the best companies for workplace diversity, while Berkshire Hathaway was one of the worst. You've explicitly stated that you do not consider diversity when hiring for leadership roles and board members. Does that need to change? Are we missing any investment opportunities as a result? Do you consider diversity, however defined, of company leadership and staff when analyzing the value of a company that you may want to purchase?
Well, it's a multiple-part question. The answer to the last one is no. What was the one before it?
You've explicitly stated you do not consider diversity when hiring for leadership roles and board members. Does that need to change, are we missing-
Yeah
any investment opportunities as a result?
We will select board members, we lay it out, we've done so for years. I think we've been much more explicit than most companies. We are looking for people who are business savvy, shareholder oriented, and have a special interest in Berkshire. We've found people like that. As a result, I think we've got the best board that we could have. They're clearly not in it for the money. I get called by consulting firms who've been told to get candidates for directors for other companies. By the questions they ask, it's clear they've got something other than the three questions we ask in terms of directors in mind. They really want somebody whose name will reflect credit on the institution, which means a big name.
One organization recently, the one that did the blood samples with small pricks, they got some very big names on their board. Theranos, I think. Is that the way you pronounce it, Charlie? Theranos? Yeah. Yeah. The names are great, but we're not interested in people that want to be on the board because they want to make $200,000 or $300,000 a year for 10% of their time. We're not interested in the ones for whom it's a prestige item, and who want to go and check boxes or that sort of thing. I think we will continue to apply that test, business savvy, shareholder oriented, and with a strong personal interest in Berkshire. Every share of the Berkshire that our shareholders own, they bought just like everybody else in this room. They haven't gotten them on option. I've been on boards where they've given me stock.
I get it for breathing, basically, at half a dozen places, or maybe three or four that I was on the board of. We want our directors to walk in the shoes of shareholders. We want them to care a lot about the business, and we want them to be smart enough so that they know enough about business that they know what they should get involved in and what they shouldn't get involved in. The people in the office, I'm hoping that when we take the Christmas picture again this year, they're exactly the same 25 that were there last year, even though we might have added 30,000 employees elsewhere and maybe $10 billion of sales or something like that. It's a remarkable group of people. Just take this meeting.
Virtually every one of the 25, our CFO, my assistant, whoever, they've been doing job after job connected with making this meeting a success and a pleasant outing for our shareholders. It's a cooperative effort. The idea that you would have some department called annual meeting department, you'd have a person in charge of it, she or he would have an assistant, they would go to various conferences about holding annual meetings and build up. They'd hire consultants to come in and help them on the meeting. We just don't operate that way. It's a place where everybody helps each other. Part of what makes my job is extraordinarily easy, the people around me really make it easy. Part of the reason it's easy is because we don't have any committees.
Maybe we have some committee I don't know about, I've never been invited to any committees, I'll put it that way, at Berkshire. We may have a PowerPoint someplace. I haven't seen it and I wouldn't know how to use it anyway. We don't have make work activities. We might go to a baseball game together or something like that. I've seen the other kind of operation and I like ours better, I'll put it that way. Charlie?
Well, years ago, I did some work for the Roman Catholic Archbishop of Los Angeles, my senior partner pompously said, "You know, you don't need to hire us to do this. There's plenty of good Catholic tax lawyers." The archbishop looked at him like he was an idiot and said, "Mr. Piehler," he says, "Last year I had some very serious surgery and I did not look around for the leading Catholic surgeon." That's the way I feel about board members.
Okay, Greg.
Warren.
Greg.
While Berkshire has authorized a share repurchase program originally aimed at buying back shares at prices no higher than 10% premium to the firm's most recent book value per share, a figure that was subsequently increased to repurchase shares at prices no higher than 20% premium to book value, there has been relatively little share repurchase activity during the last four and a half years, even as the shares dipped down below the 1.2 times book value threshold during both January and February of this year if you base it on a buyback price calculated on Berkshire's book value per share at the end of 2015, a number that had not yet been published when the stock did dip that low.
Given your belief that Berkshire's intrinsic value continues to exceed its book value, with the difference continuing to widen over time, are we at a point where it makes sense to consider buying back stock at a higher breakpoint than Berkshire currently has in place? Would you ever consider stepping in and buying back shares if they did dip down below 1.2 times book value per share, even if that prior year's figure had not yet been released?
Yeah. Greg, you mentioned that it sold below 1.2, I don't think that's correct. I keep a pretty close eye on that, and it's come fairly close to 1.2, but I could almost guarantee you that it has not hit 1.2, or we would have done it. I'd be happy to send you figures on any day that you might feel that it did hit the 1.2. Clearly, in my view, Charlie's view, the board's, the stock is worth significantly more than 1.2, but it should be worth significantly more or we wouldn't have it at that level. On the other hand, we did move it up from 1.1 to 1.2 because we had acquired more businesses over time that where the differential between our carrying value and the intrinsic value really had widened from when we set the 1.1.
I have mixed emotions on the whole thing in that from strictly a financial standpoint and from the standpoint of the continuing shareholders, I love the idea of buying it at 1.2, which means I probably would love the idea of buying it a little higher than 1.2. On the other hand, it's the surest way of making money per share there is. If you can buy dollar bills for anything less than a dollar, there's no more certain way of making money. On the other hand, I don't particularly enjoy the actual act of buying out people who are my partners at a price that is well below what I think the stock is worth. We will buy stock almost certainly. We don't make it a 100% pledge because there'd be a lot of ramifications to that.
The odds are extremely high that we would buy a lot of stock at 1.2 times or less, but we would do it in a manner where we were not propping the stock at any given level. If it happens, it will be very good for the stockholders to continue. It is kind of an interesting situation, though, because if it's true that we will, and are eager even, from a financial standpoint, to buy it at that price, it's really like having a savings account where if you take your money out as a dividend or as an interest payment on a savings account, you get a dollar, but if you leave it in, you're almost guaranteed that we'll pay you $1.20.
Why would anybody want to take money out of a savings account if they could cash it in what they left at 120%? It acts as a backstop for ensuring that a no-dividend policy results in greater returns than it would be if we paid out a dollar and people got a dollar. If they leave a dollar in, they're going to get at least $1.20, in my view, at least. It's not a total guarantee, but it's a pretty strong probability. Would we increase that number? Perhaps. If we run out of ideas, and I don't mean day by day, but if it really becomes apparent that we can't use capital effectively within the company in the quantities with which it's being generated, then at some point the threshold might be moved up a little because it could still be attractive to buy it.
You don't want to keep accumulating so much money that it burns a hole in your pocket. It's been said, actually, that a full wallet's a little like a full bladder, that you may get an urge very quickly to pee it away, and we don't want that to happen. So far, that hasn't happened. If it ever gets to where we have $100 billion or $120 billion or something like that around, we might have to increase the price. Anytime you can buy stock in for less than it's worth, it's advantageous to the continuing shareholders. But it should be by a demonstrable margin. Intrinsic value can't be that finely calculated that you can figure it out to four decimal places or anything of the sort. Charlie?
Well, you'll notice that elsewhere in corporate America, these buyback plans get a life of their own, and it's gotten quite common to buy back stock at very high prices that really don't do the shareholders any good at all. I don't know why people exactly are doing it. I think it gets to be fashionable.
It's fashionable, and they get sold on it by advisors.
Yeah, that's true, too.
Yeah. Can you imagine somebody going out and saying, "We're going to buy a business, and we don't care what the price is. We're going to spend $5 billion this year buying a business. We don't care what the price is." That's what companies do when they don't attach some kind of a metric to what they're doing on their buybacks. To say we're going to buy back $5 billion of stock, maybe they don't want to publicize the metric, but certainly, they should say, "We're going to buy back $5 billion of stock if it's advantageous to buy it back." They say we're going to buy the XYZ company. They say we'll buy it at this price, but we won't buy it at 120% of that price.
Jamie Dimon is very explicit about saying he's going to buy back the stock when he's buying it below what he considers intrinsic value to be. I have seen hundreds of buyback notices, and I've sat in boards of directors, one after another, where they voted buybacks. They say they were doing it to prevent dilution or something like that. It's got nothing to do with preventing dilution. Dilution by itself is a negative, and buying back your stock at too high a price is another negative. It has to be related to valuation. As I say, you will not find a lot of press releases about buybacks that say a word about valuation.
We are always behaving a lot like what some might call the Episcopal prayer. We prayerfully thank Lord that we're not like these other religions who are inferior. I'm afraid there's probably too much of that in Berkshire, but we can't help it.
Okay, station 9.
Good afternoon, Mr. Buffett.
Hi.
My name is Sean Montgomery from Fort Worth, Texas. The Nebraska Furniture Mart's been open for about a year in Dallas.
Right.
I was just curious how sales have been, how they compare to your other stores, and what you think they'll be in the future. Thank you.
Yeah. It's our largest store in volume. We had a problem there that we had in Kansas City and we'll probably have every time we open a store in it. We generate so much initial volume that we had a delivery problem. Like I say, it was worse in Kansas City. That was the first one we opened. We really had to take our foot off the gas pedal because the last thing in the world we want to do is make first impressions accompanied by delivery problems. It's our largest store in volume. The deliveries have gotten far better. They actually are meeting our company standards that we have in Omaha. That wasn't the case for some months.
We opened up the largest home furnishing store in the United States. We did it in an area where we naturally thought we trained the drivers as well as we could and everything. Delivery with 100-plus units out there in a new operation, taking in carpet and people getting lost and routing being bad and all kinds. There was plenty of work to be done, and it's been done. I expect that store, which already is the largest store we have, I think it'll be a billion-dollar annual store before very long. We're getting ready to step on the gas. It's a terrific area. We have 20-plus auto dealerships there in the Dallas-Fort Worth area. We probably have three or four of them in the area where our Furniture Mart is. They can't build fast enough down there. Toyota's moving there, Lexus.
It already is a great store, It's going to be something even far beyond that. We've opened up about, I think about four food places so far. We got four or five more in the works. They're doing terrific volumes. I'm starting to sound like Donald Trump here, tremendous, terrific fantastic. I've never seen anything like it. Just wait till next year. I'll come back. I'll really be in shape then. It's doing well. We couldn't have picked a better area. We have over 400 acres that we were very fortunate in corralling a whole bunch of land. We're bringing prices and variety like nobody's seen. Now we just got to bring delivery like nobody's ever seen. Okay, Carol.
This question comes from Chris Gacho of New York. "Mr. Buffett, you have expressed concern about cyber, biological, nuclear, and chemical attacks, but preventing catastrophe is not getting enough attention. For example, a bill passed the House unanimously to harden the electric grid against a high-altitude nuclear explosion. Not too many bills pass unanimously these days. The bill got bottled up in the Senate. Have you considered funding? Wouldn't it be a good idea for you to consider funding a lobbying and educational campaign to promote the public good in this area and counteract industry lobbyists who are often more interested in short-term profits?
Well, in my view, there is no problem remotely like the problem of what I call CNCB, cyber, nuclear, chemical, and biological attacks that either by rogue organizations, even possibly individuals, rogue states. You can think about a lot of things. It will happen. I think we've been both lucky, frankly, that people have done a very good job in government because government is the real protection on this, in not having anything since 1945. We came very, very close during the Cuban Missile Crisis. I don't know what the odds were, but I do think that if there'd been I can think of many people that if they'd been in place of either Kennedy or Khrushchev, we would have had a very different result. It's the ultimate problem.
As I put in the annual report, it's the only real threat to Berkshire's economic, external threat to Berkshire's economic well-being over time. It'll happen. I hope when it happens that it's minimized, the desire of psychotics and megalomaniacs and religious fanatics and whatever to do harm on others is a lot more when you have 7 billion people on Earth than when you had 3 billion or so, which was the case when I was born, less than 3 billion. Unfortunately, there are means of doing it. If you were a psychotic back far enough, you threw a stone at the guy in the next cave. There was sort of a linear relationship of damage to psychosis.
That went along through bows and arrows and spears and cannons and various things. In 1945, we unleashed something like the world had never seen. That is a pop gun compared to what can be done now. There are plenty of people that would like to cause us huge damage. I came to that view when I was in my 20s. In terms of my philanthropic efforts, I decided that that was one of two issues that I thought should be the main issue. I got involved with all kinds of things like, I think it was the concern union
You supported the Pugwash Conference year after year.
Yeah
frankly, all by yourself.
Yeah, Union of Concerned Scientists, and I've given some money to the Nuclear Threat Initiative that is going to create a sort of a Federal Reserve system, a bank of uranium that will take away some of the excuse for countries to develop their own highly enriched uranium. It's overwhelmingly a governmental problem when you're dealing, and it should be, and I think it actually has been the top priority for president after president. It's not the thing they can go out and talk about every day, and they don't want to scare the hell out of everybody, and they also don't want to tip people's hands as to what they're doing. Being in the insurance business, you don't have to even be in the insurance business. You know that someday somebody will pull off something on a very big scale that will be harmful.
Maybe the United States is probably the most likely place it happens, but it could happen a lot of other places. That's the one huge disadvantage to innovation.
Warren, I think he also asked why don't we, Berkshire, spend a lot more time telling the government what it should be doing and thinking?
Well, I've tried telling a lot of people. Nobody disagrees with you on it seems sort of hopeless to them. They don't know what to do beyond what they're doing. Incidentally, they've done a lot of things. Not all gets publicized. I think Kennedy and Khrushchev shouldn't have been sending it over into Cuba, but at least he had enough sense when he knew Kennedy meant business to turn the ships around. You can't count on there being Kennedys and Khrushchevs all the time in charge of things. I see the mistakes that are made in business or human behavior, where people act so contrary to their own long-range self-interest that humans, they got a lot of frailties.
You can argue that if Hitler hadn't been so anti-Semitic, he could have kept a lot of scientists that might have gotten him to the atomic bomb before we did. He drove out the best of his scientific minds.
Imagine a guy stupid enough to think the way to improve science is to kick out all the Jews.
The hero of the 20th century may have been Leo Szilard. Leo Szilard is the guy that got Einstein to co-sign a letter to Roosevelt and say, "One side or the other is going to get this, and we better get it first," basically. He said it much more elegantly than that, and you can go to the internet and look up the letter. We've both been good and we've been lucky. If you remember post 9/11, people started getting a few envelopes with anthrax, and they went to the National Enquirer and Tom Brokaw and Tom Daschle, I can't remember. When you've got a mind that's going to send anthrax to people, how that decision-making is made is just totally beyond comprehension. That person did not end up doing a lot of damage, but the capability for damage is absolutely incredible.
I don't know how Berkshire does anything about that. I don't know how to do it philanthropically. If I knew how to reduce the probabilities of the CNCB type mass attack, if I knew how to reduce the probability by 5%, all my money would go to that, no question about that. Maybe 1%.
Hasn't it been true we haven't been very good at getting the government to follow any of our advice?
Yeah, this one's important.
Yeah.
Yeah. Nobody argues with you about it. They just sort of throw up their hands, and some people work for a while on it and just get discouraged and quit. I was involved, I forget the exact name of it, but their idea was a bunch of nuclear scientists. This was long ago, but their idea was to affect elections in small states. The theory being that government was the main instrument and you would have the maximum impact. Just one after another, people took it up and got discouraged. I don't think it's because we've had the wrong leaders. I think our leaders have been good on this. I do not worry about the fact that either Clinton or Trump would regard that as the paramount problem of their presidency. I just don't know.
The offense can be ahead of the defense, and you can win the game 99.99% of the time, but eventually anything that has any probability of happening will happen. I wish I could give you a better answer. Charlie, have you got any?
I have no hope of giving a better answer.
That's what they all say to me. Yeah. Jonathan?
The Lubrizol lubricant additives business is one of your six largest non-insurance units, but there's been relatively little disclosure about its performance since it was acquired nearly 5 years ago. Can you please update us on how the core business has done and how the competitive landscape and end markets have evolved since it was acquired? I know the core business is not a growth business, but has the increase in miles driven helped their top line at all? Could you also talk about the performance of one or two of their more important bolt-on acquisitions, whether it be Chemtool, the pipeline flow improver company, Warwick, Weatherford, or Lipotec?
Yeah. The additive business, there's four companies in it. It's a no-growth, but very good business, and we're the leader. It has performed almost exactly as you would anticipate since purchase. Other specialty companies, some of which might have growth possibilities, but they're small. Lubrizol overall on an operational basis has been very much as we anticipated or you would have anticipated if you looked at the prospectus at the time we bought it. They made one large acquisition, which was a big mistake, and that was in the oil field, specialty chemical area, and was made just about the time that or even a little after that oil took a nosedive. We've had some decent acquisitions there, but the biggest acquisition should not have been made. We still got the fundamental earning power of the additives business and everything.
That has not disappointed us in any way. It's a very well-run operation that way but it's not a growth operation. Charlie?
Nothing to add.
Okay. Station 10.
Hello. Hello, Mr. Buffett and Mr. Munger. Thank you so much for your insights, teaching, and being great role models. My name is Eric Silberger, a violinist based in New York City. My question for both of you is related to psychological biases. Through Berkshire Hathaway's operations, you get a very good read on macroeconomic factors, yet Berkshire does not make investment decisions based upon macroeconomic factors. How do you control the effect of information such as knowing macroeconomic factors or the anchoring effect of knowing stock prices? Because after a while, it's hard not to once you've analyzed them before. How does that influence your rational decision-making, whether you should ignore it or whether you should try to use it in a positive way?
Well, Charlie and I are certainly, we read a lot, and we're interested in economic matters and political matters for that matter. We know a lot, or we're familiar a lot, I should say, with almost all the macroeconomic factors. Doesn't mean we know where they're going to lead. We don't know where zero interest rates are going to lead. We do know what's going on if we don't know what is likely to-
Warren, there's a confusion here.
Oh.
It says microeconomic factors.
Oh, micro.
We pay a lot of attention to those.
Oh, yeah, of course.
If you talk about macro-
I'm sorry
we don't know any more than anybody else.
Yeah. He summed it up. In terms of the businesses we buy, and when we buy stocks, we look at it as buying businesses, so they're very similar decisions. We try to know all, or as many as we can know, of the microeconomic factors. I like looking at the details of a business, whether we buy it or not. I just find it interesting to study the species, and that's the way you do study it. I don't think there's any lack of interest in those factors or denying the importance of them. Am I getting at his question or not, Charlie?
Well, there hardly could be anything more important than the microeconomics.
Yeah.
That is business. Business and microeconomics are sort of the same term.
I guess.
Microeconomics is what we do, and macroeconomics is what we put up with.
Yeah. The anchoring effect, how do you deal with that as well?
Well, we're not anchored to what we're ignoring.
Oh, I see.
Charlie and I are the kind that literally find it interesting in every business, we like to look at micro factors. When we buy See's Candies in 1972, there may have been 140 shops or something. We'll look at numbers on each one, and we'll watch them over time, and we'll see how third-year shops behave to the second year. We really like understanding businesses. It's interesting to us. Some of the information is very useful, and some of it may look like it's not helpful, but who knows when some little fact stored in the back of your mind pops up and really does make a difference. We're fortunate in that we're doing what we love doing. We love doing this like other people like watching baseball games, which I like to do, too.
Just the very act, every pitch is interesting and every moment, whether a guy's a double steal is interesting or whatever it may be. That's what our activity is really devoted to, and we talk about that sort of thing.
We try and avoid the worst anchoring effect, which is always your previous conclusion. We really try and destroy our previous ideas.
Charlie says that if you disagree with somebody, you ought to be able to state their case better than they can.
Absolutely.
At that point, you've earned the right to disagree with them.
Otherwise, you should keep quiet. It would do wonders for our politics if everybody followed my system.
Okay, Becky.
Oh, Warren, just a quick request. Would you please stop using CNCB as an acronym for mass destruction?
If I use NBC, then I've got a problem with Steve.
This question comes from Matt Bandy in Dallas, Texas. He's asking about Seritage Growth Properties. He says, "In December 2015, you filed a personal 13G evidencing a roughly 8% ownership position in the real estate investment trust, Seritage Growth Properties, which to my knowledge is not paralleled as a Berkshire investment. Alternatively, in September 2015, Warren filed a personal 13G evidencing ownership in Phillips 66, which is paralleled as a Berkshire investment. My question is, how do you decide when making a personal investment for your own account versus an investment for Berkshire? I understand market cap and ownership sizing are the likely factors, but does it still not behoove him to invest for the shareholders' benefit in a company like Seritage that might have significant upside? Where are you putting your personal money to work?
Right. I do not own a share or never have owned a share of Phillips 66. I'm not sure where that person, what he's referring to. It may be that there's some way when the form is filled out that because I'm CEO of Berkshire, that on some line it imputes ownership to me or something. The answer is I've never owned a share of Phillips. Seritage is a real estate investment trust that had a total market value of under $2 billion when I bought it. My situation is that I have about 1% of my net worth outside of Berkshire and 99% in it, I can't be doing things that Berkshire does. A Seritage with a $2 billion market cap is not really something that is of a Berkshire size.
We've never owned a real estate investment trust to my knowledge or my memory in Berkshire at all. It's just not us. I could buy that and not have any worry about a conflict with Berkshire. As a practical matter, my best ideas are, I hope they're my best ideas, are off limits for me because they go to Berkshire if they're sizable enough to have a significance to Berkshire. We will not be making investments unless it's something very odd. We will not be making investments in companies with a total market cap of a couple of billion while we're our present size. Every now and then I see something that's sub-sized for Berkshire that I'll put that 1% of my net worth in, the rest of the stuff is off limits. Basically, unless Berkshire's all done buying something.
I own some wells that I bought a long, long time ago, Berkshire was not interested in. We'd bought enough or something at the time, or maybe we didn't have money for investment. I try to stay away from anything that could conflict with Berkshire. If I'd been buying Phillips when Berkshire was buying Phillips, or prior or subsequently, there could be a case where it'd be okay when we might have hit some limit. The answer is I didn't buy any and have never owned any. Charlie?
Well, part of being in a position like that we occupy is you really don't want conflict of interest or even the appearance of it, and it's been 50 or 60 years. When have we embarrassed Berkshire by some of our side conduct? Both of us have practically nothing of significance in the total picture outside of Berkshire. I've got some Costco stock. I'm a director of Costco. Berkshire's got some Costco stock. There are two or three little overlaps like that, but basically, Berkshire shareholders have more to worry about than some conflict that Warren and I are going to give it. We're not going to do it.
It may sound a little crazy, it's only because I can afford to say this, but I would much rather make money for Berkshire than for myself. It isn't going to make any difference to me anyway. I've got all the money I could possibly need and way more. On balance, my personality, everything's more wound up in how Berkshire does than I am myself because I'm going to give it all away. I know my end result is zero, I don't want Berkshire's end result to be zero, I'm on Berkshire's side. Cliff?
One of the great financial characteristics of Berkshire today is its awesome cash flow. While a simple earnings less CapEx formula yields an annual free cash flow calculation of, I figure, of around $10 billion-$12 billion, in reality, it seems to be much higher, closer to $20 billion, and I think in part due to changes in the deferred tax asset year-to-year. What is the outlook for free cash flow, can investors continue to expect similar dynamics going forward?
Yeah. There's a lot of deferred tax that's attributable to unrealized appreciation in securities. I don't have the figure, but let's just assume that's $60 billion of unrealized appreciation in securities. There would be $21 billion of deferred tax. That isn't really cash that's available. It's just an absence of cash that's going to be paid out until we sell those securities. summarizes through bonus depreciation. The railroad will have depreciation for tax purposes that's a fair amount higher than for book purposes. Overall, I think of primarily the cash flow of Berkshire as a practical matter relating to our net income, plus our increase in float, assuming we have an increase. Over the years, float has added $80 billion+ to make available for investment beyond what our earnings have allowed for. That's the huge element.
We're going to spend more than our depreciation in our businesses, primarily number 1 because of the railroad. Berkshire Hathaway Energy are two entities that'll spend quite a bit more than depreciation, in all likelihood for a long time. The other businesses, unless we get into inflationary conditions, it won't be a huge swing one way or the other. Our earnings, the $17, not counting capital gains, but our earnings, which were whatever they were, around $17 billion, plus our change in float, is the net new available cash. Of course, we can always sell securities and create additional cash. We can borrow money and create additional cash. It's not a very complicated economic equation at Berkshire. People, for a long time, they didn't appreciate the value of float.
We kept explaining it to them, and I think they probably do now. The big thing, the goal, what Charlie and I think about, we want to add every year something to the normalized earning power per share of the company. We think we can do it because we should be able to do it. We have retained earnings to work with every year to get that job done. Sometimes it doesn't look like we've accomplished much, and we haven't accomplished much. Other years, something big happens, and we don't know ahead of time which year is going to be which. Charlie?
Well, there are very few companies that have ever been similarly advantaged in the whole history of Berkshire Hathaway. We've lived in a torrent of money, and we were constantly deploying it and dispersed assets, and we were rising up as we went along. That's a pretty good system.
It's allowed for a lot of
We're not going to change it. No.
It's allowed for a lot of mistakes. That's the interesting thing. American business has been good enough that you don't have to really be smart to get a decent result. If you can bring a little bit of intellect, then you should get a pretty good result.
What you got to do is be aversive to the standard stupidities. If you just keep those out, you don't have to be smart.
Thank God.
Yeah. Yeah. Thank God.
Right. Okay. Section 11.
Hey, Warren and Charlie. Thank you so much for your generosity and sharing your life's accumulation of knowledge and financial capital to the progress of humanity. Thank you for that. Berkshire managers, thank you for building important companies and stewarding our financial futures. Thank you, guys. This is Bruce Wang from MICROJIG, traveling west from Orlando, Florida. Last year, you kindly shared with me the importance of getting the best reputation you can and behaving well. This year I'd like to ask and preface with Bill Gates wrote, 'Warren's gift is being able to think ahead of the crowd.
It requires more than taking his aphorism to heart to accomplish that, although Warren is full of aphorisms well worth taking to heart.' He also added that, 'I've never met anyone who thought in business in such a clear way.' Warren, what elusive, yet obvious to you, truth has allowed you to think ahead of the crowd and build a clear mental framework to produce a historically significant institution powerhouse brand? Charlie, same to you, what obvious truth presents itself so clearly to you, but many would fervently disagree with you upon?
I think I got the question. I owe a great deal to Benjamin Graham in terms of learning about investing. I owe a great deal to Charlie in terms of learning a lot about business. Then I've also been around. I mean, I spent a lifetime looking at businesses and why some work and why some don't work. As Yogi Berra said, "You can see a lot just by observing." That's pretty much what Charlie and I have been doing for a long time. You do. I mentioned pattern recognition earlier. I would say it's important to recognize what you can't do. We may have tried the department store business and a few things, but we've generally tried to only swing at things in the strike zone, at our particular strike zone. It really hasn't been much more complicated than that.
You don't need the IQ in the investment business that you need in certain activities in life. You do have to have emotional control. We see very smart people do very stupid things, and it's fascinating how humans do that. Just take the people that get very rich and then leverage themselves up in some way that they lose everything. They are risking something that's important to them for something that isn't important to them. Well, you can say you can figure that one out in first grade, but people do it time after time. You see that constantly, self-destructive behavior of one sort or another. I think we've probably, it doesn't take a genius to do it, but I think we've sort of avoided the self-destructive behavior. Charlie?
Well, there's just a few simple tricks that work well, and particularly if you've got a temperament that has a combination of patience and opportunism in it. I think that's largely inherited, although I suppose it can be learned to some extent. I think there's another factor that accounts for the fact that Berkshire's done as well as it has, is that we're really trying to behave well. I had a great grandfather, when he died, the preacher gave the talk and he said, "None envied this man's success, so fairly won and wisely used." Now, that's a very simple idea, but it's exactly what Berkshire's trying to do. There are a lot of people who make a lot of money, and everybody hates them, and they don't admire the way they earn the money.
I'm not particularly admirable making money running gambling casinos, and we don't own any. We've turned down businesses, including a big tobacco business. I don't think Berkshire would work as well if we were just terribly shrewd but didn't have a little bit of what the preacher said about my grandfather, Anham. We want to have people think of us as having won fairly and used wisely. It works.
We were very, very lucky to be born when we were and where we were.
Yeah.
You could have dropped us at some other place and time or some other part of the world, and things would have turned out.
Think of how lucky you were to have your Fred Buffett. Warren had an uncle who was one of the finest men I ever knew. I used to work for him, too. A lot of people have terrible relatives.
That's not an unimportant point. Just yesterday, we had a meeting of all my cousins and a whole bunch that we just get together at annual meeting time. There are probably 40 of us or 50 of us there. They were pulling out some old pictures. I have four aunts, they're all in these pictures. Every one of them, you were so lucky if you had one like that, and I had four. In every way, they reinforced a lot of things that needed some reinforcement in my case.
I wish you'd had a couple more.
Yeah.
We'd be doing even better.
He mentioned my Fred Buffett, but my Katie Buffett worked in the store, too, and my Alice Buffett worked in the store. You just couldn't have been around better people. I think Charlie would agree with that.
Yeah. Well, we were very lucky.
Yeah. My grandfather was a little tough, however. Tell them what my grandfather used to do when he paid you on Saturday, Charlie.
Well, that was very interesting. Warren's a Democrat, but he came from different antecedents. I worked for his grandfather, Ernest, and he was earnest. When they passed Social Security, which he disapproved of because he thought it reduced self-reliance, and he paid me $2 for 10 hours work, there was no minimum wage in those days, on Saturday, and it was a hard 10 hours. At the end of the 10 hours, I came in and he made me give him two pennies, which was my contribution to Social Security. He gave me two $1 bills and a long lecture about the evils of Democrats and the welfare state and the lack of self-reliance. It went on and on and on and on. I had the right antecedents, too. I had Ernest Buffett telling me what to do.
Okay. Enough family history.
I haven't overstated that, have I?
No, you haven't overstated it at all. No.
You can't believe what people. He thought he was doing his duty by the world to do that.
We were lucky, Dad. The people we were around when we were young.
Yeah
We were very lucky. Andrew?
Warren and Charlie, you're famous for making a deal over a day or two with nothing more than a handshake. You pride yourself on the small overhead of doing the diligence mostly yourself. Other successful acquisitive companies use teams of internal people, outside bankers, consultants, and lawyers to due diligence, often over many months, to assess deals. Speed may be a competitive advantage. You've done some amazing deals. Does your diligence process also put us at greater risk? If you're ever gone, how would you recommend Berkshire change how we approach deal making?
I get that question fairly often from lawyers. In fact, we talked to Munger, Tolles, the law firm, that was one of the questions I got, why we didn't do more due diligence, which we would have paid them by the hour for. It's interesting. We've made plenty of mistakes in acquisitions, plenty. We made mistakes in not making acquisition, but the mistakes are always about making an improper assessment of the economic conditions in the future of the industry or the company. They're not a bad lease. They're not a specific labor contract. They're not a questionable patent. They're not the things that are on the checklist for every acquisition by every major corporation in America. Those are not the things that count.
What counts is whether you're wrong about whether you've really got a fix on the basic economics and how the industry is likely to develop, or whether Amazon is likely to kill them in a few years, or that sort of thing. We have not found a due diligence list that gets at what we think are the real risks when we buy a business. Like I said, we certainly made at least a half a dozen mistakes, and probably a lot more if you get into mistakes of omission. None of those would have been cured by a lot more due diligence. They might have been cured by us being a little smarter. It just isn't the things that are on the checklist that really count.
Assessing whether a manager who I'm going to hand $1 billion to for his business, he is going to hand me a stock certificate, assessing whether he's going to behave differently in the future in running that business than he has in the past when he owned it, that's incredibly important, there's no checklist in the world that's going to answer that. If we thought there were items of due diligence, and incidentally there are a few that get covered. You want to make sure that they don't have twice as many shares out as you're buying or something of the sort. If we thought there were things that we were missing that were of importance in assessing the future economic prospects of the business, we would by all means drill down on those.
The question of when we bought See's, they probably had 150 leases. When we buy Precision Castparts, they have 170 plants. There's going to be pollution problems at some place. That is not what determines whether a $32 billion acquisition is going to look good five years from now or 10 years from now, and we try to focus on those things. I do think it probably facilitates things with at least certain people, that our method of operation does cut down. You get into squabbles on small things. I've seen deals fall apart because people start arguing about some unimportant point, and their egos get involved, and they draw lines in the sand and all of that. I think we gain a lot. When we start to make a deal, it usually gets done. Charlie?
Well, you stop to think about it, business quality usually counts on something more than whether you cross the T in some old lease or something. The human quality of the management who are going to stay are very important, and how are you going to check that by due diligence? I don't know anybody who's had a generally better record than Berkshire in judging business quality and the human quality of the people who are going to lead the business after it's acquired. I don't think it would have improved at all by using some different method. I think the answer is that for us at least, we're doing it the way we should.
Negotiations that drag out have a tendency that they're more likely to blow up for some reason. People can get obstinate about very small points, and it's silly to be obstinate, but people get silly sometimes. I like to keep things moving. I like to show a certain amount of trust in the other person because usually trust comes back to you. The truth is there's some bad apples out there and spotting them is not going to come from looking at documents. You really have to size up whether that person who's getting a lot of cash from you, how they're going to behave in the future because we're counting on them. That assessment is as important as anything involved.
We know all the figures and everything going in, and we know what we'll pay, so we don't want things to get gummed up in negotiations. I'm perfectly willing to lose small points here and then on a deal if I have the deal on the right terms. Tom Murphy taught me this. You just don't try and win every point. It's a terrible mistake. You make a decent deal, and if you find something that bends a little different some way, that's okay. If you think it's bad faith and gives an indication of the character of the person you're dealing with, then you got another problem, and you're lucky if you find that out early. Charlie, any more?
How many people in this room who are happily married carefully check their spouse's birth certificate and so on? My guess is that our methods are not so uncommon as they appear.
Yeah. I'll think about that. Okay, Greg.
Warren, the announcement earlier this month that Ajit Jain would be taking over responsibility for all of Berkshire's reinsurance efforts once Tad Montross retires from General Re has raised some questions about not only the change in leadership structure, but succession planning. Given the state of the reinsurance market, it makes sense to have Ajit overseeing both businesses, especially if the pricing environment is expected to be difficult for another 10 years, and there are duplicative efforts that can be streamlined.
Given this move and the change in responsibilities we've seen at several of Berkshire's subsidiaries the last few years, I was just wondering if you could give us some color on how succession planning is handled at the subsidiary level, and any insight you could give us into what led you to finally decide to have Ajit oversee both of Berkshire's reinsurance arms, and whether or not it will change the amount of work he'll be doing on the specialty side of the business would be greatly appreciated.
Well, Tad Montross, after 39 years, has done an absolutely sensational job for Berkshire. General Re was a problem child for a while, as you know, and some brought on by itself and some external. Tad is sensational, and I tried several times, maybe successfully in terms of months but not in terms of years, to get him to stay on longer. As you say, it makes sense to have the reinsurance operation under Ajit. Ajit's ability to handle more and more things in insurance, he oversees a company called Guard, which most of you have never heard of, and we bought it a few years ago, and it's doing terrifically. It's based in Wilkes-Barre, Pennsylvania, but it's doing a great job with small business policies, primarily workers' comp, around the country, and it's flourished being put under Ajit.
He started the specialty operation a couple of years ago, and under Peter, that is going gangbusters. This is interesting, but it's true. I have found with really able people, they can handle so much. Well, just take Carrie Sova, put this meeting together. If you have some preconceived notion that an annual meeting that's going to have 40,000 people therefore needs to spend $ millions with all kinds of organizational planning and meetings, and meetings, and meetings. Really able people, my assistant, Debbie Bosanek, she can do anything. There's just no limit to what talented people can accomplish. If I had something else in insurance tomorrow that needed doing, I'd probably call Ajit on that, too. In terms of my succession, we'll have a board meeting on Monday, but we'll talk about it as we always do at every meeting.
Our thoughts are as one on that, and everybody knows why it makes the most sense. Five years from now, something different could make sense. Well, that's one reason for not announcing any names. Who knows what happens in terms of the time when it happens or what happens to the person involved? Maybe their situation changes. There are no tea leaves to read in the fact that Ajit is supervising General Re from this point forward. Charlie?
Well, there's an adverse side of that. Not only can the able people usually do a lot more, but the unable people, by and large, you can't fix.
That is for sure
I think you're forced to use our system if you have your wits about you.
We don't feel the need to follow any kind of organizational common view as to you do this, and you have only so many people can report to you or any of this sort of thing. Berkshire, every decision that comes up, we just try and figure out the most logical thing to do at that time. We don't have some grand design in mind of an army organizational chart or something of the sort, and we never will. Yeah.
Warren and I once reached a decision we wouldn't pay more than X dollars for something. The man who was subordinate to both of us who was working on it just said, "You guys are out of your minds. This is really stupid. This is a quality operation. You ought to pay up for it." We just looked at one another and did it his way.
Yeah.
We don't pay any attention to titles or anything.
He was right, too.
He was right. Yeah, of course.
Yes. Okay. Oh, sorry. Go ahead.
If a charwoman gave us a good idea, we'd accept it cheerfully
One time, the woman that does clean my office came in, I think she'd been kind of wondering what I did. I'd see her frequently, her name was Ruby. Finally, one day, she decided to really get to the heart of the matter, she said, "Mr. Buffett, do you ever get any good horses?" Apparently thought this is where I was really making my money was at the track. Okay, station one.
Yeah.
Hello, Mr. Buffett.
Hi.
Hello, Mr. Buffett, Mr. Munger. Nirav Patel, Haverhill, Massachusetts. Thank you for taking my question. With Berkshire Hathaway being so well-managed, why doesn't it have a highest credit bond rating?
Let me take that one.
Okay.
The rating agencies are wrong.
Set in their ways.
We don't fit their model very well.
Yeah.
Yeah.
We don't look like anything exactly they see otherwise, but.
That's the answer.
Yeah. I'll say this, though. What I do when they come in the door, I always say, "Let's talk quadruple A." I believe in starting to negotiate from that standpoint. I never get any place. Okay, Carol.
Questions continue to come in about the financing and working relationship that Berkshire formed with 3G a couple of years ago, and this is one of those questions. While 3G has been very successful in cutting costs and increasing margins at Kraft Heinz, the company has seen volumes and revenues decline. As a long-term investor, how do you judge when a management is cutting muscle as well as fat? Can a business increase revenues while cutting costs? I forgot to say, this came from Rick Smith at New York City.
Well, the answer is yes. Sometimes you can cut costs that are a mistake to cut, and sometimes you can keep costs that are a mistake to keep. Tom Murphy had the best approach. He never hired a person that he didn't need, and therefore they never had layoffs. You might say that at headquarters at Berkshire, we followed a similar approach. We don't take on anybody. Now, I think it is totally crazy when companies are in. Now, if you're in a cyclical business, you may have to cut a workforce because there aren't as many car loads of freight moving or something like that, so you cut back on crane crews and all that. The idea that you give up your staff, whatever it may be, economist or something like that, because business has slowed down.
If you don't need them now, you didn't need them in the first place. The people that are there just because somebody started a department, and they hired more people and so on. I would argue that since we've forgotten to insult this group so far, I would suggest that happens in investor relations departments perhaps or something of the sort. You get a department going, and they're always going to want to expand. The ideal method is not to do it in the first place, there are all kinds of American companies that are loaded with people that aren't really doing anything or are doing the wrong thing. If you cut that out, it should not really have any significant effect on volume. On the other hand, if you cut out the wrong things, you could have a big effect.
It can be done in a dumb way or a smart way. My impression from everything I've seen, and I've seen a fair amount so far, is that 3G, in terms of the cost cuts that they've made, have been extremely intelligent about it and have not done things that will cut volume. It is true that in the packaged goods industry, volume trends for everybody, whether they're fat or lean in their operation, volume trends are not good. The test will be over time, three, five years, are the operations which have had their costs cut, do they do poorer in terms of volume than the ones that, in my judgment, look very fat? So far, I see no evidence of that whatsoever. I do think at Kraft Heinz, for example, we've got certain lines that will decline in volume.
I think we've got certain lines that will increase, but I think overall, the packaged good industry is not going to go any place in terms of physical volume, and it may decline just a bit. I've never seen anybody run anything more sensibly than 3G has in terms of taking over operations where costs were unnecessarily high and getting those costs under control in a hurry. The volume question, we'll look at as we go on. Believe me, I look at those figures every month, and I look at everybody else's figures every month, and I'm always looking for any signs of underperformance because of any decisions made, and I've seen none. Charlie?
Sometimes when you reduce volume, it's very intelligent because you're losing money on the volume you're discarding. It's quite common for a business not only to have more employees than it needs, but it sometimes has two or three customers it'd be better off without. It's hard to judge from outside whether things are good or bad just because volume is going up or down a little. Generally speaking, I think the leanly staffed companies do better at everything than the ones that are overstaffed. I think overstaffing is like gaining the weight 400 pounds when you're a normal person. It's not a plus.
Sloppy thinking in one area probably indicates there may well be sloppy thinking elsewhere. I have been a director of 19 public corporations, and I've seen some very sloppy operations, and I've seen a few really outstanding business operators, and there's a huge difference. If you have a wonderful business, you can get away with being sloppy. We could be wasting $1 billion a year at Berkshire, be $650 million after tax, that'd be 4% of earnings. Maybe you wouldn't notice it.
I would.
It grows. Charlie would notice it. It's the really prosperous companies that some. Well, the classic case, I think, were the tobacco companies many years ago. They went off into this thing and that thing, and it was practically play money because it was so easy to make, and it didn't require good management, and they took advantage of that fact. You can read about some of that in "Barbarians at the Gate." Jonathan.
Berkshire paid $4.1 billion for Van Tuyl's auto retailing business and consolidated its earnings for nearly 10 months last year. Given prevailing acquisition multiples in the industry and margins, and the record level of retail auto sales, it seems that the acquisition should have contributed more to Berkshire's bottom line in 2015 than it seemed to, although it's hard to tell for sure since its results were lumped in with those of the German motorcycle apparel acquisition, which was only owned for a part of the year also. I understand the tax deductible intangibles reduce the effective purchase price of Van Tuyl, I still wonder whether there were any one-time charges or whether profits from insurance and finance operations could have been reported somewhere other than in the retail segment.
Yeah.
I imagine Berkshire is earning a better return on the acquisition than is so far apparent, I wonder if you could explain the difference between the likely economics of the deal and what I infer from the annual report figures.
You're right about it. It is better than it looks. For one thing, we got $1 billion of securities, roughly, with the $4.1, and those securities we're basically carrying at a quarter of a percent. That $1 billion is available to us, and that came with the deal. There are some very significant acquisition accounting charges that will continue for a couple of years, and that I'm happy to have taken that way. The economics of Van Tuyl, I would say, have worked out almost exactly as I would have. If you had me a year ago lay out a projection, I don't do it, if I had, it would look very much like things have turned out. Jeff Rachor, who runs that operation, really fits the Berkshire mold. We've got a first-class CEO there.
Take $1 billion off the purchase price for openers, and then there are some amortization charges of items that are allowable that make you correctly see a fairly low figure against what it appears the acquisition price was. So far, it's exactly on schedule, and the schedule was perfectly satisfactory. Okay, station 2. Incidentally, we haven't had much luck so far in acquiring other auto dealerships based on the same metrics that we bought Van Tuyl. I think to a small degree, that's because people think we paid more for Van Tuyl than we did. They're not seeing certain factors in it, they think we paid X, and therefore they're entitled to X. We didn't pay X, so we haven't made a profit. We've bought very little so far. I hope that changes in the future.
We're not going to change our metrics in terms of how we value auto dealerships. Okay, station 2.
Good afternoon, Mr. Buffett and Mr. Munger. I'm John Gory from Iowa City, Iowa. When interest rates go from zero to negative in a country, how does that change the way that you value a company or a stock? Do you choose a high valuation because the discount rate is low? On the other hand, do you choose a low valuation because the cash flow is likely to be poor?
Going from, which we haven't done in this country yet, but going from zero to minus a half is really no different than going from four to three and a half. It has a different feel to it, obviously, if you have to pay a half a point to somebody. If you have your yield or your base rate reduced by half a point It's of some significance, but it isn't dramatic. What's dramatic is interest rates being where they are generally. Whether it's zero plus a quarter, minus a quarter, plus a half, minus a half, we are dealing with a situation of essentially very close to zero interest rates, and we have been for a long time and longer than I would have anticipated.
The nature of it is that you'll pay more for a business when interest rates are zero than if they were 15% when Volcker was around, and you can take that up and down the line. We don't get too exact about it because it isn't that exact a science, but very cheap money makes me pay a little more for businesses than when money was at what we previously thought was normal rates, and very tight money would cause me to pay somewhat less. We had a rule for 2,600 years that Aesop lived around 600 BC, but he didn't happen to know it was BC. You can't know everything.
It was that a bird in the hand is worth two in the bush, but a bird in the hand now is worth about nine-tenths of a bird in the bush in Europe because it depends on how far out the bush is, but it keeps getting worth less as you go along. These are very unusual times that way, and if you ask me whether I paid a little more for Precision Castparts because interest rates were around zero than if they'd been 6%, the answer is yes. I try not to pay too much more, but it has an effect. If interest rates continue at this rate for a long time, if people ever really start thinking something close to this is normal, that will have an enormous effect on asset values. It already has some effect. Charlie?
Yeah, I don't think anybody really knows much about negative interest rates. We never had them before. We never had periods of stasis like except for the Great Depression. We didn't have things like happened in Japan, a great modern nation playing all the monetary tricks, Keynesian tricks, stimulus tricks, and mired in stasis for 25 years. None of the great economists who studied this stuff and taught it to our children understand it either. We just do the best we can.
They still don't understand it.
No. Our advantage is that we know we don't understand it.
It's interesting, though. It makes for an interesting movie. It does modestly affect what we pay for businesses. I don't think anybody expected it to last this long, do you, Charlie, personally?
I don't think-
Yeah
if you're not confused, you haven't thought about it correctly.
Yeah. I thought about it correctly then. Becky?
Warren, in the past, you've talked about GEICO working with IBM's Watson.
Yeah.
This shareholder, Guillermo Bermudez, writes in and wants to know, would IBM be able to offer insurance industry competitors of GEICO the solutions developed with GEICO help and expense? I would think that there would be confidentiality provisions to protect GEICO because in as much as GEICO educates IBM as to insurance issues, GEICO could be at jeopardy of competitors gaining or equaling its advantage if they purchase solutions jointly developed by GEICO and IBM.
Yeah. I would say the answer to that is that both parties have thought about that matter and very intensively and extensively, and neither would be in a position to talk about it. I don't like to not answer any question, but there are some things that it doesn't pay to answer. Am I right, Charlie?
Yes, of course, you're right.
Okay. I like that. Cliff?
Over the decades, your substantial returns in American Express seem to support your point. You've talked in the past about the ability of American Express to reinvent itself over time, today it seems to be a company that doesn't have alternative businesses and its brand doesn't seem to have the same cachet as it once did. Shouldn't a prudent investor, shouldn't Berkshire periodically reassess its reasons for owning an investment?
Well, we reassess our reasons for owning all investments on almost a continuous basis. Both Charlie and I do that, we're usually in a general range of agreement, sometimes we are a fair distance apart, perhaps. There's no question that payments are an area of intense interest to a lot of very smart people who've got a lot of resources.
Rapid change.
Yeah, rapid change. It will change. I personally feel okay about American Express, and I'm happy to own it. Their position has been under attack for decades, more intensively lately, and it will continue to be under attack. It's too big a business and it's too interesting a business, and it could be too attractive a business for people to ignore it. It plays to the talents of some very smart people. It's natural that a great many organizations that are really quite able think about it, and it's big.
Businesses aren't quite so great as they used to be. The packaged good business for the Procter & Gamble
Yeah
So forth of the world, General Mills, they're all weaker than they used to be at their peak.
The auto companies. When Charlie and I were
Oh, my God.
Yeah.
When I think of the power of General Motors when I was young, and what happened, they wiped out all the shareholders. I would no more have predicted that. When I was young, General Motors loomed over the economy like a colossus. It looked totally invincible. Torrents of cash, torrents of everything.
Trying to hold down market share.
Yes, because they are afraid they'd be too monopolistic. The world changes, and we can't make a portfolio change every time something is a little less advantaged than it used to be.
You have to be
Alert
You have to be thinking all the time.
Yes
To whether there's been something that really changes the game in a big way. That's not only true for American Express, that's true for other things we own, including things we own 100% of. We'll be wrong sometimes. We'll be late sometimes, we'll be wrong sometimes, but we'll be right sometimes, too. It's not that we're not cognizant of threats, but assessing the probabilities of those threats being a minor problem or a major problem or a life-threatening problem, it's a tough game, but that's what makes our job interesting.
I think anybody in payments, probably, who's an established longtime player with an old method has more danger than used to exist. There's more fluidity in it.
Okay. Station 3.
Hi, Mr. Buffett.
Hi.
Hi, Mr. Munger. I'm from Flagstaff, Arizona. My name is Mick Kelly. My family runs some cattle ranches down in Arizona, and that's what my question pertains to. I'm curious on your thoughts as it relates to the expanding global population and investing in cattle, and if you think it's wise. Thank you.
Charlie?
I think it's one of the worst business I can imagine for somebody like us.
There's nothing personal about this.
Yeah. Not only is it a bad business, we have no aptitude for it.
Some people have done well in it, Charlie.
Boy, yeah. They have one good year every 20 years or something.
Yeah.
I know you guys like steak.
Very much.
Not owning cattle.
Yeah. Actually, I know a few people that have done reasonably well in cattle, but they usually own banks on the side or something of the sort. I wish you the best in it.
Yeah.
I'm in Kiewit Plaza if you want to sell anything along.
Somebody has to occupy the tough niches in the economy. We need you.
Yeah. Thank you.
Thank you.
Yeah.
Andrew?
Warren and Charlie. Well, the first part's for Charlie, second part's for Warren. Charlie, you clearly understand the power of incentives. How do you apply this at Berkshire when designing compensation formula? Without naming names or dollar amounts, please illustrate for us with a couple of examples of how Berkshire's operating managers get paid for performance in different industries. The second part is for Warren, which is, you once said you'd write about how we should compensate the next Berkshire CEO. Can you describe exactly how we should do it now?
Well, I wouldn't worry about the next CEO. When it comes to the system, our incentive systems are different, what they try and adapt to is the reality of each situation. The basic rule on incentives is you get what you reward for. If you have a dumb incentive system, you get dumb outcomes. One of our really interesting incentive systems is at GEICO, I'll let Warren explain it to you because we don't have a normal profits type incentive for the people at GEICO. Warren, tell him because it's really interesting.
Yeah, well, at GEICO, we have two variables, and they apply to well over 20,000 people. I think you have to be there a year, beyond that point, anybody who's been there a year or more, I could be wrong on the exact period, is subject and knows, understands, that these two variables will determine bonus compensation. As you go up the ladder, it has a multiplier effect. It's still those same two variables, it gets to be larger and larger in terms of bonus compensation as a percentage of your base. It's always significant. It's always significant. Those two variables are very simple. I care about growing the business, and I care about growing it with profitable business.
We have a grid Which consists of growth in policies in force on one axis, not growth in dollars because that's reflected by average premiums which are outside their control, but growth in policies in force. Then on the other grid, we have the profitability of seasoned business. It costs a lot of money to put business on the books. We spend a lot of money on advertising and all of that. The first year, any business we put on the books is going to reduce profit significantly. I don't want people to be worried about the profit that might be impaired by growing the business fast. Profit of seasoned business, growth of policies in force. Very simple. We've used it since 1995. We put a tiny little tweak or two in for new businesses or something, but it's overwhelmingly a simple system.
Everybody understands it. In February or so, it's a big day when the two variables are announced and people figure out how they come out on it. It totally aligns the goals of the organization in terms of compensation with the goals of the owner. That's a simple one. The interesting thing about Berkshire.
It's simple, other people might reward something like just profits, and so the people don't take on new business they should take on because it hurts profits. You got to think these things through, and of course, Warren's good at that, and so is Tony Nicely.
Yeah. Somebody comes and say, "Well, you reward profits." You don't want to reward profits. Alone, it'd be the dumbest thing you could do. You just quit advertising and start shrinking the business a little. Like I say, people there know that the very top person is getting paid based on those same two variables, so that they don't think that the guys at the top have got a cushy deal compared to them and all of that. It's just a very logical system. The interesting thing, I'll get to your second question in a minute, the interesting thing is that if we brought in a compensation consultant, they would start coming up with plans that would be designed for all of Berkshire and get us all pulling together.
Maybe an undertaking parlor.
Yeah.
God knows where they'd get the plan.
The idea of having a coordinated arrangement for incentive compensation across 70 or 80 businesses or whatever means is just totally nuts. Yet, I would almost guarantee you that if we brought in somebody, they would be thinking in terms of some master plan and little sub-plans and all this kind of thing, and explain it with all kinds of objectives. We try to figure out what makes sense in each business we're in. There are some businesses where the top person is enormously important. There are some businesses where the business itself dominates the nature, the result. We try to design plans that make sense. In certain cases, I asked one fellow that came to work for us or that was selling me his business.
The day I met him, he came to the office and he had a business he wanted to sell, but he also wanted to keep running it. I made a deal with him on it, then I said, "Tell me what the compensation plan should be." He said, "Well," he said, "I thought you told me that." I said, "No." I said, "I don't want a guy working for me that has a plan that he thinks doesn't make sense, or that he's unhappy with, or chewing at him, or he's complaining to his wife about, or whatever it may be. You tell me what makes sense." He told me what made sense, and it made sense. We've been using it ever since. Never changed a word. We have so many different kinds of businesses.
Some of them are very tough businesses, some of them are very easy businesses. Some of them are capital-intensive, some of them don't take capital. You just go up and down the line, to think that you'll have a simple formula that can be stamped out for the whole place, then with some overall stuff for corporate results on top of it, you'd be wasting a lot of money and you'd be misdirecting incentives. We think it through one at a time, it seems to work out pretty well. In terms of the person that succeeds me, it's true. I have sent a memo, in fact, I sent two memos to the board with some thoughts on that. Maybe I'll send a third one, I don't think it would be wise to disclose exactly what's in those letters.
It's the same principle as I've just gotten through describing.
He wanted more bad examples. A lot of the bad examples of incentives come from banking and investment banking. If you reward somebody with some share of the profits, and the profits are being reported using accounting practices that cause profits to exist on paper that are not really happening in terms of underlying economics, then people are doing the wrong thing, and it's endangering the bank and hurting the country and everything else. That was a major part of the cause of the Great Financial Crisis, is that the banks were reporting a lot of income they weren't making, and the investment banks were, too. The accounting allowed for a long time a lender to use as his bad debt provision his previous historical loss rate.
An idiot could make a lot of money by just making way gamier loans at high interest and accruing a lot of interest and saying, "I'm not going to lose any more money on these because I didn't lose money on different loans in the past." That was insane for the accountants to allow that, and literally insane. That's not too strong a word. Yet nobody's ashamed of it. I've never met an accountant that's ashamed of it.
Another thing and possibility is when you get the very greedy chief executive who wants an enormous payoff for himself, and to justify it, designs a pyramid so that a whole bunch of other people down the line get overpaid in some relation or get paid in relation to something they have no control over, just so it doesn't look like he's all by himself in terms of that fantastic payoff he's arranged for himself. There's a lot of misbehavior. You saw it in pricing of stock options. I literally would hear conversations in a boardroom where they hoped they were issuing the options at a terribly low price. Well, if you got people interested in having options issued at a terribly low price, they may even occasionally do something that might cause that.
What can be dumber than a company looking for a way to issue shares at the lowest price? Compensation isn't as complicated as the world would like to make it, but if you were a consultant, you'd want to make people think it's very complicated, and that only you could solve this terrible problem for them that they couldn't solve.
We want it simple and right. We don't want it to reward what we don't want. Those of you with children, just imagine how your household would work if you constantly rewarded every child for the bad behavior. The house would be ungovernable in short order. Okay, Greg.
During the past several years, Burlington Northern has spent more than just about every railroad on capital expenditures. While the company reduced its CapEx budget from $5.7 billion during 2015 to $4.3 billion this year, it still represents around 20% of annual revenue, which we believe is at least a bare minimum for most railroads to continue to invest indefinitely. Other than maintenance CapEx, which is likely to account for around 60% of that total, what do you believe are the most likely additional investment opportunities for BNSF, realizing that the secular decline in coal, which has accelerated of late, and the complicated nature of crude oil shipments, where BNSF has already invested heavily the past few years, are likely to push it more towards other parts of the business?
As I mentioned in the annual report, in the case of all railroads, merely spending their depreciation expense will not keep them in the same place. Depreciation is an inadequate measure of the actual steady state capital expenditure needs of a railroad, even in these fairly non-inflationary ways. That's an important consideration in buying the business. We knew that going in. It's been reinforced since. We spent a lot of money in 2015 because we had a lot of problems to correct. That was when we spent the $5.7 billion. I would say that the true maintenance CapEx, if you're looking at $4.3 billion, is higher than 60% of that number when you really evaluate keeping the railroad in competitive shape to do just the same volume as it would be doing the year before.
There is an additional expense at BNSF that is not reflected in the figures. We also have a lot of intangible expenses at some other businesses that aren't real expenses. Overall, I think that Berkshire's figures actually are on the conservative side in relation to real economic earnings, but that's not true at any railroad. They've also had something called Positive Train Control, which amounts to a lot of money for the industry. I think we may be a little further along than most of them in paying for that, but that's $200 million or $300 million a year and maybe, I don't know whether it'd be close to $2 billion or something like that in aggregate. It is a very capital-intensive business.
At the BNSF, we run far more gross in revenue ton miles than any other railroad in North America, that obviously is a factor on capital expenditures. I would say that it's very likely that we will spend more than depreciation, unfortunately, quite a bit more than depreciation to stay in the same place for a long, long time, as will other railroads, that's a negative in the picture. We will always be looking for ways to use capital expenditure money to develop additional business, and we get that opportunity regularly. It's just a question of the size of it. We did a lot of that in the Bakken, and we got benefits from it. We're not getting benefits as much as we thought we would at this point when the price of oil has fallen off.
That was a very sensible capital expenditure, and I hope we get the opportunity to do more. What's happening in coal with the decline, that doesn't really have anything to do with our overall capital expenditure budget, except we won't be spending a whole lot of money to expand in that arena. Does that answer your question okay?
No, I was just thinking maybe with Intermodal as well, if that's a longer-term opportunity to invest more heavily there.
We're always open to it, but you have to see a fair amount of revenue coming from. We had a proposition very recently, which we worked on for many, many years, in terms of making the port at Long Beach considerably more efficient, and we'd spent a lot of money on that and spent a lot of time, and we would've spent a whole lot more money if it had been approved. Recently, a court came out with a decision that was negative on it. Whether that kills the chance to do that or we look someplace else, we'll have to look at the situation.
Our competitors there pretend to be environmentalists. It's a common practice now.
In any event, we thought we had something that made a lot of sense for both the area and for the transportation system of the country.
We're trying to do the right thing, so far we've lost.
We're still willing to spend a lot of money.
Yeah
If we can find things that make the railroad more efficient or make it larger, either way. Okay, section four.
Good afternoon, Mr. Buffett and Mr. Munger. My name is Marcus Douglas. I'm an investment advisor from Houston, Texas. Where I'm from, there are a lot of people losing their jobs, mostly due to the sharp decline of crude oil prices. My question pertains to the overall state of the union, more so than my dear city. Keeping in mind that crude oil is primarily bought and sold in American dollars, do either of you believe the major fluctuations in the supply of crude oil influence the future monetary policy decisions? Sorry.
Well, that's yours, Charlie.
Well, my answer would be not much.
Yeah. It's an important industry, obviously, and the decline in the price of oil has had a lot of effects. Very good for the consumer, hundreds of millions of consumers, and very bad for certain of the businesses like the one we bought in Lubrizol, and some others to a degree. Net, it should be good for the U.S. overall to have low prices for oil. We're a net oil importer. Just like it's good for the U.S. to have low prices for bananas. We're a banana importer. Anything we net buy is a plus when prices fall, but oil is big enough and extends into so many areas that it also hurts plenty when the price of oil falls, and it particularly hurts capital values.
The consumer gets the benefit when he or she goes to the filling station every two or three weeks, or something like that, and it comes in relatively small increments. The capital value contraction, which is huge if you project out lower price oil for a while, hits immediately. An oil field that was worth X may be worth half X or a third of X or no X overnight. There are certain big factors, well, in terms of our chemical operation, people just stop ordering. You have this big impact on capital values immediately, and you have the benefits move in over time. Net, the U.S. is better off, and Saudi Arabia is worse off when prices of oil are lower. Oil's a big part of the economy, but our economy has continued to make progress overall during the oil price decline.
Obviously, given regions suffer disproportionately just as like they boomed. They got a real boom during the period when it was at $100 and when fracking came in big time. Charlie?
Well, I think that that will do for this subject. Okay, Carol.
Thank you.
The question is from Larry Leibowitz of Boston. The year-end balance sheet for our manufacturing, service and retailing operations shows total current assets of $28.6 billion, of which cash and equivalents are $6.8 billion. Meanwhile, total current liabilities are $12.7 billion, implying net working capital of $15.9 billion. It has become increasingly common for companies like Apple and Dell to finance their business via their suppliers, in some cases with negative working capital. Why is it necessary for these Berkshire businesses to have so much working capital, particularly so much cash? More generally, how do you think about efficiently managing the working capital of a business segment so large, sprawling, and decentralized as this one?
Yeah. Well, we have excess cash every place at Berkshire. At present, it really doesn't make any difference whether we have it at certain subsidiaries or other subsidiaries. We have excess cash. As I've pointed out in the past, we will never go below $20 billion of cash, and we'll actually stay comfortably above it. Allowing for the preferred that's going to will be, again, over $60 billion of consolidated cash. We don't really worry much about what pocket it's in. It's not making anything anyway at these levels. If rates move higher, we've actually got the mechanics in process to do sweep accounts and that sort of thing. I would pay no attention to the particular cash that's being held in that category there.
The cash in Berkshire Hathaway Energy, the cash in the railroad, we have independent levels that we don't guarantee their debt, and they run with ample cash, and we would not look at sweeping that down to a minimum. If you talk about 40 or 50 of our miscellaneous subsidiaries, we will go to a sweep account when rates get where it really makes any difference to do it. Right now, when you're getting zero, it doesn't make much difference where you get zero. I think the fellow's overanalyzed it a little bit, but I understand why he did it.
Warren, one of his ideas is why don't we imitate some of these other people and pay our suppliers a lot more slowly so we have more working capital?
Yeah. Well, that's a big thing in business now. Last year, Walmart, for example, went to almost all of their suppliers, as I understand it, and certainly the companies that we supply. They basically had a list of half a dozen things that they wanted present suppliers to agree to, and one of those things was more extended terms. Each of our companies made their own decisions, but my guess is they got more extended terms from most of their suppliers, maybe a very high percentage of their suppliers. They have gone from, I don't remember the exact request, but whether they went from 30 to 60 days or what it was, but they got a meaningful extension.
You will, in a couple of years or a year, it takes time to implement, you'll see higher payables relative to sales at Walmart than you saw a year or two ago. They are under a lot of pressure competing with Amazon and others, and that's one of the ways they expressed it. I've seen it done other places. It's conceivable that one of our subsidiaries might deem it wise to do it, but I don't think they will. I think that the pressure for cash at Berkshire is not that high, and I think that the pressure for, or the desire for great relations with suppliers would probably overcome, in most of our managers' minds, any desire to start extending terms.
Yeah, I think it's hard to do that brutally when you're rich and your supplier isn't, and think that your supplier's going to love you. I think there's something to be said for leaning over backward to have a win-win relationship with both suppliers and customers always.
It's never been pushed at Berkshire, that's for sure. You can argue we got a pretty good thing going in float anyway.
Yeah. We don't need it. Let somebody else set the record on that one.
Okay, Johnny.
Most American corporations separate out supposedly one-time restructuring costs, whereas Berkshire doesn't. Berkshire's reported operating earnings are therefore, in my opinion, of higher quality. Have you ever calculated how much higher operating earnings on average would be if Berkshire separated out plant closing costs, product line exits, severance pay, and similar items? Is it a material number, or does Berkshire not incur much in the way of these types of costs, typically because most of your acquisitions are standalone?
Let me take that one. That's a question like asking, "Why don't you kill your mother to get the insurance money?" We don't do it. We're not interested in manipulating those numbers. We haven't had a restructuring charge ever, and I don't think we're about to start.
Yeah. I would say this too, Johnny. We don't do that. The numbers would not be huge. There could be a year, I suppose, when they might be for some reason. They are more conservatively stated than most companies, and I think they're of higher quality. I pointed out also that I think that our depreciation expense at the railroad, which is standard, and which all the other railroads use, is inadequate as a measure of true operating earnings.
You're talking about, we like to advertise our defects.
Not all of them.
Oh.
There's no question that I think we will have more amortization of certain intangibles, which reduce earnings and reported earnings, but which in reality are not expenses, we'll have more of that than some companies. I pointed that out. I never want to report one of these things where I have the whole adjusted earnings set out and say, "This is what you're supposed to pay attention to," because every one of those I've seen virtually results in some inflation of figures. Things are good enough at Berkshire, we don't need to inflate the figures. Okay, station five.
This is Martin calling from Germany. I'm a fixed income manager. We launched with Hendrik Leber, a fund.
You have my sympathy.
Yeah. The volume is about $600 million-$650 million. We are 4.1% ahead this year. Obviously, my question is about fixed income. If I look in your annual report, it's about the volume of $25 billion. If I add, let's say, the CDS, you were selling the CDS, it's about a volume of $7 billion or $8 billion. My concrete question is, the premium on your CDS is about 31 basis points at the end of the year. Mark to market, it's probably at the high teens or 20s. Would you consider to unwind this position? Are you allowed to do it? In the annual report, you say no, probably you can make exactly the contrary trade on it. That means you are buying protection. Is that a philosophy which you stand behind?
Could you do that from the epic point of view, when the premium are extremely low, which is the case that the spreads are, as I said, between 15 and 20 basis points? Can you give-
Charlie, that sounds like it was designed for you.
I think he was referring to, we have one position left over from six or seven years ago, or thereabouts, that involves us selling protection on zero coupon municipal bonds with a nominal maturity value, which is, since they're zero coupons, is far off and not present value at all of, I think, $7.7 billion or something like that. We're just sitting with that position because we like the position. The gentleman mentions that our CDS is an insurance premium against our debt that people buy. There's a fair amount of activity in it from time to time, and I think that's partially caused by the fact that we neither collateralize that municipal contract that he refers to, we don't collateralize, with minor exceptions, the equity puts that are still out there.
The counterparties have to buy protection on Berkshire's credit through CDSs. The people they buy it from, their credit probably isn't as good as Berkshire's. It's probably in an internal rule at some of these firms that are on the other side of the contract. That really doesn't make any difference to us. Back in 2008 and 2009, our CDS prices went up to a crazy level, I even commented here at the annual meeting that I would love to be selling them myself except I wasn't allowed to. What goes on in the CDS market really isn't of any particular interest to us, and it's too bad for the other guys that they didn't get collateral from us, and we wouldn't have given it to them.
They have to buy these things that, like I say, from our standpoint, they're wasting their money, they probably have internal rules that make them. I think I've addressed your question, Charlie, do you think I've addressed his question?
The truth of the matter is that we don't pay much attention to trying to get an extra two basis points by being gamey on our short-term things, that credit default position is a weird historical accident, we don't pay much attention to it either. It'll go away in due course.
All of our contracts are just going to expire. We do a few operational contracts in our energy company, there's a couple of places where they for their own reasons, sometimes because the utility commissions want them to, they do certain things, it's peanuts. The positions that I instituted six or seven years ago are basically all in a runoff position, the first big runoffs will be in 2018, in a couple of years.
We're basically not in that.
We're not in-
We don't fool around with our own credit default swaps at all.
No. Never. No.
No.
I would have liked to have sold them in 2008. They actually got up. People were paying.
I know. It was crazy.
500 basis, 5% in terms of betting that Berkshire would go broke, which was totally crazy, but I couldn't take advantage of it. I wanted to, though. Becky.
This question comes from Tom Hensley, a longtime shareholder from Houston, Texas, who says, "Over the years, you've been effusive in your praise of Ajit Jain and his contributions to Berkshire. In the 2009 chairman's letter, you wrote, 'If Charlie, Ajit, and I are ever sinking in a boat and you can only save one of us, swim to Ajit.' My question is, what if we don't get to Ajit in time? Please comment on the impact on National Indemnity and Berkshire, and whether or not there's another Ajit in the house.
There's not another Ajit in the house. I didn't hear the part immediately before when you were, but there is not another Ajit in the house.
The impact on National Indemnity. I guess the impact on the insurance companies as a result.
If we lost him?
Yeah.
Yeah, it would be very significant. That would be true of some other managers at some other subsidiaries. It's quite dramatic with Ajit's operation because literally there were a few years when we had 25 or so, or 30 people where that operation, it was an unusual period to be in, but where its earning potential under Ajit was fantastic. That probably won't happen to that degree again. Wish it would. He's done a tremendous amount for Berkshire. I could start with Tony. There have been a lot of managers that have created billions and billions of dollars of value for Berkshire. Maybe you can get into the tens of billions. Having a fantastic manager that has a large potential business available to them and who makes the most of it's huge over time.
You don't see it necessarily in a week or a month or anything of the sort. When you're building capital value, think of the value of Jeff Bezos to Amazon. It wouldn't have happened without him, and you're looking at huge values. I could name other situations. The value of Tom Murphy and Dan Burke was the difference between zero and what they ended up with. They built that thing from a bankrupt UHF station in Albany. They didn't invent television or anything of the sort, they just managed it so well. Really outstanding managers, they're invaluable, and Charlie and I can't do it ourselves, but we want to align ourselves with them, and then have them feel about Berkshire the way we feel about it. If we do that, we have an enormous asset.
We do have in Ajit and a number of the other managers. Charlie?
Yes, Ajit has a longer shelf life than we do. He'd be particularly missed.
Let's not give up here, Charlie.
I reject such defeatism.
Cliff.
Thank you. Low to negative interest rates is something that's been discussed a few times today, and you've mentioned its implications for a return on float. I was wondering, how should shareholders value the 25% of the float that's been created by retrocessional reinsurance, where the business is booked at an underwriting loss and at times has adversely developed?
Yeah. Cliff brings up some of our business in the insurance business, we take with either the probability of some underwriting loss in order to get to use the money for a very long period of time. It would look, under today's interest rates, like we can't do much with that. There's two answers to that. For the duration of the kind of contracts we have, we don't expect these rates, but we could be wrong. The second one also is that we do think that occasionally we will get chances, even in periods of low interest rates, to do things that will produce quite a bit of very reasonable returns. We are not measuring it against double A corporates or anything of the sort.
We're measuring it in the potential utility to us with our really pretty unusual flexibility in respect to the deployment of funds and this long period when we'll have an opportunity, perhaps, to come up with one or two things where we can deploy money at a rate that may be quite a bit higher than other people assume now that money can be deployed. Charlie?
Yeah, we're willing to pay a little money now to have the certainty of having a lot of money available in case something really attractive comes up in a bit difficult time.
Yeah. It's an option cost.
It's an option cost, right.
Yeah. That option came in handy in 2008 and 2009, for example.
Did it ever.
Okay. Station 6.
Hi, Charlie and Warren. My name is Mindy Jensen, and I am from Longmont, Colorado. I work for the largest real estate investing social network online called BiggerPockets. We are seeing investors starting to get concerned that the real estate market is a bit frothy, similar to the run-up of 2005, 2006, and 2007 that led to the crash in 2008. Warren, in 2012, you told Becky Quick that if you had a way to easily manage them, you would buy 100,000 houses and rent them out. How do you feel about the real estate market today?
It is not as attractive as it was in 2012. We are not particularly better at predicting real estate markets than we are stock markets or interest rate markets. It is driven to some extent by these low interest rates. There are certainly properties that are being sold at very low cap rates that strike me as having more potential for loss than gain. Again, if you can borrow money for very little and you think you are getting into some very safe asset, 100 basis points or 150 basis points higher, there is a great temptation to do it. I think it is a mistake to do that, but I could be wrong. I do not see a nationwide bubble in residential real estate now, at all.
I think in a place like Omaha or most of the country, you are not paying bubble prices for residential real estate, but it's quite different than it was in 2012. I don't think the next time around the problem is going to be a real estate bubble. I think that it certainly was the cause in a very large part of what happened in 2008 and 2009, but I don't think it will be a replica of that. Charlie?
Nothing to add.
Okay. Andrew.
Warren, Todd and Ted now have been at Berkshire for several years. What have been their biggest hits and failures, specifically? What have they learned from Charlie and Warren, and what are the biggest differences between you and them?
I'll answer the last part easiest. I am trying to think of a very big deals that we can do something in investments or in business, preferably just in operating businesses. Each has a $9 billion portfolio, and one of them has, I don't know, perhaps seven or eight positions, and the other one has maybe 13 or 14. They have a very similar approach to investing. They've both been enormously helpful in doing several things, including important things, for which they don't get paid a dime and which they're just as happy working on as they are when they're working on things that do pay off for them financially. They're perfect cultural fits for Berkshire. They're smart at what they do, and they're a big addition to Berkshire. Charlie?
Again, I've got nothing to add.
Did I cover the whole thing, Andrew, or was there a part I missed there?
Biggest hits and failures. I think they specifically wanted to know in terms of investments.
Oh
trying to understand the way you think, perhaps. I think the implication was the way they think and the way you think. Are there differences?
Yeah. I would say they have a bigger universe to work with because they can look at ideas in which they can put $500 million, I'm trying to think of ways to put sums in the $ billions. They certainly have a more extensive knowledge of certain industries and activities and business that have developed in the last 10 or 15 years. They'd be smarter on that than I am. Their approach to investing, they're looking for businesses that they understand and through the stocks of those businesses, that they can buy at a sensible price and that they think will be earning significantly more money five or 10 years from now. It's very similar to what I'm thinking about, except I probably add another zero to it.
We don't want to talk about specific hits and failures.
No. Okay, Greg. Yeah, we will never get into disclosing. We file reports every 90 days that show what Berkshire does in marketable securities, we don't identify. I may identify whether it's mine or theirs, we don't get into identifying what they do individually.
Looking at Berkshire's finance and financial products segment, there was a fairly significant increase in the amount of cash carried on the group's books last year. After holding steady between $2 billion and $2.5 billion during 2012 through 2014, the amount of cash held at the segment spiked up to $5.4 billion at the end of the third quarter of last year and $7.1 billion at the end of 2015. This incidentally coincided with your acquisition of GE's rail car leasing unit, as well as the acquisition of several rail car repair and maintenance facilities. Sales and profitability were fairly solid last year but don't really seem to account for the magnitude of the change in cash. Investments, debt, and other liabilities do not look to have changed significantly enough to account for the difference, perhaps accounting for about $1 billion of the increase.
Just wondering where the additional $3.5 billion in cash came from, whether or not the elevated level of cash at the end of last year is excess to the business or a new required level of cash for the operations.
Well, I can't tell you where it came from. You'd think I would, $3.5 billion, but I can tell you why we were funneling money into the parent company and into the finance company. That money was basically dedicated to making the $22 billion portion of the Precision Castparts purchase that was accounted for by cash we borrowed. We actually borrowed $12 billion, but $10 billion of the borrowing was there. We pushed money from various sources, depending on who owned what and that sort of thing. We pushed money into those two entities, and eventually into the parent company to take care of the $22 billion that was coming due. It turned out to be at the end of January when the Precision Castparts closed. There's really no significance to it other than that. Okay, station seven.
Good afternoon, Mr. Buffett and Mr. Munger. My name is Jeffrey Eastup from Cranford, New Jersey. I just have a simple question for you. How would you explain IBM's moat?
I'm not sure that's a simple question.
No, not either.
Well, it has certain strengths and certain weaknesses, and I don't think we want to get into giving an investment analysis of any of the portfolio companies that we own. I think I'd probably better leave it there. Charlie?
Yeah, it's obviously coping with a considerable change in the computing world, and it's attempting something that's big and interesting, and God knows whether it's going to work modestly or very well.
Yeah.
I don't think Warren knows either.
No. We'll find out whether the strengths are strengths.
Yeah.
Yeah.
It's a field that a lot of intelligent people are trying to get big in.
Okay, we're going to go to section eight, and then we will adjourn for 15 minutes prior to the formal meeting of the company.
Are we ready?
Station eight.
Hello, everybody. Good afternoon. My name is Christian Campos. I'm from New York City. I'm a senior accounting major at Baruch College, part of the City University of New York. Mr. Buffett, in your annual shareholder letters and during interviews, and even today, your sense of humor always shines through. Where does your sense of humor come from? Please tell us. Thank you.
That's just the way I see the world. It's a very interesting and in times very humorous place. Actually, I think Charlie has a better sense of humor than I have, so I'll let him answer where he got his.
I think if you see the world accurately, it's bound to be humorous because it's ridiculous.
Well, I think that's a good note to close on. We will reconvene in 15 minutes for the formal part of the meeting. We have one proxy item to act on. I hope that those of you who are interested in learning more about actually the insurance aspects of climate change will stick around, and we'll have a discussion then, and I'll see you at 3:45 P.M. Thank you. Okay, if everybody will please settle down, we'll proceed with the meeting. The meeting will now come to order. I'm Warren Buffett, chairman of the board of directors of the company. I welcome you to this 2016 annual meeting of shareholders. This morning, I introduced the Berkshire Hathaway directors that are present. Also with us today are partners in the firm of Deloitte & Touche, our auditors.
They're available to respond to appropriate questions you might have concerning their firm's audit of the accounts of Berkshire. Sharon Heck is secretary of Berkshire Hathaway, and she will make a written record of the proceedings. Becky Amick has been appointed inspector of elections at this meeting. She will certify the count of votes cast in the election for directors and the motions they voted upon at this meeting. The named proxy holders for this meeting are Walter Scott and Mark Hamburg. Does the secretary have a report of the number of Berkshire shares outstanding? Turned off the lights on me. Entitled to vote and represented at the meeting.
Yes, I do. As indicated in the proxy statement that accompanied the notice of this meeting that was sent to all shareholders of record on March 2nd, 2016, the record date for this meeting, there were 807,242 shares of Class A Berkshire Hathaway common stock outstanding, with each share entitled to one vote on motions considered at the meeting, and 1,254,393,030 shares of Class B Berkshire Hathaway common stock outstanding, with each share entitled to one ten thousandth of one vote on motions considered at the meeting. Of that number, 575,608 Class A shares and 772,724,950 Class B shares are represented at this meeting by proxies returned through Thursday evening, April 28th.
Thank you. That number represents a quorum, and we will therefore directly proceed with the meeting. The first order of business will be a reading of the minutes of the last meeting of shareholders. I recognize Mr. Walter Scott, who will place a motion before the meeting.
I move that the reading of the minutes to the last meeting of shareholders be dispensed with, and the minutes be approved.
Do I hear a second?
I second the motion.
The motion has been moved and seconded. We will vote on the motion by voice vote. All those in favor say aye. Opposed? The motion is carried. The next item of business is to elect directors. If a shareholder is present who did not send in a proxy or wishes to withdraw a proxy previously sent in, you may vote in person on the election of directors and other matters to be considered at this meeting. Please identify yourself to one of the meeting officials in the aisle so that you can receive a ballot. I recognize Mr. Walter Scott to place a motion before the meeting with respect to election of directors.
I move that Warren Buffett, Charles Munger, Howard Buffett, Steven Burke, Susan Decker, William Gates, David Gottesman, Charlotte Guyman, Thomas Murphy, Ron Olson, Walter Scott, and Meryl Witmer be elected as directors.
Is there a second?
I second the motion.
It has been moved and seconded that Warren Buffett, Charles Munger, Howard Buffett, Steven Burke, Susan Decker, William Gates, David Gottesman, Charlotte Guyman, Thomas Murphy, Ronald Olson, Walter Scott, and Meryl Witmer be elected as directors. Are there any other nominations or any discussion? The nominations are ready to be acted upon. If there are any shareholders voting in person, they should now mark their ballot on the election of directors and deliver their ballot to one of the meeting officials in the aisles. Ms. Amick, when you are ready, you may give your report.
My report is ready. The ballot of the proxy holders in response to proxies that were received through last Thursday evening cast not less than 643,789 votes for each nominee. That number far exceeds a majority of the number of the total votes of all Class A and Class B shares outstanding. The certification required by Delaware law of the precise count of the votes will be given to the secretary to be placed with the minutes of this meeting.
Thank you, Ms. Zamick. Warren Buffett, Charles Munger, Howard Buffett, Steven Burke, Susan Decker, William Gates, David Gottesman, Charlotte Guyman, Thomas Murphy, Ronald Olson, Walter Scott, and Meryl Witmer have been elected as directors. The next item of business is a motion put forth by the Nebraska Peace Foundation. The motion is set forth in the proxy statement. The projectionist, please put up number nine. Here we are. The motion requests that our insurance business issue a report describing their response to the risk posed by climate change, including specific initiatives and goals relating to each risk issue identified. The directors have recommended that the shareholders vote against the proposal. I will now recognize, and I think it will be up in area one, I will now recognize Dr. James Hansen to present the motion.
I believe maybe the gentleman from the Nebraska Peace Foundation may be introducing it, then he may introduce Dr. Hansen. To allow all interested shareholders to present their views, I ask the initial speaker to limit his remarks to 5 minutes, then the microphone in zone 1 is available for those wishing to speak for or against the motion subsequently. Zone 1 is the only microphone station in operation. For the benefit of those present, I ask that each speaker, for or against the motion, limit themselves, with the exception of the initial speaker, to 2 minutes and confine your remarks solely to the motion. The motion should be left up on the Let's see. Is that up there or not? Yeah. Okay. The motion should be left up there.
In a sense, incidentally, it asks us to present a report about the risks to the insurance division by climate change, and I did address this subject in the annual report. That would be a report, and it was a report that was concurred in by Ajit Jain, who is our number 1 expert on insurance risk. That does represent the view of our insurance division and myself as the chief risk officer. The subject now is open, and we welcome the initial speaker's comments. If you're just going to introduce Dr. Hansen, I can't see who's who up there, then I presume he will have the 5 minutes, and then subsequent speakers will have 2 minutes. Go to it. You're on.
Thank you. My name is Mark Vasina. I'm the treasurer of the Nebraska Peace Foundation, the owner of one A share of Berkshire Hathaway. We are the sponsor of the shareholder resolution, which Mr. Buffett has described. In so doing, making the recommendation to develop a risk analysis and report on it, we're following the lead of the Bank of England, which last September published a comprehensive report on climate change risks facing the insurance industry and recommended that its regulated companies conduct reviews of the risks and make this available. The Bank of England regulates the U.K. insurance industry, which is the third-largest global insurance market. I'll turn the rest of my time over to world-renowned climate scientist, Dr. James Hansen.
Thank you for this opportunity. I want to make a suggestion that I hope you will ponder. Some aspects of climate have become clear. Humans are changing the atmosphere, and we can measure how this is changing Earth's energy balance. More energy is coming in than going out. The ocean is warming, ice sheets are melting, and sea level is beginning to rise. We are now close to a point of handing young people a situation that will be out of control with ice sheet disintegration and multi-meter sea level rise during the lifetime of today's young people, which would mean loss of coastal cities and economic devastation. Sea level rise would be irreversible on any timescale of interest to humanity. The other irreversible effect of rapid climate change would be extinction of a substantial fraction of the species on Earth.
My request, given the respect and the trust the public has in you, is that you reflect upon the possibility of a public statement in favor of a revenue-neutral, gradually rising carbon fee. A carbon fee is needed to make the price of fossil fuels honest, to include the costs to humanity of their air pollution, water pollution, and climate change. A rising carbon fee is needed to spur effective investments by the private sector in clean energies and energy efficiency. Most important, it will steadily phase down fossil fuel use.
I'm not asking you to endorse a carbon fee on the spot, I hope that you will reflect upon it and perhaps provide a clear statement in your next report. It could be your greatest legacy. It could affect everything, even the course of our future climate. Thanks.
Thank you, Dr. Hansen. I might say that although we may differ on some specifics, I am no expert on this subject whatsoever, I don't think you and I have any difference in the fact that it's important that climate change, since it's something where there is a point of no return if we are on the course that you think is certain and I think is probable, that it's a terribly important subject. The motion that was put forth was relating to the insurance aspects of it. Believe me, we have thought and discussed insurance aspects, and I've, in effect, given a report, which was asked for by this, within the annual report. The issue before the shareholders is not how I feel about whether climate change is real or whether a carbon tax is appropriate.
It's whether it poses a risk to our insurance business. I recognize the Bank of England read that report. We respectfully disagree with them, not in terms of the importance of climate change, but in terms of the risk to our insurance business. We don't write policies for a long period of time. We're not forced to write a policy on anything. Our judgment is made as propositions are presented to us, usually as to whether for one year we are willing to accept a given risk for a given price. Obviously, climate is enormously important in our activities, hurricanes being the most important probably, although we also get involved in earthquakes. That is what the proposal is about, and we've given a response to that, and it does not mean that we differ on the importance of climate change to the human race.
With that, I'd be delighted to hear from the various seconders.
Hello. My name is Jim Jones. I'm the Executive Director of the Katie School of Insurance at Illinois State University. I would like to express my concerns based on three hidden risks associated with climate change. The first relates to stranded assets of insurers investing in fossil fuels. The second is a more insidious risk related to climate change. This risk is associated with the long-term liabilities associated with property, life, and health lines of business. I realize that a number of intelligent people and experts don't see a long-term liability. They're missing one important part, is that primary insurers are not able to withdraw or reprice entire books of business. Following hurricanes Katrina, Rita, and Wilma, new hurricane models were developed in Florida, and they attempted to get the recommended rate approvals for that.
They were not allowed to, so many insurers began to withdraw from that market. 10 years later, about 40% of the underperforming business is still on the books of those insurers. This could play out in several other states that are exposed to climate risk. For a reinsurer, the value of reinsurance with their customers is a long-term business. The reason why this is so important is because, according to my count, 156 of your reinsurance customers have filed climate change disclosures, and these customers are looking for long-term interest being protected by their reinsurer. If not, there's a potential for a relationship default risk that could occur if they perceive your reinsurance as just being one-year contracts that can be repriced or withdrawn, and you enter into that world of the expanding market competition of alternative reinsurance, which just last year was $72 billion.
Earlier this quarter, we set a record of $2.2 billion in cat bonds.
Thank you. I would point out that we have not been asked ever to my knowledge to write long-term contracts. Our primary insurers know that we look at it one year at a time, and we will not write business that we think has a major negative probability. They don't expect us to. It's way less a relational business than in the past. It's much more a transactional business. If we lose a customer because they want us to do something stupid, we lose the customer. In our business, I'm not speaking for other reinsurers, but in our business, and I believe with most other reinsurers, they are not going to do something that they think is terribly disadvantageous to them just to maintain a relationship. That's not really a relationship. That'd be a subsidy.
That does not strike me frankly, as a factor at all of any negative consequence at Berkshire. In terms of what happened after Katrina, rates went up, actually, the hurricane experience in Florida has been better than any period since before 1850 that we have any records on. That's been a surprise to us incidentally, we have not written catastrophe business in Florida during that period because we didn't think the rates were adequate. They were adequate, we just were wrong about it. Incidentally, the fact that we walked away from cat business in Florida that we thought was mispriced has not hurt us in the business.
It's much more of a transactional business and there may have been a time when relationships were very big in reinsurance, but with so many entrants in it is very much a transactional business and no one expects you to do something that's very stupid. If they do, then that's the wrong kind of a relationship. Glad to hear the next speaker.
Hello, Mr. Buffett. My name is Jane Kleeb. I run a group called Bold Nebraska, which was part of an unlikely alliance who beat Keystone XL to protect the aquifer in our state as well as property rights. I met you several years ago at Senator Nelson's home, and I had pulled you aside and asked how could we get healthcare reform passed. You told me two things. You said, "The polling numbers matter," and that we have to keep on applying public pressure. We feel the same way about climate change and climate action. The most recent Yale study said that even 47% of conservatives believe in climate change and want to start seeing corporate and government action. Your response to this resolution struck me because one of the sentences said that if you live in a low-lying area, you should probably move.
Well, we work with Native brothers and sisters who live in coastal communities, and one of those tribes is now the first United States climate refugees. They didn't have the option to move. They were forced to move. We're turning to you and we're turning to ourselves to continue to apply public pressure and hope that both you and Charlie stand with us. Maybe it's not this year, and maybe it's not the year after, but we really look forward to you doing full climate risk analysis, as well as divesting from all the fossil fuels that you own. Lastly, it takes both small and mighty, as well as big and powerful, to solve this problem of climate change. You blocking small solar in Nevada is the wrong road to go down. Thank you.
Okay. I think you'll have a reasonable time to move, but I would say if you're making a 50-year investment in low-lying property, it's probably a mistake. I actually said you may, as a homeowner in a low-lying area, you may wish to consider moving. I would say that if you expect to be there for 10 years or so, I don't think I would consider moving, but if I thought I was making a 100-year investment, I don't think I wouldn't make it. I think it gets to the question, we have a shareholder proposal that says, what are the risks to the insurance division from climate change? We're not denying climate change is an incredibly important subject. We're not denying its existence, but it will not hurt our insurance business, and it's immaterial compared to other things that could affect our insurance business.
That is the issue before the meeting. I'll be glad to hear from the next speaker.
Good afternoon, Mr. Buffett. My name is Kay Karn. I've been a shareholder for more than a decade, basically my investing life. Today someone said that you think ahead of the crowd. With regards to this resolution, you're saying that the Berkshire insurance business will just raise rates the next time the policy is renewed, that makes sense. You agree that climate change poses a major problem for our planet. I would say that climate change poses a major problem for the stability of our global financial markets if the political action continues at its current pace with regards to this issue. I personally agree with Dr. Hansen that a carbon fee is the solution to address this issue.
I'm wondering if you can tell us what you think the solution to address this issue is, and whether you think the Berkshire businesses more broadly than just insurance will be impacted by this issue in the next decade or two.
I would doubt if it's affected in the next decade or two, but I won't argue with you at all that it's likely, not certain, that unless various techniques are designed for reducing Well, for sequestration, different things of that sort, that plenty of people will be working on, or unless the emissions, greenhouse gas emissions, are reduced significantly, that it's a terribly important problem for civilization. There are certainly going to be some very smart people working on ways to change the balance in some way, either through less being released into the atmosphere or by various techniques that might diminish the impact, but no one here will deny that it's important. I don't think it will impact in a serious way the climate insurance, for that matter, in the next decade or two.
As I pointed out in the report, if you're dealing with something where you pass a point of no return, the time to do something isn't to wait until you get 10 minutes away from the point of no return. That there are policies which we subscribe to very strongly in terms of renewables and that sort of thing. I think there's also possibilities within the scientific community that there will be solutions that are beyond my limited knowledge of physics to conjure up myself, but there are a whole lot of people out there that are a lot smarter.
I think that a basic problem on the reduction, if those things don't come to pass, is the fact that it's a planetary problem, and it requires cooperation by very important countries, and I think President Obama's made a good start in working with leaders of other countries, but it can't be solved by the United States alone, as you know better than I. Be glad to hear from the next speaker.
Hello, my name is Nancy Meyer. I've been a shareholder for 15 years with my husband. We have great faith in Berkshire Hathaway. That's why we invested. I'm just here to say that as a shareholder, I'd like to ask my fellow shareholders to consider the economic costs of climate change and urge Berkshire Hathaway to adopt this resolution to show leadership in the insurance industry. Thank you.
Thank you. I appreciate the fact you've been a shareholder. I do think for reasons I've laid out, I think the resolution is, in a sense, inapplicable to our insurance business. Insurance, global climate is not a risk to our insurance business. It may be a risk to the planet over time, that's a different thing. We can adopt all kinds of resolutions about saying that obviously nuclear proliferation is a threat to the planet, and you can say, "Well, then it's a threat to Berkshire." In terms of being Berkshire specific, you can read the resolution, then, like I say, our answer with Ajit Jain, who's probably the smartest person I know in insurance. I have 99% of my net worth in Berkshire that's all destined to go to philanthropic institutions, and I'm not eager to see that disappear.
I do regard myself as the chief risk officer of Berkshire, and I worry about things that can hurt Berkshire. I do not see it in our insurance division in relation to climate change, thank you.
Good afternoon, Mr. Buffett. I am Richard Miller in the Creighton Theology Department here in Omaha, and I study and teach climate change and its social effects. I just wanted to make you aware that Berkshire is operating within a larger economy, that the most important climate analysis, economic analysis from Nicholas Stern indicates that on our current path, by the end of this century, 30% loss in global GDP is possible. The other issue is when we talk about doing something about climate change, doing something means to avoid major sea level rise. We need to reduce emissions globally, starting today, 7% per year. The only time we've ever reduced emissions over a 10-year period in a growing economy was in the 1990s in England, and we reduced them 1% per year.
We're talking about a completely different thing than President Obama's gradual move. We need to do something. No, we need to do massive transformation immediately. With your large global holdings, you are a world significant figure on this, not just about this particular shareholder resolution. Thank you for your time.
Thank you. Is that the complete the speakers?
Say that again.
Are you the final speaker?
Oh. Yeah.
Yes. I think those are all the speakers.
Okay. Well, thank you. Charlie, do you have anything you want to say?
Well, yes. We're in Omaha, which is considerably above sea level, and we have no big economic interest in this subject. In our insurance companies, we don't write much of that catastrophic insurance we used to write many years ago. We're asked as a corporation to take a public stance on very complicated issues. We've got crime in the cities. We've got 1,000 complicated issues that are very material to our civilization. If we spend our time in the meeting taking public stands on all of them, I think it would be quite counterproductive. I don't like the fact that the people that constantly present this issue never discuss any solution except reducing consumption of fossil fuels. There are geoengineering possibilities that nobody's willing to talk about, and I think that's asinine. Put me down as not welcoming.
You know what? Have a political rally. The motion is now ready to be acted upon. If there are any shareholders voting in person, they should now mark their ballots on the motion and deliver their ballot to one of the meeting officials in the aisles. Ms. Amick, when you are ready, you may give your report.
My report is ready. The ballot of the proxy holders in response to proxies that were received through last Thursday evening cast 69,114 votes for the motion and 531,724 votes against the motion. As the number of votes against the motion exceeds a majority of the number of votes of all Class A and Class B shares properly cast on the matter, as well as all votes outstanding, the motion has failed. The certification required by Delaware law of the precise count of the votes will be given to the secretary to be placed with the minutes of this meeting.
Thank you, Ms. Hammack. The proposal fails. Does anyone have any questions for our audit firm before we adjourn? If not, I recognize Mr. Scott to place a motion before the meeting.
I move this meeting be adjourned.
Mr. Olson?
I second it.
Motion to adjourn has been made and seconded. We will vote by voice. Is there any discussion? If not, all in favor say aye.
Aye.
All opposed say no. The meeting's adjourned. Thank you.