Warren Buffett shareholders meeting

2023

1. Berkshire’s own ‘King Charles’

WARREN BUFFETT: Good morning, good morning. And thanks for coming. Omaha
loves it, I love it, Charlie loves it. We’re glad to have you here.

We’re going to make this preliminary, before the questions, very short because we
want to get in at least 60 questions, half divided by the audience outside this arena and
half from you.

So, I would just like to get right to the directors and the earnings that have been put up
on a web page this morning, but we’ll cover those very fast and then we’ll get to the
questions. Now, when I woke up this morning, I realized that we had a competitive
broadcast going out somewhere in the UK.

And (Laughter) they were celebrating a King Charles, and we’ve got our own King
Charles here today. (APPLAUSE AND CHEERING)

And next to him we have Greg Abel, who’s in charge of all the operations except for
insurance. (Applause)

And next to Greg, we have a man I ran into in 1986 and has made us look good ever
since. We have the man in charge of insurance, Ajit Jain. Ajit? (Applause and
cheering)

2. Directors introduced
WARREN BUFFETT: And now we have our directors here in front. And if they
would just stand briefly and then I’ll go onto the next one, and they’re all here today.

First of all, doing it alphabetically, there’s Howard Buffett, (Applause). There’s Susie
Buffett, there’s Steve Burke, Ken Chenault, Chris Davis, Sue Decker, Charlotte
Guyman, Tom Murphy Jr., Ron Olson, Wally Weitz, and Meryl Witmer.

That’s as good as you can get.

3. The woman who organized the whole thing

WARREN BUFFETT: And there’s one other person I would like to mention before
we get onto the earnings that were put in the press release this morning. Well, let’s see
who we have here. We’ve got —

This is hard to believe. Can you imagine a name, Melissa Shapiro Shapiro? (Laugh)
And she was Melissa Shapiro till she married another Shapiro, and she put this whole
thing together with no help from me, no help from Charlie, (Applause) and a lot of
help from the people in the other room. Melissa. (APPLAUSE and CHEERING)

Yeah, it’s very easy. If you can remember her second name, you can remember her
third name. So, Melissa Shapiro Shapiro.

4. Most Berkshire businesses will report lower earnings next year

WARREN BUFFETT: And with that, I would like to next move onto the earnings and
a couple small slides that explain what we’re all about, and then we’re going to get to
Q&A. And the slide is up behind me, and there it is.

We reported in the first quarter operating earnings a little over $8 billion. And when
we talk about operating earnings, we’re basically referring to the earnings of
Berkshire Hathaway as required under GAAP, excluding however, capital gains both
realized and unrealized.

There’s a few other very minor items, but basically, we expect to make capital gains
over time. Why would we own the stocks otherwise? Doesn’t always work out, but
overall, it works out pretty well over time. But in any day, any quarter, any year, even
occasionally over a five-year period, the stock prices move around capriciously.

Now, we own a lot of other businesses. We consider those stocks businesses. We own
a lot of other businesses where they get consolidated, and they don’t move around in
value. Now, if we had a little bit of Burlington stock outstanding, if we had a little bit
of the energy stock trading, those stocks would move around a lot.

But the businesses are what count. So, the operating earnings, as you’ll see in the first
quarter, came it at about $8 billion. And I would say that in the general economy, the
feedback we get is that, I would say, perhaps the majority of our businesses will
actually report lower earnings this year than last year.

In various degrees in the last six months or so, at various times, the businesses have
left the incredible period, which is about extraordinary as I’ve seen a business since
World War II, which poured out a lot of money to people who couldn’t get goods.

It was more extreme in World War II, but this was extreme this time. And it was just a
question of getting goods to deliver. And people bought, and they didn’t wait for
sales. And if you couldn’t sell them one thing, they would put another thing in their
backlog. It was an extraordinary period.

And that period has ended. As you know, it isn’t that employment has fallen off a cliff
or anything, in the lest. But it is a different climate than it was six months ago. And a
number of our managers were surprised. Some of them had too much inventory on
order, and then all of a sudden it got delivered, and people weren’t in the same frame
of mind as earlier.

And now we’ll start having sales at places where we didn’t need to have sales before.
But despite the fact that this year I think in general will be slower than last year, we
actually are situated so that I would expect, and believe me when I say expect, nothing
is sure.

Nothing is sure tomorrow, nothing is sure next year, and nothing is ever sure, either in
markets or in business forecasts, or in anything else. And we don’t pay much attention
to markets or forecasts unless the markets happen to offer something interesting to do.

But nevertheless, we are positioned in two respects, as you’ll see from this first report.
Our investment income is going to be a lot larger this year than last year. And that’s
built. I mean, as you’ll see in a minute, we’ve had $125 billion or so in very short-
term investments.

And believe it or not, not that long ago we were getting four basis points, which is
next to nothing on that $125 billion, which means we were getting $50 million a year.
And now the same money, just the day before yesterday, we actually bought because
of some funny twist the market, because of doubts about the debt ceiling.

We bought $3 billion of bills at 5-90. That’s 5.92 bond equivalent yield. So, we will
have what produced just not that long ago on a 12-month basis was producing $50
million a year, producing something in the area of $5 billion a year. So, we’re in a
position where the investment income is certain to increase quite a bit.

And insurance underwriting does not correlate with business activity. It depends on
things like hurricanes, and earthquakes, and other events. So, on a perspective basis,
on a probability basis, we’re likely to have a better year this year in insurance
underwriting than we had last year.

It just isn’t affected by what you might call the business cycle or what applies to
generally in industry, retailing, you name it. So, I would expect in one massive
earthquake or one hurricane that came in at just the wrong place could affect that
prediction. But on a probabalistic basis, our insurance looks better this year.

So, if you get two of the elements there of our main elements of earnings that look
like they will swing in our direction, I would expect, but I can’t promise, that our
operating earnings will be greater than last year.

And if we’ll move to the second slide, I give you those operating earnings figures just
to give you a overview of what has happened since the pandemic started, and also the
year before as a base. And we retain all our earnings, as you know.

So, if we’re retaining $30 billion or $35 billion, or whatever it may be, a year, they
should expect more operating earnings over time. I mean, this number should be
significantly higher five, or ten, or 15 years from now because we have the advantage
of retaining earnings, and that’s what got us to these figures because they were
essentially nothing when we started.

And they got there by retaining earnings and will keep retaining earnings. So, it’s no
great triumph if these numbers move up. And what we hope is that they move up at a
reasonable rate. Historically, they moved up at an unreasonable rate sometimes.

But we were working with much smaller sums then, and that can’t be repeated with
our present capital base. Because I note there — I believe it’s on this slide. Let’s take
a look. No, that will be — let’s see, it’s on the — well, on the next place, page. Let’s
move to the next slide. We show that we had on March 31st, now what was it, $504
billion of GAAP net worth.

Now, what might surprise you is that there’s no other company in the United States
that has a number that is that large. Now, that isn’t because we have the most valuable
company in the United States. Other companies have used their money to repurchase
shares.

They could’ve accumulated $504 billion in GAAP. But basically, we have more under
GAAP accounting now than any other company in the U.S. And of course, if you
measure return on equity that becomes a very big number to increase at a rapid rate,
but we hope to do so.

Not a rapid rate, a decent rate. And right below that, you see something called float.
And float is money that is left in our hands somewhat akin, but very importantly
different, than a bank deposit. But you have to pay interest to get a bank deposit.

And you have to pay more interest these days, and you have to run a bank and do a lot
of things. And basically, this is money that represents unpaid losses at this time. You
get paid in advance in insurance. So, what shows up as a net liability on our balance
sheet gives us funds to exercise with an amount of discretion that no other insurance
company that I know of in the world enjoys, just because we have so much net worth.

And our float now comes to $165 billion, and the man sitting at the far left is
responsible for moving that number up from a pittance in 1986 to this incredible
figure, which in most years, practically all years, hasn’t cost us anything. So, it’s like
having a bank with no employees, no interest, and no ability to withdraw the money in
a hurry that we have working for us.

And it’s a very valuable asset that shows up as a liability. And Ajit is responsible for
building up this treasure, which has been done by out-competing insurance companies
all over the world. And now, a number of our insurance companies, in turn, are run by
talented managers who contributed one way or another.

Start with GEICO at the beginning of my career. And that float, if you think about it,
just think of a balance sheet. You have liabilities here and you have assets over here,
and the liability side finances the asset side. It’s very simple. And stockholders’ equity
finances it, long-term debt finances it, and so on.

But stockholders’ equity is very expensive in a real sense. Long-term debt has been
cheap for a while, but it can get expensive, and it can also become due eventually and
it may not be available. But float is another item that’s a liability but hasn’t cost us
anything.

And it can’t disappear in a hurry. And it finances the asset side in the same way as
stockholders’ equity. And nobody else thinks of it much that way, but we’ve always
thought of it that way, and it’s a build up over time. So, I show at the bottom what’s
happened with cash and Treasury bills through March 31st.

And I will tell you that in the month of April, we’ve probably added about $7 billion
to that factor. Now, part of that is because we didn’t buy as much stock, because that
reduces cash and Treasury bills. We bought about $400 million worth of stock in the
month of April.

That’s a minus in terms of cash available. And we, however, sold, net, some stock,
which produced maybe $4 billion. And of course, we had operating earnings, probably
$2.5 billion or something in that area. And my guess is we probably increased our
cash and Treasury bills $6 billion and $7 billion in the month.

And I just want to give you a feel for how the cash flows at Berkshire. And then if we
move to the final — I think it’s the final one. We should have the one up there, Class
A equivalent shares outstanding. And you’ll notice that every year the number of our
shares go down.

So, if we own more businesses, and the businesses make more money, your share as
shareholders at Berkshire increases every year without you laying out any money.
Now you’re laying out the alternative which you could receive in dividends. But the
reason we’ve gotten to where we are is because we kept the money.

We did pay a dividend in 1967, $0.10 a share. It was a terrible mistake. (Laugh) And I
always tell people that I’d for the men’s room and the directors voted while I was
gone. But that isn’t true. I was there, I confess. (Laugh) But we’ve reinvested, and it’s
produced the $500 billion plus of shareholders’ equity and the $30 billion plus of
operating earnings.

And we’ll continue to follow that policy because it makes a great deal of sense. And
with that, I think we’ve taken care of the preliminaries. The 10-Q is on the web page.
And if you have a week or two vacation, you could spend it reading the 10-Q.

But that is the essence of Berkshire.

5. Failure to guarantee Silicon Valley Bank’s deposits would have been

‘catastrophic’
WARREN BUFFETT: And with that, I will start with Becky Quick, and we will
alternate between Becky and the audience. And her questions have come in from all of
the country, and I believe you identified the sender. And go to it, Becky.

BECKY QUICK: Thanks, Warren. The first question comes in from Randy Jeffs in
Irvine, California. And his question is, “If Silicon Valley Bank’s deposit had not been
fully covered, what do you think the economic consequences would’ve been to the
nation?”

WARREN BUFFETT: Well, I’d would just simply say it would’ve been catastrophic.
(Laugh) And that’s why they were covered. And even though the FDIC limit is
$250,000, that’s the way the statute reads, but that is not the way the U.S. is going to
behave any more than they’re going to let the debt ceiling cause the world to go into
turmoil.

And I can’t imagine anybody in the administration, in the Congress, in the Federal
Reserve, whatever it may have been, FDIC — I can’t imagine anybody saying, “I’d
like to be the one to go on television tomorrow and explain to the American public
why we’re keeping only $250,000 insured, and we’re going to start a run on every
bank in the country and disrupt the world financial system.” (Laugh) So, I think it was
inevitable. Charlie, do you have anything?

CHARLIE MUNGER: No, I have nothing to add.

WARREN BUFFETT: OK.

Well, incidentally, I should mention this now, Ajit and Greg will be here in the
morning session which ends at noon. And so, if you have questions to direct to them,
the time to do it is in the first half of the show. And then after lunch Charlie and I will
be back.

6. We’ve never made an emotional investing decision

WARREN BUFFETT: OK. Area one?

AUDIENCE MEMBER: Hi. Narav (PH) Patel, Harel (PH), Massachusetts. Mr.
Buffett, Mr. Munger, it seems like you found the sweet spot between being too
conservative and too aggressive as investors. Do you ever make bad investment
decisions because of your emotions? And what do you do to try to keep that from
happening?

WARREN BUFFETT: Well, we make bad investment decisions plenty of times. I

make more than Charlie. I like to think it’s because I make more decisions, but
probably my batting average is worse. (Laugh) But I can’t recall any time in the
history of Berkshire that we made an emotional decision.

I know the movie had Jamie Lee [Curtis] in there, (Laughter) but that was for laughs. I
mean, Jamie Lee, she’s good, but she’s not good enough to get me or Charlie to make
an emotional decision. (Laughter) Charlie, I’m sure you have something to add on
that.

CHARLIE MUNGER: Well, it’s a different movie than is shown in most corporate
meetings. (Laughter)

WARREN BUFFETT: But have we ever made an emotional decision?

CHARLIE MUNGER: No. (Laughter)

WARREN BUFFETT: That’s in business we’re talking about. Yeah, no. You don’t
want to be a no emotion person in all of your life, but you definitely want to be a no
emotion person in making an investment or business decision.

You can argue that we’ve probably made an emotional decision, perhaps, when a
manager has been with us for some period, and we’ve ignored the fact that perhaps
they weren’t quite what they were earlier.

But our businesses are so good that they run better sometimes when — I mean, I’ve
talked about Wesco, for example, the wonderful Louis Vincenti. And it ran on
automatic pilot for a while, but I don’t think we suffered by it. But you can argue if
Louis as much as we did, we might’ve spotted it a little bit earlier. But I don’t think it
made any difference in the results. Would you agree with that, Charlie?

CHARLIE MUNGER: Yeah, (UNINTEL PHRASE) with it. I’m glad we the way we
did at Wesco. By the way, we bought the thing for a few tens of millions, and it
became worth $2 billion or $3 billion.

WARREN BUFFETT: Yeah, that wasn’t common in the savings and loan business, as
you may have noticed. (Laugh) They really went crazy in that industry, and we had a
wonderful guy in Louis.
CHARLIE MUNGER: We didn’t go crazy.

WARREN BUFFETT: Yeah, we didn’t go crazy. Yeah.

7. Jain: GEICO’s technology is ‘still a work in progress’

WARREN BUFFETT: OK, Becky?

BECKY QUICK: This question comes from Ben Knoll in Minneapolis. He says he’s a
Berkshire shareholder of three decades and he’s attended many Berkshire meetings.
He’s here again this year.

And this is addressed to Ajit and Greg. He says, “Last year I asked you about how
GEICO and BNSF appeared to lose ground to their leading competitors, GEICO on
telematics and BNSF on precision scheduled railroading.

“Ajit, you responded by saying how you expected GEICO to make progress in about a
year or two. Greg, you spoke about your pride in BNSF, but you didn’t directly
address the threat of precision scheduled railroading. Will each of you please provide
perspective on these competitive challenges and our company’s strategies to address
them?”

AJIT JAIN: In terms of GEICO and telematics, let me make the observation that
GEICO has certainly taken the bull by the horns and has made rapid strides in terms
of trying to bridge the gap in terms of telematics and its competitors. They have now
reached a point where on all new business, close to 90% has a telematics input to the
pricing position.

Unfortunately, less than half of that is being taken up by the policyholders. The other
point I want to make is even though we have made improvements in terms of bridging
the gap on telematics, we still haven’t started to realize the true benefit.

And the real culprit of the bottleneck is technology. GEICO’s technology needs a lot
more work than I thought it did. It has more than 600 legacy systems that don’t really
talk to each other. And we are trying to compress them to no more than 15, 16 systems
that all talk to each other.

That’s a monumental challenge, and because of that, even though we have made
improvements in telematics, we still have a long way to go because of technology.
Because of that, and because of the whole issue more broadly in terms of matching
rate to risk, GEICO is still a work in progress.

I don’t know if any of you had a chance to look at the first quarter results, but GEICO
has had a very good first quarter, coming in at a combined ratio of 93 and change,
which means a margin of six and change. Even though that’s very good, it’s not
something we can take to the bank because there are two unusual items that
contributed to it.

Firstly, we’ve had what is called prior year reserve releases. We’ve reduced reserves
for the previous years, and that contributed to it. And secondly, every year the first
quarter tends to be a seasonally good quarter for auto insurance writers.

So, if you adjust for those two factors, my guess is the end of the year GEICO will
end up with a combined ratio just south of 100, as opposed to the target they’re
shooting for is 96. I hope they reach the target of 96 by the end of next year.

But instead of getting too excited about it, I think it’s important to realize that even if
you reach 96 it will come at the expense of having lost policyholders. There is a trade-
off between profitability and growth, and clearly, we are going to emphasize
profitability and not growth. And that will come at the expense of policyholders.

So, it will not be until two years from now that we’ll be back on track, fighting the
battles on both the profitability and growth fronts.

8. Abel: BNSF continues to work on efficiency and safety improvements

WARREN BUFFETT: Greg? Yeah.

GREG ABEL: Moving to BNSF, I’ll start again by expressing great pride in the
BNSF team. We have an exceptional group led by [CEO] Katie [Farmer] and her
managers that show up every day to do great work on the railroad. At the same time,
they would be the first to acknowledge there’s more to be done there.

The specific reference to precision scheduled railroading, the other large Class A
railroads in the U.S. follow that, and including the two in Canada. We’re well aware
what they’re doing, and obviously pay close attention to their operating metrics.

And our team strives every day to be more efficient, obviously. I would say we
balance it with the needs of our customers. If I look back to pre-2022, so we look at
the three-year period of 2019, 2020, 2021, the BNSF team made significant progress
on their efficiencies, and delivering overall value back to the shareholders and to their
customers.

And at the same time, maintaining a very safe railroad for our employees. So, we’re
making excellent progress. That didn’t stop last year. They made great progress.

Again, the reality in 2022 is we did go through a period of time where we had to call
it, “Reset the Railroad.”

We came out of the pandemic, there were the supply challenges. We had certain other
labor issues and other things going on at the port.

And the reality is, our team prioritized getting the railroad back in place for the long-
term, not a short-term focus on hitting certain operating metrics in 2022. We’re well
aware of where we were relative to those metrics.

But the real focus was to get the railroad reset in a safe manner so it could deliver
long-term value and long-term service to our customers. And that’s really what we’ll
continue to see with that team.

There’ll be continual progress. There’ll be years where it’s not as quick, or even we
go backwards. But over the long-term, we’ll see exceptional results from that team,
and couldn’t be more proud that we have that asset. Thank you. (Applause)
WARREN BUFFETT: I would just — well, he deserves — but both of them deserve
applause.

9. Todd Combs doing ‘wonderful job’ running GEICO

WARREN BUFFETT: I would like to add one thing. (Applause)

At GEICO, Todd Combs was Ajit’s choice and my choice to go back to GEICO to
work on the problem of matching rate to risk, which is what insurance is all about.
And he arrived with exquisite timing, right before the pandemic broke out and all
kinds of things changed.

But Todd is doing a wonderful job at GEICO. And he works closely with Ajit. He has
a home in Omaha, he comes back here, and we get together on the weekend
sometimes too. So, that’s been a remarkable accomplishment under difficult
circumstances. And he’s not all the way home, but he’s made a very, very big change
in multiple ways at GEICO.

And one other thing I would like to mention, there have been a lot of public
companies created in the last decade or thereabouts in insurance. And there’s none of
them that we would like to own, and they always started out in their perspective
saying, “This is a tech company, not an insurance company.”

Of course, they’re a tech company. Everybody, whether they’re insurance or a lot of

other places, are using the facility but you still have to properly match rate to risk.
And they invariably have reported huge losses, they’ve eaten up capital.

But there’s been one company that nobody has generally heard of. There’s only been
one that I know of, company started in the last ten years, that has been an
overwhelming success. And that’s a company that Ajit and four people who joined
with him set to develop a new business. It’s called Berkshire Hathaway Specialty.
What’s the float, Ajit?

AJIT JAIN: Coming up to $12 billion.

WARREN BUFFETT: Yeah. We’ve built more float than probably all these
companies combined. It’s cost us essentially nothing in terms of an underwriting loss.
The four people have turned into, I don’t know, 1,500 around the world. We took on
the whole industry and we brought some unique talent in the four people that came.

And now have, like I said, 1,500 or so worldwide. And we brought capital, and we
brought capabilities that really only Berkshire could supply. So, it was the
combination of brains, and talent, and energy, and money.

And no one has really successfully entered this space — plenty of people in the space
who didn’t like us coming. And we did it without it costing us a dime of entry. And
it’s been unmatched by any of the companies that went public. And people have seen
us do it, but they can’t duplicate it.

And that’s what Ajit has created. And Peter Eastwood has led this group, Berkshire
Hathaway Specialty. And it’s just remarkable. So, anyway, with that — let’s go on —
give them a hand for that. (Applause)

10. Munger on AI: ‘Old-fashioned intelligence works pretty well’

WARREN BUFFETT: OK, let’s go to section two.

AUDIENCE MEMBER: Hi, Charlie. Hi, Warren. I’m Karen, here from Singapore.

WARREN BUFFETT: I’m glad you got that in. Your priorities are right.

AUDIENCE MEMBER: Yes. I have questions on AI and robotics. Here’s my

questions. As AI and robotics continue to advance, what do you believe will be the
positive and the negative impacts of this technology on both the stock market and
society as a whole? And there any specific industries and companies that you believe
will be most impacted? (Applause)

WARREN BUFFETT: Karen, I thank you for asking Charlie that question. (Laughter)
CHARLIE MUNGER: Well, if you went into BYD’s factories in China, you would
see robotics going at an unbelievable rate. So, we’re going to see a lot more robotics
in the world. I am personally skeptical of some of the hype that has gone into artificial
intelligence. I think old-fashioned intelligence works pretty well. (Laughter)
(Applause)

WARREN BUFFETT: There won’t be anything in AI that replaces Ajit. State that
unqualifiedly. It can do amazing things. You know, Bill Gates brought me out maybe
not the latest version, but one he thought maybe I could handle. (Laugh) He has to be
careful with me, in terms of leading me too fast.

And it did these remarkable things. But it couldn’t tell jokes. Bill told me that ahead
of time, and it prepared me. And it just isn’t there. But you know, with things like
checking all the legal opinions, you know, since the beginning of time and everything,
and eliminating all the — I mean, it can do all kinds of things.

And when something can do all kinds of things, I get a little bit worried because I
know we won’t be able to un-invent it. And you know, we did invent, for a very, very
good reason, the atom bomb in World War II. And it was enormously important that
we did so.

But is it good for the next 200 years of the world that the ability to do so has been
unleashed? We didn’t have any choice.

When you start something — well, Einstein said after the atom bomb, he said, “This
has changed everything in the world except how men think.”

And I would say the same thing may — not the same thing — I don’t mean that — but
I mean with AI, it can change everything in the world except how men think and
behave. And that’s a big step to take. It’s a good question, and it’s the best answer we
can give.

11. Munger: Commercial real estate downturn will be ‘quite significant and quite
unpleasant’
WARREN BUFFETT: Becky?

BECKY QUICK: This question comes from Tom Seymour. He says, “The first
sentence of a recent Financial Times article read, ‘Charlie Munger has warned of a
brewing storm in the U.S. commercial property market with American banks full of
what he said were bad loans as property prices fall.’

“Please elaborate on what’s going on in commercial real estate. How bad will the
losses be, and what sectors or geographies look particularly bad?”

I’ll just add an addendum from another viewer who wrote in and wanted to know if
Berkshire would be more active in commercial real estate as a result.

CHARLIE MUNGER: Well, Berkshire’s never been very active in commercial real
estate. It works better for taxable investors than it does for corporations to act the way
that Berkshire is. So, I don’t anticipate huge effects on Berkshire. But I do think that
the hollowing out of the downtowns in the United States and elsewhere in the world is
going to be quite significant and quite unpleasant.

I think the country will get through it all right, but as they say, it will often involve a
different set of owners.

WARREN BUFFETT: Yeah, and the buildings don’t go away, but —

CHARLIE MUNGER: The owners do.

WARREN BUFFETT: Well, (Laughter) but most people like to buy with non-
recourse in real estate. And one time I asked Charlie, there was some real estate guy,
we were talking to him, you know, “How do they decide how much a building like
this is worth?” And the answer is, “It’s whatever they can borrow without signing
their name.”

And if you look at real estate generally, you’ll understand the phenomenon that’s
happening if you remind yourself that that’s the attitude of most people that have
become big in the real estate business. And it does mean that the lenders are the ones
that get the property.

And of course, they don’t want the property usually, so the real estate operator counts
on negotiating with them, and the banks tend to, you know, extend and pretend. And
there’s all kinds of activities that (UNINTEL) about us out of commercial real estate
development, which occurs on a big scale.

But it all has consequences, and I think we’re starting to see the consequences of
people who could borrow at 2.5%, and find out it doesn’t work at current rates, and
they hand it back to somebody that gave them all the money they needed to build it.
Charlie’s had more experience. Charlie got his start in real estate, though.

CHARLIE MUNGER: Yes, it’s difficult. I like what we do better. (Laughter)

WARREN BUFFETT: Well, as Charlie once said to me when I was leaving his house
a few months ago — I was visiting him, we talked for a couple of hours. And as I left,
there wasn’t anybody else in the house except one daughter. I said, “Charlie, I’ll just
keep doing what we’ve been doing.” And Charlie, without looking up or pausing a
second, said, “That’s all you know how to do, Warren.” (Laughter) He was right too.

12. ʹ What gives you opportunities is other people doing dumb things’
WARREN BUFFETT: Station three, is it?

AUDIENCE MEMBER: Hi. My name is (UNINTEL PHRASE), I’m from Santa

Clara, California. And my question is to Charlie and Warren. Given the rise of
disruptive technologies that can improve productivity significantly, and AI being one
of them, how do you envision the future of value investing in this new era? And what
adaptations or new principles do you think investors should adopt? And any
recommendations for investors to remain successful in this rapid changing landscape?
Thank you.

CHARLIE MUNGER: Well, I’m glad to take that one. I think value investors are
going to have a harder time now that there’s so many of them competing for a
diminished bunch of opportunities. So, my advice to value investors is to get used to
making less.

WARREN BUFFETT: And Charlie has been telling me the same thing the whole time
we’ve known each other. I mean, we get along wonderfully because —

CHARLIE MUNGER: Well, we are making less.

WARREN BUFFETT: Yeah. Well, but that mostly I think is (Laughter) (UNINTEL
PHRASE) —

CHARLIE MUNGER: We did that when we were younger.

WARREN BUFFETT: Yeah, we never thought we could manage $508 billion.

CHARLIE MUNGER: No, we never did.

WARREN BUFFETT: You know, but I would argue that there are going to be plenty
of opportunities. And part of the reason there are going to be plenty of opportunities,
the tech doesn’t make any difference for any of that. I mean, if you look at how the
world’s changed in the years since 1942 when I started, you’d say, “Well, how does a
kid that doesn’t know anything about airplanes, that doesn’t know anything about
engines and cars, and doesn’t know anything about electricity and all that?” But new
things coming along don’t take away the opportunities.

What gives you opportunities is other people doing dumb things. (Laughter)
(Applause) Well, the 58 years we’ve been running Berkshire, I would say there’s been
a great increase in the number of people doing dumb things. And they do big, dumb
things, and the reason they do it to some extent is because they can get money from
other people so much easier than when we started.

So, you could start ten or 15 dumb insurance companies in the last ten years, and you
could become rich if you were adroit at it, whether the business succeeded or not, and
the underwriters got paid, and the lawyers got paid. And if that’s done on a large scale
— which it couldn’t be done 58 years ago.

You couldn’t get the money to do some of the dumb things that we wanted to do,
(Laugh) fortunately. And so, I think that investing has disappeared so much from this
huge capitalistic market that anybody can play in, but that the big money is in selling
other people ideas.

It isn’t outperforming. And I think if you don’t run too much money, which we do —
but if you’re running small amounts of money, I think the opportunities will be
greater. But then Charlie and I always differed on this subject. He likes to tell me how
gloomy the world is, and I like to tell him, “We’ll find something.” And so far, we’ve
both be kind of right. (Laugh) Charlie, would you budge an inch on that, or not?
(Laughter)

CHARLIE MUNGER: There is so much money now in the hands of so many smart
people, all trying to outsmart one another and out-promote one another, getting more
money out of other people. And it’s a radically different world from the world we
started in. And I suppose it will have its opportunities, but it’s also going to have some
unpleasant episodes.

WARREN BUFFETT: But they’re trying to outsmart each other in arenas that you
don’t have to play. I mean, if you look at that government bond market, at the
Treasury bill market, I mean, you have this one bill that’s out of line with the others,
and went (UNINTEL PHRASE) $3 billion of it the other day.

But the world is overwhelmingly short-term focused. And if you go to an investor

relations call, they’re all trying to figure out how to fill out a sheet to show the
earnings for the year. And the management is interested in feeding them expectations,
so we’ll slightly be beaten.

I mean, that is a world that’s made to order for anybody that’s trying to think about
what you do that should work over five, or ten, or 20 years. And I just think that I
would love to be born today, and go out with not too much money, and hopefully turn
it into a lot of money. And Charlie would too, actually. (Laugh)
He would find something to do, I will just guarantee you. And it wouldn’t be exactly
the same as before, but he would have a big, big, big pile.

CHARLIE MUNGER: I would not like the thrill of losing my big pile into a small
pile. (Laughter)

WARREN BUFFETT: But we might —

CHARLIE MUNGER: I like my big pile just the way it is. (Laughter)

WARREN BUFFETT: We agree on that, incidentally.

CHARLIE MUNGER: Yes, we do. (Laughter) You’re one of the most extreme lovers
of the big pile. (Laughter)

13. AIG liability assumption deal is turning out to be ‘good but not great’
WARREN BUFFETT: Becky?

BECKY QUICK: This question is for both Warren and Ajit. Comes from Jason
Plonner (PH) in Livingston, New Jersey.

He says, “In 2016, you entered into a very unique transition with AIG where you
assumed up to $20 billion of liabilities in exchange for about $10 billion upfront. Can
you please provide us with an update on this transition in light of the increase in
interest rates?

And then in Tokyo just a few weeks ago, you talked about the risks of banks with
assets that were susceptible to rising interest rates. Any insight as to how Berkshire
liabilities are susceptible to duration would be appreciated.”
WARREN BUFFETT: Is that directed to Ajit, or me, or what?

BECKY QUICK: Both.

WARREN BUFFETT: OK. Let me introduce my one thing, but Ajit is the key to this.
He’s the one that put the deal together. But we got handed $10 billion, we’ll say. But
we weren’t restricted to putting that into bonds. So, interest rates affect us to some
degree maybe, in terms of the deal we did with AIG, or anybody we would do a
similar deal with like that.

But we don’t have to put it in matching bonds or anything of the sort. It goes into a
general pool of assets, which we manage, and the liquid assets now are $130 plus. But
it is not set aside in some little compartment like people like to think.

Now, no other insurance company could do it. But they can’t think that way. They
aren’t even used to thinking that way. But they can’t think that way because they
don’t have our balance sheet. We account for 26% or something like that of the net
worth of all property casualty companies in the United States.

So far, the payments that we have had to make have run modestly. And Ajit will
correct me on this if I’m wrong, because he paid attention. The amount we have had
to pay has run slightly below the amount we anticipated having to pay in terms of our
share of the losses.

But it served AIG’s purposes. It came to us where we are in a unique position. There’s
nobody else that was able to write that, just like when we took on Lloyd’s. I mean,
Lloyd’s said there was no choice other than Berkshire Hathaway when they
essentially resuscitated their market by laying off a lot of liabilities on Berkshire
Hathaway.

So, we won’t see those deals very often. If they’re for $500 million or something like
that, somebody else will go in there and offer more money. And everybody’s looking
for money on Wall Street. But if they start talking with the deal like the AIG deal,
there isn’t any other stop now. Correct me on all my numbers there, Ajit. (Laughter)
AJIT JAIN: No. One way to look at how the deal is performing since we did the deal
is at the point in time when we did the deal, we had made certain projections of how
much we will pay out each year. And what we do is monitor what the action payments
are since the inception of the deal, and how does that compare with what we expected
to pay out.

As Warren mentioned, these two numbers are very close to each other. More
specifically, the actual payouts are 96% of what we had projected to pay out at this
point in time, which is good but not great. We are still ahead of the curve. If we do
end up paying out less than what we projected, not only would we have borrowed
money at a very attractive rate, meaning significantly less than 4%, in addition to that
we would have made a fee, which in 2015 dollars would be $1 million.

So, we would’ve borrowed money at less than 4% and we would’ve made $1 million
fee, which is slightly more than what we were expecting to do. So, net/net, we’re very
happy with the deal, we’re happy we did it. But the game is not over. There are tort
liabilities that are coming down the pike every second day. So, I’m cautiously
optimistic that the deal will work out better than how we expected it to work out.

CHARLIE MUNGER: Well, the really interesting thing is that within Berkshire, the
casualty insurance companies have four times as much stockholder capital behind
each dollar of premium value. Four times normal. And of course, we see the big deals.
Who would you trust if you had a big liability you wanted to dump on somebody?

WARREN BUFFETT: And we have $25 billion or more coming in from things other
than insurance, uncorrelated to insurance, every year with no obligations. We don’t
pay dividends. If we pay dividends, you know, and you cut your dividend, try going
around trying to write insurance the next day.

I mean, and it’s a business where people are counting on you to pay. And when we
take that $10 billion, we don’t agree to put it in five-year bonds and ten-year bonds.
We don’t even think that way. And the people that do business with us know that they
have somebody like nobody else on those that’s going to be able to pay $10 billion no
matter what happens to the economy.

So, it’s not only the presence of enormous strength in the insurance companies, it’s
the fact we have all these earnings that essentially come in every month, we don’t
have a lot of debt. I mean, we have debt at the railroad and the energy level. But in
terms of the rest of the operation — And we don’t guarantee that debt, but it’s
(UNINTEL).

And there just isn’t another Berkshire, and Ajit recognizes that when he’s negotiating.
So does the other party if the sums are big enough. There’s all kinds of people that
love to get $500 million or $300 million, and they may think in terms of lending it out
because that’s what their insurance companies can do at a somewhere higher rate. But
that is not a game we play, and we don’t have any interest in playing in.

14. Never write a will without input from your children

WARREN BUFFETT: OK, station four?

AUDIENCE MEMBER: Hello. I’m Marvin Blum, an estate planning lawyer from
Fort Worth, Texas, home to many of your companies. In fact, Warren, I met you at the
memorial for our beloved Paul Andrews, who was manager of TTI. I’d like to get
your thoughts on a widespread problem in the world of estate planning.

And that’s the failure of most parents to prepare the next generation for the
inheritance coming their way. In particular, if the estate includes a family business,
most parents fail to do business succession planning to plan for who’ll run the
business on the day when, not if, the founder is no longer there to run it.

The kids aren’t prepared, unlike the other King Charles, not King Charlie Munger,
(Laughter) who has been preparing for his job as King of England now for more than
70 years. I sometimes describe the situation like this: Picture a football game. At one
end of the field is a quarterback.

He has great skills; he throws a beautiful pass to the other end of the field. And at the
other end of the field are the receivers. They’ve never been to a practice, they don’t
know the rules of the game, they don’t know how to work together as a team. They’re
clueless. So, the quarterback is the patriarch and the matriarch. The football is the
inheritance or the family business, and the receivers are the kids. So, what are the
odds that they’re going to catch the football and go score a touchdown? Probably only
around 10%.

WARREN BUFFETT: I have the picture. (Laughter) (Applause) Just because of my

age, and to some extent because of things like the giving pledges, I probably observed
as many particularly wealthy families, the problems, and they all are very particular to
the family.

And in my family, I do not sign a will until my three children have read it, understand
it, and made suggestions. Now, my children are in their 60s and that would not have
been a great success if I’d done the same thing in their 20s. It depends on the family; it
depends on how the kids feel about each other.

There’s all kinds of things. Depends on the kind of business you have. So, there’s a
thousand variables. But I do think that if the children are grown, and when the will is
read to them, it’s the first they’ve heard about what the deceased thought about things,
the parents have made a terrible mistake.

And I’ve run into all kinds of situations, and some people don’t tell their children
anything, and some of them try and get them to bend to their will by using their own
personal will. They make a million mistakes. And that’s one you don’t get to correct.
Well, Charlie’s had a lot of experience too with the —

CHARLIE MUNGER: Well, at Berkshire we have a simple problem of estate

planning. Just hold the goddamn stock. (Laughter)

WARREN BUFFETT: Well, (Applause) but that doesn’t fit everybody, Charlie.

CHARLIE MUNGER: No, it only fits 95%. (Laughter)

WARREN BUFFETT: I don’t know necessarily whether if you have billions of

dollars, you want to leave it to all of your children. I mean, that’s something —

CHARLIE MUNGER: Well, that’s another question. But if you’re going to place it
somewhere, I’d just as soon have Berkshire stock.

WARREN BUFFETT: Yeah, oh, you’re solving the investment problems one. But
you have the personal problem of the fact that when they were four, one of the kids
pulled the other kid’s cat’s tail or something like that. I mean, you’re dealing with
human beings.

And the biggest thing you want is you want your children to get along. And you want
that all through your life, and the estate isn’t the only place where you can mess that
up. But I mean, I know a number of cases where the people did not know what was in
the will where there were huge sums involved.

And you know, within about 15 minutes each one of them had a lawyer, and you
know, they don’t get along since. It’s important to handle it target. And if you want
your kids to have certain values, it’s important that you live those values. It’s
important that you talk about it to them. (Laugh)

They’re learning from you from the day they’re born, what you’re really like. And
don’t think that a cleverly drawn will substitute for your own behavior in teaching
your kids the values you hope that they will have. And then your will should be in
conjunction with that.

And they grow older, and then they learn to pass along their values in connection with
the size of the estate. If there’s family farms it’s one thing, if it’s a bunch of
marketable securities it’s something else.

But I know one instance by a particularly rich fellow that once a year he’d get his kids
together, and have a dinner, and do all kinds of things to get them to sign their income
tax returns in blank, because he didn’t want them to know how much money they had
and everything.

Well, that isn’t going to work. I mean, I don’t know necessarily what would’ve
worked with him. But Charlie and I have said, if you want to figure out how you want
to live your life, you write your obituary and reverse engineer it. You know, and Paul
Andrews incidentally, who you mentioned at TTI, lived as great a life as anybody I’ve
known.

And he thought about these problems, and he came to me. He was 61, I think, had all
the money way beyond what he needed. He liked to give it to people. He had all kinds
of good things he wanted to do. And he said, “For a year I’ve been worried about my
business, TTI.”

And he said, “I have all the money I need. The family has all the money they need.
But what do I do with the business? These people have helped me throughout my
life.” And he said, “I can sell it to a competitor. And if I sold it to a competitor, they’d
fire my people and keep their people when they put it together.

“And if I sell it to a private equity firm or something, they’ll be figuring out their exit
strategy as they sign the papers.” And he said, “It isn’t that you’re such a great guy,
it’s just that you’re the only one left.” (Laughter)

And we bought it, and we lived happily ever after. And that was a man that knew the
life was about.

15. BNSF takes derailments ‘incredibly seriously’

WARREN BUFFETT: So, with that, let’s go onto Becky. (Applause)

BECKY QUICK: This question comes from Don Glickstein in Seattle. He says,
“Warren has criticized Norfolk Southern’s handling of its train derailment, yet has
been silent about BNSF’s conduct. A federal judge ruled in March that BNSF
intentionally and illegally violated an easement agreement on tribal land in
Washington State by transporting long trains of crude oil.

“The same money the judge made his ruling a BNSF train derailed on tribal land,
spilling oil in an environmentally sensitive area” What is Warren doing to ensure that
BNSF and the Berkshire subsidiaries fulfill their ethical responsibilities? He says he’s
been a Berkshire owner for more than two decades and he’s concerned that Berkshire
has no systems to identify and address what he calls reprehensible behavior at BNSF
and other subsidiaries?
WARREN BUFFETT: Greg?

GREG ABEL: Sure. It is a valid issue that our team obviously has been dealing with
at BNSF. We did move crude across that tribal land. We had an agreement that
allowed us to move X number of units per day. And we did breach it. We went over it.
There were some fundamental breakdowns there that our team didn’t understand the
number of trains that they could move.

We have had significant discussions with the tribe looking to resolve the issues,
recognizing we obviously benefited from moving those trains. And those type
discussions will continue. I would say there’s lessons learned there that we have to,
when we make a commitment, understand what that commitment is and live by it.

Or don’t assume we can just move our trains as we wish or the cargo as we wish. We
have to respect those agreements. There’s been a moment learned there. But at the
same time, we’ve taken it very seriously and attempted to reach a resolution. And at
some point, I hope we do come to a true resolution that’s fair both to the tribe and to
BNSF.

On the derailment side, we did have an issue around the track derailed. We worked
very closely with the tribe to mitigate that issue instantly or at least over a very
reasonable period of time. They were very responsive. Our team was very responsive.
And there were really no long-term environmental impacts to that spill.

And as our teams highlighted in other comments, obviously derailments do occur in

the industry. We take them incredibly seriously. They’re not all hazardous, but
irrespective of that, we’re constantly looking at how do we prevent them. How do we
detect them when we potentially have one that’s going to occur? And what do we do
with our trains? And then ultimately it comes down responding properly. Because
they will occur. And I think we have an incredibly dedicated team that’s always ready
to respond to the communities they’re impacting.

WARREN BUFFETT: There are derailments. How many a year?

GREG ABEL: Yeah, well, there’s a thousand-plus in the industry.

WARREN BUFFETT: Yeah, yeah. You know, you start hauling freight, and we’re a
common carrier. And we take very heavy freight. And we take them in 100° weather.
And we take it at 0° and we go around curves. And we have grades. (Laugh) And
even a 1% grade, if you’re going down a hill with, I don’t know how much weight
behind you, I mean, railroading is not an easy business.

And of course, the systems were designed, you know, basically in the late 1800s, amid
the late 1800s. And we have 22,000, I think it is, miles of track. And that doesn’t
count sidings and some other things. It is not an easy business. We’ll make mistakes.

We’re not making a mistake because we have a derailment. We will have derailments
ten, 20 years, or 30 years from now. And we have to carry certain products we wish
we didn’t have to carry. We’re a common carrier. Do we like carrying chlorine and
ammonia and all? No.

But they’re going to move from one place to another in this society. And we are a
common carrier. And we load them if they select our railroad.

But we are better than we used to be. But we’ve got a long way to go. Is that a fair
enough statement?

GREG ABEL: Absolutely.

16. Berkshire utilities focusing on clean energy but coordinated national effort is
needed
WARREN BUFFETT: OK, station five.

AUDIENCE MEMBER: Hi, Mr. Warren and Mr. Munger. My name is Soo Jing Hua
(PH) from China, (FOREIGN LANGUAGE) company. And first of all, I’m so excited
and very honored to be here today. And my question is: With more and more people
focusing now on environmental competition protection and the government
supporting the new energy industry as well, so what are your thoughts on the
continued development of new energy? How may the new energy firms achieve better
developments in the future?

WARREN BUFFETT: Yeah, well, Greg I think, is the best to answer that because
since we bought a company called MidAmerican but now called Berkshire Hathaway
Energy. But he has been talking about it yearly, preparing reports hoping that we can
help solve a number of the problems. And we probably spent more money than any
utility, I would guess, in the United States.

GREG ABEL: Absolutely.

WARREN BUFFETT: And we’ve just scratched the surface. But it is not easy when
you cross state lines. I mean, you’ve got different jurisdictions. And this country
should be ahead of where it is in terms of transmission. We have been the biggest
factor in helping that. But why don’t you tell them a little bit about it?

GREG ABEL: Sure, thanks, Warren. So, there’s no question there’s an energy
transformation going on around the globe and as Warren touched on, in the U.S. And
in some ways, I would hope here in the U.S. we’d at least have a clear plan across the
nation as to how to approach that.

But the reality is it is state by state with some exceptions. So, as a result, when you
think of Berkshire Hathaway Energy, we own three U.S. utilities there. And they all
participate in multiple states. But they’re developing plans state by state and then
trying to integrate them across the various states.

The opportunities are significant because there is a transformation going on. We’ve
outlined our goal on where we’re going relative to carbon at BHE where they’ll by
2030 reduce their carbon footprint by 50% relative to 2005. So, that’s the Paris
Accord and the standard they want to hold the utility industry or the utility companies
to.

And we’re well on that path. But to achieve it is a true journey. I’ve often talked to
Warren. When we bought Pacific back in the mid-2000s, we immediately recognized
to build a lot of renewable energy like we’ve been doing in the Midwest and Iowa.

But that was basically in a single state. Now PacifiCorp, we’re in six states. We
started that back in the mid-2000s. Here we are. And we laid out a great transmission
plan. Here’s how we’re going to build it. Here’s how we’re going effectuate it, and all
the benefits for our customers over that period of time.

Here we are in 2023, and we have a little more than a third of that. At the time it was a
$6 billion transmission project. Today we have a little more than a third of it built.
And we’ve spent probably closer to $7 billion. And it’s the right outcome.

It’s still a great outcome for our customers. But as part of the transformation, you
absolutely have to build it to move all that renewable energy. And that’s sort of the
complexity Warren was highlighting. You can’t just wake up one day and solve this
problem.

You start with transmission, and then you build the resources. But at that same
company, and if we look at what we’re doing across BHE Energy and that energy
transformation, we have $70 billion of known projects that are really required to
properly serve our customers and achieve that type of energy transformation across
those utilities.

And that’s in the coming ten years. So, we have a team that’s absolutely up to the
challenge. They’re delivering on their commitments. And it’s a very good business
opportunity for each of our companies and for our shareholders. Because as we deploy
that capital, we obviously earn a return on equity of it. But it will be a long journey.
It’ll happen over an extended period of time. And the further you get out there, the
more dependent upon the evolution of a variety of technologies that are progressing,
but not there yet.

WARREN BUFFETT: You’ve raised a question. I want to just take an extra minute
now because it’s so important. And I don’t really know whether our form of
government is ideal at all in terms of solving the problem you describe. We have
solved it one time. In World War II, we took a country that was semi-limping along.
And we found ourselves in a world war. And what we did in a world war is we
brought a bunch of people to Washington at a $1 a year. I don’t know whether it was
Sidney Weinberg or Goldman Sachs. You just name them. And we gave them
enormous power to reorient the resources of the United States to face the problem that
they faced, which was to create a war machine.

And what they did was they found Henry Kaiser, you know, and told him to build
ships. And they went to the Ford Motor Company and said, “You build tanks and
some airplanes.” And they reordered the industrial enterprise of the United States in a
way that was unbelievable.

Because they had the power of the federal government. And they had the ingenuity of
American business. And they had the facilities of American business. And it led to a
very successful outcome. But can we do that in a peace time where you’ve got 50
states and you have to get them to cooperate?

And you can issue orders. But you can’t designate where the capital goes. It’s the
other end. And, you know, we try and do it with tax incentives and all of that sort of
thing. But we haven’t created the unity of purpose and the machinery that worked in
World War II where essentially everybody felt their one job was to win the war.

And we figured out how to use our industrial capacity to in effect defeat the Axis
powers. And how do you recreate that with, you know, the present democratic
system? I’m not sure I know the answer. But I sure know the problem. And I think
that if you’ve got an emergency on your hands, I mean, you really need to re-engineer
the energy system of the United States.

I don’t think you can do it without something resembling the machinery, the urgency,
whatever. The capital’s there. The people are there. The objective is obvious. And we
just don’t seem to be able to do it in a peace time where we’re used to following a
given set of procedures.

And, you know, China’s one country. And we’ve got 50 states. And we got a whole
different system of government.
We should be up to the test, but so far it hasn’t worked. So, thank you for the
question.

17. Abel will decide on next generation of Berkshire managers

WARREN BUFFETT: Becky.

BECKY QUICK: This question comes from Chris Freed in Philadelphia. He says,
“We know that Greg Abel and Ajit Jain are the next generation of Berkshire leaders.
Who are currently behind Greg and Ajit in their respective roles?”

WARREN BUFFETT: Well, that will be the question. Well, Greg will be, absent
some extraordinary circumstance, but he’s going to succeed me. And then he will be
sitting in a position where he needs his equivalent or something closer to his
equivalent, because he’s better at many things than I’ve been.

He will need that substitute. And when the question comes, we know Ajit’s opinion
on that. But Greg will probably be the one that will make the final decision, I mean,
being his responsibility. And Ajit will give him his best advice. And I think the odds
are very, very, very high (Laugh) that Greg would follow it.

But those are not easy questions. Everybody talks about the executive bench and all of
that sort of thing, which is baloney. I mean, you know, they don’t have that many
people that can run five of the largest net worth companies and all kinds of diverse
businesses.

But you don’t need five people either. And you need a lot of good operating managers.
And you need somebody at the top that allocates capital and makes sure that you’ve
got the right operating manager. And we’ve designed something where we separate
the insurance and the rest of the business.

And I think it’s a very good design. But we wouldn’t be smart to name that decision
now about the two different areas of the business because a lot can change between
now and then. And the most likely (Laugh) change is that this job changes. Charlie.
CHARLIE MUNGER: I got nothing to add. We have a lot of good people that have
risen in the Berkshire subsidiaries. And there’s a reason why our operations have by
and large done better than other big conglomerate companies. And one of them is that
we change managers way less frequently than other people do. And that’s helped us.

WARREN BUFFETT: When Paul Andrews died, we knew who he thought should
take over there. But there wasn’t any reason to announce that. I mean, we should live
to be 100. We had one of our managers die not long ago. And how old was he, at
Garan?

GREG ABEL: Yeah, mid-90s, Seymour.

WARREN BUFFETT: Yeah, Seymour Lichtenstein. And Seymour, I wrote him a

letter when he was 80 and I said, you know, “I’m glad you’re 80. And I’ll write you
again when you’re 90.” And (Laugh) I wrote him again when he was 90. And (Laugh)
he didn’t make it to a hundred.

But he had a terrific fellow following him. And he really managed it jointly, to some
extent, as the years went by. But it’s case by case. And the main thing to do is have
the right person running the whole place.

18. America has too much ‘tribalism’

WARREN BUFFETT: OK. Station six.

AUDIENCE MEMBER: Good morning, my name is Hatch Okamamti (PH) from

Miyazaki, Japan. Mr. Buffett, I was one of the 8,000 employees at Salomon Brothers
that you saved. I was younger back then. I was working at 7 World Trade Center. I’ve
always, always wanted to thank you in person for saving that company, its employees,
including myself and my family. So, thank you, Mr. Buffett. (Applause)

WARREN BUFFETT: Thank you. (Applause) And thank Deryck Maughan who
actually had been over in Japan before that and who I met for the first time the day
before I put him in. And it wouldn’t have worked if Deryck hadn’t come. So,
whatever you taught him in Japan, (Laugh) thank you.
AUDIENCE MEMBER: Thank you, sir. Now, my question time to time you have
reminded us to not bet against America. What do you think are the most important
things for you guys to remain strong? On the risk side, if the strength of the country’s
undermined, what could be the reasons?

WARREN BUFFETT: Well, we’ve had (Applause) a lot of tests. I mean, we’re such a
young country. You know, when you think about Japan and you think about the
United States, it’s just incredible how new we are to the block. I mean, you know,
what are we? 234 years old since we started.

That’s nothing. I mean, you know, Charlie and I combined, we’ve lived two thirds the
life of the country. (Laughter) I mean, we’ve been tested at 46 national elections. And
we made some bad choices. And we’ve had a civil war. I mean, so the country has had
enormous advantages though in some way.

Because we started with one half of 1% of the world’s population in 1790. And we
now have something close to 25% of the world’s GDP. And it wasn’t because we had
some incredible advantage in terms of the land. It was nice to have two oceans on
each side back when people tried to rule the world by ruling the waves.

You know, and we’ve had good neighbors in Canada and Mexico. But it’s a miracle.
And you say, “How do we keep the good parts of the system?” Well, culling out our
obvious defects. And we do it in a very herky-jerky manner. But net, the United States
is a better place to live than it was when I was born by a huge factor.

I mean, I just got a root canal a week ago. And I was just thinking, “I don’t know who
invented Novocain, but I’m for him.” You know, I mean, (Laugh) but in a million
ways. I mean, you can romanticize about the past. But forget it. It is work. But now
we do have an atom bomb and we wish nuclear power.

You know, we wish the atom had never been split. But it has been. And you can’t put
it back in the bottle. So, the challenges are huge. You know, my dad was in Congress
back in the 1940s. And it looked like a mess then. Although it was unified by the war
to some degree.
But it was still very partisan. Now the problem we have, I think, is that partisanship, it
seems to me, has moved toward tribalism. And tribalism just doesn’t work as well. I
mean, when it gets to tribalism, you don’t even hear the other side. And tribalism can
lead to mobs.

I mean, it just flows. I mean, you’ve seen it (UNINTEL). We’ve seen it to a degree
here. So, we have to refine in a certain way our democracy as we go along. We deal
with the world we live in. But if I still had a choice of any place to be born in the
world, I’d want to be born in the United States.

And I’d want to be born today. I mean, it is a better world than we have ever had. And
with present-day communications, we can also see much more how terrible it is in
many ways. And it’s got problems. When I was born in 1930, there were 2 billion in
the world.

And now there’s maybe 7.7 billion and growing. And we went millennia with really
no change in population. And of course, we’ve introduced energy in an incredible way
into something where we now have 7.7 billion people using way more energy than
they did when I was born when there were 2 billion people.

So, it’s an exciting world. It’s a challenging world. And, you know, I don’t know the
solutions on things. I do think that we do need to think about different solutions in
terms of how we get important problems solves and that we don’t kid ourselves that
something magic will happen or that everybody will get together and we’ll all just
cheer, and it’ll go away by 2050.

And how well we adapt to that, we will see. I would say so far it doesn’t look very
promising. But then I’m sure that when Lincoln looked out at what was going on in
the Civil War it didn’t look very promising either. So, I think that the U.S. is capable
of doing remarkable things. And I think it wouldn’t surprise me if they do it again.
Charlie may —

CHARLIE MUNGER: Well, I’m slightly less optimistic than Warren is. (Laughter) I
think the best road ahead to human happiness is to expect less. I think it’s going to get
tougher. And I think the solution of having a huge proportion of the young and
brilliant people all go into wealth management is a crazy development in terms of its
natural consequences for American civilianization. We don’t need as many wealth
managers as we have.

WARREN BUFFETT: But Charlie was born on January 1st, 1924. And you’d hate to
go back to that, wouldn’t you, Charlie? (Laugh)

CHARLIE MUNGER: Yes, I would. And I like more wealth managers who are just
merely reflecting the fact there’s more wealth. But I don’t like everybody going into
wealth management. Better go to MIT or something. I think the world’s a little crazy
now.

WARREN BUFFETT: Take your choice. (Laugh)

19. No corporate raider will have enough money to target Berkshire after Buffett
WARREN BUFFETT: OK, Becky. (Laughter)

BECKY QUICK: This question comes from Dennis DeJaniero. As Warren stated in
the 2022 annual report, Berkshire will always hold a boat load of cash in U.S.
Treasury bills. It will also avoid behavior that could result in any uncomfortable cash
needs at inconvenient times, including financial panics and unprecedented insurance
losses.

After Warren passes away, his A shares will be converted into B shares and
distributed to various foundations. These foundations will then sell the shares to fund
their causes. Warren estimates it will take 12-15 years for all his shares to be sold.

I worry that a corporate raider like Carl Icahn or a group will buy up enough of these
shares to take control of Berkshire and completely disregard Warren’s philosophy of
holding a lot of cash and U.S. Treasury bills, and instead be greedy, reckless, and
highly speculative and ruin Berkshire’s position as a rock-solid financial fortress. I
also worry that changes might be made in how Berkshire’s subsidiaries are run. Do
Warren and Charlie worry that these things could happen?

WARREN BUFFETT: Well, I think it’s fair to say we think about it plenty. But I
don’t worry enormously. It is true that Greg and the directors will have a honeymoon
period for a long time simply because other votes that will still remain. But it’s true
that eventually they will get judged based on how well our operation fares versus
others.

Now if we don’t pay any dividends in 12 or 15 years, you’re talking a trillion and a
half that it would take to take over. And I think that limits the group. They like to
think about how much they can borrow against it. (Laugh) It doesn’t work.

And there’s nobody that can come close to doing it themselves. And I think that the
important thing is that Berkshire be regarded as a national asset rather than a national
liability. We’ve got to be a plus to the country with our form of operation. And we
certainly have got a record which will then be 12 or 15 years longer, done with much
more capital, more companies.

More things will have happened where our hundreds of billions can work its way into
the economy in terms of lots of jobs, lots of products, lots of behavior. And it can be
compared with other things. So, I think we win out if we deserve to win out. And I
think the odds of that happening are very, very, very high. Charlie.

CHARLIE MUNGER: Well, I don’t spend much time worrying about something that
happened 50 years ago after I’m dead. I think if you sort of take care. Each day’s
responsibility is pretty low. And think ahead as well as you can. Then you just take
the results as they fall. So, I’m philosophical. But I’m not — I think he’s fretting
unnecessarily.

WARREN BUFFETT: OK. Neither one of us are worried, basically. (Laughter) But
we plan. We do plan. And, you know, I’ve got a model in my mind of what Berkshire
has been the model. It’s been modified plenty of times over 58 years. The one thing I
knew initially or very quickly was it shouldn’t be a textile company.

(Laugh) That was an important decision. (Laughter) And, I mean, we’ve just played
the hand as it came along. And we made a few really good decisions. We’ll never
make a decision that kills us. Only things that are a threat to the planet, we don’t have
any answer for those.
But we keep ourselves in better shape than anybody else. And we just aren’t going to
have big maturities of debt that come along. We aren’t going to have insurance
policies that can be cashed in en masse. And we will sit with what looks a huge
amount of capital.

And it is a huge amount of capital. But there’s a huge amount of earning power.
There’s a huge amount of diversity, everything. So, our business model will be
graded, and it’ll be graded against a lot of people that we like to be graded against. So,
I think we’re handing something very secure over to the future.

And I think we’ve got a shareholder base like nobody has. I mean, there isn’t anybody
in the country that I know of unless they’ve had a employee-owned company prior to
going public or something of the sort. But this is the product of, you know, 58 years of
regarding the shareholder as the owner of the company.

But what does that mean? That means having happy customers. It means being
(Applause) welcomed by your community rather than having them turn you away. It
means that the government feels better with you if there’s a financial crisis. Because
you can provide something that actually the country can’t under some circumstances.

And you’ll be there. And at the same time, it’ll be good for the business. And we will
have crises of one sort or another. But if they aren’t challenging the planet, which
worries you in terms of some of the threats that we have, we’ll be a plus to the United
States. And if we’re a plus to the United States, we’ll survive.

20. Stories about finding Ajit Jain and Ben Rosner’s Chicago submarine
WARREN BUFFETT: OK. (Applause) Station seven.

AUDIENCE MEMBER: Mr. Buffett and Mr. Munger, thank you for having us this
weekend. My name is Beau Clayton (PH), and I’m from Durham, North Carolina.

One of the reasons that we are all here is that you’re great storytellers. And we carry
those stories back home with us.
Can you please share a couple stories that maybe we haven’t heard before (Laughter)
about Mr. Abel and Mr. Jain that capture their character and their caliber as leaders?
(Applause)

WARREN BUFFETT: Well, I’ll start out with Ajit. (Laugh) He walked into the office
in 1986, and I’d gotten the bright idea of going into the reinsurance business I think in
maybe 1969. So, I’d stumbled along for 17 years. And I had a wonderful guy that ran
it.

But he also liked certain brokers. I mean, he was running it the traditional way. Top
quality and everything else, but he didn’t try and change the system. He tried to
improve the system to some degree. And we went nowhere. Seventeen years
wandering around in the wilderness.

And I thought we could have something good. And then Ajit came in on a Saturday
and Mike Goldberg (PH) had steered him in, I think. And Mike deserves to be
enshrined (Laugh) in perpetuity for that act. And I talked with him a while. I think
maybe I was opening the mail on Saturday while I talked with him.

And he had absolutely zero experience with insurance. But he’d actually seen a good
bit about how corporate America operated, because he’d been in management
consulting. And after talking with him, I knew I’d struck gold. And so, I hired him
and gave him the backing of some money.

And we hit a very good period in the market almost right away for him to act. And
Ajit, you know, if I had the top pick of ten insurance managers in the world, I could
take all ten and you can’t replace Ajit. And we still enjoy talking.

We don’t talk as frequently as we used to, but we used to talk about every day. But
he’s one of a kind. And, you know, if you’re going to stick around long enough, you
only need one of a kind. (Laugh)

Paul Andrews (PH) stuck around at TTI, had all the money in the world.
Every time I talked to him about getting a raise or something of the sort, he said,
“We’ll talk about that next year.” He was not what you get when you get the top draft
picks from the leading business schools. And I will say this, I have never looked at
where anybody went to school in terms of hiring.

I mean, somebody mails me a resume or something, I don’t care where they went to
school. And it just so happens that Ajit went to some pretty good schools. But he isn’t
Ajit because he went to those schools. And Charlie, you can tell a story or two. How’d
you find Louis Vincenti? (Laugh)

CHARLIE MUNGER: Well, he was there. But you’ve got to recognize him. I asked
Louis once how he managed to play first-string football at, I think, Stanford when he
only weighed 155 pounds. And he said, “Well,” he said, “I was pretty quick.” And he
was pretty quick. But (Laugh) we have found a lot of people within our companies
who are pretty quick.

WARREN BUFFETT: Yeah, we had one guy that quit at fourth grade, didn’t we? Ben
Rosner. Am I wrong?

CHARLIE MUNGER: Oh yeah. Totally self-educated. Ben Rosner knew more about
retailing in those old neighborhoods than anybody. And he watched everything in his
business like a hawk, and he was amazing. Now there was an example. We never
found anybody who could do what — when Ben died, that ability left us.

WARREN BUFFETT: Yeah, and you want a story that’s kind of interesting, because
Ben Rosner had a partner, Leo Simon. And Leo Simon was Mo Annenberg’s son-in-
law. And Leo, therefore, was very, very, very wealthy. And Ben started with nothing.
But they liked each other.

And one time well before they got involved in the business we bought, they got the
idea of buying a submarine from World War I and taking it to the Century of Progress,
which was the World’s Fair, in effect, in Chicago I think in 1933. So, they bought the
submarine for practically nothing.

And they figured the average guy from Omaha who’s going to his first World’s Fair
could get a submarine for a quarter or something, that they’d pay it. So, they hauled it
from Florida, wherever they got it, hauled it to Chicago. And then they got into
Chicago, and they were hauling a submarine down the streets of Chicago. (Laugh)

And, you know, it was creating traffic problems like nobody could imagine. So, a cop
came over and he said to Ben, he says, “Where do you think you guys are going with
that submarine?” (Laugh) And Ben says, “You’ll have to talk to my partner, Mr.
Capone.” (Laugh)

And the cop says, “You’re on. You know, just keep going.” And (Laughter) that was
Ben Rosner. And then Leo Simon died, and when he died in 1967 or so, Ben Rosner
kept delivering half the profits to his widow, who was incredibly rich, of course, being
Mo Annenberg’s first-born daughter.

I think Mo had nine girls in a row before Walter came along, the tenth. I may be off
by one. But anyway, I went to his fancy apartment. And anyway, Ben kept her in for
half the deal. And he had her sign the rent checks just so she would look like she was
doing something in this business.

And she didn’t need the money, obviously, but he just felt he was obligated once his
partner, Leo, died. And then she started criticizing him. And at that point, Ben went to
his lawyer, who was her lawyer, actually, Will Salsteiner (PH). I don’t know whatever
happened to Will.

But he gave me a call because Ben wanted to call me because he wanted me to buy it.
And he wanted me, if I bought it, he’d be rid of the ex-partner’s wife. And he had
Charlie and me come back, and we went to Will Salsteiner’s office. And Ben says,
“I’ll work until the end of the year, and that’s all. But I’ll sell you this thing for $6
million bucks.”

And I had $2 million in cash, and a couple of million in real estate, and a couple
million of operating earnings. It was just crazy. But he felt if he was getting a lousy
price, she was taking a half of the lousy price for half the money. So, he looked at me
at some point. Charlie, you describe the rest of it. (Laugh)
CHARLIE MUNGER: He said, “I hear you’re the fastest draw in the West.” He says,
“Draw.” (Laughter)

WARREN BUFFETT: We’re in a New York lawyer’s office. (Laugh) And this guy is
selling his baby. And he told us he’s leaving. I got Charlie on the side, I said, “If this
guy leaves at the end of the year, you can throw away every psychology book that’s
ever been written. I mean, it isn’t going to happen.”

And so, we bought it and we lived happily ever after with Ben. And one time he was
taking me over to see a property we had in Brooklyn. And along the way I said, “Ben,
you know, I promised you I wouldn’t interfere in the business when we started.” And
he knew a “but” was coming. And he just said, “Thank you, Warren,” and then he
shut me up. (Laughter)

He was a lot of fun. We have so many Ben Rosner stories, but now you’ve heard one
that hasn’t been published before.

21. Jain is happy with property catastrophe reinsurance portfolio

WARREN BUFFETT: OK, Becky?

BECKY QUICK: This question comes from Chai Gohill (PH). This he writes, this is
for Ajit. “Reinsurance industry is going through one of the hardest pricing
environments in the last 15 years. Berkshire historically has participated during these
stressed times when economic returns are very attractive.

“This year, it appears Berkshire has not been interested in deploying its resources
towards property cat reinsurance despite such strong returns. Can you elaborate on
reasons for not participating despite these returns, and your broader view on how
you’re planning to shape your reinsurance business post-acquisition of Alleghany?”

AJIT JAIN: OK. In terms of Alleghany, that’s an easy response. We treat our
operating units independent of each other. And as far as Alleghany is concerned, they
have a major presence in the reinsurance business under the brand name of
TransAtlantic Re.
That company will operate the way it’s been operating in the past. There will be no
change in terms of strategy or management. And they will keep doing what they’re
doing. They’ve been very successful, and hopefully will keep being successful.

Now, in terms of the property cat business that I have been active in over these last
several years, you’re right that the last 15 years has been a difficult time. Prices have
not been attractive. And even though we have had some presence in the property cat
business in the last 15 years, it really has been minimal.

This December 31st, which is a big renewal date for cat reinsurance, we were hoping
that we would get a few days in the sun, and we’d be able to deploy our capital, and
be able to write some fairly attractive business. As it happened towards the end of
December, until about the third week of December, I was very optimistic that we
would get a chance to put several billion dollars on the books.

But in the last ten days of December, unfortunately a lot of capacity came out of the
woodworks. Pricing that we were expecting to realize didn’t really come and meet our
pricing requirements, as a result of which January 1 was a big disappointment.

We did not write as much as we were hoping to write. Now, fast forward to April 1,
which is another big renewal date, we had a lot of powder dry. And we were lucky
that we kept the powder dry. Because April 1, suddenly prices zoomed up again, a lot
higher than what they were on January 1, and started to look attractive to us.

So, now we have a portfolio that is very heavily exposed to property catastrophe. To
put that in perspective, our exposure today is almost 50% more than what it was five,
six months ago. So, I think we have written as much as our capacity will allow us to
write.

We are very happy with what we’ve written. The margins have been healthy. The only
thing that I want to mention to you is that, while the mentions have been healthy, we
have a very unbalanced portfolio. What that means is if there’s a big hurricane in
Florida, we will have a very substantial loss.
As opposed to that if we have a very big loss anywhere other than Florida, relative to
our competition, we will have a much smaller loss. Net-net, I’m very happy with the
portfolio. It is a lot better than what it’s been in the past. I don’t know how long it’ll
last, and of course if the hurricane happens in Florida, we could lose, across all the
units, as much as $15 billion. And if there isn’t a loss, we’ll make several billion
dollars as profit.

WARREN BUFFETT: And, Ajit, when you called me and said you’d like to expose
us to whatever it was, a couple billion more of exposure, how long I took to say yes.
(Laugh)

AJIT JAIN: Yeah, so the way we think about our exposure is, you know, in the
insurance operations collectively across the entire company. Given that we have about
a little less than $300 billion of capital, we think of that as a 5% exposure that we’re
willing to take on.

So, to complete Warren’s story, a few weeks ago we had about $13 billion of
exposure all across the globe. And I called up Warren and I said, “We’re up to $13.
It’ll be nice if we can go up to $15. That’s a good round number.” And that was less
than a 30-second phone call. (Laugh) I think Warren said yes without even listening to
what the numbers were. (Laughter)

WARREN BUFFETT: I hope he calls me again. (Laughter)

22. ‘We don’t get smarter’ but ‘we get a little wiser’
WARREN BUFFETT: OK, station eight.

AUDIENCE MEMBER: Hello. My name is Adal Flores (PH), and I’ve been a
shareholder for about 16 years. And I’m coming from Guadalajara, Mexico.

My question is for Warren and Charlie. Companies have the eternal dilemma between
building products that can make profits and increase their company’s competitive
position.
In the best case, you can build products that have both characteristics at the same time,
like Google did.

But most of the time, companies need to choose between short-term profits and long-
term defensibility. For example, Amazon was focused on building their famous
Amazon flywheel with limited profits initially, in order to obtain stronger network
effects, with the hope of getting more defensible profits in the future.

When you invest, you constantly speak about the importance of building competitive
moats. What advice would you give to CEOs about how to balance this dilemma,
which is essentially short-term profits versus long-term defensibility? Thank you.

WARREN BUFFETT: Well, the answer is to control your destiny, which we’ve been
able to do at Berkshire. We feel no pressure from Wall Street. You know, we don’t
have investor calls. We don’t have to make promises. We get a chance to make our
own mistakes, and occasionally find something that works well.

But we recognize that the people in this room and people like them are the ones that
we’re working for. And we’re not working for a bunch of people that care about
whether we meet the core estimate or anything. So, we have a freedom that we get to
use.

And we’re interested in owning a wonderful business forever. We learned from many
wonderful businesses. But we do learn a lot as we go along. Charlie and I have often
mentioned how we learned so much when we bought See’s Candies, which we did.

But we learned when we bought Ben Rosner’s chain of women’s dress shops spread
all over the eastern part of the country. We learned when we tried getting into the
department store business back in 1966. And as the ink was drying on our purchase
price, we realized we’d done something (Laugh) dumb.

I mean, we’re learning all the time how consumers behave. I’m not going to be able to
learn the technical aspects of businesses. It’d be nice if I knew it, but it isn’t essential.
And, you know, obviously we’ve got a business at Apple, which is larger than our
energy business.

And we may only own five points, 6% or 7%. But our ownership goes up every year,
and I don’t understand the phone at all. But I do understand consumer behavior. And I
know how people think about whether to buy a second car. I know how they go out to
different — we own auto dealerships.

We’re learning all the time from all of our businesses how people react to Garanimals
versus selling them something else. And so, See’s was a sort of breakthrough. But we
just keep learning as to more about how people behave and how a good business can
turn into a bad business, and how some good businesses can maintain their
competitive advantage over time.

And so, we don’t have some formula, Berkshire people. But we can also tell in ten
seconds whether it’s something of interest. I mean, when I get these calls and we want
to send decks and all that sort of thing, which is nonsense, I mean, it’s a bunch of guys
(Laugh) that get paid for drawing up these projections of the future and everything
like that.

If they knew the future, you know, we don’t know the future, but we do know certain
kinds of businesses. We know what the right price is, and we know what we think we
can project out in terms of consumer behavior and threats to a business. And that’s
what we’ve been about and that’s what we’ll continue to be about.

We don’t get smarter over time, we get a little wiser, though, following it over time.
And you can do it while sitting in the office with a telephone, too, which we like.
Charlie?

23. Why Buffett invested billions in Japanese ‘trading houses’

CHARLIE MUNGER: Well, tell them the story of the Japanese investment. That
should be told again. That’s a nice story.

WARREN BUFFETT: Well, it was pretty simple. I mean, back when I started other
people were going through Playboy and I was going through Moody’s, I mean,
basically. And there’s a movie out called “Turn Every Page,” which I saw again for
the second time a couple of days ago, Lizzie Gottlieb.

And I recommend everybody in this world watch that, because I turned every page in
the past. And I did it for thousands and thousands of pages at Moody’s, and I did it at
the Department of Public Utilities in Boston. I did it in the insurance department. I just
kept turning pages. Well, that goes on for a while. But now we need big ideas in order
to find things. And what was your question, Charlie?

CHARLIE MUNGER: Tell them about the Japanese.

WARREN BUFFETT: Well, the Japanese thing was simple. I mean, Ben and I liked
looking at companies. I mean, I like looking at figures about companies. And here
were five very, very substantial companies, understandable companies. Most of them,
maybe all of them we’d done business with in a dozen different ways.

If you go a couple miles from where this place is, our last coal generating plant was
built by one of the companies. So here they were. They were sitting as a group where
they were earning, we’ll say 14% on what we were going to pay to buy them.

They were paying decent dividends. They were going to repurchase shares in some
cases. They owned a whole bunch of businesses that we could understand as a group,
although it didn’t mean we had deep understanding on any. But we’d seen them
operate and everything.

There wasn’t anything to it. And at the same time, we could take out the currency risk
by financing in the end. And that was going to cost a half of 1%. Well, if you get 14%
on one side and a half a percent on the other side, and you’ve got money forever, and
they’re doing intelligent things, and they’re sizable, so we just started buying them.

I didn’t even probably tell Greg until maybe six months after we’d gotten going. And
then when we hit 5% in all of them, we announced on my birthday, 90th, that we
owned over 5%. And recently went over for the first time to visit with them. And we
were more than pleasantly surprised, delighted, with what we find there. And now we
own 7.4% of them. We won’t go over 9.9% without their agreeing, and we sold
another $164, whatever it is billion by the end.

CHARLIE MUNGER: They would’ve done it for us if we only had $5 billion or

something. And it made $10 billion simply in that way. We would look like heroes.
Now $10 billion just sort of disappears as if it’s a little dot in Berkshire’s reports.

WARREN BUFFETT: But it’s fun.

CHARLIE MUNGER: It is fun, and it is $10 billion.

WARREN BUFFETT: And Charlie says it keeps (Laughter) me out of bars when I
talk to him about it. And I probably talked to Charlie about those the year after I
started. But who knows? I mean, I knew he’d like it, I mean, obviously.

CHARLIE MUNGER: We tried to do every dollar. We would do — we could only do

about $10 billion.

WARREN BUFFETT: Well, not even quite that much. But, you know, we are $4 or
$5 billion ahead, plus dividends. And we’ve got a carry that’s terrific. And they
welcome us, and they should welcome us. But we love it the way we’re operating.
We’re not there to tell them what to do in the least.

But we did say we’d never go over 9.9%, and we mean it. And they know that we’ll
be true to our word. And I went over there, partly to introduce Greg to those people,
because we’re going to be with them 10, 20, 30, 40 years from now. And they may
occasionally find something that we can do jointly. And they look forward to doing
that, and we look forward to it, and in addition we have some other operating
businesses in Japan. So, Greg, do you have anything?

GREG ABEL: No, the only thing I would add is that 1) as, Warren, you went over
there, it was to build the trust with these Japanese companies. Because we do hope
there’s long-term opportunities. But fundamentally, as you highlighted, they’ve been a
very good investment.
I’d also highlight the five meetings we had were really quite remarkable. I mean, these
companies, the culture and the history around it, and how proud they are, you know,
there’s just moments of learning from them. So, it was just a great experience to spend
really two days with the five companies.

WARREN BUFFETT: And an issue that we intended to be 56 billion of yen that we

were issuing and selling turned out to be 164.4 or something like that. And
everything’s worked so well. And as Charlie says, you know, it doesn’t move $500
billion of net worth that much.

But this one, you know, will keep adding over the years to Berkshire’s value with this
very widespread, probably $4 or $500 million a year. And, you know, we’ll just keep
looking for more opportunities. And Japan, Berkshire is the largest borrower, outside
of corporate borrowers, outside of Japan that exists.

And we didn’t set out to be that. But (Laugh) it’s turned out that way. And we’re not
done. I mean, you know, in terms of what may come along there. And we have some
direct operations there, as I mentioned. And we’ve got some really wonderful partners
working for us. And I don’t have to do anything.

24. Apple is a ‘better business’ than any Berkshire company

WARREN BUFFETT: (Laughter) OK, Becky?

BECKY QUICK: This next question comes from Ellie Amin Tebet (PH), who asks,
“During an episode of Investing the Templeton Way podcast, Professor Damodaran,
who he respects almost as much as Warren and Charlie, mentioned that he is not
comfortable with positions becoming a large part of his portfolio. For example, when
they reach 25-35%. He mentioned that Apple is now 35% of Berkshire’s portfolio and
thinks that that is near a danger zone.” Wonders if Warren and Charlie can comment.

WARREN BUFFETT: Well, I’d like to make one comment first, but Charlie will
come up with —
CHARLIE MUNGER: I think he’s out of his mind.

WARREN BUFFETT: Yeah, I knew that was coming. (Laughter) Apple is not 35% of
Berkshire’s portfolio. Berkshire’s portfolio includes the railroad, the energy business,
Garanimals, you name it, See’s Candies, they’re all businesses. And, you know, the
good thing about Apple is that we can go up.

They buy in their stock, and instead of owning 5.6%, they got about 15 billion, 700
and some million shares outstanding. They get down to 15 and a quarter billion
without us doing anything. We got 6%. So, we can’t own more than 100% of the
BNSF.

We can’t own more than 100% of Garanimals or See’s Candies. And it would be nice.
We’d love to own 200%, but it just isn’t doable. But they’re all the same. They’re
good businesses. And to think that our criteria for Apple is different than the other
businesses we own, it just happens to be a better business than any we own.

And we put a fair amount of money in it, but we haven’t got more money in it than
we’ve got in the railroad. And Apple is a better business. Our railroad is a very good
business. But it’s not remotely as good as Apple’s business. Apple, you know, has a
position with consumers where they’re paying, you know, maybe the $1,500 bucks or
whatever it may be for a phone.

And these same people pay $35,000 for having a second car. And if they had to give
up a second car or give up their iPhone, they’d give up their second car. I mean, it’s an
extraordinary product. We don’t have anything like that that we own 100% of.

But we’re very, very, very happy to have 5.6%, or whatever it may be, and we’re
delighted every tenth of a percent that goes up. That’s like adding $100 million to our
share of the earnings. And they use the earnings to buy out our partners, which we’re
glad to see them sell out, too.

The index funds have to sell if they (Laugh) bring the number of shares down. And,
you know, we went up slightly last year, and I made a mistake a couple years ago
when I sold some shares when I had certain reasons why gains were useful to take that
year from a tax standpoint.

But having heard me say that, it was a dumb decision. (Laugh) And, Charlie, you’ve
already given your comment about it. But we do not have 35% of Berkshire’s
portfolio. Berkshire’s portfolio is the funds we have to work with. And we want to
own good businesses. And we also want to have plenty of liquidity. And beyond that,
you know, the sky’s the limit or our mistakes. Who knows what the bottom is?
(Laugh) Charlie, do you want to add anything to your earlier comment?

CHARLIE MUNGER: Well, I think one of the inane things that’s taught in modern
university education is that a vast diversification is absolutely mandatory in investing
in common stocks. That is an insane idea. It’s not that easy to have a vast plethora of
good opportunities that are easily identified.

And if you’ve only got three, I’d rather be in my best ideas instead of my worst. And
now, some people can’t tell their best ideas from their worst. And the act of deciding
that an investment is already good, they get to thinking it’s better than it is.

I think we make fewer mistakes like that than other people. And that is a blessing to
us.

We’re not so smart, but we kind of know where the edge of our smartness is. That is a
very important part of practical intelligence. And a lot of people who are geniuses on
IQ tests think they’re a lot smarter than they are. And what they are is dangerous.

But if you know the edge of your own ability pretty well, you should ignore most of
the notions of our experts about what I call “deworsification” of portfolios.

25. U.S. and China both need to reduce ‘stupid, stupid, stupid’ economic tensions
WARREN BUFFETT: OK. (Applause) Station nine?

AUDIENCE MEMBER: Hi, Charlie and Warren. Thank you for this superb
shareholder meeting celebration. My name is David Chung (PH) from Hong Kong,
and a proud graduate of Chicago Booth. I’m also here with my two sons, Aiden (PH)
and Ashen (PH), who are currently studying at the University of Chicago as a
freshman and sophomore.

This is my second time attending the conference, last being 2019 four years ago,
which I was only a guest shareholder of my friend, Andrew. So, after the shareholder
meeting, I have decided to buy into Berkshire Hathaway, which has given me a great
return of 62% since 2019.

So, I wanted to thank you for that. (Applause) I have also taken your advice to give
my children a share for each of their birthdays. Although they want Berkshire
Hathaway A shares, (Laughter) they will do just fine with B shares. (Laughter)

My question is how do you see the current U.S./China internet companies’ valuation
and the price disparity, given there have been many uncertainties such as geopolitical
tensions, significant cost optimizations with leading U.S. tech firms, while China tech
has been through all that already? Thank you.

WARREN BUFFETT: Charlie, you want to?

CHARLIE MUNGER: Well, there’s been some tension in the economic relationship
of United States and China. I think that that tension has been wrongly created on both
sides. I think we’re equally guilty of being stupid. If there’s one thing we should do,
it’s get along with China.

And we should have a lot of free trade with China in our mutual interest. (Applause)

And I just can’t imagine. It’s just so obvious. There’s so much safety and so much
creativity that’s possible. Think of what Apple has done by engaging in a partnership
with China as a big supplier.

It’s been good for Apple and good for China. That’s the kind of business we ought to
be doing with China. And more of it. Everything that increases the tension between
the two countries is stupid, stupid, stupid. It ought to be stopped on each side. And
each side ought to respond to the other side’s stupidity with reciprocal kindness.
That’s my view.

WARREN BUFFETT: And it creates one enormous problem, of course, which is that
you have the two superpowers of the world, and they know they have to get along
with each other. Either one can destroy the other. And they’re going to be competitive
with each other. But part of it is, always in a game like that, is trying to judge how far
you can push the other guy without them reacting wrong.

And, you know, if either side is a bully in some ways, they can get away with it, to an
extent, because the alternative would drive them both into destruction. But if they
push it too far, they increase the probability that something really does go wrong.

So, it’s one of those game theory dilemmas. But you really need the leader of both
countries. And you need the populace to understand, at least, the general situation in
which these countries are going to operate over the next century. And know that some
leader that promises too much can get you in a hell of a lot of trouble.

And, you know, you’ve got one kind of a system that gets its leader one way. They’ve
got another system that gets its leader another way. And keeping either side from
trying to play the game too hard, and thinking the other side will go along, you know,
it’s like playing chicken, you know, and driving toward a cliff.

So, if you’ve got any diplomacy skills, persuasive skills, or anything like that, you
really want people that will convince the other country, as well as his own or her own
country, that, “This is what we’re engaged in. We’ve got to do it right. We won’t give
away the store, but we won’t try and take the whole store, either.”

And we’re just at the beginning of this, unfortunately. I mean, we learned what the
situation was. It used to be the Soviet. And mutually assured destruction was our
policy then. And that kept a lot of things from happening, but it also came with a very,
very, very close call with Cuba.

And these are different games that existed hundreds of years ago. Britain might rule
and seize France or Spain, but now you’re playing with a game that you can’t really
make a huge mistake in. And I think that the better that’s understood in both countries,
the more the leaders feel that their citizenry does understand that, the better off we’ll
be.

And that a lot of demography, or a lot of inflammatory speaking, but a lot of

authoritarian action, I mean, it all carries its dangers. And the world has stumbled
through the years post 1945 with a lot of close calls in the nuclear arena.

And now we’ve got pandemics. And we’ve got cyber, and a whole bunch of other
things. So, we’ve got more tools of destruction than the world’s ever had. And it’s
imperative that China and the United States both understand what the game is and
understand that you can’t push too hard.

But both places are going to be competitive. And both can prosper. That’s the vision
that is out there, that China will have a more wonderful country, the United States will
have a more wonderful country. And the two are not [incompatible].

They’re almost imperative in terms of what’s going to happen in the next 100 years or
so. And I think that the leaders of both countries have got an important job in having
that understood, and not to do inflammatory things. And we’ll see whether the luck
that has taken us from 1945 to present holds out. And I think we can affect, to some
extent, that luck. And with that cheery message, we will hand it to Becky. (Laugh)

26. ‘I feel better about the capital we’ve deployed in Japan than Taiwan’
BECKY QUICK: This question comes from Roheet Bellany (PH). “Berkshire bought
a substantial position in Taiwan Semiconductor, and contrary to its normal holding
timeline, sold almost the entire position within a few short months.

While you cited in a CNBC interview that geopolitical issues were the catalyst, these
issues were seemingly no different when you acquired that stock.

So, what else, if anything, changed in those few months and prompted the firm to
offload close to $5 billion worth of Taiwan Semiconductor shares?”

WARREN BUFFETT: Taiwan Semiconductor’s one of the best managed companies

and important companies in the world. And I think you’ll be able to say the same
thing five, or ten, or 20 years from now.

I don’t like its location. And I’ve reevaluated that. I mean, I don’t think it should be
any place but Taiwan, although they will be, obviously, opening up chip capacity in
this country.

And actually, one of our subsidiaries that we got in Alleghany is participating in their
Arizona construction activities.

But it’s a question of we would rather have the same kind of company. And there’s
nobody in the chip industry that’s in their league, at least in my view.

And the man that is a 91-year-old or so connected with it, that I think I played bridge
with in Albuquerque, and they’re marvelous people, marvelous company. But I’d
rather find marvelous people — and I won’t find it in the chip industry.

But marvelous people and marvelous competitive position and everything, I’d rather
find it in the United States.

I feel better about the capital that we’ve got deployed in Japan than Taiwan. I wish it
weren’t so, but I think that’s the reality. And I’ve reevaluated that in the light of
certain things that were going on. Charlie?

CHARLIE MUNGER: Well, my view is that Warren ought to feel comfortable if he

wants to. (Laughter)

WARREN BUFFETT: Yeah, yeah. Put that in the minutes. (Laughter)

27. Ben Graham’s great investment book is still popular

WARREN BUFFETT: OK, station ten?
AUDIENCE MEMBER: First of all, thank you for making our lives better. My name
is Bugomil Baranowsky. I’m a founding partner of Sicart Associates in New York.
We manage multi-generational family fortunes, hence my question. Mr. Buffet, in
1976 in your tribute to Benjamin Graham you wrote, “Walter Lippmann spoke of men
who plant trees that other men will sit under.” Ben Graham was such a man. You’re
both such people. Could you share with us your 100-year vision for Berkshire? It’s a
question to you both.

WARREN BUFFETT: Yeah. I would like to add one thing about Ben Graham. Ben
Graham did all kinds of things for me, and he never expected one thing in return. I
mean, just you name it, and he did it, and there wasn’t any hidden — you know, the
slightest hint, I should say, of anything he expected in return.

And I checked: He wrote a book in 1949 that, in a sense, said to me, in very
persuasive terms, that what I’d been spending the previous eight or nine years worked
at, and loving, was all wrong. And that book has been — I check it every now and
then on Amazon where it ranks, and, you know, Amazon ranks hundreds and
hundreds and hundreds of thousands of books by sales.

And Ben Graham’s book has been up there, like, number 300, or 350, or something
like that, forever. And there isn’t book like it. I wrote Harper Collins a note the other
day because they’re bringing out another edition. And I asked them how many copies
have been sold. And they said the records didn’t go back far enough, but they had 7.3
million copies of this little book that changed my life and continues to outsell every
investment book ever.

Investment books come along and, you know, they’re number 400, or 1000 or
something for a while, and then all of a sudden, they’re number 25,000, or (Laugh)
200,000.

And this book — you know, in how many areas can you find any book that has had
that sustained position? You go back and look at number one in 1950, or number two
or number three, and you look at it in ’51 and ’52: They don’t continue.

I mean, they just don’t continue. Cookbooks, maybe one or two of them, last for a
while, but there is nothing. And this book lives on, and everybody keeps bringing out
new books, and saying a lot of other things. But they aren’t saying anything that’s as
important as what he said in 1949 in this relatively thin little book.

So, you know, our vision for Berkshire is exactly what we said today: We want it to
be a company that is owned by shareholders and behaves in a way that society is
happy that it exists, and not unhappy. And we will have unlimited capital, we’ll get
lots of talent, and we’ve got a base that can’t be beat.

And there’s no reason why it can’t be perpetuated, just like Ben’s book, and maybe be
an example to other people. And, if so, we’ll be very happy. Charlie?

CHARLIE MUNGER: Yeah. One of the really interesting things about Ben Graham:
He was a really gifted teacher, a very honorable profession. And that is what has
lasted. However, an interesting fact that he was sheepish about in his old age, was that
more than half of all the investment return that Ben Graham made in his whole life
came from one stock, one growth stock: GEICO, Berkshire subsidiary.

And at the time he operated, there were a lot of sort of lousy companies that were too
cheap, and you could make a little money floating from one to another. But the big
money he made was one growth stock, buying one undervalued great company is a
very good thing, as Berkshire has found out again and again and again.

WARREN BUFFETT: And Ben wrote a postscript to the ’49 edition pointing out
exactly that fact, and acknowledging it, but also took some good lessons from it. “You
know,” he said, “that’s the way life is: That you prepare, and you, you know, don’t
lose on everything along the way, and then something comes along.”

And GEICO came along because a banker in Fort Worth that had financed Leo
Davidson, and I think the banker got three-quarters of it. I don’t mean “Leo
Davidson,” Leo Goodwin, who founded GEICO then called Government Employees
Insurance Company, and you can figure out the acronym.

The deal almost fell apart. The deal was, as I remember, for maybe a million and a
half or something like — a million and a quarter. And it almost fell apart because of a
difference of $25,000 in the net worth delivered. This is a business that’s, you know,
worth tens of billions.

But he pointed out the irony in that, too. I mean, he was honest, he was totally
intellectually honest about the failings, and also the strengths, of his approach. And, to
some extent, you know, Charlie and I have seen that in our lives.

I mean, sort of the prepared mind, the willingness to act when you need to act, and the
willing to ignore every salesman in the world — and it’s imperative to ignore them,
and it’s one or two things that make the right decision.

If you make the right decision on a spouse, I mean, you’ve won the game. You know,
there’s an enormously important decision, and you’ve got all the time in the world. I
mean, you’ve got more time than you used to have when I was a kid to make that
decision.

And, you know, I don’t know whether a third, or whatever percentage, blow that one.
You know, it is really interesting.

The thing to do is just keep trying to think things through and not do too many stupid
things, “And, sooner or later, you have a lollapalooza,” as Charlie would say.

28. GEICO is talking to carmakers about selling insurance in the showroom

WARREN BUFFETT: OK. Becky?

BECKY QUICK: “All right. This question comes from Terafta (PH), a shareholder in
Sierra Vista, Arizona, who is asking a question of Ajit.

He wants to know about electric vehicles getting insurance from the manufacturer
instead of car insurance companies. A recent article in The Wall Street Journal shows
that EVs are a small-but-growing percentage of sales. Tesla and GM are offering their
own electric vehicle insurance: What will GEICO do to combat this?

AJIT JAIN: Yeah. So, GEICO is talking to a number of original equipment

manufacturers as well to try and see how best they can work with the auto
manufacturers and offer insurance at the point of sale. There haven’t been very many
success stories (Laugh) as yet.

So, we’ll wait and see. You know, clearly, it is a very convenient way to sell auto
insurance at the point of sale. But there’s a fair amount of data that needs to be
collected on the driver, not just the car. And that makes it a little more complicated.

So, we are talking to some auto manufacturers ourselves, we are hopeful that we will
strike a deal with some of them before too long.

Tesla and GM both have talked a lot in the press in terms of getting into the insurance
business. And, in fact, GM, I think, has projected they’ll write $3 billion of premiums.
Which, you know, it’s hard to imagine where it’ll come from. But there all hot to trot.
I think somebody will find the secret sauce before too long, and we ourselves are in
that race.

WARREN BUFFETT: Yeah. I would point out that — General Motors Insurance, for
decades — and, I mean, this is not a new idea. And Uber wrote a lot of insurance for a
while, they laid it off with somebody, and that company got killed by it. But — and I
don’t know the deal between Uber and — I forget the name of the company that took
it on, Ajit would probably know.

AJIT JAIN: James River.

WARREN BUFFETT: James — yeah. And, you know, it is not a new idea, it’s not
magic in the least. I mean, it is hard to come up with something that is better at
matching risk to reward — I’m sorry, risk to price, than a bunch of very smart people
are doing at Progressive, and a bunch of very smart people are doing, to a greater
extent, at GEICO.

And, I mean, it just was fascinating to me when Uber went into it, you know? And
they were going to get their head handed to them. But they laid off a good bit of it —
a very substantial percentage of it, with somebody else, who got their head handed to
them.

(Laugh) And, you know, but it was a story, you know, and Wall Street loves it. We’ve
got 80 car dealerships that do a lot of business, and, you know, we’ve got the people
buying the cars, and the place, and we form an insurance company around those
dealer groups, for some reason, that writes insurance: You know, it’s hard to improve
on the present system. And — (Laugh)

AJIT JAIN: Yeah.

WARREN BUFFETT: I wouldn’t pay a penny — oh, I’d pay to avoid it, actually. I
mean — (laughs) and — go ahead, Ajit.

AJIT JAIN: Yeah. The only point I’d like to add is the margins on writing auto
insurance are 4%. Which is a very small number, and once there are more people that
are trying to take a bite of the apple, it just becomes very, very difficult to keep all the
mouths fed in a profitable manner.

WARREN BUFFETT: Yeah. You can say there was one big, new idea in property —
in car insurance, back in 1920 or so when State Farm started, and State Farm still has
it. Next to Berkshire, it’s the leader in having net worth. It’s a mutual company, but
some guy just figured that there was a cartel running car insurance. “A Farmer from
Merna” is the name of the book, I think, over in Illinois, and he created a system
where he really took 20 points or so out of the cost.

And surprise, surprise, here he is, you know? And nobody’s owned stock in State
Farm — it’s an insult to capitalism, actually. Everything (Laughs) you learned at the
business school says it shouldn’t work, because nobody owns it, nobody’s going
public with it, no nothing.

But it’s got more net worth — it’s almost probably double. Leaving Berkshire out of
the picture, it’s probably double the next guy, and nobody’s really improved on their
system that much.
So, it’s fascinating how people don’t really look at the essence. You know, these are
cases that should carry a message. But the truth is, in Wall Street anything can get
sold.

The test is whether you can sell it or not. If you can sell it, it’ll get sold, and a bunch
of insurance companies came along and got it sold. And this can be a story about this
stock or that stock, and it sounded good when they talked about it at Uber for a while.
And it is really interesting. The investing public does not learn much.

29. Index funds are ‘backing off’ from using voting power
WARREN BUFFETT: OK. Station 11.

AUDIENCE MEMBER: Hi. My name’s Jeff Merriam (PH). I’m from Edina,
Minnesota. We’ve been coming for years. To make that professor from the earlier
question really nervous, half our family’s wealth is in Berkshire Hathaway. (Laugh)

WARREN BUFFETT: (Laugh) But let’s make Charlie nervous. (Laugh)

AUDIENCE MEMBER: My question has to do with voting control in the future.

There was a question earlier about corporate raider. I was more wondering about who
is actually going to own the voting control? Is it going to be institutions? CalPERS?
BlackRock? Are they eventually going to get their way with the ESG checkboxes that
we’re going to have to check? And what should we be thinking about that?

WARREN BUFFETT: Well, you’re thinking very well. And the interesting thing is
the big aggregations look like, of course, they’d be in index funds. But what index
funds want is they want a world in which society doesn’t get upset with them about
the fact they’ve got all the voting power. And I would say in the last year or two it’s
looked like a better idea for them not quite to get as — what was the phrase that
Charlie used?

CHARLIE MUNGER: But they’ve backed off a lot.

WARREN BUFFETT: Yeah, they backed off a lot. And it’s in their interest to back
off. And, interestingly enough, in looking at money management, you know, the game
is not performance, it’s assets under management. And index funds produce a tiny,
tiny, tiny fee on assets under management. Because it was pioneered by Vanguard,
and when it became successful it was very easy to replicate. Not so “easy,” but, I
mean, it was inevitable that it be copied.

But it came with a management fee of two basis points. So, what people that have
offered index funds would really like is you to buy their other funds, or let them
manage money in some other way, so that they get higher fee on assets under
management.

Which, of course, is (Laugh) exactly why the index fund was invented in the first
place. So, it’s not a “loss leader,” but it is a way to pull money in, and then you hope
that people ignore what was said by —what’s the name that — you know, that —
John Bogel — Jack Bogel — ignore him.

And, essentially, they give up the (UNINTEL) idea, “And that we’ll offer you a fund
that does this in India, and we’ll offer you another fund that does that.” And, of
course, those management fees are higher.

So, they’re really counter-selling the idea that John Bogel came along with. But in the
process, they have achieved a lot of votes, and that was fun for a while, but the last
thing in the world they want to do is have Washington, or the American public, decide
that they’re throwing around their weight too much.

So, they’re tending to back off. Now, if you figure out where their self-interest is, you
can judge where their behavior is going to go. Charlie? You want to defend them?
(Laugh)

CHARLIE MUNGER: No, you can square what you just said. (Laugh) You’re totally
right on everything.

WARREN BUFFETT: Well, in that case I won’t ask anybody else.

30. Buffett: Greg Abel ‘understands capital allocation as well as I do’
WARREN BUFFETT: OK. Becky? (Laughter)

BECKY QUICK: All right. This question comes from Almu (PH) Grinnell (PH), and
this is for Warren and Greg.

“Since 2019 Berkshire repurchased huge amounts of stock, reducing approximately

10% of the share count, and increasing the intrinsic value per share for the continuing
shareholders. Greg is expected to be the successor of Warren as CEO, so will he be in
charge of the main capital allocation decisions, including future share buybacks?

Greg has been key in the development of Berkshire Hathaway Energy, and I think a
good capital allocator. Has he been involved in the share repurchases that have been
executed over the past years?

And do you, both Warren and Greg, work together in the estimation of Berkshire’s
intrinsic value, and the share buyback decisions?”

WARREN BUFFETT: Well, the answer is that Greg — I’m going to turn it over to
him, but the answer is Greg understands capital allocation as well as I do, and that’s
lucky for us.

And he will make those decisions, I think, very much in the same framework as I
would make them. And we’ve laid out that framework now for 30 years, (Laugh) or
something like that. People make it way more complicated than — I mean,
particularly if you’re working on a doctorate or something, it’s just a great subject to
have lots of footnotes in, you know, 50 pages, or 100 pages.

But it’s no more complicated than if you and I and Charlie had a business, and you
wanted to sell your interest, and we could buy it for less than we thought it was worth,
and without misleading you in any way about what was going on. And we’d buy it
then. But, Greg, you’re on because you’re going to be doing it in the future. (Laugh)

GREG ABEL: Right. Yeah, well, I think, Warren, you said it really well. I mean, the
framework’s been laid out, we know how you approach it, and how you and Charlie
have approached it, and really don’t see that framework changing. When the
opportunity present itself, we’ll want to be an active repurchaser of Berkshire shares.
We think it’s a great outcome for Berkshire shareholders to own a larger piece of each
of our operating businesses and the portfolio of the equity companies when the
opportunity presents itself.

WARREN BUFFETT: It can be the dumbest thing you can do, or it can be the
smartest thing you can do. And (Laugh) you know, to make it more complicated than
that, and start getting into all this (UNINTEL), you obviously do what the business
needs to do first if the opportunities are there: Grow your present business, buy
additional businesses, whatever it may be.

And then you make a decision on dividends. But that decision becomes pretty
irrevocable because you don’t cut dividends without having major effects in your
shareholder base and a lot of things.

And then, if you’ve got ample capital, and you don’t see that you’re going to use it all,
and your stock is attractive, and it enhances the intrinsic value for the remaining
shareholders, it’s a no-brainer.

And if it’s above the price of intrinsic value, it’s a no-brainer that you don’t even
listen to anybody, no matter what investment banker comes in and tells you, “Here’s
how to do a repurchase program.”

31. Munger has two words for COVID vaccine skeptic

WARREN BUFFETT: OK: Station 1.

AUDIENCE MEMBER: I’m Tom Nelson, a podcaster from North Oaks, Minnesota.

Charlie, in 2022 you used phrases like, “really massively stupid,” “massive kind of
ignorance,” and “crazy” to describe what you said was the 30% of Americans hesitant
to submit themselves to untested mRNA COVID gene therapy. Do you stand behind
those quotes today?
CHARLIE MUNGER: Yeah. Sure. (Laughter and applause)

WARREN BUFFETT: Well, we got time for one more, then, before lunch.

32. ‘It’s hard to judge successor management in a really good business’ like
Berkshire
WARREN BUFFETT: (Laughter) Becky?

BECKY QUICK: OK. (Laughter) Thought I was out, but let’s see. How about — let’s
see here — (Laughter)

WARREN BUFFETT: Could be, “How about lunch?” pretty soon. But —

BECKY QUICK: (Laugh) No, no, OK. Let’s take that one for you. This one comes
from Drew Estes. This is a question for Warren: “In your 1969 Letter to Partners you
said, ‘In any company where the founder and chief driving force behind the enterprise
is still active, it’s still very difficult to evaluate second men.’”

‘“The only real way to see how someone is going to do when running a company is to
let them run it.’

This wise statement now applies to Berkshire. Once the ‘second men’ are running
Berkshire, what would you advise owners of Berkshire to watch for? Specifically what
actions, if taken, should give us concern?”

WARREN BUFFETT: Well, I think I would have some comfort in the fact that 99%
of my net worth is (Laugh) in the company — so I’ve probably got a stronger interest
in it, and perhaps $100 billion or more of philanthropy will be affected by it. But I
would say that I don’t have a second choice. I mean, it is that tough to find, but I’ve
also seen Greg in action, and I feel 100% comfortable.

And, like I say, I don’t know: If something happened to Greg I would tell the
directors, you know, they have a problem, and I don’t have anybody to name, and if
they put somebody in Berkshire on automatic pilot, it can work extremely well for a
long time.

I mean, it isn’t like the businesses go away or any other thing of the sort. And it’s hard
to judge successor management in a really good business. Because if they don’t show
up at the office, it’ll keep working for a long time. And maybe that lack of useful input
may show itself in five years. I mean, it may go a long, long, long time.

And how are the shareholders, you know, advised by a bunch of people that are
concerned about whether you’re meeting earnings projections or something telling
them whether the management’s any good? It is very, very hard, it’s very hard. I’ve
been on the board of 20 companies: It’s very hard. If you asked me to rank the
management of each one, it’s very difficult to do.

Because some are just better businesses than others. Some would be better off not
managed hardly at all. Others really need help, but they got a lousy business. And
Tom Murphy told me a long, long, long time ago, he said, “The secret of business is to
buy a good business. And it’s OK to inherit one, too.” (Laugh)

And Greg is inheriting a good business, and I think he will make it better. But I don’t
think it’s easy to put any one of the next ten nominees in and try and judge, three
years later, whether they’ve done a good job or not. So, that’ll be a very interesting
job for the board.

But it shouldn’t listen to Wall Street on it. They’ve got the job. If they put somebody
in — if there’s a surprise, we both go down in a plane, they put somebody in, they’ve
got a real job in assessing that person. I mean, it will depend on how good he or she is
as a talker, it’ll depend on, you know, them courting Wall Street to be supportive of
them, all kinds of things.

And we’ve got some very good people on the board, but they would be challenged in
that position, as would I, where I have been in that position in other companies, where
a very great leader has left, and on the way from the funeral, you know, nobody
knows what to do exactly.
d sometimes it wasn’t. My dad lost his job in 1931 because of a bank run, and they
had a bank run on state banks. And the head of the Alamo National Bank said, “Well,
we’re a national bank, and they didn’t never a run on the national banks.”

And, of course, they both faced the same problem. So, it used to be that if you saw
people lining up at a bank, the proper response was to get into the line. And they’d
always leave it. And the story is that Sidney Weinberg of Goldman Sachs, during one
of the bank runs back in 1907 or thereabouts, had a job as a runner at Goldman Sachs,
and asked his boss if he could take the week off.

And the boss said, “Sure, not much is going on anyway.” So, he got in line, whether it
was the Knickerbocker Trust or wherever. And as he got toward the front of the line,
he sold his place in line to somebody. He didn’t have an account at the bank, but that
was an asset. (LAUGHTER)

And the banking system has changed so much over the years. And we did something
enormously sensible, in my view, when we set up the FDIC. As many as 2,000 banks
had failed in one year back after World War I. I mean, bank runs were just part of the
picture.

And if you have people that are worried about whether their money is safe in the bank
and are all trying to withdraw, you can’t run an economy very well. So, the FDIC was
very logical. It’s got changed over the years some, but here we are in, you know,
2023.

And we actually see the FDIC pay off at a hundred cents on the dollar to everybody or
make it available on all demand deposits. And yet you still have people very worried
about their — periodically, geographically, all kinds of crazy ways.

And that just shouldn’t happen. So, the messaging has been very poor. It’s been poor
by the politicians, who sometimes have an interest in having it poor. It’s been poor by
the agencies, and I would say it’s been poor by the press.
I mean, you shouldn’t have so many people that misunderstand the fact that although
there may be a debt ceiling, it’s going to get changed.

Although there’s a $250,000 limit on FDIC, the FDIC and the U.S. government and
the American public have no interest in having a bank fail and have deposits actually
lost by people. We had a demonstration project the weekend of Silicon Valley Bank,
and the public is still confused.

So, it really, it’s something to have a law that became effective in 1934, although
mollified it in some ways, not understood about something as important as the
banking system.

I don’t think the American public is that dumb, and I just, well, I made that offer over
in Tokyo, incidentally, that I haven’t heard from anybody that wants to take up my $1
million bet on whether the public will lose money if they have a demand deposit at a
bank, no matter what the size.

So that’s the world we live in. It means that a lighted match can turn into a
conflagration, or it can be blown out. And who knows what will happen. And we
don’t have any worry — we keep our money in cash and Treasury bills at Berkshire,
because we keep $128 billion or whatever it was at the end of the quarter.

And we want to be there if the banking system temporarily even gets stalled in some
way. It shouldn’t, I don’t think it will, but I think it could. And I think that the
incentives in bank regulation are so messed up, and so many people have an interest in
having them messed up, that it’s totally crazy.

I mean, Fannie Mae and Freddie Mac were doing 40% or so of the mortgage business
in the United States. That is huge. They were regulated, just those two companies
were regulated by some group. I forget what they called it. But they had 150 people
that were in charge of just figuring out whether Freddie and Fannie were doing the
right thing.

Well, I could’ve done it. You know, Charlie could’ve done it. You know, and I’m not
sure they needed an assistant even to do it. But the incentives were all wrong. And
Freddie and Fannie, which were doing fine in August, or apparently doing fine in July
and August of 2008, were put into conservatorship, you know, early in September.

And the things that followed from that were just incredible. So, there are second order
and third order and fourth order effects that are somewhat unpredictable, as to what
they will be and the sequence and all that. But things change. And if people think that
deposits are sticky anymore, they’re just living in a different era.

You know, press a button, you don’t have to get in a line and wait for days and have
the teller counting out the money slowly in gold so (LAUGH) that you hope the line
goes away. You’re going to have a run in a few seconds. So, the way it hasn’t been
addressed properly is a problem.

And who knows where it leads.

2. Buffett: CEOs of failed banks should be punished

WARREN BUFFETT: But you will have to have a punishment for the people that do
the wrong thing. And if you take First Republic, for example, you could look at their
10-K and see that they were offering non-government guaranteed mortgages to, in
jumbo amounts, at fixed rates, sometimes for ten years before they changed to
floating.

And that’s a crazy proposition. If it’s to the advantage of a bank, they’ve got the guy
coming in and says, “I’ll refinance at 1.5% and then 1%,” and if it’s to the advantage
the other way, they keep it out ten years. You don’t give options like that.

But that what First Republic was doing, and it was in plain sight. And the world
ignored it till it blew up. And some of the stock in some of these banks that were held
by insiders was sold. And who knows whether they had a plan, or some plan that was
innocent, or whether they started sensing what was coming.

But you do know that the directors are not going to be able to read some book or
anything like that. But they do have the ability to hold the CEO accountable. The CEO
gets the bank in trouble, both the CEO and the director should suffer.
The stockholders of the future shouldn’t suffer. They didn’t do anything. It doesn’t
teach anybody any lessons or anything, it teaches the lesson that if you run a bank and
you screw it up, you’re still a rich guy and the clubs don’t drop you and the charity
groups don’t quit asking you to their benefits.

And the world goes on. And that is not a good lesson to teach people who are holding
the behavior of the economy in their hands. So, I think there’s some work to be done,
but it’s not a difficult problem. It’s just we’ve screwed up the answer and we’ve
screwed up the communication of it. Charlie?

CHARLIE MUNGER: Well, I’m so old fashioned that I kind of liked it that when
banks didn’t do investment banking. That makes me very outmoded in the modern
world.

WARREN BUFFETT: And the country decided it was contrary to public interest for a
while, and then the banks wanted to get back into it.

CHARLIE MUNGER: Did they ever.

WARREN BUFFETT: Yeah. No, I mean —

CHARLIE MUNGER: And I don’t think having a bunch of bankers, all of whom are
trying to get rich, leads to good things. But I (APPLAUSE) think a banker should be
more like an engineer. He’s more, like, into avoiding trouble than he is getting rich.

WARREN BUFFETT: Yeah, and they could do fine.

CHARLIE MUNGER: They can do fine that way. And I think that we’re making a big
mistake when we get a bank where everybody who joins it plans to get rich. It’s a
contradiction in values.

WARREN BUFFETT: And we came to that conclusion, I don’t know when Glass-
Steagall was passed or anything, but then they want to get back in. How many of you
know, and maybe I’m wrong on this, I haven’t looked lately, but the Federal Reserve
actually was given the responsibility for setting margin requirements.

And they change margin requirements a lot of time because it was known that people
that borrow a lot of money cause a danger to the banking system if you get too many
in the picture and all of that sort of thing. And what’s happened? The banks figured
out a thousand different ways to get so you could borrow on 100% margin, you know?
I mean, through derivatives and everything, they just totally distorted all the lessons
that were learned in the ’29 crash and —

CHARLIE MUNGER: Imagine taking banking into derivatives trading. Who in his
right mind would have allowed that?

WARREN BUFFETT: Yeah. Well, there’s more money in it. And —

CHARLIE MUNGER: Well, that’s why they’re in on it.

WARREN BUFFETT: Yeah. And —

CHARLIE MUNGER: And but it isn’t necessarily a great social outcome for the rest
of us.

WARREN BUFFETT: That’s what those Senate committees decided back in 1931
and ’32. And then in the late 1990s, particularly, I mean, very decent people, but, you
know, Bob Ruhlman and some of the people, you know, they said this was the modern
world. And here’s what the modern world has turned out to hand us. And banking can
have all kinds of new inventions, but it needs to have old values. And —

CHARLIE MUNGER: Well, if we do —

WARREN BUFFETT: —we don’t know what’s going to happen. You know, because
there are a lot of things that could happen out of the present situation.

Depositors will not lose money. Stockholders and debt holders, the holding company
and all that, they should lose money.

And people borrowed out on commercial real estate and now it isn’t, the loans aren’t
getting extended, they should leave. It’s too bad. That’s part of borrowing on 100%
margin, which is what people have been doing with commercial real estate.

You’ve got to have the penalties, hit the people that cause the problems. And if they
took risks that they shouldn’t have, it needs to fall on them if you’re going to change
how people are going to behave in the future. (APPLAUSE)

3. Aside from Bank of America, Berkshire is being cautious on bank stocks

WARREN BUFFETT: OK, Becky?

BECKY QUICK: This question comes from Davis Hans in Houston, Texas. He
writes, “What do you think about the business models of the big banks as compared to
the regional banks in the wake of the events at Silicon Valley Bank? And how does
the perceived implicit guarantee of all deposits at all banks affect big banks and those
regional banks?”

WARREN BUFFETT: Yeah. Well, I can say this. If you follow sound banking
methods, which means not doing some things that other people do, a bank can be a
perfectly decent investment. And in fact, Charlie and I, well, me originally in 1969,
we bought a bank at Berkshire.

And we had $19 million invested in that bank. And we had $17 million I think
invested in our insurance companies. And if the Banking Holding Company Act of
1970 hadn’t been passed, we might’ve ended up owning a lot of banks instead of a lot
of insurance companies.

We were looking at more banks, and Harry Keefe was taking us around Chicago. And
there were other things we could do. And then, bingo, they passed the 1970 Bank
Holding Company Act, and we had to divest ourselves of that bank in ten years, which
we did —

CHARLIE MUNGER: By the way, it never had a bad debt.

WARREN BUFFETT: Oh, it —

CHARLIE MUNGER: It never had an unnecessary cost. It made nothing but money
with no risk. It never presented any deposit insurance risk to the government.

WARREN BUFFETT: Zero.

CHARLIE MUNGER: It was a lovely, sound, constructive institution in this

community. And any person who went in and deserved credit could get credit.

WARREN BUFFETT: Yeah, and we were going to buy more banks.

CHARLIE MUNGER: And we were forced out of it.

WARREN BUFFETT: We were going to buy more banks. And if we bought more
banks, we probably wouldn’t have expanded the insurance business. But, you know,
the law changed and so we divested, and we’ve done OK in insurance. But banking
was more attractive to us. It was bigger and there were more targets to buy.

And you could run a perfectly sound bank then, and no negotiable certificates of
deposit. All these things, all the inventions that came later, and you could still run
them today and you could earn good money. Very good money. And we would’ve
found more banks. But we’re precluded from doing that.

And we’ve sold banks, bank stocks in the last, well, we sold them first when the
pandemic broke out, and then we sold some more in the last six months. And we don’t
know where the shareholders of the big banks, necessarily, or the regional banks or
any bank, are heading now.

I’ve got my own personal money, and I’m probably above the FDIC limit, and I’ve
got it with a local bank. And I think, I don’t worry about it in the least. But in terms of
owning banks, events will determine their future. And you’ve got politicians involved.

You’ve got a whole lot of people who don’t really understand how the system works.
And I would say you’ve had something less than a perfect communication between
various people and the American public. So, the American public is probably as
confused about banking as ever.

And that has consequences. And nobody knows what the consequences are because
every event starts recreating a different dynamic. I mean, in physics you know that pie
is going to be 3.14, you know, infinite number of numbers after that, but no matter
what happens.

But you don’t know what has happened to the stickiness of deposits at all. It got
changed by 2008. It’s gotten changed by this. And that changes everything. And so,
we’re very cautious in a situation like that about ownership of banks. And we do
remain with one bank holding, a deal, but we originated that deal with the Bank of
America.

And I like Bank of America. I like the management. And I proposed the deal with
them, so I stick with it. But do I know how to project out what’s going to happen from
here? The answer is I don’t, because I’ve seen so many things in the last few months
which really weren’t that unexpected to me to see.

But which reconfirmed my beliefs that the American public doesn’t understand our
banking system, and some people in Congress perhaps don’t understand it any more
than I don’t understand why the spaceships go up. I mean, there’s all kinds of things I
don’t know about. But if you’re in Congress, you have to take a position on
everything. And sometimes it’s to your advantage if you really understand it not to say
exactly what you feel. And here we are. Charlie?

CHARLIE MUNGER: Well, a lot has happened in banking in my lifetime. I

welcomed all that early banking of the deserving immigrants by the early Bank of
America. And I think all the credit cards when they came in as original bank cards
were a great contribution to civilization.

CHARLIE MUNGER: And but the gamier it gets and the more it looks like
investment banking, the less I like it, as a citizen. I don’t want, I am always, I am
deeply distrustful of situations in which everybody wants to get rich and envies
everybody else. I regard that atmosphere as utterly toxic.

And to people who like one story, which this is, again, a true story, and I’m not
naming the name, and it wasn’t Pete Jefferies, because he might fit this name, but it
wasn’t Pete. But our hero, Gene Abegg, was going to have to retire at some point.

And so, we hired a future replacement. This is kind of a little bit of the problem I
talked before, about having the perfect business, and now we’re going to bring in
somebody. We actually bring in somebody who went to Central High with Charlie,
although —

CHARLIE MUNGER: My class.

WARREN BUFFETT: Yeah. (LAUGH) And Charlie didn’t know I was picking out
this guy. He wasn’t —

CHARLIE MUNGER: If he’d have asked me, we wouldn’t have hired him.
(LAUGHTER)

WARREN BUFFETT: Well, if I asked you, I probably wouldn’t have hired anybody,
but that’s another question. But this guy comes over, and perfectly decent guy, but
presentable, you know, looks like a banker and everything. And, of course, the first
thing he wants to do, we’ve got this wonderful bank, but we’ve got the crummiest
looking building in Rockford.

And we don’t need a great building, we just need a great banker. And naturally this
guy wants to build a new building. And because we were the most profitable bank, but
we didn’t look like we were the most profitable (LAUGH) bank. So, I told him he
could have any building he wanted, as long as it was not higher than, it had to be
shorter than our nearest competitor.

And he lost interest totally. (LAUGH) He wanted to be on the top floor of the biggest
building in town, and I told him he could horizontally do anything he wanted but he
couldn’t do it vertically. And it taught me a lot about the guy’s motivations in life. But
— and he didn’t end up running the bank anyway. Anyway, that’s all I know about
banking and probably more.

4. It is ‘madness to keep printing money’

WARREN BUFFETT: Station three?

AUDIENCE MEMBER: Mr. Buffett and Mr. Munger, hi.

WARREN BUFFETT: Hi.

AUDIENCE MEMBER: My name is Daphne. I’m 13 years old, and this is my sixth
annual Berkshire Hathaway Shareholder’s Meeting. (APPLAUSE) And I’ve had the
privilege to ask you both questions in years past.

My question for you today is the following. As you know, the U.S. national debt is
currently at an estimated $31 trillion, making up about 125% of the U.S. GDP.

In the meantime, over the past few years, the Federal Reserve has telegraphed that
they intend to monetize the debt by printing trillions of dollars, even as they insist that
they’re fighting inflation. Already other major economies in the world, such as China,
Saudi Arabia, and Brazil are moving away from the dollar in anticipation of this.

My question is are we likely to face a time in the future when the U.S. dollar is no
longer the global reserve currency? How is Berkshire prepared for this possibility?
And what can we do as American citizens to attempt to shelter ourselves from what’s
beginning to look like the beginnings of de-dollarization?
WARREN BUFFETT: Well, (APPLAUSE) I should ask you to come up here and
answer some questions. I mean, (LAUGHTER) maybe. It’s very interesting, I mean,
we are the reserve currency. I see no option for any other currency to be the reserve
currency. And I think that nobody understands the situation better than Jay Powell.

And but he’s not in control of fiscal policy, and every now and then he drops a few
hints. And there was no question that when the pandemic broke out, I mean, it was a
semi-war-like situation. But nobody knows how far you can go with a paper currency
before it gets out of control.

If, and particularly if you’re the world’s reserve currency, nobody knows the answer
to that. And you don’t want to try and pick out the point at where it does become a
problem, because then it’s all over. And I think we should be very careful.

I mean, you know, we all learned Keynesianism and we applied it in World War II to
the advantage of the country, and we did everything we could to prevent inflation
during the war. And then the war ended in August of ’45 and I think in January of ’46,
and I’m not giving you exact figures at all now, but in January of ’46 I think the rate
of inflation was at, you know, something like 1% or thereabouts.

And by the end of the year, I think it was at, like, 15%. And again, I’m doing this
from long memories. But it’s easy for America to do it a lot, but if we do too much it’s
very hard to see how you recover once you let the genie out of the bottle.

And people lose faith in the currency. And they behave in an entirely different manner
than they do when they feel that if they put some money in the bank or have a pension
plan, or whatever it may be, that they’re going to get to have something with roughly
equal purchasing power.

And it just changes the (UNINTEL). And all kinds of things can happen then. And I
can’t predict them and nobody else can predict them. But I do know they aren’t good.
And we will see, and I do this as, you know, I’ve voted for both parties. And it’s not
limited to politicians of either party or anything of the sort.
But people take positions, some of them understand what they’re doing, some of them
don’t understand what they’re doing. And, you know, if they put me on some medical
board, I don’t understand what I’m doing. You know, there’s nothing wrong with the
fact that you can’t master everything.

We can’t all be Isaac Newton. But you can’t go around pretending you do or making
decisions on it. And we are not as well off in relation to curbing inflation expectations,
which become self-fulfilling, then we are not as well off as we were earlier.

And Berkshire is better prepared than most investments for that kind of a period. And,
I mean, I said this in the annual report, but we aren’t perfectly prepared, because
there’s no way to perfectly prepare. You don’t know what course of action will occur.

And it’s a very political decision now. It’s a tribal decision to some degree. And you
hope for leadership that actually will do something, recognizes the problem. And
America’s an incredible society, rich, you know? We’ve got everything going for us.
But that doesn’t mean we can just print money indefinitely as debt. And it’ll be
interesting to see how it turns out. Charlie?

CHARLIE MUNGER: Well, at some point printing money to buy votes will be
counterproductive.

WARREN BUFFETT: Yup.

CHARLIE MUNGER: And we don’t know (APPLAUSE) exactly where that comes.
And if something is going to be dangerous and unproductive, you ought to keep it a
fair distance away. Now, if you have a culture that is exceptionally strong, like Japan,
they have done some strange things there.

WARREN BUFFETT: But they couldn’t have been a reserve currency.

CHARLIE MUNGER: No, of course not. And, but Japan bought back most of the
national debt and most of the, a lot of the common stocks and debt. Just the federal
reserve owns practically everything in Japan, and the country’s working. It’s had 30
years of economic stasis, but it’s not going to hell. I really admire Japan. And, but I
don’t think we should try and imitate it. I don’t think we’re as good as Japan at taking
—

WARREN BUFFETT: They have a cohesive culture, and we don’t, Charlie. We —

CHARLIE MUNGER: Yeah, that’s exactly right.

WARREN BUFFETT: Yeah.

CHARLIE MUNGER: In Japan, everybody’s supposed to suck it up and cope, and in

America we complain. (LAUGHTER)

WARREN BUFFETT: So, I hope you come next year with a tougher question.
(LAUGHTER) But — and thank you.

And I predict, I would love to be being born again today in the United States. I mean,
we can do a lot of dumb things and get away with it. We can’t do an unlimited
number.

There are people who care about that. And, you know, you have to be willing to be
extraordinarily unpopular. I mean, Paul Volcker, there are other Federal Reserve
chairpeople that would not have done what he did. It’s just, it’s too uncomfortable.

And there used to be a politician in Nebraska, and if you asked him some really tough
question like, you know, how do you stand on abortion, he would look you right in the
eye and he’d say, “I’m all right on that one.” And then he’d move next.

Well, that’s what people have done basically on inflation. And they, one way or
another, they say, “I’m all right on that,” and then they don’t really think about what
the consequences of their actions could be, particularly. And it’s so much fun to, if
there’s 435 of you, to just be one of 435 instead of being the person actually
responsible.

Anyway, I am still, next to the question of two superpowers and when you get in to
really destroying a planet, destroying the reserve currency of the world when there’s
really no substitute, and forget about all the toys, you know, I mean, it’s a joke to
think of any tokens or (LAUGH) that sort of madness.

But it’s also madness to just keep printing money, yeah. And we know how to do it,
and we actually came from a money-printing economy in World War II, which was
required. And we suffered significant inflation, the price level — I mean, there’s a
million ways to judge it — but it’s maybe ten times what it was then or something like
that.

Well, that’s getting close to the edge of where you don’t want to hold dollars
anymore, you want to hold something else. You want to hold real estate; you want to
hold interest in a business. There’s a lot of good, and your best defense is your own
earning power.

If you’re the best doctor in town, if you’re the best lawyer in town, if you’re the best
teacher in town, or even if you’re the tenth best, you’re going to make a good living.
You know, the economy is productive. And you will succeed with your talents. But
you won’t succeed by hoarding dollars, you’ll just succeed by the fact that your value
to the community, which is a rich community overall, is sustained. And so the best
investment is always in yourself. That’s the answer I would give you.

CHARLIE MUNGER: Well, we have a situation where we’ve learned to print money
in gobs, and a big chunk of our young people go right into wealth management.
(LAUGHTER) This is —

WARREN BUFFETT: Like we did. (LAUGH)

CHARLIE MUNGER: Yeah, like we did, like we did. Yes, we’re bad examples.

And I want to say that I didn’t realize wealth management was going to get so big
when I went into it. And I want to apologize for what’s happened. (LAUGHTER)

WARREN BUFFETT: Yeah, well. Anyway, you did well. (LAUGH)

5. Buffet would have preferred to buy more of Pilot earlier, but it wasn’t for sale
WARREN BUFFETT: Becky?

BECKY QUICK: This question comes from Gary Gambino in Parma, Ohio, who says
he’s been a Berkshire shareholder since 2004.

He says, “The amount paid this year for the 41.4% stake in Pilot values the entire
company at around $19 billion. That’s about six times what BP is paying for Travel
Centers of America, but Pilot’s market share is just three times Travel Centers of
America’s.

“Was it a big mistake to base the final price in 2022 earnings, which has unusually
high fuel margins?”

WARREN BUFFETT: Yeah. Well, that’s a very good question. And the answer is
that we arranged to buy it in three stages, with the third stage being at the option of the
owner of 20%. The first stage we bought at what turned out to be a very attractive
price. The second stage turned out to be a very good year for the diesel business,
which means that the seller got a very good price.

And I would say that overall, we feel very good about the fact that we own the 80% at
the price that we do, but we would’ve been better if we just bought the 80% to start
with. And the last 20% the seller has the option, and that’s always an unintelligent
way of structuring something.

We’ve had that arrangement with other, well, we had it with the Furniture Mart, we
bought 80% of the [Nebraska] Furniture Mart on August 30th, 1983, almost 40 years
ago, and it’s worked out perfectly. But when you give the other person the option,
they’ve got some advantage.
We have 80% now of a business we like very much, and the comparison to Travel
America is really spurious, because Travel America is not only much smaller, but they
rent all their properties. And we have hundreds and hundreds of locations on the
interstate that are zoned for what we, commercial, maybe 15 acres or, there’s nothing
like it.

And they’re not going to move the interstate two miles to the right or something, you
know, or anything of the sort. So, we’ve got a position that, you know, BP may or
may not have made a fine deal. I’ve read the prospectus and I can understand.

I mean, it’s a big source of output for BP. But I like the management we have had at
Pilot. I like very much the fellow who’s coming in that’s the new CEO. I just have to
tell you a little bit about Adam Wright, who’s taking that job on. He came from
Omaha.

He wasn’t selected because he came from Omaha. He came from Omaha. He came
from North High, a public school that my wife graduated from. I’ve got grandchildren
that graduated from there. He went to the University of Nebraska and almost set the
rushing record in football, which will never be beaten because they’ve given up
football, but I think he rushed for maybe (LAUGHTER) 3,600 yards.

He held three jobs while he went through there. He interned at MidAmerica 20 years
ago, his mother worked to put him through school. I mean, it’s just, it’s Horatio Alger-
squared. And we have him to manage Pilot. And the Haslams have given us a
wonderful business, “Big Jim,” and now he (UNINTEL) great people. And here we
are.

And I’m very glad we own Pilot, I just wish we bought 100% (LAUGH) of it when I
first made the deal, but that was not the deal that was offered to us —

CHARLIE MUNGER: Warren, it wasn’t for sale.

WARREN BUFFETT: It wasn’t for sale. Yeah. And the last 20% of the Furniture
Mart wasn’t for sale when we bought it, so we bought 80% of it. And that’s worked
out well. And we’ve done various deals various ways. The best way to do it is just
write people the check and get the stock.

But we did that with TTI, but you can’t always make the same deal. If we like the
business well enough and the people well enough, we will tailor it differently, but our
preference is to write a check and own the whole place and keep the management in
place. Charlie, anything to add on?

CHARLIE MUNGER: No.

WARREN BUFFETT: Yeah. It’s really wonderful to watch something like Adam
Wright work out. I mean, basically, you know, I don’t know what his mother was
earning, but he went to North High, which is probably four or five miles from here.
Public school graduate. And worked his way up.

Went through a short period at Pacific Gas and Electric, and we brought him home
there on Pilot. And Pilot, well, Pilot, the prices on diesel were way different last year.
Pilot was close to $80 billion of sales last year, but more normal prices this, it’s
significant, you know, it’s half that or thereabouts, maybe a little more.

But he is, I don’t know how old Adam would be, but he’s in his 40s. And he came up
through the organization that Greg Abel was involved with. And now here he is,
running a very major business. It’s good at Berkshire to be able to do that. And I
don’t, you know, somebody else may have gone to more prestigious business schools,
and I think so what? You know, we’ve seen what Adam can do.

6. ‘You should write your obituary and then try and figure out how to live up to
it’
WARREN BUFFETT: OK, station four?

AUDIENCE MEMBER: Good afternoon Mr. Buffett, Mr. Munger. My name is J.C. I
am 15 years old and I’m from Ohio. This is my fourth in-person Berkshire meeting. I
have a lot of passion learning from your speeches, interviews, and articles. Thank you
for sharing your wisdom all the time.
Mr. Buffett, in your annual shareholder letter this year, you said that Berkshire’s
journey consisted of “continuous savings, the power of commanding, the American
tailwind, and avoidance of major mistakes”. You have humbly admitted in the past
that you have made many mistakes.

But this is the first time that major mistakes stood out to me. Could you please advise
us on what major mistakes we should avoid in both investing and in life? I would also
like to have Mr. Munger’s thoughts too, please. Thank you very much.

WARREN BUFFETT: Well, the main, (APPLAUSE) Charlie said the major mistake
you could make, you know, you’re lucky if you’re in the United States. If you go
around the world you don’t have a lot of choices in some places.

But you should write your obituary and then try and figure out how to live up to it.

And, you know, that’s something you get wiser on as you go along. The business
mistakes, you just want to make sure you don’t make any mistakes that take you out
of the game or come close to taking you out of your game. You should never have a
night when you’re worried about investing, I mean, assuming you have any money to
invest at all.

And you should just spend a little bit less than you earn. And you can spend a little bit
more than you earn, and then you’ve got debt, and the chances are you’ll never get out
of debt. I’ll make an exception in terms of a mortgage on your house.

But credit card debt, and we’re in the credit card business big time, and we’ll stay in
the credit card business, but why get behind the game? And if you’re effectively
paying 12% or 14% or whatever percent you’re paying on a credit card, you know,
you’re saying, “I’m going to earn more than 12% or 14% of my money.”

And if you can do that, come to Berkshire Hathaway. So, it’s, I hate to say this when
Charlie’s around me, but it’s straight out of Ben Franklin. I mean, (LAUGH) and it’s
not that complicated. But you, well, I’ll give you a couple lessons.
You know, Tom Murphy, the first time I met him, said two things to me. He said,
“You can always tell someone to go to hell tomorrow.” Well, that was great advice
then. And think of what great advice it is when you can sit down at a computer and
screw your life up forever by telling somebody to go to hell, or something else, in 30
seconds. And you can’t erase it.

And, you know, haven’t lost the option. And he said, you know, “Praise my name,
criticize my category.” Well, what makes more sense than that? I mean, who do you
like that criticizes you all the time? And you don’t need to vilify anybody to make
your point on subjects of discussion.

And then the other general piece of advice, I’ve never known anybody that was
basically kind that died without friends. And I’ve known plenty of people with money
that have died without friends, including their family. But I’ve never known anybody,
and you know, I’ve seen a few people, including Tom Murphy Sr. and maybe Jr.,
who’s here, (LAUGH) but certainly his dad, I never saw him, I watched him for 50
years, I never saw him do an unkind act.

I didn’t see him do very many stupid acts either. I mean, it wasn’t that he was non-
discriminating, he just decided that there was no reason to do it. And wow, what a
difference that makes in life. Charlie?

CHARLIE MUNGER: Well, it’s so simple to spend less than you earn, and invest
shrewdly, and avoid toxic people and toxic activities, and try and keep learning all
your life, et cetera, et cetera, and do a lot of deferred gratification because you prefer
life that way.

And if you do all those things, you are almost certain to succeed. And if you don’t,
you’re going to need a lot of luck. And you don’t want to need a lot of luck. You want
to go into a game where you’re very likely to win without having any unusual luck.

WARREN BUFFETT: I’d add one more thought too, you need to know how people
can manipulate other people, and you need to resist the temptation to do it yourself.
CHARLIE MUNGER: Oh yes, the toxic people who are trying to fool you or lie to
you or aren’t reliable in meeting their commitments. A great lesson of life is get them
the hell out of your life.

WARREN BUFFETT: Yeah.

CHARLIE MUNGER: And do it fast. (APPLAUSE) Do it fast.

WARREN BUFFETT: And I would add, Charlie would totally agree with me, do it
tactfully, if possible, too. (LAUGH) But do get them out of your life.

CHARLIE MUNGER: Yes. Yeah, I don’t mind a little tact. (LAUGHTER) Or even a
little financial cost. But the question is getting them the hell out of your life.

7. ‘Tough problem’ when family members are negative

WARREN BUFFETT: OK, Becky?

BECKY QUICK: All right, this comes from Roger Lee Tan. He says, “My name is
Roger from Hong Kong, a long-term shareholder of Berkshire, admirer and follower
of Mr. Buffett’s and Munger’s wisdom and principle. Both of you have said before
that the most difficult problems in life are always people problems.

“And one of the key lessons you have learned to be able to live a happy life and a
successful life is to stay away from negative people. My question is what to do if
those negative people are your families, the people (LAUGHTER) whom you can’t
simply stay away from?”

WARREN BUFFETT: Yeah. You minimize it. But you can’t, no, I mean, there’s no
question about it. And Charlie gave an answer I thought was master of tact the other
day when he says, “You always ought to interact with people who behave well.” He
says, “Of course, you have to make some exceptions for your family.”

But (LAUGH) it’s true. And, you know, you really, I don’t know what it’s like to
have, you know, a drunken, you know, bully-ish, probably father, but parent, just
generally. I mean, you know, how do you handle it? It’s very interesting that the
MacArthur family, the very famous John MacArthur, the man who set up the
MacArthur Foundation, he had five kids.

And four of them turned out to be superstars of one sort or another, and then they had
this crazy, itinerant, drunken father. But they all decided that the thing to do was to get
the hell out of the house.

And so, he had this, the father of the — of the MacArthur Foundation that did that
along with three of the siblings out of five.

So, you know, I was lucky, I mean, and Charlie was lucky that, you know, if you
have, I mean, our fathers saw plenty of shortcomings in both of us, but, you know,
they would still be there for us.

And if you have one that won’t be there for you, you know, it’s a very tough problem.
And I think one way or another I probably would have gotten through with that, if I
had that situation, but I think my life would’ve been a lot different. Charlie?

CHARLIE MUNGER: I have nothing to add.

8. Why are Garanimals only sold at Walmart?

WARREN BUFFETT: OK, station five?

AUDIENCE MEMBER: Hey Warren and Charlie, good afternoon. My name is

Sudakaredi Anapredi. I am from Bentonville, Arkansas, home of Walmart. I’m a
shareholder since 2019, and my daughters are shareholders since 2020. My question
is, this is my first time coming to shareholders, and my question is Walmart and
Berkshire Hathaway has a very great relationship with BNSF, McLane, and consumer
goods like Fruit of the Looms and Garanimals, and et cetera.

My question is Garanimals is exclusively sold at Walmart, and Fruit of the Loom is

sold at many other retailers. How does Berkshire Hathaway decide some items are
sold at some retailers exclusively, versus others are sold at many retailers?

WARREN BUFFETT: Well, that’s a good question. But obviously you’d love to
control, if you have a product, you’d love to control the distribution. And you’re
probably going to get better gross of margins if they ask for you by name. I mean,
they just had an article about Bernard Arnault, who built LVMH, and you know, he’s
got a blue box at Tiffany.

And the blue box itself means something. And Coca-Cola, the bottle meant
something. In the 1920s, I think, there was a study that kind of (UNINTEL) bottle and
blindfolded, and a very high percentage of the population could recognize it was
Coca-Cola.

When they can recognize not only the product, but the container, you know, you’re
going to have good gross margins. And if you’re just another cola, and there have
been hundreds of them, and even if you have distribution through something like
Walmart, who has Sam’s Cola, it just doesn’t, it’s not the same.

I mean, here I am, you know? And 1886 or so, John Pemberton in Atlanta created it,
and they spent a very significant amount of money advertising. And on the other hand,
Hershey’s didn’t spend any money on advertising. So, we have observed, Charlie and
I both, have observed so many products, so many methods of retail.

And we really think we know quite a bit about them, and we also know how much we
don’t know about it at the same time. And it doesn’t mean that we want to go into
retailing ourselves, but it does mean we’ve learned, to some extent, what to avoid.

And we’ve learned when somebody really has something. And Garanimals has
something. It’s just that there’s only been, you know, Walmart does a great job of
distribution for us. And it’s a good product for Walmart, it’s a good product for us.

And on Fruit of the Loom, they can sell lots of types of underwear, and they can do a
big volume, but we’re not going to make as much money, as well as I believe the
capital employed or anything, with a product that has a whole bunch of competitors.
And if the kid wants a Garanimals, well, pajamas or something, it’s not the sort of
product that causes people to drive 20 miles out of their way to buy it, or anything of
the sort. But if you’re in the Walmart and you’re picking out pajamas or something for
the kid, and he or she wants a particular product, and it’s reasonably priced and
everything, and wears well and everything, you know, we’re happy to have it
distributed through somebody with the distribution power of Walmart.

And they’re very happy to have the product. On balance it’s obviously better if you
own See’s Candy than if you own the no-name candy company. You know,
particularly when people buy it as gifts a couple times a year. I mean, they know that
if they give their girlfriend, if they give somebody in the hospital, if they give a gift at
Christmas or going to a dinner, they know if they hand the box of candy to somebody
they don’t say at the same time, “Here, I got a wonderful deal on this candy.”

I mean, that just kills the moment, right? What they really want to see is a smile on the
other person’s face that they’re receiving it, and they get it. So, knowing what
customers, and See’s boxed chocolates, A, are not remotely the market that soft drinks
are.

And the product does not travel particularly. Hershey’s chocolate didn’t travel. I
mean, if you look at candy bars, what’s popular in the U.K. isn’t that popular in the
U.S. and all kinds of things. Coca-Cola travels. There’s 200 countries, roughly, and
probably 180 of them it’s the dominant product.

And how do you do it? Well, it helps if you started in 1886 (LAUGH) and go from
that point forward. So, we’ve learned a lot. We got lots to learn. But we did learn that
something like Garanimals we understood. When it came around nobody had ever
heard of it and we bought it for a very low price, as it turned out.

And 20 years ago, and still nobody knows it, or that we own it, and that’s fine. But
they know what Garanimals are, and it has legs. It just keeps going year after year.
And some things are like pet rocks. And we’re learning all the time. Charlie?
(LAUGHTER)
CHARLIE MUNGER: I have nothing to add.

WARREN BUFFETT: OK. You probably have never bought any Garanimals.

CHARLIE MUNGER: No. I never have. (LAUGH) I don’t even wear them.
(LAUGHTER)

WARREN BUFFETT: You wouldn’t fit. (LAUGH)

9. Paramount Global faces tough competition in streaming

WARREN BUFFETT: OK, Becky?

BECKY QUICK: This question comes from Barry Laffer in New York City.
“Berkshire owns about 94 million shares of Paramount Global as of the last published
data. This asset-rich company has disappointed on recent quarterly earnings reports,
and just this week slashed its dividend by 80%.

“How do you see the streaming wars evolving? And do you still have conviction in
your investment thesis? Is your investment thesis based on the company being an
acquisition target, or based on its fundamentals?”

WARREN BUFFETT: Yeah. And how would you like to manage my money for
nothing? (LAUGH) They, you know, we are not in the business of giving stock advice
to people. And people who don’t know anything about stocks can make a lot of
money doing that, and we don’t think it’s something we should give away.

But I will say this, it’s not good news when any company passes its dividend or cuts
its dividend dramatically.

And the streaming business is extremely interesting to watch, because there’s, people
love to use their iPhones, watching, being entertained on a screen in front of them, or
a phone, or whatever it may be.
But there’s a lot of companies doing it. And you need fewer companies, or you need
higher prices. And, well, you need higher prices, or it doesn’t work. And you don’t
lock in people when you get them to join up for the streaming period when your serial
runs.

I mean, you know, you keep them on for a while, but you get them for, like, a month.
And we’ll see what happens. I mean, I had a gasoline station when I was 21 or 22, and
it’s about three or four, four or five miles from here. And we had one competitor.

And he determined our profit, because we looked at his price every day. And if we cut
the price he’d match it, and we couldn’t raise the price. And he did twice the
gallonage, so he won. And there’s just basic business problems that you see with
certain industries that you don’t see with the other.

Disney was unique in its animated — what it offered, you know — in the ’30s and
’40s. And they wrote the stuff off at the first showing, and then they rejuvenated Snow
White and all these other people every seven years, and that was fine.

But this is a different world. And the eyeballs aren’t going to increase dramatically in
the time they can spend is not going to increase dramatically. And you’ve got a bunch
of companies that don’t want to quit. And who knows what pricing does under that.
But anybody who tells you that they know what pricing will do in the future is kidding
themselves.

Charlie? Charlie’s had a lot of experience, incidentally, with Hollywood. I mean, he

used to, before I even met him —

CHARLIE MUNGER: I think the movie business is one tough business.

WARREN BUFFETT: Yeah.

CHARLIE MUNGER: That’s my view.

WARREN BUFFETT: The talent will make the money; the agents will make the
money. And if you’ve got a theater, you know, the theaters are now doing 70% of the
business that they did before the pandemic. And big hits, you know, have enormous
grosses. But you can’t reduce the supply.

People have only got so many hours in the day. They’ve only got two eyeballs. And
they’ve got more choice than ever before, and they’ve got stuff that’s cheaper that
offers them the same experience. And some of them like the experience, you know,
particularly with the big hits of going.

But it isn’t like you can double the number of people or double the eyeballs or
anything like that. And you’ve got a lot of people. The talent will always get paid.
And when you essentially are packaging that talent one way or another, and you need
to get higher prices, and you’ve got a lot of strong companies who don’t want to quit,
that’s an interesting equation.

CHARLIE MUNGER: And if you think the movies are tough, try to invest in a New
York show on a conventional stage. There they think it’s a breach of faith in that
business to let the person who put up the money to ever get any money back.
(LAUGHTER)

WARREN BUFFETT: Yeah. Yeah, well, Charlie saw a lot of that actually when —

CHARLIE MUNGER: Yeah. I don’t like those businesses.

WARREN BUFFETT: Tell them what happened on “Cleopatra, Charlie.”

(LAUGHTER)

It, no, it’s a business that everybody’s tempted. They love the idea of going in it, you
know, and they get a certain amount of psychic income. But —

CHARLIE MUNGER: I never owned any racehorses, either.

WARREN BUFFETT: Well, my father-in-law and I used to talk about claiming a
horse at AK-SAR-BEN, but we never quite got around to it. And we had a lot of fun
going to the track together. (LAUGH)

10. ‘Our record in wind and solar has not been topped by any utility’
WARREN BUFFETT: OK, section six?

AUDIENCE MEMBER: Good afternoon. My name is Hannah Hayes and I’m a high
schooler from Iowa. You said earlier today that transitioning to renewable energy has
the people and capital to support it.

So, with enough investment in renewables, the development of energy storage

technology to soon meet Iowa’s energy needs, and support from the government
system through Inflation Reduction Act funding, why hasn’t Berkshire Hathaway
Energy truly invested in the future by accelerating retirement plans for the coal plants,
which have high operating costs and are currently Iowa’s biggest carbon polluter, and
will continue to be until they’re finally retired in 2049, which is too late to be curbing
emissions, according to the IPCC?

WARREN BUFFETT: Yeah. It’s very interesting. In Iowa, we have actually produced
more wind energy than is the total amount of energy used by our customers. But it’s
not producible 24 hours a day necessarily. So, there’s problems. And incidentally, in
Iowa, a significant majority of counties welcome us when we come around and want
to put in wind.

And some don’t want it. I mean, you know, there’s a not-in-my-backyard someplace.
There’s other places where they love the money they get from a small plot of ground.
And people like the taxes that are paid. But I would say that if there’s one state in the
Union that stands out in the development, it’s Iowa. But what’s also interesting in
Iowa is that we have one other major company.

There’s always loads of little co-ops and all kinds of things that sell electricity. But we
have one major competitor. And our prices are significantly lower. And, as a matter of
fact, we are now in the Omaha Public Power District. And three miles or four miles
away, we’re selling the electricity in Iowa.

And we are selling it cheaper, even though public power was invented in Nebraska,
and has been — I think it’s going on — George Norris did it back in the 1930s. And,
you know, Nebraska’s resisted, to some extent wind power, more than Iowa. But like I
said, our competitor — alternate source — hasn’t really pursued it the way we have.

But I would say that our record in wind and solar has not been topped by any utility in
the United States. And, of course, it’s been aided by the fact that most utilities pay out
70% or 80% of earnings and dividends. And we haven’t taken a common dividend,
you know, for 20 years. We reinvested I don’t know how many billion.

That’s the reason why the earnings have gone from $200,000,000 to $4 billion, but
we’re not earning a higher rate of return on capital than we were when we started. We
just put way more capital into the business as we went along, kept reinvesting the
capital.

So, I wish Greg were here to tell you more details about it. But I would say that we’d
really put up Berkshire Hathaway Energy’s record against any utility in the United
States. Charlie, you’ve watched it.

CHARLIE MUNGER: Well, I have. And I’m not personally at all sure how bad the
global warming is going to be. I don’t think anybody knows for sure whether the seas
are going to rise two inches or 20 feet. And so, I think there’s a lot of false claims here
in a world where much is not known.

WARREN BUFFETT: Yeah. (APPLAUSE) There is a lot of wind in Wyoming. And

we are building transmission lines that extend out through the West. But it was World
War II when they told us to do it. And we had a czar in Washington that could say,
you know, “Just get it done,” like they said to said Henry Kaiser on building ships.

You know, you can’t believe how ahead we would be down from where we are. But
we’ve got the money. We’ve got the know-how. This year our depreciation in our
utility company is on the order of $4 billion. And we spend maybe $3 billion
additional to that. So, maybe we spend $7 billion.

And there are very few companies in the utility industry that are spending, you know,
that percentage of their depreciated money.

But we’d love to be spending more, but there are people all over that don’t want the
pipeline to go through there. They don’t want the tower, whatever it may be.

And that is the problem of a democracy. And even, as I mentioned, within Iowa,
you’ve got a great many counties that — majority, great majority of the counties I
think would welcome the wind power.

And you’ve got some counties that don’t like it. And we’re obviously going to work
with the ones that want to work with us. We do not have the ability to go in and tell
anybody what do on that.

And there’s a public utility commission in every state that basically governs what we
earn on it, what we do, and that’s the way the industry’s developed. And that’s not
bad, unless you get into the things that in effect, you know, extend — they’re part of a
country-wide system, rather than state-wide system.

CHARLIE MUNGER: I think also that even if we weren’t worried about global
warming, it would make sense to —

WARREN BUFFETT: Sure.

CHARLIE MUNGER: — shift to renewables to conserve our hydrocarbons. There’re

certain things hydrocarbons can do that nothing else can do. And there’s only so much
of them there. Why not be cautious in conserving them?

WARREN BUFFETT: And the cost, they’ve gotten so much more efficient, too. I
mean, the wind. I mean, if you look at what we’re doing now, those towers are way
more efficient than —

But there’s a lot of people that are talking about things that can’t be done. And then
there’s —

CHARLIE MUNGER: There’s a lot of nonsense in this field. If you like nonsense,
this is the field for you. (LAUGHTER)

WARREN BUFFETT: But we’re in the field, so. (LAUGHTER)

CHARLIE MUNGER: I know. I know.

11. ‘We will not be making any offer for control of Occidental’
WARREN BUFFETT: Ok, Becky.

BECKY QUICK: This is a question from Monroe Richardson (PH). The Wall Street
Journal reported in March that oil producers are producing less oil and may have
reached their peak in the Permian Basin.

Given the major positions of both Occidental Petroleum and Chevron in the Permian,
which you please explain the rationale for Berkshire’s significant holdings of both
those companies, considering that future outlook for oil there?

WARREN BUFFETT: Well, there’s no question — it’s really interesting about oil,
and Charlie knows way more about oil than I do, when did you buy that royalty in
Bakersfield, or wherever it is? But that was before I met you, right?

CHARLIE MUNGER: Yes — no, it wasn’t before — it was — yes, it was. It was just
before. You’re right. And that goddamn royalty is still paying me $70,000 a year.
WARREN BUFFETT: What’d you pay for the royalty?

CHARLIE MUNGER: A thousand dollars.

WARREN BUFFETT: Yeah. Yeah. Now that’s the opposite of the Permian. My dad
bought $1,000 or $1,500 worth of royalties before he died in 1964. He left them to my
mother. My mother left them to her two daughters. And my older sister died. And my
younger sister is here today.

And she gets these checks every month. And she knows about all these different
fields, and what they’re producing. And that’s the reality of half of the oil production,
or something around that, in the United States. And then the other half is shale.

And, you know, if you’ve gone to the movies, and ever watched oil, you’ve never
watched the things that are pumping Charlie’s royalties in California. You’ll see these
gushers of oil. Well, in the Permian, this should sink in on you, in the first day, the
first day when you bring in a well, you know, it may be 12,000 barrels, or maybe
15,000 barrels.

And it’s dangerous. Occidental had one come in at I think at 19,000 barrels or
something like that in one day. And in a year, year and a half, it becomes partly
nothing. It’s a different business in effect. In the United States, it’s interesting. We use
maybe 11 and a fraction — well, we produce 11 and a fraction million barrels of oil
equivalent a day.

But if shale stopped, I mean, it would drop to six million very fast. Well, just imagine
taking five million barrels a day out of production in the world. And then we’re also
taking down our strategic petroleum reserve. Strategic petroleum reserve is the
ultimate oilfield. You don’t have to drill. It’s just we’ve got them.

And it was supposed to be strategic, but it gets involved in politics. And so, there’s all
— when you talk about the oil business, you’re talking about different kinds of
businesses, basically. And we like Occidental’s position in the Permian. And we
wouldn’t like that position — well, it got to minus one day. It got to minus $30 a
barrel.

That was crazy, of course. But if oil sells at X, you know, you do very well. And if it
sells at half of X, you know, your costs are the same, and it doesn’t change the
production. And it doesn’t work as well, but it also brings down the oil production of
the United States very fast.

So, we don’t know what oil prices will be. But we do very much like the Occidental
position they have. And that’s why we financed them a few years ago, when it looked
like it was a terrible mistake. Then the oil market just totally collapsed. And then it
changed around. And we bought a lot of the common stock.

In the last few months, they’ve reduced our preferred, which we don’t like, obviously.
But we’d be disappointed in them if they didn’t reduce it. It’s intelligent from their
standpoint. So, we’ve taken — of the $10 billion preferred, we’ve gotten maybe
$400,000,000 or $500,000,000 of it, retired at 110% of par.

But, Vicki Hollub, she’s an extraordinary manager of Occidental. Her first job was
with Cities Service. That was the first stock I bought in 1942. She knows what
happens beneath the surface. I know the math of it. But I wouldn’t have the faintest
idea what to do if I was in an oil field.

I mean, I can dig two feet down in my backyard. And that’s my understanding of
subsoil in the world. I can’t picture the field that Charlie has been collecting that
monthly check from, from 50-plus years, 60 years roughly, or my sister, getting at
various fields, where they just keep pumping, and pumping, and pumping.

And we, in the United States, we’re lucky to have the absolutely to produce the kind
of oil we’ve got from shale. But it is not a long-term source, like you might think, by
watching movies about oil, or something of the sort. Charlie, do you have anything to
add?

CHARLIE MUNGER: Yeah. It really dies fast, those shale wells. If you like quick
death in your oil wells, we have them for you.
WARREN BUFFETT: But Occidental, they’re doing a lot of good things.

CHARLIE MUNGER: Yeah. They drill a lot of new wells. And they’re doing it at a
profit, but it’s a different kind of oil than this.

WARREN BUFFETT: It’s just different. Yeah. Yeah. And that’s true of almost half
the oil produced in the United States. And there’s times —

CHARLIE MUNGER: There’s a lot of oil down there that nobody knows how to
produce. And they’ve been working at it for, like, 50 years. But they worked at the
existing shale production for about 50 years before they figured it out. And it was
weirdly complicated when they finally were able to do it. There’s only one type of
sand that works.

WARREN BUFFETT: Can you imagine a horizontal pipe, you know, maybe a mile
and a half or something? It’s just so different than what you think about.

CHARLIE MUNGER: It goes laterally for three miles, two miles down. How in the
hell do you drill two or three miles laterally, when you’re already two or three miles
under the Earth? They have mastered a lot of very tricky technology to be able to get
any oil out of these wells at all.

WARREN BUFFETT: And we love the position with Occidental. And we love having
Vicki run it. And they’ve been —

CHARLIE MUNGER: And there’s a lot more oil down there, if anybody can figure
out another magic trick. That’s all we need is another magic trick.

WARREN BUFFETT: But Occidental has some other things too.

CHARLIE MUNGER: Yes. Yes. But —

WARREN BUFFETT: But the price of oil still is incredibly important in terms of the
economics of short-lived oil. I mean, no question about that.

CHARLIE MUNGER: Well, if it’s —

WARREN BUFFETT: And we will incidentally — you know — There’s speculation

about us buying control. We’re not going to buy control. (Laughs) We don’t want to
run — We’ve got the right management running it. We can’t — we wouldn’t know
what to do with it. And (UNINTELLIGLE) wouldn’t know what to do with an oil
field.

CHARLIE MUNGER: Admitting you’re buying coal would be like going out and
seeking to acquire cancer or something. You can’t even borrow to expand a coal mine
now. It got very unfashionable.

WARREN BUFFETT: Yeah. And we think, frankly, some of the things said are
ridiculous.

And on both sides. In both extremes.

I mean, you’re dealing with physics. You’re dealing with — the politicization of
positions on something that’s enormously important in terms of energy just lends
itself to demagogues, and fundraisers, and advisory organizations, and everybody in
sight. And we will make rational decisions. And we do not think it’s un-American to
be producing oil.

CHARLIE MUNGER: And there is no oil basin in the United States that compares to
the Permian, in terms of promise.

WARREN BUFFETT: Yeah. We were lucky.

CHARLIE MUNGER: Well, I don’t —

WARREN BUFFETT: We didn’t know it was there until –

CHARLIE MUNGER: Yes.

WARREN BUFFETT: — not that many years ago.

CHARLIE MUNGER: It had sort of been used up. And then they always knew the
shale oil was there. But they thought it was going to stay unrecoverable forever.

WARREN BUFFETT: The second or third stock I bought was Texas Pacific Land
Trust. And they owned 3,000,000 acres down there. And they were raising revenues
of $10,000 a year or something like that. And they were sitting on this incredible
amount of oil. And basically, that company is now actually part of Chevron.

And it went through Texaco and did all kinds of things. And there’s still a Texas
Pacific Land Trust. But a lot of that property is fee owned by — the minerals are
owned by Chevron, which is some advantage. But it’s an interesting subject, I’ll put it
that way.

And we will not be making any offer for control of Occidental. But we love the shares
we have. And we may or may not own more in the future. But we certainly have
warrants, which we got as part of the original deal, on a very sustainable amount of
stock, at around $59 a share. And those warrants last a long time. I’m glad we have
them.

12. Elon Musk is a ‘brilliant, brilliant guy’ who ‘likes taking on the impossible
job’
WARREN BUFFETT: OK. Station seven.

AUDINCE MEMBER: My name is Max Joa (PH). I’m from Toronto, Canada. I have
a question for Charlie regarding a statement you made in the past.

You once mentioned that you’d prefer to hire someone with an IQ of 130 who
believes it’s 120, over someone with the IQ of 150 who thinks it’s 170.

I understand that you are referring to Elon Musk. (LAUGHTER)

Given the recent success of his ventures, such as Tesla, SpaceX, and Starlink, I’m
curious to know if you still hold the view that Elon Musk overestimates himself.
Thank you so much. (APPLAUSE)

CHARLIE MUNGER: Well, yes. I think Elon Musk overestimates himself. But he
has a — he is very talented. So, he’s overestimating somebody who doesn’t need to
overestimate to be very talented.

WARREN BUFFETT: There’s a Bill Maher program, about a week old, maybe two
weeks old.

But he interviews Elon. And Elon does a terrific job toe-to-toe with Bill Maher. It’s
worth watching.

And Elon is — he’s a brilliant, brilliant guy. And I would say that, you know, he
might score over 170.

But he — you know, it’s — he dreams about things. And his dreams have got a
foundation.

CHARLIE MUNGER: He would not have achieved what he has in life if he hadn’t
tried for unreasonably extreme objectives.

He likes taking on the impossible job and doing it. We’re different, Warren and I.
Warren and I are looking for the easy job that we can identify. (LAUGHTER)

WARREN BUFFETT: Yeah. If we can do it playing tic-tac-toe, we’ll do it, you

know? (LAUGHS)

CHARLIE MUNGER: We have a totally different way of going about it.

WARREN BUFFETT: But we don’t want to compete with Elon in a lot of things.

CHARLIE MUNGER: We don’t want that much failure.

WARREN BUFFETT: Yeah. (LAUGHTER) Yeah.

And it takes over your life in a way that it just doesn’t fit us. But there are going to be
— well, there have been important things done by Elon already. And it requires —
fanaticism isn’t the word.

CHARLIE MUNGER: Yeah. It is the word.

WARREN BUFFETT: OK. (LAUGHTER)

Well, it isn’t quite the word. But it’s a dedication to solving the impossible. And every
now and then, he’ll do it. But it would be torturous to me or Charlie. And I like the
way I’m living. And I wouldn’t enjoy being in his — but he wouldn’t enjoy being in
my shoes, either.

Watch the Bill Maher interview.

13. We want to save Berkshire’s cash to buy businesses

WARREN BUFFETT: OK. Becky.

BECKY QUICK: This question comes from Foster Taylor (PH).

“At the 2010 Berkshire annual meeting, you said the one question that you would ask
of the Berkshire CEO would be about the distribution of cash to shareholders, as the
Berkshire cash pile grows larger and larger.

“So, let me ask that question. Do you still feel confident of the future prospects for our
over $100 billion in cash on hand, or are we getting closer to cash distributions?”

WARREN BUFFETT: Well, the one thing, if Berkshire shares are selling for less than
we think they’re worth, that could be a pretty big way to distribute cash. But what we
would really like to do is buy great businesses. If we could buy a company for $50
billion, or $75 billion, $100 billion, we could do it.

And we could do it. And our word’s good. It’s difficult with a public company,
because in effect, if you bid on a company, you make the bid, and their shareholders
vote months later. And you’re giving out an option. If we’re good for it, and the other
guy has a way to —

CHARLIE MUNGER: Top you.

WARREN BUFFETT: —top you, or all kinds of things, they can get out of it. And
then you get paid 2% for that, or 1% that, that is not an appropriate price. And on the
other hand, Delaware will decide whether they should do it or not. And that’s the way
the world is. I mean, that’s the law. So, it’d be easier to do with a private company.

And there aren’t very many that are big. On the other hand, there’s nobody else that
can quite make a deal like we can, under the right circumstances. And there could be a
situation where a number of very decent companies have got a very uncomfortable
borrowing structure, and money comes due to them at the exact wrong time.
And that’s when they pick up a phone, as did Tiffany, and Harley-Davidson, and you
name it. I mean, a whole bunch of companies in 2008. That sort of thing will happen
again, whether it results in us getting the calls, or what the world is exactly at that
time.

But the one thing we know is that the number of phone calls that you can make at a
time like that is very, very limited. And there can be good companies, they don’t want
to sell the company necessarily, but they just may need $5 billion, or $10 billion, or
$20 billion, depending on what company you’re talking about.

And that can happen. And our own shareholders can be selling the stock too cheap.
And we’ll never do anything to make them sell it cheap. And we’ll tell them the truth
about what the business is. But if market circumstances result in us being able to buy
in $50 billion of our own stock, we’ll buy it.

So, we’ll see what the world holds. But we don’t have the opportunities we used to
have. But we’ve got enough. And we’re making money with the things we have. It
isn’t killing us to hold $130 billion of bills at 5% plus bond equivalent yields.

And everybody says, “Well, yields are going to go down in the future.” I don’t have
the faintest idea what yields are going to do in the future.

And, you know, the prime rate was 21.5% in 1981 or ’2. And people were worried
that it was going to go totally out and spin out of control. And [Federal Reserve
Chairman Paul] Volcker kept it from happening.

But if Volcker hadn’t been in there, who the hell knows what would’ve happened.

So, we’re running Berkshire so that we’ll do OK. And maybe we’ll do a little bit
better than OK. Charlie?

CHARLIE MUNGER: OK. Maybe. Fine.

14. Munger: ‘Life is too short’ to be an ambitious lawyer
WARREN BUFFETT: OK. Station eight.

AUDIENCE MEMBER: Hello, Mr. Buffett and Mr. Munger. My name is Carlos
Sanchez (PH). And I am honored to be here from Guadalajara, Mexico. Mr. Munger,
as a fellow lawyer, I have a question regarding corporate law.

Considering your experience and success, if you were to offer guidance to someone
like Ralph Tortorella when he was at the beginning of his career, and before becoming
Berkshire Hathaway Company’s lawyer, what key principles or lessons would you
suggest to help him excel in his profession?

CHARLIE MUNGER: Well, I’m not sure I quite caught all of that. But I don’t think I
have a lot of advice about how to succeed as a lawyer. I have a son-in-law who
describes modern law practice in a big firm.

He says, “It’s like a pie-eating contest where if you win you get to eat more pie.”
(LAUGHTER) And I advise you to avoid that kind of a law firm. Life is too short to
just do nothing but eat pie.

WARREN BUFFETT: Yeah. Charlie has not practiced law since what 1964 maybe,
whatever it was.

CHARLIE MUNGER: 1962.

WARREN BUFFETT: ’62. And Charlie has given me four or five pieces of advice
that don’t really come from his legal background, but because he knows the system so
well, and, you know, really did do quite well at Harvard Law School, despite his
taunting of teachers in a few things.

He has given me four of five solutions on things that nobody else in the world
would’ve given me, law firm or otherwise. And it’s been within a nanosecond of when
I described the problem to him. And he just gave me the answer that nobody else
would’ve come up with.

And I told you one of them last year. So, I won’t repeat it at this meeting. But we’ve
got the best lawyer in the world in Charlie, if it’s something that really matters. And
there’ve been times when I’ve taken advantage of that. And Charlie didn’t want to be
a lawyer.

He didn’t want to sell his time, maybe at 20 bucks an hour or something, to people he
thought were making the wrong the decisions. And he knew more about it than they
did. And that just did not strike him as a good way to go through life. And I think he’s
probably right on that.

I think he’d have really gotten to be miserable if he had to keep doing that. It’s just no
fun. It’d be like me giving investment advice to somebody that — or taking it from
somebody. I just wouldn’t want to do it. And Charlie figured that out. And so, we
decided to work for ourselves. And this worked. Been happy, happily ever after.

CHARLIE MUNGER: We have no complaints.

WARREN BUFFETT: Yeah. None.

15. New minimum 15% corporate tax ‘doesn’t bother me in the least’
WARREN BUFFETT: OK. We’re at Becky.

BECKY QUICK: This question come from Ryan Harding (PH). And it’s about the
new 15% corporate minimum tax rate. As he sees it, its implementation is currently
understood, he thinks as he understands it, to apply over rolling three-year periods,
and to be based on reported earnings.

First, does the inclusion of unrealized gains and losses in reported earnings under the
current financial reporting standards contribute to the calculation for corporate
minimum tax rate purposes?
And could it potentially convert some of those notional deferred taxes into cash taxes,
even if a rise in the market price of a major holding is only temporary, but rather
extreme? And then second, could it reduce the effect of some of the renewable energy
tax incentives, and others?

WARREN BUFFETT: I think the answer on the second part, probably, is no. But I
don’t want to say it is for sure, because he’s asking the same questions I ask of Marc
Hamburg, who’s the smartest guy on combining understanding a business,
understanding the tax code, understanding SEC rules, and everything else, that you’ll
find in corporate America.

And these questions — the particular question on marginable securities — I don’t

think has been answered yet. And I think that there are a number of things about the
new tax act that were not enacted yet. But I would say this. We have said ourselves
what we think the proper approach to operating income.

We didn’t design that because this tax law came along, we did some years back. So,
we would think that you wouldn’t include capital gains, unrealized capital gains in.
But we’ve got enough, I think no matter how things turn out. The 15% tax doesn’t
bother me in the least.

And we can figure ways, once we know the rules, where we will pay the 15% tax.
And, you know, we were paying 52% tax as federal income taxes when I bought
control in the partnership of Berkshire Hathaway. I mean, the tax rate has come down
dramatically.

And the deferred tax that was embodied, for example, at Sanborn MAT, when it was
involved in a system that was allowed under the tax law to avoid that tax. But that was
a huge tax, 52%. So, we will live with this tax code. And we do not think corporations
are overtaxed in the United States.

And, you know, I think that the conversation about how we’d lose out to the world,
and all that sort of thing is really nonsense. But we’ve got a new law that the
regulations haven’t been written on. And when we know what the game is, we will
absolutely figure out a way to pay 15% every year, which generally, we’ve been
paying anyway.

And as I pointed out, if there were a thousand corporations in the United States that
paid what Berkshire has been paying, nobody else in the United States, no individual,
no corporation, would ever pay any income tax, social security tax, gift tax, estate tax,
anything else.

A thousand like Berkshire Hathaway would produce the revenue that’s being derived
under the present tax code from everybody in the United States. And I don’t feel badly
about that. And I love to get it to one five-hundreth, or something of the sort. But I’d
like to do it — we can do it at this rate. I’m happy to do it.

I think we are privileged to live in the United States. But we also have to control
spending. And that’s something that Congress doesn’t quite like to do. And they
didn’t like to do it when my dad went to Congress. But they’ve dug in more, as the
years have gone by. Charlie?

CHARLIE MUNGER: Well, we covered this subject earlier.

WARREN BUFFETT: OK. (LAUGHTER)

16. We are in ‘the perfect sort of game’

WARREN BUFFETT: Station nine.

Am I right on this? Yeah.

AUDIENCE MEMBER: My name is Avlon Gross (PH). And I am from Los Angeles,
California. I am a shareholder. And it’s my fourth year coming to the “Woodstock of
Capitalism.” (LAUGHTER)

WARREN BUFFETT: We’re glad you came.

AUDIENCE MEMBER: Thank you so much for everything Warren Buffett and
Charlie Munger.

What is the funniest story that you have never told about each other? And also, what is
the hardest part of your business? (APPLAUSE)

WARREN BUFFETT: I’ll answer the second. The second part of your question is that
we don’t have a hard business. We love our business. Every morning, when I get up, I
feel good. I don’t know what’s going to happen that day. Maybe nothing will happen.
But maybe something will happen.

And if nothing else, I’ll roll some T-bills or something. But I work with the greatest
group of people you can imagine. I mean, we like each other. And nobody is after
anybody else’s job, or anything of the sort. It’s ideal working conditions. And it’s five
minutes from my home, or thereabouts. So, I haven’t spent my life commuting. I just
can’t imagine having anything better.

And Charlie’s got a lot of funny stories you haven’t heard. But we’ll see which one he
comes up with.

CHARLIE MUNGER: Well, I think Warren and I are naturally so ridiculous that we
don’t need very many funny stories. We each do things that are peculiar enough so
that we can keep one another amused.

WARREN BUFFETT: Tell them what you told the lawyer when we were buying
Hochschild Kohn.

CHARLIE MUNGER: I don’t remember. You tell them.

WARREN BUFFETT: Well, you remember? (LAUGHTER) It was 1966, and we

were down in Baltimore, buying a department store. And we needed a lawyer. And we
needed a lawyer who was nearby and would do exactly as told. And Charlie came up
with a very good lawyer from Wilmer Cutler’s, I believe. And I don’t know whether
Charlie remembers the instructions he gave the lawyer or not.

CHARLIE MUNGER: No. I don’t.

WARREN BUFFETT: Well, Charlie told the lawyer, who we never met before. And
he said, “Treat Warren like” — I was 36 at the time or 35. He said, “Treat Warren like
any other 90-year-old client.” (LAUGHTER)

This guy knew exactly what he meant. And we made the deal in a hurry. And then we
went to the bank, First National Bank, I believe it was — or Maryland National Bank,
actually. And there was a fellow named Cammy Slack there, wasn’t there, Charlie?

CHARLIE MUNGER: Yeah.

WARREN BUFFETT: We wanted to borrow $6,000,000 bucks against a $12,000,000

purchase. And Cammy looked at us with bewilderment. And he says, “You want you
borrow $6,000,000 for this little old Hochschild-Kohn?” And Charlie and I said
something to the effect, “Well, the Maryland National was our first call. And if they
didn’t want to do it, we had another bank we’d go to.”

And, anyway, they lent us the money. But when he said little old Hochschild-Kohn,
we immediately started thinking, “Maybe this isn’t the best deal we’ve ever seen in
our lives.” And from that point on, we were trying to figure out how to sell it. Sandy
Gottesman was involved with us then too.

And we had as much fun out of deals that didn’t work in a certain sense as the ones
that did work. I mean, if you knew you were going to play golf and you were going to
hit a hole in one on every hole, you just hit the ball, and it went in the hole that was
300 yards away, or 400 yards away, nobody would play golf.

I mean, part of the fun of the game is the fact that you hit them to the woods. And
sometimes you get them out, and sometimes you don’t.
So, we are in the perfect sort of game. And we both enjoy it. And we have a lot of fun
together. And we don’t have to do anything we don’t really believe in doing.

I mean, we are not dictated to by any group. And so, we get to forge our own destiny.
And in a sense, forge the principle by which we can run the company. And that’s a
huge luxury in life.

And we don’t want to be president of any other company in the world, or CEO, or
anything else. We’d have to conform to certain things that we really don’t want to
conform to.

Is that a fair description, Charlie?

CHARLIE MUNGER: Yeah, it is.

WARREN BUFFETT: Yeah.

17. Arbitrage bet on Activision isn’t looking good

WARREN BUFFETT: OK, Becky.

BECKY QUICK: This question comes from David Kass, who is a professor at the
business school at University of Maryland.

He says, “At last year’s annual meeting, Warren mentioned that Berkshire had taken a
large stake in Activision Blizzard as a merger arbitrage play. Since the U.K. regulator
has blocked its acquisition by Microsoft, has Berkshire reduced or sold its stake?”

WARREN BUFFETT: Well, I think in terms of what we do with stocks, we don’t

give information except when required to, which is in the 13F, or whatever we file.
And there’s certain things you can actually figure out by looking at our 10-Q, which
we filed this morning.
But you have to look pretty hard. But I would say this. I think Microsoft has been
remarkably, what’s the word, willing to cooperate with governing bodies. I mean, they
want to do the deal. And they’ve met the opposition, it seems to me, more than
halfway.

But that doesn’t mean that it gets done if a given country, in this case the U.K., wants
to block it. They’re in a better position to block it than the United States, by just the
way the world works. And that doesn’t get solved by offering more money.

So, I don’t know how it turns out. But if it doesn’t go through, I don’t think it’s
through any shortcoming by either Microsoft or Activision. But not everything that
should happen does happen. And, well, we ran into it when we made the deal with
Dominion Energy 18 months ago. And they let us buy a good bit of what we wanted
to buy.

And then the government in effect said, “You can’t buy something else,” which I
think we would’ve done a better job with than anybody else did, and which the states
involved did not object to it, which the customers didn’t object to it. But you don’t
take on the United States government, you know?

And you try and figure out things that you won’t have a problem with. And I think in
that case, the U.S. government made a mistake. I think the British government’s
making a mistake in this case.

But that’s life in the big city, as Charlie would say.

And what we do will depend on a lot of things. Charlie?

CHARLIE MUNGER: Well, I think — well, we do — yeah — you kissed that one off
beautifully. (LAUGHTER)

18. If you can’t work for yourself, working for Berkshire is almost as good
WARREN BUFFETT: OK. Station 10. (Laughter)
AUDIENCE MEMBER: Hi, Warren. Hi, Charlie. My name’s Anderson Fuller (PH).
And I’m from Avonport, Nova Scotia in Canada.

And before I ask my question, I just want to thank you for all you’ve done to give us
insight into your minds as investors.

So, for me, the most compelling takeaway from Berkshire is your guys’ emphasis on
and successful use of properly aligned incentives.

In my view, owning and leading a business has two central benefits. First, you directly
benefit as the company grows, through your equity in it, and second, you have
autonomy. Incentives for employees are a bit easier to understand, such as offering
benefits, fair pay, and creating a strong culture.

But I’ve always struggled to understand them at the highest level. Even though you
say Berkshire gives its managers significant flexibility, it must be less than what they
had when they were independent.

Additionally, you would think passion and a willingness to sell would be inversely
correlated. So, how exactly does Berkshire bridge this gap and incentivize owners of
its subsidiaries to give up these benefits to Berkshire? Thank you.

WARREN BUFFETT: Well, what we really hope to find is managers who love their
business, but don’t like a lot of what comes with it as a public company. I mean, if
they have to spend a lot of time listening to people tell them what to do about this or
that, and they can’t afford to irritate them, or they have to go along with their trade
association, or whatever they may call it, because you don’t want to look like a free
rider.

There’s all kinds of things, compromises that people have to make in most jobs. And
Charlie and I solved that problem. I had five bosses in my life. And I liked all five of
them. And two of them were just huge factors in making my life better. But I liked all
five of them.
A couple of them were, you know, some people hear JCPenney, Cooper Smith, you
know, I worked for 75 cents an hour and I loved working at Penny’s. Well, I didn’t
love working at Penney’s. But I loved working for Cooper Smith. And, you know, it
was 75 cents an hour.

But I had to do what they told me to do, which was to sell men’s shirts first, and then
men’s clothing, and then children’s clothing, and so on. And I loved working for the
newspaper. And I had a great manager when I was at the University of Nebraska. I got
to work for Ben Graham. I mean, everything worked out.

But there’s nothing like working for yourself. And if you can’t own a big company,
working at Berkshire Hathaway, from running a company is the closest thing you will
get. You don’t have to spend time courting analysts who you’ll probably have
contempt for in many cases.

You don’t have to spend time with banks, you know, getting money, and particularly
in terrible times.

There’s all kinds of — you get a lot in the way of freedom that I would think would be
meaningful to me. And it might be better if you own the whole place yourself.

But maybe you’ve got siblings that want out. Maybe — there’s a million reasons why
you may not be able to achieve that unless you sell to Berkshire. And that’s easier,
probably, if you have a family business, where people want to go in different
directions, than it is with a public company. But there’s still possibilities there.

So, that’s why I think if I owned a public company, and it was worth a great many
billions of dollars, and Berkshire Hathaway wanted to buy it, and the shareholders
were willing to vote it, I would consider the way I would feel about life, for one thing,
I wouldn’t want to retire at 65. I’d want to keep working.

And there are reasons to sell to Berkshire, which Charlie and I, in certain positions, if
we were on the other side, would take the deal. But it isn’t for everybody. Charlie?
CHARLIE MUNGER: I think we have a pretty good one. We’ve been very lucky.
And I don’t know. It seems to me that most of the people who are going to end up the
way we did, they almost already know how to do it.

WARREN BUFFETT: But the most important purchase, in retrospect, that we may
have made was National Indemnity. Now because specifically what it did, but what it
led to. And Jack Ringwalt controlled the company. And I knew him and liked him.
And he knew me. And once a year, he’d get irritated when the Nebraska Department
of Insurance, or somebody would come around.

And he said they always came around when the AK-SAR-BEN racetrack was open. I
mean, he had all these theories about why it was a pain in the neck to be regulated.
And I told Charlie Heider, “Next time Jack is in that mood, where he’s ready to sell,
just because he’s tired of fooling around with all these guys, be sure and find him.”

And so, Charlie called me one day. And he says, “Jack is in heat.” And I said, “Bring
him over.” And we made a deal. But that’s why Jack sold. And he was happy after he
made the deal. And I was happy after we made the deal. So, there’s a man that
controlled a business, but just decided these people didn’t seem to bother him as much
once they were my problem and not his.

And you just can’t tell when lightening will strike. And that didn’t do magnificent
things for us initially. But just look at what it led to, you know?

So, you never — you know, if you knew how you were going to shoot all 18 holes, it
wouldn’t be any fun playing. You wouldn’t get out on the first tee. I mean, it’s the
uncertainty, the fun of playing the game, the opponents, all kinds of things that make a
game interesting. And I think Charlie and I are in the most interesting game in the
world.

19. See’s Candies is a ‘wonderful brand that doesn’t travel’

WARREN BUFFETT: OK. Becky?

BECKY QUICK: Here’s a question from Simon Withers (PH), in Perth, in Western
Australia.

“It’s been a long time since we’ve heard about See’s Candy and NetJets. Could you
please give us an update on See’s performance, and when you project it will run out of
places to open stores in the United States?

“And could you also give us an overview of how NetJets has performed since its
acquisition, and whether it’s achieved the potential you saw at the time of that
acquisition?”

WARREN BUFFETT: Well, with See’s it hasn’t been a question of opening stores.
We found out that we have this wonderful brand that doesn’t travel. You know? The
mystique, the actual product, the feelings people have about some things, as we said
before, I mean, it sometimes it’s limited to given markets.

Dr. Pepper sells at a huge rate in Dallas-Fort Worth, and maybe at 10 times the
percentage per capita, maybe that it has in Detroit, or Boston. And you say, “Well,
how can that be with a product that’s been around for a century?” And people travel.
You have national advertising.

And I’m not sure. But I keep learning more, as I watch different brands. And Charlie
and I, our economics were so good in California, that we tried in many cases the same
experiment over and over again. It doesn’t cost much to experiment. And we’ve tried
everything in the world to cause a brand to travel.

And we always think we were right for the first week. And then we find out that the
magic — we can beat any other candy store, pretty much. But there aren’t any candy
stores anymore to speak of, as the world has changed. So, See’s is 101 years now. It
has magic.

And it has limited magic in sort of the adjacent West. It’s gravitational, almost. And
then you get to the East. And incidentally, in the East, people prefer dark chocolate to
milk chocolate. In the West, people prefer milk chocolate to dark. In the East, you can
sell miniatures, and dark — in the West —
I mean, there’s all kinds of crazy things in the world that consumers do. But you want
to keep observing it, because you do learn a little. And with Charlie and I, the
temptation to keep trying things, because the economics were so good if we
succeeded, so we tried various things. And, of course, every manager wants to try that
comes along.

Because they’ve learned that it should work. But it doesn’t work. So, but that’s what
makes it very interesting.

20. NetJets is a ‘marvelous’ company

WARREN BUFFETT: And NetJets, we have really learned how to distinguish, and
justifiably distinguish a service to people that you have to be very well to do to use it.

But if you’re very well to do, in effect, you’re spending your heir’s money. I mean,
it’s what I told my Aunt Alice after she went from teaching to be worth millions and
millions of dollars. And she came to see me. She’d never been married. And she said,
“Can I afford to buy this fur coat?” in 1968 or ’69. And I said, “Alice, you aren’t
buying it. Your nieces and nephews are buying it, because that’s who you’re leaving
your money to.”

“Speaking on behalf of your nieces and nephews I would say we want you to buy it.”
And it’s the same way. Do your heirs want you to fly around in that jet? Or do they
want you to leave a little more money to your foundation or your kids? And the way
to solve that one is to offer your kids a few hours themselves.

Then their attitude can change. So, it’s in a class by itself. It’s done what Ferrari has
done in a different sort of way in cars. Ferrari sells 11,000 cars a year. I mean, maybe
12,000. And they’re known throughout the world. And we’ll have a Chevy dealership
in Boston or something. We’ll sell as many cars. But we’re not Ferrari.

And NetJets has 600 — well, counting Europe, I mean, it’s maybe 650, but we’re
going to buy 100 planes this year. And we won’t sell any, because we’ve got a
backlog. And we took a NetJet flight over to Tokyo. And we arrived in good shape.
And we spent a couple days there. And we flew back.
And there’s just nothing to it. Now, you can say, “Well, you’re getting sort of
decadent and all that in your old age.” But the money will go to philanthropy. And the
money will probably be a hundred billion or more. And I figured the philanthropies
want me to spend a few bucks on myself.

All it has to do is be better than the last dollars that are spent by various
philanthropies, which have plenty of problems finding things to do that make lots of
sense. So, NetJets, there isn’t any competitor. We had looked the other day at Wheels
Up.

Stock came out at $10 a couple years ago. It was selling at 48 cents the other day. And
they’ve got 12,600 people that have given a billion dollars, a little over a billion
dollars on prepaid cards where they’ve given them money, and they get a certain
number of hours later on.

And they don’t — I think there’s a good chance that some people are going to be very
disappointed later on.

When they have money to do the NetJets, they know they’ll get on the same planes,
with the same pilots as I and my family have flown on since before we bought the
company. So, the decision wasn’t shaped by some commercial objective.

A couple years before, I’d never heard of NetJets. And Frank Rooney mentioned it to
me. And I bought share immediately. And we bought the company. And, well, my
kids have to fly commercial sometimes. But sometimes they get to use ours, too.

But I’ve never flown anything else. And why would I? I mean, it’s the gold standard.
And nobody will match our fleet. I mean, if you got 600 planes, you’ve got them a lot
more places in the United States than anybody else will have theirs. I think we’re the
second largest fleet (UNINTEL) commercial airliners.

And our fleet’s growing, like I said, at the rate of a hundred planes a year. So, it’s a
marvelous company.
And Adam Johnson has performed. You just can’t believe what he’s done with the
business. It was a tough model for a long time. But he’s brought it where it is. And we
should have a wonderful company forever. Charlie?

CHARLIE MUNGER: Well, NetJets has been remarkable. You can argue that it’s
worth as much as any airline now.

WARREN BUFFETT: It’s so different. And Charlie — we had a hard time selling
Charlie a NetJets membership. And then we figured the way to get him to buy a
membership was to put a coach seat in the fuselage. (LAUGHTER)

And that really knocked him off. I think he’s the only one we sold on the basis of that.

CHARLIE MUNGER: I used to come to the Berkshire annual meetings on coach

from Los Angeles. And it was full of rich stockholders. And they would clap when I
came into the coach section. I really liked that. (LAUGHTER) (APPLAUSE)

WARREN BUFFETT: But I’ve got to tell you, we semi-corrupted him. He feels he
kind of has to explain it, but he still flies in NetJet himself, so. And it’d be crazy not
to. You know, your heirs are paying for it. I mean, find me anybody whose estate
came in at less than zero because of what they spend on NetJets, threw them into that
position, let me know.

But I’ve never seen a case yet. And it won’t be the case for the Buffett family. And
it’s the residual bottom beneficiary that’s paying for your membership.

And it’s a little hard to get used to paying that much money though, when you’ve
lived like Charlie and I have most of our lives.

21. Auto industry is fascinating but hard to predict

WARREN BUFFETT: OK. We will go to section 11.
AUDIENCE MEMBER: Hello. My name is Humphrey Liu, I’m from Charlottesville,
Virginia.

WARREN BUFFETT: Ah!

AUDIENCE MEMBER: First, I wanted to add my thanks to you and Mr. Munger and
Mr. Buffett, and all of Berkshire, for throwing this grand event each year.

Looking at the global trends, it increasingly does seem that zero-emission vehicles
may have finally reached the cusp of mass adoption. Do you see any opportunities in
this space, either in specific vehicle manufacturers or in related technologies?

WARREN BUFFETT: Well, I would say that Charlie and I, we long have felt that the
auto industry is just too tough. You know, the Ford Motor Company, I mean, Henry
Ford, looked like he owned the world with the Model T. And he brought down the
price dramatically, he took up wages dramatically. He might have been, with a
different personality, or some different views, elected President of the United States.

I mean, there’s a good book that came out on that recently that told about the story —
it tells a little about Nebraska in terms of it, but Henry Ford and Thomas Edison
joining up, maybe a year or two it was. If you’re interested in autos, you ought to read
that book.

But Henry Ford did that, you know, and 20 years later they were losing money. And
the other guy, with a gun in his pocket, I think Harry Bennett, you know, was running
the Ford Motor Company. It was on its way to the junk heap when the whiz kids came
in.

And Henry Ford II, “Hank the Deuce,” as they called him, brought in Tex Thornton,
and my friend RJ Miller, and a few people. I was reading the other day, actually, the
1932 Annual Report of General Motors. And it’s one of the best annual reports I’ve
read. It’s a totally honest, you know, assessment of exactly where they were: They had
19,000 dealers then, and the population, as I mentioned earlier, was about 120 million
or so.
And now, with 330 million people, all brands in the United States have, like, 18,000
dealers or something. It’s just a business where you’ve got a lot of worldwide
competitors, they’re not going to go away. And it looks like there are winners in any
given time, but it doesn’t get you a permanent place. Although, as I mentioned, I
would say Ferrari is in a special place.

But they only sell 11,000 or 12,000 cars a year. In the U.S. last year, I think there
were 14 million-something. And it’s not a business where we find it fascinating to be
in. We like our dealership operation, but I don’t think I can tell you what the auto
industry will look like five or ten years from now.

I do think that you’re right that, you know, you will see a change in the vehicles. But
you won’t see anybody that owns the market because they changed the vehicle.
Charlie?

CHARLIE MUNGER: Well, the electric vehicle is coming big time, and that’s a very
interesting development. At the moment, it’s imposing huge capital costs and huge
risks. And I don’t like huge capital costs and huge risks.

WARREN BUFFETT: And we’re subsidizing it in the United States, and we’re
actually doing it — tried putting in a pro-labor-type — I mean, it is subject to politics
like you can’t believe, too. But it’s going to be with us, we’re not going to quit driving
cars, and — the American public has love affair with them.

But I think I know where Apple’s going to be in five or ten years, and I don’t know
where the car companies are going to be in five or ten years. And I may be wrong. But
Charlie and I follow the auto business with intense interest. Charlie’s firm was the
specialist at General Motors on the Pacific Coast Stock Exchange, and that was a
franchise, wasn’t it, Charlie?

CHARLIE MUNGER: Yeah. By working very hard, we could make a minor amount
of money.

WARREN BUFFETT: Yeah. Yeah. Wasn’t “minor” at the time, though. Come on —
(LAUGH) but —

CHARLIE MUNGER: Yeah, it was. It was —

WARREN BUFFETT: Was it?

CHARLIE MUNGER: — pretty minor at the time even.

WARREN BUFFETT: Yeah? Well, it was pretty minor.

22. Buffett isn’t worried about the Federal Reserve’s balance sheet
WARREN BUFFETT: OK. Becky?

BECKY QUICK: This question comes from Lindsay Peter Schumacher in Cedar
Rapids, Iowa.

“Does the current size of the Federal Reserve balance sheet concern you? In
particular, the result of quantitative easing — the Federal Reserve expanded its
balance sheet out of nothing. The net effect in essence is a form of single-entry
accounting creating something of value out of nothing other than a series of book
entries. And wondering what Mr. Munger thinks about this as well.”

WARREN BUFFETT: Well, I don’t think the Federal Reserve is the problem, and I
think they can’t solve the fiscal problem. I do not worry about the Federal Reserve. I
think it’s fulfilling the functions for which it was established. They have two
objectives, and I would not have been one probably that would have changed the
inflation objective: to 2% a year from 0.

You know, I think that if you tell people that you’re shooting to depreciate your
currency at 2% a year, that has a lot of implications. Although it feels good to a
(LAUGH) lot of people. A lot of people want a little inflation, but nobody wants a lot
of inflation except somebody’s that got a lot of debts.
And I do not worry about the Federal Reserve balance sheet. I enjoy looking at it, and
the numbers are big — I always like big numbers. But it’s interesting: One of the most
interesting figures, to me, is currency in circulation. I mean, it has gone — they were
saying, “Cash is trash,” back in 2007 and ’08, “and all that cash is going to
disappear.”

Well, if you look at the Federal Reserve balance sheet, it’s gone from $800 billion to
$2.2 trillion, and most of that’s in hundred-dollar bills, overwhelmingly. And I figured
out I think there’s about 50 $100 bills per person — babies, everybody, in the United
States, and I would really like to know where all of that is.

I mean, nobody’s hoarding eurodollars, you know, in South America, or Africa, or

wherever. And the demand for currency now — you know, some of it may be subtle
drug dealers’ activities and of that. But anybody who thinks “cash is trash” ought to
look at the Federal Reserve balance sheet. And, actually, you can look at how many
$5 bills and $2 bills, and ones and all that, and the action has been in $100 bills.

I mean, it is just astounding the way that hundred-dollar bills have spread. And, of
course, I don’t know where they are, and I don’t think the Fed can know exactly, but
they’d probably make a lot better guess than I could. But I do it’s happened, and you
can watch it every week, and you’ll watch currency in circulation probably grow a
little bit. And, believe me, “cash” is not trash. Charlie?

CHARLIE MUNGER: Well, I don’t know where we’re headed with all of this. It’s
been very extreme. I think you could be pretty extreme in fighting it: depressions and
so forth, if you reverted afterwards to a period of some discipline. But if you just —

But if you’re going to just keep printing money and spending it, I think eventually it
causes bad trouble. And you can see it Latin America. Latin America let its currency
get out of control all the time, and, of course, it lagged the United States in economic
achievement greatly. So, I think we pay a price if we ever give up our old ways
entirely and go into a new world where we just try and print money, just make it
easier to get through the year.

WARREN BUFFETT: We paid a price in World War II, I mean, everybody: school
kids and everybody else, myself included. And we bought what were originally called
“War Bonds,” and “Defense Bonds,” and “Savings Bonds,” and all that. But from
1942 to 1944 or ’45, you paid out $18.75 and you got $25.00 back, and every kid
saved savings stamps and all that.

But when you got all through, you know, you had 120% of GDP in the national debt
instead of 30% or 40%. And we had a lot of inflation subsequently, a lot. So, the
people that really bought those bonds and supported the war had a portion of their
purchasing power taken away from them.

Well, there wasn’t anything wrong with that, particularly. But when the country gets
in the habit of doing that, I think it’s tough to figure out where the breaking point is
with society. But I don’t think you want to come anywhere close to it.

CHARLIE MUNGER: Yeah, but it’s also tough to have a mass of people
unemployed. That’s the tension.

WARREN BUFFETT: Yep. Well, that’s why the Fed has two objectives, in terms of
employment and inflation. But they are not the ones that could create the deficits. And
so far, the system has worked pretty well, although, like I say, it’s been —

CHARLIE MUNGER: So, far, the man who just jumped off a tall building —

WARREN BUFFETT: Yeah, right.

CHARLIE MUNGER: — is all right until he hits the ground.

WARREN BUFFETT: Yeah. (LAUGHTER) Well, but there could be ways we can
stop now at the third floor, or the sixth floor. We don’t know what floor it is, but we
know it hasn’t hit the ground. But, you know, politically it’s very, very, very tempting
to vote appropriations, and it’s not fun to vote taxes.

And Russell Long, head of the Senate Finance Committee, they’ve got a building
named after him now, he said, “You know, don’t tax you, don’t tax me, tax that guy
behind the tree.” And (LAUGH) basically that is the attitude — I mean, it’s the reality
of what is useful in politics.

And so far, this country’s managed to work very well with lot of things that could
theoretically cause a lot of problems. But it doesn’t guarantee us the future on it and
being the reserve currency lets us do a lot of things, but it also creates a lot of
consequences if we screw it up. Charlie?

CHARLIE MUNGER: Well, we’re beating a subject to death, but it is a problem. I

wish we had a solution.

23. We need to take care of people displaced by capitalism

WARREN BUFFETT: OK. With that we’ll go to station one and see if we —

AUDIENCE MEMBER: Hello, Mr. Buffett and Mr. Munger. My name’s Connor, I’m
an economics student at the University of Nottingham.

My question for you today is during the pandemic we witnessed supply chain
shortages, especially from Asia. As a result, companies have chosen, with political
intentions, to move production away.

Should companies make these decisions? And should the government support them?

WARREN BUFFETT: Charlie?

CHARLIE MUNGER: Well, that’s a good question.

WARREN BUFFETT: Yep.

CHARLIE MUNGER: Obviously, it’s logical — if you’re in business and you can
make the thing in Mexico way cheaper, it’s natural to open a factory in Mexico and
get your parts cheaper. And a lot of the auto manufacturers have done exactly that.

On the other hand, nobody wants to hollow out the whole country, so all the
manufacturing jobs are elsewhere and we’re all living like a bunch of farmers: You
know, like English colonies in 1820 or something. And these ideas are, of course, in
big tension. We don’t have that much foreign production, right, Warren?

WARREN BUFFETT: Yeah. Well, but we’ve lost — well, originally Berkshire
Hathaway, as a textile manufacturer, lost because the South became feasible versus
the North. And, of course, then eventually —

CHARLIE MUNGER: The South got expensive —

WARREN BUFFETT: South got —

CHARLIE MUNGER: — and moved to China.

WARREN BUFFETT: Sure. And society benefits and some people get killed in that
sort of a situation. And a rich society should take care, one way or another, of people
that worked in our shoe factories, people who worked in our textile companies. I
mean, if you worked in our textile operation, in 1964 when we took it over, half our
workers only spoke Portuguese.

And, you know, they weren’t getting great wages at all. But now you could do it in the
South, and we were doomed to go out of business. And it wasn’t the fault of the
worker in any way, shape, or form. It wasn’t our fault: We kept trying to compete.

CHARLIE MUNGER: Well, TVA had cheap power down there.

WARREN BUFFETT: Sure.

CHARLIE MUNGER: And tax dollars really can yield power.

WARREN BUFFETT: And air conditioning changed everything because the heat in
those damn places was impossible. And so, a lot of things. But then it moves offshore
in many ways, and net the country is better off because of it.

But it displaces a lot of people who really can’t do something else in life. You can’t
talk about “retraining” somebody that’s 55 or 60, and speaks only Portuguese, and
really tell them they’re going to have “a great future” in New Bedford, Mass.

You know, and so you don’t want to be glib about it. And we can afford to take care
of those people. And we’ve got some systems that work reasonably well, but there’s a
tension between — you know, what about the person that doesn’t do anything and all
that kind of stuff. So, these are not easy problems to solve.

But I would say that, by and large, we want the whole world to prosper, we do not
want the United States to be a country of extraordinary prosperity, and have the rest of
the world —

CHARLIE MUNGER: — starving.

WARREN BUFFETT: No. It isn’t going to work. And it particularly isn’t going to
work in a nuclear world. So — and you can have your own feelings about it as a
humane person, but it can be done better. And we’ve got the resources to do it. I
mean, the output of this country, one, can be done with a lot fewer people, and doing
more specialized things.

And, of course, it has been. The workweek in the United States, you know, in my
lifetime, has dropped dramatically. And people still feel busy. And it will be the
human lot to say, you know, “How can I get all these things done?” But my mother
didn’t drive three kids anyplace, I mean, if you wanted to go anyplace, if you were
lucky and you got old enough, you had a bicycle.

And the world just keeps looking at everything moving up as becoming sort of a base
that leaves them somewhat dissatisfied. And with our prosperity, we can do a lot of
things we couldn’t do in 1930, including taking care of people that got displaced by
the fact that somebody else can do that work and improve their lot in life.

And we’ve got to make sure that we have the best system that takes care of the people
who get displaced by that. But doing that in the political system we have and
everything, we’ll make a lot of mistakes along the way. But we’ve got to keep moving
in that direction. And I’d say —

CHARLIE MUNGER: The really interesting thing about it is that Adam Smith was
right: that free market capitalism automatically leaves a property in private hands.
And free trade and all that automatically creates GDP per capita that grows and helps
everybody, including the people at the bottom: helps everybody a lot.

But inherent in the process, there’s a lot of pain in that free market capitalism: for
instance, for the Portuguese workers in a textile company in New Bedford. And
nobody’s ever figured out how to take all the pain out of it. We do have government
safety nets that take some of the pain out, and we make those safety nets a little bigger
as time goes by.

But, apart from that, if you try and take all the pain out, you’ll also take all the gains
out of it. We won’t have a growing GDP per capita. You’ll have an economy like
Russia’s, which has been characterized as saying: “They pretend to pay us, and we
pretend to work.” (LAUGHTER)

WARREN BUFFETT: Yeah. The other systems haven’t worked better, but it also
produces more and more disparities in wealth. And people that do nothing but get
assets under management without actually performing anything extra make fortunes.
And, I mean, it’s a job of government to keep the best aspects of capitalism, while not
causing people that only speak Portuguese to suffer in the process.

I mean, the two aren’t compatible politically over time. And we stumble along making
progress on things like Social Security and all that. And we are a lot better off than we
are when I was born.

CHARLIE MUNGER: Net, the United States has done a very good job of this tension
between capitalistic growth and a growing social safety net. We can be pretty proud of
our country, looking backward.

WARREN BUFFETT: Yeah. That may be why we have 25% of the world’s GDP
starting with a half-a-percent of the population and did it in a few centuries. I mean,
it’s a miracle. And it wasn’t because we’re smarter, but we’ve got to say there must be
something to the system that’s worked pretty well even though it’s produced a civil
war and all kinds of things, you know?

And women, you know, not getting a shot at anything, you know, even after they
passed the 19th Amendment. But it’s a work in progress. I think actually there’s been
progress, but it’s mankind’s nature to see the things wrong with it if you —

CHARLIE MUNGER: It’s even worse: It’s man’s nature to take the progress as a
right. Not something to be earned or strive for, but something that should
automatically just flow in over the transom. And that attitude is poison. It doesn’t do
anybody any good.

24. When it comes to accounting, ‘We’ll consistently do what is legal, and we’ll
consistently say what we think is right’
WARREN BUFFETT: OK. Now ask us an easy question, Becky. (LAUGH)
(APPLAUSE)

BECKY QUICK: This question comes from Doug DeShiel (PH). “Since the
accounting rules changed requiring Berkshire to report the change in fair value of its
equity investments through the income statement, Mr. Buffett has repeatedly told
shareholders to ignore those changes as they’re not reflective of the long-term returns
that those investments will produce.

“Recently, Mr. Buffett has argued that hold-to-maturity accounting used by the banks
to avoid reflecting the changes in fair value of bank investment portfolios in the
income statement and the shareholder equity account do a disservice to its various
stakeholders. Can Mr. Buffett elaborate on why he views mark-to-market accounting
differently for banks in comparison to Berkshire?”
WARREN BUFFETT: Well, I believe, in both cases, in doing it on the balance sheet
and not in the income statement. And it’s a very tough problem the auditors face is
that obviously the income statement feeds into the balance sheet. But the balance
sheet tells you whether deposits can be paid, it tells you a lot of things.

And we show it on our balance sheet. We believe in showing market values on our
balance sheet. We just don’t believe in running it through the income account. And in
getting there we would put in “other comprehensive income,” like it was for a long
time.

So, I sympathize, to some extent — a far extent, with the audit group. But they have to
really decide whether they want the balance sheet to represent values — except it
doesn’t reflect them on the upside if we buy a See’s Candy and it’s worth way more
money, so it’s conservative in that sense; or whether they want to have an income
account that becomes meaningless to people. Because it really changes every five
seconds, you know?

I mean — well, the market’s closed today, but, you know, I guess Apple was up,
what, seven or eight points or something on Friday. I mean, that’s $7 billion: I mean,
that’s a crazy income account. It is a reflection of where we stand at that point.

And, of course, if you’re a bank, where you’re putting out money really at things —
mortgages, I mean, primarily, that are terrible instruments for a bank to own, but a
great instrument for a consumer to buy; and built-in to the whole society now in a way
that is entirely different than in the past, you’ve got to pay attention to whether
they’ve gotten out of whack in terms of the value of what they own and what can be
demanded of them tomorrow morning. (LAUGH)

And if we had all of our money that could be demanded from us tomorrow morning,
we’d have to behave a lot differently than Berkshire does. So, I really think the way to
do it is the way we recommend doing. Which is exactly what was being done until a
few years ago. I recommend the shareholders look at it that way, but we’re going to
follow the rules, obviously that the SEC, you know, the state authorities and
everybody require of us.

But I’ll still explain to the shareholders exactly what I would explain to my sister
about what really counts at Berkshire. And I think every management actually has an
obligation to that, and instead of it, they go in the other direction and give them a lot
of figures that are total nonsense.

You can’t imagine some of the — you know, EBITDA, I thought, was about as bad as
you could get. But they’ve kept going. You know, earnings before everything: EBE.
(LAUGHTER) But that doesn’t change what I would tell my sister, who’s here in the
audience, I hope. And I should tell this to all the shareholders: “We’ll consistently do
what is legal, and we’ll consistently say what we think is right.” Charlie?

CHARLIE MUNGER: Yeah. (APPLAUSE)

WARREN BUFFETT: We want owners who understand what they own. You know?
That doesn’t mean they have to understand the detail of it. But that’s why we have
people that have been around 50 or 60 years. That doesn’t mean that they read the 10-
Qs or anything like that. But they feel we’re telling it to them like, you know, they
lived next door to us.

CHARLIE MUNGER: Yeah, I don’t know what the accountants were thinking when
they made that change. It strikes me as bonkers, absolutely bonkers. I don’t see how
anybody who understands how businesses really operated, and should be operated by
owning managers, would have made that accounting change. The accountants did it
just because they had a wild moment.

WARREN BUFFETT: Twenty-five years ago, I suggested to the audit profession that
the audit committee ask auditors four questions, and the shareholders would know a
lot more about the company if those questions were asked. But it wasn’t good for the
auditors to be asked those questions because it might increase their liability if they
answered them. And the client didn’t want them to answer them because the
management didn’t want them to.

CHARLIE MUNGER: No, they want a system where, if they follow certain rules,
they’re safe. And that’s understandable. But I don’t think the past year, this rule
requiring changes in marketable securities to go through the income account quarterly,
they didn’t do that to protect themselves from —
WARREN BUFFETT: No.

CHARLIE MUNGER: — liability. They just did that for some crazy reason of their
own.

WARREN BUFFETT: Yeah.

CHARLIE MUNGER: You get a bunch of people who will all be drawing a lot of pay
out of a big, complicated system, and rising in it like so many of our officers in the
Army, God knows what they’ll do if you put them in a little room by themselves and
tell them to invent new accounting standards.

WARREN BUFFETT: Well, to our auditor, remember that’s Charlie talking, and he
doesn’t really — (LAUGHTER)

But I agree with him, (LAUGH) 100%. He’s 99, he can get away with more than I can
get away with. (LAUGHTER)

OK. Station two —

But what he said is enormously important. I mean, you’ve got to have some insights
into what the hell really goes on.

CHARLIE MUNGER: Even if you’re (inaudible) accountant.

WARREN BUFFETT: Yeah.

25. Munger: I’m ‘philosophical about my grandchildren not thinking exactly the
way I do’
WARREN BUFFETT: OK, Station two.
AUDIENCE MEMBER: Dear Warren, dear Charlie. My name is Victoria Winthrop, I
am 22 years old, and I study in Munich at the CDTM, the Center of Digital
Technology and Management.

As your grandchildren are more in my age group, let me ask you: How do you transfer
your wisdom to your grandchildren and heirs? How do you lead them to investing?
Do you see value in investing as a family, or individually? Thank you.

WARREN BUFFETT: I’m going to let Charlie do the answer now. He’s got more —

CHARLIE MUNGER: Well, I have more grandchildren. But (LAUGH) I am quite

philosophical about my grandchildren not thinking exactly the way I do.

It seems to me that’s almost the natural course of life. And I just live my life my own
way, and they can observe it as an example if they want to. And if they don’t, they can
try some other way.

I don’t like it when they try some other way. (LAUGHTER)

And I have to pretend that I like some of the boyfriends and girlfriends I don’t like,
(LAUGHTER) but I just struggle through like everybody else. (LAUGHTER)

And usually, I just bite my tongue and keep silent. That’s my way of handling it.

WARREN BUFFETT: Well, I would say that I think, in my case, my three children
have grown a lot smarter in the last 30 years, and I think I’ve grown smarter.
(LAUGH) And —

CHARLIE MUNGER: Well, I know, but you needed a lot of help.

WARREN BUFFETT: That is for sure — (LAUGHTER) no, I would totally

acknowledge that. That’s why I have the room to grow. I mean, I have plenty of room
for improvement. But —

CHARLIE MUNGER: We all had a lot to grow. I worked a year for US Steel, which
was in their fabrication department in Los Angeles, a big operation. The thing was
utterly doomed, and three years later it went back to greenfields. The whole thing was
razed to the ground.

I did not see it coming. Now, to be that ignorant as I was at that age, it was a sin. And
my professors by and large were even more ignorant than I was. Nobody had observed
the basic economics of business in a scientific way at all when I was young.

WARREN BUFFETT: Well, if we’re getting into confession time, I have to tell you:
It’s 3:30. So, (LAUGH) we don’t want to keep going on: Who knows what we’ll be
saying in another half-hour. So, (LAUGHTER) I thank you all very much for coming.
At 4:30 we will have the shareholders meeting here.

2022
BACK TO TOP
1. When the owners are really old, it’s good to see them in person
WARREN BUFFETT: (Applause) Thank you.

I don’t hear anything from the index funds. Where are they? (Laughter)

It really feels good to get back and be doing this in person. It’s been three years. And
it’s a lot better seeing actual shareholders, owners, partners. (Applause)

We — Charlie and I are now, combined, (unintelligible) round for fractions — the
two of us are 190 years old. (Laughter)

And I really think you’re entitled, if you’re the owner of a company, and if you’ve got
two guys, 98 and 91 running the company, you’re entitled to actually see them in
person, I mean. (Laughter)

It really shouldn’t be too much to ask. I mean, for example, if we had a manager
someplace that was 98, I might want to send somebody by occasionally to see whether
he was cutting paper (Laughter) dolls or something.

So, we probably do things that are a lot more foolish than cutting out paper dolls, but
we’re having a lot of fun doing it.

And we really have a lot of fun when you come visit us.

Actually, we had — if you go back a few years — we’ve had a couple of managers
that suffered from dementia. Probably many more but, I mean, just a couple of known
ones, actually. (Laughter)

And there was one fellow that Charlie and I really loved.

And he ran a business for us. Charlie — it was out in California — Charlie would see
him occasionally, and I didn’t see him. But everything seemed fine. And then we
found out that he’d really been suffering from dementia for quite a while. And he
really was a wonderful friend of both of ours.

But the business had done fine, so that’s become our test really, (Laughter) for new
businesses.

We try to find something that a guy with Alzheimer’s can run, actually. (Laughter)

And you don’t have as much competition for businesses like that. (Laughter) The guy
sitting there cutting out paper dolls and, you know, that’s our man. (Laughter)

2. Greg Abel and Ajit Jain introduced

WARREN BUFFETT: I’d like to introduce two fellows who really work at Berkshire.

On Charlie’s left, Greg Abel, who runs all the operations outside — (Applause) —
yeah.

And next to him is — I ran the insurance business for about 15 years unsuccessfully.
And then fortunately, the fellow on the far left came in one day — and I’ve written
about it — but he came in on a Saturday. And I was opening the mail, and he said that
he’d be happy to run our insurance business.

I said, “Have you ever run an insurance business?” And he said, “No.” And as I’ve
mentioned, I said to him, “Well, you know, I’ve never run one either, so I’m not doing
so hot, so (Laughter) give it a try.”

And, you know, he transformed Berkshire Hathaway. And Ajit Jain is here with us.
(Applause)

3. The day’s schedule

WARREN BUFFETT: What we’ll do today — and I have to remind myself from time
to time that the people here, of course, saw that movie and everything, but, of course,
we’re webcasting this.

So, I’ll probably make some references to the movie or something that’ll puzzle
(Laughter) millions of people out there, but you’ll get it, so — (Laughter)

We’re going to talk for a little while about what’s happened in the last quarter and
bring up a few other things that you might be interested in.

And we will then, whenever that’s finished, we’ll go on to questions. And we will take
the questions until noon, break for an hour — that’s Midwest time for those of you
who are watching in other time zones — we’ll go on until noon. And we’ll break for
an hour.
And then Charlie and I will come back, and we’ll take more questions until 3:30. And
then we’ll convene the shareholders meeting at 3:45 — we’ll take a break for 15
minutes — and then we’ll do the shareholders meeting. And when that’s done, we’ll
all go our various ways.

4. See’s brought 11 tons of candy to sell

WARREN BUFFETT: I do want to report, incidentally, that you’ve been doing your
part, in terms of the room we have adjacent to this location, where we’ve been —
yesterday for five hours, from noon to 5, we had 12,000 shareholders come, and just
spend money on everything we could think of to sell them. (Laughter)

We brought in 11 tons of See’s Candy. And if we don’t sell out, Charlie and I get the
rest, so. (Laughter)

But you did your part. See’s sold — they set a record yesterday for the Friday
afternoon meeting. And it’s (Cheering) pretty heartening. (Applause) Yeah.

Incidentally, I’ve got a box of See’s Candy here, and it’s very — it’s sort of
interesting.

On this cover, which I hope you can see, there’s a picture of a woman who was born
in 1854. And today, she probably gets her picture seen more often than just about any
woman in America, in terms of a commercial product or something of the sort.

So, we’ve got her picture up in over 200 stores, and on every box of candy. That’s
Mary See, born in 1854.

A lot of people think this is me in drag, but that is not true. (Laughter) I mean —

There’s a certain resemblance, but (Laughter) it’s just not.

These rumors are started by our competitors. Don’t pay any attention to them.
(Laughter)

5. We like to give everybody financial information at the same time

WARREN BUFFETT: So, we will — that’s our schedule for the day.

And what we will do — we like to give all — we like to give shareholders — owners
— partners — we like to give everybody the same information at the same time, and
preferably do it when stock markets aren’t open. It seems to us that that’s —
everybody ought to be on the same playing field.

It’s very interesting — we don’t know how many shareholders we’ve got. They’ve
changed the rules over time as to registered holders and getting stock certificates and
all that sort of thing.

So, we can’t keep track of it like 50 or 75 years ago, where we had an actual
shareholders list. But we’re told — we’re told by the people who mail out our
information — it’s a firm in, I think, New Jersey — let’s see — Broadridge — and
they pretty well do this for a very significant percentage of American corporations.

So, they actually mail things out for us. And they bill us for 3 1/2 million accounts.
And I’ll take their word for it. I mean, the more accounts they bill us for — we pay
them by the account — so, you know, somedays, I feel like I’d like to count — but
that is a — (Laughter) — that is a lot of people that trust us.

And they’ve — rightly in my view — overwhelmingly — feel that they’re our

partners.

And some of them will like reading the financial information they’ve given us — that
we give you.

But most — a great many of them just say, you know, “We’ve saved this money. And
we trust you and Charlie.” And that’s a great motivator, this trust.
“And, you know, take care of it and I’m not going to learn accounting and try to read
all those statements or anything of the sort.”

But we do believe that, for those who do use the information we release, they should
all get it at the same time.

And we have a few institutions that, even though in the third paragraph of my letter
every year I refer to the fact that we want to have everybody get the same information,
and that we don’t feel that anybody’s entitled to special meetings — we can’t hold 3
million special meetings with our partners —but we like the fact that everybody gets
the same deal, everybody gets the same information.

This morning, on the internet, we put up our 10-Q for the quarter. And I’d like to take
you through a few comments on that and a few other comments, and then we’ll get to
the questions.

When we get to the questions, we will alternate between those mailed in by

shareholders, which Becky Quick at CNBC and people who’ve helped her, sort of
curated, to get what they think are the most interesting questions from shareholders.
They’re not from CNBC itself, but they are from shareholders, owners.

And we’ll alternate the ones sent in versus the ones that come here. And we don’t get
the questions ahead of time. And we enjoy getting surprised by, I’d say, almost all
questions. (Laughs)

And we will keep doing that, like I say, with a break for lunch, until 3:30, when we’ll
have the meeting, so —

6. We have an “extreme aversion” to losing your money

WARREN BUFFETT: I would like to start by putting up the first slide, which is Q1.
And there we have it. That’s what we published this morning. And there are really no
great surprises in terms of the quarter.

I mean, there are always some companies that are doing very well, and there are some
companies that aren’t for one reason or another.

And in the end, as you can see, we prefer to use something called operating earnings.
Now, that is after depreciation and interest and taxes, unlike other companies that
prefer to tell you anything but what they earned.

But we do separate out capital gains. Now, over time, as I’ve said, over the next 20
years, I would expect us, net, to have more capital gains than not. But, you know, who
knows? I hope you’ll — you know, I’ll report to you in 20 years whether that’s
(Laughter) happened or not.

But, as you can see, we made about $7 billion in the first quarter. And that’s a real 7
billion. I mean, we basically have that income in cash when the quarter’s over. That
isn’t true every quarter, exactly, but we are talking about 7 billion of real money in
that.

And those managers who the people here saw in the movie, they’re the people that
work with your money to accomplish what Charlie and I never thought would —
never really planned or anything to happen — but it just, sort of, came about just, sort
of, putting one foot in front of the other.

Now obviously, the last two years in particular, including the first quarter, all kinds of
unusual things happened in our various businesses.

I mean, when we had the meeting two years ago in May of — roughly the start of May
of 2020 — we didn’t know what was going to happen with the pandemic. We didn’t
know what was going to happen with the economy. And everybody that thought they
did has gotten all kinds of surprises since.

But here we are in 2022 and Berkshire, like I say, had 7 billion of operating earnings.
And we’ve got lots, and lots, and lots of companies. We’ve got 360,000 people out
there that have taken your savings and go to work every day.

And they have jobs. We deliver products. And you put up the money for it and you
deserve to — you took the risks, and we feel very good about how things have turned
out. And we want to keep feeling good.

And we have a — we have a — extreme aversion to incurring any permanent loss

with your funds.

You know, if I went broke, it wouldn’t really make any difference. It’d keep doing
what I do. I’d figure out a way to read a paper and watch a little TV (Laughter) and
think about things and talk to Charlie.

But the idea of losing, permanently, other people’s money — people who trust us —
really, really — that’s just a future I don’t want to have. And as Charlie says, “All I
want to know is where I’ll die so I’ll never go there.” And — (Laughter) — that
seems pretty sound. (Laughter)

CHARLIE MUNGER: It’s worked so far.

WARREN BUFFETT: In case you missed it, Charlie says it’s worked so far.
(Laughter)

And we would die, psychologically, if we lost a lot of other people’s money. We

wouldn’t take it in the first place. It’d be crazy to take people’s money and lose it if
you’re going to feel terrible about doing it.

So, the one thing I can tell you about Berkshire — although I can’t predict what our
earnings will be, and I can’t predict what the stock will do, and I can’t — we don’t
know. We don’t know what the economy will do and all of that sort of thing.

But we do know that we wake up every morning and we want to be safer, in terms of
your eventual investment.

Now, whether you make the most money or anything, we do not want you to get a
terrible result because you’ve decided to become our partner. And that’s a pledge you
can live by.

7. “We spent 40 billion in a hurry there in three weeks”

WARREN BUFFETT: Now, let’s see what we have here.

In [slide] Q-2, it gives some indication of that, because we — and this is kind of
interesting.

I wrote — I wrote a letter to our owners. And it was dated February 26th. And that
was a Saturday — released. But I write the letter all through the year in my mind. I
mean — I don’t — you know, we don’t have anybody that sits out and writes out the
letter or anything like that. I mean, this is a letter between partners.

And I write the letter all year in my head. I’m writing next year’s letter. I don’t write
out the words, but I have things I want to tell my partners.

My sister’s a partner. And I’m writing to her in my head. My older sister died not too
long ago, but I used to be writing to both of them, in effect.

And want to tell her, you know, what I think and about the business and what I think
she ought to think about it, and so on.

So, the letter’s dated February 26th. And I said, “Not much is going on.” And
actually, we might jump over to [slide] Q-3, if we will.

So, I sent out a letter on February 26th. But that wasn’t written on February 26th. And
I said basically, “Nothing much is happening around here.” And I said, “We’ve
repurchased some shares. And we just aren’t seeing anything.”

And between January 1st and February 18th, as you can see, we spent $2.2 billion,
which is half the quarter, you know, so probably 30 trading days in there. And we sold
—
So basically, we didn’t do anything. And then in the next three weeks or thereabouts,
we spent 40 billion.

And incidentally, when I say we spent 40 billion, there’s one fellow in the office that
does this all. I mean, he buys all the stocks. He buys the government bonds. He
doesn’t have an assistant or anything. But he spent $41 billion. (Laughter)

Yeah. He literally — I mean — and he does other things for me, too. He, you know,
puts together totals. He just does what he needs to do. And he’s worked in other jobs
at Berkshire long ago.

But he likes doing what he does. And he does it very well, and we don’t have a
department for it.

And as you can see, it fell off after that. And we did also in the first — in the first
quarter, we spent about 3.1 or 3.2 billion — somewhere in that — for repurchasing
shares. And —

We didn’t — you know, we talked about that in the annual report. And as Charlie
would say, it’s keeping us out of bars. I mean, you know, it gave us something to do.

And it — we never do anything that we don’t think adds to the value of Berkshire
Hathaway, though. So we only repurchase the shares when that is the most attractive
thing.

We haven’t repurchased any shares at all in April. So, it’s —

People who are looking for all these, you know, footprints in the woods and all — that
isn’t what we’re doing. We’re just doing it day by day as it comes along.

And I think this table kind of illustrates that, that we spent 40 billion in a hurry there
between — in three weeks.

And now we’re back, somewhat, in our more lethargic mood. But that — anything
could change at Berkshire.

8. Cash is like “oxygen”

WARREN BUFFETT: But the one thing that won’t change — going back to [slide]
Q-2, if you’ll — is we will always have a lot of cash on hand.

And when I say cash, I don’t mean commercial paper.

When 2008 and 2009 — the national panic came along — we didn’t own anybody’s
commercial paper. You know, we didn’t have money market funds. We have Treasury
bills. And, as I may get into it a little later, I’ll explain to you why.

We would — we believe in having cash.

And there have been a few times in history, and there will be more times in history,
where if you don’t have it, you know, you don’t get to play the next day. I mean, it’s
just —

It’s like oxygen, you know? It’s there all the time. But if it disappears for a few
minutes, it’s all over. So —

Our cash was down on March 31st because, as you saw, we spent that large sum there
in that brief period during the quarter, 40 billion.

We’ve committed to buy Alleghany Corp for something over 11 billion.

But we will always have a lot of cash. We won’t — we don’t —

Some of our companies have bank lines. I don’t know why they have the bank lines.
We’re better than the banks, and we’ll give them the money if they (laughs) need it.

But, you know, the local bankers have been calling on them and they need something
to do. Everybody else has bank lines, so it’s harmless. But there’s no reason for any of
our subsidiaries — (UNINTEL). Berkshire is stronger than the banks, but — (Yell
from audience)

I didn’t hear exactly what he had — I don’t know whether that was a banker
screaming, or — (Laughter)

I don’t — I don’t really like to torture — I don’t like to torture anybody, I mean.
(Laughs)

But — and I’m all for banks, and we’ll talk about that a little later.

In fact, we might even talk about it right now just for a minute.

Money’s kind of an interesting thing. People seem to like to talk to me about it. I
mean, they don’t ask me how to dance or anything like that, but they do ask about
money.

And so — if we’ll put up [slide] 20-dash-1 — it’s a photo of a $20 bill. And it says at
the top, “Federal Reserve Notes.” Now — Federal Reserve Note — we’ve done all
kinds of things with money in this country. It’s amazing, in a country only a couple of
hundred years old, the number of different experiments we’ve made with banks and
everything.

But we finally just decided to let the Federal Reserve do the issuing of money. And —

Down in the lower left-hand corner — incidentally, I think [former U.S. Treasury
Secretary] Rosie Rios — who signed this note — I think she signed more U.S.
currency than any other person in history.

So, if you see Rosie, you know, you cozy up to her. I mean, this is a woman who
(laughs) has issued a lot of currency.

But it says, “This note is legal tender for all debts public and private.” And that makes
it money.

You can go into our candy store, and if you offer us enough bushels of wheat, we’ll
probably give you a box of candy.

But money is the only thing that the IRS is going to take from you. You can offer
them all kinds of — you can offer them paintings — you can offer them — all —
whatever — but this is what settles debts in the United States.

And I thought that — you’ll hear a lot about various kinds of money — this is the
only kind of money you’re going to see, in my opinion, throughout your lifetime or
even throughout Charlie’s lifetime. This is —

And it’s very interesting because it just says that settle — legal tender for all debts,
public and private, and nothing else says that, except, I thought you might be
interested in seeing another $20 bill.

And this one I own. And on that — it’s got the same guy’s picture — Andrew Jackson
— and everything.

And that’s a $20 bill. And that $20 bill was issued during my lifetime. And it was
done by a bank that Berkshire ended up owning. So, you’ll see the Illinois National
Bank and Trust of Rockford.

And we bought that bank back in 1969. And if you look down in the bottom of that
one, it’s signed by a fellow named Eugene Abegg. And we bought it from Eugene
Abegg.

So, we still have some $20 bills that came in sheets. And we can cut them out like
paper dolls. And they’re our money. The Illinois National Bank issued money.

But just remember, the United States government, in effect, said that this became
exchangeable for lawful money in the United States. That’s what money is.

It may turn out that it becomes worth dramatically less in purchasing power. It can
become almost like paper money, as it has in many countries. But that is all — when
people tell you that they’re issuing new forms of money, this is the only thing that will
pay bills, under some circumstances.

And there were days — a few days in 2008 — and we came very close to having a
repeat in March, 2020 — and we had plenty of money on March 20th — but we were
not very, very far away from having something that might have been a repeat of 2008
or even worse.

And we have a bookstore here: The Bookworm. It’s in the other room. And they’ve
got a book called Trillion Dollar Triage.

And for those of you who actually like to read about this sort of thing, it’s a marvelous
account of what took place day by day with the Federal Reserve and the Treasury.

And believe me, if the Federal Reserve hadn’t done what they did, at least in my view,
in a very, very, very short period of time, things could have stopped.

And I tipped my hat a couple years ago to [Federal Reserve Chairman] Jay Powell for
acting as he did. He has to act with speed. I mean, in the old days when you had runs
on banks back in the 19th century, you know, a line formed, you know, and a bank
would go broke.

But the fellow would pay out as slowly as possible, you know, hoping something
would happen — a Wells Fargo truck or a stagecoach would pull up with a bunch of
gold or something and you’d sweet-talk the people in the line dispersing.

In Omaha, in August of 1931, four state banks — so-called state banks — they had
those in that day — they closed and the national banks didn’t. But they were all broke
as of that day. No bank can pay off in one day all of its liabilities. But the Federal
Reserve is the only one that stood at that time.

But I will tell you this. Berkshire Hathaway will be there (laughs) at that time.

We run it on the basis that if things had just behaved slightly — very — if [former
U.S. Treasury Secretary] Hank Paulson, George H. W. Bush — or no, George W.
Bush, I’m sorry — and [former Federal Reserve Chairman] Ben Bernanke and a few
people hadn’t taken action, we were at that point where the line was formed, except it
comes in electronic funds — they push buttons — and it’s all over very fast if there’s
a run on a bank.

If you ever buy a bank, and there are two banks in town, hire a few extras, and have
them go over and start standing in line at the other guy’s bank. (Laughter)

And there’s only one problem with that. After a while, somebody will stand in front of
your bank, you know, and then both of you are gone.

But the Federal Reserve is not gone. And the Federal Reserve in the United States can
do whatever is necessary. They’ve got all kinds of rules about — they can do this or
that, and this and that.

And at one time in the 1980s, [former Federal Reserve Chairman] Paul Volcker, who
was a very honest man, said to me — I said, you know, “What are the limits of what
you can do?”

And he said — he was a very unusual guy — and huge — looked down at me — and
said, “We can do whatever we need to do.” (Laughs)
And that’s true. And that’s what happened in 2008 and ’09, and that’s what happened
in 2020.

And you hope it happens again next time. But you want to be — we want Berkshire
Hathaway to be there and in a position to operate when — if the economy stops.

And that can always happen. That can always happen.

So, with those cheery words — (laughter) — let’s see if we — I think — maybe if we
can actually — it might be a good idea to start with some questions.

As I said, we will have the questions alternate between CNBC — Becky Quick — and
those are questions that have come in from shareholders. And they can be directed to
any of the four of us up here. And then we will alternate and go around the room here.

And we’ve got the auditorium broken into ten or 11 sections.

Charlie and I one time, we got out a form and it said, “Officers of the company broken
down by age,” and we just put all of us (laughs) as an answer to that question.

But we’ll have it broken down by categories around here. And we’ll keep alternating.
And we will break for lunch at noon and reconvene at 1:00.

9. How a casual email led to the Alleghany insurance deal

WARREN BUFFETT: So, let’s start off and Becky, will you lead the way?

BECKY QUICK: Thanks, Warren. The first question comes from Jack Suselesky
(PH). And he says, “In the annual letter that you wrote on February 26th, you
mentioned that Charlie and you saw ‘little that excites us in the market.’ Yet around
March 10th, the deal for Alleghany was announced, and then later the Occidental
announcement, then the disclosure of the HP investment.”
His question is, “What changed from the time you dated the letter to the time the
investments were announced that the names suddenly become interesting in the space
of a month and a half, or half a month?”

WARREN BUFFETT: Well, Charlie, you want to give your version? I’ll give my
version.

CHARLIE MUNGER: Well, my version would be we found some things we preferred

owning to Treasury bills. (Laughter)

WARREN BUFFETT: And as usual, Charlie’s given the total answer, but I’ll talk
longer and say less. (Laughter)

Actually, the letter’s dated February 26th, when we were confessing our inability to
find anything, which was a Saturday. But the day before that, February 25th, I got an
email.

Actually, my assistant, Debbie Bosanek, gets it because I can’t figure out quite how to
handle the machinery.

So, she brought it in. Actually, she puts a bunch on the edge of her desk, and I collect
them occasionally.

And there was a note, just a few lines long, from a fellow that is a friend of mine and
that worked for Berkshire many years ago. And this was on February 25th, the day
before the thing.

And he said he’d now become CEO of Alleghany Corp. I’ve been following
Alleghany Corp for 60 years. Now, I’d read their annual reports. I had four big file
drawers full of them because it was an interesting company. And all companies
interested me.
WARREN BUFFETT: So, I knew a lot about Alleghany Corp. (Laughs)

And Joe [Brandon] said, you know, “This is my first annual report as CEO, and I just
wanted to send it along to you. Just like you write for your sisters,” he says, “I write
this report as if I’m writing to you.”

And I sent a note back to Joe. And I said, you know, “I’m going to read it over the
weekend,” or whatever I said to him on it, which was true. I mean, I looked forward to
reading it.

And I said, “By the way, I’m going to be in New York on March 7th. And can we get
together? I’d like to see you.”

And, I think I may have said, “I’ve got an idea.” Well, I didn’t have that idea the day
before. (Laughs)

This thing happened to come in on Friday the 26th. And I knew I’d buy Alleghany at
a price. And if he hadn’t sent me the note, it never would’ve occurred to me to write
him and say, “Why don’t we get together on March 7th?” or anything of the sort.

It just wouldn’t have happened, except for the fact that Joe wanted to send me along
this annual report that he’d just written.

So that’s the orderly decision-making process. I didn’t call up investment bankers and
say, you know, “Will you prepare me a report on this? And, you know, what’s your
advice?” and all that stuff.

I knew we’d buy Alleghany at the price we offered. And if it was of interest to
Alleghany, fine. If it wasn’t —

But otherwise, if that email hadn’t been sent, we would not have made an offer for
Alleghany. So, give credit to the fact that Joe had written the annual report, and if he’d
sent it a week earlier, well — you know, I wasn’t going to make a special trip to New
York, but I wanted to sit down with him and tell him what Berkshire would do.

But that explains the 11 billion. (Laughs)

10. People gambling on stocks made big Occidental stock buys possible
WARREN BUFFETT: And what happened was that a few stocks got very interesting
to us. And we also spent a lot of money.

What happened — the market — and this is really important to understand — in the
last couple years, the stock market has probably — it’s always been a combination of
a casino and a — and when I talk about Wall Street, I’m talking about the whole
capital formation market — but the — and trading market, et cetera.

But the market has been extraordinary.

Sometimes it’s quite investment oriented. It’s not like it — it’s always what you’ve
read about in the books and everything — what capital markets are supposed to do,
and you study it in school and all that. And other times, it’s almost totally a casino,
and it’s a gambling parlor.

And that existed to an extraordinary degree in the last couple of years — encouraged
by Wall Street because the money is in turning over stocks. I mean, people say how
wonderfully you’ve done if you bought Berkshire in, you know, 1965 or something
and held it. But your broker would’ve starved to death.

Wall Street makes money on — one way or another — catching the crumbs that fall
off a table of capitalism and an incredible economy that, you know, nobody could’ve
ever dreamed of a couple hundred years ago.

But they don’t make money unless people do things (laughs) and if they get a piece of
them.

And they make a lot more money when people are gambling than when they’re
investing. It’s much better to have somebody that’s going to trade 20 times a day and
get all excited about it, just like pulling the handle on a slot machine. You know,
that’s who you — you know —

You may not say that you want that person. You’d like the other kind of person, too,
maybe, but that’s where you make the money. (Laughs)

And the degree to which the market got dominated by that is shown on a slide some
— I have it here somewhere. Yeah. Here’s — on [slide] Oxy-one — if you’ll put up
the Oxy-one.

That shows how we bought what became — well, we bought in two weeks, or
thereabouts, 14% of Occidental Petroleum.

And you’ll say, “Well, how can you buy 14% of a company in two weeks?” And it’s
more extreme than that, because if you look at the Occidental proxy, you’ll see that —
the standard names — BlackRock index funds, State Street index funds, basically,
Vanguard index funds, and then one other firm, Dodge & Cox.

If you take those four entities — and they’re not going to buy and sell stock — they
may get their own little — so they own 40% of the company, roughly, those four
firms.

And they didn’t do anything during this period. So now you’re down to 60% of the
Occidental Petroleum Company that’s even available for sale.

Occidental’s been around for years, and years, and years. Big company, all kinds of
things.

And with 60% of the stock outstanding, I go in and tell Mark Millard, this fellow that
is 30 feet away from me or so, and I say in the morning to him, you know, “Buy 20%
and take blocks, or whatever it may be.”
And in two weeks, he buys 14% out of 60%. That’s not investment. (Laughter)

I mean, you’re not buying from — I find it just incredible.

You wouldn’t be able to do that with Berkshire. I mean, you can’t — literally buy it.
You can say you want to buy 14% of the company. It’s going to take you a long, long
time.

But, overwhelmingly, large companies in America — well, all of them — they

became poker chips. And people were buying and selling like three-day calls or two-
day calls. And the more people — times people pull the handle on the machine, the
more money the machine makes. I mean, it’s very clear.

And overwhelmingly — I mean, where did the people go? The investors just were
sitting around and there weren’t very many, and the money was being made,
essentially, by a bunch of people gambling on things. And that enabled us, in a two-
week period, to buy 14% of a business that’s been around for decades.

Imagine trying to buy 14% of the farms in two weeks in this country, 14% of the
apartment houses, or 14% of the auto dealerships, or just anything, when already 40%
were locked up some other place.

It is — it defies anything that Charlie and I have seen, and we’ve seen a lot.

But I’ve never seen that percentage of the American public — essentially, it was a
gambling parlor.

And the people that were making money were people that worked with gamblers.
(Laughs)

And then it declined very significantly a few weeks ago. You can feel it if you’re
around it.
So, when somebody asks a very good question, this, “Why weren’t you doing
anything on February 20th, and why were you doing it on — starting, well, in the case
of Occidental, on February 28th?” — you know, it’s because things developed in a
way —

And in the case of Occidental specifically, they’d had an analyst presentation of some
— I don’t know whether it was a quarterly one or what it was exactly — but I read it
over a weekend — and that was the weekend when the annual report came out — I
read it over a weekend.

And what [CEO] Vicki Hollub was saying made nothing but sense. And I decided that
it was a good place to put Berkshire’s money.

And then I found out in the ensuing two weeks — it was there in black and white —
there was nothing mysterious about it — but Vicki was saying what the company had
gone through and where it was now and what they planned to do with the money.

And she’ll do what — she says she doesn’t know the price of oil next year. Nobody
does.

But we decided it made sense. And two weeks later, we had 14% of the company.

And we also already had a preferred stock and warrants. And the story of the preferred
stock is we paid 10 billion — preferred stock and warrants — we paid 10 billion for it
— and at the end of the March quarter of 2020, we valued that 10 billion — for our
10-Q — we valued it at 5 1/2 billion. So, we had a 4 1/2 billion loss. And it would
have — you know —

The world changed. Oil sold for minus $37 a barrel (laughs) one day, and —

Now it’s quite apparent, I think, that we want — we’re very happy — we should be
very happy — that we can produce 11 million barrels a day, or something of the sort,
in the United States, rather than being able to produce none and having to find 11
million barrels a day somewhere else (laughs) in the world to take care of keeping the
American industrial machine working.

Charlie, have you got any comments on that as to how something this crazy could’ve
happened?

CHARLIE MUNGER: Well, it happened — it’s almost a mania of speculation that we

now have.

We have computers with algorithms trading against other computers. We’ve got
people that know nothing about stocks being advised by stockbrokers, who know even
less. (Laughter)

WARREN BUFFETT: They understand the commissions, though.

CHARLIE MUNGER: It’s just an incredible, crazy situation.

And it’s weird that we ever got a system, where all this equivalent of a casino activity
is all mixed up with a lot of legitimate long-term investment.

I don’t think any wise country would’ve wanted this outcome.

Why would you want your country’s stocks to trade on a casino basis to people who
are just like the people that play craps and roulette in the casino? I think it’s crazy.

But it happened. And it’s respectable. Not with me, but with other people. (Laughter)

WARREN BUFFETT: Yeah — well — and look at — look at what — the country —
I mean, they formed the New York Stock Exchange in 1792 under a buttonwood tree.
And it really didn’t seem like that was the eureka moment in America.
But just look at what’s happened, using the system for less than — you know — well
— you know — three of my lifetimes.

I mean, (laughs) it’s unbelievable. So —

It’s worked. Now, maybe it’s worked in spite of itself — maybe the country — but
one way or another, America has worked in an incredible manner.

Nobody could’ve dreamt it. Nobody.

You know, they’d have hauled you away if you said — you know — in three lifetimes
— you know — that — you know — this place where we’re meeting — I mean — it
became a state in 1867.

But in 1789, if you’d asked Ben Franklin or somebody that was walking out of the
Constitutional Convention, “What do you think the prospects are for Nebraska?”
(Laughs)

It’s just — it’s unbelievable what’s been accomplished. And it’s been accomplished
— the people who encouraged the gambling — they would like to say it’s been
accomplished because of the — we’ve got these liquid markets and all these
wonderful things.

Charlie would probably say it’s in spite of that. Who knows? (Laughter) But —

The answer is that — well, there isn’t an answer. (Laughter) The —

My wife — when we got married April 19th, 1952 — we got in my aunt’s car and we
started driving west. And we ended up — we drove all over the west — but one night
we ended up in Las Vegas.
And there were three fellows out there. Eddie — it was Eddie Barrick, and Sam
Ziegman, and Jackie Gaughan. And all three of these guys were from Omaha. And
they’d bought little pieces of the Flamingo.

Bugsy Siegel had had his career ended rather abruptly — (laughs) — a few years
earlier.

CHARLIE MUNGER: By a bullet.

WARREN BUFFETT: But it was a stray bullet, undoubtedly. (Laughter)

In fact, there were probably five or six stray bullets. But in any event, Bugsy was
gone.

And some people, including three guys from Omaha, were in the group. Sam Ziegman
lived about two blocks from where I live now. He was Stan Lipsey’s uncle. Stan
Lipsey ran — for those of you who follow Berkshire — ran The Buffalo News and
was our partner for 40 or 50 years later on.

So, all kinds of things intersect.

But I walked into this casino, aged —the Flamingo — it was kind of a motel-like
arrangement — and I was 21. And my bride was 19.

And I looked around the room and there were all of these people — and they were
better dressed then — it was a more dignified group than, perhaps, currently — but
they had flown thousands of miles in some cases — you know — in planes that
weren’t as fast as the current ones and were more expensive, probably, on a per-mile
basis, adjusted, then.

They’d gone to great lengths to come out to do something that was mathematically
unintelligent, and they knew it was unintelligent.
And, I mean, they couldn’t do it fast enough, in terms of rolling the dice, you know,
and trying to determine whether they were hot or whatever they may be.

And I looked around at that group. And everybody there knew that they were doing
something that was mathematically dumb, and they’d come thousands of miles to do
it, and they were —

And I said to my wife, I said, you know, I’m going to get rich. (Laughs) I mean, how
can you miss? (Laughs)

If people are willing to do this, you know, this is a land of opportunity.

Well, it’s the way it still is, you know.

And the Flamingo grew to be much bigger. And in Omaha, we’re very proud of Jackie
and the things he did. He only died a year or two ago.

He became sort of the leader — spiritual leader — of Vegas.

And, like I say, Sam Ziegman’s nephew went on to save my and Charlie’s investment
that we made in Blue Chip and The Buffalo News. (Laughs)

And it’s a very accidental society that occurs.

But there’s nothing stranger than what has happened in finance.

On the other hand, if you go back, perhaps the greatest chapter ever written on the
operation of markets, particularly the stock market, is in a book, probably one of the
most famous books in economic history, The General Theory, written by John
Maynard Keynes. I think it was 1936.

And I don’t know whether it’s chapter — I think it was chapter 12 — but whatever it
is, he describes what markets are all about in 1936. And he describes something, in
beautiful prose, that explains why the whole country in March of this year was sitting
around trading Occidental in some crazy way that enabled us to buy a quarter of what
wasn’t owned by four other institutions that weren’t going to sell.

But we could buy a quarter of it. And we could’ve bought a lot more. I mean — you
just wondered if there was anybody that really was thinking about investment. If you
—

Going back to investing, I mean, investing is laying out money now with the hope of
getting back more later on. It’s really laying out purchasing power now with the hope
of getting more purchasing power back.

But that’s the reason you’d — and, you know, that’s the way you learn in the
textbooks, that you defer consumption now so you can consume more later on, so that
you can take care of your family — all these things about how investment takes place.

And that is what happens with farms. I mean, if somebody buys a farm and they,
generally, they ultimately leave it to their kids or they got it from their parents.

And, I mean, they don’t sit there every day and, you know, get quotes 15 times a day
and say, you know, I’d like to get a call — I’d like to sell a put, you know, on the
guy’s farm next to me. And you can have a call on mine. And then I’ll have something
called a straddle or a strangle, or whatever it may be. And, you know, they just —

They go about making the farm worth more money. And they do the same thing if
they’ve got an auto dealership. And they do the same thing, you know, if they’ve got
an apartment house. They look to improve it and attract tenants, all those kind of
things. And —

Forty — what would it be? — 40 trillion at least, you know, of the ownership of all of
the American business — people treat it as poker chips or pulling the handle.

And they’ve got systems set up so that if you want to buy a three-day call on a stock,
you can do it. And they make more money selling you calls than if you buy stocks.
So, they teach you on calls. (Laughs)

Nobody’s going around selling calls on farms or anything of the sort.

But that’s why markets do crazy things. And occasionally, Berkshire gets a chance to
do something. And it’s —

It’s not because we’re smart. It’s because we’re — the only thing I can say we’re
qualified on —and sometimes I wonder about that — but I think we’re sane. You
know, I mean, and that’s the main requirement in this business.

And — Charlie?

CHARLIE MUNGER: Well, I don’t think we have ever had anything quite like what
we have now, in terms of the volumes and pure gambling activity that go on daily, and
the people lathering the gamblers up so they can rook them.

And it’s not pretty. And I don’t find it rich in glory for capitalism or anything,
anymore than a bunch of people throwing dice at a table. What good does that do the
rest of the world?

WARREN BUFFETT: It’s a great way to become rich, though, just figure out ways to
insert yourself into the system somehow.

And, you know, jobs to some extent self-select. And many years ago — and I’ve got
all kinds of friends on Wall Street — not as many as I had before I had started talking
this way an hour or so ago. But I really do. I know —
People make — they make lots of decisions in life. And the truth is that, overall, the
American system has worked extremely well. It’s may be very unfair, in many ways.

But it has produced incredible difference in the goods and services available to me
versus what my grandfather had available, you know.

I do not want to go back to pre-air conditioning and people pouring whiskey down me
while they drill my teeth or something of the sort, or any of that. I mean, this is a lot
better world. And —

CHARLIE MUNGER: Well, I think we’ve made more because of the crazy gambling.
I think it’s made it easier for us, net, over the decades we’ve been operating.

WARREN BUFFETT: Well, I mean, and we’ve depended on it.

CHARLIE MUNGER: Yeah. (Laughter)

WARREN BUFFETT: I mean, we depend on mispriced businesses through a

mechanism where we’re not responsible for the mispricing of them. And overall, we
learned something a long time ago, that it doesn’t take a high IQ. It doesn’t take
anything. It just takes the right attitude.

We may talk more about that later, but I think we ought to prove that we’ve got an
audience here by going to section one. (Laughs)

11. We’d like to buy businesses outside the U.S., but they’re harder to find
OLA POLEM: Good morning. My name is Ola Polem (PH). I live in Hanover,
Germany. This is my first time in Omaha.

My question is on Berkshire buying entire companies outside the U.S. There were a
few, Iscar, probably the first one. Louis, in Germany.
My question is, would you only answer calls from them if you’re interested in? Or
would you proactively approach them if they would like to sell their company?

WARREN BUFFETT: I would — we actually made a few trips. I think maybe

Charlie went with me on one of them. We tried to stir up interest and all that sort of
thing in Berkshire around the world. We probably did that 20 years or 25 years ago.

During that period — that I showed you — that burst of action we had, we probably
spent — we probably at least 5 billion of that — yeah, maybe pretty — in the area of
5 billion of it — we bought three German securities.

We bought two — well, we bought one — in Japan. We rounded up on some of the

holdings we already had there.

We would love them to buy, but we — they don’t think of us as quickly there. I mean,
I don’t have somebody that’s going to send me an email about a company that I’ve
been following for 60 years and I know I can see them in New York and, you know, I
can name a number to them, and if he likes it, he can take it to his board and so on.

It just doesn’t happen that way. We haven’t had that experience in — well, anywhere
outside the United States.

Now, you can say with 40 trillion here, you know, we should be able to find
something here (laughs) a little closer to home.

But we don’t have any bias against doing it. We —

There are companies, you know, we’d buy in 10 minutes if we had somebody on the
other end that could do business in 10 minutes.

It’s much more complicated in certain countries than in the United States to purchase
businesses, and there are certain rules.
But obviously this — you know, we got a call — whenever it was — many years ago,
on our company in Germany. And actually, the two fellows that run it are probably
here in the audience. I saw them yesterday. And they’re marvelous. And they run the
business. And, you know — they’re as trustworthy as — well, all the pictures were up
on the movie we showed before this meeting started here. You know —

We have so much trouble finding good ideas that we can’t afford to ignore any. But
they do have to be sizable now. I mean, there really isn’t — there isn’t a lot of —

I love the operation we bought in Germany, and it’s just a pleasure to be associated
with the people there. I just wish we could add another zero to all the figures and it
was a much larger deal.

It’s not going to have an economic impact on Berkshire. But they love it. They care.
You can see it. You can feel it. And that’s the kind of business we’d like to have, and
we’re very happy we’ve got it in Berkshire. But we can’t do it one (unintelligible) of
Louis at a time.

And we would never, never sell an operation like that, ever. I’m looking at you, Greg.
(Laughs)

The — you know — but if — if we get a call tomorrow and we could make a deal that
involves 10 or 20 billion dollars that was in Germany or France or Britain or Japan —
or name a whole group of countries — we’d do it.

We bought the interest in the five leading trading companies in Japan a couple years
ago. And I rounded them up a little bit. But I told them originally we weren’t going to
but a lot of — we weren’t going to change our positions materially without their OK.

So, we actually, I think, rounded the 5.85% — based on the latest figures we had then
— of all five of them. And that was a good many hundreds of millions, or maybe a
billion or two, to work. So, we will, you know —
President Kennedy said we’ll pay any price, climb any hills, you know — (laughs) —
whatever it may be — to find businesses.

But we actually prefer it when they fall into our lap, like getting a letter from
somebody you hadn’t heard from for a couple of years, and you know what you’d pay
for the business. And you know if the board of directors of that company regards it as
attractive, they’ll be happy to buy it. And they know you’re going to show up at the
closing and that you’re not going to pile debt on it or change things or anything.

They’ve got an answer, and then you have to see if they’ve got the question in their
mind is what’s the best thing for Alleghany Corp? And in that case, we had $11
billion less at the end of the day — or the end of the dinner — than we had at the start
of the day.

So, opportunity can be any place. And we do have a terrific operation, for example, in
Israel, I mean, just terrific. And it’s pretty good size.

Would we like to have another one like it? Yeah, I just don’t know where the other
one is. Charlie?

12. Defense of stock repurchases, at the right price

CHARLIE MUNGER: Well, but think in the scheme of things, imagine buying in $60
billion worth of our own stock. We like the businesses. We like the price we’re
paying. No overhead, no cost, no nothing, just more interest in what we already
owned. It isn’t that we’re totally wasting our time.

WARREN BUFFETT: Yeah, and if you look at it, there are — you can read hundreds
of thousands — maybe millions of words — written on stock repurchases, and what
this is and what that is and all this kind of thing. It’s not very complicated. (Laughs)

I mean, if you had a partner in a lemonade stand and they wanted to sell out — sell
their interest — or two partners and one of them wanted to sell their interest — I mean
— and the business had the money to buy it — our little lemonade stand — and they
were offering at a price that was good for the other two people who are going to
remain, you’d buy it.

Now, the thing that’s fascinating to me is what you can accomplish, and still —
people don’t pay any attention to it.

We owned — in 1998, you know — this was more than 20 years ago — we owned
about 150 million — I don’t know whether they’ve split — whatever it is — if
they’ve split, it’s split-adjusted — but we owned 150 million shares of American
Express.

I think we bought our last share in 1998 or something like that.

And we then owned 11.2% of the American Express company — wonderful

company.

And since then, they’ve sent us a check every quarter as a dividend. And so, we’ve
taken some cash a little bit as they’ve gone along.

And now we own 20% of American Express. Now, that’s what’s happened because
they repurchased shares. That happens to have worked out extremely well. If they
overpaid for the stock and all that — it doesn’t solve every problem — but it’s a
wonderful thing if you’ve got an asset you like and they take your ownership interest
up.

And like I say, we’ve gone from 11.2% to 20%. And if you’re using your American
card — or whatever it may be — 20% of whatever earnings — contribute a little to
our interest that used to be 11.2%, and we’ve done it without putting up any money.

Now, imagine — imagine if you owned a farm, and you had 640 acres, and you
farmed it every year, and you made a little money on it, and you enjoyed farming.

And somehow, 20 or so years later, it had turned into 11-hundred or 12-hunred acres.
I mean, you’d say, you know, how long has this been going on? You know, what
could possibly be? — you know, is this un-American? — or whatever it may be. I
mean, is it, you know, sensible use of the (unintelligible) cost of capital? Blah, blah,
blah, blah, blah.

If you do it at the right price, there’s nothing better than buying in your own business.

We owned — I mentioned and used Apple as an example of how our interest in

Apple, you know — every time a company that earns a hundred billion a year — you
know — it means that our interest in it goes up a tenth of a percent. You know, we’ve
added another a hundred million to earnings.

Well, I mean, it takes a lot of work (laughs) — a hundred million in earnings. And,
you know, in the first quarter they just reported — they’re on a fiscal year — but they
just reported their March quarter — and, you know, they earned more money and they
had fewer shares outstanding.

And we actually bought a little more Apple, in the first quarter or so. We decided we
wanted to own a greater interest. And on top of that, we knew that we would own an
even greater interest if they kept buying in their shares, which — we didn’t have any
insider information or anything — but certainly, it would seem the way to bet.

And, you know, we feel better because we bought the shares we bought in the market.
And we feel (laughs) just as good as the fact — by the fact — they used their cash to
buy out some of the other people.

It is the simplest thing in the world, and then I read all this stuff.

It is unbelievable how people can’t figure out something that, you know, if they
owned a farm and the guy next to them had a farm and somehow you were getting
more of his farm all the time without putting up any money while you farmed your
own farm — that at least, you know, you’re using some of the earnings for that —
you’d feel very good about it.
Have you got any explanation for it, Charlie?

13. ‘Ridiculous’ to have to split chairman and CEO roles

CHARLIE MUNGER: Well, I have another thing that interests me in the present
scene.

We get all these suggestions from index funds, a letter saying we — the chairman and
the chief executive officer are the same person, and that they have some professor
somewhere that thinks that American business would work better if it had a separate
— if Warren could split — we could split him in two and have each half work.

And to me it’s the most ridiculous criticism I’ve ever heard. It would be like — it
would be like — Odysseus would come back from winning the battle in Troy and so
forth, and some guy would say, I don’t like the way you were holding your spear
when you won that battle. (Laughter)

And it’s some guy that’s never run any business and doesn’t know anything. I don’t
think too much of this activity. (Applause)

WARREN BUFFETT: Well, let’s see. Somewhere in here — I may find it at some
point. Ah, here it is.

We wrote in the annual report — in the third paragraph of a nine-page report — we

said, “We’re going to treat everybody the same.” It may be a crazy concept we have,
but we really feel that somebody that gave us their savings in 1960 or 1970 or 1980
and just left them with us, and trusted us, we feel that they’re entitled to the same sort
of respect and attention that somebody that, you know, is accumulating, like crazy,
assets under management and gets paid based on assets under management, that
knows that they just need to have policies that essentially are popular in Washington.

The only thought they have is that Washington sometimes says that, you’re getting too
damn big and we’re going to do something about you.
So, they try to be very sure that they’re doing things that people will cheer.

So anyway, I say, “Well, we’re going to treat you all alike.” We’ve got three million
people — or shareholders — out there. We’re going to treat you all alike.

And on March 25th, about a month after I wrote that letter — it’s in the third
paragraph, you’d think that they would get that far — that they had 101 million B
shares — i mean, now, somebody ought to read to the third paragraph.

But anyway, we get a letter that says, “We would like to meet with you in advance of
Berkshire Hathaway’s 2022 Annual Meeting of Shareholders to discuss Berkshire
Hathaway’s perspective on governance and sustainability.”

Well, I have written probably more on that that’s been honestly written by the guy that
runs the company. But why in hell would they think that we should meet with them
and not you people all individually (laughs) that come here? (Applause)

I grew up in a very, very, very Republican household, but I feel like, you know, some
raving populist or something.

But I just can’t imagine — well, anyway. You’ve heard it. (Laughter)

And, you know, somebody gets paid to — well, there’s a lot of people I’m sure in
public relations and they hire advisors, because it looks better if they have advisors
that tell them whether the chairman and the CEO should be the same person or not,
and those people get paid for it. And then they discuss it at their board meeting and
then, you know —

In the end, believe me, if 90% of Congress for some reason felt it was better to have
the chairman and the CEO be the same person, the index funds (laughs) would not be
writing those letters, because all they have to worry about is whether for some reason
people start wondering why some institution should have 10% of the votes in every
major corporation in the country.
And I like the idea of index funds. But it is interesting to watch where incentives and
bureaucracy, and whatever it may be, lead people.

The guy that wrote me the letter’s probably a very nice guy. That’s his job.

Well, anyway, they didn’t get a special meeting. And you people are here, and we
appreciate the fact you’re here. (Applause)

14. BNSF improvements will take time

WARREN BUFFETT: OK. Back to Becky.

BECKY QUICK: This question’s for Ajit and Greg. It comes from Ben Nall (PH),
who’s a shareholder of 30 years. He’s a Nebraska native, and he says he’ll be
attending the meeting here today.

“BNSF and GEICO appear to be losing ground to their two primary competitors,
Union Pacific and Progressive.

“Over the past several years UP’s operating ratio has been about 400 basis points
better than BNSF’s.

“And Progressive has grown faster while maintaining a lower combined ratio than
GEICO. On an operating basis, UP’s [Union Pacific] precision scheduled railroading
and Progressive’s telematics appear to have jumped ahead of the Berkshire
businesses.”

He wants to know what Greg and Ajit are doing to address those business challenges.

GREG ABEL: Want me to go first? OK. Thank you, Becky.

Let me just start by saying when we think of BNSF, we have an exceptional franchise
here and a great business.

And we do compete with other railways, and we’re very well aware of how they
operate, including their operating ratios and the metrics they operate to and precision
railroading.

And it’s all part of it. But what I would share with is when I think of BNSF, we start
with focusing on our customer, understanding how we can best service them, and, yes,
we want to do it in an efficient and effective way that delivers great results back to our
shareholders.

And that will continue to be our focus. So, yes, we learn from all the metrics they
report and how they operate their rail, and we observe it. But I would put our team up
right beside them on any operating day. And we’re going to move our rail cars as well
as any other rail company in America. And we’re going to do it on behalf of our
customers.

So, we’re very proud, but we’re not ignoring the fact that there’s more to be done,
both operationally and for our customers.

So, we’ll continue to see improvement there. We’ve got a great leadership team there.
We’ve got a great employee group within BNSF. And what I like is we’re just going
to see long-term improvement there.

We have an exceptional inner-modal franchise out of the west. It’s incredibly valuable
to our shareholders long term, our partners.

And that’s what our team is focused on, building that franchise out.

So, couldn’t be more proud of where we’re at, but we also know we have a journey
ahead of us. And we’re going to continue to get better and better.

CHARLIE MUNGER: Greg, if we were offered the opportunity, would you trade our
operation for theirs?

GREG ABEL: Never. Never. And we love our--

CHARLIE MUNGER: He knows a lot about it, Phil. (Laughs)

GREG ABEL: We have a great franchise, and we have a great leadership team
running it. So well said, Charlie. Thank you.

WARREN BUFFETT: And just before we go to Ajit — and Greg, you know, was a
major partner for 20 years, more or less, a little over that, since we bought the energy
company. And his boss was David Sokol. And the two of them, I mean, they knew
how to run businesses.

It isn’t like we don’t read what other numbers are and all that. But we’ve got the
perfect person running in Katie Farmer. We’ve got the perfect person running BNSF.
And, you know, she’ll do a great job.

Changing around a railroad in various ways, you know — if you’ve got 21,000-or-
something miles of owned track and all kinds of other — that doesn’t count sidings
and double tracking — and you’ve got a lot of things to do from something that they
started building a couple of hundred years ago — not quite a couple hundred — and
you can’t move things around very (Laughter) easily. And towns grew.

You know, when you came into Omaha in 1862, well, the railroad didn’t even go
across the river, I mean, even though we’d become a major rail center for the West, or
the opening to the West.

And we’re going to be here a hundred years from now. We will be an important, a
really vital, asset of the country. And it will be a very big part — very important part
— of Berkshire.

And we will take what is an incredible assemblage, I think, of 300-and-some railroads

or something over time.

And, you know, the tracks got laid, and the routes laid out, you know, 150 years ago.
The world changes, but we have to adapt to it.

But you don’t put an order out to change a thousand miles of track in hours, or how
it’s operated or anything of the sort.

So, we’re running it to have that asset for Berkshire shareholders, and it will redound
to the benefit of the country that we do it.

No matter who ran it, it would be important — obviously enormously — to the

country. And the UP will be here at that time, too.

And it’ll be a better railroad a hundred years from now than it is now. But I can’t
promise you what will happen if we get flooding or something in the next few months.

You know, it can wipe out a lot of the plans you have and disrupt lots of lives and
disrupt lots of shipments.

And there are no magic wands in railroading to make great changes. On the other
hand, you ought to be working at it every day to make it better.

I forget how many bridges we have, but some years ago we were spending 3 or 4
billion dollars a year on capital expenditures. And [former BNSF CEO] Matt Rose —
I said, this is a lot of money to spend, you know, keeping up a railroad. And then he
said, well, we’re going to have to do that more, and so on.

And I said, well, I said, I can handle this part. I’m not sure if Charlie can. (Laughs) I
have to explain these numbers to him.

So, the next bridge they bought — they built — they called the Charles T. Munger
Bridge. So, you can actually (laughter) go see, our railroad has the Charles T. Munger
Bridge, because Charlie kind of was asking similar questions 10 years ago.

15. GEICO adopting telematics to compete with Progressive

WARREN BUFFETT: Ajit?

AJIT JAIN: OK. Thank you, Becky.

There’s no question that the personal automobile insurance business is a very

competitive business.

Having said that, both GEICO and Progressive are two very successful competitors in
this segment. Each one of them have their plusses and minuses.

But having said that, there’s no question that more recently, Progressive has done a
much better job than GEICO, as you point out, both in terms of margins and in terms
of growth rate.

There are a number of causes for that, but I think the biggest culprit as far as Geico is
concerned, and again, you rightly pointed out, is telematics.

Progressive has been on the telematics bandwagon for, I don’t know, more than 10
years, probably closer to 20 years.

GEICO, until recently, wasn’t involved in telematics. And it’s been only the last two
years that they’ve made a very serious effort, in terms of using telematics for
segmentation and for trying to match rate and risk.

It’s a long journey. But the journey has started, and the initial results are promising.

It’ll take a while, but my hope and expectation is that hopefully in the next year or
two, Geico will be in a position to catch up with Progressive, in terms of telematics.
And hopefully that’ll then translate into both growth rate and margins.

WARREN BUFFETT: Charlie, you got anything? (Applause)

16. State Farm’s success refutes what they teach in business schools
WARREN BUFFETT: It’s very interesting. I mean, the auto insurance industry is a
fascinating one to study, in that the largest auto insurance company now — and we’re
talking 2022 — and, you know, Henry Ford — I mean, it was 1903, you know, or
something when — when cars really got started.

And it wasn’t too many years after that that he was turning out two million cars a
year. Imagine that. You know, one guy, two million cars a year is a lot of cars.

So, car insurance became very important after hundreds of years of when people
thought about insurance, it was ships at sea and fire, where they had protective
societies.

And insurance is a product that’s been around a long time. But auto insurance has
been pretty much the same thing since Leo Goodwin started GEICO in 1936.

And we came along with a good idea, and lots of big companies and all that.

But the largest auto insurance company in the United States was started over in
Illinois by a guy that didn’t know anything about insurance, particularly.

And it’s a mutual company. It’s not supposed to succeed in capitalism. I mean, you
know, if you go to business school, they teach you that only because you have
incentives and compensation, and all kinds of things, can a company succeed.

Well, nobody’s really gotten rich off State Farm. They’re just out there —

And they are the largest insurance company. While Leo Goodwin started 80-some
years ago, and he probably wanted to get rich. And probably at Progressive, you
know, people wanted to get rich. And at Travelers and Aetna — and you can name off
dozens and dozens of companies.

And who wins? You know, a mutual company.

In terms of present size, they still are the largest company. They have — if you leave
out Berkshire — they’ve got the largest net worth, by far. I think they’ve got 140
billion or something like that of net worth. You know, and —

Progressive had a very, very, very smart guy running it for a very long period of time.
They got very smart people running it now.

But they have a net worth that’s 1/6 that of what some people over in Illinois that
nobody knows the name of (laughs) have after years. And they’ve had the time to sell
the same product, and they advertise like crazy.

We spend $2 billion a year telling people the same thing we’ve been telling them for
70 or 80 years, you know.

The policy doesn’t change. But when we get all through, State Farm’s still doing more
business than anybody. And it shouldn’t exist under capitalism, you know.

If you went there with a plan to start a State Farm today and have it compete with
Progressive, you know, who would put up the capital? (Laughs)

I mean, a mutual company that you’re not going to get the profits from? It doesn’t
make any sense at all, except they’ve got 140 billion or something like that of net
worth.

And Progressive, I don’t know what their net worth is, but it must be somewhere
around 20-or-so billion, and I haven’t looked for a long time. Their net worth in the
first —

Incidentally, I mean, they are very, very, very disciplined in underwriting. And of
course, on the investment side, their net worth dropped in the first quarter, because
they own a lot of bonds.

And they say, well — probably everybody in the insurance business would say — that
well, we own bonds because that’s what people do. (Laughs)

And here’s half the business where you do what people do and the other times — the
other half — the businesses, you spend all kinds of time trying to analyze in every
county and every single way you can segregate and properly rate business and all of
that.

And, you know, basically [former Progressive chairman] Peter Lewis sat in my office
40 years — yeah, 40 years ago — and he’s smart as hell. And, you know, this guy was
clearly going to be a major competitor of Berkshire’s. And he knew insurance
backwards and forwards and very bright and everything.

But he just ignored the investment side, and that was as important as (laughs) the
underwriting side.

And it is interesting how organizations function and have — what I would say are, to
some extent — blind spots.

And of course, Charlie and I know we’ve got all kinds of blind spots ourselves.

And so, we have to be kind of careful of criticizing other people for having them.
(Laughs) It is —

The auto insurance business ought to be studied in business school, because it

essentially refutes so many of the things they’re presently teaching. So that’s my
suggestion today to business schools. OK. (Laughs)

And thanks, Ajit. You couldn’t — Ajit is responsible for adding more value to
Berkshire than the total net worth of Progressive. That’s not to knock Progressive, I’m
just saying one guy. (Applause)

17. “We haven’t ever timed anything”

WARREN BUFFETT: OK, station two.

RAJID ERDUWAL: Hello, Warren and Charlie. It is great to see you both and the
wonderful Berkshire managers. Our thanks for everything that you do.

My name is Rajid Erduwal (PH), and I am from New Jersey. My question is on

market timing. You have always said that it is impossible to time the markets.

Yet if we look at your track record, you have had amazing timings with some of your
key decisions.

You got out of the stock markets in 1969 and 1970. You got back in 1972, ’74, when
the markets were really cheap. You did the same thing in ’87, ’99, 2000.

And today we are sitting on a significant amount of cash when the markets are going
down.

My question is how do you time the big market moves so well?

WARREN BUFFETT: We’d like to offer you a job first. (Laughter)

RAJID ERDUWAL: I will take it. (Laughter)

WARREN BUFFETT: The interesting thing is, you know, obviously we haven’t the
faintest idea what the stock market is going to do when it opens on Monday. We never
have had. We have never made —

Charlie and I — I don’t think in all the time we’ve worked together — and I’ll tell you
something later on maybe about how learning takes place — but we have never — I
don’t think we’ve ever made a decision where either one of us has either said or been
thinking, we should buy or sell based on what the market’s going to do.

CHARLIE MUNGER: No.

WARREN BUFFETT: Or for that matter, on what the economy’s going to do. We
don’t know.

And the interesting thing is, sometimes I get some credit some place for the fact that,
you know, how wonderful it was that we were optimistic in 2008 when everybody
was down on stocks and all that sort of thing.

You know, we spent a big percentage of our net worth at a very dumb time. (Laughs)

I shouldn’t say we, it’s I.

We spent about 15 or 16 billion dollars — which was a lot bigger to us then than it is
now — we spent it in the last few weeks, over a period of three or four weeks —
between Wrigley and Goldman Sachs and generally — at a terrible time, as it turned
out.

I mean, I didn’t know whether it was going to be a good time or a bad time, but it was
a really dumb time.

And I wrote an article for The New York Times, “Buy American,” and all these
things.
Well, if I’d had any sense of timing and waited six months until — I think the low was
in March — and in fact I think I was on CNBC maybe that day, or something.

But I totally missed that opportunity. I totally missed, you know, in March of 2020.

We have not been good at timing. We’ve been reasonably good at figuring out when
we were getting enough for our money. And we had no idea when we bought anything
— well, we always hoped it would go down for a while so we could buy more, and we
hoped even after we were done buying and ran out of money that if it was cheap the
company would keep buying, in effect, taking our interest up.

I mean, that’s stuff you can learn it in fourth grade. But it’s not what’s taught in
school.

And so never give us any credit. Well, actually, give us all the credit. I mean, go out
and tell everybody how smart we are, but we aren’t. (Laughter)

We haven’t ever timed anything. We’ve never figured out insights into the economy.

I mean, when I was 11 years old, March 12th, I guess, 1942 — or March 11th — you
know, I bought stock when the Dow was 90 — well, it was 101 in the morning — It
was 99 at the end of the day I think — and, you know, now it’s 34,000, or maybe it’s
1,000 less than it was on Thursday. (Laughter)

But, you know, it’s one decision that it’s a good thing to own American business.

And, you know, if the Harvard endowment had come to see me as an 11-year-old,
(laughs) you know, or General Motors’ pension fund or something and, you know,
they say, well, no, but we have to have a balance. And we have to maybe have 60%.
And then we have to sit around every three months and listen to a bunch of managers.

They’d have just done better if they’d just taken some darts and thrown them and just
said, we’re going to be in America 50 years from now and 100 years from now, and
we’ll do better in stocks than we will in bonds.

It’s amazing how hard people make what a simple game it is.

But of course, if they told everybody what a simple game it was then 90% of the
income or more of the people that were speaking would disappear.

So, it’s really a little too much of us to expect of human nature that people will
explain why they really aren’t adding any value to what you can do by yourself.

Or actually, you’re, you know — I hate to use the example — but you can have
monkeys throwing darts at the page. And, you know, take away the management fees
and everything, I’ll bet on the monkeys.

But I don’t consider them a superior species. And I don’t want them to move next-
door instead of my next-door neighbor or (laughs) anything, but it’s just the way it has
to be.

Charlie, do you have anything cheerful to say? (Laughter)

18. “Capitalism is very peculiar in how it dishes out rewards”

CHARLIE MUNGER: Well, frequently in the wealth advisory business, the way it
used to be, you go to your investment advisor, you say, what should I do to protect
myself for the future?

And he says, why don’t you give me $50,000 of your net worth now? That’s my
contribution to your future. (Laughter)

It’s a peculiar business. (Laughter)

WARREN BUFFETT: Yeah, and it’s a great play because you (unintelligible) rich.
It’s still a —

If you have a son or daughter that really wants to make money per point of IQ, and per
erg of energy, and all of that, well, tell them to go to Wall Street. I mean, don’t have
them enter the priesthood or anything.

I mean, if that’s what they want. It self-selects. And it always will be the case.

I mean, there’s no reason to despair about humanity because they behave in their self-
interest. They may not actually be behaving in their self-interest over time, but they —
you know, are they happier? Who the hell knows?

But if they just want to make money —

Well, people here in the auditorium saw a little session from the Salomon [Brothers]
episode.

And Gerry Corrigan was then the head of the New York Fed, and that same
committee was grilling him. And they said, Mr. Corr — they were giving him a hard
time — and they said, who was the highest — they said something to this effect, that
— who’s the highest paid guy at Solomon last year?

And he said, well, and he named him — maybe he named him — and he just said he
got — I forget whether it was 20 million last year — and we’re talking 1991 now, too
— he said, maybe he got 20 million.

And the guy says, well, how old is he? And, you know, he said, well, I think he’s —
Corrigan said —something to the effect of, he’s, you know, 26, or something like that.

And then Corrigan couldn’t resist saying, and he can’t even throw a football.
(Laughter)
And the truth was, you know — now, there’s a lot more money in throwing a football
now than there used to be.

You know, one of my heroes was Ted Williams. You know, I think he was making 20
or 25 thousand dollars a year.

You know, just imagine today some guy that bats .230 or .240, you know, and if he
makes it to the bigs, I mean, the money flows in.

And of course, those peoples should sit down and thank the fact that the stadium that
could hold 30,000 or 40,000 people and was the source of revenue for the people who
pay their paychecks, that stadium went from 30,000 to 40,000, because somebody first
invented television and they came up with cable television and they came up with pay
and all that sort of thing.

And nobody knows the names of those people. But capitalism is very, very, very
peculiar in how it dishes out rewards.

And for a while it was better to be in Wall Street than be a .220 or .230 hitter in the
bigs.

And, you know, it is now reversed because of the development of TV, et cetera.

So, it’s a crazy world. Rewards seem very, very, very, very capricious, and they are.

And they don’t seem to any theologian, or even to Charlie and me in our spare time,
the whole thing seems kind of crazy.

But it’s worked awfully well. And even the people who don’t take advantage — get
short-changed by the system — are doing far, far better than if the system hadn’t
gotten changed.
Doesn’t mean that you necessarily shouldn’t work for change, but you should
recognize the limitations of what you can do with humans, put it that way.

OK. Charlie, is there any way you’d like to close the sermon? (Laughs)

19. You should be a better person in the second half of your life
CHARLIE MUNGER: Well, I do think we have a very interesting phenomenon, in —

I would argue that in a lot of the wealth advisory business, people are charging for
skill and delivering closet indexization.

In other words, nobody can stand being that different from the crowd and results.
They’re afraid they’ll lose their fees. So, everybody does the same thing. It’s mildly
ridiculous.

The world is mildly ridiculous. (Laughter)

WARREN BUFFETT: Yeah. But as Charlie pointed out in the movie, which only the
people here saw that, that before we were married, you know, we tried to convince a
couple of young women that we were really more attractive than we were. I mean —
(Laughs)

You can’t expect people not to behave in their self-interest. And that was very
important, that we didn’t disclose all of our weaknesses before the marriage. So —

CHARLIE MUNGER: Warren and I are trying to be a little better. (Laughter)

WARREN BUFFETT: Yeah, that was true--

CHARLIE MUNGER: We may fail a little. And I don’t know about you, but I’ve
slightly improved since I was 17. (Laughter)

WARREN BUFFETT: Yeah, well — (Laughter)

That’s a really interesting point, because if fortune has just showered you with all
kinds of good things you ought to be a better person in the second half of your life
than the first half. I mean, that really should not be asking too much of people.

If they’ve won the ovarian lottery, and they’re born in the United States, and all kinds
of good things have happened to them, and you’ve had a chance to see how stupid you
were and all kinds of things you did, you know, why not have the second half of your
life be better than the first half?

I would say — working from a very low base — but, I mean, I’m not nearly, you
know, by any intelligence test or ability to do any of that, you know, I haven’t learned
anything. But you do learn certain things only by interacting with people.

And you don’t know, when you’re two years old, no matter how much you’re picking
up all kinds of knowledge from the world, the learning machine that’s going on in a
two-year-old’s head is just unbelievable.

But it’s not the same as having 30 or 40 years of experience with actually how the
human animal behaves, which is really, you know, you’re learning all the time about
it.

But that should make you a better person in the second half of your life than the first
half.

And I would say that if you say you’re a better person in the second half and have got
reason to say it in the first half, you know, forget about the first half. (Laughs)

Enjoy the second half.

And both Charlie and I have had the luxury of A, living a long time so we get to play,
what we would regard as the hopeful and respectable second half.

And we have had enough sense to figure out — well, we figured out what makes us
happy. And we’ve gotten somewhat more sensitive to what can make other people
unhappy and all that sort of thing.

And I’d rather be judged by the second half of my life than the first half, and so would
Charlie.

CHARLIE MUNGER: Yeah, of course.

WARREN BUFFETT: OK.

CHARLIE MUNGER: I’m very — I don’t even look at what I did when I was young
because it would embarrass me. (Laughter)

WARREN BUFFETT: Yeah. OK.

Any of you who wish to quiz Charlie on specifics can do so later. (Laughter)

20. Berkshire can’t protect against risk of nuclear weapons

WARREN BUFFETT: Becky.

BECKY QUICK: This question is, there’s a two-part question. It’s for Warren and
Ajit on the first part and for Greg on the second. It comes from Roger Cleffman (PH).

He says, “Several years ago Mr. Buffett was quoted that a nuclear attack is the
greatest risk to Berkshire Hathaway Insurance.
“Given the present circumstances, what would the fallout be on Berkshire Hathaway
Insurance if a nuclear event occurred in the populated world?

“And then secondly, for Greg, has Berkshire Hathaway Energy suffered any physical
or cyberattacks? And irrespective of that, has any special hardening of security been
put into place?”

WARREN BUFFETT: Yeah. Well, the first half, every day since August of 1945 —
and accelerating dramatically when a second large country had the ability to kill
millions of people — which has been magnified by an incredible factor through this,
that there is a risk every day.

It’s a very, very tiny risk. Nut as Ajit will, or anybody at this table could tell you, if
you roll — well, they had a pair of dice out at the Desert Inn in Las Vegas for a while
under a glass thing. And some guy had thrown 32 passes in a row. And I don’t know,
maybe the odds are eight million to one against that or four million to one — four
billion to one against it.

But, you know, if you just keep rolling the dice, you know, everything will happen. I
mean, if you get 330 million Americans out tomorrow, every American says, heads or
tails, and they do it every day, after 10 days, you know, you’ve got 330,000 of them
that have called the flip 10 times in a row.

And if you do it 10 more days, you’ve still got a bunch of people who’ve done it 20
times in a row. And they really think they have learned how to control the flip.

Well, the answer is the world is flipping a coin every day as to whether people who
can literally destroy the planet as we know it, you know, will do it.

And unfortunately, the major problem is with people that have large stocks of nuclear
weapons and ICBMs.

And when they talk about using tactile [tactical] nuclear weapons because somebody
will be upset because they’re losing a war, I mean, does anybody think that somebody
that’s willing to kill, you know, hundreds of thousands of people with tactile weapons,
you know, why do they stop?

It is a very, very, very, very dangerous world. And —

CHARLIE MUNGER: But we don’t have any way of —

WARREN BUFFETT: No —

CHARLIE MUNGER: — protecting —

WARREN BUFFETT: There’s no way to pro —

CHARLIE MUNGER: — against a big nuclear attack.

I know a man who said, I know what I’m going to do if there’s a nuclear war. I’m
going to crawl under the table and kiss my ass goodbye. (Laughter)

WARREN BUFFETT: Well, yeah. And Charlie’s in charge of loss control at

Berkshire. (Laughter)

We have no solution for it.

CHARLIE MUNGER: No, we don’t.

WARREN BUFFETT: And there isn’t any solution for it.

And, you know, it’s extraordinary when you think about it, in August of 1939 —
September 1st is, you know, when Hitler moved into Poland — but nobody really
knew that much about it here. I mean, you know, the news you got you got from the
news reel you went to because the theater was air conditioned, you know, or
something.

So, if I went to the movies — which you wanted to do in the summer because it was
air conditioned in August of — well, September 1st in the case of the actual
movement into Poland — but, you know, it was a few people on a screen and some
guy with an authoritative voice telling you that German forces just moved into Poland
and a picture of a few tanks, maybe. And it was over in a minute.

Now of course all day, every day you see people dying who you very much empathize
with, and it could be you instead of them. And it’s just so different.

But in August of 1939, there was a letter sent to President [Franklin] Roosevelt about
a month ahead of time.

And why did he get that letter? He got the letter because Hitler was so anti-Semitic,
basically.

He drove all the Jews that could see it coming out of Germany. And among them were
some great scientists.

And Leo Szilard, who was obviously from Hungary, from somehow he got driven out.
Einstein got driven out.

And Leo Szilard lands eventually in the United States. And he writes a letter to tell the
president of the United States, Franklin D. Roosevelt, that there’s a bunch of uranium
moving different ways or whatever it may be. I don’t know anything about physics,
zero. I don’t know about the off and on sign of it.

But in any event, I know what the letter did. Because he writes a letter and says, you
know, something big may happen in physics and America better get to it first.
But then he has the problem of, how do I get it to Roosevelt? You know, Leo Szilard,
who’s he to the president of the United States?

So, he figures if he gets Einstein to cosign it that the president will pay attention. And
he’s right. So (laughs) he goes and gets Einstein and the two of them send the letter.

And they send it to Roosevelt. And they wouldn’t necessarily have been in the United
States if Hitler hadn’t had the crazy views about Jews, basically.

And so anyway, that letter went, and we developed the atom bomb before anybody
else did.

And it was a very, very fortunate development that Leo Szilard and Einstein happened
to end up in the United States rather than perhaps be someplace else. Who knows?

But the accidents of history — and there’s going to be more accidents in connection
with atomic weapons.

You know, we’ve come close for various times. I mean, we had the geese flying over,
you know, somewhere up north and NORAD gets a crazy signal.

And we’ve had wrong training tapes placed over in the Soviet Union or some, you
know, and it looks like things are going on.

We can’t do anything about it. And that is one risk that Berkshire absolutely has no
interest in, even though you can say everybody in the world should have an interest.
But it doesn’t do us any good — you know, the feeling is that it doesn’t do us any
good to think about it.

But that doesn’t stop the fact that there are two powers in the world that, through
miscalculation of the other’s intentions, through all kinds of things, you know, have
come close in the past. And Charlie and I lived through the Cuban Missile Crisis.

And, you know, we knew there was some chance that weapons of mass destruction
would be used.

And believe me that there’s a lot more bad that can happen.

And humanity has not really come up with a counterforce to technology. I mean, back
in the caveman ages, if you were a sociopath or something, you threw a rock at the
guy in the next cave, you know, or something. I mean, it was sort of proportional.

And we kept developing, and there was this breakthrough where technology has
totally outrun humanity. And we’ll see what happens. But so far so good.

And Berkshire does not have an answer, though. There are certain things we don’t
write policies on because we wouldn’t be able to make good on them anyway, you
know, for that matter.

And everybody would know we wouldn’t be able to make good on them.

You have that risk, and there’s nothing Berkshire can protect you against. And we’ve
been very lucky so far.

Ajit, do you ever get any questions, in terms of —

AJIT JAIN: In addition to all what Warren has said, in terms of the chance of
something like this happening, the additional thing that concerns me about a nuclear
situation is my — my lack of ability to really estimate what our real exposure is in the
event of a nuclear event.

When you’re talking about, you know, other big exposures we have: earthquake and
hurricane and cyber, I can, with some reasonable degree of accuracy, have a point of
view in terms of how large our exposures can be, and how big our loss can be.

When it comes a nuclear thing, you know, I sort of surrender.

You know, it’s very difficult for us to estimate how bad “bad” can be.

Very many different lines of exposures will be affected by it. And even though, in
almost all our kind of contracts, we try and exclude nuclear as a covered peril,
nevertheless, if something like that were to happen, I’m fairly positive that the
regulators and the courts will hold it against the insurers, and they’ll rewrite the
contract and we’ll be required to pay.

For example, one thing which is already being talked about: we issue what are called
“fire policies.” And these fire policies try and exclude nuclear as a covered peril.

But there are several regulators who feel that, gee, if it’s a fire policy, and if the
nuclear attack causes a fire, then how can you exclude fire? And you better include
fire.

So, you know, debates like that we will have to live with, and it’ll be very difficult for
the insurance industry to fight back with the regulators and the court systems in terms
of what is covered and what is not covered.

WARREN BUFFETT: And there won’t be any regulators or anybody else. So —

(Laughter)

We’ll leave it to a million years of reconstruction. (Laughs)

Einstein said that, “I know not what the weapons will be for World War III. But I
know the weapons for World War IV will be sticks and stones.”
You know, there’s a lot of things that — I mean—

If you’re worried about the effect of nuclear attacks, you got other things to worry
about than the value of your Berkshire, I’ll put it that way. (Laughter)

And what other cheerful things can we have?

Robinhood's "unraveling" is God's justice

BACK TO TOP
1. When the owners are really old, it’s good to see them in person
WARREN BUFFETT: (Applause) Thank you.

I don’t hear anything from the index funds. Where are they? (Laughter)

It really feels good to get back and be doing this in person. It’s been three years. And
it’s a lot better seeing actual shareholders, owners, partners. (Applause)

We — Charlie and I are now, combined, (unintelligible) round for fractions — the
two of us are 190 years old. (Laughter)

And I really think you’re entitled, if you’re the owner of a company, and if you’ve got
two guys, 98 and 91 running the company, you’re entitled to actually see them in
person, I mean. (Laughter)

It really shouldn’t be too much to ask. I mean, for example, if we had a manager
someplace that was 98, I might want to send somebody by occasionally to see whether
he was cutting paper (Laughter) dolls or something.

So, we probably do things that are a lot more foolish than cutting out paper dolls, but
we’re having a lot of fun doing it.
And we really have a lot of fun when you come visit us.

Actually, we had — if you go back a few years — we’ve had a couple of managers
that suffered from dementia. Probably many more but, I mean, just a couple of known
ones, actually. (Laughter)

And there was one fellow that Charlie and I really loved.

And he ran a business for us. Charlie — it was out in California — Charlie would see
him occasionally, and I didn’t see him. But everything seemed fine. And then we
found out that he’d really been suffering from dementia for quite a while. And he
really was a wonderful friend of both of ours.

But the business had done fine, so that’s become our test really, (Laughter) for new
businesses.

We try to find something that a guy with Alzheimer’s can run, actually. (Laughter)

And you don’t have as much competition for businesses like that. (Laughter) The guy
sitting there cutting out paper dolls and, you know, that’s our man. (Laughter)

2. Greg Abel and Ajit Jain introduced

WARREN BUFFETT: I’d like to introduce two fellows who really work at Berkshire.

On Charlie’s left, Greg Abel, who runs all the operations outside — (Applause) —
yeah.

And next to him is — I ran the insurance business for about 15 years unsuccessfully.
And then fortunately, the fellow on the far left came in one day — and I’ve written
about it — but he came in on a Saturday. And I was opening the mail, and he said that
he’d be happy to run our insurance business.
I said, “Have you ever run an insurance business?” And he said, “No.” And as I’ve
mentioned, I said to him, “Well, you know, I’ve never run one either, so I’m not doing
so hot, so (Laughter) give it a try.”

And, you know, he transformed Berkshire Hathaway. And Ajit Jain is here with us.
(Applause)

3. The day’s schedule

WARREN BUFFETT: What we’ll do today — and I have to remind myself from time
to time that the people here, of course, saw that movie and everything, but, of course,
we’re webcasting this.

So, I’ll probably make some references to the movie or something that’ll puzzle
(Laughter) millions of people out there, but you’ll get it, so — (Laughter)

We’re going to talk for a little while about what’s happened in the last quarter and
bring up a few other things that you might be interested in.

And we will then, whenever that’s finished, we’ll go on to questions. And we will take
the questions until noon, break for an hour — that’s Midwest time for those of you
who are watching in other time zones — we’ll go on until noon. And we’ll break for
an hour.

And then Charlie and I will come back, and we’ll take more questions until 3:30. And
then we’ll convene the shareholders meeting at 3:45 — we’ll take a break for 15
minutes — and then we’ll do the shareholders meeting. And when that’s done, we’ll
all go our various ways.

4. See’s brought 11 tons of candy to sell

WARREN BUFFETT: I do want to report, incidentally, that you’ve been doing your
part, in terms of the room we have adjacent to this location, where we’ve been —
yesterday for five hours, from noon to 5, we had 12,000 shareholders come, and just
spend money on everything we could think of to sell them. (Laughter)
We brought in 11 tons of See’s Candy. And if we don’t sell out, Charlie and I get the
rest, so. (Laughter)

But you did your part. See’s sold — they set a record yesterday for the Friday
afternoon meeting. And it’s (Cheering) pretty heartening. (Applause) Yeah.

Incidentally, I’ve got a box of See’s Candy here, and it’s very — it’s sort of
interesting.

On this cover, which I hope you can see, there’s a picture of a woman who was born
in 1854. And today, she probably gets her picture seen more often than just about any
woman in America, in terms of a commercial product or something of the sort.

So, we’ve got her picture up in over 200 stores, and on every box of candy. That’s
Mary See, born in 1854.

A lot of people think this is me in drag, but that is not true. (Laughter) I mean —

There’s a certain resemblance, but (Laughter) it’s just not.

These rumors are started by our competitors. Don’t pay any attention to them.
(Laughter)

5. We like to give everybody financial information at the same time

WARREN BUFFETT: So, we will — that’s our schedule for the day.

And what we will do — we like to give all — we like to give shareholders — owners
— partners — we like to give everybody the same information at the same time, and
preferably do it when stock markets aren’t open. It seems to us that that’s —
everybody ought to be on the same playing field.

It’s very interesting — we don’t know how many shareholders we’ve got. They’ve
changed the rules over time as to registered holders and getting stock certificates and
all that sort of thing.

So, we can’t keep track of it like 50 or 75 years ago, where we had an actual
shareholders list. But we’re told — we’re told by the people who mail out our
information — it’s a firm in, I think, New Jersey — let’s see — Broadridge — and
they pretty well do this for a very significant percentage of American corporations.

So, they actually mail things out for us. And they bill us for 3 1/2 million accounts.
And I’ll take their word for it. I mean, the more accounts they bill us for — we pay
them by the account — so, you know, somedays, I feel like I’d like to count — but
that is a — (Laughter) — that is a lot of people that trust us.

And they’ve — rightly in my view — overwhelmingly — feel that they’re our

partners.

And some of them will like reading the financial information they’ve given us — that
we give you.

But most — a great many of them just say, you know, “We’ve saved this money. And
we trust you and Charlie.” And that’s a great motivator, this trust.

“And, you know, take care of it and I’m not going to learn accounting and try to read
all those statements or anything of the sort.”

But we do believe that, for those who do use the information we release, they should
all get it at the same time.

And we have a few institutions that, even though in the third paragraph of my letter
every year I refer to the fact that we want to have everybody get the same information,
and that we don’t feel that anybody’s entitled to special meetings — we can’t hold 3
million special meetings with our partners —but we like the fact that everybody gets
the same deal, everybody gets the same information.
This morning, on the internet, we put up our 10-Q for the quarter. And I’d like to take
you through a few comments on that and a few other comments, and then we’ll get to
the questions.

When we get to the questions, we will alternate between those mailed in by

shareholders, which Becky Quick at CNBC and people who’ve helped her, sort of
curated, to get what they think are the most interesting questions from shareholders.
They’re not from CNBC itself, but they are from shareholders, owners.

And we’ll alternate the ones sent in versus the ones that come here. And we don’t get
the questions ahead of time. And we enjoy getting surprised by, I’d say, almost all
questions. (Laughs)

And we will keep doing that, like I say, with a break for lunch, until 3:30, when we’ll
have the meeting, so —

6. We have an “extreme aversion” to losing your money

WARREN BUFFETT: I would like to start by putting up the first slide, which is Q1.
And there we have it. That’s what we published this morning. And there are really no
great surprises in terms of the quarter.

I mean, there are always some companies that are doing very well, and there are some
companies that aren’t for one reason or another.

And in the end, as you can see, we prefer to use something called operating earnings.
Now, that is after depreciation and interest and taxes, unlike other companies that
prefer to tell you anything but what they earned.

But we do separate out capital gains. Now, over time, as I’ve said, over the next 20
years, I would expect us, net, to have more capital gains than not. But, you know, who
knows? I hope you’ll — you know, I’ll report to you in 20 years whether that’s
(Laughter) happened or not.
But, as you can see, we made about $7 billion in the first quarter. And that’s a real 7
billion. I mean, we basically have that income in cash when the quarter’s over. That
isn’t true every quarter, exactly, but we are talking about 7 billion of real money in
that.

And those managers who the people here saw in the movie, they’re the people that
work with your money to accomplish what Charlie and I never thought would —
never really planned or anything to happen — but it just, sort of, came about just, sort
of, putting one foot in front of the other.

Now obviously, the last two years in particular, including the first quarter, all kinds of
unusual things happened in our various businesses.

I mean, when we had the meeting two years ago in May of — roughly the start of May
of 2020 — we didn’t know what was going to happen with the pandemic. We didn’t
know what was going to happen with the economy. And everybody that thought they
did has gotten all kinds of surprises since.

But here we are in 2022 and Berkshire, like I say, had 7 billion of operating earnings.
And we’ve got lots, and lots, and lots of companies. We’ve got 360,000 people out
there that have taken your savings and go to work every day.

And they have jobs. We deliver products. And you put up the money for it and you
deserve to — you took the risks, and we feel very good about how things have turned
out. And we want to keep feeling good.

And we have a — we have a — extreme aversion to incurring any permanent loss

with your funds.

You know, if I went broke, it wouldn’t really make any difference. It’d keep doing
what I do. I’d figure out a way to read a paper and watch a little TV (Laughter) and
think about things and talk to Charlie.

But the idea of losing, permanently, other people’s money — people who trust us —
really, really — that’s just a future I don’t want to have. And as Charlie says, “All I
want to know is where I’ll die so I’ll never go there.” And — (Laughter) — that
seems pretty sound. (Laughter)

CHARLIE MUNGER: It’s worked so far.

WARREN BUFFETT: In case you missed it, Charlie says it’s worked so far.
(Laughter)

And we would die, psychologically, if we lost a lot of other people’s money. We

wouldn’t take it in the first place. It’d be crazy to take people’s money and lose it if
you’re going to feel terrible about doing it.

So, the one thing I can tell you about Berkshire — although I can’t predict what our
earnings will be, and I can’t predict what the stock will do, and I can’t — we don’t
know. We don’t know what the economy will do and all of that sort of thing.

But we do know that we wake up every morning and we want to be safer, in terms of
your eventual investment.

Now, whether you make the most money or anything, we do not want you to get a
terrible result because you’ve decided to become our partner. And that’s a pledge you
can live by.

7. “We spent 40 billion in a hurry there in three weeks”

WARREN BUFFETT: Now, let’s see what we have here.

In [slide] Q-2, it gives some indication of that, because we — and this is kind of
interesting.

I wrote — I wrote a letter to our owners. And it was dated February 26th. And that
was a Saturday — released. But I write the letter all through the year in my mind. I
mean — I don’t — you know, we don’t have anybody that sits out and writes out the
letter or anything like that. I mean, this is a letter between partners.

And I write the letter all year in my head. I’m writing next year’s letter. I don’t write
out the words, but I have things I want to tell my partners.

My sister’s a partner. And I’m writing to her in my head. My older sister died not too
long ago, but I used to be writing to both of them, in effect.

And want to tell her, you know, what I think and about the business and what I think
she ought to think about it, and so on.

So, the letter’s dated February 26th. And I said, “Not much is going on.” And
actually, we might jump over to [slide] Q-3, if we will.

So, I sent out a letter on February 26th. But that wasn’t written on February 26th. And
I said basically, “Nothing much is happening around here.” And I said, “We’ve
repurchased some shares. And we just aren’t seeing anything.”

And between January 1st and February 18th, as you can see, we spent $2.2 billion,
which is half the quarter, you know, so probably 30 trading days in there. And we sold
—

So basically, we didn’t do anything. And then in the next three weeks or thereabouts,
we spent 40 billion.

And incidentally, when I say we spent 40 billion, there’s one fellow in the office that
does this all. I mean, he buys all the stocks. He buys the government bonds. He
doesn’t have an assistant or anything. But he spent $41 billion. (Laughter)

Yeah. He literally — I mean — and he does other things for me, too. He, you know,
puts together totals. He just does what he needs to do. And he’s worked in other jobs
at Berkshire long ago.
But he likes doing what he does. And he does it very well, and we don’t have a
department for it.

And as you can see, it fell off after that. And we did also in the first — in the first
quarter, we spent about 3.1 or 3.2 billion — somewhere in that — for repurchasing
shares. And —

We didn’t — you know, we talked about that in the annual report. And as Charlie
would say, it’s keeping us out of bars. I mean, you know, it gave us something to do.

And it — we never do anything that we don’t think adds to the value of Berkshire
Hathaway, though. So we only repurchase the shares when that is the most attractive
thing.

We haven’t repurchased any shares at all in April. So, it’s —

People who are looking for all these, you know, footprints in the woods and all — that
isn’t what we’re doing. We’re just doing it day by day as it comes along.

And I think this table kind of illustrates that, that we spent 40 billion in a hurry there
between — in three weeks.

And now we’re back, somewhat, in our more lethargic mood. But that — anything
could change at Berkshire.

8. Cash is like “oxygen”

WARREN BUFFETT: But the one thing that won’t change — going back to [slide]
Q-2, if you’ll — is we will always have a lot of cash on hand.

And when I say cash, I don’t mean commercial paper.

When 2008 and 2009 — the national panic came along — we didn’t own anybody’s
commercial paper. You know, we didn’t have money market funds. We have Treasury
bills. And, as I may get into it a little later, I’ll explain to you why.

We would — we believe in having cash.

And there have been a few times in history, and there will be more times in history,
where if you don’t have it, you know, you don’t get to play the next day. I mean, it’s
just —

It’s like oxygen, you know? It’s there all the time. But if it disappears for a few
minutes, it’s all over. So —

Our cash was down on March 31st because, as you saw, we spent that large sum there
in that brief period during the quarter, 40 billion.

We’ve committed to buy Alleghany Corp for something over 11 billion.

But we will always have a lot of cash. We won’t — we don’t —

Some of our companies have bank lines. I don’t know why they have the bank lines.
We’re better than the banks, and we’ll give them the money if they (laughs) need it.

But, you know, the local bankers have been calling on them and they need something
to do. Everybody else has bank lines, so it’s harmless. But there’s no reason for any of
our subsidiaries — (UNINTEL). Berkshire is stronger than the banks, but — (Yell
from audience)

I didn’t hear exactly what he had — I don’t know whether that was a banker
screaming, or — (Laughter)

I don’t — I don’t really like to torture — I don’t like to torture anybody, I mean.
(Laughs)

But — and I’m all for banks, and we’ll talk about that a little later.

In fact, we might even talk about it right now just for a minute.

Money’s kind of an interesting thing. People seem to like to talk to me about it. I
mean, they don’t ask me how to dance or anything like that, but they do ask about
money.

And so — if we’ll put up [slide] 20-dash-1 — it’s a photo of a $20 bill. And it says at
the top, “Federal Reserve Notes.” Now — Federal Reserve Note — we’ve done all
kinds of things with money in this country. It’s amazing, in a country only a couple of
hundred years old, the number of different experiments we’ve made with banks and
everything.

But we finally just decided to let the Federal Reserve do the issuing of money. And —

Down in the lower left-hand corner — incidentally, I think [former U.S. Treasury
Secretary] Rosie Rios — who signed this note — I think she signed more U.S.
currency than any other person in history.

So, if you see Rosie, you know, you cozy up to her. I mean, this is a woman who
(laughs) has issued a lot of currency.

But it says, “This note is legal tender for all debts public and private.” And that makes
it money.

You can go into our candy store, and if you offer us enough bushels of wheat, we’ll
probably give you a box of candy.

But money is the only thing that the IRS is going to take from you. You can offer
them all kinds of — you can offer them paintings — you can offer them — all —
whatever — but this is what settles debts in the United States.

And I thought that — you’ll hear a lot about various kinds of money — this is the
only kind of money you’re going to see, in my opinion, throughout your lifetime or
even throughout Charlie’s lifetime. This is —

And it’s very interesting because it just says that settle — legal tender for all debts,
public and private, and nothing else says that, except, I thought you might be
interested in seeing another $20 bill.

And this one I own. And on that — it’s got the same guy’s picture — Andrew Jackson
— and everything.

And that’s a $20 bill. And that $20 bill was issued during my lifetime. And it was
done by a bank that Berkshire ended up owning. So, you’ll see the Illinois National
Bank and Trust of Rockford.

And we bought that bank back in 1969. And if you look down in the bottom of that
one, it’s signed by a fellow named Eugene Abegg. And we bought it from Eugene
Abegg.

So, we still have some $20 bills that came in sheets. And we can cut them out like
paper dolls. And they’re our money. The Illinois National Bank issued money.

But just remember, the United States government, in effect, said that this became
exchangeable for lawful money in the United States. That’s what money is.

It may turn out that it becomes worth dramatically less in purchasing power. It can
become almost like paper money, as it has in many countries. But that is all — when
people tell you that they’re issuing new forms of money, this is the only thing that will
pay bills, under some circumstances.
And there were days — a few days in 2008 — and we came very close to having a
repeat in March, 2020 — and we had plenty of money on March 20th — but we were
not very, very far away from having something that might have been a repeat of 2008
or even worse.

And we have a bookstore here: The Bookworm. It’s in the other room. And they’ve
got a book called Trillion Dollar Triage.

And for those of you who actually like to read about this sort of thing, it’s a marvelous
account of what took place day by day with the Federal Reserve and the Treasury.

And believe me, if the Federal Reserve hadn’t done what they did, at least in my view,
in a very, very, very short period of time, things could have stopped.

And I tipped my hat a couple years ago to [Federal Reserve Chairman] Jay Powell for
acting as he did. He has to act with speed. I mean, in the old days when you had runs
on banks back in the 19th century, you know, a line formed, you know, and a bank
would go broke.

But the fellow would pay out as slowly as possible, you know, hoping something
would happen — a Wells Fargo truck or a stagecoach would pull up with a bunch of
gold or something and you’d sweet-talk the people in the line dispersing.

In Omaha, in August of 1931, four state banks — so-called state banks — they had
those in that day — they closed and the national banks didn’t. But they were all broke
as of that day. No bank can pay off in one day all of its liabilities. But the Federal
Reserve is the only one that stood at that time.

But I will tell you this. Berkshire Hathaway will be there (laughs) at that time.

We run it on the basis that if things had just behaved slightly — very — if [former
U.S. Treasury Secretary] Hank Paulson, George H. W. Bush — or no, George W.
Bush, I’m sorry — and [former Federal Reserve Chairman] Ben Bernanke and a few
people hadn’t taken action, we were at that point where the line was formed, except it
comes in electronic funds — they push buttons — and it’s all over very fast if there’s
a run on a bank.

If you ever buy a bank, and there are two banks in town, hire a few extras, and have
them go over and start standing in line at the other guy’s bank. (Laughter)

And there’s only one problem with that. After a while, somebody will stand in front of
your bank, you know, and then both of you are gone.

But the Federal Reserve is not gone. And the Federal Reserve in the United States can
do whatever is necessary. They’ve got all kinds of rules about — they can do this or
that, and this and that.

And at one time in the 1980s, [former Federal Reserve Chairman] Paul Volcker, who
was a very honest man, said to me — I said, you know, “What are the limits of what
you can do?”

And he said — he was a very unusual guy — and huge — looked down at me — and
said, “We can do whatever we need to do.” (Laughs)

And that’s true. And that’s what happened in 2008 and ’09, and that’s what happened
in 2020.

And you hope it happens again next time. But you want to be — we want Berkshire
Hathaway to be there and in a position to operate when — if the economy stops.

And that can always happen. That can always happen.

So, with those cheery words — (laughter) — let’s see if we — I think — maybe if we
can actually — it might be a good idea to start with some questions.

As I said, we will have the questions alternate between CNBC — Becky Quick — and
those are questions that have come in from shareholders. And they can be directed to
any of the four of us up here. And then we will alternate and go around the room here.

And we’ve got the auditorium broken into ten or 11 sections.

Charlie and I one time, we got out a form and it said, “Officers of the company broken
down by age,” and we just put all of us (laughs) as an answer to that question.

But we’ll have it broken down by categories around here. And we’ll keep alternating.
And we will break for lunch at noon and reconvene at 1:00.

9. How a casual email led to the Alleghany insurance deal

WARREN BUFFETT: So, let’s start off and Becky, will you lead the way?

BECKY QUICK: Thanks, Warren. The first question comes from Jack Suselesky
(PH). And he says, “In the annual letter that you wrote on February 26th, you
mentioned that Charlie and you saw ‘little that excites us in the market.’ Yet around
March 10th, the deal for Alleghany was announced, and then later the Occidental
announcement, then the disclosure of the HP investment.”

His question is, “What changed from the time you dated the letter to the time the
investments were announced that the names suddenly become interesting in the space
of a month and a half, or half a month?”

WARREN BUFFETT: Well, Charlie, you want to give your version? I’ll give my
version.

CHARLIE MUNGER: Well, my version would be we found some things we preferred

owning to Treasury bills. (Laughter)

WARREN BUFFETT: And as usual, Charlie’s given the total answer, but I’ll talk
longer and say less. (Laughter)
Actually, the letter’s dated February 26th, when we were confessing our inability to
find anything, which was a Saturday. But the day before that, February 25th, I got an
email.

Actually, my assistant, Debbie Bosanek, gets it because I can’t figure out quite how to
handle the machinery.

So, she brought it in. Actually, she puts a bunch on the edge of her desk, and I collect
them occasionally.

And there was a note, just a few lines long, from a fellow that is a friend of mine and
that worked for Berkshire many years ago. And this was on February 25th, the day
before the thing.

And he said he’d now become CEO of Alleghany Corp. I’ve been following
Alleghany Corp for 60 years. Now, I’d read their annual reports. I had four big file
drawers full of them because it was an interesting company. And all companies
interested me.

WARREN BUFFETT: So, I knew a lot about Alleghany Corp. (Laughs)

And Joe [Brandon] said, you know, “This is my first annual report as CEO, and I just
wanted to send it along to you. Just like you write for your sisters,” he says, “I write
this report as if I’m writing to you.”

And I sent a note back to Joe. And I said, you know, “I’m going to read it over the
weekend,” or whatever I said to him on it, which was true. I mean, I looked forward to
reading it.

And I said, “By the way, I’m going to be in New York on March 7th. And can we get
together? I’d like to see you.”
And, I think I may have said, “I’ve got an idea.” Well, I didn’t have that idea the day
before. (Laughs)

This thing happened to come in on Friday the 26th. And I knew I’d buy Alleghany at
a price. And if he hadn’t sent me the note, it never would’ve occurred to me to write
him and say, “Why don’t we get together on March 7th?” or anything of the sort.

It just wouldn’t have happened, except for the fact that Joe wanted to send me along
this annual report that he’d just written.

So that’s the orderly decision-making process. I didn’t call up investment bankers and
say, you know, “Will you prepare me a report on this? And, you know, what’s your
advice?” and all that stuff.

I knew we’d buy Alleghany at the price we offered. And if it was of interest to
Alleghany, fine. If it wasn’t —

But otherwise, if that email hadn’t been sent, we would not have made an offer for
Alleghany. So, give credit to the fact that Joe had written the annual report, and if he’d
sent it a week earlier, well — you know, I wasn’t going to make a special trip to New
York, but I wanted to sit down with him and tell him what Berkshire would do.

But that explains the 11 billion. (Laughs)

10. People gambling on stocks made big Occidental stock buys possible
WARREN BUFFETT: And what happened was that a few stocks got very interesting
to us. And we also spent a lot of money.

What happened — the market — and this is really important to understand — in the
last couple years, the stock market has probably — it’s always been a combination of
a casino and a — and when I talk about Wall Street, I’m talking about the whole
capital formation market — but the — and trading market, et cetera.
But the market has been extraordinary.

Sometimes it’s quite investment oriented. It’s not like it — it’s always what you’ve
read about in the books and everything — what capital markets are supposed to do,
and you study it in school and all that. And other times, it’s almost totally a casino,
and it’s a gambling parlor.

And that existed to an extraordinary degree in the last couple of years — encouraged
by Wall Street because the money is in turning over stocks. I mean, people say how
wonderfully you’ve done if you bought Berkshire in, you know, 1965 or something
and held it. But your broker would’ve starved to death.

Wall Street makes money on — one way or another — catching the crumbs that fall
off a table of capitalism and an incredible economy that, you know, nobody could’ve
ever dreamed of a couple hundred years ago.

But they don’t make money unless people do things (laughs) and if they get a piece of
them.

And they make a lot more money when people are gambling than when they’re
investing. It’s much better to have somebody that’s going to trade 20 times a day and
get all excited about it, just like pulling the handle on a slot machine. You know,
that’s who you — you know —

You may not say that you want that person. You’d like the other kind of person, too,
maybe, but that’s where you make the money. (Laughs)

And the degree to which the market got dominated by that is shown on a slide some
— I have it here somewhere. Yeah. Here’s — on [slide] Oxy-one — if you’ll put up
the Oxy-one.

That shows how we bought what became — well, we bought in two weeks, or
thereabouts, 14% of Occidental Petroleum.
And you’ll say, “Well, how can you buy 14% of a company in two weeks?” And it’s
more extreme than that, because if you look at the Occidental proxy, you’ll see that —
the standard names — BlackRock index funds, State Street index funds, basically,
Vanguard index funds, and then one other firm, Dodge & Cox.

If you take those four entities — and they’re not going to buy and sell stock — they
may get their own little — so they own 40% of the company, roughly, those four
firms.

And they didn’t do anything during this period. So now you’re down to 60% of the
Occidental Petroleum Company that’s even available for sale.

Occidental’s been around for years, and years, and years. Big company, all kinds of
things.

And with 60% of the stock outstanding, I go in and tell Mark Millard, this fellow that
is 30 feet away from me or so, and I say in the morning to him, you know, “Buy 20%
and take blocks, or whatever it may be.”

And in two weeks, he buys 14% out of 60%. That’s not investment. (Laughter)

I mean, you’re not buying from — I find it just incredible.

You wouldn’t be able to do that with Berkshire. I mean, you can’t — literally buy it.
You can say you want to buy 14% of the company. It’s going to take you a long, long
time.

But, overwhelmingly, large companies in America — well, all of them — they

became poker chips. And people were buying and selling like three-day calls or two-
day calls. And the more people — times people pull the handle on the machine, the
more money the machine makes. I mean, it’s very clear.
And overwhelmingly — I mean, where did the people go? The investors just were
sitting around and there weren’t very many, and the money was being made,
essentially, by a bunch of people gambling on things. And that enabled us, in a two-
week period, to buy 14% of a business that’s been around for decades.

Imagine trying to buy 14% of the farms in two weeks in this country, 14% of the
apartment houses, or 14% of the auto dealerships, or just anything, when already 40%
were locked up some other place.

It is — it defies anything that Charlie and I have seen, and we’ve seen a lot.

But I’ve never seen that percentage of the American public — essentially, it was a
gambling parlor.

And the people that were making money were people that worked with gamblers.
(Laughs)

And then it declined very significantly a few weeks ago. You can feel it if you’re
around it.

So, when somebody asks a very good question, this, “Why weren’t you doing
anything on February 20th, and why were you doing it on — starting, well, in the case
of Occidental, on February 28th?” — you know, it’s because things developed in a
way —

And in the case of Occidental specifically, they’d had an analyst presentation of some
— I don’t know whether it was a quarterly one or what it was exactly — but I read it
over a weekend — and that was the weekend when the annual report came out — I
read it over a weekend.

And what [CEO] Vicki Hollub was saying made nothing but sense. And I decided that
it was a good place to put Berkshire’s money.
And then I found out in the ensuing two weeks — it was there in black and white —
there was nothing mysterious about it — but Vicki was saying what the company had
gone through and where it was now and what they planned to do with the money.

And she’ll do what — she says she doesn’t know the price of oil next year. Nobody
does.

But we decided it made sense. And two weeks later, we had 14% of the company.

And we also already had a preferred stock and warrants. And the story of the preferred
stock is we paid 10 billion — preferred stock and warrants — we paid 10 billion for it
— and at the end of the March quarter of 2020, we valued that 10 billion — for our
10-Q — we valued it at 5 1/2 billion. So, we had a 4 1/2 billion loss. And it would
have — you know —

The world changed. Oil sold for minus $37 a barrel (laughs) one day, and —

Now it’s quite apparent, I think, that we want — we’re very happy — we should be
very happy — that we can produce 11 million barrels a day, or something of the sort,
in the United States, rather than being able to produce none and having to find 11
million barrels a day somewhere else (laughs) in the world to take care of keeping the
American industrial machine working.

Charlie, have you got any comments on that as to how something this crazy could’ve
happened?

CHARLIE MUNGER: Well, it happened — it’s almost a mania of speculation that we

now have.

We have computers with algorithms trading against other computers. We’ve got
people that know nothing about stocks being advised by stockbrokers, who know even
less. (Laughter)
WARREN BUFFETT: They understand the commissions, though.

CHARLIE MUNGER: It’s just an incredible, crazy situation.

And it’s weird that we ever got a system, where all this equivalent of a casino activity
is all mixed up with a lot of legitimate long-term investment.

I don’t think any wise country would’ve wanted this outcome.

Why would you want your country’s stocks to trade on a casino basis to people who
are just like the people that play craps and roulette in the casino? I think it’s crazy.

But it happened. And it’s respectable. Not with me, but with other people. (Laughter)

WARREN BUFFETT: Yeah — well — and look at — look at what — the country —
I mean, they formed the New York Stock Exchange in 1792 under a buttonwood tree.
And it really didn’t seem like that was the eureka moment in America.

But just look at what’s happened, using the system for less than — you know — well
— you know — three of my lifetimes.

I mean, (laughs) it’s unbelievable. So —

It’s worked. Now, maybe it’s worked in spite of itself — maybe the country — but
one way or another, America has worked in an incredible manner.

Nobody could’ve dreamt it. Nobody.

You know, they’d have hauled you away if you said — you know — in three lifetimes
— you know — that — you know — this place where we’re meeting — I mean — it
became a state in 1867.

But in 1789, if you’d asked Ben Franklin or somebody that was walking out of the
Constitutional Convention, “What do you think the prospects are for Nebraska?”
(Laughs)

It’s just — it’s unbelievable what’s been accomplished. And it’s been accomplished
— the people who encouraged the gambling — they would like to say it’s been
accomplished because of the — we’ve got these liquid markets and all these
wonderful things.

Charlie would probably say it’s in spite of that. Who knows? (Laughter) But —

The answer is that — well, there isn’t an answer. (Laughter) The —

My wife — when we got married April 19th, 1952 — we got in my aunt’s car and we
started driving west. And we ended up — we drove all over the west — but one night
we ended up in Las Vegas.

And there were three fellows out there. Eddie — it was Eddie Barrick, and Sam
Ziegman, and Jackie Gaughan. And all three of these guys were from Omaha. And
they’d bought little pieces of the Flamingo.

Bugsy Siegel had had his career ended rather abruptly — (laughs) — a few years
earlier.

CHARLIE MUNGER: By a bullet.

WARREN BUFFETT: But it was a stray bullet, undoubtedly. (Laughter)

In fact, there were probably five or six stray bullets. But in any event, Bugsy was
gone.

And some people, including three guys from Omaha, were in the group. Sam Ziegman
lived about two blocks from where I live now. He was Stan Lipsey’s uncle. Stan
Lipsey ran — for those of you who follow Berkshire — ran The Buffalo News and
was our partner for 40 or 50 years later on.

So, all kinds of things intersect.

But I walked into this casino, aged —the Flamingo — it was kind of a motel-like
arrangement — and I was 21. And my bride was 19.

And I looked around the room and there were all of these people — and they were
better dressed then — it was a more dignified group than, perhaps, currently — but
they had flown thousands of miles in some cases — you know — in planes that
weren’t as fast as the current ones and were more expensive, probably, on a per-mile
basis, adjusted, then.

They’d gone to great lengths to come out to do something that was mathematically
unintelligent, and they knew it was unintelligent.

And, I mean, they couldn’t do it fast enough, in terms of rolling the dice, you know,
and trying to determine whether they were hot or whatever they may be.

And I looked around at that group. And everybody there knew that they were doing
something that was mathematically dumb, and they’d come thousands of miles to do
it, and they were —

And I said to my wife, I said, you know, I’m going to get rich. (Laughs) I mean, how
can you miss? (Laughs)

If people are willing to do this, you know, this is a land of opportunity.

Well, it’s the way it still is, you know.

And the Flamingo grew to be much bigger. And in Omaha, we’re very proud of Jackie
and the things he did. He only died a year or two ago.

He became sort of the leader — spiritual leader — of Vegas.

And, like I say, Sam Ziegman’s nephew went on to save my and Charlie’s investment
that we made in Blue Chip and The Buffalo News. (Laughs)

And it’s a very accidental society that occurs.

But there’s nothing stranger than what has happened in finance.

On the other hand, if you go back, perhaps the greatest chapter ever written on the
operation of markets, particularly the stock market, is in a book, probably one of the
most famous books in economic history, The General Theory, written by John
Maynard Keynes. I think it was 1936.

And I don’t know whether it’s chapter — I think it was chapter 12 — but whatever it
is, he describes what markets are all about in 1936. And he describes something, in
beautiful prose, that explains why the whole country in March of this year was sitting
around trading Occidental in some crazy way that enabled us to buy a quarter of what
wasn’t owned by four other institutions that weren’t going to sell.

But we could buy a quarter of it. And we could’ve bought a lot more. I mean — you
just wondered if there was anybody that really was thinking about investment. If you
—

Going back to investing, I mean, investing is laying out money now with the hope of
getting back more later on. It’s really laying out purchasing power now with the hope
of getting more purchasing power back.

But that’s the reason you’d — and, you know, that’s the way you learn in the
textbooks, that you defer consumption now so you can consume more later on, so that
you can take care of your family — all these things about how investment takes place.

And that is what happens with farms. I mean, if somebody buys a farm and they,
generally, they ultimately leave it to their kids or they got it from their parents.

And, I mean, they don’t sit there every day and, you know, get quotes 15 times a day
and say, you know, I’d like to get a call — I’d like to sell a put, you know, on the
guy’s farm next to me. And you can have a call on mine. And then I’ll have something
called a straddle or a strangle, or whatever it may be. And, you know, they just —

They go about making the farm worth more money. And they do the same thing if
they’ve got an auto dealership. And they do the same thing, you know, if they’ve got
an apartment house. They look to improve it and attract tenants, all those kind of
things. And —

Forty — what would it be? — 40 trillion at least, you know, of the ownership of all of
the American business — people treat it as poker chips or pulling the handle.

And they’ve got systems set up so that if you want to buy a three-day call on a stock,
you can do it. And they make more money selling you calls than if you buy stocks.
So, they teach you on calls. (Laughs)

Nobody’s going around selling calls on farms or anything of the sort.

But that’s why markets do crazy things. And occasionally, Berkshire gets a chance to
do something. And it’s —

It’s not because we’re smart. It’s because we’re — the only thing I can say we’re
qualified on —and sometimes I wonder about that — but I think we’re sane. You
know, I mean, and that’s the main requirement in this business.

And — Charlie?

CHARLIE MUNGER: Well, I don’t think we have ever had anything quite like what
we have now, in terms of the volumes and pure gambling activity that go on daily, and
the people lathering the gamblers up so they can rook them.

And it’s not pretty. And I don’t find it rich in glory for capitalism or anything,
anymore than a bunch of people throwing dice at a table. What good does that do the
rest of the world?

WARREN BUFFETT: It’s a great way to become rich, though, just figure out ways to
insert yourself into the system somehow.

And, you know, jobs to some extent self-select. And many years ago — and I’ve got
all kinds of friends on Wall Street — not as many as I had before I had started talking
this way an hour or so ago. But I really do. I know —

People make — they make lots of decisions in life. And the truth is that, overall, the
American system has worked extremely well. It’s may be very unfair, in many ways.

But it has produced incredible difference in the goods and services available to me
versus what my grandfather had available, you know.

I do not want to go back to pre-air conditioning and people pouring whiskey down me
while they drill my teeth or something of the sort, or any of that. I mean, this is a lot
better world. And —

CHARLIE MUNGER: Well, I think we’ve made more because of the crazy gambling.
I think it’s made it easier for us, net, over the decades we’ve been operating.
WARREN BUFFETT: Well, I mean, and we’ve depended on it.

CHARLIE MUNGER: Yeah. (Laughter)

WARREN BUFFETT: I mean, we depend on mispriced businesses through a

mechanism where we’re not responsible for the mispricing of them. And overall, we
learned something a long time ago, that it doesn’t take a high IQ. It doesn’t take
anything. It just takes the right attitude.

We may talk more about that later, but I think we ought to prove that we’ve got an
audience here by going to section one. (Laughs)

11. We’d like to buy businesses outside the U.S., but they’re harder to find
OLA POLEM: Good morning. My name is Ola Polem (PH). I live in Hanover,
Germany. This is my first time in Omaha.

My question is on Berkshire buying entire companies outside the U.S. There were a
few, Iscar, probably the first one. Louis, in Germany.

My question is, would you only answer calls from them if you’re interested in? Or
would you proactively approach them if they would like to sell their company?

WARREN BUFFETT: I would — we actually made a few trips. I think maybe

Charlie went with me on one of them. We tried to stir up interest and all that sort of
thing in Berkshire around the world. We probably did that 20 years or 25 years ago.

During that period — that I showed you — that burst of action we had, we probably
spent — we probably at least 5 billion of that — yeah, maybe pretty — in the area of
5 billion of it — we bought three German securities.

We bought two — well, we bought one — in Japan. We rounded up on some of the

holdings we already had there.
We would love them to buy, but we — they don’t think of us as quickly there. I mean,
I don’t have somebody that’s going to send me an email about a company that I’ve
been following for 60 years and I know I can see them in New York and, you know, I
can name a number to them, and if he likes it, he can take it to his board and so on.

It just doesn’t happen that way. We haven’t had that experience in — well, anywhere
outside the United States.

Now, you can say with 40 trillion here, you know, we should be able to find
something here (laughs) a little closer to home.

But we don’t have any bias against doing it. We —

There are companies, you know, we’d buy in 10 minutes if we had somebody on the
other end that could do business in 10 minutes.

It’s much more complicated in certain countries than in the United States to purchase
businesses, and there are certain rules.

But obviously this — you know, we got a call — whenever it was — many years ago,
on our company in Germany. And actually, the two fellows that run it are probably
here in the audience. I saw them yesterday. And they’re marvelous. And they run the
business. And, you know — they’re as trustworthy as — well, all the pictures were up
on the movie we showed before this meeting started here. You know —

We have so much trouble finding good ideas that we can’t afford to ignore any. But
they do have to be sizable now. I mean, there really isn’t — there isn’t a lot of —

I love the operation we bought in Germany, and it’s just a pleasure to be associated
with the people there. I just wish we could add another zero to all the figures and it
was a much larger deal.
It’s not going to have an economic impact on Berkshire. But they love it. They care.
You can see it. You can feel it. And that’s the kind of business we’d like to have, and
we’re very happy we’ve got it in Berkshire. But we can’t do it one (unintelligible) of
Louis at a time.

And we would never, never sell an operation like that, ever. I’m looking at you, Greg.
(Laughs)

The — you know — but if — if we get a call tomorrow and we could make a deal that
involves 10 or 20 billion dollars that was in Germany or France or Britain or Japan —
or name a whole group of countries — we’d do it.

We bought the interest in the five leading trading companies in Japan a couple years
ago. And I rounded them up a little bit. But I told them originally we weren’t going to
but a lot of — we weren’t going to change our positions materially without their OK.

So, we actually, I think, rounded the 5.85% — based on the latest figures we had then
— of all five of them. And that was a good many hundreds of millions, or maybe a
billion or two, to work. So, we will, you know —

President Kennedy said we’ll pay any price, climb any hills, you know — (laughs) —
whatever it may be — to find businesses.

But we actually prefer it when they fall into our lap, like getting a letter from
somebody you hadn’t heard from for a couple of years, and you know what you’d pay
for the business. And you know if the board of directors of that company regards it as
attractive, they’ll be happy to buy it. And they know you’re going to show up at the
closing and that you’re not going to pile debt on it or change things or anything.

They’ve got an answer, and then you have to see if they’ve got the question in their
mind is what’s the best thing for Alleghany Corp? And in that case, we had $11
billion less at the end of the day — or the end of the dinner — than we had at the start
of the day.
So, opportunity can be any place. And we do have a terrific operation, for example, in
Israel, I mean, just terrific. And it’s pretty good size.

Would we like to have another one like it? Yeah, I just don’t know where the other
one is. Charlie?

12. Defense of stock repurchases, at the right price

CHARLIE MUNGER: Well, but think in the scheme of things, imagine buying in $60
billion worth of our own stock. We like the businesses. We like the price we’re
paying. No overhead, no cost, no nothing, just more interest in what we already
owned. It isn’t that we’re totally wasting our time.

WARREN BUFFETT: Yeah, and if you look at it, there are — you can read hundreds
of thousands — maybe millions of words — written on stock repurchases, and what
this is and what that is and all this kind of thing. It’s not very complicated. (Laughs)

I mean, if you had a partner in a lemonade stand and they wanted to sell out — sell
their interest — or two partners and one of them wanted to sell their interest — I mean
— and the business had the money to buy it — our little lemonade stand — and they
were offering at a price that was good for the other two people who are going to
remain, you’d buy it.

Now, the thing that’s fascinating to me is what you can accomplish, and still —
people don’t pay any attention to it.

We owned — in 1998, you know — this was more than 20 years ago — we owned
about 150 million — I don’t know whether they’ve split — whatever it is — if
they’ve split, it’s split-adjusted — but we owned 150 million shares of American
Express.

I think we bought our last share in 1998 or something like that.

And we then owned 11.2% of the American Express company — wonderful

company.

And since then, they’ve sent us a check every quarter as a dividend. And so, we’ve
taken some cash a little bit as they’ve gone along.

And now we own 20% of American Express. Now, that’s what’s happened because
they repurchased shares. That happens to have worked out extremely well. If they
overpaid for the stock and all that — it doesn’t solve every problem — but it’s a
wonderful thing if you’ve got an asset you like and they take your ownership interest
up.

And like I say, we’ve gone from 11.2% to 20%. And if you’re using your American
card — or whatever it may be — 20% of whatever earnings — contribute a little to
our interest that used to be 11.2%, and we’ve done it without putting up any money.

Now, imagine — imagine if you owned a farm, and you had 640 acres, and you
farmed it every year, and you made a little money on it, and you enjoyed farming.

And somehow, 20 or so years later, it had turned into 11-hundred or 12-hunred acres.
I mean, you’d say, you know, how long has this been going on? You know, what
could possibly be? — you know, is this un-American? — or whatever it may be. I
mean, is it, you know, sensible use of the (unintelligible) cost of capital? Blah, blah,
blah, blah, blah.

If you do it at the right price, there’s nothing better than buying in your own business.

We owned — I mentioned and used Apple as an example of how our interest in

Apple, you know — every time a company that earns a hundred billion a year — you
know — it means that our interest in it goes up a tenth of a percent. You know, we’ve
added another a hundred million to earnings.

Well, I mean, it takes a lot of work (laughs) — a hundred million in earnings. And,
you know, in the first quarter they just reported — they’re on a fiscal year — but they
just reported their March quarter — and, you know, they earned more money and they
had fewer shares outstanding.

And we actually bought a little more Apple, in the first quarter or so. We decided we
wanted to own a greater interest. And on top of that, we knew that we would own an
even greater interest if they kept buying in their shares, which — we didn’t have any
insider information or anything — but certainly, it would seem the way to bet.

And, you know, we feel better because we bought the shares we bought in the market.
And we feel (laughs) just as good as the fact — by the fact — they used their cash to
buy out some of the other people.

It is the simplest thing in the world, and then I read all this stuff.

It is unbelievable how people can’t figure out something that, you know, if they
owned a farm and the guy next to them had a farm and somehow you were getting
more of his farm all the time without putting up any money while you farmed your
own farm — that at least, you know, you’re using some of the earnings for that —
you’d feel very good about it.

Have you got any explanation for it, Charlie?

13. ‘Ridiculous’ to have to split chairman and CEO roles

CHARLIE MUNGER: Well, I have another thing that interests me in the present
scene.

We get all these suggestions from index funds, a letter saying we — the chairman and
the chief executive officer are the same person, and that they have some professor
somewhere that thinks that American business would work better if it had a separate
— if Warren could split — we could split him in two and have each half work.

And to me it’s the most ridiculous criticism I’ve ever heard. It would be like — it
would be like — Odysseus would come back from winning the battle in Troy and so
forth, and some guy would say, I don’t like the way you were holding your spear
when you won that battle. (Laughter)

And it’s some guy that’s never run any business and doesn’t know anything. I don’t
think too much of this activity. (Applause)

WARREN BUFFETT: Well, let’s see. Somewhere in here — I may find it at some
point. Ah, here it is.

We wrote in the annual report — in the third paragraph of a nine-page report — we

said, “We’re going to treat everybody the same.” It may be a crazy concept we have,
but we really feel that somebody that gave us their savings in 1960 or 1970 or 1980
and just left them with us, and trusted us, we feel that they’re entitled to the same sort
of respect and attention that somebody that, you know, is accumulating, like crazy,
assets under management and gets paid based on assets under management, that
knows that they just need to have policies that essentially are popular in Washington.

The only thought they have is that Washington sometimes says that, you’re getting too
damn big and we’re going to do something about you.

So, they try to be very sure that they’re doing things that people will cheer.

So anyway, I say, “Well, we’re going to treat you all alike.” We’ve got three million
people — or shareholders — out there. We’re going to treat you all alike.

And on March 25th, about a month after I wrote that letter — it’s in the third
paragraph, you’d think that they would get that far — that they had 101 million B
shares — i mean, now, somebody ought to read to the third paragraph.

But anyway, we get a letter that says, “We would like to meet with you in advance of
Berkshire Hathaway’s 2022 Annual Meeting of Shareholders to discuss Berkshire
Hathaway’s perspective on governance and sustainability.”

Well, I have written probably more on that that’s been honestly written by the guy that
runs the company. But why in hell would they think that we should meet with them
and not you people all individually (laughs) that come here? (Applause)

I grew up in a very, very, very Republican household, but I feel like, you know, some
raving populist or something.

But I just can’t imagine — well, anyway. You’ve heard it. (Laughter)

And, you know, somebody gets paid to — well, there’s a lot of people I’m sure in
public relations and they hire advisors, because it looks better if they have advisors
that tell them whether the chairman and the CEO should be the same person or not,
and those people get paid for it. And then they discuss it at their board meeting and
then, you know —

In the end, believe me, if 90% of Congress for some reason felt it was better to have
the chairman and the CEO be the same person, the index funds (laughs) would not be
writing those letters, because all they have to worry about is whether for some reason
people start wondering why some institution should have 10% of the votes in every
major corporation in the country.

And I like the idea of index funds. But it is interesting to watch where incentives and
bureaucracy, and whatever it may be, lead people.

The guy that wrote me the letter’s probably a very nice guy. That’s his job.

Well, anyway, they didn’t get a special meeting. And you people are here, and we
appreciate the fact you’re here. (Applause)

14. BNSF improvements will take time

WARREN BUFFETT: OK. Back to Becky.

BECKY QUICK: This question’s for Ajit and Greg. It comes from Ben Nall (PH),
who’s a shareholder of 30 years. He’s a Nebraska native, and he says he’ll be
attending the meeting here today.

“BNSF and GEICO appear to be losing ground to their two primary competitors,
Union Pacific and Progressive.

“Over the past several years UP’s operating ratio has been about 400 basis points
better than BNSF’s.

“And Progressive has grown faster while maintaining a lower combined ratio than
GEICO. On an operating basis, UP’s [Union Pacific] precision scheduled railroading
and Progressive’s telematics appear to have jumped ahead of the Berkshire
businesses.”

He wants to know what Greg and Ajit are doing to address those business challenges.

GREG ABEL: Want me to go first? OK. Thank you, Becky.

Let me just start by saying when we think of BNSF, we have an exceptional franchise
here and a great business.

And we do compete with other railways, and we’re very well aware of how they
operate, including their operating ratios and the metrics they operate to and precision
railroading.

And it’s all part of it. But what I would share with is when I think of BNSF, we start
with focusing on our customer, understanding how we can best service them, and, yes,
we want to do it in an efficient and effective way that delivers great results back to our
shareholders.

And that will continue to be our focus. So, yes, we learn from all the metrics they
report and how they operate their rail, and we observe it. But I would put our team up
right beside them on any operating day. And we’re going to move our rail cars as well
as any other rail company in America. And we’re going to do it on behalf of our
customers.

So, we’re very proud, but we’re not ignoring the fact that there’s more to be done,
both operationally and for our customers.

So, we’ll continue to see improvement there. We’ve got a great leadership team there.
We’ve got a great employee group within BNSF. And what I like is we’re just going
to see long-term improvement there.

We have an exceptional inner-modal franchise out of the west. It’s incredibly valuable
to our shareholders long term, our partners.

And that’s what our team is focused on, building that franchise out.

So, couldn’t be more proud of where we’re at, but we also know we have a journey
ahead of us. And we’re going to continue to get better and better.

CHARLIE MUNGER: Greg, if we were offered the opportunity, would you trade our
operation for theirs?

GREG ABEL: Never. Never. And we love our--

CHARLIE MUNGER: He knows a lot about it, Phil. (Laughs)

GREG ABEL: We have a great franchise, and we have a great leadership team
running it. So well said, Charlie. Thank you.

WARREN BUFFETT: And just before we go to Ajit — and Greg, you know, was a
major partner for 20 years, more or less, a little over that, since we bought the energy
company. And his boss was David Sokol. And the two of them, I mean, they knew
how to run businesses.

It isn’t like we don’t read what other numbers are and all that. But we’ve got the
perfect person running in Katie Farmer. We’ve got the perfect person running BNSF.
And, you know, she’ll do a great job.

Changing around a railroad in various ways, you know — if you’ve got 21,000-or-
something miles of owned track and all kinds of other — that doesn’t count sidings
and double tracking — and you’ve got a lot of things to do from something that they
started building a couple of hundred years ago — not quite a couple hundred — and
you can’t move things around very (Laughter) easily. And towns grew.

You know, when you came into Omaha in 1862, well, the railroad didn’t even go
across the river, I mean, even though we’d become a major rail center for the West, or
the opening to the West.

And we’re going to be here a hundred years from now. We will be an important, a
really vital, asset of the country. And it will be a very big part — very important part
— of Berkshire.

And we will take what is an incredible assemblage, I think, of 300-and-some railroads

or something over time.

And, you know, the tracks got laid, and the routes laid out, you know, 150 years ago.
The world changes, but we have to adapt to it.

But you don’t put an order out to change a thousand miles of track in hours, or how
it’s operated or anything of the sort.

So, we’re running it to have that asset for Berkshire shareholders, and it will redound
to the benefit of the country that we do it.

No matter who ran it, it would be important — obviously enormously — to the

country. And the UP will be here at that time, too.

And it’ll be a better railroad a hundred years from now than it is now. But I can’t
promise you what will happen if we get flooding or something in the next few months.

You know, it can wipe out a lot of the plans you have and disrupt lots of lives and
disrupt lots of shipments.

And there are no magic wands in railroading to make great changes. On the other
hand, you ought to be working at it every day to make it better.

I forget how many bridges we have, but some years ago we were spending 3 or 4
billion dollars a year on capital expenditures. And [former BNSF CEO] Matt Rose —
I said, this is a lot of money to spend, you know, keeping up a railroad. And then he
said, well, we’re going to have to do that more, and so on.

And I said, well, I said, I can handle this part. I’m not sure if Charlie can. (Laughs) I
have to explain these numbers to him.

So, the next bridge they bought — they built — they called the Charles T. Munger
Bridge. So, you can actually (laughter) go see, our railroad has the Charles T. Munger
Bridge, because Charlie kind of was asking similar questions 10 years ago.

15. GEICO adopting telematics to compete with Progressive

WARREN BUFFETT: Ajit?

AJIT JAIN: OK. Thank you, Becky.

There’s no question that the personal automobile insurance business is a very

competitive business.

Having said that, both GEICO and Progressive are two very successful competitors in
this segment. Each one of them have their plusses and minuses.

But having said that, there’s no question that more recently, Progressive has done a
much better job than GEICO, as you point out, both in terms of margins and in terms
of growth rate.

There are a number of causes for that, but I think the biggest culprit as far as Geico is
concerned, and again, you rightly pointed out, is telematics.

Progressive has been on the telematics bandwagon for, I don’t know, more than 10
years, probably closer to 20 years.

GEICO, until recently, wasn’t involved in telematics. And it’s been only the last two
years that they’ve made a very serious effort, in terms of using telematics for
segmentation and for trying to match rate and risk.

It’s a long journey. But the journey has started, and the initial results are promising.

It’ll take a while, but my hope and expectation is that hopefully in the next year or
two, Geico will be in a position to catch up with Progressive, in terms of telematics.
And hopefully that’ll then translate into both growth rate and margins.

WARREN BUFFETT: Charlie, you got anything? (Applause)

16. State Farm’s success refutes what they teach in business schools
WARREN BUFFETT: It’s very interesting. I mean, the auto insurance industry is a
fascinating one to study, in that the largest auto insurance company now — and we’re
talking 2022 — and, you know, Henry Ford — I mean, it was 1903, you know, or
something when — when cars really got started.

And it wasn’t too many years after that that he was turning out two million cars a
year. Imagine that. You know, one guy, two million cars a year is a lot of cars.
So, car insurance became very important after hundreds of years of when people
thought about insurance, it was ships at sea and fire, where they had protective
societies.

And insurance is a product that’s been around a long time. But auto insurance has
been pretty much the same thing since Leo Goodwin started GEICO in 1936.

And we came along with a good idea, and lots of big companies and all that.

But the largest auto insurance company in the United States was started over in
Illinois by a guy that didn’t know anything about insurance, particularly.

And it’s a mutual company. It’s not supposed to succeed in capitalism. I mean, you
know, if you go to business school, they teach you that only because you have
incentives and compensation, and all kinds of things, can a company succeed.

Well, nobody’s really gotten rich off State Farm. They’re just out there —

And they are the largest insurance company. While Leo Goodwin started 80-some
years ago, and he probably wanted to get rich. And probably at Progressive, you
know, people wanted to get rich. And at Travelers and Aetna — and you can name off
dozens and dozens of companies.

And who wins? You know, a mutual company.

In terms of present size, they still are the largest company. They have — if you leave
out Berkshire — they’ve got the largest net worth, by far. I think they’ve got 140
billion or something like that of net worth. You know, and —

Progressive had a very, very, very smart guy running it for a very long period of time.
They got very smart people running it now.
But they have a net worth that’s 1/6 that of what some people over in Illinois that
nobody knows the name of (laughs) have after years. And they’ve had the time to sell
the same product, and they advertise like crazy.

We spend $2 billion a year telling people the same thing we’ve been telling them for
70 or 80 years, you know.

The policy doesn’t change. But when we get all through, State Farm’s still doing more
business than anybody. And it shouldn’t exist under capitalism, you know.

If you went there with a plan to start a State Farm today and have it compete with
Progressive, you know, who would put up the capital? (Laughs)

I mean, a mutual company that you’re not going to get the profits from? It doesn’t
make any sense at all, except they’ve got 140 billion or something like that of net
worth.

And Progressive, I don’t know what their net worth is, but it must be somewhere
around 20-or-so billion, and I haven’t looked for a long time. Their net worth in the
first —

Incidentally, I mean, they are very, very, very disciplined in underwriting. And of
course, on the investment side, their net worth dropped in the first quarter, because
they own a lot of bonds.

And they say, well — probably everybody in the insurance business would say — that
well, we own bonds because that’s what people do. (Laughs)

And here’s half the business where you do what people do and the other times — the
other half — the businesses, you spend all kinds of time trying to analyze in every
county and every single way you can segregate and properly rate business and all of
that.
And, you know, basically [former Progressive chairman] Peter Lewis sat in my office
40 years — yeah, 40 years ago — and he’s smart as hell. And, you know, this guy was
clearly going to be a major competitor of Berkshire’s. And he knew insurance
backwards and forwards and very bright and everything.

But he just ignored the investment side, and that was as important as (laughs) the
underwriting side.

And it is interesting how organizations function and have — what I would say are, to
some extent — blind spots.

And of course, Charlie and I know we’ve got all kinds of blind spots ourselves.

And so, we have to be kind of careful of criticizing other people for having them.
(Laughs) It is —

The auto insurance business ought to be studied in business school, because it

essentially refutes so many of the things they’re presently teaching. So that’s my
suggestion today to business schools. OK. (Laughs)

And thanks, Ajit. You couldn’t — Ajit is responsible for adding more value to
Berkshire than the total net worth of Progressive. That’s not to knock Progressive, I’m
just saying one guy. (Applause)

17. “We haven’t ever timed anything”

WARREN BUFFETT: OK, station two.

RAJID ERDUWAL: Hello, Warren and Charlie. It is great to see you both and the
wonderful Berkshire managers. Our thanks for everything that you do.

My name is Rajid Erduwal (PH), and I am from New Jersey. My question is on

market timing. You have always said that it is impossible to time the markets.

Yet if we look at your track record, you have had amazing timings with some of your
key decisions.

You got out of the stock markets in 1969 and 1970. You got back in 1972, ’74, when
the markets were really cheap. You did the same thing in ’87, ’99, 2000.

And today we are sitting on a significant amount of cash when the markets are going
down.

My question is how do you time the big market moves so well?

WARREN BUFFETT: We’d like to offer you a job first. (Laughter)

RAJID ERDUWAL: I will take it. (Laughter)

WARREN BUFFETT: The interesting thing is, you know, obviously we haven’t the
faintest idea what the stock market is going to do when it opens on Monday. We never
have had. We have never made —

Charlie and I — I don’t think in all the time we’ve worked together — and I’ll tell you
something later on maybe about how learning takes place — but we have never — I
don’t think we’ve ever made a decision where either one of us has either said or been
thinking, we should buy or sell based on what the market’s going to do.

CHARLIE MUNGER: No.

WARREN BUFFETT: Or for that matter, on what the economy’s going to do. We
don’t know.
And the interesting thing is, sometimes I get some credit some place for the fact that,
you know, how wonderful it was that we were optimistic in 2008 when everybody
was down on stocks and all that sort of thing.

You know, we spent a big percentage of our net worth at a very dumb time. (Laughs)

I shouldn’t say we, it’s I.

We spent about 15 or 16 billion dollars — which was a lot bigger to us then than it is
now — we spent it in the last few weeks, over a period of three or four weeks —
between Wrigley and Goldman Sachs and generally — at a terrible time, as it turned
out.

I mean, I didn’t know whether it was going to be a good time or a bad time, but it was
a really dumb time.

And I wrote an article for The New York Times, “Buy American,” and all these
things.

Well, if I’d had any sense of timing and waited six months until — I think the low was
in March — and in fact I think I was on CNBC maybe that day, or something.

But I totally missed that opportunity. I totally missed, you know, in March of 2020.

We have not been good at timing. We’ve been reasonably good at figuring out when
we were getting enough for our money. And we had no idea when we bought anything
— well, we always hoped it would go down for a while so we could buy more, and we
hoped even after we were done buying and ran out of money that if it was cheap the
company would keep buying, in effect, taking our interest up.

I mean, that’s stuff you can learn it in fourth grade. But it’s not what’s taught in
school.

And so never give us any credit. Well, actually, give us all the credit. I mean, go out
and tell everybody how smart we are, but we aren’t. (Laughter)

We haven’t ever timed anything. We’ve never figured out insights into the economy.

I mean, when I was 11 years old, March 12th, I guess, 1942 — or March 11th — you
know, I bought stock when the Dow was 90 — well, it was 101 in the morning — It
was 99 at the end of the day I think — and, you know, now it’s 34,000, or maybe it’s
1,000 less than it was on Thursday. (Laughter)

But, you know, it’s one decision that it’s a good thing to own American business.

And, you know, if the Harvard endowment had come to see me as an 11-year-old,
(laughs) you know, or General Motors’ pension fund or something and, you know,
they say, well, no, but we have to have a balance. And we have to maybe have 60%.
And then we have to sit around every three months and listen to a bunch of managers.

They’d have just done better if they’d just taken some darts and thrown them and just
said, we’re going to be in America 50 years from now and 100 years from now, and
we’ll do better in stocks than we will in bonds.

It’s amazing how hard people make what a simple game it is.

But of course, if they told everybody what a simple game it was then 90% of the
income or more of the people that were speaking would disappear.

So, it’s really a little too much of us to expect of human nature that people will
explain why they really aren’t adding any value to what you can do by yourself.

Or actually, you’re, you know — I hate to use the example — but you can have
monkeys throwing darts at the page. And, you know, take away the management fees
and everything, I’ll bet on the monkeys.

But I don’t consider them a superior species. And I don’t want them to move next-
door instead of my next-door neighbor or (laughs) anything, but it’s just the way it has
to be.

Charlie, do you have anything cheerful to say? (Laughter)

18. “Capitalism is very peculiar in how it dishes out rewards”

CHARLIE MUNGER: Well, frequently in the wealth advisory business, the way it
used to be, you go to your investment advisor, you say, what should I do to protect
myself for the future?

And he says, why don’t you give me $50,000 of your net worth now? That’s my
contribution to your future. (Laughter)

It’s a peculiar business. (Laughter)

WARREN BUFFETT: Yeah, and it’s a great play because you (unintelligible) rich.
It’s still a —

If you have a son or daughter that really wants to make money per point of IQ, and per
erg of energy, and all of that, well, tell them to go to Wall Street. I mean, don’t have
them enter the priesthood or anything.

I mean, if that’s what they want. It self-selects. And it always will be the case.

I mean, there’s no reason to despair about humanity because they behave in their self-
interest. They may not actually be behaving in their self-interest over time, but they —
you know, are they happier? Who the hell knows?
But if they just want to make money —

Well, people here in the auditorium saw a little session from the Salomon [Brothers]
episode.

And Gerry Corrigan was then the head of the New York Fed, and that same
committee was grilling him. And they said, Mr. Corr — they were giving him a hard
time — and they said, who was the highest — they said something to this effect, that
— who’s the highest paid guy at Solomon last year?

And he said, well, and he named him — maybe he named him — and he just said he
got — I forget whether it was 20 million last year — and we’re talking 1991 now, too
— he said, maybe he got 20 million.

And the guy says, well, how old is he? And, you know, he said, well, I think he’s —
Corrigan said —something to the effect of, he’s, you know, 26, or something like that.

And then Corrigan couldn’t resist saying, and he can’t even throw a football.
(Laughter)

And the truth was, you know — now, there’s a lot more money in throwing a football
now than there used to be.

You know, one of my heroes was Ted Williams. You know, I think he was making 20
or 25 thousand dollars a year.

You know, just imagine today some guy that bats .230 or .240, you know, and if he
makes it to the bigs, I mean, the money flows in.

And of course, those peoples should sit down and thank the fact that the stadium that
could hold 30,000 or 40,000 people and was the source of revenue for the people who
pay their paychecks, that stadium went from 30,000 to 40,000, because somebody first
invented television and they came up with cable television and they came up with pay
and all that sort of thing.

And nobody knows the names of those people. But capitalism is very, very, very
peculiar in how it dishes out rewards.

And for a while it was better to be in Wall Street than be a .220 or .230 hitter in the
bigs.

And, you know, it is now reversed because of the development of TV, et cetera.

So, it’s a crazy world. Rewards seem very, very, very, very capricious, and they are.

And they don’t seem to any theologian, or even to Charlie and me in our spare time,
the whole thing seems kind of crazy.

But it’s worked awfully well. And even the people who don’t take advantage — get
short-changed by the system — are doing far, far better than if the system hadn’t
gotten changed.

Doesn’t mean that you necessarily shouldn’t work for change, but you should
recognize the limitations of what you can do with humans, put it that way.

OK. Charlie, is there any way you’d like to close the sermon? (Laughs)

19. You should be a better person in the second half of your life
CHARLIE MUNGER: Well, I do think we have a very interesting phenomenon, in —

I would argue that in a lot of the wealth advisory business, people are charging for
skill and delivering closet indexization.
In other words, nobody can stand being that different from the crowd and results.
They’re afraid they’ll lose their fees. So, everybody does the same thing. It’s mildly
ridiculous.

The world is mildly ridiculous. (Laughter)

WARREN BUFFETT: Yeah. But as Charlie pointed out in the movie, which only the
people here saw that, that before we were married, you know, we tried to convince a
couple of young women that we were really more attractive than we were. I mean —
(Laughs)

You can’t expect people not to behave in their self-interest. And that was very
important, that we didn’t disclose all of our weaknesses before the marriage. So —

CHARLIE MUNGER: Warren and I are trying to be a little better. (Laughter)

WARREN BUFFETT: Yeah, that was true--

CHARLIE MUNGER: We may fail a little. And I don’t know about you, but I’ve
slightly improved since I was 17. (Laughter)

WARREN BUFFETT: Yeah, well — (Laughter)

That’s a really interesting point, because if fortune has just showered you with all
kinds of good things you ought to be a better person in the second half of your life
than the first half. I mean, that really should not be asking too much of people.

If they’ve won the ovarian lottery, and they’re born in the United States, and all kinds
of good things have happened to them, and you’ve had a chance to see how stupid you
were and all kinds of things you did, you know, why not have the second half of your
life be better than the first half?
I would say — working from a very low base — but, I mean, I’m not nearly, you
know, by any intelligence test or ability to do any of that, you know, I haven’t learned
anything. But you do learn certain things only by interacting with people.

And you don’t know, when you’re two years old, no matter how much you’re picking
up all kinds of knowledge from the world, the learning machine that’s going on in a
two-year-old’s head is just unbelievable.

But it’s not the same as having 30 or 40 years of experience with actually how the
human animal behaves, which is really, you know, you’re learning all the time about
it.

But that should make you a better person in the second half of your life than the first
half.

And I would say that if you say you’re a better person in the second half and have got
reason to say it in the first half, you know, forget about the first half. (Laughs)

Enjoy the second half.

And both Charlie and I have had the luxury of A, living a long time so we get to play,
what we would regard as the hopeful and respectable second half.

And we have had enough sense to figure out — well, we figured out what makes us
happy. And we’ve gotten somewhat more sensitive to what can make other people
unhappy and all that sort of thing.

And I’d rather be judged by the second half of my life than the first half, and so would
Charlie.

CHARLIE MUNGER: Yeah, of course.

WARREN BUFFETT: OK.

CHARLIE MUNGER: I’m very — I don’t even look at what I did when I was young
because it would embarrass me. (Laughter)

WARREN BUFFETT: Yeah. OK.

Any of you who wish to quiz Charlie on specifics can do so later. (Laughter)

20. Berkshire can’t protect against risk of nuclear weapons

WARREN BUFFETT: Becky.

BECKY QUICK: This question is, there’s a two-part question. It’s for Warren and
Ajit on the first part and for Greg on the second. It comes from Roger Cleffman (PH).

He says, “Several years ago Mr. Buffett was quoted that a nuclear attack is the
greatest risk to Berkshire Hathaway Insurance.

“Given the present circumstances, what would the fallout be on Berkshire Hathaway
Insurance if a nuclear event occurred in the populated world?

“And then secondly, for Greg, has Berkshire Hathaway Energy suffered any physical
or cyberattacks? And irrespective of that, has any special hardening of security been
put into place?”

WARREN BUFFETT: Yeah. Well, the first half, every day since August of 1945 —
and accelerating dramatically when a second large country had the ability to kill
millions of people — which has been magnified by an incredible factor through this,
that there is a risk every day.

It’s a very, very tiny risk. Nut as Ajit will, or anybody at this table could tell you, if
you roll — well, they had a pair of dice out at the Desert Inn in Las Vegas for a while
under a glass thing. And some guy had thrown 32 passes in a row. And I don’t know,
maybe the odds are eight million to one against that or four million to one — four
billion to one against it.

But, you know, if you just keep rolling the dice, you know, everything will happen. I
mean, if you get 330 million Americans out tomorrow, every American says, heads or
tails, and they do it every day, after 10 days, you know, you’ve got 330,000 of them
that have called the flip 10 times in a row.

And if you do it 10 more days, you’ve still got a bunch of people who’ve done it 20
times in a row. And they really think they have learned how to control the flip.

Well, the answer is the world is flipping a coin every day as to whether people who
can literally destroy the planet as we know it, you know, will do it.

And unfortunately, the major problem is with people that have large stocks of nuclear
weapons and ICBMs.

And when they talk about using tactile [tactical] nuclear weapons because somebody
will be upset because they’re losing a war, I mean, does anybody think that somebody
that’s willing to kill, you know, hundreds of thousands of people with tactile weapons,
you know, why do they stop?

It is a very, very, very, very dangerous world. And —

CHARLIE MUNGER: But we don’t have any way of —

WARREN BUFFETT: No —

CHARLIE MUNGER: — protecting —

WARREN BUFFETT: There’s no way to pro —

CHARLIE MUNGER: — against a big nuclear attack.

I know a man who said, I know what I’m going to do if there’s a nuclear war. I’m
going to crawl under the table and kiss my ass goodbye. (Laughter)

WARREN BUFFETT: Well, yeah. And Charlie’s in charge of loss control at

Berkshire. (Laughter)

We have no solution for it.

CHARLIE MUNGER: No, we don’t.

WARREN BUFFETT: And there isn’t any solution for it.

And, you know, it’s extraordinary when you think about it, in August of 1939 —
September 1st is, you know, when Hitler moved into Poland — but nobody really
knew that much about it here. I mean, you know, the news you got you got from the
news reel you went to because the theater was air conditioned, you know, or
something.

So, if I went to the movies — which you wanted to do in the summer because it was
air conditioned in August of — well, September 1st in the case of the actual
movement into Poland — but, you know, it was a few people on a screen and some
guy with an authoritative voice telling you that German forces just moved into Poland
and a picture of a few tanks, maybe. And it was over in a minute.

Now of course all day, every day you see people dying who you very much empathize
with, and it could be you instead of them. And it’s just so different.

But in August of 1939, there was a letter sent to President [Franklin] Roosevelt about
a month ahead of time.

And why did he get that letter? He got the letter because Hitler was so anti-Semitic,
basically.

He drove all the Jews that could see it coming out of Germany. And among them were
some great scientists.

And Leo Szilard, who was obviously from Hungary, from somehow he got driven out.
Einstein got driven out.

And Leo Szilard lands eventually in the United States. And he writes a letter to tell the
president of the United States, Franklin D. Roosevelt, that there’s a bunch of uranium
moving different ways or whatever it may be. I don’t know anything about physics,
zero. I don’t know about the off and on sign of it.

But in any event, I know what the letter did. Because he writes a letter and says, you
know, something big may happen in physics and America better get to it first.

But then he has the problem of, how do I get it to Roosevelt? You know, Leo Szilard,
who’s he to the president of the United States?

So, he figures if he gets Einstein to cosign it that the president will pay attention. And
he’s right. So (laughs) he goes and gets Einstein and the two of them send the letter.

And they send it to Roosevelt. And they wouldn’t necessarily have been in the United
States if Hitler hadn’t had the crazy views about Jews, basically.

And so anyway, that letter went, and we developed the atom bomb before anybody
else did.

And it was a very, very fortunate development that Leo Szilard and Einstein happened
to end up in the United States rather than perhaps be someplace else. Who knows?

But the accidents of history — and there’s going to be more accidents in connection
with atomic weapons.

You know, we’ve come close for various times. I mean, we had the geese flying over,
you know, somewhere up north and NORAD gets a crazy signal.

And we’ve had wrong training tapes placed over in the Soviet Union or some, you
know, and it looks like things are going on.

We can’t do anything about it. And that is one risk that Berkshire absolutely has no
interest in, even though you can say everybody in the world should have an interest.
But it doesn’t do us any good — you know, the feeling is that it doesn’t do us any
good to think about it.

But that doesn’t stop the fact that there are two powers in the world that, through
miscalculation of the other’s intentions, through all kinds of things, you know, have
come close in the past. And Charlie and I lived through the Cuban Missile Crisis.

And, you know, we knew there was some chance that weapons of mass destruction
would be used.

And believe me that there’s a lot more bad that can happen.

And humanity has not really come up with a counterforce to technology. I mean, back
in the caveman ages, if you were a sociopath or something, you threw a rock at the
guy in the next cave, you know, or something. I mean, it was sort of proportional.

And we kept developing, and there was this breakthrough where technology has
totally outrun humanity. And we’ll see what happens. But so far so good.
And Berkshire does not have an answer, though. There are certain things we don’t
write policies on because we wouldn’t be able to make good on them anyway, you
know, for that matter.

And everybody would know we wouldn’t be able to make good on them.

You have that risk, and there’s nothing Berkshire can protect you against. And we’ve
been very lucky so far.

Ajit, do you ever get any questions, in terms of —

AJIT JAIN: In addition to all what Warren has said, in terms of the chance of
something like this happening, the additional thing that concerns me about a nuclear
situation is my — my lack of ability to really estimate what our real exposure is in the
event of a nuclear event.

When you’re talking about, you know, other big exposures we have: earthquake and
hurricane and cyber, I can, with some reasonable degree of accuracy, have a point of
view in terms of how large our exposures can be, and how big our loss can be.

When it comes a nuclear thing, you know, I sort of surrender.

You know, it’s very difficult for us to estimate how bad “bad” can be.

Very many different lines of exposures will be affected by it. And even though, in
almost all our kind of contracts, we try and exclude nuclear as a covered peril,
nevertheless, if something like that were to happen, I’m fairly positive that the
regulators and the courts will hold it against the insurers, and they’ll rewrite the
contract and we’ll be required to pay.

For example, one thing which is already being talked about: we issue what are called
“fire policies.” And these fire policies try and exclude nuclear as a covered peril.
But there are several regulators who feel that, gee, if it’s a fire policy, and if the
nuclear attack causes a fire, then how can you exclude fire? And you better include
fire.

So, you know, debates like that we will have to live with, and it’ll be very difficult for
the insurance industry to fight back with the regulators and the court systems in terms
of what is covered and what is not covered.

WARREN BUFFETT: And there won’t be any regulators or anybody else. So —

(Laughter)

We’ll leave it to a million years of reconstruction. (Laughs)

Einstein said that, “I know not what the weapons will be for World War III. But I
know the weapons for World War IV will be sticks and stones.”

You know, there’s a lot of things that — I mean—

If you’re worried about the effect of nuclear attacks, you got other things to worry
about than the value of your Berkshire, I’ll put it that way. (Laughter)

And what other cheerful things can we have?

Station —

21. Berkshire is constantly working to block cyberattacks

GREG ABEL: Warren, do you want me to touch on the cyber?

WARREN BUFFETT: Oh, yeah, sure.

GREG ABEL: Yeah, I’ll just touch on the cyber because it was raised.

And when you do think of Berkshire and they use Berkshire Hathaway Energy as a
reference.

But cyberrisk, and managing that risk, both at Berkshire, really falls across all of our
subsidiaries.

And it’s a constant risk that’s there. It’s one of our greatest risks we’re always
evaluating and trying to literally defend against.

And if we use Berkshire Hathaway Energy as an example, we would receive billions

of attacks every day against our various operating systems.

So that’s basically what our team is in place for: both-- they harden the assets to
deflect it, and then evaluating the underlying attacks we have, you know, every second
of the day.

And, by the way, that would — we’d have a number of operating subsidiaries that
experience that. But, obviously, it’s the rail, and the energy, and a few others that we
spend a lot of time on, a lot of effort, a lot of resources.

And the good news is that through to today, our teams have done an exceptional job,
we really haven’t had a significant event. We’ve had some minor events at small
businesses, but across our major businesses, across our major operating systems,
we’ve had the proper security protocol in place to avoid events.

But, again, it never stops. Our team would tell you that, every day, that’s a risk they
recognize and a risk they’re addressing within the businesses.
So, a significant risk, but a significant priority for all of our operating teams.

WARREN BUFFETT: Yeah, and I would add one thing, I think. Greg knows way
more about this than I do, but my impression, from everything I’ve seen, is that, you
know, you always have — you know, historically, the private industry has always said
the government can’t do anything right, and government always says that private
industry is just thinking about itself, all these things.

The truth is, from everything I’ve seen, is that the cooperation between government
and business in terms of trying to minimize the threat of cyber problems, I think, has
been magnificent, basically.

GREG ABEL: Yeah, excellent point. When it comes to cyber, the collaboration
between a variety of U.S. agencies and our individual businesses, it’s incredibly
strong.

Including down to certain agencies will submit basically a lot of our operating data on
a daily basis, where they’re helping us go through it to identify if we have a bad
character, a bad individual who’s maybe penetrated into our system.

So, it’s a strong collaboration. And Warren, you’re absolutely right, it’s very unique to
see how both the industry and the government is working so closely. But I think we
both recognize it as such a significant risk, we have to stay strongly aligned on the
approach.

WARREN BUFFETT: It’s a real partnership.

It’s a real partnership. And we can do better because the government is helping us,
and the government can do better because we’re helping them, and there’s no lack of
will on either side.

And cyber, I mean, it blows your mind. And nuclear is the number one threat, but it’s
a very, very, very low probability, you know?
Someday, the sun will burn out, too, you know.

But there’s really no place for two countries with large ICBM possibilities, and who
knows what else and everything — but we haven’t figured that out yet. You know.

It’s easy to go around and say, this is the solution or that’s the solution.

But, you know, if you have two people with loaded guns facing each other, and, you
know —

CHARLIE MUNGER: And not everybody is likely to be totally rational.

WARREN BUFFETT: Oh, we see so much irrational — irrationality in where

people’s self-interest is involved, you know, they’re doing all kinds of things to
destroy themselves, in terms of how they live their lives, and everything.

And, you know, it doesn’t stop with — (laughs) — as you move up the ladder.

You know, people — some people do terrible things. And you just have to very much
hope that they aren’t in a position where they can do it all by themselves with the rest
of the world as their supposed prize.

22. Best investment: “Be exceptionally good at something”

WARREN BUFFETT: OK. If station 3 will please ask something about motherhood
and apple pie, or something like that. (Laughter)

DAPHNE: Dear Mr. Buffet and Mr. Munger. My name is Daphne, I’m from NYC,
and this is my fifth annual shareholders meeting. (Applause)
WARREN BUFFETT: Well, we appreciate you coming. We do, sincerely.

DAPHNE: As you know, for the past four consecutive months, we’ve been going
through inflation, with an inflation rate north of 7% for the first time since 1982.

You both have experienced this before, from 1970 to 1975, at a time where your
portfolio took paper losses and yet you made some of the best investment choices of
your life.

Reflecting on that, my question is, if you had to pick one stock to bet on — (Laughter)

WARREN BUFFETT: You kinda sneaked up on us there for a second. (Laughter)

DAPHNE: — and be resilient in the inflation, which would you choose? And what
specifically enables that stock to do very well in what might very likely be a difficult
market?

WARREN BUFFETT: Well, I’ll tell you something even better than that one stock.
(Laughter)

Maybe we’ll get to one stock.

But the best thing you can do is to be exceptionally good at something. If you’re the
best doctor in town, if you’re the best lawyer in town, if you’re the best whatever it
may be, no matter whether people are paying you with a zillion dollars or paying with
— they’re going to give you some of what they produce in exchange for what you
deliver.

And if you’re the one they pick out to do any particular activity, sing, or play baseball,
or be their lawyer, whatever it may be, whatever abilities you have can’t be taken
away from you, they can’t actually be inflated away from you.
Somebody else will give you some of the wheat they produce, or the cotton, or
whatever it may be, and they will trade you for the skill you have.

So, the best investment by far is anything that develops yourself. And, again, it’s not
taxed. (Applause) So that’s what I would do.

CHARLIE MUNGER: I got some advice for you, too. (Laughter)

When you have your own retirement account, and your friendly advisor suggests you
put all the money into bitcoin — (laughter) — just say no. (Laughter) (Applause)

WARREN BUFFETT: Yeah.

Nobody can take away from you the talent you have. And the truth is that the world
will always be willing. They’ll need to do something, and some people will not have
skills, and they will get less of a the product of the society than somebody who has
other skills.

And sometimes that has something to do with education, but a good bit of the time it
doesn’t have anything to do with education.

But, just figure out what you’d like to be, and figure out how — and what you’d like
to be is what you’re going to likely be good at, and, you know —

The world will always need somebody on that tube to tell us what’s going on. So, you
know, study Becky Quick or somebody and (laughs) figure out, you know, what
makes her good. And what you sort of naturally bring to the game.

I mean, I could have — who’s the guy that says you’ve got to spend 10,000 hours
doing this or that, and then? Malcolm Gladwell.

Malcolm Gladwell, you know, would say, just spend 10,000 hours on something.
Well, I could have spent 10,000 trying to become a heavyweight boxer, but (laughs) I
don’t think would have felt very good at the end of the 10,000 hours. I mean —

And, you know, you stumble into what you really like doing, what you’re good at,
what is useful to society. And then it doesn’t make any difference what the dollar bill,
you know, is now worth, in terms of the purchasing power, a cent, or a half-a-cent, or
a hundredth of a cent.

If you’re the best doctor in town, you know — they’ll bring you chickens, whatever
they may do — but they can’t take it away from you.

And my guess is that — if you’ve come to five meetings, you know, you’ve got a very
good future ahead of you. I mean, that shows — (Laughter)

It self-selects, I mean —

So, if you want to sell a piece of yourself, you know, we’ll buy that as the best
investment we can make. We’ll take 10% of your future earnings, and we’ll give you
a cash payment now. (Laughter)

And, you know, we’ll have a terrific asset. And you can have 100% of your future
earnings. And if you develop your talent — maybe you’ll be a great dancer — people
pay money to watch great dancers. We had Fred Astaire and his sister, Adele, that
came from Omaha, you know.

Their name was Austerlitz then, but they could dance. And Adele did whatever she
did with him, moved to England. And Fred Astaire went on to do a whole bunch of
other things.

And Ginger Rogers had to do it all the same, backwards, in high heels, and she didn’t
get paid as much because she was a woman.
But you’re going to do just fine. I’d bet a lot of money on you. (Laughs)

23. “Berkshire is built for forever. There is no finish point”

WARREN BUFFETT: OK. Becky?

BECKY QUICK: This question is for Warren and Ajit. And it comes from someone
named Modi, in Israel, who writes, “My family and I are long-term shareholders of
Berkshire and we plan to hold it forever. We like that the current management thinks
in the long term to increase shareholder intrinsic value.

“But we aren’t sure that, at the time of the management change, the new management
will act the same way you do.

“It might take risks in the insurance field where it’s hard to find on the balance sheet,
and that might take years to realize.

“We would like to know how we can assess the insurance risk today and in the future,
or to know in time, when you and Ajit are not here anymore.”

WARREN BUFFETT: Well, I would say that the future, for a long time, is about as
assured as you can have in the world.

We don’t have an answer for the nuclear problem or anything, but we have a culture
that a), has worked; b) has the shares, and the shareholders, that will carry it a long
way.

And, you know, the first year — let’s say I die tomorrow — the first year, you know,
everybody says, you know, what’s going to happen? Are they going to spin it off?
They can do all these things.

You’ve got the shares held in a place that it can’t happen. You’ve got a board of
directors that understands that our culture is 99.9% of running the business.
They don’t think that having meetings of the committees, and bringing in outside
experts, or anything like that, mean a thing.

I mean, it’s a process that the world has adopted, and they’ve done it for reasons we
understand. But Berkshire’s just plain different, you know.

We are a business that exists for people to trust us. And all we have to do to fulfill that
trust is fairly simple things.

We’ve got the people to do it. We’ve got unbelievable resources to do it.

And it isn’t that difficult, as long as you’ve got the freedom, essentially, to do it.

And the world will write stories a year after, “So a year later, what has happened at
Berkshire?”

You know, the railroad will be run the same way.

The big worry, of course, is that somebody comes in, figures they can make billions if,
as a group, or, you know, people that sell the businesses and say, it’s better to be
private, you know, or it’s better to be ‘pure’ this, or something like that.

Well, you know, we’re a pure partnership, is what we’re pure at. (Laughs)

And we do have what we think is a special relationship with our owners. And I don’t
think the relationship changes, and the ownership doesn’t change that much.

And, true, there’s nobody can take us over for a long, long time. And, by that point,
we would hope that maybe the superiority of this culture might be somewhat better
understood by the world.

And we will be here— if we have the same culture, we’ll be 100 years from now —
assuming that, you know, we haven’t had a nuclear exchange or something.

But Berkshire is built for forever. There is no finish point.

Nobody’s waiting to retire, or have their options vested, or thinking about — we don’t
have anybody that’s thinking about, should I take another job? You know, they’re
doing what they want to do in life.

And it isn’t because, you know, we’re topping somebody else’s offer, or that
headhunters come around and say, we want this person or that person, and what’ll it
take to get him? Well, they can’t get him.

Now, I don’t know whether we could build it again, but we’ve got it. And we didn’t
know we were building it, exactly, when we took over.

You know, we had a lousy textile mill. I mean, it isn’t like Charlie and I sat down —
he didn’t happen to be in Berkshire, but he was my partner and everything, and so we
were mental partners — we didn’t sit down and work out some plan that said, well,
we’ll run the dumb textile business for 20 years, and then we’ll finally have to fold it,
and then we’ll do this and that and everything. We just kept putting one foot in front
of the other.

But we did know how we felt about running a public company.

And one thing we wanted to do, always, was we wanted to have people that were in
synch with us. We don’t really want that group I saw in the Flamingo, you know, in
1952. We wanted people who trusted us.

And we started, in my case, in the partnership, we started with seven. And Charlie
started a partnership, but this is the same thing.

We didn’t go to institutions. And we didn’t pay fees to people to bring in money or

anything like that.

We sat down with people. In my case, I handed them a little sheet of paper, and it set
the ground rules. I wanted to be sure we were on the same page.

I said, you don’t have to read the partnership agreement. I mean, there’s no way in the
world I would be taking advantage of you. I shouldn’t be here if you think I’d take —

But I do want you to be on the same page, and measuring me by the same yardsticks I
measure myself.

And those people stayed with me, and they’re still— they, or their children, or their
children’s children are shareholders of Berkshire. But they’re partners.

And it would be hard to do that again, but I would do it with — if I were going to be
in this field, I would try and do the same thing. I would try to find people to trust me.

And I don’t want to be with people that are saying, how’d you do versus the S&P, you
know, last month? Or, you know, what’s your long/short position? Or anything like
that.

I sold securities for three years. And I just didn’t want to be in that position, where
essentially, they thought maybe that I could do things that I couldn’t do. So, I finally
found a way to get a few people — I mean, I didn’t — actually, I stumbled into it —
but a few people that trusted me, and they just gave me their money. And we’ve lived
happily-ever-after.

So, the new management — and the management after them, and the management
after them — (coughs) — they’re just — excuse me — they’re just custodians of a
culture that’s embedded. The owners believe in it. People that work there believe in it.

And we’re not saying other things can’t do better, or anything of the sort. We’re just
saying, this is what we’ve got. And we have got the directors, we’ve got the share
ownership and all of that to — and the size that, essentially, can ward off any attempts
to change the culture.

And, you know, it’s silly to talk about, if our board members did this, and did that,
and they, you know —

In the end, obviously, we’re always going to follow the law. We’re a Delaware
company and we follow Delaware law.

But that doesn’t mean that we have to do what every other Delaware corporation does,
and how they look at the Delaware statues. We will follow the law, and then we’ll run
it as a group of people who trust us. And we appreciate that trust. Charlie?

24. “Keep learning”

CHARLIE MUNGER: Well, I remember when you had a textile mill —

WARREN BUFFETT: Oh, god.

CHARLIE MUNGER: — and it couldn’t —

WARREN BUFFETT: I try to forget it. (Laughs)

CHARLIE MUNGER: — and the textiles are really just congealed electricity, the way
modern technology works.

And the TVA rates were 60% lower than the rates in New England. It was an
absolutely hopeless hand, and you had the sense to fold it.

WARREN BUFFETT: Twenty-five years later, yeah. (Laughs)

CHARLIE MUNGER: Well, you didn’t pour more money into it.

WARREN BUFFETT: No, that’s right.

CHARLIE MUNGER: And, no — recognizing reality, when it’s really awful, and
taking appropriate action, just involves, often, just the most elementary good sense.

How in the hell can you run a textile mill in New England when your competitors are
paying way lower power rates?

WARREN BUFFETT: And I’ll tell you another problem with it, too. I mean, the
fellow that I put in to run it was a really good guy. I mean, he was 100% honest with
me in every way. And he was a decent human being, and he knew textiles.

And if he’d been a jerk, it would have been a lot easier. I would have probably
thought differently about it.

But we just stumbled along for a while. And then, you know, we got lucky that Jack
Ringwalt decided to sell his insurance company [National Indemnity] and we did this
and that.

But I even bought a second textile company in New Hampshire, I mean, I don’t know
how many — seven or eight years later.

I’m going to talk some about dumb decisions, maybe after lunch we’ll do it a little.
It is incredible how many dumb decisions we made. Charlie and I bought that — and
Sandy Gottesman — we bought that department store, and that was in 1966.

And, you know, we were working with our own money. And why in the world did we
think —

And Charlie flew to Baltimore, and I’d fly — I mean, we used to really work in those
days. (Laughs)

And, there again, we had wonderful people. Louis Cohen couldn’t have been a better
guy.

But everybody in that business had a different reference point. You know, they
wanted to expand their company. Well, who can blame them for that? And, you know,
they were planning a couple of new stores. And each department — the shoe
department said, well, we’ll do it better this time, and all that kind of thing.

But the whole idea was crazy. And we got there for a little while, and we figured it
out, finally. And —

CHARLIE MUNGER: We reversed course.

WARREN BUFFETT: Yeah. But why the hell did we do it in the first place? (Laughs)

CHARLIE MUNGER: Well, because we were stupid.

WARREN BUFFETT: Yeah, OK, well — (Laughter)

That’s important to realize. We paid $6 a share for that stock, and if the department
store had succeeded, it might be worth, you know, $30 a share now and we’d have —
and it failed, so.

But we did other things, and we merged it into Berkshire, and we’ll talk about that a
little later.

And, you know, now I don’t know whether it’s — $150,000 a share now, or
something like that, from the six bucks. So, if it succeeded, we would have maybe
made a few dollars. And because it failed, we made hundreds of thousands of dollars
per share.

But that’s the way life is. (Laughs)

You just keep going. And —

CHARLIE MUNGER: And keep learning, that’s the secret.

WARREN BUFFETT: Keep learning.

CHARLIE MUNGER: Keep learning.

WARREN BUFFETT: Keep learning.

25. The “aha” moment for Buffett that changed everything

WARREN BUFFETT: And you can say, why would it take guys that long to learn?

And — well, we’ve got a few minutes before lunch. We should — let’s address that
problem. Because I did bring something along on that.

I started buying stocks when I was 11. I’d been reading every book in the library on it.
I loved it. My dad loved — you know, it was his business and I’d get to go down to
his office and I’d read the books down there.

And I saved the money, and finally, by the time I was 11, I could buy a stock. And I
could tell you, at that time — I went to New York Stock Exchange when I was nine.
My dad took us to New York — each kid to New York once — and he took me, and I
went to the New York Stock Exchange, and I was in awe of it.

I could tell you how the specialist system worked, and the odd lot arrangements, and I
could tell you the history of finance, and all of these things.

And then I got very interested in technical analysis, and charted stocks, and did all
kinds of crazy things. Hours and hours and hours. And saved money to buy other
stocks. And tried shorting. And I just did everything.

And then, when I was either 19 or 20, and I can’t remember exactly where I did it or
something, I picked up a book someplace.

It wasn’t a textbook at school, but it was in Lincoln, Nebraska. And I — you know, I
looked at this book, and I saw one paragraph, and it told me I’d been doing everything
wrong. (Laughs)

I just had the whole approach wrong.

I thought I was in the business of trying to pick stocks that would go up.

And, in one paragraph, I saw that that was totally foolish.

And I’ve brought something that is really interesting. Let’s put up — what did we call
this chart?
Oh, here we are, yeah.

Let’s put up [slide] illusion one. Done. There we have it.

You know, now if you look at that, some people will see two faces, some people will
see a vase, and some people will look a long time and only see two faces. But the
mind flips from one side to another, and there’s some name for it that — they call it
“ambiguous illusions” or something of the sort.

There’s other things that talk about aha moments — or, in the old comic strips with
Popeye, Wimpy would have a little balloon over his head, and the lightbulb would go
on.

There’s this point where all of a sudden you see something you haven’t seen. Well, it
took me — I had an illusion that I was looking at, we’ll say in that one, two faces.

Go to the — let’s go to the one labeled two.

And if you’re looking at it from one side, it looks like a rabbit, and if you look the
other way, it looks like you’re looking at a duck.

And, you know, the mind is a very funny place.

And I think people call it an apperceptive mass, when you have all kinds of things
going on in your mind. And they go on for years, and they sit there and get lost
(laughs).

And then, all of a sudden, you see something different than what you were seeing
before.

Now, it took me, in stocks, which I was intensely interested in, and I had a decent IQ,
and I was reading and thinking, you know. And it was important to me to make some
money on it. I had every motivation in the world. And then I read a chapter — I read a
paragraph, actually — in chapter 8, I think it was, of the Intelligent Investor, and it
told me that I wasn’t looking at the duck, I was looking, you know — now it was the
rabbit — whatever it may be.

And whether you call it a lightbulb” — whether you call it, you know, a moment of
truth — whatever it may be — and that happened to me in Lincoln. I mean, it changed
my life.

If I hadn’t read that book, I don’t know how long I would have gone on looking for
head-and-shoulders formations, and 200-day moving averages, and the odd lot ratios,
and a zillion things. And I love that kind of stuff. Except it was the wrong stuff I was
looking at.

And I’ve had that happen — and Charlie’s had it happen, I’m sure. It happens a few
times in your life. And all of a sudden, you see something important that, why in the
hell didn’t I see this in the first place? Maybe it’s a week ago, maybe it’s a year ago,
maybe it’s five years ago.

Maybe it’s learning how to get along with people, you know. I mean, whether,
actually, it’s better to be, you know, kind, or not, you know.

Or whether —I mean, they’re just — learning how — if you want the world to love
you, what you have to do, or whatever.

You know it when you see it, but you didn’t see it for ten years before.

And I don’t know whether Charlie’s got some thoughts on that or not, but that’s
happened in a few situations in business, where I’ve looked at a company for a
decade. And then there’s something that just all gets rearranged in your mind, and,
you know, you can say, well, why didn’t I see this five years ago?

But I’ve had it happen a few times, obviously — and everybody here has — just in
different areas of their lives.

And you think, how could I have been so stupid?

Well, that’s what Charlie’s — when he was in the law practice, he had a partner, Roy
Tolles. And every smart guy that would get in trouble — usually it was guys, and
usually it was with women — and, you know, they’d come into the office, and they’d
look, you know, down-faced and everything. And they’d say, it seemed like a good
idea at the time, you know. I mean — (Laughter)

And their lives unraveled, you know, in many cases.

So, there is that apperceptive mass that’s sitting in there inside somehow, and every
now and then it produces some insight.

It’s better, actually, if it produces insight into your behavior than whether it produces
insight to make money.

And some people never get it. And they wonder why — you know, whether their kids
hate them, or whether there’s nobody in the world that would give a damn whether
they live or die.

In fact, they prefer they die because they’ve been courting them for their art
collection, or whatever it may be. It’s just —

Charlie would say, you know, just write your obituary and reverse engineer it.

And not a crazy idea, but, Charlie, I don’t know. What do you know about
apperceptive masses? Which are (laughs) you know, optical illusions.

CHARLIE MUNGER: Well, I know that that’s the way the brain works. And that it’s
easy to get it wrong. And part of the trick is to get so you correct your own mistakes.
And we’ve done a lot of that.

WARREN BUFFETT: Yeah.

CHARLIE MUNGER: Frequently way too late.

WARREN BUFFETT: Yeah. We’ve done better with the mistakes than we have with
the good — the reasonably good ideas.

26. Robinhood’s “unraveling” is God’s justice

CHARLIE MUNGER: Well, it’s so easy to overdo a good idea.

That’s what’s going on now. You have a lot of good ideas that are being grossly
overdone.

WARREN BUFFETT: Well, just tell me about one that hasn’t been, but tell me later,
when the crowd isn’t listening. (Laughs)

It — I mean, that’s where —

CHARLIE MUNGER: But look what happened to Robinhood, from its peak to its
trough.

Wasn’t that pretty obvious, that something like that was going to happen?

WARREN BUFFETT: Tell me again? What should —

CHARLIE MUNGER: Robinhood. Remember, it came out, and it went public, and —
WARREN BUFFETT: Oh.

CHARLIE MUNGER: — it lured everybody into all this short-term gambling, and big
commissions, and hidden kickbacks, and so on and so on. It was disgusting.

WARREN BUFFETT: Yeah. And you said so last year, and they got mad at you, and
they sold a bunch of their stock, and they’ve got the money, and —

CHARLIE MUNGER: Yeah, but now it’s unraveling. God is getting just.

WARREN BUFFETT: I love the insiders of great — no, but they’ve gotten a lot of
money from it. I mean, they were big sellers, as I remember.

CHARLIE MUNGER: That may be —

WARREN BUFFETT: Yeah.

CHARLIE MUNGER: — but there’s been some justice.

WARREN BUFFETT: Well, I happen to agree with that. (Applause)

Whether it’s a good idea to go around making enemies of people, though, that —
that’s another question, which we do.

Is it wise to criticize people at all?

CHARLIE MUNGER: Probably not, but I can’t help it.

WARREN BUFFETT: (Laughs) (Applause)

Well — and here’s the smartest guy I know, and he’s 98 and he hasn’t figured it out
yet, so — (Laughter)

Give up. Enjoy it.

Well, with that we’ll go to lunch, and we’ll try to come back wiser at one o’clock.

WARREN BUFFETT: Station four.

JEFF VUVOLOY: Hi Warren and Charlie. I’m Jeff Vuvoloy (PH), shareholder from
San Francisco.

In recent years, American companies have taken on a more active role in the political
realm. Whether it is speaking out against specific bills, or promoting various social
causes, often at the behest of shareholder or employee groups.

While the goals of these movements can be laudable, they risk alienating significant
portions of customer and employee bases. How should CEOs decide which issues to
take a stand on, or whether their companies should engage in the political realm at all?
Thank you.

WARREN BUFFETT: That’s a terrific question, and that is one obviously I’ve had to
think about plenty.

And at one point I said, “I don’t put my citizenship in a blind trust when I take the job
as CEO of Berkshire.” But I’ve also learned that — you can make a whole lot more
people sustainably mad than you can make temporarily happy by speaking out on any
subject.

And on certain subjects, they will take it out on our companies, and that means that
the people that are employed by us, some of them we would end up letting go. It
means that the shareholders get hurt. And do I really think that it’s so important that I
talk on every possible subject that people can get very upset about? Whether they
should be asked to pay that price?

And I’ve come to the conclusion, the answer is no. Why in the world do I want to hurt
the people in that other room that do all kinds of things for Berkshire. Why do I want
to hurt you because I say something that 20% of the country is going to instantly
disagree with, and sometimes they will be so upset about it that they will try and take
it out.

And since they can’t scream at me, they may have campaigns against our companies
or anything else. So I think, as it applies to me, I’m not going to go around and take
positions where instead of saying, “Warren Buffett says,” it will say, you know,
“Berkshire Hathaway,” or “Warren Buffett of Berkshire Hathaway.”

I get identified. And I do not want to make the lives of you — and I’ve just decided
I’m not going to be doing that. And if I want to do that, I should quit my job. If I think
my citizenship, speaking out is that important, I’ll give up what I love the most, which
is having this job. (Laughs)

I don’t want to do that. So, I’ve decidedly backed off, I don’t want to say anything
that’ll get attributed, basically to Berkshire, and have somebody else bear the
consequences of what I talk about.

So that’s where I stand. And I can tell you that at most companies, or many — that
isn’t fair. But in the great many companies, you know, CEOs, they have to think about
what their board says to them, and they’ve made a point of electing people to their
boards, because it’s socially acceptable, who represent different constituencies,
sometimes very strongly.

And if they think their stakeholders, for this group and that group and that group,
they’ll get pressured by their boards to take positions. And it’s just a territory that
we’re not going to get into.
Charlie, how do you feel about that?

CHARLIE MUNGER: Well, even more than you, I have to be very careful about
what I say. (Laughter)

Now — (Laughter)

MALE VOICE: Yeah. It’s — (Applause)

WARREN BUFFETT: And the difference between the two of us is I can’t resist
saying a little more. (Laughter) I see headlines in papers, just time after time after
time, that say, “Buffett’s buying such and such.” Well, I’m not buying such and such.
Berkshire Hathaway is buying it, and it may be the work of two other people that
work at Berkshire.”

And people who write the articles don’t have the faintest idea whether it was at my
instigation or whether I’d even heard of it. But the headline will attract more people if
it says, “Buffett buying this,” than if it says, “Berkshire Hathaway, and we don’t know
whether it’s the people that work for him or him.”

The headline is designed to bring people into the story. So —

The confusion is terrible. And the easiest thing to do is to basically shut up and not
have a bunch of people fascinating questions that they didn’t ask for in the first place.

But I’m glad you asked that question. That is a good question. And I probably thought
more about that question than I think about whether this stock or that stock is cheap.

3. Berkshire is not a “weapon” to be used politically

WARREN BUFFETT: And with that, we’ll go to — well, let’s see. That was station
four. We’ll go back to Becky.
BECKY QUICK: On that note, let’s go to a question from David Cass.

He writes in, “President Biden’s fiscal 2023 budget request would impose a 20%
minimum tax on the unrealized capital gains for households worth at least $100
million. What are your views on this issue?”

And if you don’t want to answer, maybe Charlie does. (Laughter)

WARREN BUFFETT: Well, we’ll find out. (Laughter) And in all honesty, we should
both say that we would be affected by it. If it’s $100 million, we’d both be affected.
So our point of view is — and I have no point of view. Charlie? I have no point of
view that I would want attributed to —

CHARLIE MUNGER: I tend to stay out of the income tax things like this. My policy
is I pay whatever taxes they pass, and I don’t want to engage in lobbying about taxes.

WARREN BUFFETT: Yeah. (Applause) And I would add one thing. Lobbying is
really distasteful. I once did it for a candidate, and I ended up in a room with a bunch
of lobbyists for cigarette companies. They didn’t care about Nebraska. They didn’t
care about — and they didn’t have anything. They were there because they were
handing over a contribution. And I was a convenient accessory. And, you know, it
made you want to throw up, basically.

On the other hand, we operate in the railroad business, energy business, insurance
business, and they’re extensively regulated. And I don’t also want to be the only
railroad that stays out of the railroad group. The only insurance company that stays
out of the insurance group.

So, you know, other people can rightly figure that we’re a free rider under those
circumstances. So I tell the managers generally, you know, “Don’t spend Berkshire’s
money on candidates that you like. Don’t pressure suppliers to do —” Berkshire is not
a weapon to use — and it’s been used by certain people in the organization. But don’t
use it to muscle money out of anybody else for who you like or what school your wife
went to or whatever it may be. And some of it goes on anyway.
But I don’t tell our people to don’t belong to any trade associations. Charlie wrote one
of the great letters of all time, and if you go to search, type in I think 1989 Munger
savings and loan or something. We resigned from the U.S. Savings and Loan League,
I guess it was.

And we warned them. We said, “We just cannot stand, you know, what you’re doing
to the country.” And when a bunch of very nice people get together, but they decided
it’s in the interest of their savings and loan to do this or that.

And we warned them, and finally Charlie wrote a letter, which is, like I say, available
on search. And it should be one of the proudest letters — certainly one of the proudest
letters that’s ever come out of Berkshire. And he just said, “We can’t stand it
anymore, and we’re resigning.”

But that’s a very tough thing to do. It’s a tough way to live, to just go around
criticizing (Laughs) the people you work with, and neighbors. And they’re perfectly
decent people, but they’re running institutions that are doing things that are very
distasteful to them.

And we belong, support some of our subsidiaries in energy. And, you know, I don’t
want to find people are doing it for personal reasons. I mean in that case, they’re in
trouble. But I don’t say they can’t do it, because I don’t want their hands tied if
something comes up, and essentially either their competitors within the industry or the
industry (UNINTEL), we’re not going to stand alone and say, “Well, we’re morally
superior, so you put your money up and buy it.” So that’s where I end up. Charlie?

CHARLIE MUNGER: I’ve got nothing to add.

WARREN BUFFETT: OK. Never bothers me when I don’t have anything to add, but
he seems stuck on that. (Laughs)

Anyway. Becky, did that come from you?

BECKY QUICK: It did.

WARREN BUFFETT: Yeah, OK.

4. It helps to know more than one discipline

WARREN BUFFETT: Then station five.

SONG YAO: Oh, thank you, Warren and Charlie. My name is Song Yao. I’m from
China, and now studying in the University of Chicago. I really admire you two,
especially Charlie. You are my idol since I was a child.

And my question is also for Charlie. My question is how to practice the multi-
disciplinary framework in making investment decisions and in life? Like, how to
make it more practical. Thank you.

WARREN BUFFETT: Charlie? (Applause)

CHARLIE MUNGER: Well, obviously, it helps you to know more than one
discipline. There’s an old saying, you know, that a man who carries only a hammer
thinks everything else is a nail. And you may go on wrong decisions if you don’t have
some command of all the disciplines.

That’s all I ever said. But you do irritate people terribly when you come into their
territory, you say, “I’m multi-disciplinary. You’re the expert, and I know better than
you.” They hate you for it. I can attest to it. I’ve done it several times. (Laughter)

WARREN BUFFETT: And, you know, China — well, to a certain degree, and they
have a culture that, to some extent, reveres age. So, Charlie’s got me beat. (Laughs)

I don’t even try and compete with him on China.

I can’t catch him on age. OK.

I’m going to try to, though.

Let’s see. We’ve got Becky coming next.

5. Inflation “swindles almost everybody”

BECKY QUICK: This question comes from Phillip King. He writes, “In the ’70s you
wrote an article entitled, ‘How Inflation Swindles the Equity Investor.’ You said that
stocks cannot keep pace with inflation, because companies cannot increase their return
on equity. Do you believe that this is still the case?

Yeah. And of course bonds can swindle the equity investor too. (Laughs) Inflation, I
should say, swindles the bond investor too. And it swindles the person who keeps
their cash under their mattress. It swindles almost everybody. And the problem, if you
have a business that doesn’t take any capital, and let’s just say the dollar depreciates
90% or something, so things cost ten times as much.

If it doesn’t take any capital you can charge ten times as much, and you’ve kept your
relative position. But most businesses take some capital. If our utility business — just
to say that the dollar is worth 1/10th some years hence from now, we have to have ten
times the capital investment, basically. And we get paid a return on that, but we have
forced capital investment to essentially keep in the same place.

And I wrote an article that related to that, and I will tell you one famous story, which
you will all sympathize with. In that I wrote that story for Fortune, and when I
finished it, it was about 7,000 words. And Fortune didn’t like publishing 7,000 words,
and they had my friend Carol Loomis explain that to me, knowing that I would pay
more attention to her than anybody else.

But being stubborn and male, I said, you know, “Every word is precious,” and they
can either run it or not. So then they sent an editor, a very nice guy, out to Omaha.
And this guy explained to me that just wasn’t right to use that many words. And I
said, “Well, that’s fine, but if you don’t do it, I’ll write it someplace else.” Very
disgusting behavior on my part.

And then it was beginning to bother me a little, so I sent it to my friend Meg

Greenfield. And Meg was a great, great, great editor at The Washington Post, and we
were very, very good friends. Wonderful woman. And Meg, who was tough as nails
with most writers, but she was kind of nice. She didn’t want to really hurt me too
much. So I said, “Well, Meg, what do you think?” And she said, “Well, Warren,” she
says, “You don’t have to tell everything you know in this article. (Laughter)

And it made the point. And so I write that article shorter, and I say more or less the
same thing. You know? And you’re better off — if you really could have a totally
stable unit of monetary use for the next 100 years, it would be better for business and
investors in general.

Charlie? No? We will go to station six.

Inflation — the question is how much. And the question is whether you can decide
that 2% and keep it — the answer is nobody knows. You know? I mean you do not
know, and nobody knows. You can listen to all kinds of stuff, but nobody knows how
much inflation there will be over the next ten years or 20 years or 50 years or next
month.

And people talk about it all the time, because you’re interested in knowing the answer
to your question. And they don’t know the answer, but there are a lot of people that
will tell you they know the answer if you pay them enough. And other people that will
tell you for nothing, because they think it enhances their prestige and makes them
more valuable and all that.

But the answer is they don’t know. And we don’t know either. The best protection
against inflation, though, still is your own personal earning bar. If you play the violin
very well, you will do reasonably well during inflation. I mean play it better than other
people, people will pay you for doing that. All kinds of things. So your skills will not
be taken away, and your money may be.
OK, station six. Oh, wait a second. Was that —?

Is it Becky next? Becky?

BECKY QUICK: That’s right. It’s station six.

6. How a “culture of lying” can develop at a company

WARREN BUFFETT: Yeah. Station six. OK.

MARTIN WEGAND: My name is Martin Wegand. I live in Nashville, Tennessee.

Mr. Buffett and Mr. Munger, thank you for your lifetime of teachings and for hosting
us back in Omaha this year. (Applause)

WARREN BUFFETT: Well, thank you.

MARTIN WEGAND: You have mentioned that companies get the shareholders they
deserve. And in this year’s letter, you mentioned a great satisfaction of yours is
working for the individual long-term shareholders. With the growing influence of
institutional index funds, how can management teams foster a shareholder culture like
the one we have at Berkshire? Thank you.

WARREN BUFFETT: Well, fortunately we have it, and we know more about how to
keep it than to institute one. And it’s very interesting. We have a 1,470,000 class A
shares outstanding today. Fewer than we had a year ago. And those seats are filled. I
mean you are the shareholders in place.

We like the group we have. So why in the world, when we got a fixed number of
seats, should we go out and recruit other people to replace you? You know? I mean
the ideal shareholder group we can have is the group we have today. And, you know,
if we had a church, we’d want the people to keep coming back week after week after
week.

If we had a limited number of seats, and we had some wonderful parishioners, we

would not go out and recruit another 50 or 100 of them and have to throw out 50 or
100 of the ones we already had. We’ve got. And every company I know, virtually, you
know, is wooing new people to come in.

And whether they’re improving the group they get or not, I mean it strikes us as
basically crazy. We don’t want anybody different (Laughter) than we have now. And,
you know, we’re not going to get rid of the index fund, so we have to get rid of people
like you, and we don’t want to get rid of people like you. (Laughs)

And I just don’t understand why if you had a neighborhood, and the size of the terrain
or whatever it was would be such that you could have ten neighbors, and they were all
great neighbors, why in the world would you go out and say to a whole bunch of
people going up and down the street, you know, “Why don’t you buy the house of the
guy next to me?”

You know, (Laughs) it is weird, but there’s an awful lot of people that make their
living by doing that, and they never really question. I would sort of ask any company
that’s making analyst presentations every month or something, “Which of the present
ones are you trying to get rid of?”

You know, basically, because I hope you’re not going to have more shares
outstanding at the end of the year than you have now. And am I supposed to, you
know, get out of the way so (Laughs) some other fund that is thinking about what your
stock is going to do next week replaces me? It is a very, very, very weird situation.

And of course, the really crazy process that has developed is people talking to, we’ll
say, analyst group, you know, sort of the high priests of finance, you know, some
companies are doing it more than once a month. Well, just imagine if you work for
that company, you go to work for that company, and every month people are repeating
these things about their company that, “It’s important that we have more services per
customer at 6.2 and we got to get to seven,” or something like that.

And they’d say that month after month after month, so it becomes a catechism. And
CEO says it or his or her representative says it, and how do you go on the next month
and say, “By the way, we were really wrong, and this is what we should be working
on.”

You don’t say that. And it’s a terrible problem the new CEO has coming in after a
previous CEO has said the important thing to do is to hit your earnings targets. Well,
you know, he’s been meeting them, in all probability, by cheating from some time to
time.

And this guy hands you the baton, and are you going to come out and say, “Well,
we’ve really been cheating a little and it’s really counterproductive to the
development of the, you know, companies, not to make earnings projections and just
to give you the results as they come, rather than making up a few things.

And the accounting department, you know, they can’t do it. It’s not human nature, and
besides, you wouldn’t get appointed the successor. But you just don’t go in and say,
“We’ve been perpetuating these myths that we can always deliver 8% growth or we
can do this or do that, or the most important thing is this.”

You can’t go in and change that if every month you’ve been preaching to people that
this is what we stand for, and just ask another question and carry this message out to
the masses, to the analysts and all that. And it’s a totally destructive policy.

I mean, you know, I can, within gap accounting, I can play a lot of games with
numbers. We’ve done a lot-ta dumb things at Berkshire. We have never told anybody
that the number had to be this or that or to change anything. I mean once you start it,
it’s all over.

You can’t quit. It’s like taking $5 out of the cash register. You know, the first time
you take the five bucks out, you’ll say, “Well, I’m going to put it back.” And then do
it a few times, and you’ll never stop. In fact, do it once and you probably never stop.

But if something is going to be destructive, the thing to do is not start it. And
forecasting earnings, I can’t imagine anything more destructive. I’ve got 360,000
people out there, and they know whether I’m lying or not. Many of them.
And they know what they send in figures, and they get changed? You know, what
message are you telling? We’ve got one dramatic illustration of that within Berkshire.
And it’s just, you know, if you start lying you’ve got a big problem. It’s that simple.

And if you start saying to your team that somehow you’ve got a job — you’ve got
shareholder relations, your job is to go out and tell everybody that our stock is the best
thing among thousands of choices to buy, every day. Well, that’s crazy.

So what do you tell them? Well, they try to, you know, see which way the wind is
blowing and figure out what they have to tell people. And that they go out and tell
them, and then if you’re human, and you’ve said, “We’re going to earn $3.59 a share,”
you can get to $3.59. And get there quite a while.

And, you know, you can have all these processes, but if you have a culture of lying,
the processes really don’t — they just disappear. And Charlie and I have seen it, well,
probably every time we’ve gone on a board. Charlie, tell them about it? (Laughs)

CHARLIE MUNGER: Well, I think Berkshire’s culture’s going to last a long time
after we’re gone. And I think it should, and I think it’ll prosper pretty well. The rest of
corporate America is quite different, and it gets more different, I think, with each
passing decade.

And it’s getting very peculiar. Pretty soon they’re going to hold all the shareholders’
meetings online, and the shareholders won’t even come. And it’s just it’s getting very
peculiar. And the index fund’s getting more and more important than the voting. And
it’s like everything else in life. It changes, and not always in ways you like.

WARREN BUFFETT: And it ends up for selecting different CEOs and all kinds of
things. I mean, you’re not going to appoint a successor CEO that’s going to come in
and say everything that’s been done before, you know, has been kind of fraudulent.
You know? I mean if we needed to book an extra sale after the end of the quarter, if
we needed to adjust the reserves, once you start lying, it’s all over.

And I just don’t know any way around that, except to try every way you can to not —
if you set the wrong example at the top, you’ve got a real problem. You know? And
we’ve never told anybody to change a figure. And we never will. And if they had been
changing figures, you know, we’d be in all kinds of trouble, because they know it and
I’d know it and the next person would know it. And it just deteriorates.

And we’ve really seen it time after time. The way boards operate, you know, it has to
be process-oriented. I mean I understand the problems that Delaware has in writing a
statute that judges face when they look at things, but it’s just extraordinary what an
emphasis on process can do to an organization, because they think they can do
anything if it’s allowed.

And, you know, eventually the foundation crumbles.

7. Buffet is buying Activision as merger arbitrage play

WARREN BUFFETT: OK. Oh, I should make a little news here, so you’ve all come
and you may or may not see this, but it’s very possible — one of the things we
bought, one of the things I bought, was bought for a different purpose by a different
manager months earlier.

They bought roughly 15 million shares of Activision. And I knew about the company,
I would just see it at the monthly report. But then on January, I don’t know, 17th or
18th, something like that, Microsoft announced they were going to buy Activision for
$95 a share.

Now, when they announced that, at that point Activision becomes a different kind of
security. It becomes what Charlie and I used to call — well, and everybody did 50
years ago. We’d call them workouts or something like that. And they become known
as arbitrage.

Well, they’re not really arbitrage, but they’re securities that are, in this case a common
stock, whose value depends not on what the market price does, but whether a given
corporate event occurs. An announced corporate event occurs. Well, Microsoft wants
to buy Activision, we’ll say — well, they said at $95 a share.

And they’ve got the money, and obviously mergers, and big mergers, tech companies,
all kinds of things, have got all kinds of problems with the world generally in terms of
opinion. So you don’t know what the Justice Department will do or you don’t know
what the EU will do and all kinds of things.

But at that point it becomes a different security. And Charlie and I, 50 years ago, we
used to do a lot of that sort of thing. And Gus Levy did it at Goldman Sachs. And we
even went back one time I think on British Columbia power, didn’t we, Charlie?

CHARLIE MUNGER: Yeah. We certainly did.

WARREN BUFFETT: Yeah. (Laughs) A guy named Bennett was up there, and we
were trying to figure out some takeover of the power business. I mean we spent a lot
of time analyzing the probabilities of announced deals going through, and we called
them workouts. Now, the term became arb. And it hasn’t worked overall too well in
recent years.

Now, every now and then I see something that I want do to in that field. But very
seldom, because they’ve got to be big. The profit is limited. You know, if they say
you’re going to get $95, you’re not going to get $96, and if the deal blows up, you
may have a stock that’s at $40 or something.

But we did it with Monsanto five or six years ago when Bayer was buying it, and we
got very lucky, because it turned out to be a terrible acquisition for Bayer, but it did go
through, because Bayer had the money and they went through with the deal, even
though Monsanto came with a problem that nobody really understands the extent of.
And we did it with Red Hat when IBM bought it.

So in any event, on January whatever it was, 17th, 18th, 19th, Microsoft announces it.
And the stock, which had been at $60 — let’s see. I may have a slide here, which I’ll
find. But in any event, the stock, which had been in the 60s, went up to $81 or $82.
And that looked like not a big enough spread to me for a few days. And then it settled
back a little.

So anyway, we now own 9.5%, something like 9.5% of Activision. And if we went
over 10% we would file a report. So in order that the news people don’t feel that
there’s no news here, I can tell you that as of yesterday, we own about 9.5%. If we go
past 10%, there’ll be a form filed with the SEC and so on.

But it is my purchases, not the manager who bought it some months ago.
(SNAPPING) And if the deal goes through we make some money, and if the deal
doesn’t go through, who knows what happens. But I just want to be sure that if we do
file that report, people understand very clearly, because there’s been some very mixed
up stories on that in the past.

We want to be very clear that it was Warren Buffett’s decision in that particular case,
and he doesn’t know what the Justice Department’s going to do. (Laughs) He doesn’t
know what the EU’s going to do. He’s never talked to anybody at Microsoft about it.

I think he’s just read a document. He’s made his own assessment. And it can change.
And at one time I think we sold a few shares even when I thought it was a little higher
than it should be. It turned out those sales were not a bad sale. And so I just want to
create a little news for you.

And I want to, if possible, head off stories which have been incorrect in the past, and
which get then picked up by other media and corrections never get written. That all
the corrections were written by one inaccurate story. And they apologized even to me.
Both are reporter and the editor sent me a personal note of apology. And they didn’t
expect to make a mistake.

But when the other publications picked up the story, they didn’t bother to pick up the
correction. And millions of people were misinformed, and probably — literally by the
time it gets spread around. And this one I will attempt to head off by telling you
exactly what the facts are (Laughs) right now.

And we’ll see whether we go beyond 10%. But, you know, it could easily be that if it
went up a few dollars — it’s still a $95 deal. It’s still we don’t know what the Justice
Department will do. We don’t know what the EU will do. We don’t know what 30
other jurisdictions will do. One thing we do know is Microsoft has the money. So that
takes that one risk out of it. So anyway, Charlie, do you have any news to break?
(Laughs)
CHARLIE MUNGER: No.

WARREN BUFFETT: Yeah. (Laughter) And incidentally, I don’t talk this over with
Charlie. I mean, you know, he knows that occasionally I’ll see an arbitrage deal and
do it. And, you know, 50 years ago we were doing it together, and his general feeling
is, “Why is Warren fooling around with this kind of stuff, even.”

But it’s the old fire horse that occasionally it looks like the odds are in our favor. But
absolutely we can lose money on that company, and, you know, fairly large sums of
money, depending on what happened if the deal blows up.

And there will be a lot of people that want the deal to blow up. But Microsoft doesn’t
want it to blow up, so we’ll just have to see what happens.

8. Index funds may be getting too much influence over corporate governance
WARREN BUFFETT: OK. Becky?

BECKY QUICK: You know, Charlie just mentioned index funds in passing, so let’s
go to this question from Matt Figel. His question is related to the growth of passive
investing through index funds and ETFs. He says, “Passive investment vehicles now
control upwards of 50% of the United States stock market.”

BECKY QUICK: “The actual owners of these passive investment vehicles decided
passive investing makes the most sense for them, yet, in doing so, passive investors
have empowered the large index funds to become the biggest activists in the market.
These passive managers now enjoy enormous, and, I would argue undue influence
over corporate governance. Do Warren or Charlie see any benefit or logic to a rule
that would prohibit passive investment vehicle managers from voting the shares they
control for their passive investment clients?”

CHARLIE MUNGER: Well, I’ll take that. I think the guy’s right. I think the thing is
out of control and counterproductive. And I don’t think it’s good for the country to
have three passive investors, bright young men from Harvard or what all, telling them
what proper governance of corporations is. It’s not a good development. (Applause)
And I think indexing, if it gets to 90%, then it won’t work very well at all. But at the
moment, it’s worked fine.

WARREN BUFFETT: Yeah. Well, the one thing you can count on too is that if it
does look like it’s going to — if the public opinion shifts over to the idea that it really
is a good idea to let three people decide the fate of every company in corporate
America, the three people — and they won’t collaborate or do anything.

It’s not that they’re evil people the least. I mean, they’re just doing what you and I
would do. They would figure they don’t care that much about voting. What we do care
about is keeping (Laughs) a lot of assets under management. But so we’ll figure out
something that ends up reflecting public opinion, and then politicians won’t get mad at
us. And our only threat, really, is the politicians get mad at us, and regulators in some
ways. So we’ll head it off.

And I would predict fairly confidently that if American public doesn’t like the idea of
three people controlling things, the three people — and their organizations and
everything, but the three, what they want to do is they want to get bigger. (Laughs)

And they wouldn’t be where they are in life if they hadn’t wanted to get bigger. Those
things don’t happen by accident. That doesn’t mean that it’s the only thing they want.
They want their investors to get good results and everything. But they are certainly not
going to follow a policy which is going to cause a backlash that causes them to be a
lot smaller there.

They can figure out their self-interest. And it just so happens that in this case, it would
achieve the right result, which is that they would not control America, but they’ll do
what’s good for themselves. And what they have to do, what’s politically acceptable.

The only thing that really can mess up what is a very good deal for them is to have
Congress change the rules. And, you know, the rules were — the Investment
Company Act of 1940 really changed how people behaved, and it’s governed things in
a big way for a very long time.

And anybody that takes on the federal government loses. You know? And if you’re
talking about trying to do that sort of thing — and they don’t need to do it. They just
say, “Well, we’ll give up voting, or we’ll vote our shares as the rest of the people do.”

And of course if you vote your shares as the rest of the people do, then if the index
fund’s at 90% of the country, you could take over a company by somebody else
buying 3% or 4%, because you just automatically get the funds to follow your very
small little percentage.

You’ll see it all play out. I mean it’s a big case, but it’s not an unusual case.

9. Berkshire’s relationship with its energy subsidiary

WARREN BUFFETT: OK. Station seven.

ERIC ERTA: Yeah. Eric Erta, and I live in Albuquerque, New Mexico. So I want to
first say thank you so much for a lifetime of knowledge you’ve both graciously shared
with all of us. You’ve contributed greatly to push our species forward. Moreover,
you’ve taught all of us here, along with many, many millions not here, how to behave
more rationally, treat one another with more love, and lead more fulfilling lives. And
for that, I want to say a very sincere thank you. (Applause)

WARREN BUFFETT: Thank you.

CHARLIE MUNGER: Uh-huh (AFFIRM).

ERIC ERTA: As for my question, I want to ask about Berkshire Hathaway energy,
and the unique structure that has evolved there, given that Berkshire doesn’t own
100% of the company.

The first part of that question is related to Greg’s ownership and his corresponding
incentive alignment with overall Berkshire.

ERIC ERTA: Now, there’s a wise man named Charlie that in 1995, at a speech to
Harvard, taught us how important incentives are to human behavior. I would
conservatively say that Greg’s stake in BHE is worth more than $500 million at
present. And I’m curious if you can share any plans that you have to convert is
Berkshire Hathaway energy ownership to Berkshire stock? And if there isn’t a plan to
do this, can you please explain why we shouldn’t be concerned about Greg’s incentive
structure going forward?

ERIC ERTA: The second part is about leverage at the entity. You have always said
that BHE operates with an appropriate amount of leverage, given it’s earning power.
With that said, it’s still a very, very large debt figure in relation to current earnings,
especially with what we have become accustomed to at Berkshire. And I’m curious if
Berkshire owed 100% of Berkshire Hathaway Energy, would you still operate the
business with the same amount of leverage?

WARREN BUFFETT: OK. Thank you. The second part is the easiest one to answer,
so I’ll take that. Then I’ll throw the first one back to Charlie. (Laughter) But Berkshire
Hathaway Energy actually is required with it’s regulated utilities — and it basically
started pretty much with regulated utilities, and still is dominated by that. And we’re
interested in buying more regulated utilities.

It’s required in different ways by different states and by different regulatory

authorities to have a large amount of debt, because, in Iowa or to pick any state, the
regulatory authorities are going to say you can get debt money cheaper than you can
get equity money, which historically has largely almost always been true.

And they say that since we’re going to allow you a return on equity — we’ll say, just
pick a figure. But let’s say they allow us a return on equity of 9%, and we can borrow
a lot of capital at 3%, they say it’ll result in higher rates to customers if you put in all
equity.

We would love to have all equity (Laughs) in our utilities, but the regulator wouldn’t
stand for it, because under the trad system it would result in higher prices to
consumers. So that’s built into the system. And well, our regulator wouldn’t allow us,
essentially, to get the same return on equity and have an all equity structure.

And the answer is, you know — well, you actually saw in the film earlier, which the
people that are hearing the webcast didn’t see. But just in Iowa, you know, we
recently got approval to spend three and a fraction billion dollars, but they want us —
Iowa has a history, and like every other state in the union — except Nebraska, which
is all public power.

But every private power, you know, they have a history of wanting X percent to be in
debt. They want you to raise a lot of money in debt because it means cheaper power
for the consumer. So the answer is if we owned 100% of Berkshire Energy, we would
absolutely be following the same. We would be operating pursuant to what the utility
commissions tell us they want us to do that. They represent the people of those states.
Now Charlie, do you want —

CHARLIE MUNGER: Well, the other one’s simple too. It’s a historical accident. It’s
not causing any big tension or breaches of fiduciary duty. We had the same problem
with Walter Scott, who was the director for years and years, and owned stock in the
same company, also an historical accident. I just don’t think it’s a big problem at all. I
see no behavior from Greg ever that isn’t in the best interests of Berkshire.

Yeah. And we’ve had various percentages of Berkshire Hathaway Energy ever since
we bought it in around 2000. And it happened, my sister, who’s here, we were at our
house, and there was a party going on. And 20 or 30, probably 30 people. And Walter
said to me, “Have you got a minute or two? I’d like to talk to you about something.”

So we went in the library or someplace, and Walter says, “You know, we’ve got this
company and it doesn’t seem to fit the public mold very well. And would you want to
buy it and go private?” And I said, “Sure.” You know? (UNINTEL) the price.

And when we got back to Omaha — it was out on the West Coast. We got back to
Omaha and we met with David Sokol, who was the big holder, beside from Walter.
And we agreed on a price. And I remember Walter saying to Dave, “Don’t negotiate
with Warren. (Laughs) You know, he’ll tell you to forget and he’ll do something
else.”

And we bought it. So it was kind of a weird structure from the start, and we had a
public utility holding up any (UNINTEL) deal with and all kinds of things. And it’s
evolved, and it now has us with 91% roughly, and it has Walter’s estate — and I don’t
know where that goes at all. And Walter never talked to me about it, and I never asked
him about it.
But it’s, one way or another, interest connected with him, and the estate now. Close to
eight, I guess. And Greg’s got one. And, you know, from our standpoint, if we made a
deal with — if they ever came to us and (UNINTEL) just wanted to do something,
you know, we’d say, “Fine.” We’ll do the same thing with Greg if he wanted to, and
he probably would want to, I mean.

But from our standpoint, I’ve never seen any decision remotely — if I thought that
would make a difference, you know, he just wouldn’t be the right kind of person to
run Berkshire. And the problem, of course, is that you’ve got lots of process that can
be involved with insiders and everything.

And as long as I’m alive, you know, my interests are 100% with Berkshire. And the
board, and probably and to some extent a little reluctantly, but they’d just say, “Well,
Warren thinks the deal’s OK. It must be OK.” Which is true. (Laughs)

So I could make a deal with anybody and it doesn’t get all messed up with process.
But on the other hand, if I’m not around, you know, the pressures are to directors to
do whatever the lawyers tell them to do, and the lawyers tell them to do this and that.

And then they want to bring in investment bankers to make evaluations. And the
whole thing is a game from that point forward. And it’s expensive. It takes a lot of
time. So it would be better if it happened while I’m alive and around, but there’s no
reason — we’d rather have 100% than 91%, obviously, because more earnings for
Berkshire.

But there’s no reason to try and do anything with either the Scott interests or Greg,
unless they want to do it. And the logical thing is if anything happened with the
Scotts, we’d certainly offer it to Greg. But who knows what happens in the future.

The one thing I can guarantee you, Berkshire Hathaway holders will never be taken
advantage of, and, you know, you can sue my estate or something like that (Laughs) if
anybody felt differently about that. It isn’t going to happen. But it’s a lot easier if it’s
done while I’m around, actually, than if it’s done later. But —
CHARLIE MUNGER: I wish we had 20 more conflicts of interest just like it.

WARREN BUFFETT: Yeah. (Laughter) Yeah. That’s exactly true. Yeah. No, it’s a
perfectly logical question. But it was not a problem. And any answer that’s arrived at
will be good for all concerned. And right now, I’ve got no feeling that — I have no
knowledge at all of where the stock that the Scotts have goes or how they feel about it
or anything.

And that’s up to them. You know, Walter was our partner. As far as we’re concerned,
we treat anybody connected with him as our partner. And they know that and they
don’t have to worry about us taking advantage of them.

And if they don’t do anything, we can understand that. If they want to do something,
we can understand that. It’s a good question, though. Thank you.

10. Munger: I’m willing to risk investing in China

WARREN BUFFETT: OK. Becky?

BECKY QUICK: This question comes from Steve Blackmore in Bozemon, Montana.
This is to Charlie. He says, “In the past you’ve made favorable statements about
investing in China, in part based upon valuation metrics. What is your opinion now,
and how much weight do you put on the actions of the government in your analysis?”

BECKY QUICK: “Do the recent communist party activities in China, including
human rights violations, blatant cyber theft from U.S. companies and others,
crackdowns on speech from business and media, et cetera, cause you to change your
opinion on investing in China? And how do you evaluate the clear dangers of
investing under authoritarian regimes, as recently evidenced by Russian atrocities in
Ukraine?”

CHARLIE MUNGER: Well, those are good questions, and there’s no question about
the fact that the government of China has worried the investors from the United States
who invest in China. More in recent months in years than he did in the earlier periods.
So there’s been some tension.
And it’s affected the prices of some of the Chinese stocks, particularly internet stocks.
Just in the last day or two the Chinese leader has sort of reversed course on that, and
said he went too far and he’s going to pull way back and so on and so on. So we’re
having some hopeful signs.

But yes, there are more difficulties investing in, I mean, dealing with a regime in
China than there are in the United States. And it’s different. It’s a long way away, and
they’ve got their own culture and their own loyalties and so on and so on.

And the reason that I invested in China is I could get so much better companies at so
much lower prices, and I was willing to take a little bit of a risk to get into the better
companies at the lower prices. Other people might reach the opposite conclusion. And
everybody is more worried about China now than they were two or three years ago.
So that’s just the way it is.

WARREN BUFFETT: I have nothing to add. (Laughter) (Applause)

11. The benefits of Berkshire’s insurance float

WARREN BUFFETT: OK. Station eight.

TOM RINGE: Hi Warren and Charlie, my name is Tom Ringe. I’m from Wayne,
Pennsylvania. It’s great to be back here after two years. Thank you very much.

WARREN BUFFETT: Thanks for coming.

TOM RINGE: In this year’s letter, you talked about insurance float, the evolution of
float, the per share float, the effect on repurchase to increase the per share float. And in
regard to the repurchase, I would say thank you as your partner for your careful
repurchase, as well as careful issuance of our shares.

TOM RINGE: My question is about your expectation for the likelihood that float will
be stable and the cost will be zero or close to that over time, with adverse years from
time to time.

What about Berkshire’s insurance businesses give you the confidence to make that
statement when your competitors are trying to do the same thing, but haven’t been
able to come close to achieving Berkshire’s record in cost and growth of float? Thank
you.

WARREN BUFFETT: Yeah, well, they really aren’t trying to do the same thing,
which is kind of interesting. The answer to your question is we wouldn’t be in the
business unless it was my judgment that the likelihood, the weighted probabilities are
higher that the float will be useful to us rather than costly to us.

And nobody will know the answer to that for a very long time. So far, so good, but it
is a judgment. And absolutely I could be wrong about it. But, you know, I think both
Charlie and I would say that we think the odds are that it’s weighing better, and the
odds are pretty good, and that we’re quite well-positioned to do it if anybody does it.
But, you know, did we know 9/11 was coming? Or, you know, I mean, it is not a sure
thing.

CHARLIE MUNGER: Just think of what the potential is, though, when you’re
reviewing it. If we could buy common stocks we were virtually sure would give us
8% after taxes with our whole float, that would be a hell of a lot of money.

WARREN BUFFETT: Yeah, $11 billion. I can tell you what it’d be. (Laughs) $11
billion or $12 billion.

CHARLIE MUNGER: Yes, and it’s an enormous amount of money.

WARREN BUFFETT: Annually.

CHARLIE MUNGER: Yes. And the float has been growing, so relax. (Laughter) But
we’re glad to have the float.
WARREN BUFFETT: But Charlie’s talking a couple of ifs there, if we could earn it,
and if we could. The answer is, you know, it’s our job and we think we can do it as
well as anybody, or we wouldn’t be doing it. But it’s our job to figure out what
businesses we want to be in, and when they don’t make sense, reluctantly,
occasionally, to give up on them, like the textile business.

But those are the hard decisions. And insurance, I didn’t have the faintest idea back in
1967 when Jack Ringwalt stopped by the office at about a quarter of 12:00. And
Charlie or I set him up. And Jack, about once a year, he’d get mad at the regulators.

He just didn’t like being regulated. And he’d say to himself, you know, “I’m going to
sell this damn thing.” And Charlie caught him one day and he said, “Jack was in
heat.” You know, I said, “Bring him around.” So he came up quarter of 12:00, and
Jack said he wanted to get rid of this damn business.

The regulators were driving him nuts or something. And I said, “Fine, I’ll buy it.” And
I said, “What price do you want?” And he said, “Like, $50 a share then.” I said, “Fine,
we’ve done it. We don’t need an audit, we don’t need anything.”

And then Jack started, and then he says, “Well.” Immediately he really changed his
mind, but he was too honorable to back out. So he said, “Well, I suppose you’ll want
me to sell you the agencies.” And I said, “No.” And, of course if I’d said yes, then
he’d say, “Well, then we can’t do it.”

So I just said, “No, you keep them, Jack,” you know. And he says, “I suppose you’ll
want me to do,” and I said, “No, no, I won’t want you to do that.” He was hoping I
would just give him an out. But after doing that for 15 or 20 minutes, he saw that I
was going to agree to everything he said, and he said he’d sell it to me at $50. So he
forward through. And that was that. And, (CHEER) you know, it was pure luck. And
Jack —

CHARLIE MUNGER: Now, but Warren, we really like our float, don’t we?

WARREN BUFFETT: Pardon me?

CHARLIE MUNGER: We really like our float.

WARREN BUFFETT: Oh, yeah.

CHARLIE MUNGER: We love it.

WARREN BUFFETT: No, we’ve made the most of it, but we didn’t make the most of
it until Ajit came along. (Laughs) And, you know, who knew that the guy was going
to walk into my office in 1986 and, you know, I would decide that he was the guy to
make this damn thing work that I hadn’t been able to make work the way I wanted it
to?

And who knew that GEICO would come along later? There’s just all kinds of things.
The one thing you have to do is be prepared when opportunity comes. You really do
have to just move. And fortunately I operate in an environment, and I wouldn’t
operate in any other environment, I’d get out of there, but I operate in an environment
where I can do it.

And it would be crazy of the board to say, “We want to set up a committee to review
every acquisition,” and all that. And I would say, “That’s fine, but you can work with
somebody else because (Laughs) I just don’t like to go through all that stuff.”

You know, I’ve got other things to do with the rest of my life. There’s so much luck,
but you do have to be mentally prepared to do something when it makes sense, and do
it big time, and do it instantly. And then you’ve got to be sure you’ve got the
resources to do it.

CHARLIE MUNGER: The relative absence of bureaucracy at Berkshire —

WARREN BUFFETT: Unbelievable.

CHARLIE MUNGER: —has made the company a lot of extra money for a very, very
long time.

WARREN BUFFETT: And it’s made my life happier.

CHARLIE MUNGER: And yes, that’s ideal. (Applause)

WARREN BUFFETT: Yeah, but in the end, we are extraordinarily well-positioned to

do exactly what we want to do with float, while at the same time never putting
ourselves in the position, never coming close to making a promise we can’t keep. We
had two small insurance subsidiaries well before Ajit, with two companies I had
bought.

One I really didn’t know that much about, the other one I did it all by myself. And
they were disasters.

And left alone, which they could’ve been, they’d have gone bankrupt. And we just
didn’t want to do it.

So, you know, we could pay the liabilities if the parent company got involved, or we
put it in another insurance company or something, and we did it.

12. “I look at Berkshire as a painting”

WARREN BUFFETT: I mean, Berkshire, you know, in a crazy way, I look at
Berkshire as a painting. You know, and it’s unlimited in size. It’s got an ever-
expanding canvas and I get to paint what I want. And if somebody wants to paint
something else, then I’ll (Laughs) get a smaller little thing and I’ll paint away.

And, you know, I actually, you know, I don’t know anything about paintings. Take me
to an art museum, and you know, all I really want to know is where the men’s room is.
But, (Laughter) you know, I’m just not interested. And other people look at paintings
and they see something.

And then they see something additionally later on. I mean, they really have a different
sort of perception ability in relation to that. And to me Berkshire’s a painting and I get
to paint. And, you know, the object, obviously I want my partners to come out well in
it.

But the real thing I like is the painting. And as long as, you know, it’s in my head and
I see different things in it as I go along, and you know, it’s, you know, the closest
thing I can come to enjoying myself every minute of the day. And I don’t prescribe it
for other people.

And occasionally I, well, not so occasionally, but I see things in the painting, you
know, I think, “Well, I should’ve done that differently.” And I go back and paint it
over. And it’s satisfying. And who knows why human beings react in that manner.

But I do know what makes me happy and what doesn’t make me happy. And I found
what makes me happy. So why in the world would I change it? (Laughs) So that’s a
short answer to a question that I can’t remember what it was. (Laughter)

13. Economic stimulus was needed, but it has fueled inflation

WARREN BUFFETT: OK. Becky?

BECKY QUICK: This question comes from Andrew Kesaw (PH) from Minneapolis,
Minnesota.

He says, “Last year Warren mentioned that inflation had noticeably impacted the
prices that Berkshire’s businesses were paying and charging. Given those inflationary
trends have continued, and in some cases accelerated since last year’s meeting, could
you comment on how this particular inflationary period ranks among previous such
periods in the United States, like the 1970s and 1980s? And what can American
businesses and citizens do to reduce the negative impacts that inflation brings about?”

WARREN BUFFETT: Well, we’ve sort of attacked them, what you do yourself, and
then, you know, you develop the skills that people are willing to pay for in the future,
regardless of what the unit of exchange is. But in terms of inflation in our own
businesses it’s extraordinary how much we’ve seen.
You know, I think you interviewed Irv Blumkin at the Furniture Mart, and two years,
you know, the prices have just kept coming in higher for these things. And we sell
them for higher prices, and people have more money than they’ve had before. And
they like to buy.

And there are certain things they can buy. It’s like during World War II, you had a lot
of money created, and people couldn’t buy cars, and they couldn’t buy refrigerators,
and they couldn’t even buy as much sugar or coffee or things as they wanted.

And they had little stamps for gasoline and all kinds of things. Well, eventually if you
get a lot of money in people’s hands and you don’t have very many goods, prices go
up. You can do all kinds of things to, you know, try and talk it down.

And, of course, inflation is never the same. Nothing in economics is the same the
second time after it happens than the first, because the first affects people’s attitudes in
the second, and their attitudes always influence the activity itself.

I mean, it is an interesting phenomenon. People write a textbook, and they write it

based on the last experience. And people read the textbooks, so they behave
differently next time. And then they wonder why they’re getting a different result than
they got the time before.

So anyway, we have sent out lots and lots and lots, and when I say “we” I mean the
United States government, the government has sent out lots of money to people. And
at some point, you know, the money can’t be worth as much as it was when there was
less money out.

Here’s an interesting figure that I think probably will astound you. It astounds me,
anyway. The Federal Reserve, every Thursday, puts out a balance sheet. And the
Federal Reserve and Treasury, they’re complicated institutions. But they do put out
this kind of consolidated statement of all the various Federal Reserve banks, all these
things that have entered into legislation over the years.

But there’s a balance sheet. And 15 years ago, roughly, if you look, you know, the
Federal Reserve issues those notes I talked about a while back. And there’s the current
one. (Laughs) And they print these pieces of paper. And they, one way or another,
they get into the hands of people.

Well, the interesting thing is, people said cash is dead and all that sort of thing, you
know, cashless society. Well, there were $800 billion, go back ten or 15 years, about
$800 billion of currency in circulation. And if you look at last Thursday’s report,
you’ll see there’s something like, now, $2.2 trillion of currency in circulation.

$2.2 trillion. Now, there’s about 330 million people in the United States. Let’s look at
it that way. And with 330 million people, and you have almost $2.3 trillion of
currency in circulation, that’s $7,000 per person, every man, woman, and child, in
theory, has $7,000 worth of currency.

Well, you know, that isn’t right. But you do know that the Federal Reserve’s
bookkeeping is essentially right. They’ve got that much that’s out there. I don’t know
where it is. I mean, I don’t know whether it’s in Russia. I don’t know whether it’s in
South America. I don’t know where, you know, I don’t know whether Charlie’s got it
all.

I mean, (Laughter) it’s a staggering sum, you know? Cash is dead, and yet we, on
average, have $7,000 for every person in the United States. Now, while you’re
absorbing that, think for a moment what would happen if the U.S. government said,
well, they work it out in private and they decide that they’re going to send, the Federal
Reserve, and I’m not going to blame the Federal Reserve for this, someone back in
Washington decides they’re going to send out $1 million to every household in the
United States.

And there are 130 million households in the United States or something like that, you
know? And they’re going to mail you $1 million in cash. And there were a couple
provisions attached to it. One is if you talked about it in the next 30 days, the money
disappeared.

So just like in one of those old TV shows or something, and poof, disappears. And
after 30 days you could spend it. Well, all of a sudden, the household wealth of the
United States, the Federal Reserve puts out an estimate, is $130 trillion or something
like that.

So basically, you’ve doubled the household wealth. And all you’ve done is mailed out
people, but then you don’t tell them you’re doing it with everybody. You just say they
won the lottery, or whatever it may be. And now you’ve got an amount equal to
household wealth.

On average people have doubled. They’ve got this extra $130 trillion of wealth. And
in a month, they can spend it. Well, what’s going to happen? Well, prices are going to
go up. But are they going to go up immediately? Well, you don’t know the other guy
got it, you just know you’ve got it, so you don’t really feel like you’ve got to rush out
and buy things.

But as soon as word gets around, well, we’ve mailed out, if you look at the amount
we’ve distributed, the federal government, I’m just talking about the distribution of
resources, we’re talking numbers like that. And it affects prices.

It has to affect prices. If you had ten times as much, if you went home and you found
out you had ten times the net worth you had yesterday but everybody else has the
same thing, it doesn’t increase the amount of bread in the economy or the number of
cars.

It just means that the price, the value of this is going to go down. And it’s purchasing
power. You can’t buy more than exists. So it’s a very strange period where we have
lots of money sent out to people, who one way or another were getting it, that they
didn’t find as many things to buy as before.

And we had supply chain disruption. And you have all these things happen. But the
end of it is they go into the Nebraska Furniture Mart and they just start buying things.
And they do it with our other companies. And they do it in very peculiar ways.

And now they’re buying, I mean, one thing, jewelry stores were, generally speaking,
not a very good business. And two years ago, every landlord that had a jewelry store,
or multiple jewelry stores in their mall, you know, was wondering how they were
going to get their rent.

And now every jewelry store virtually is doing incredibly better than they ever dreamt
with way less inventory, because people just come in and buy. They don’t wait for
sales. You know, when they walk in the store they’re going to walk out and they’re
going to have bought something.

And they paid for it. They’ve got the money. So we are seeing an unleashing of the
fact that we’ve just mailed a lot of money to people, one way or another. It’s very
indirect, and it all gets complicated when you talk about a big system.

But this is what’s happened. And I will guarantee you that if we mail out $1 million to
every household in the United States, and you don’t know that it’s happened, you
know, you don’t really expect much to happen in behavior tomorrow.

But somehow, at some point, and then if you start doing that every month, we’ll say,
and people really know you’re doing it, then they start anticipating it and buying
ahead of time and forward. I mean, there’s a million things that happen in economics.

But the answer is we’ve had a lot of inflation and it was almost impossible not to
have, if you’re going to mail out the kind of money we’ve mailed out. And it’s
probably a good thing we did it. In fact, I think there was one point when the Federal
Reserve, which in fact creates the money, if they hadn’t done it your lives would be a
lot worse, a whole lot worse now.

And that was an important decision. And that’s why you’ve had inflation. And heaven
knows, I mean, it could end. You can throw the country into recession. You can do all
kinds of things. The country’s going to have recessions, incidentally, and it’s going to
have depressions periodically.

And things will happen differently. And you’ll read a newspaper today and you’ll
wonder a year from now, “Why was I reading the newspaper a year ago?” I mean, it’s
just the way it works. When I bought the first stock in 1942, did I know everything
was going to happen afterwards?
Of course not. I didn’t know a damn thing. But I just needed to have one idea. And
that idea wasn’t really well-formed, it was just probably the way practically every kid
felt about the country when we’d just gone into a war, you know? We thought
America was going to win.

And if America was going to win then, it was going to win just generally. And savings
bonds were paying 2.9%. I learned that because we bought them. They called them
war bonds originally, and then they called them defense bonds, and then they called
them savings (Laughs) bonds.

But they were the same thing. And you print loads of money and money’s going to be
worth less. Not worthless. I got in trouble doing that one time at CNBC, because I said
it was going to be worth, separately, less. But it got contracted down to “worthless”.
(Laughter) So it took me a few years to learn to separate those words somehow.
Anyway, that’s everything I know about economics and more. And Charlie can
probably improve on it.

CHARLIE MUNGER: Well, it happened on a scale which would never seen before.
Those checks are just mailed out to everybody who claimed to have a business and
claimed to have employees. They’ve probably drowned the country in money for a
while. And as you say, they probably had to do it. But it was something that had never
been done on that scale before.

WARREN BUFFETT: But we had a problem we hadn’t had before.

CHARLIE MUNGER: Yes, oh (Laughs) no, I’m not saying it wasn’t a good idea.

WARREN BUFFETT: I mean, in my book, [Federal Reserve Chairman] Jay Powell is

a hero. I mean, it’s very simple. I mean, he did what he had to do, you know? If he
had done nothing, I mean, he would be, you know, it’d be very easy to engage in what
you would call thumb sucking then. And plenty of, I shouldn’t say plenty of, but there
are other Fed chairmen that would’ve been sucking their thumbs. And the world
would’ve fallen around them. And nobody would’ve exactly blamed them, they
would’ve blamed the virus and the Chinese and all kinds of things.
CHARLIE MUNGER: Well, the really interesting company is Japan, where first they
bought back all the debt, then they started buying back all the common stocks. Now,
that’s really weird. And what did they get? Twenty five years of stasis. Who would’ve
predicted that?

WARREN BUFFETT: Well, nobody predicted anything. I mean, (Laughs) there’s

nobody’s predictions that we’re interested in, including our own. I mean, it’s very
simple. What we do know is that we can deserve your trust, and there’s no reason to
do things that don’t deserve it.

And we can’t tell, but basically we think we’re trying to build a Berkshire that can’t
withstand a nuclear exchange, but it can withstand as much as anything that we can do
anything about. And that leaves us feeling good. It doesn’t leave us feeling perfect.
We’d like to even promise you more than that, but we can’t promise more than that.
So it’s very simple.

14. Should GAAP accounting rules be changed?

WARREN BUFFETT: And with that one we’ll move on to 18. Let’s see, that’s station
nine.

ELI ABUSHAKAR: Dear Mr. Buffet and Mr. Munger, I’m Eli Abushakar (PH) from
Montreal, Canada. I would like to thank you for everything you’ve done for us, your
fellow shareholder.

My question is regarding the GAAP rules. If you were to change it, what would you
change? What would it look like? Thank you.

WARREN BUFFETT: Well, I would resign the job. What would you do, Charlie?
(Laughter)

No, it’s an impossible problem. Because first of all you have to decide what GAAP is
supposed to reflect. And it doesn’t reflect value. But in certain cases, of course, it is
important to say that this is value and so on.
I mean, it’s a convention and it is done so that the auditor generally is protected,
because otherwise everybody sues everybody in this country for anything. And it’s
designed to cause people who want to report a given amount of whatever is desired by
the market to largely be able to do it.

And I don’t know how I would write the rules. I mean, I’ve watched people who I
would be delighted to have live next to me, you know, if I was going away for two
weeks and my kids were to stay at somebody’s house, it’d be fine with me if they
stayed there.

If I lost my wallet someplace and they found it, they’d return it to me. But they’d play
games with any number that came to them. And, of course, it’s a very awkward thing
to be on the audit committee of a company where people are playing around with the
numbers.

And they don’t want you, if you raise a stink you’ve got all kinds of problems. And I
actually wrote something some years ago. I was kind of anticipating your question
about 15 years ago, I guess. And I wrote four suggestions for questions to be asked of
the audit committee.

And I don’t know whether I was on the audit committee then of Coke or whatever.
But anyway, I mean, it was just clear to me what was happening. But you really had to
follow the charade, or you got in all kinds of trouble for doing that too. And so, I just
put four questions out that I would want to know.

And they were perfectly logical questions. And then nobody adopted them. I mean,
(Laughs) and the system was fine as it was. The auditors got sued, but not that often.
And the SEC had lots of rules, and I admired the SEC enormously. I think the
country’s better off because of the SEC.

But it is a hopeless question, or problem to devise rules that people can’t get around.
My friend that was a writer said, “It’s not the illegal things that are outrageous, it’s the
legal things.” It’s very hard. You try and it’s worthwhile.
You need an SEC. But the SEC can’t really stop stuff that, you know, you would find
outrageous if explained. And the auditors have the same question. I mean, the
auditors, they want rules, and they want processes, and they want it to be so they can
operate.

Charlie, he was on the audit committee of Salomon, and we had probably literally
millions of contracts where people put numbers in and he found that $20 million, we
had the largest auditing firm in the country then, Arthur Andersen, as I remember
Charlie —

CHARLIE MUNGER: They’re gone now.

WARREN BUFFETT: Yeah, they’re gone now. But they were (Laughter) the largest.
And Charlie found a $20 million error I think one time in an audit.

CHARLIE MUNGER: They called it a plug.

When your accountant starts talking about a plug, it’s not good. (Laughter)

15. Salomon’s “floating plug”

WARREN BUFFETT: Well, I’ll tell you a story I haven’t told before. (Laughs)

You saw in that movie, people over here saw me testify in August before a
subcommittee who were out, you know, to get their way. And I just decided, you
know, I was just going to answer every question honestly, and I was not going to try
and draw up everything.

And then so I just sat in front of them, and said what I knew and didn’t know. And
one of the things I said, which was absolutely true, is that I’d only been there ten days
or so at Salomon, but I said, “I really haven’t seen anything yet that strikes me as
terrible in accounting.”

But I’ve been there ten days. But this guy who got us in all this trouble, so far he’s the
only thing I’ve found. I don’t know what else is going to be found, how in the hell
could I know what was going on in a place that was doing, you know, incredible
numbers of transactions and everything?

Well, I said, you know, “What I’m seeing, the accounting strikes me as legit.” About a
month later, I was so happy I’d testified earlier and not later, a very fine CFO, and
these are decent people. They’re very decent people. And he comes in and he said,
“Warren, there’s probably something you should know.”

And I said, “Well, what’s that?” And he said, well, 12 years earlier, or whatever it
was, Salomon had merged with Phibro, which was a huge trading company. Salomon
was a huge investment banking company. And they became this huge powerhouse.

And he said that 12 years ago when we merged with them, we sort of couldn’t find
exactly, they were on a trade basis and we were on a settlement basis. And then he
said we never really figured out how to put the books together. This was the largest
audit company in the United States, Arthur Andersen, that’s responsible for signing
this thing.

So, we had this number and every day it moves around. And it’s just put in there to
make assets equal liabilities. (Laughter) And, you know, today it’s $173,412,000, you
know, and down to the penny. And tomorrow it’ll be something different, you know?

And I thought to myself, “I am sure glad I testified before Congress a month ago,
because I did not know then.” But if they ever ask me again, I’m going to tell them
exactly what happened. “We’ve just got this number that floats around every day, and
we haven’t found it in 12 years, and Arthur Andersen doesn’t know where it is.”
(Laughter) And, you know, you’ve got to make the assets equal to the liabilities,
right? So what else do you do? And that’s exactly what happened. And strange things
happen in this world. This one guy —

CHARLIE MUNGER: I think the name was the floating plug. (Laughter)

WARREN BUFFETT: Yeah, you know, yeah. And Charlie’s on the audit committee.
(Laughter)

Yeah, the one thing I’ve always suggested, nobody ever wants to do this, and I can
understand why, but you’ve got trillions of dollars worth of contracts and everything
that people are putting down little numbers for every day at banks and investment
banks and all over the world.

I mean, commodity traders, and at Berkshire we stick down, you know, there’s certain
hedging the even the regulators want us to do in terms of giving utilities. And we put a
little number in. And I made this suggestion once or twice that if you really want to do
something sort of interesting, you know, just get some young guy that, give them a
couple of weeks and pick the hundred most kind of complicated, long-term, you
know, lots of wording derivative contracts.

And look at what one side who promises to do something values it at, and look at
what the other side, who also reports. You know, and just let them do it for 100
operations at random. I’d just like to know if we’re valuing a contract at $28 million,
the other guy’s valuing it at $33 million.

You know, and you’ve got the same auditing firm in both cases. And they’re signing
their name to it. I don’t think anybody’s ever done anything (Laughs) with that
suggestion. And, you know, that would be the first thing I would do, actually, if I
really wanted to sort of dig into what was happening in accounting.

But there’s a lot of things in life you can’t change. And nobody is going to go looking
for ways to create lawsuits and newspaper stories, (Laughs) and all kinds of things.
And I don’t blame them.

16. How to get a fairness opinion at a discount

WARREN BUFFETT: Listen, I had brought one thing I just couldn’t resist.

I was hoping I’d get a question, so I’ll ask it myself. (Laughter)

I was hoping to get a question that how could some guy be so idiotic as to propose a
price of $848.02 or whatever it was, or is, for Alleghany Corp? I mean, isn’t that
getting a little scientific, you know? (Laughs)

And, of course, I did provide, when I made the offer, that it be $850, less whatever
was paid to whatever investment banker they wanted to select, Alleghany in this case,
and they’re bound to have to do it because Delaware law is developed in such a way
that the directors are protected if they get expert opinions, all that sort of thing.

So, I don’t fault anybody in the system. But I just thought it might be useful, actually,
maybe to Delaware judges someday, Delaware statute makers, maybe people that are
writing papers, who knows.

But I suggested that we just, since I’m willing to pay $850 a share for the place as is,
you know, if the advisory fees are $10 million or $40 million, that it makes a
difference to someone.

And it’s always made a difference to us as the buyer, but that’s just the way the game
was. Well, there’s a little history to that. And I went back and there’s been twice, and
nobody’s ever paid any attention to this, but there’s been twice in the history of
Berkshire Hathaway, 57 years, twice that Berkshire was required to get a fairness
opinion.

And it was perfectly logical that we be required to get a fairness opinion in those two
cases, because in one case Diversified Retailing, which was a company I was invested
in, in both of them that came out of our partnership, but one had a group of
shareholders that were different than the other group of shareholders at Berkshire, and
the two wanted to merge, so you have two companies, with me being the biggest
beneficiary between.

And it really wasn’t up to me to determine the ratio, I mean, even though I am the
most involved. But I had a little more of one company than the other. So anyway, a
fairness in opinion was required. And this has only been twice in the history of
Berkshire that one was required.

So naturally I went to Charlie, and I said, “Charlie,” you know, “We do have,” I
mean, Charlie told me, he knew it better than I did, “We need a fairness opinion in
this case.” And I said, you know, “I know what’s fair, you know what’s fair, Sandy
knows what he thinks is fair.”

If the three of us owned it, in ten minutes we could’ve worked out a deal that all three
of us regarded as fair. But because there were public shareholders and everything, it
wasn’t right to do it that way. And the first one, we have two of these, but the first one
was November 27th, 1978.

And I told the shareholders, essentially, that my personal belief is that both Diversified
and Berkshire shareholders will benefit from the merger, but I will vote for the merger
only if a majority of the shares, which are voted by other shareholders of each
company, are voted to support, which was fine.

I committed myself, you know, to let the people decide whether this was fair. But on
top of that, we needed to get a fairness opinion from an investment bank with a big
name and everything. And so I said to Charlie, “You know, these things are going for
$1 million or $2 million,” where they get some guy that they hired last week and he
writes up a little thing, and then we get a bill for $1 million or $2 million.

They really haven’t done anything, they don’t know either company and, you know,
there’s a million things they’re not going to know about it, but they’re going to write
an opinion. And we need the opinion. I said, “So what do I do?” And I go to Charlie
with these kind of problems.

And Charlie said, “Warren, it’s very simple.” He said, “Pick out ten prestigious
investment banks and do exactly what I say.” (Laughs) So, “OK Charlie, what do I do
when I get these ten?” And he says, “Well, put them in order, one through ten.”

And he said, “Call the guy at the top of the list and tell him you’ll pay him $60,000 for
doing a fairness opinion. And you know that it’s an insulting price and it’s ridiculous
for him to do it because it’ll affect what he can get from other people down the line
that will look back and say, ‘Well, Buffett only paid $60,000, why should I pay $2
million?’”
And he says, “Just tell them that that’s what you’ll pay. And if they’re insulted by it,
which they probably should be, that you’ll go to number two and offer them the same
deal, and you’ll just keep going down till you get to number ten. And if you don’t
have anybody by number ten, you’ve told the other people, you’ll come back to
number one again and you’ll say, ‘Well, I’ll pay $80,000,’ and then you’ll go down
the list and example.”

Well, (Laughter) so I picked ten names out and number one name was Jack Shad. And
Jack Shad was a friend of Tom Murphy’s, he was a friend of Bill Ruane’s, and he was
running E.F. Hutton. And he was a very, very, very successful investment banker.

I didn’t know him as well as the others, but I’d met him through my friends. So, I
called him up and I said, “Jack,” I said, “I’ve got this crazy request.” And he says,
“Only because everybody admires you so much and my friends are your friends,” and
blah, blah, blah, and E.F. Hutton is so well-regarded.

I said, “I’m going to ask you something that is totally against your interest, and I fully
understand the fact that you’re going to say, ‘You’re an idiot to call me on this,’ and
slam down the phone.” But I said, “Jack, here’s our procedure.”

And I described this procedure that he gets called first, and if he turns it down then I
go to Paine Webber, and then I go to, and (UNINTEL). And I tell him, “There’s these
ten people. And if we don’t get any yeses, I’m going to come back to you again and
I’ll offer you $75,000, and we’ll do the same thing till somebody says yes.”

And I said, “Jack, you know, but you are the first call, so $60,000 and it’s going to
screw up your business if you do this, because every client you get in the future is
going to say, ‘Well, you did it for Diversified Retailing and Berkshire, and why in the
world should we pay you $2 million when he paid you $60,000?’”

And Jack said, “Don’t worry about it Warren. (Laughs) I can take care of that.” He
says, “We’re in.” And so we got a fairness opinion written for one side. And now the
next call I made was to Paine Webber, and I gave them the same story. And I said,
“E.F. Hutton was dumb enough to take the one side for $60,000.” You know, “I don’t
know why the hell they’re doing it, they’re destroying their reputation and all that.”
And Paine Webber said, “We’ll take the other side for $60,000.” (Laughter) So we
have a thing that describes the whole process.

CHARLIE MUNGER: They got (UNINTEL). They sent out an amiable alcoholic that
they had to do something with.

Well, what they did (Laughter) was they each billed us for $60,000 and we paid it.

That’s what you get for $60,000.

WARREN BUFFETT: No, no, no. (Laughter) We got the same thing everybody else
got, Charlie.

CHARLIE MUNGER: Yeah, I know.

WARREN BUFFETT: And, of course, Jack Shad, this was 1978, he was appointed
chairman of the SEC (Laughs) for seven years. I mean, but Jack liked to do business.
And it was true, it didn’t hurt him. They paid us $60,000 and then they went back and
charged somebody else $2 million, you know, the next week.

And it’s all play money. And so we did the same thing when we got to Blue Chip
Stamps, where we were similarly conflicted four or five years later. We went back to
the same two guys. And there had been a lot of inflation and everything like that.

So we said $110,000 then. I’ve got the prospectus for that. And both of them said, you
know, “Send it in, don’t worry about our other clients, we’ll figure out some story to
tell them,” you know, and whatever it may be. But I just thought it would be
interesting to, at some point, have people realize that it’s not play money.

Somebody pays it. And it’s a game. And, you know, but it’s what passes muster in
Delaware, and the directors will have it explained to them by the lawyers that they’re
not going to get sued if they do it in a certain kind of way. And, you know, so I just
decided that somebody at some point ought to (Laughs) point out what actually is
happening in this situation.

And that’s why we did it that way. And, you know, it may go down with our earlier
attempts to educate the world on the realities of finance and its various interactions,
and why it’s better to teach your son to be an investment banker than to be an
electrician, you know, or something. But you’ve got an eccentric chairman and that’s
what he did. (Laughs) Charlie, how do you feel about this whole matter? It was your
idea originally.

CHARLIE MUNGER: Well, we’re a little peculiar. (Laughter) And all the
peculiarities are not bad.

17. Charlie gets an insurance claim paid

WARREN BUFFETT: I didn’t talk to Charlie before I did this this time. But Charlie
has given me four ideas together on extremely practical matters, I mean, they just
changed everything. I think you really ought to tell them about the experience with the
fraud company, (Laughs) Charlie.

CHARLIE MUNGER: About what?

WARREN BUFFETT: About the fraud claim, you know, the Fidelity claim with the
guy, you know, he had the very well-known insurance company that, we don’t have to
name names. But, you know, when you basically told him, “Just raise the stakes to
make the game fair.” This was back in the 1960s. Do you remember that?

CHARLIE MUNGER: I don’t remember.

WARREN BUFFETT: Oh, well I remember.

CHARLIE MUNGER: Well, tell it then. (Laughter)

WARREN BUFFETT: Charlie had this tiny little operation which he ran his fund,
also had a seat on the Pacific Coast Stock Exchange. The firm was called Wheeler and
Munger. It was called Wheeler and Munger at first, later it changed itself to Munger
Wheeler, and Jack Wheeler said, “Well, pretty soon it’ll be Munger and Company, but
that’s OK.” Jack Wheeler was a very interesting guy, and he had the specialist
position in General Motors and a few things. And some employee stole, like, I don’t
know, $12,000 or something like that from the firm.

CHARLIE MUNGER: Yeah. Well, I remember, he had the trading tickets.

WARREN BUFFETT: Yeah. Some guy steals some money, and Charlie’s firm,
Wheeler and Munger, was required to have a Fidelity bond and all these things that
governed dishonest employees and all of that sort. So this guy’s clearly dishonest.
He’s clearly stolen the money.

So Charlie puts in a claim for $12,000 or something like that, whatever the loss was,
and sends it to this very big and prestigious insurance company. And, of course, the
insurance company denies this claim. They say, you know, “The guy really wasn’t
employed, he doesn’t exist, you don’t have a dog,” you know, I mean, the whole
thing.

And Charlie gets this letter back and they’re not going to pay the claim. And so
Charlie writes a letter to this very well-known big name person that runs the insurance
company. And he said, “Look,” he said, “We have this $12,000 claim.” And he said,
“That guy stole the money and we thought we had an insurance policy against people
stealing, and paid us if people stole money.”

And he said, “We’re in this very interesting position, because you’ve got a bunch of
people on the payroll, and they’re going to get their weekly check or monthly check,
whatever they do, so they just say, ‘We’re not going to pay,’ and life goes on.

“Whereas I’m sitting here and I’ve got my time, I’ve got work on this thing, and it
isn’t worth the $12,000 for me to fool around with this claim against the company,
and they’ll appeal it,” and all these things. So he said, “I know that you would be
offended by the thought that you might be using this inequality of bargaining position
to avoid paying the claim.
“That never could be your intention. So, what I suggest in order to really live up to
your code of behavior is why don’t we make the $12,000 claim, we’ll just multiply it
by ten and call it $120,000 either way. And if you lose, you pay me $120,000. If I
lose, I’ll pay you $120,000, and now it’s worth my while.”

And (Laughter) he addresses the letter to the chairman and says that to the guy. He
gets a $12,000 check by return mail. (Laughter)

It’s not a bad lesson. He’s told me two others, but the tricks are too good. I don’t even
want to share them now, I may use them myself someday.

18. Why Buffett wouldn’t buy all the bitcoin for $25
WARREN BUFFETT: OK, let’s go to Becky.

BECKY QUICK: We got a lot of questions on this topic. I’ll ask this one that came
from Raj. He says, “Have you changed your views on bitcoin and/or cryptocurrency in
any (Laughter) respect? I’m conflicted about this,” because his own views have
slightly evolved during the past two years from bitcoin is a fraud and waste to bitcoin
is in a speculative bubble but might have some uses.

WARREN BUFFETT: Well, (Laughs) I shouldn’t answer any question on the subject,
but I will. You know, there’s all kinds of people watching this that are long bitcoin
and there’s nobody that’s short, and nobody wants their windpipe stepped on. And I
don’t blame them, I don’t like people to step on my windpipe.

But I would say this, that if the people in this room owned all of the farmland in the
United States, and you offered me a 1% interest in it, and you said for a 1% interest in
all the farmland in the United States, pay our group, well, let’s see ten, 20, pay us this
bargain price, $25 billion, I’ll write you a check this afternoon, $25 billion, now I own
1% of the farmland.

If you tell me you own 1% of the apartment houses in the United States and you offer
me a 1% interest, so I’ll have a 1% interest in all the apartment houses in the country,
and you want whatever it may be for it, call it another $25 billion or something, I’ll
write you a check. You know, it’s very simple.

Now, if you told me you owned all of the bitcoin in the world, and you offered it to
me for $25, I wouldn’t take it, because what would I do with it? I have to sell it back
to you one way or another. I mean, maybe not these same people, but it isn’t going to
do anything.

The apartments are going to produce rental, and the farms are going to produce food,
and if I’ve got all the bitcoin I’m back where whatever his name was, who may or
may not have existed was, you know, 15 years ago. If I’ve got it all he could create a
mystery about it.

But everybody knows what I’m like. I mean, so (Laughs) if I’m trying to get rid of it,
you know, people will say, “Well, you know, why should I buy some bitcoin? Why
don’t you call it Buffett Coin, you know, and make your own or something? Do
something. But I’m not going to give you anything for it.”

And you’d be right, incidentally. But that explains the difference between productive
assets and something that depends on the next guy paying you more than the last guy
got. Now, net, if you look at it, a lot of commissions have been paid and, I mean,
there’s all kinds of fictional costs that are very real that somebody has paid to a bunch
of people who facilitate this game.

But whatever one group of the public has taken out, or one group of owners, has come
in from other people. I mean, other people have entered the room and they move
money around. But there’s no more money in the room, it just changed hands with a
lot of maybe fraud and costs involved and, you know, a whole bunch of things.

You lose, you know, you forget the numbers or forget the equation. You can do that
with a lot of things. I mean, it’s been done throughout history. Certain things have
value that don’t produce something tangible. I mean, you can say a great painting, you
know, probably will have some value 500 years from now.

It may not, but the odds are pretty good that if it was a big enough name at some
point. There will be a few things. I mean, you know, you can find somebody to pay. If
somebody wants to sell you a pyramid or something, and you can charge the viewers,
you know, it’ll be around a long time and it would produce anything, but people will
find it interesting to go there, because they’ve heard about the pyramids.

But basically assets, to have value they have to deliver something to somebody. And
there’s only one currency that’s acceptable in the United States. I mean, you can come
up with all kinds of things. We can put out Berkshire Coins or, you know, we can put
out Berkshire Money or anything like that.

But we’d get in trouble, I guess, if we call it money. But in the end, this is money and
there’s no reason in the world why the United States government, whose currency
people prefer. I mean, literally there’s just under $2.3 trillion just of these little pieces
of paper floating around someplace, $7,000 for every man, woman, and child in the
United States, even though most of them probably aren’t in the United States. Who
knows.

But this is the only thing that’s money. And anybody that thinks the United States is
going to change to where they let Berkshire Money replace theirs, you know, is out of
their mind. So anyway, with those few deficiencies, you know, whether it goes up or
down in the next year or five years, ten years, I don’t know.

But the one thing I’m pretty sure of is that it doesn’t multiply, it doesn’t produce
anything. It’s got a magic to it and people have attached magics to lots of things. I
mean, it’s a goal in Wall Street, you know, to create magic, you know? We are not an
insurance company, we’re a tech company.

Well, they’re an insurance company. But a dozen people or so have raised a lot of
money, they just say, “Just don’t pay any attention to the fact that we sell insurance.
We are a tech company.” Well, in the end they wrote insurance and overwhelmingly
they’ve lost a lot of money since then. You can make up things that work well in
getting money from other people and that’s why —

CHARLIE MUNGER: I have a slightly different way of looking at it. (Laughter)

WARREN BUFFETT: I’ll sell you some then.

CHARLIE MUNGER: Well, (Laughs) in my life I try and avoid things that are stupid
and evil and make me look bad in comparison with somebody else. And bitcoin does
all three. (Laughter)

And in the first place, it’s stupid because it’s very likely to go to zero.

In the second place, it’s evil because it undermines the Federal Reserve system and
the national currency system, which we desperately need to maintain its integrity and
government control and company on.

And third, it makes us look foolish compared to the communist leader in China. He
was smart enough to ban bitcoin in China, and with all of our presumed advantages of
civilization — (applause) — we are a lot dumber than the communist leader in China.

WARREN BUFFETT: Yeah, and when 25% of the people of the country get mad
because we’ve said what we said today, just remember Charlie spoke last, and was the
most — (Laughter)

19. Increased tribalism is dangerous

WARREN BUFFETT: The one development that I really do think is actually
important, but I don’t know any way to do anything about it, but my general sense,
and there’s no way to prove it, but I essentially believe people are now behaving
somewhat more tribal than they have for a long time.

And, I mean, people are always going to be partisan, and they’re going to have
religious beliefs, they’re going to have all kinds of things. But it gets pretty tribal. And
I speak from experience because I’ve been tribal. And, you know, we’re confessing
today, and, you know, Nebraska football is tribal.

And when I watch a television set, and I see our guy, Nebraska, step out of bounds by
a foot, but somehow the ref misses it and calls it “in,” and then they show six replays,
I’ll continue to believe it was “in” even though it’s right in front of my eyes that they
stepped out. You know, that’s tribal behavior.

And it’s fun. I mean, (Laughs) to participate in. But it can get very dangerous when
one group of people say, “Two plus two is five,” and the other say, “Two plus two is
three,” you know, and they’re going to give you those answers if you call them.

And the interesting thing is, to me at least, and partly because of my age. But I
actually think, just from memory, that the last time that the country was seen as tribal
was actually when I was a kid and Roosevelt was in: Either you hated Roosevelt or
you loved him.

I mean, nobody cared about the fact Alf Landon was running, or Wendell Wilkie was
running against him. They just had these feelings: They either had Roosevelt’s picture
on the wall, and named their kids after Roosevelt, or they hated him and they thought
he was going to, you know, “Oh, a third term?” and, you know, a million things.

And the country was very, very tribal in the ’30s, but Roosevelt’s tribe was bigger.
And, in my opinion, they did some wonderful things. But I happened to grow up in a
household where we didn’t get served dessert until we said something nasty about
Roosevelt. I mean, and, believe me, if you don’t get dessert, you’re going to say
something nasty about Roosevelt. (Laughs) And so you trained them young, and did,
you know, all kinds of things.

And so, I think I’ve seen a period that wasn’t that way, when Eisenhower was running
against Stevenson, or whatever it might be. I mean, you know, people had a partisan
behavior, and they had a certain amount of “tribal” always. But I don’t think it’s a
good development for society generally when people get tribal, regardless. (Applause)
Charlie, what tribes are you a member of? (Laughs)

CHARLIE MUNGER: Well, in California, we have a legislature which is completely

jerrymandered so nobody can ever be thrown out by the voters. And, therefore, the
only people in the legislature are insane rightist and insane leftists. And they get
together every ten years, and there’s usually six moderates somewhere in the
legislature, and so they re-jigger all the districts to throw them out, because neither
part can stand them. Now, that is government in California. (Laughter)
WARREN BUFFETT: Yeah? And you live there and you have to go back? (Laughs)

CHARLIE MUNGER: Yes, yes.

WARREN BUFFETT: I’m sure you’ll —

CHARLIE MUNGER: And I prefer living there to living in Russia. (Laughter)

(Applause)

WARREN BUFFETT: OK. Who haven’t we gotten in trouble with yet? (Applause)

Who was it, Lennie Bruce, that used to say, “Is there anyone I’ve forgotten to
offend?”

20. Buffett’s favorite boss

WARREN BUFFETT: Yeah. Section 10, I believe.

SAHEJ: Hello, Mr. Buffet and Mr. Munger. My name is Sahej, I am from New Jersey.
And I’m currently a freshman at Rutgers University. You knew quite early on that you
wanted to be investors, and you’ve obviously been amazing at it.

What advice would you have for someone who’s still trying to figure out what they
want to focus on and find their calling?

WARREN BUFFETT: Well, that is a very interesting question. Because I was very,
very lucky. In that I found what I wanted to do because my dad happened to be in a
business that he wasn’t interested in, but they had some books down there, and I loved
my dad, and I’d go down and read the books and they interested me.

And, you know, I’m glad he wasn’t a professional boxer or something, or, you know,
I wouldn’t have any teeth left or anything else. (Laughs) It was accident, just totally
accident, but I do think you know it when you see it. And it doesn’t mean you can
follow.

I would tell the students, as I wrote in the report, I mean, you know, “Find out what
you love doing.” I mean, you spend most of your life doing it, and why in the world
would you want to be around for a lifetime working with people that you didn’t like?
Unless you had to, which sometimes happens. Just work for whomever you admire the
most.

I gave a talk at Stanford one time. And somebody showed up at Tom Murphy’s office,
I think, a couple of days later. That person was right. And, of course, it’s what I did
when I got out of school. I wanted to work for Ben Graham. I mean, I didn’t care what
I got paid, it didn’t make any di — you know, I just knew that that’s what I wanted to
do.

And then I pestered him for three years and he finally hired me. And then I found
somebody else that I’d even rather work for than Ben, who happened to be myself.
(Laughter) And so I’ve been working for myself ever since. But I had about four
bosses in my life. You know, I went down to The Lincoln Journal. Name slips my
mind at the moment, he was a wonderful boss. And it was Coopersmith at J.C.
Penney’s here in Omaha, and they all were wonderful people.

But I still preferred working for myself. And, of course, Charlie and I both worked for
my grandfather, and we just didn’t find it that interesting. I don’t remember, why’d
you ever decide to go to work at the store, Charlie? Charlie worked there in 1940, I
worked —

CHARLIE MUNGER: Well, I worked just for the experience of working, I didn’t
need the money. My father gave me an ample allowance and I also had a private
business. So, I was kind of working as a lark in your grocery store.

WARREN BUFFETT: Twelve hours a day?

CHARLIE MUNGER: Yes.

WARREN BUFFETT: At — for a lark?

CHARLIE MUNGER: Yeah, as a lark, yes.

WARREN BUFFETT: Do you consider that a good investment of your time?

(Laughs) I mean, just looking back on it?

CHARLIE MUNGER: Well, I’d never done it before, and I wanted to have a little of
that experience. And I wasn’t going to do it very long.

WARREN BUFFETT: Hmm. (Laughter) That sure as hell wasn’t the reason I worked.
(Laughs)

CHARLIE MUNGER: Well — you know, I could give that young lady the advice.
Figure out what you’re bad at and avoid all of it.

WARREN BUFFETT: Yeah. (Laughter)

CHARLIE MUNGER: That’s the way Warren and I found our profession.

WARREN BUFFETT: Absolutely. You know, we —

CHARLIE MUNGER: We failed at everything else.

WARREN BUFFETT: We worked at everything till we found the ideal employers:

ourselves. (Laughs) You know? And that was something we really admired.

CHARLIE MUNGER: I know: Warren said, “Work for somebody you admire.”
(Laughter) The only one he knew was the one he was shaving.

WARREN BUFFETT: I think he was self-employed.

CHARLIE MUNGER: Because he and I were shaving.

WARREN BUFFETT: But it isn’t bad advice. It isn’t bad advice. I mean, if they’ve
got an option. I mean, Charlie went into the service in whatever year it was, in the
’40s, and he didn’t really have a choice of who he was going to work for. And, as I
remember, it didn’t really work out that well (Laughs) who you worked for, Charlie,
did it?

CHARLIE MUNGER: Well — if you stop to think about it, there are two things that
neither one of us has ever succeeded at: One, we’ve never succeeded at anything that
didn’t interest us, right?

WARREN BUFFETT: Right.

CHARLIE MUNGER: And we’ve never succeeded at anything that was really hard
where we didn’t have much aptitude for it.

WARREN BUFFETT: Yeah. And we’ve been doing whatever we pleased for 60
years.

CHARLIE MUNGER: Yeah, we did.

WARREN BUFFETT: And, you know, we have fun in our way, and —

CHARLIE MUNGER: I’m just amazed. You’d think, if you’re smart, you could do
things that don’t interest you well. But you can’t.
WARREN BUFFETT: Well, I’ve certainly got a lot of examples in my own case. But
we won’t get into them here.

21. Munger likes having big U.S. oil reserves

WARREN BUFFETT: And we will go to Becky.

BECKY QUICK: This question comes from Foster Taylor, in Tulsa, Oklahoma. He
said he recently listened to the Berkshire Hathaway 2008 Annual Meeting, where you
talked about global oil production.

At the time you talked about major ramifications if global oil production went below
85 million barrels in 25 years.

We are at the 14-year mark, and global oil production looks to be 79 million barrels.
At the same time, we’re depleting our strategic oil reserves. Should the United States
be doing something differently, and do you see consequences to these actions in the
next ten years if we do not become more proactive?

WARREN BUFFETT: Well, Charlie’s the expert on oil.

CHARLIE MUNGER: Well, but — (Laughs)

WARREN BUFFETT: Only compared to me. (Laughter)

CHARLIE MUNGER: Samuel Johnson said, “It’s hard to determine the order of
precedency between a louse and a flea.” And it’s hard to tell which of us is more
incompetent in oil. (Laughter)

WARREN BUFFETT: We’re still competing. (Laughs)

CHARLIE MUNGER: I have a different view on this subject. I like having big
reserves of oil. If I were running the benevolent despot of the United States, I would
just leave most of the oil we have here, and I’d pay whatever the Arabs charge for
their oil and I’d pay it cheerfully and conserve my own. I think it’s going to be very
precious stuff over the next 200 years. And nobody else has my view, so it doesn’t
bother me, I just think they’re all wrong.

WARREN BUFFETT: Yeah. (Laughter) Well —

CHARLIE MUNGER: But at any rate, that is not the normal view.

WARREN BUFFETT: And we’ve been pretty flexible on our own view. I mean,
actually, the Federal Government is serving up however many billion barrels of the
stuff into the economy. And, you know, it wasn’t that long ago that, you know, the
idea that anybody produced a barrel of oil was somehow something terrible. I mean,
just try doing without 11 million barrels a day and see what happens tomorrow.

It is something that everybody has a feeling on, immediately. And, you know, this
gets into a whole bunch of different tribes of sorts, and you offend an awful lot of
people if you talk in any way about it. But, in the end I think, at the moment at least,
most people feel that it’s nicer to have some oil in this country than not have it.

And we’re using a lot of it. And if we were to try and change over, in three years, or
five years, nobody knows what would happen, but the odds that it would work well
are extremely low, it seems to me.

Charlie, why don’t you say something more dramatic so you’ll be the one that
offended the most people? (Laughter)

CHARLIE MUNGER: Well, if you stop to think about it, the oil industry is being so
vilified now, I can hardly think of a more useful industry, and I don’t know about
wildcatters, but certainly the petroleum engineers I know, and the people who design
our oil refineries, and pipelines, are some of the finest and most reliable people I
know.

And I see very little trouble (Applause) with the oil supply thing in the United States.

So I’m basically in love with Standard Oil. And I don’t have this feeling that it’s an
evil, crazy place. I wish the rest of the world worked as well as our big oil companies.

22. Deciding whether to buy back Berkshire stock isn’t that hard
WARREN BUFFETT: Well, we better move on to station 11. (Laughs) I’m not sure
whether station 11 is operative?

GLEN TONGUE: Well, we’re here. Greetings from the Overflow Room. My name is
Glen Tongue, I’m a shareholder from New York. This is my 20th Berkshire Annual
Meeting, and I’m delighted that we’re able to, once again, be here in person. You two
have brought tremendous joy to all of us through the years, and, speaking personally,
your wisdom has not only made me a better investor, but, more importantly, a better,
happier person. It’s a privilege and honor to thank you. So, Warren and Charlie, thank
you. (Applause)

CHARLIE MUNGER: Well, that’s my kind of a question.

WARREN BUFFETT: Yeah, that — that’s fine.

CHARLIE MUNGER: Let’s have more of those. (Laughter)

WARREN BUFFETT: Yeah, or you can say it again. (Laughs)

CHARLIE MUNGER: Maybe you could sing it. (Laughter)

GLEN TONGUE: Maybe I should quit at this point.

WARREN BUFFETT: Glen go to it.

GLEN TONGUE: My question relates to share repurchases. Since you started buying
back Berkshire shares, in size two years ago, the repurchases have ranged between $1
billion and $3 billion per month. By my estimate, it appears that the buyback rate is
about $3 billion per month when Berkshire’s trading at a 20% or so discount to
intrinsic value, $2 billion per month at about a 10% discount, and a billion per month
at a zero to 10% value. Do I have that approximately right? And do any other factors
influence the rate of share repurchases?

WARREN BUFFETT: Well, after you were so nice in your introduction, I have to say
that (Laughs) you’re actually wrong in that. If somebody had offered us $50 billion
worth of stock at a certain point in the last three or four, five months, we’d have taken
it. You know, it’s that simple.

And, as I mentioned earlier, we haven’t bought any stock in April. It’s something that,
when we can do it, and we know, at least we think the probabilities are very high, we
certainly believe it in terms of our own evaluation and our own investment, if we
think that we’re improving things for the remaining shareholder, we’ll buy it back.
And if we don’t, we don’t buy it back.

And if we have the choice of buying businesses that we like, or buying back stock —
the controlling factor’s how much money we have, we’d rather buy businesses. And
so, you know, we don’t stay awake at night working out formulas, or anything of the
sort. But we don’t ever do it if we think that we’re not doing something at the time.

If we had a lemonade stand, and Charlie and I and you owned it, and the lemonade
stand was making us about a buck a week or something, and we divided it up. And
then you said you wanted to get out. And if you said one number, and we’d have the
funds in our little lemonade company, we’d buy you out. And if we didn’t like the
price, we wouldn’t buy you out.

And that’s the same we feel. But we do feel an obligation to do things that we think
are intelligent and in no way risk — absolutely no way present any risk, of financial
problems under any circumstances, we can envision, except maybe something like
nuclear war, you know, we will do it. But it never can be that big a factor.

Charlie, I think, spoke the other day, in connection with Henry Singleton. I think he
bought back 89% of the company over time. And he’d sold stock like crazy, or issued
it, much earlier when it was overpriced, and he bought it back underpriced. But the
key to that, of course, if having people think you’re wrong in doing it, so he was able
to buy a ton of it.

And there are some other companies that have bought a ton of it, and Berkshire isn’t
going to get the chance to do that. Because we’ve got sensible shareholders is what it
amounts to. If we had the same group of shareholders that own two-day puts, and they
were our shareholders, we could buy back the whole company, you know, in a very
short period of time.

But it’s such an easy concept to assess. I mean, the second stock I bought — I bought
City Service Preferred, that was the first one. The second stock I bought was a
company called “Texas Pacific Land Trust.” And that came out of the bankruptcy of
the Texas and Pacific Railroad back in the 1880s, or something like that.

And they had three million-some acres, and they owned the minerals, and they owned
the surface, and everything else. But it was terrible land in the 1880s. But they had
some kind of a charter that said that they could use the proceeds from land sales,
whatever it was they were going to buy in stock every year.

And, you know, I sat there, when I was 13 or 14, and I figured, “If I live to be a
hundred, I would own the whole place.” Well, I haven’t lived to be 100 yet, and I
wouldn’t have bought the whole place. So both calculations are, so far, imperfect. But
it’s been a remarkable company, just plain remarkable. Because they would talk about
grazing fees of $6,000 a year, or something like that, you know, maybe, when they
had three million acres.

And then they kept finding oil, and more oil, and more oil. And they’ve changed the
form, and all kinds of things, but they bought stock week after week after week. And I
sat there and figured out how long it would take until I owned the whole company.
And I obviously made some improper (Laughs) calculations because it wouldn’t have
worked that way.

But it still was apparent to me that it would be a very good idea, if they had three
million acres down there, that if they got all through with it, and they kept their
mineral rights, and all kinds of things, which they were doing, you know, at a very
cheap price it ought to work out well for anybody that sat around for a long time.

And it has worked out extremely well for anybody who sat around a long time. But
nobody knew that they were going to find a lot of oil, and that eventually El Paso
would grow out far enough so that the surface lands became worth some money, that
were somewhat near El Paso. And you had to go a couple hundred more miles to find
the next person, but (Laughs) that was another problem.

So, some of this stuff is so simple, you know? But, you know, if people want to get
their Ph.D. or something, so they work out hundreds of pages, and have lots of Greek
letters in it, and all that soft of thing, and either you’re buying out your partner at an
attractive price, or you’re not buying him out at an attractive price.

And if you’ve got the money around to do it, and the price is attractive, and you don’t
have some other opportunities, you know, why not do it? You’ve got to come out
ahead by doing it.

And if you’ve got other things that are more intelligent, you don’t do it. And if it isn’t
intelligent on an absolute basis, you also don’t do it.

Charlie, have you got anything to add to the — what were you doing in 1943?
(Laughs) You were in the Service?

CHARLIE MUNGER: Well, Warren, we’d be crazy if we didn’t rather enjoy having
come a considerable distance from small beginnings.

And to do that in good company, it’s a favored life. We’ve been very fortunate.
WARREN BUFFETT: Yeah. And, tomorrow — (Applause)

— Monday — I can tell you, it’s almost certain that, if anybody offers us — well,
there will be shares traded of Berkshire, and we won’t buy any.

But it’s also a pretty fair chance someday a lot of shares — we’ll add a few shares —
not a lot.

Berkshire’s got the — our shareholders are too smart, that’s one of our problems
(laughs) if we want to repurchase shares.

But we really don’t want to squeeze out anybody. But we also are here to do things
that increase the value for the people who stick with us. I mean, it’s not very
complicated, and there’ll be times when we’ll do it, and there’ll be times when we
won’t.

There won’t be any formula, but there will be the principles that I’ve just expressed.

And my guess is that my successor, and their successor, will have a similar
calculation, because we’re looking for people that are rational and devoted to
Berkshire.

So, Glen, thanks for coming.

23. “Independent” board directors aren’t really independent

WARREN BUFFETT: And, Becky, you’re next.

BECKY QUICK: This question was sent in by Dave Shane (PH) from Brooklyn, New
York. He’s responding to something he heard earlier today. He said: “In the future,
will Greg be able to act with the same spontaneity that you mentioned earlier? And
make immediate, multibillion-dollar decisions without board approval?”
WARREN BUFFETT: Well, my guess is that the board will respond as people do.

They’ll put some more restrictions, or they’ll have some more consultation on a lot of
matters, or some matters, than they do with me. I mean, they won’t “need” to, but
they’ll feel that they haven’t had the experience, they haven’t seen him as long, and a
whole bunch of things.

And they’ll feel that the Delaware laws protects him better. And, incidentally, they
don’t have directors and officers liability insurance. I mean, virtually every company
on the New York Stock Exchange has it.

And we just don’t buy it. I mean, I’m on the board, and you’re a trustee for a whole
bunch of people with trusts, you and me — I’m talking about the directors and me.
You know, fine. But it’s very interesting: People go out on museum boards, you
know, and they’re expected to contribute. People go on college boards, and they’re
expected to contribute money.

And they say, “It’s a great honor to be on a university board,” or a museum board, or
whatever, “It’s a great honor, and therefore you should raise money for us.” Well,
frankly, I think our board’s more interesting than being on a university board, or, you
know, a hospital board or something. I wouldn’t know what they were talking about
anyway, on a museum board or an art board.

But people have found that they can make $300,000 a year, you know, which is
enormously important to some people, and is meaningless to others. And, I mean, the
chances are, if somehow, they’d arranged it so that directors didn’t get paid at all,
there’d be plenty of people wanted to be directors, and that’d be a prestigious sort of
thing, and all that. But, in effect it’s money that comes very easily. The whole idea of
the “independent director,” frankly, is it just doesn’t really make any sense.

CHARLIE MUNGER: You don’t think a director is independent who needs $300,000
to be here?

WARREN BUFFETT: He needs the money, yeah. I mean —

CHARLIE MUNGER: He’s “independent” the way a slave is independent.

WARREN BUFFETT: I am going to read a few sentences which are absolutely the
case, except I’m doctoring it. I don’t want anybody to be identified obviously with
this. But these are word-for-word excerpts. And I’m not telling whether it’s a woman
or a man, I’m going to use a male pronoun just because it’s easier.

But I picked out a few sentences from a letter I received many years ago. And this
letter said: “I’m writing to you with a great deal of reluctance, and a sense of personal
embarrassment. I’ve tried all of the conventional means of raising the money.” This
person needed a couple million dollars, and I wouldn’t have known the person if I saw
him on the street, you know, but he wrote this letter and said, “I need a couple million
dollars.”

And then this is the item that I think you might find interesting, and I’ve kept the
letter. “My income is composed 100% of my board fees.” Well, I just looked him up.
At the time and he was a director of five prestigious companies, and had been
directors of others, and was going to be a director of a whole bunch of things.

But he was desperate for money, and he says he’s “getting 100% of it from board
fees.” And he was an independent director, classified as “an independent director” at
every one of these companies. And it’s just astounding to me. You know, we’re going
to have a shareholders meeting in just a couple of minutes, or we’re going to start it,
and it’s just astounding to me that in 2006 we owned 9% of the Coca-Cola Company.

I mean, maybe they gave me a free Coke. But we owned 9% at Berkshire Hathaway,
we obviously cared about the views of the Coca-Cola Company. And it just so
happened in that era CalPERS and a few others had recommended that we be voted
against for something or other.

And at one time there were two big institutional investors that voted because they
didn’t think I was independent because Dairy Queen bought some Coca-Cola. Or,
actually, the people that had our franchise bought some Coca-Cola. I mean, do they
think I can’t add things in my head? If we’ve got billions and billions and billions of
dollars, that I’m going to be compromised?

But it’s just nutty. And so, one year, my vote fell from 96%, maybe it was 98%, voter
approval, to 84%. Because — I forget whether it was 2004 or 2006: Somewhere along
the line they just decided that I wasn’t the right sort of person to be able to handle
these responsibilities. (Laughs)

And, you know, the idea that it’s an important part of their income, I mean, what they
want. They may want to do a lot of other good things, it doesn’t mean they’re terrible
people. But if the difference is how you live, and in this case whether the person
might go broke: How in the world you can call somebody like that “independent,” and
then say that anybody who owns a lot of st — you know, and whether Walter Scott’s
you know, “not independent,” it’s just ridiculous. But it’s the way the rules are, and
we follow the rules.

CHARLIE MUNGER: Well, they don’t want them just “independent” now. They
want one horse, one rabbit, one cow, one whatever. (Laughter)

WARREN BUFFETT: You know, I feel like Galileo —

CHARLIE MUNGER: Independence is not enough. You’ve got to have a very diverse
kind of independence.

WARREN BUFFETT: Yeah, yeah. And if they desperately need the money, in this
case 100% of the income coming from it; and you’re on five of the most prestigious
boards in the country; and classified as “independent” on each; and all you’re hoping
is that your CEO gets called by another CEO and says, “Is this guy OK?” And you
say, “Of course, he’s OK.” Which means, “Because he doesn’t cause trouble,” and so
he gets on a sixth board. Anyway.

CHARLIE MUNGER: All I can say is it’s not our idea of an “independent director.”

WARREN BUFFETT: No. No. It’s all a little crazy.

Which brings us to the fact that we’re not going to have our annual meeting here in
about 15 minutes. We’ll reconvene at 3:45 and then we’ll do the business of the
meeting that is required. And you’re all welcome to stay, and it’s very — (Applause)

24. Formal business meeting begins

WARREN BUFFETT: We now come to the moment you’ve all been waiting for.

We will have the annual meeting.

Charlie doesn’t join me for this because once or twice in the past, he was caught on
camera sleeping. So — (Laughter)

We’ve solved that one.

And we’re now going to have an annual meeting where I follow a script. And you
may think that’s impossible, but I’ll do it. (Laughs)

So, 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 2022 annual meeting of shareholders.
Marc Hamburg is secretary of Berkshire Hathaway and he will make a written record
of the proceedings.

Rebecca Amick has been appointed inspector of elections at this meeting and she will
certify to the count of votes cast in the election for directors and the motions to be
voted upon at this meeting. The named proxy holders for this meeting are Greg Abel
and Marc Hamburg. Does the secretary have a report of the number of Berkshire
shares outstanding entitled to vote and represented at the meeting?

MARC HAMBURG: 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,
2022, the record date for this meeting, there were 614,692 shares of Class A Berkshire
Hathaway common stock outstanding with each share entitled to one vote on motions
considered at this meeting, and 1,287,633,719 shares of Class B Berkshire Hathaway
common stock outstanding with each share entitled to one-ten-thousandth of one vote
on motions considered at this meeting.

Of that number, 423,719 Class A shares and 759,159,354 Class B shares are
represented at this meeting by proxies returned through Thursday evening, April 28th.

WARREN BUFFETT: OK. And I will interrupt this meeting for one second to
announce that we’re still selling things next door and we’ve sold 15 boats.

So, with that brief commercial — and if anybody leaves, I will not be offended.

Thank you. The number represents a quorum, and we will therefore directly proceed
with the meeting.

First order of business will be a reading of the minutes of the last meeting of
shareholders.

I recognize Miss Sue Decker who will place a motion before the meeting.

SUE DECKER: I move that the reading of the minutes from the last meeting of
shareholders be dispensed with and the minutes be approved.

WARREN BUFFETT: Do I hear a second?

FEMALE VOICE: I second the motion.

WARREN BUFFETT: The motion is carried.

25. Voting for board of directors

WARREN BUFFETT: 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 yourselves to one of the
meeting officials in the aisle so that you can receive a ballot. I recognize Miss Sue
Decker to place a motion before the meeting with respect to election of directors.

SUE DECKER: I move that Warren Buffett, Charles Munger, Gregory Abel, Howard
Buffett, Susan Buffett, Stephen Burke, Kenneth Chenault, Christopher Davis, Susan
Decker, David Gottesman, Charlotte Guyman, Agit Jain, Ronald Olson, Wallace
Weitz and Meryl Witmer be elected as directors.

FEMALE VOICE: I second the motion.

WARREN BUFFETT: It has been moved and seconded. The 15 individuals named in
Miss Decker’s motion be elected as directors. The nominations are ready to be acted
upon. If there are any shareholders voting in person, they should now mark their ballot
on the motion.

Miss Amick, when you are ready, you may give your report.

REBECCA AMICK: 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 449,190
votes for each nominee. That number exceeds a majority of the number of the total
votes of all Class A and Class B shares outstanding.

The certification required by Delaware law of the precise count of the votes will be
given to the secretary to place with the minutes of this meeting.

WARREN BUFFETT: Thank you, Miss Amick. The 15 nominees have been elected
as directors.
26. Shareholder proposals
WARREN BUFFETT: The next four items of business relate to four shareholder
proposals that are each set forth in the proxy statement that can be accessed at
BerkshireHathaway.com. The first proposal requests that the company adopt a policy
and amend the bylaws to require the chair of the board of directors to be an
independent member of the board. The directors recommended that the shareholders
vote against the proposal.

I will now recognize Peter Flaherty, a representative of the National Legal and Policy
Center, to present the proposal.

PETER FLAHERTY: Good afternoon. I am Peter Flaherty, chairman of the National

Legal and Policy Center. I’m from Washington, D.C., but please don’t hold that
against me.

Our proposal would separate the roles of chairman and CEO. Sorry, Charlie. But I
would take it one step further and suggest that Berkshire remove itself from corporate
America’s assault on American institutions and culture.

I’m proud to say I’m a capitalist. But it is obvious to me that capitalism is failing to
deliver for the American people. Real wages have been falling for years. Wealth
disparity has never been greater (BOOING) and right outside my hotel window here
in Omaha is a homeless encampment, an all-too familiar sight in American cities.

We don’t have a free economy. We have bailout capitalism. When small businesses
lose money, they go out of business. But when billionaires bet wrong, government
steps in. Money printing by the Federal Reserve and irresponsible, debt-fueled
spending by politicians, what they call fiscal stimulus, have artificially inflated asset
values.

So, those with the most assets benefit the most. Wage earners get ruinous inflation.
But even worse than the wealth gap is the values gap. The top 1% now seek to impose
their corrupt morality upon the rest of us whether it’s in the form of critical race
theory (BOOING), transgenderism and/or the myriad of other woke causes that
permeate corporate advertising and messaging.
Why has corporate America embraced both the economic and cultural radicalism? It’s
pretty simple. When you have so much money, your fortune is going to come into
scrutiny. The best way to insulate yourself and keep anti-business off your back is to
embrace their causes, even if in the process you undermine the system that produces
your wealth.

That is what allowed Mr. Buffett to advocate for higher taxes, even though they will
fall on the middle class. The Federal Reserve has offered free money to corporate
America for over a decade now, creating a class of oligarchs and greatly enhancing
corporate political power.

Executives now believe that they can tell elected governors and legislators what to do,
as we’ve seen in Indiana, Georgia, Texas and Florida. Last year, Coca-Cola CEO
James Quincey, a British citizen, sought to kill Georgia’s new voter integrity law by
making inaccurate and inflammatory statements about it.

He also instituted diversity training whereby white employees were encouraged to try
to be less white. Despite being Coke’s most celebrated shareholder, Warren Buffett is
nothing about Quincey. In fact, Mr. Buffett jumped on the America is racist
bandwagon by signing a statement by corporate leaders suggesting that Republicans
seek to restrict ballot access based on race.

All this did not prevent Coke from sponsoring the Winter Olympics in China which
has never had a free election and where minority communities are the victims of
genocidal policies. And what about Apple? A large part of Apple’s supply chain is in
China.

The company removes apps from the app store at the request of the Chinese
government because they’re used by human rights activists. And of course, Apple is
the world’s most successful, corporate tax minimizer, famous for routing profits
through off-shore tax shelters.

Over at American Express, the company instituted an anti-racist initiative for

employees to teach us that capitalism is fundamentally racist and requires workers to
engage in an exercise to determine whether they are the oppressor or the oppressed.

Activism by woke CEOs may be reaching its limits. The people of Florida are fighting
back against Disney’s Robert Chapek who not only embraces the view that gender is a
form of oppression but that kindergartens must be forced to confront it. Mr. Buffett
has praised the brand endurance of Disney’s characters and the trust parents place in
its content to be safe and appropriate for children.

But now the company is adding warnings to Dumbo, Peter Pan and Aladdin about the
stereotypes they allegedly portray. And poor Prince Charming has been excised for
kissing Snow White, quote, unquote, “Without consent.” Warren Buffett has yet to
address the crisis gripping corporate America, and I fear he never will.

Yes, Berkshire may be a holding company and Mr. Buffett may stay out of the way of
managers. But what happens when these executives use their companies to wage a
social revolution that most Americans don’t want? Is he not responsible? He can’t
have it both ways.

In this country, wealth has been admired and even celebrated because our system
allows anyone to become rich. But what happens when Americans suddenly find their
history and future under attack by corporate America? The social compact that
permits such affluence will be broken. Mr. Buffett, if you are the face of the
capitalism, why don’t you do something to save it? Thank you.

WARREN BUFFETT: OK. (BOOING) Thank you, Mr. Flaherty.

If there are any shareholders voting in person, they now should mark their ballot on
the motion. Miss Amick, when you’re ready, you may give your report.

REBECCA AMICK: My report is ready. The ballot of the proxy holders in response
to proxies that were received through last Thursday evening cast 72,298 votes for the
motion and 421,181 votes against the motion. As (Applause) 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, the motion has failed. The certification required
by Delaware law of the precise count of the votes given to the secretary to be placed
with the minutes of this meeting.

WARREN BUFFETT: Thank you, Miss Amick. The proposal fails. (Applause)

The second proposal requests that the company publish an annual assessment
addressing how the company manages physical and transitional climate-related risks
and opportunities. Directors have recommended the shareholders vote against the
proposal. I will now recognize Tim Youmans, a representative of Federated Hermes,
to present the proposal.

TIM YOUMANS: I thank the chair, the board and fellow shareholders. I’m Tim
Youmans, lead North America EOS at Federated Hermes, here today to talk about
ballot item three, a proposal that is cosponsored by Brunel Pension Partnership,
limited, represented by EOS, Caisse de Depot et Placement du Quebec, California
Public Employees Retirement System, and state of New Jersey Common Pension
Fund D, on behalf of their combined millions of ultimate beneficiaries.

EOS, Calpers and CDBQ cosponsored a similar proposal last year asking the company
to commence climate-related risk reporting which the company has not started. The
context for this year’s parent company, climate-reporting proposal is, however,
different in three ways.

First, we’ve added New Jersey Common Pension Fund D; second, we stand before
this annual meeting of shareholders backed by, in our estimate, the majority of non-
insider votes cast at last year’s annual meeting. We provided the company tally
showing that the majority of non-insider votes cast supported last year’s proposal, and
Glass Lewis has also corroborated this result. The company disagrees but has not
shared its reasoning.

Third, the parent company began engaging with the cosponsors this year. And the
company recently published a supplement to the chair’s letter from Vice Chair Abel
discussing climate change matters in the company’s energy and rail subsidiaries. Also,
the parent company’s audit committee has amended its charter to now include climate
risk oversight.
We welcome the company’s new engagement approach, Vice-Chair Abel’s
supplement and the revised audit committee charter. However, these changes do not
address in any meaningful way what last year’s non-insider, majority-supported
shareholder proposal asked for and what this year’s ballot item three asked for, which
is that the parent company should A) commence annual climate-related financial
reporting for subsidiaries where material and for the parent company as a whole
following the recommendations of the task force on climate-related financial
disclosures; B) explain how the board oversees climate-related risks for the combined
enterprise; and C) explore the feasibility of the parent company and its subsidiaries
establishing science-based, greenhouse-gas reduction targets.

Here is why all shareholders, including the non-insider shareholders who supported
last year’s shareholder proposal, should once again (this year) tell the board to change
course and support parent company climate risk reporting. Vice Chair Abel’s
supplement talks about emissions reductions.

We ask the parent company to report on climate-related financial risks, not just the
emissions reductions, as these risks may be material. Abel’s letter also talks about
emissions reductions in rail and energy, two of the four giants of Berkshire Hathaway
as they are referred to in the chair’s annual letter.

What about climate risk in insurance? The company has 60 subsidiaries and more than
a few large investment holdings. The company should disclose material climate-
related financial risks beyond rail and energy in a composite, parent company picture.

We ask the company to allocate a small portion of its more than $100 billion in cash
equivalents to climate risk reporting at the parent company level. Climate financial
risk may be significant (even material) at the parent company. On page K-26 of the
2021 annual report the company states that climate-related risks could produce losses
and significantly affect financial results.

The company audit, however, is silent on climate risk. We have asked the auditor,
Deloitte, to explain this inconsistency. We ask the audit committee to explain why
Deloitte has not disclosed how it considered climate-related risks in its review of
financial statements when the company itself disclosed this is a significant risk.

Investors representing $68 trillion in assets make up the climate action 100-plus
collaborative engagement on climate change. Berkshire Hathaway is the only major
public company in the U.S. (the only one) to earn now for two years in a row a score
of zero on the CA-100-plus net zero assessment of climate progress; the undisputed
worst performer.

This stands in stark contrast to Berkshire Hathaway’s track record of usually strong,
long-term, financial performance. In response to last year’s non-insider, majority
shareholder vote, the company has made a start towards climate action.

Much more is needed. Vice Chair Abel is the named CEO’s successor. His annual
meeting remarks, both in 2020 and last year, and his recent letter, show he has a solid
grasp of climate risk. We ask Vice Chair Abel to commence climate risk reporting at
the parent company level.

This would give the company a headstart in complying with the SEC’s new proposed
climate disclosure rules that ask for more disclosure than we ask for in item three. We
ask all shareholders, both non-insiders and insiders, including the chair, to cast their
votes for item three in support of parent company climate risk disclosures starting
before the 2023 annual meeting. Thank you.

WARREN BUFFETT: Thank you.

I do think it’s worth discussing just a little bit who the actual constituency is on public
pension plans.

Generally speaking, we hear from various — and it’s not limited to California in the
least. But, you know, they’re protecting the holders of the pensions and the retired
people and all of that.

And therefore, they’re usually suggesting something that we may or may not agree
with in terms of whether it’s actually in the economic interest. But they do and they
honestly feel, incidentally, that they are representing the pension holders.

People are going to get these checks every month now. They’re getting them now.
They may get them later. It’s a very understandable position. But of course, in
essence, that’s not who they represent. The people that are promised the pensions,
whether it’s in California or any other state in the Union, they’re going to get their
checks.

It’s obvious. The United States, American people, people in California, are simply not
going to stand for the fact that people don’t get their checks. So, one way or another,
they’re going to get their checks. To the extent possible, the states will attempt to
realize from the taxpayers of the state in the future enough money so they can pay the
checks.

I mean, that’s why states have adopted pension plans and that sort of thing. And many
of the states have found their taxes to go up. I mean, in effect, no state government —
public opinion in the United States, they’re not going to allow people not to get their
pension checks.

And the state does have the right to tax income and property and various things of
people within their state and they’ll exercise the power or they’ll look to the federal
government for grants. They’ll do anything but the one thing they aren’t going to do is
stiff the pensioners.

So, you’re probably representing if you’re on a public pension — essentially are

representing the future taxpayers of the state. Now, there’s one problem about future
taxpayers. They can leave the state. And it gets awkward in certain states particularly
when people start leaving the state because the revenue that goes with those people,
from income taxes and sales tax and so on.

So, people have a fair amount of freedom of movement. They don’t feel the same way
about U.S. taxes. Not very many people are going to move from one place to another.
In the United States, they move. And it’s gradual. Sometimes it isn’t so gradual.

And of course, as the tax base goes down, the past pensions stay. So, they become
kind of like an aging steel company or something of the sort that whatever it may be,
where the pension plans may become insolvent but they’re going to keep paying the
people just like we’re paying on — you know, we’ve adopted certain policies on
multi-employer pension plans and so on in the company.

The United States is not going to stiff a bunch of people, particularly people that vote.
The moral feeling is to do it. The people that the trustees should be worried about
because they — of course is the future taxpayers. And if they really mess things up,
those taxpayers become more and more likely to leave.

And it has a lot of effects. Interestingly enough, you know, one of the calculations that
might go on in Berkshire’s mind if we’re going to build a plant someplace that’s going
to sit there for 50 years is whether there are going to be any people around that are
going to pay the tax, and we can’t move our plant.

So, all these invisible decisions go on all the time. I don’t think there’s anything
wrong with representing the taxpayers of the future. I don’t think there’s anything
wrong with sitting on a pension board. But I do think they ought to actually figure out
who they really are representing.

And they’re representing future taxpayers. And in some cases, they’re creating some
tremendous problems for future taxpayers because they’re like politicians. I mean, you
know, they’ve got promises they’re going to fulfill but they’ve got to do it from
revenue that comes in in the future.

And they can’t print money and people can leave their state. So, it’s an interesting set
of problems. And I can’t resist mentioning in 1991, you’ve seen that Salomon tape,
when Salomon essentially might or might not have gone down the drain and had a
bankruptcy which, in my opinion, would’ve spread like wildfire.

And who knows what would’ve happened, just like in 2008 and ’09, you know, where
Lehman fell and a few things? I mean, who knows what’s going to happen after
something like that? So, Salomon was bigger relatively by far than Lehman was in
2008 and ’09.

And on a Sunday in August, the Treasury Department, the Securities and Exchange
Commission, the Federal Reserve all decided on a Sunday that something they did on
Sunday morning really was a mistake and that they better change it on a Sunday or the
whole economic system might go down the tubes.

And in this book which we have for sale out here, Trillion Dollar Triage, in the first
early pages, it describes that period. I didn’t know some of the stuff that’s in the book,
even, that was going on. But essentially, the Federal Reserve, Alan Greenspan was
brought in one time, Gerry Corrigan was there, Nick Brady was Secretary of the
Treasury, they decided with various degrees of conviction.

But they did decide (because they had to decide) by roughly 2:30 in the afternoon
whether something they did at 10:00, which was kind of unprecedented, they were
going to reverse themselves. Now, can you imagine trying to get institutions like the
(Laughs) Federal Reserve and Treasury Department to reverse themselves?

But they did realize that they had probably done something that was going to cause a
huge bankruptcy which could turn into a whirlwind in Wall Street. So, they reversed
themselves and it tells the story in this Trillion Dollar Triage. And I knew some of
what was going on. There was other parts I didn’t know what was going on.

Anyway, all of those institutions reversed themselves very reluctantly. Big institutions
do not like to reverse themselves and particularly not four hours later when some guy
from Omaha was telling them (Laughs) if they do this, we’re going to declare
bankruptcy in Tokyo because we’re going to have a multi-billion-dollar run and we
can’t pay it.

And directors who approve preferential payments when they know the place is going
bust have all kinds of legal liability. And the whole thing is falling apart. And to their
credit (enormous credit), you basically had the Fed and the SEC (mostly it was the
Fed and the Treasury) and they said we just can’t have this happen. It could produce a
national catastrophe.

And for some weeks, we had about $130 or $140 billion of funding. And $130 or
$140 billion was a lot of money in those days. We were one of the three or four largest
borrowers in the United States and we borrowed daily. And we borrowed against
government bonds.
We had inventory there. But we only had $4 billion of equity and we had $130 billion.
And there was a guy (a wonderful guy), John McFarland. He was the treasurer. He
slept down at the downtown offices, or right near their offices, at Salomon for days
and days and days and days because $1 billion a day was draining out.

There was a run on Salomon and it was a run that the Treasury and the Fed and the
SEC did not want to have happen; reversed themselves and everything. And a few
days into it, for whatever reason — but CalPERS was a big lender to us. And they
decided they weren’t going to do business with Salomon anymore.

They were going to accelerate the run. And they announced one day that they kind of
approved of everything that was going on, but they just didn’t want anything to do
with us, even though we were giving them government bonds as security. And this
was accentuating the problems for the Federal Reserve, the U.S. (Laughs) Treasury,
the SEC. And no one knew how it was going to come out.

But they pulled and other people pulled and John McFarland stayed downtown and
kept trying to raise $1 billion every day to pay all people in terms of the run that was
occurring. And the Fed did not want this run to get out of hand but they couldn’t give
us the money.

And the Treasury didn’t want the run to get out of hand but they couldn’t give us
money, and so on. You know, it was a terrible problem. And CalPERS, like I say, they
said, well, we don’t want anything to do with these guys so we won’t lend on
government securities even though the loan is good.

And then, a little later, they sent word to me that if I would come out to California and
talk to the people (the trustees) that then they would reconsider. So, that was what
they wanted as part of their deal not to cause — keep participating in this run and take
a different position.

And I never would’ve done this for anything except for the fact that it was Salomon. I
mean, so, basically, I got on a plane and I flew to California and I met with the
CalPERS people. And I wasn’t charging them anything. If I’d been charging them a
lot of money, they would’ve paid attention.
And they still paid attention. They were very nice to me when I went out there. And I
talked to them. And they were happy and they clapped and they paid attention to what
I said because I wasn’t charging them a big fee or anything of the sort.

And I went back to New York and then they started doing business with us and
announced that really they had decided Salomon was fit to do business. So, I have a
little bias (Laughter) in terms of when they come around. And they present a proposal.

And they say that, in their proposal, and this was in our proxy statement — and we
filed this with the SEC. We’re not going to say it if it isn’t true. And basically, they
make a mistake, they and some other people. They make a mistake and say something
about the shareholders voting.

It says in 2021 annual meeting, this is part of their supporting proposal, where a
significant majority of non-inside shareholders supported a similar version of this
resolution. Well, we say in our response, the proponents’ assertion that at the 2021
annual meeting, a significant majority of non-insider shareholders supported a similar
resolution is incorrect.

In fact, a significant majority of said shareholders did not support the proposal. That’s
either true or false. And you know, I have the last report submitted by that same firm
that handles our material at Broadmoor. What is it? Broadridge.

And it reports the number of shareholders and it’s the last day before the voting or
something like that. And it’s got the number of shareholders that support us and are
against us. And it’s four to one in our favor, something like that.

And it just doesn’t make any difference to them. I mean, it’s fascinating to me that —
(Applause) and, you know, I would be willing to wager somebody if we could find an
impartial judge, that if you go to any group you want to pick that’s — take the CEOs
of the five leading utility companies in the United States, CEOs of the ten leading, and
ask them, you know, whether Berkshire Hathaway energy has been a leader in the
field of renewables and so on and they’d all say yes.
But essentially, you’ve got a group of people that write us letters and say, “We want
you to do things our way. And you’ve got 3 million other shareholders but forget
about them, and spend some money on this, and have a meeting with us. And here’s
our way of measuring the debt.”

And admittedly, we’ve got all kinds of information up about what we’ve done. And
they can come out to Iowa and look around, and it is the renewables capital of the
world practically. And we’re the ones that have done it. And that isn’t what they want.
(Applause)

So, I’m for shareholder democracy and all that sort of thing, but the answer is that the
resolution, that they pay lots of money to somebody that probably works in these
groups. And they’ve got their way of doing it. I get letters from institutions in Europe.

And they say, “Well, you know, you may have 40 pages or a history going back to
2006 of explaining what you’re doing, but here’s the way we want you to do it.” You
know, and how much energy is Garanimals, which we own? And it’s just, you have to
think as a person sitting here in Omaha, you know, these are the rules. You get on the
proxy statement under circumstances.

Most companies they don’t want a lot of resolutions, so it’s just easier for them to,
you know, set up a department and, you know, pay a bunch of people to pay attention
to them just like Warren did when he flew across the whole country.

Because it wasn’t money. I just was worried about a company surviving that the
people in Washington, the supervisor were worried about it surviving. And if I flew
across country and paid them sufficient respect, I mean, it’s kind of like The
Godfather or something, you know.

I just bow down, and then flew back. So, I have a certain reservation. Shareholder
proposals should have some meaning. I mean, it’s the kind of thing I argued for when
I was younger. But, you know, basically it’s become, in my opinion, there are certain
items that you can put on them now and certain that you can’t.

And practically every executive in the country, now as chief executive wants to have a
virtual meeting. The last thing he wants to do is have his shareholders and people
stand up and propose things. And we’ll just keep talking about it. The way we see it
is, and in the end, we will have a report that is to the vote this time.

And I can assure you, we’re not stuffing the ballot box. We’re not doing anything. I
mean, voter fraud, you know, it’s not like Chicago in the old days where you waited
for the cemetery vote to come in and that sort of thing. We don’t count the votes, you
know.

We don’t say where they come from. We don’t know where they come from. But we
can tell when two or three institutions have got huge amounts of shares, but they’re
one owner. And they vote a certain way, and then they feel pure. And what they care
about is whether we check their boxes and the people that work for them.

Certain number of people are getting employed by them, and their hearts are pure. But
ours aren’t impure. And with that, I won’t do this again. But it’s a really interesting
development in terms of getting more rules-based type of situation where basically
almost every company figures out how to negotiate with the people.

And they all have a good many of the CEOs. I mean, they just figure it’s something
that they endure. They set up a department to answer the questions and meet with the
people and show them the proper respect, and so on. And, you know, it’s being done
to carry through on something which I think the substance of is pretty silly.

If I thought Berkshire Hathaway Energy was behaving in a way that was bad for
society, worse than other utility companies. But no company — and the reason of
course is that we don’t take dividends out. So, we pump tens of billions of dollars into
the business.

In fact, every utility pays out the dividends. And it’s not the fault of the utility
management. That’s just a policy that’s been the case in the utility industry. But they
don’t really have much cash left over. And we have plenty of cash, and we’ll put in
more cash.

And we’re willing to build, you know, whatever amount, transmission lines and all
kinds of things that would be helpful to the country. And we’re doing a fair amount,
but we could do a whole lot more. And we’re better positioned to do it really than any
utility company in the country.

And I think if you talk to other utility executives, I don’t advise you to go and put
them on the spot or anything, but they would agree. But they also know that their life
is easier if they just have somebody to take care of people that want to be catered to
basically.

And I catered to them in the time of Salomon in 1991, because 8,000 people were
working there. And John McFarland was trying to raise a billion dollars a day. And
the Treasury and the Fed, SEC wanted us to stay alive. And, in fact, that caused me to
go and pay my respects to the Godfather and I came back. But I do think a little
background is kind of interesting on this. And with that, we’ll ask Ms. Amick, can you
give your report? (Applause)

REBECCA AMICK: My report is ready. The ballot of the proxy holders in response
to proxies that were received through last Thursday evening case 127,214 votes for
the motion and 370,415 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, the motion has failed. The certification required by
Delaware law of the precise count of the votes given to the secretary to be placed with
the minutes of this meeting.

WARREN BUFFETT: Yeah, and I will just add that (Applause) I got a report a day or
two ago, the last report they sent from this firm. And it’s four to one or five to one. I’d
be glad to share it with anybody. But in terms of number of shareholders based on
what these people in New Jersey tell me the vote was, we’re against it.

And, you know, if they would reintroduce the proposal next year, I just hope they
leave that line out. Because I would just suggest that somebody read what the proposal
is or what the facts are before they announce their proposals and all that sort of thing.

OK, well, the third proposal requests that the company issue a report addressing if and
how it intends to measure and disclose and reduce GHG emissions associated with
underwriting, insuring and investing activities. The directors will recommend that the
shareholders vote against the proposal. I will now recognize Jaylen Spann,
representative of Whistle Stop Capital to present the proposal.

JAYLEN SPANN: Chairman, Mr. Buffett, and board members, good afternoon. My
name is Jaylen Spann. I want to first thank you for the opportunity to present proposal
number four on behalf of shareholder representative, As You Sow. This proposal asks
Berkshire to measure, disclose, and begin reducing the greenhouse gas emissions
supported by its insuring, underwriting, and investment activities.

In its most simple terms, the proposal asks Berkshire to take responsibility for its
contribution to climate change. The U.S. Commodity Futures Trading Commission
has acknowledged that climate change can impair the productive capacity of the
national economy.

The litany of national and global events associated with climate change, the fires in
California and Colorado, the floods across the Midwest, the growing strength of
hurricanes, the deep freeze in Texas to name just a few, demonstrate the growing risks
and costs of climate change.

2021 was the second most costly year on record for the world’s insurers, with insured
losses totaling $120 billion from natural catastrophes. Significantly, these losses can
no longer be categorized as simply a bad year. As noted by Munich Re, economic
losses caused by natural catastrophes are trending upward.

The insurance industry faces year on year growth in insured losses related to climate
change. Berkshire is not only exposed to climate-related risks but is actively
amplifying these risks through its continued investment in and underwriting of high-
carbon activities.

Berkshire is one of the largest providers of coverage to the oil and gas industry,
surpassing peers such as Chubb and Liberty Mutual. Its shareholdings in whole alone
amounts to $5.1 billion, once again far surpassing its American peers.

A financial institution’s investment and underwriting activities are by far the greatest
source of its total carbon footprint, highlighting the need for Berkshire to measure,
disclose, and begin taking responsibility for the emissions it enables.

The global financial sector is rising to the challenge of meeting the Paris Agreement’s
goal to maintain global temperature rise at 1.5° Celsius. The Net Zero Insurance
Alliance has grown to 22 members, seven of which are in the top 30 largest global
insurers by market cap.

All members have committed to reach net zero emissions from their insurance and
reinsurance underwriting portfolios by 2050. AIG and the Hartford have also recently
committed to reach net zero emissions from their underwriting and investment
portfolios by 2050 or sooner.

Berkshire is lagging both its American and its European peers, a position that
increases climate risk globally and to its own portfolios. The insurance industry and
Berkshire specifically has a key role to play in the ongoing, low-carbon transition.

And we believe Berkshire has the ability to become a climate leader on this critical
issue. And the first steps are to quantify the emissions associated with its underwriting
and investing activities, disclose those emissions, and begin developing plans to
reduce those emissions in alignment with the Paris goal.

To ensure global success in protecting this planet and its inhabitants, every business
must take responsibility for its own contribution to climate change. And we look
forward to working with Berkshire to address this vital issue. Thank you.

WARREN BUFFETT: Thank you, Ms. Spann. (Applause) The motion’s not ready to
be acted upon. If there are any shareholders voting in person, they should now — how
about a little light up here? They should now mark their ballot on the motion. Ms.
Amick, when you are ready, you may give your report.

REBECCA AMICK: My report is ready. The ballot of the proxy holders in response
to proxies that were received through last Thursday evening cast 127,065 votes for the
motion, and 370,630 votes against the motion. As the number of votes against the
motion exceeds a majority of the number of the votes of all Class A and Class B
shares properly cast on the matter, the motion has failed. The certification required by
the Delaware law (Applause) of the precise count of the votes given to the secretary to
be placed with the minutes of this meeting.

WARREN BUFFETT: Thank you, Ms. Amick. Proposal fails. The fourth proposal
requests the company report to shareholders on the outcome of its diversity, equity
and inclusion efforts. Directors are recommending that the shareholders vote against
the proposal. We will now recognize Jaylen Spann, representative of Whistle Stop to
present the proposal.

JAYLEN SPANN: Hello. My name is Jaylen Spann. I’m speaking on behalf of the
nonprofit advocacy organization As You Sow, and Whistle Stop Capital. I formally
move proposal number five, asking for Berkshire Hathaway to report on the outcomes
of their diversity, equity and inclusion efforts by publishing quantitative data on their
workforce composition and recruitment, retention, and promotion rates of employees
by gender, race and ethnicity.

Warren Buffett once mentioned that he had grown up with two sisters who, to quote
Mr. Buffett, “are absolutely smart as I am and better personalities.” He also bravely
admitted that he only placed women on his board after his wife suggested it in 2003,
40 years after he started his company.

It’s one thing to know that people of all genders, races and ethnicities can contribute
to Berkshire Hathaway. It is another thing entirely to intentionally and proactively
create the space, opportunity, and training needed within a company for those people
to be able to contribute without facing harassment and discrimination.

In the absence of data, we must instead assume that Berkshire Hathaway Companies
are no better nor any worse than any company in America. The statistics for American
companies are unacceptable, particularly when we consider the strong link found by
the Wall Street Journal, McKinsey, Credit Suisse, and others between diversity, equity
and inclusion programs, and corporate outperformance.

Forty-two percent of Americans have witnessed or experienced racism at work. Sixty-

four percent of Black employees say that discrimination is an issue in their own
workplace. Many people of color are barred from entering the workplace at all.
A meta-study reviewing data from 1989 to 2017 found that on average whites
received 24% more call-backs than Blacks, and 36% more call-backs than Latinos. If
we take a look at Berkshire’s executive team, we can see that headquarters should be
proud of the gender and racial diversity present in its leadership team.

The culture that exists at Berkshire Hathaway headquarters appears to be one that
recruits, hires, promotes, and retains diverse employees. Mr. Buffett stresses the
importance of culture and the value that it has on the long-term success of a company.

He said that “Culture more than rule books determines how an organization behaves.”
Investors are looking for assurances that this culture is successfully implemented
within the famously decentralized Berkshire Hathaway Companies as well.

In order to allow their investors to understand their workplace diversity, 87 of the

S&P 100 companies have released or have committed to releasing their EEO-1 form,
which is a standardized, government-mandated accounting of gender, race, and
ethnicity breakdown by employment levels.

By contrast, of the more than 60 companies Berkshire owns, only one has publicly
released this form. One company. This is not the leadership that Mr. Buffett is known
for. The company’s inclusion data on the hiring, retention, and promotion rates of
diverse employees must also be shared for investors to have a full understanding of
the actual experience of not only Berkshire’s employees, but of its portfolio
companies’ employees as well.

The board has released insufficient information to assure investors that it is attentive
to diversity, equity and inclusion at Berkshire Hathaway Companies. We encourage
transparency even in the face of imperfection in order to show that the company’s
leaders are truly committed to change and to attracting, retaining, and promoting the
best possible employees. Thank you. (Applause)

WARREN BUFFETT: I certainly agree with you that my sisters were better looking,
smarter, had better personalities. And in 1930, they had a father, mother and teachers
who loved them like they loved me. And if I’d been born female, Black, in various
other countries, I would not have had remotely the life I’ve enjoyed.

But if what the people at the top believe is important in terms of how our subsidiaries
behave, certainly there’s everybody that runs any one of our subsidiaries knows how I
feel. They also know that they’re in charge of their own business.

And that we think we’ve got great leaders in virtually every company we have. Every
now and then, we find we’ve made a mistake obviously. But if the idea that we should
replace any of the people that run the businesses, I just don’t think that’s the way to
operate.

And I will tell you, just so that the question doesn’t come up later, in terms of our
shareholders, by again a four or five to one vote, voters of the owners of the Berkshire
Company, forgetting about A or B shares, you know, basically the big funds that are
worried about what their perception is but also may well believe it. Who knows what
people’s motivations are.

Somebody said that the word motivation should never be used in the singular, because
we really don’t know. But the one thing is that it’s very hard to find people that are
running big institutions that, you know, are acting against their self-interest.

Now it doesn’t mean they’re acting for their self-interest necessarily. They’re acting
for a lot of reasons. But it’s something that if you could change that in people, it
would do a lot more for Americans in the future. But you basically can’t change that.

I mean, it’s a situation of how people behave in protecting essentially their own
interests. And their own interests 40 or 50 years ago was essentially to regard
corporate America as a boys’ club. And that’s not acceptable anymore, so they
changed.

But they haven’t changed as much by a substantial margin in relation to Blacks. And
that’s where we are as a society. But overwhelmingly, our shareholders don’t agree
with you, even though you gave them a chance to express their view on it. So Ms.
Amick, when you’re ready, you may give your report.
REBECCA AMICK: My report is ready. The ballot of the proxy holders in response
to proxies that were received through last Thursday evening cast 123,614 votes for the
motion and 373,925 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, the motion has failed. The certification required by
Delaware law of the precise count of the votes given to the secretary to be placed with
the minutes of this meeting.

WARREN BUFFETT: Thank you, Ms. Amick. Proposal failed. (Applause)

FEMALE VOICE: I move that this meeting be adjourned.

FEMALE VOICE: I second the motion to adjourn.