Berkshire Hathaway Annual Meeting 2022 Transcript

Warren Buffett [00:00:00] (Applause) Thank you. I don’t hear anything from the index funds. Where are they? It’s really… it’s really big. It really feels good to get back and be doing this in person. We’ve… it’s been three years, and it’s a lot better seeing actual shareholders, owners, partners, and… (Applause) We… Charlie, Charlie and I are now a combined… people around for fractions, the two of us are 190 years old. And I really think you’re entitled, if you’re the owner of a company and you’ve got two guys, 98 and 91, running the company, you’re entitled to actually see him in person. I mean… (Laughter) It shouldn’t be too much to ask that. I mean, for example, if we had a… we had a manager someplace that was 98, I might want to send somebody by occasionally to see whether he was cutting about paper dolls or something. So… so we probably do things that are a lot more foolish than cutting out paper dolls, but… 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 to go back a few years, we’ve had a couple… a couple of managers that… that suffered from dementia, probably many more, but I mean, I’m just a couple known ones actually. And there was one fellow that Charlie and I really loved, and he ran a business for us. Charlie 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… but the business had done fine. So that’s become our… our test, really, is that for new businesses, and we try to find something that guy with Alzheimer’s can run, actually. And you don’t have as much competition for businesses like that. Sitting there cutting out paper dolls, and you know, that’s our man.

I’d like to introduce two fellows who really work at Berkshire. On Charlie’s left, Greg Abel, who runs all the operations outside. 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… that he’d be happy to run our insurance business. I said, “If you ever run an insurance business,” and he said no. And as I mentioned, well, you know, I never won one either, so I’m not doing so hot, so give it a try. And, you know, he transformed Berkshire Hathaway, and Ajit Jain is here with us. (Applause)

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 that, so I’ll probably make some references to the movie or something, little puzzle millions of people out there, but you’ll get it. So we’re going to talked 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. We’ll break for an hour, that’s Midwest time, for those of you watching in other time zones. We’ll go 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… we’ll all go our various ways.

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 five. We had 12,000 shareholders come and just spend money on everything we could think of to solve them. We… we brought in… we brought in 11 tons of See’s Candy, and if we don’t sell out, Charlie and I get the rest. So… but you did your part. See’s, he sold, or he set a record yesterday for the Friday afternoon meeting, and it’s… it’s pretty heartening. Yeah.

Incidentally, I’ve got a box of See’s Candy here, and it’s very… it’s sort of interesting. On this… 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 sort. So we’ve got our 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 and drag, but that is not true. I mean, there’s a certain resemblance, but it’s just not. These rumors are started by our competitors. Don’t pay anything.

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. And 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… so we can’t keep track of it like 50 or 75 years ago, or 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, like, New Jersey, but… let’s see, Broadridge, and they pretty well do this for very significant percentage of American corporations. So they… they actually mail things out for us, and they bill us for 3.5 million accounts. And I’ll take their word for it. I mean, the more accounts they bill is for, we pay it by the account, so, you know, some days I feel like I’d like to count. But that… that is a… that is a lot of… a lot of people that trust us.

And they 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 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 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.

Up this morning on the Internet, we put up our 10-Q for the quarter, and I’d like to take a few… through a few comments on that and a few other comments, and then we’ll get to the question. When we get to the questions, we will alternate between those mailed in by shareholders, which Becky Quick at CNBC and people have helped her sort of curated, get what they think are the most interesting questions from shareholders. They’re not… they’re not from the… from CNBC itself, but they are from shareholders, owners. And we’ll alternate the ones from sent in versus the ones that come here. And we don’t get the questions ahead of time, and we enjoy getting surprised by, and I’d say almost all questions. And we will keep doing that, like I say, with the break for lunch, until 3:30, we’ll have the meeting.

So I would like to start by putting up the first slide, and which is Q1, and there we have it. That’s what we published this morning, and there really no great surprises in… in terms of the quarter. I mean, there are always some companies that are doing very well, 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 about what they earned we have. But we do separate out capital gains. Now, over time, as I’ve said, over the next 20 years, I would expect this net to have more capital gains than not, but you know, who knows. I hope you… you know, I’ll report you in 20 years whether that’s happened or not.

But as you can see, we made about $7 billion in the first quarter, and… and that’s real $7 billion. I mean, we basically have that in cash when the… when the quarter’s over. That isn’t true every quarter exactly, but… but we… 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… 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, was 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 happen in our various businesses. I mean, that… when we had the meeting two years ago in the 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… and everybody that thought they did 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, 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… 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. I mean, that… I’d keep doing what I do. I forgot a way to read a paper and watch a little TV 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 the future I don’t want to have. As Charlie says, Charlie says, “All I want to know is where I’ll die, so I’ll never go there.” And that seems pretty sound.

Occasionally, Mr. Charlie says his work so far, and the… and we would die psychologically if we lost a lot of other people’s money. We wouldn’t take it in the first place. Be crazy to take people’s money and lose it if you’re gonna feel terrible about doing it. So the one thing I can tell you about Berkshire, I can’t predict what 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 the… we want to be safer in terms of your eventual investment, not whether you make the most money or anything, but we do not want you to get a terrible result because you’ve decided to become our partner. And that’s a pleasure to live by.

Now, let’s see what we have here on Q2. 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 stated February 26th, and that was a Saturday released. But I write the letter all through the year in my mind. I mean, that… I don’t… no, we don’t have a… anybody that sits out and writes out the letter or anything like that. I mean, it’s… this is a letter between partners, and I write the letter all here in my head. I’m… 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 I 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… we might jump over to Q3, if we will. So I said I sent out a letter on February 26, but it… that wasn’t written on February 26th. Then I said basically nothing much is happening around here, and I said we’ve reverted 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, and also probably 30 trading days in there, and we sold, so that basically we didn’t do anything. And then in the next three weeks or thereabouts, we spent $40 billion.

And instantly, when they 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, he doesn’t have an assistant or anything. I just… but he spent $41 billion at… yeah. And he literally… I mean, it… and he does other things for me too. He puts together totals. He just does what he needs to do. And he’s worked in other jobs at Berkshire long ago, but what he likes, he likes doing what he does, and he does it very well, and we don’t have a department for then. 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 Mr. Charlie would say it would… it was keeping us out of bars. I mean, you know, that… that gave us something to do. And it… 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 to do. We haven’t repurchased any shares at all in April. And so it’s… people who are looking for all these prints in the… you know, put footprints in the woods and all that, is 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. We spent $40 billion in a hurry there, between three weeks, and now we’re back somewhat in our more lethargic… Anything can change Berkshire, but the one thing that won’t change, going back to Q2, 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 financial panic came along, we didn’t own anybody’s commercial paper. We didn’t have money market funds, we didn’t… we have Treasury bills. And as I may get into 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 will be more times in history, where… where if you don’t have it, you know, you don’t get to play the next day. I mean, it… 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 we… 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. And… but we will always have a lot of cash.

We won’t… we don’t… some of our companies have buying bank lines. I don’t know why they have the bank lines. We’re better than the banks, and we will give them the money if they need it. But… but, you know, the local bankers 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, that bank lines, when Berkshire is stronger than the banks. That I didn’t hear exactly. I don’t know whether that was a banker screaming her. I don’t… I don’t really like to torture him. I don’t like to torture anybody. I mean… but… and I’m all for banks, and we’ll talk about that a little later.

In fact, we might… we might even talk about it right now, just for a minute. It… money’s kind of an interesting thing. People seem to like to talk to me about it. I mean, they don’t… they don’t ask me how to dance or anything like that, but they do, they ask about money. And so if we’ll put up 20-1. It’s a… it’s a photo of a $20 bill, and it says at the top “Federal Reserve Notes.” Now, Federal Reserve no… we’ve done all kinds of things with money in this country. It’s amazing. Country only a couple hundred years old, the number of different experiences we’ve made with banks and everything. But we finally just decided to let the Federal Reserve do the issuing of money. And the… down in the lower left hand, incidentally, I think Rosie Rios, who signed this note, I think she signed more or less currency than… 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 has issued a lot of currency.

But it says… it says, “This note is legal tender for all debts, public and private,” and that makes it money. You… you can go in and go into our candy store, and if you offer us enough bushels of wheat, we’ll probably give you a box of candy. But… but money is the only thing that the IRS is going to take from you, that you can… you’re going to offer them all kinds of… you can offer them paintings, you’re going to offer them all whatever. But this is what settles debts in the United States. And I thought that… they’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. I mean, this is… it’s very interesting, because it… it just says that, settle all… legal tender for all that’s public and private, and nothing else says that.

Except, I thought you might be interested in seeing another $20 bill. On 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 one dollar 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… close to Rockford. And we bought that bank back in 1969. And if you look down at the bottom of that one, and signed by a fellow named Eugene Abegg, and we bought it from Eugene Abegg. So we… we still have some $20 bills that came in sheets, and we can cut them out like paper dolls, and there are 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… that’s what money is.

It may turn out that it becomes worth dramatically less than 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… there were days, a few days in 2008, and we came very close to having a repeat in March in 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, but The Bookworm that’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… and I tipped my head a couple years ago to Jay Powell for acting as he did. So you have to act with speed.

I mean, the old days, when you had runs on banks back in the 19th century, you know, a line formed, you know, and the bank would go broke. But the fellow would pay out as slowly as possible, you know, hoping something would happen. The Wells Fargo trucker coach would pull up a bunch of gold or something, and you’d sweet talk the people into the line dispersing. In Omaha, in August of 1931, four state banks, so-called state banks, they had a vote in that day, they closed, and the national banks didn’t, but they were all broke as of that day. If they… no bank can pay off in one day all of its liabilities. But the Federal Reserve is the only one that’s good at that time. But I will tell you this, Berkshire Hathaway will be there at that time. We run it on the basis that if… if things just behave slightly very… if Hank Paulson, George H.W. Bush, or no, George W. Bush, I’m sorry, and then Bernanke and a few people hadn’t taken action, we were at that point where the line was formed, except it comes on electronic funds. They push buttons, and it’s all over very fast if there’s a run on the bank. Remember, if you ever buy a bank and there’s two banks in town, hire a few extras and have them go over and start standing in line at the other guy’s bank. 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 you can do this or that and this and that. And one time in the 1980s, Paul Volcker, very honest man, said to me… and I said, “You know, what are the limits of what you can do?” And he’s… he was a very unusual guy, and huge, looked out at me, said, “We can do our whatever we need to do.” And that’s true, and that’s what… that’s what happened in 2009, 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 the… if the economy stops. And that can always happen. That can always happen. Some of those cheery words.

Let’s see if we… I think… I think we can actually… 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 go alternate and go around the room here, and we’ve got… we’ve got the auditorium broken into 10 or 11 sections. Charlie and I one time figured out about a form and said officers of the company broken down by age, and we just put all of us. There’s an answer to that question. But the… but we’ll have it broken down by categories around here, and we’ll keep alternating, and we will break for lunch at… at noon and reconvene at one. So let’s start off, and Becky, will you lead the way?

Becky Quick [00:36:53] Thanks, Warren. The first question comes from Jack Cecileski, and he says, “In the annual letter that you wrote in February 26, 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 did 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? Did the name suddenly become interesting in the space of a month and a half, or half a month?”

Warren Buffett [00:37:23] Well, Charlie, you want to give your version?

Charlie Munger [00:37:26] I’ll give my version. My version would be we found some things we preferred owning to Treasury bills.

Warren Buffett [00:37:37] And as usual, Charlie’s given the total answer, but I’ll talk longer and say less. We… actually, the… the letter’s dated February 26th, where we were confessing our inability to find anything, which was a Saturday. But the day before that, February 25th, I got a email. Actually, my assistant, Debbie Bosanek, gets it, because I can’t figure out quite how to handle the machinery, but so she… she brought it in. And 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… that was a friend of mine and… and that worked for Berkshire than many years ago. And it’s on February 25th, day before the thing, and he said he now become CEO of Alleghany Corp.

I’d been following Alleghany Corp for 60 years. I, you know, I… but their annual reports, had four big file doors full of it, because it was an interesting company, and all companies interested me. So I… I knew a lot about Alleghany Corp, boy. And Joe said, you know, “This is my first annual reporter CEO, and I just wanted to send it along to you. Just like you write for your sisters,” he says, “I write this… 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, “Do him on it till,” which was true. I mean, I look forward to reading it. And I said, “By the way, I’m going to be in New York on March 7th, and, you know, come and get together. I’d like to see you.” And I’ve got… I think I may have said, “I got an idea.” Well, I didn’t have that idea the day before. I mean, it just… this thing happened to come in on Friday the 26th, and I knew I’d buy Alleghany at the price.

And if he hadn’t sent me the note, it never would have occurred to me to write him and say, “Why don’t we get together on March 7th,” or anything of the sort. It would… 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… that’s the orderly and decision making progress. 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 this. I knew we’d buy Alleghany at the price we offered, and if it was of interest, along, any fine if it wasn’t. But otherwise, if that email hadn’t been sent, we would not have made an offer for Alleghany. So that… give credit to the fact that Joe had written the annual report. And if he centered a week earlier… well, I wasn’t, you know, I wasn’t gonna make a special trip to New York, but I wanted to sit down with them and tell them what Berkshire would do. But that explains $11 billion.

And what happened was that a few stocks got very interesting to us, and we also spent a lot of money at… what happened, the market… and this is really important to understand. In the last couple of years, our market has probably… it’s always been a combination of a casino and… 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. It sometimes… it’s quite investment oriented, kind of like it always… you read about in the books and everything, what… what capital markets are supposed to do, and you study it in school and all that. And other times it’s… it’s almost totally a casino, and it’s a gambling parlor. And that existed to an extraordinary degree in the last couple years, encouraged by Wall Street, because the money is in… the money has turned… is in turning over stocks.

I mean, people say how wonderful you’ve done if you bought Berkshire in, you know, 1965 or something and held it, but you broke her with a starve to death. I mean, it’s… Wall Street makes money on… one way or another, catching the crumbs that fall off a table of capitalism and… and an incredible economy that nobody could have ever dreamed of a couple hundred years ago. But that… they don’t make money unless people do things and that they get a piece of them. And it’s… and they make a lot more money when people are gambling than when they’re investing. I mean, it’s much better to have somebody that’s going to trade 20 times a day and got all excited about, just like paying… pulling the handle on the slot machine. You know, that’s who you… yeah, 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.

And the degree to which the market got dominated by that is… is showing on a… on a slide some… I have here somewhere. Yeah, here’s… on Oxy one. If you’ll put up the Oxy one. That shows how we bought what became… what we bought in two weeks. They’re about 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… they’re not… they’re not going to buy and sell stock. They may have got their own little rules. So they… 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 or sale.

Now, Occidental’s been around for years and years and years, big company and 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 myself, and I say in the morning to them, you know, “Buy 20% and take blocks,” or whatever it may be. And in two weeks, he buys 14% of the four… 60%. That’s not investment. I mean, you’re not buying from me. But I find it just incredible. You wouldn’t be able to do that with Berkshire. I mean, you can’t literally buy… 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, all of them, they became… they became poker chips, and people were buying and selling, like, three-day calls or two-day calls. And the… 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… where did 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… of a business that’s been around for decades. And you’d try to imagine trying to buy 14% of the farms in two weeks in this country, or 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… and the people that were making money were people that worked with gamblers. And then it defined very significantly, you know, a few weeks ago. You can… you can feel it if you’re… if you’re… if you’re around it.

So when somebody asks a very good question, is 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 a… an analyst presentation of some… I don’t know, 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 on. I read it over a weekend, and what Vicki Hollub was saying ain’t nothing but sense. And I decided that… 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… but Vicki was… was saying what the company had gone through and where it was now and what they put, you know, the money, and she… 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… and two weeks later we had 14% of the company.

And… and we also already had a preferred stock and warrants. And the story of the preferred stock is we paid $10 billion per second worth… 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 $5.5 billion. So we had a $4.5 billion loss, and it would have… you know, the world changed. Oil sold for minus $37 a barrel one day. And now it’s quite apparent, I think, that… 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 in the world to take care of keeping the American industrial machine working. Charlie, have you got any comments on that instant, how something this crazy could have happened?

Charlie Munger [00:51:16] Well, it happened. It’s almost a mania of speculation that we now have. We have computers with algorithms trading against other computers. We got people know nothing about stocks being advised by stock brokers who know even less. I understand the commission, though. Yeah, it’s just… it’s just an incredible crazy situation. And it’s weird that we ever got a system where all this equivalent of the casino activity is all mixed up with a lot of legitimate long-term investment. I don’t think any wise country would have 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 who 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 [00:52:21] 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 what’s happened using the system for less than, you know, well, you know, three of my lifetimes. I mean, it’s unbelievable. So it… it’s worked. Now, maybe it’s worked in spite of itself, maybe… maybe with the country, but one way or another, America has worked in an incredible… nobody could have dreamt it. Nobody… you know, they’d have hauled you away if you said, you know, in three lifetimes, you know, that… that, you know, this place where we’re meeting, I mean, it became a state in 1867, that 17 in 1789, and it asked Ben Franklin or somebody that was walking out of the Constitutional Convention, you know, is it… what do you think the prospects are for Nebraska? It’s… it’s just… it’s unbelievable. It’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… of… we’ve got these liquid markets and all these wonderful things. Charlie would probably say is in spite of that. Who knows. But the… the answer is that… well, there isn’t an answer.

The… my wife, when they got married, April 19th, 1952, we got in my ass car, we started driving west, and we ended up would do all over the West. But one night we ended up in Las Vegas, and there were three fellows out there, Teddy Barrick and Sam Ziegman, Jackie Gaughan, and all three of these guys were from Omaha, and they’d bought little pieces of the Flamingo. Bugsy Siegel, that had his career ended rather abruptly a few years earlier. Was a stray bullet, undoubtedly, but in fact there were probably five or six spray 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, and he was Stan Lipsey’s uncle. Stan Lipsey ran, those of you follow Berkshire, and the Buffalo News, and a partner for 40 or 50 years later on. So all kinds of things intersect.

But I walked into this casino, aged… Flamingo, it’s kind of a motel arrangement, and I was 21 of them, 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. And they’d gone to great lengths to come out to do something that was mathematically unintelligent. 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 was mathematically dumb, and they’d come thousands of miles to do it, and they were… And I said to them, my wife, I said, “You know, I’m going to get rich. I mean, how can you miss if people are willing to do this? You know, this is… this is a land of opportunity.” Well, it’s the way it still is.

You know, and the Flamingo to be much bigger, and… and in Omaha we’re very proud of Jackie and things. He only died a year here, two ways, that became sort of the… the leader, a 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 in the Buffalo News. 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… on the operation of markets, particularly the stock market, is in a book that, probably one of the most famous books in economic history, The General Theory, written by John Maynard Keynes, I think, is 1936. And I don’t know whether this chapter… I think it’s Chapter 12, but whatever it is, he describes what market’s 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 solve. We’re able to buy a quarter of it, and we could have bought a lot more. I mean, it was… it… you just wondered if there was anybody that really was thinking about investment.

If 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, not without getting more purchasing power back. But that’s the reason you… 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 they can take care of your family. But all these things about how investment takes place, and that is what happens with farms. I mean, that… somebody buys a farm, and then generally they hope to leave it with 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… on a 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… and they do the same thing if they got an auto dealership, and they do the same thing, you know, if they’ve got an apartment house. They look for proven track tenants, all those kind of things.

And $40… what would it be, $40 trillion at least, you know, of… of the ownership of all of the American business, people and traders, poker chips, are pulling the handle. And… and they’ve got… they’ve got systems set up so that if you want to buy a three-day call on a stock, you can… you can do it. And they make more money selling you calls and if you buy stocks, so they teach you about calls. Nobody’s going around selling calls on farms or anything of the sort. But that’s… 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’d say we qualify on, and sometimes I wonder about that, but I think we’re sane. You know, I mean, that… and… and that’s the main requirement in this business. And anybody… Charlie?

Charlie Munger [01:01:12] Well, I don’t think we’ve ever had anything quite like what we have now in terms of the volumes of pure gambling activities that go on daily, and the people lathering the gamblers up so they can brook them. And it’s not pretty, and I don’t find it… it’s any great glory for capitalism or anything anymore. There’s a bunch of people throwing dice at the table. What good does that do to the rest of the world? It’s a great way to become rich. Don’t… just figure out ways to insert yourself into the system somehow.

Warren Buffett [01:01:51] And, you know, it… jobs, to some extent, self-select. And many years ago… and… and I’ve got all kinds of friends on Wall Street. Not as many as I have before I hadn’t started talking this way, an hour to solar call. But… but I really do. I mean, people make… they let make lots of decisions in life. And the truth is that overall, the American system has worked extremely well. It 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… and people pouring whiskey down me, whether, while they drill my teeth or something of the sword, or any… I mean, this… this is a lot better world. And… and…

Charlie Munger [01:02:48] Well, I think we’ve made more, be… because of the crazy gambling. I think it’s made it easier for us, net, over the decades we’ve been operating.

Warren Buffett [01:03:00] Well, I mean, we’ve depended on it. Yeah, I mean, we depend on mispriced businesses through a mechanism where we’re not responsible for the mispricing of them. And overall, we… we learned something a long time ago that doesn’t… doesn’t take a high IQ, 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 1.

[01:03:30] Shareholder (Ole Pollem, Hanover, Germany): Good morning. My name is Ole Pollem. 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 [01:04:09] I would… we actually made a few trips. I think I’ve made them, and maybe Charlie went there, I want them. We tried to stir up interest and all that sort of thing in Berkshire around the world, probably that 20 or 25 years ago. During that period that I showed you, that burst of action we had, we probably spent… we probably would… probably spend at least $5 billion of that. Yeah, it’d be pretty in the area $5 billion of it. We bought the three German securities, we bought two… ah, well, we bought… we bought one Japan. We rounded up on some… some of the holdings we already had there. And we would… we would love them to buy it, 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… and I know I can see him in New York, and, you know, I can name a number to him, and if he likes, and take it to his board, and so on. And it just doesn’t happen that way. We haven’t had that experience in… 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 a little closer to home. But we don’t have any bias against doing… we… there’s… there’s… their 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’s certain rules. But I would say this, you know, we got a call, whatever it was, many years ago on the… on… on our company in Germany. And… and actually the two fellows that run it are probably here in the audience, that saw them yesterday, and they’re marvelous, and they run the business, and… and, you know, they… they’re just trustworthy, as all the pictures were up on them on… on the movie we showed before the meeting started here.

You know, we… we have so much trouble finding good ideas that we can’t afford to ignore any, but they do have to be sizeable now. I mean, there really isn’t… there isn’t a lot… a lot of… I love the… I love the operation we’ve bought in Germany, and it’s just a pleasure to be associated with the… with… with the people there. I just wish we could add another zero to all the figures, it was a much larger deal. And 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 debt of Louis at a time. And we would never, never sell an operation like that, ever. I’m looking at you, Greg. The… you know, but if we… if we get a call tomorrow and we could make a deal that involved $10 or $20 billion, it was in Germany or France or Britain or Japan, or name a whole country, would 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 buy a lot with… we weren’t going to change our positions materially without their okay. So we actually, I think, rounded the 5.85% based on the latest figures we had then, of all five of them, and that put a good many hundreds of millions, or maybe a billion or two, to work. So we will… you know, President Kennedy said, “Well, pay any price, climb any hills,” you know, whatever it may be, to find businesses. But we actually prefer it when they fall into our lap, like getting a letter from somebody and… and, yeah, from… for a couple of years, and, you know, what you pay for the business. And… and, you know, if the… if the board of directors that company regards it as attractive, that they’ll be happy to buy, 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 they’ve got an answer. And then you have to see if they’ve got the… the question in their mind is… is what’s the best thing for Alleghany Corp. And in that case, we had $11 billion less at the end of the day, at the end of the dinner, than we had at the start of the day.

So it’s… opportunity can be any place. And we do have a terrific operation, for example, in… in Israel, made that just terrific. And… and it’s reason… it’s… it’s pretty good size. Would be like to have another one like it. Yeah, I just don’t know what the other one is. Charlie?

Charlie Munger [01:10:27] 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… no nothing. Just… just more interest than what we already own. Isn’t that we’re totally wasting our time?

Warren Buffett [01:10:50] 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… it’s not very complicated. I mean, if you had a partner in a lemonade stand, and they wanted to sell out, sell their interest, or two partners, and want to… want to sell their interest, I mean, and the business had the money to buy it, our little lemonade stand, and… and they were offering at a price that was good for the other two people that are going to remain, you’d buy them, 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, it was more than 20 years ago, we owned about 150 million… I don’t know whether they’ve split, whatever it is, if it’s… they’ve split it, 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 is a dividend, so we’ve taken some cash a little bit as they went along. And now we own 20% of American Express. That’s what’s happened, because they’ve repurchased shares. That happens to work out extremely well. If they overpaid for the stock and all that, doesn’t solve every problem. But it’s a wonderful thing if you’ve got an asset you like and they take your ownership and interest up. And like I say, we’ve gone from 11.2% to 20%. If you’re using your American Express card or whatever it may be, 20% of whatever earnings are attributed to our interest, and they 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 enjoyed farming, and somehow, 20 or so years later, it had turned into 1,100 or 1,200 acres. I mean, you’d say, you know, how long has this been going on? You know, why… what could possibly be… you know, is this an American, or whatever it may be? I mean, is it, you know, sensible use to meet its cost of capital, blah, blah, blah, blah, blah. And that, if you do it at the right price, there’s nothing better than buying in your own business.

We own… I mentioned that… use Apple as an example of how our interest in Apple… you know, every time a company that earns $100 billion a year, you know, it means that our interest… and it goes up a tenth of a percent, you know, we’ve added another $100 million to earnings. Well, I think, I mean, it takes a lot of work, $100 million earnings. And, you know, in the first quarter of the… 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. So we decided we wanted on 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 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 just… just as good as the fact that… by the fact they use their cash to buy out some of the other people. It is the simplest thing in the world.

And then I read all the stuff. It is unbelievable. Oh, people can’t figure out something that, you know, if they owned a farm, and the guy next to him at a farm, and somehow you were getting more of this farm all the time without putting up any money, while you farm your own farm, that, at least if, you know, you’re using some of the earnings for that, you’d feel very good about it. But have you got any explanation for it, Charlie?

Charlie Munger [01:15:52] Well, I have another thing that interests me in the presidency. We get all these suggestions from index funds, a letter saying, “We… the chairman and the president, the chief executive of… of azer are the same person.” And that they have some professor somewhere that thinks that American business would work better if at a separate… if one gets again sweat even two, and have each half work. And to me, it’s the most ridiculous criticism I’ve ever heard. It like… it would like Odysseus would come back from winning the battle in Troy and so forth, and some guy was saying, “I don’t like the way you were holding your spear when you won that battle.” That’s some guy that’s never run any business. It doesn’t know anything. I don’t think too much of this activity.

Warren Buffett [01:16:57] Well, let’s see. Somewhere in here I may find it at some point, but… oh, here it is. We wrote… we wrote in the annual report that, 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… but we really feel that somebody that gave us our… 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 was accumulating, like crazy, assets under management, gets paid based on assets under management, that… that knows that they just need to have policies that essentially are popular in Washington. The only problem, the only threat they have, really, is that Washington sometimes says that you’re getting too damn big and we’re going to do something about you. So they… they try to be very sure that they’re doing things that people will share.

So anyway, I say, well, we’re going to treat you all alike. We’ve got 3 million people or shareholders out there, we’re going to treat y’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… they had 101 million B shares. Now, somebody ought to read to the third paragraph. But anyway, we get a letter, and 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 from by the guy who runs the company. But why in hell would they think that we should meet with them and not you people all individually that come here? (Applause)

I… I grew up in a very, very, very Republican household, but I… I feel like a, you know, some raving populist or something. But I… I just can’t imagine… well, anyway, you’ve heard it. And… and, you know, I… somebody, something gets paid to… well, there’s a lot of people, I’m sure, and public relations, and they hire advisors, and they buy, because it looks better if they have advisors to 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 the board meeting. And then, you know, in the end, believe me, if… if 90% of Congress, for some reason, felt it was better to have the chairman of the CEO be the same person, the index funds would not be writing those letters. Because all I have to worry about is whether, for some reason, people start wondering why some… some institution should have 10% of the votes in… 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. I haven’t… but, you know, that’s his job. And well, anyway, they didn’t get a special meeting, and you people are here, and I… we appreciate the fact you’re here. (Applause) Okay, back to Becky.

Becky Quick [01:20:59] This question is for Ajit and Greg. It comes from Ben Nall, 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 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 [01:21:47] Okay, thank you, Becky. Let me just start by saying, when we think of BNSF, we have an exceptional franchise there 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… and the metrics they operate to, and precision railroading, and it’s all part of it. But what I would say, 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, effective way that delivers great results back to our… our shareholders, and… 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 gonna move our, our tra…, our rail cars as well as any other rail company in America, and we’re gonna 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 intermodal 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 [01:23:34] Greg, if we, wherever the opportunity, would you trade our operation for theirs?

Greg Abel [01:23:39] Never, never.

Charlie Munger [01:23:40] And we love it. He knows a lot about it, fellow.

Greg Abel [01:23:44] We have a great franchise, and we have a great leadership team running it.

Warren Buffett [01:23:51] So, well said. Charlie, thank you. And I just, before I go to Ajit, and Greg, you know, was a major partner for 20 years, more lessons, a little over that, since we bought the energy company, and his boss was Dave Sokol, and the two of them, I mean, they know how to run, they knew how to run businesses. I mean, you know, it isn’t like we don’t, 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 the BNSF, and she’ll do a great job and get it changing around the railroad in various ways.

You know, if you got 20, 21,000 or something miles of own track and all kinds of other, that doesn’t count sightings, double tracking, and you’ve got a lot of things to do from something that they started building a couple hundred years ago, and you, not quite a couple hundred, but, and you can’t move things around easily, and towns, you know, when you came into Omaha in 1862, well, the railroad didn’t even go across the river. I mean, that, even though we’d become the a major rail center for the western, the opening to the West.

And it, we’re going to be here 100 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, I get, over time. And, you know, the trucks got laid and the rocks laid out, you know, 150 years ago. The world changes, but you have, we have to adapt to it, but you don’t do it, you don’t put an order out to change a thousand miles of traffic now it’s operated or anything of the sort.

So we’re running it to have that asset for Berkshire shareholders, and it will redundant to the, down to the, to the benefit of the country. And if we do it well, 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 100 years from now than it is now. But I can’t promise you what will happen if we get flooding and 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’s, 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 three or four billion dollars a year on capital expenditures. Someone’s a Matt brother, you know, I said, “This is a lot of money to spend, you know, keeping up a railroad, man.” He said, “Well, we’re gonna have to do that more,” and so on. And I said, well, I said, “I can handle this, but I’m not sure Charlie can’t.” I mean, 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 go see, our railroad has the Charles T. Munger Bridge, because Charlie kind of was asking similar questions ten years ago. Ajit?

AJAjit Jain [01:28:09] Okay, 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 pluses 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 been only the last two years that they’ve made a very serious effort in terms of making, 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 have 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 will then translate into both growth rate and margins.

Warren Buffett [01:29:55] Charlie? Guys, it’s very interesting. I mean, the auto insurance industry is a fascinating one to study, that in that, that the largest auto insurance company now, and we’re talking 2022, and, you know, I’d rate Ford, I mean, it was 1903, you know, or something, when cars really got started, and it wasn’t too many years after that for the, it’s turning out 2 million cars a year. Imagine that, you know, one guy, that 2 million cars here is a lot of cars. So car insurance became very important. After hundreds of years of, when people thought about insurance, it was ships of sea and fire, where they have protective societies, and insurance is a product’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 United States was started over Illinois by guy 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, the 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 sat 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, probably a Progressive, you know, people wanted to get rich, in the Travelers, and 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, believe out Berkshire, they 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 this 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 one-sixth out of what some people over in Illinois that nobody knows the name of have.

After years of, they’ve had the time to solve the same product, and they advertise like, we spent $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 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? I mean, the 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 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 and 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, they would probably, everybody insurance business would say that, well, we own bonds because that’s what people do. And here’s half the business where you do what people do, and the other time, under half the business, you spend all kinds of time trying to analyze in every, and every county and every single, every single way you can segregate and properly rate business and all of that.

And, you know, basically 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 the 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 the underwriting side. And it is interesting how organizations function and have what I would say are some extent blind spots. And of course Charlie and I know we’ve got all kinds of blind spots ourselves. I mean, so we have to be kind of careful criticizing other people for having them.

It is, 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. Okay, and thanks to, you couldn’t, Ajit is responsible for adding more value to Berkshire than the total net worth of Progressive’s. That’s not to knock Progressive, I’m just saying, one guy. Okay, station two.

[01:36:02] Shareholder (Rajiv Agarwal, New Jersey): 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 Rajiv Agarwal, 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 you 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, ’70. You got back in ’72, ’70 to ’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 [01:37:05] We’d like to offer you a job first. The interesting thing is, you know, obviously we have 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 that, where either one of us has either said or been thinking we should buy herself based on what demarco’s going to do. No, or for that matter on what the economy is going to do. We don’t know.

And the interesting thing is, sometimes I get some credit someplace for the fact that, you know, how wonderful it was that we were optimistic in 2008, and 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. And I shouldn’t say we, as I, we spent about $15 or $16 billion, which was a lot bigger to us then than it is now. We spent in the last few weeks, 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 think, I didn’t know 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, and 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 2000, 2020. We have not been good at timing. We’ve been reasonably good in figuring out when we were getting enough for our money, and we didn’t 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 he could, you could learn it in fourth grade, but it’s not what’s taught in school.

And I mean, 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, they, we, we haven’t ever timed anything. We’ve never figured out insights into the economy. I mean, when I was about 11 years old, March, March 12th, I guess, 1942, you know, at March 11th, you know, I bought stock when the Dow was 90. 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 I just, 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, and it’s 11 year old, and, you know, our General Motors pension fund or something, and they said, well, no, but we have to have a balance, and we have to maybe have 60 of them, and then we have to sit around every three months and listen to a bunch of managers, it was 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 than stocks than we will on bonds.

It’s amazing how hard people make what a simple game is, 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 there’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 it, you can’t have monkeys throwing darts at them, 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 anything. But that is the way, it’s just the way it has to be. Charles, you haven’t cheerful to say?

Charlie Munger [01:42:44] Well, frequently in, well, the wealth advisory business, the way it used to be, you go to your investment advisor and you say, “What should I do to protect myself for the future?” And he says, “Why don’t you give me $50,000 in your net worth now? That’s my contribution to your future.” It’s a peculiar business.

Warren Buffett [01:43:12] Yeah, it’s a great place to go rich. It’s still, if you have, if you’re, if you have a senator daughter that really wants to make money per point of IQ and per erg of energy and all of that, tell them go to Wall Street. I mean, don’t have manner to the priesthood or anything. I mean, if that’s what they, it self-selects, and it always will be the case. I mean, there’s no reason to spare 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.

But, well, people here in the auditorium saw a little session from the Salomon episode, and Gerry Corrigan was then the head of the New York Fed, and that same committee was grilling him, and they said, “Mr. Cor…”, they were giving him a hard time, and they said, “Who was the highest…”, they said something disaffected, “Who’s the highest paid guy at Salomon last year?” And then, and he said, well, he, yeah, and he named him, he said, maybe he named him, and he said he got, I forget why there’s $20 million last year, and we’re talking 1991 now too. He said they got $20 million, and the guy says, “Well, how old is he?” And he said, “Well, I think he’s,” Corrigan’s, and somebody affected, “he’s, you know, 26 or something like that.” And then Corrigan couldn’t resist saying, “And he can’t even throw a football.”

And the truth was, you know, now there’s a lot more money in throwing a football now than there used to be. That, you know, one of my heroes was Ted Williams. You know, I think he was making 20 or $25,000 a year. And, you know, just imagine today some guy the bets .230 or .240, you know, and he makes it to the bigs. I mean, the money flows in. And of course those people should sit down and thank the fact that the stadium that could hold 30 or 40,000 people and was the source of revenue for the people to pay their paychecks, that stadium went from 30 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 it .220 or .230 hit here and in the bigs, and, you know, it is now reversed because of the development of TV, etc. So it’s a crazy world. Rewards seem very, very, very, very capricious, and they are, and they don’t seem any theologian, or even to Charlie and me in our spare time, and the whole thing seems kind of crazy. But it’s worked awfully well, and even the people who don’t take advantage, get shortchanged by the system, are doing far, far better than if the system hadn’t gotten changed. Doesn’t mean that, it doesn’t mean that you necessarily shouldn’t work for change, but you should recognize the limitations of what you can do with humans. I’ll put it that way. Okay, Charlie, is there any way you’d like to close the sermon?

Charlie Munger [01:47:50] 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 and exercise, closet indexation. 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.

Warren Buffett [01:48:27] Yeah, but as Charlie pointed out in the movie, which only people here saw, so I mean that, before we were married, you know, we tried to convince a couple young women that we were really more attractive than we were. I mean, you can’t expect people not to behave if they’re self-interested, and that was very important, that we didn’t dispose all, disclose all of our weaknesses before the marriage. So we’re not trying to be a little better.

Charlie Munger [01:49:06] Yeah, we may fail a little. And I don’t know about you, but I’ve slightly improved since I was 17.

Warren Buffett [01:49:17] Well, that’s a really interesting point, because if the 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, I just really, should not be asking too much of people, if they’ve won the ovarian lottery at all, you know, 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 in all kinds of things you did. You know, why not have the second half of your life be better than the first half? I mean, is it, and 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 anything, 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 the, you 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 in the first segment.

I would say that if you say you’re a better person in the second half, and I’ve got a reason to say it in the first half, you know, forget about the first half, enjoy the second half. And I think, well, Charlie and I’ve had the luxury of, okay, 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, and 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 [01:51:37] Yeah, of course. Okay. I’m very, I don’t even look at what I did when I was young, because it would embarrass me.

Warren Buffett [01:51:46] Okay. Any of you who wish to quit Charlie on specifics can do so later. (Laughter) Becky?

Becky Quick [01:51:52] This question is, there’s two part question. It’s for Warren and Ajit on the first floor and for Greg on the second. It comes from Roger Cleffman. 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 cyber attacks, and irrespective of that, has any special hardening of security been put into place?”

Warren Buffett [01:52:38] Yeah, well, the first half, every day since August of 1945, every day, and accelerating dramatically when a second large country had the ability to kill millions of people, which has been magnified by the incredible factor. The truth is that there is a risk every day. It’s a very, very tiny risk, but as Ajit, anybody at this table could tell you, if you roll, well, they had, they had some, they had a pair of dice out of the Desert Inn in Las Vegas for a while under a glass thing, and some guy’s thrown 32 passes in a row. And I don’t know what, maybe the odds are 8 million to one against that, or 4 million, 4 billion won against it. But, you know, if you just keep rolling the dice, you know, everything will happen.

I mean, it 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 are called the flip 10 times in a row, and if you do the 10 more days, and you’ve still got a bunch of people who’ve done it 20 times in a row, and they really think they 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 nuclear weapons because somebody will be upset because they’re losing a war.

I mean, does anybody think that somebody’s willing to kill, you know, hundreds of thousands of people with the tactile weapons? I mean, why did they stop with it? You know, what they’re, it is a very, very, very, very dangerous world. And we don’t have any way of, no, protecting you. There’s no way, it’s a big nuclear attack.

Charlie Munger [01:55:25] I know a man who said, “I know what I’m going to do if there’s nuclear war. I’m going to crawl under the table and kiss my ass goodbye.”

Warren Buffett [01:55:40] Well, yeah. And Charlie is in charge of loss control at Berkshire. (Laughter)

Charlie Munger [01:55:46] Hey, yeah, that we have no solution for it.

Warren Buffett [01:55:51] No, we don’t, 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, disney, you all know, Hitler moved into Poland, but nobody really knew that much about it here. I mean, the news you got, you got from the newsreel 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, well, September first in the case of the actual movement into Poland, but, you know, there was a few people on the screen and some guy with an authoritative voice telling you the German forces are 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. 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 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 drove all the Jews that see it coming out of Germany, and among them were some great scientists. And it, little Leo Szilard, who was, I think, obviously from Hungary, written, but 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 the, 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 what the off and on sign about.

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 asked the problem, how do I get it to Roosevelt? Oh, Leo Szilard, who’s he, the President of the United States? So he figures if he gets Einstein to go sign it, the President will pay attention, and he’s right. So he goes and gets Einstein, and the two of them send the letter, and they sent it to Roosevelt. And they wouldn’t necessarily have been in the United States of it, you know, literally had a different crate, it 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. 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 the act, there’s going to be more accidents in connection with atomic weapons. You know, we’ve come close for various times. I mean, at the, we had geese flying over, you know, somewhere up north, and NORAD gets a crazy signal, and we’ve had wrong training tray tapes placed when I’m at, we’re in the Soviet Union or some, you know, it looks like things are going on. And it’s, 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, the feeling doesn’t do us any good to think about it, tom. But that doesn’t stop the fact that there are two powers in the world, but to a 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 Britain, through the, to the Cuban Missile Crisis, and, you know, we knew there was some chance that the weapons of mass destruction would be used. And believe me, there, that, there’s a lot more bad that can happen.

And humanity has not really come up with a counterforce to technology. I mean, if you look 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 to, and we kept developing. Then there was this breakthrough where technology is totally outrun humanity, and we’ll see whether what happens. But so far so good. And Berkshire does not have an answer, though we don’t, we don’t know. There’s certain things we don’t write policies on, because we wouldn’t be able to make good on them anyway, you know, for that, and everybody would know we wouldn’t be able to make good on them. So we’re not, we, 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?

AJAjit Jain [02:02:13] In terms of, 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 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 to a nuclear thing, you know, I sort of surrender. I, 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 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 in the courts will hold it against the insurers, and we will be, 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 will be very difficult for the insurance industry to fight back both the regulators and the court systems in terms of what is covered and what is not covered.

Warren Buffett [02:04:17] And there won’t be any regulators or anybody else, so we’ll leave it to a million years of reconstruction. (Laughter) Einstein said that, he said, “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, that, there’s a lot of things, you know. But I mean, it just, if you’re worried about the effect of nuclear attacks, you know, you got other things to worry about than the value of your Berkshire. I’ll put it that way. And what other cheerful things? Station…

Greg Abel [02:05:11] Warren, you want me to touch on the cyber?

Warren Buffett [02:05:14] Oh yeah, sure.

Greg Abel [02:05:16] 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 cyber risk 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 experienced 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 today, 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 [02:06:57] 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 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, I think, 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, you know, basically.

Greg Abel [02:07:39] Yeah, an 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 the, certain agencies, we’ll 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’s 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 [02:08:24] It’s a real partnership. It’s a real point, 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 I, cyber, cyber, I mean, it blows your mind on sort of another… The nuclear is the number one threat, but it’s a very, very, very low probability. You know, some day the sun will burn out too, you know. But that, it is, there’s really no place for two countries with large ICBM possibilities and who knows what else and everything. But still, we haven’t figured that out yet. You know, it’s easy to go around, say this is a solution or that’s a solution, but, you know, if you have two people with loaded guns facing each other, and, you know, and not everybody is likely to be totally rational.

Oh, well, 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, you know, it doesn’t stop with, as you move up the ladder. And, you know, people, some people do terrible things, and just help the, 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, was their supposed prize. Okay, if state, station three will precess something about motherhood and apple pie or something like that.

[02:10:40] Shareholder (Daphne, New York City): Okay. Dear Mr. Buffett and Mr. Munger, my name is Daphne, I’m from NYC, and this is my fifth annual shareholders meeting.

Warren Buffett [02:10:53] We appreciate you coming. We do, sincerely.

[02:10:57] Shareholder (Daphne, New York City): As you know, for the past four consecutive months we’ve been going through inflation, with an inflation weight 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…

Warren Buffett [02:11:36] You kind of snuck up on us there for a second.

[02:11:41] Shareholder (Daphne, New York City): …and be resilient in the inflation, which would you choose, and what specifically enables that stock to do very well and might very likely be a difficult market?

Warren Buffett [02:11:55] Well, I’ll tell you something even better than that one stock. 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, 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, you know, no matter whether people are paying you with a zillion dollars or paying good, they’re going to give you some of what they produce in exchange for what you deliver. And if you’ve got it, 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, not taxed, you know. So that’s what I would do.

Charlie Munger [02:13:18] 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 bit, to Bitcoin, just say no. (Applause)

Warren Buffett [02:13:40] Yeah, nobody can take away from you the talent you have. I mean, 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 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. I mean, it, but to 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, that 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 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 that, Malcolm Gladwell, Malcolm Glad…, Gladwell, you know, would say just spend 10,000 hours on something. Well, I could have spent 10,000 hours trying to become a heavyweight boxer, but I don’t think I just felt very good at the end of the 10,000 hours. I mean, it, you stumble in to what you really like doing, what you’re good at, what’s is useful to society, and then it doesn’t make any difference whether the dollar bill, you know, is now worth, in terms of the purchasing power, a cent or a half a cent or 100%. If you’re the best doctor in town, you know, you will, they’ll bring you chickens. I mean, 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, it self-selects. I mean, so if you want to sell a piece of yourself, you know, that 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, and, you know, we’ll have a terrific asset, and you can have 100% of your future earnings. And if you make it, develop your talent, maybe you’ll be a great dancer. People pay money to watch great dancers. We had Fred Astaire and the sister, Adele, 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 gonna do just fine. I bet a lot of money on you. Okay, Becky.

Becky Quick [02:16:54] 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. They 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 [02:17:33] 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 the answer for the nuclear problem or anything, but we have a culture that, A, is work, 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 spend all 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 the thing.

I mean, it’s a process that the world has adopted, and they’ve done it for reasons we understand, but Berkshire is just plain different. We are a business that exists for people that trust us, and all we have to do to fulfill that trust is fairly simple things. We’ve got the people, do, 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? You know, the rail will be run the same way then. It, the big worry, of course, is that somebody comes in, figures they can make billions of, as a group, or, you know, people that sell the businesses and say it’s better to be private, because, you know, it’s better to be pure this or something like that.

Well, you know, we’re a pure partnership. That’s what we’re pure. 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, we have the same culture, we’ll be here 100 years from now. So maybe, you know, we haven’t had nuclear exchange or something, but that Berkshire is built forever. There is no finish point.

Yeah, 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? It just doesn’t, you know, they’re doing what they want to do in life. Then 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 will it take to get them. They can’t get them. I mean, but now it’s, 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 one. You know, we had a lousy textile. I mean, it wasn’t like Charlie and I sat down, and he, but didn’t happen to be in Berkshire, but he was my partner and everything, and so we were metal partners, and 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. And but we did, we didn’t know, we did know how we felt about the running a public company, and one thing we wanted to do always, we wanted to have people that were in sync with us. We didn’t really want that group I saw in the Flamingo, you know, in 1952.

We wanted people who trusted us, and we started, my case, in a partnership. We started with seven. Charlie started a partnership, and this is the same thing it was. 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, my case, I handed them a little sheet of paper and it said the ground rules, and 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 it. It shouldn’t be here if you think I did. But I do want you to, 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, sure, they’re, their children, their children’s children, their shareholders, Berkshire, but they’re partners.

And it really, it’d be hard to do that again, but I would do it with whatever. If I were going to be in this field, I would try and do the same thing. I would try to find people that trusted me, and I don’t want to be with people who 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 it just, 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 it’s, the new management’s got them, well, and the management after them, and the management after them, 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 others, that other things can’t do better or anything short. 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 too, 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, and in the end, obviously we’re always going to follow the law, and we’re a Delaware company, we follow Delaware law. But that doesn’t mean that we have to do what every other Delaware corporation does, and now they look at the Delaware statute. 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?

Charlie Munger [02:25:21] Well, I remember when you had a textile mill, and it can…

Warren Buffett [02:25:27] I try to forget it.

Charlie Munger [02:25:29] The textiles aren’t 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 hold it 25 years later. Well, you didn’t pour more money into it.

Warren Buffett [02:25:53] No, that’s right.

Charlie Munger [02:25:54] And no, I recogni…, recognizing reality when it’s really awful and taking appropriate action just involves often just the most elementary good sense. How, only, how can you run a textile mill in New England when your competitors are paying way lower power rates?

Warren Buffett [02:26:14] I’ll tell you another problem with it. I mean, the fellow that I put in to run it was a really good guy, and I mean, he was 100% honest with me in every way, and it was, he was a decent human being, any new textiles, and they’ve 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, 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 mean, I’m going to talk something about dumb decisions, maybe after lunch we’ll do it a little.

And it, 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 1966, and we were working with our own money. And why in the world did we think, and Charlie flew to Baltimore, and I mean, we used to really work in those days. 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 the 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 we reverse course.

Charlie Munger [02:28:15] Yeah, but why the hell did we do in the first place?

Warren Buffett [02:28:20] Well, because we were stupid.

Charlie Munger [02:28:22] Yeah.

Warren Buffett [02:28:23] Okay, well, that’s important to realize. We paid $6 a share for that stock, and if the department store has succeeded, it might be worth, you know, $30 a share now. And we do, and it failed, so we, but we did other things, and we merged it into Berkshire, and we’ll talk about that a little later. And, you know, I don’t know whether it’s $150 a share an hour or something like that from the six bucks. So if it succeeded, we would have made it, 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. You just keep going, and…

Charlie Munger [02:29:10] Yeah, keep learning.

Warren Buffett [02:29:11] Let’s just keep learning. Keep learning, deep learning. And you can say, why would it take guys that long to learn? And we only got a few minutes before lunch. We should, let’s address that problem, because I did bring something along on that. It, there have been, well, I started buying stocks when I was 11. I’ve been reading every book in the library on it. I loved it. My dad loved, you know, it was his business, and I get to go down his office and 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 in New York once, and he took me. I went to New York Stock Exchange, and I was in the orbit. I could tell you how the specialist system worked and the odd lot arrangements, and I could tell you history of finance and all of these things. And then I started, I got very interested in technical analysis and charted stocks, and then 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. 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 left, I brought something that, it’s really interesting. Let’s put up, let’s put up, what do we call this chart? Well, here we are. Yeah, let’s put up illusion, illusion one. Done. Yeah, there we have it.

You know, after you look at that, some people will see two faces, some people will say 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 that’s another thing, 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 strip with Popeye, Wimpy would have a little balloon over his head and the light bulb 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, you look, it looks like a rabbit, and if you look the other way, it looks like it, 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’re gone for years, and they sit there and get lost, and then all of a sudden you see something different than what you were seeing before. And it took me, in stocks, which I was intensely interested, and I had a decent IQ, and I was reading and thinking, and, you know, and it was important to me to make some money on it, every, 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 just, 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 light bulb, whether you call it, you know, a moment of truth, whatever it may be, and that’s happened, 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 on a zillion things. And I love that kind of stuff, except it wasn’t, it was the wrong stuff I was looking at.

And I’ve had that happen, and Charlie’s out of that, but 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 to have, if you want the world to love you, what you have to do, or whatever. It’s, you know what, when you see it, but you didn’t see it for 10 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, it just all gets rearranged in your mind, and you, you know, you can say, well, why didn’t I see this five years ago? Or, but usually I’ve had it happen a few times, obviously, and everybody here has, and 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 he, every smart guy that would get in trouble, usually with, it was guys, and usually it was 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, and their lives unraveled, you know, in many cases.

So there’s, 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. I mean, that, and some people never get it, and they wonder why they’re, 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 then they’ve been courting them for their art collection or whatever it may be. It 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 elliptical illusions?

Charlie Munger [02:37:32] 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 to, you correct your own mistakes, and we’ve done a lot of that.

Warren Buffett [02:37:49] Yeah, pretty much, being frequently way too late.

Charlie Munger [02:37:53] Yeah, we’ve done better with the mistakes than we have with the good, reasonably good ideas. 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 [02:38:11] Just tell me, tell me about one that hasn’t been. But tell me later, when the crowd isn’t listening.

Charlie Munger [02:38:19] And, well, that’s why. Well, look what happened to Robinhood, parents, peak to its trough. Wasn’t that pretty obvious that something like that was going to happen?

Warren Buffett [02:38:31] Tell me again what Robinhood…

Charlie Munger [02:38:34] When they came out and went public and got alerted everybody in all the short-term gambling and big commissions and hidden kickbacks and so on and so on. It was disgusting.

Warren Buffett [02:38:47] Yeah, and it said so last year, and they got mad at you, and they sold a bunch of their stock, and they got the money.

Charlie Munger [02:38:57] And yeah, but now they’re, it’s unraveling. God, and God is getting just.

Warren Buffett [02:39:02] But a lot of the insiders have gotten, no, but they’ve gotten a lot of money from it. I mean, they were big sellers, as I remember.

Charlie Munger [02:39:12] That, maybe. But yeah, there’s been some justice.

Warren Buffett [02:39:16] Well

Warren Buffett [02:39:15] I have to agree with that. Well, it’s a good idea to go around making enemies with people, though? That’s another question.

Charlie Munger [02:39:28] Which we do.

Warren Buffett [02:39:30] Is it… why is it wise to criticize people at all?

Charlie Munger [02:39:36] Probably not, but I can’t help it.

Warren Buffett [02:39:40] Yeah. Well, (Applause) and here’s the smartest guy I know, and he’s 98, he hasn’t figured it out yet, so give up. Enjoy. Well, with that we’ll go to lunch and we’ll try to come back wiser at 1 o’clock. And thank you, thank you, thank you. (Applause)

Okay, let’s reconvene. I think we sold 15 boats so far, I was told that a while, a little while ago out there, so get them while they last. We won’t have the first one available for delivery for about a year, but people are getting 10% off, whatever that means, who order one, and I’ve ordered one myself. And we’re… things are going well in the other room. And we only got 7 questions, which is the new low in the first half, so we’ll try and move a little faster. I can’t imagine why it went that slowly. I mean, who’s doing all that talking? Okay, station 4.

[02:40:56] Shareholder (Jeff McMalloy, San Francisco): Hi Warren and Charlie, I’m Jeff McMalloy, 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 [02:42:00] 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. I want to 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 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 their companies or anything else. So I think it surprised to me, I’m not going to go around and take positions where instead of saying Warren Buffett says, it will be, it will say, you know, Berkshire Hathaway or Warren Buffett, Berkshire Hathaway. I get identified, and I do not want to make the lives of you with them. I just decided I’m not going to be doing that.

If I want to do that, I should quit my job. I think I’m… my citizenship speaking out is that important, I’ll give up what I love the most, which is having this job. 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. And that, so that’s where I stand. And I can tell you that at most companies, or many lessons there, but in a great many companies, you know, the 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 consistency, sometimes very strongly. And if they think they’re stakeholders for this group and that group and that group, they’re gonna, they’ll get pressured by their boards to take positions. And it’s just the territory that we don’t, we’re not going to get into it. Charlie, how do you feel about that?

Charlie Munger [02:45:39] Well, I… even more than you, I have to be very careful about what I say now. And the difference between the two is I can’t resist saying a little more. (Laughter)

Warren Buffett [02:45:57] I see headlines and 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 then people who write the articles don’t have the faintest idea whether it was maya, my, at my instigation, or whether I’d even ever heard of it. But the headline says, the headline will attract more people if it says Buffett buying this, and if it says Berkshire Hathaway, and we don’t know whether it’s just 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 have facing consequences that they didn’t ask for in the first place. So with that, 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. But, and with that we’ll go to, let’s see, that was station 4, we’ll go back to Becky.

Becky Quick [02:47:35] 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.”

Warren Buffett [02:47:57] Well, we’ll find out. I, and we should, in all honesty we would, we should both say that we would be affected by… if it’s $100 million, we’d both be affected. So our point of view is, and…

Charlie Munger [02:48:14] And I have no point of view.

Warren Buffett [02:48:17] Charlie?

Charlie Munger [02:48:18] I have no, no point of view that I would want attributed to. 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 [02:48:39] Yeah, we… 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 it, and they didn’t know anything. They just, they were there because they were handing over a contribution, they didn’t… 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 says insurance groups. You know, other people can rightly figure that we’re a free rider under those circumstances. So I tell the managers, generally: don’t spend Berkshire’s money on candidates that you like, don’t pressure suppliers to do… what I mean, Berkshire is not a weapon to use, which, 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 that, 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 what a bunch of very nice people get together, but they decide it’s in the interest of their savings and loan, didn’t get, do this or that. And we warned them, and finally Charlie wrote a letter, which is, like I say, available on search, and it’s one of the, should be one of the proudest letters, certainly one of the proudest letters has ever come out of Berkshire. And he just said, we can’t stand it anymore and we’re resigning.

And, but that’s a very tough thing to do. You can, you know, you can’t… it’s a tough way to live, just around criticizing the people you work with and the neighbors. And they’re perfectly decent people, but they run into institutions that are doing things that are very distasteful to them. And we belong, support some of our subsidiaries in energy, and, you know, we, I don’t want to find people who 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 they’re either their competitors within the industry or the industry versus this. We’re not going to stand alone and say, well, we’re morally superior to us, so you put your money up and buy it. So that’s where I end up. Charlie?

Charlie Munger [02:52:19] I’ve got nothing to add.

Warren Buffett [02:52:21] Okay. Never bothers me when I don’t have anything to add, but he seems stuck on that. And anyway, Becky, did that come from you?

Becky Quick [02:52:33] It did, yeah.

Warren Buffett [02:52:34] Okay, then station 5.

[02:52:36] Shareholder (Tong Yao, China): Oh, thank you Warren and Charlie. My name is Tong Yao, I’m from China and now studying in the University of Chicago. I really admire you two, especially Charlie. You are my adult since I was a child. And my question is also for Charlie. My question is how to practice the multidisciplinary framework in making investment decisions and in life, like how to make it more practical. Thank you, Charlie.

Charlie Munger [02:53:25] Well, obviously it helps you to know more than one discipline. There’s an old saying, you know, the man who carries only a hammer thinks everything else is a nail. And if you make a lot of wrong decisions if you don’t have the, some command of all the disciplines. That’s all I ever said. And, but you do irritate people terribly when you come into their territory, you say I’m a multidisciplinary, you’re the expert, and I know better than you. They hate you for it. I contest to do it, I’ve done it several times.

Warren Buffett [02:54:08] And, you know, China, well, there’s a certain degree in the cult, they have a culture that to some extent revere’s age. So Charlie’s got me beat. I don’t even try and compete with him on China. I can’t catch him on age. Okay, I’m gonna try to, though. Let’s see, we’ve got Becky coming next.

Becky Quick [02:54:35] 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 the return on equity. Do you believe that this is still the case?”

Warren Buffett [02:54:56] Yeah, of course. Bonds can swindle the equity investor, to everything, inflation, I should say, swindle’s the bond investor too, and they, 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 10 times as much, it doesn’t take any capital, you can charge 10 times as much and you’ve kept your relative position. But most businesses take some capital. If our utility business, if just say that the dollar is worth one-tenth some years hence from now, we have to have 10 times the capital investment, basically, and we get paid a return on that, but we have forced capital investment to essentially keep them in the same place. And I wrote an article that related to that, and I will tell you a very, 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 doesn’t, 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, how 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, whatever. You, very disgusting behavior on my part.

And then I sent it, 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 was, she didn’t want to really hurt me too much. So she said, 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.” And it made the point. And so I write that letter, I’d write that article shorter, but I’d say more or less the same thing. No, 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?

Charlie Munger [02:58:24] Well, we will go to station 6.

Warren Buffett [02:58:27] Inflation, inflation is… 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 listen to all kinds of stuff, but they don’t, nobody knows what the, how much inflation there will be over the next 10 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 they, if you pay them enough, and other people that will tell you for nothing because I think it enhances their prestige and makes them more valuable. 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 power. If you play the violin very well, you will do reasonably well during inflation. I mean, it’s to play it better than other people, people will pay you for doing that, if you, you know, all kinds of things. So your skills can, will not be taken away, and your money may be. Okay, station 6. Oh, wait a second, was that… that’s right, is it Becky next?

Becky Quick [03:00:07] Becky, it’s station six.

Warren Buffett [03:00:09] Yeah, station 6.

[03:00:10] Shareholder (Martin Wegand, Nashville, Tennessee): Okay, 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.

Warren Buffett [03:00:29] Well, thank you. (Applause)

[03:00:31] Shareholder (Martin Wegand, Nashville, Tennessee): 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 [03:01:03] 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 million hundred and seventy thousand Class A shares outstanding today. That’s fewer than we had a year ago. In there, 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, which, if we should, we go out and recruit other people to replace you? Yeah, I mean, the ideal shareholder is the group, serial group we can have is the group we have today. And why, you know, 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, and 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 done.

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 is another… I mean, it strikes us that’s basically crazy. We don’t want anybody different 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. And I just don’t understand why, if you had a neighborhood, and not, and the size of the terrain or whatever it was would be such that you could have 10 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 down the street, you know, why don’t you buy the house of the guy next to me, you know? (Laughter)

It is weird, but there’s an awful lot of people who make their living by doing that, and they never really question them. I would sort of ask any companies making handles presentations every month or something, which of the present ones are you trying to get rid of, you know, basically? Because you’re not gonna have more, I hope you’re not gonna 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 some other fun that is thinking about what your soccer 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, the 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, 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, and 6.2, and we’ve got to get the 7, or something like that. And they’d say that month after month after months, it becomes a catechism, and CEO says it, earth his or her representative says it, and it goes… 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, as of the important thing to do is to hit your earnings targets. Well, you know, you have to… he’s been meeting him 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 company, 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. You can’t, it’s not human nature. And besides, you wouldn’t get a point as a 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, I can, you know, I can, within GAAP accounting, and I can play a lot of games with numbers. We have never, we’ve done a lot of dumb things at Berkshire, we have never told anybody that the number had to be this or that, or to change anything. I mean, it just… 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 say, well, I’m going to put it back, and then do it a few times, and you all ever stop. In fact, do it once and you probably never stop.

But it’s, 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 got 360,000 people out there, and they know whether I’m lying or not, good 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… it’s just, you know, we want to, if you start lying, you 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. And 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 then they want to tell them.

And then if you’re a 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 the committee, you have all these processes, but if you have a culture of lying, the processes really don’t, they just disappear. But, and Charlie and I have seen it, well, every time we’ve gone on a board, but trying to tell them about it. Well…

Charlie Munger [03:09:05] I think Berkshire’s culture is 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 funds get more and more important in the voting, and it’s like everything else in life, it changes, and not always in ways you like.

Warren Buffett [03:09:53] 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 said everything that’s been done before has, you know, it’s been kind of fraudulent. You know, I mean, if we needed a book, books an extra sale after the end of the quarter, if we needed to adjust the reserves. And it’s just, it’s… 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… You sure can’t, if you set the wrong example at the top, you got a real problem. We don’t, we’ve never told, we never told anybody to change a figure, 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, we’ve already seen it time after time, board… the way boards operate. You know, it’s, 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 extraordinary. 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.

Okay. All right, I should make a little news here. So you’ve come, 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 things I bought, it was bought for a different purpose by a different manager months earlier, he bought roughly 15 million shares of Activision. And I never paid… I knew about the company, but 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, everybody did 50 years ago, we call them workouts or something like that, and they become known as arbitrage. Well, they’re not really arbitraged, but their securities, their, those kinds of 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, let’s 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, I’ve 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 we 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 [03:14:08] Yeah.

Warren Buffett [03:14:08] A guy named Bennett was up there, and we were trying to figure out whether some takeover of the power business… I mean, we spent a lot of time analyzing the probabilities of announced deals going through, and we call them workouts. Now the term became arb, and it hasn’t worked, work overall too well in recent years. Now every now and then I see something that I want to do in that field, and, but very seldom, because they 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 you may, the deal blows up, you may have a stock that’s at 40 or something. So it’s a… 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 the deal even though Monsanto came with a problem that nobody really understands to the extent of. And we did it with Red Hat when IBM bought it.

So in any event, on September whatever, I mean, on January whatever it was, 17th, 18th, 19th, Microsoft announces it, and the stock, which had been, that’s 60, let’s see what it, I may have a slide here which I’ll find, but in any of the stock, which had been in the 60s, went up to the 81 or 2, and that looked like not a big enough spread to me for a few days, and then to settle back a little. So anyway, we now own 9.5%, not, something like 9.5% of Activision. 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 there, I can tell you that as of yesterday, right, well, about 9.5%. If we go past 10, there’ll be a forum file with the SEC and so on. But it is my purchases, not the manager who bought it some months ago. And if the deal goes through, we make some money, and if the deal doesn’t go through, who knows what happens.

But that’s… 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, he doesn’t know what the EU is going to do, he never talked to anybody, Microsoft, about anything. He’s just read a document, he’s made his own assessment, and it can change. And one time I think we sold a few shares, even, when I thought it was a little higher than it should be, and turn out those sales were not bad sales.

And so I just want to, I want to create a little news for you, and I want a possible head-off stories which have been incorrect in the past and which can then get 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 the reporter and the ed, 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 right now. And we’ll see whether it go beyond 10, but if, you know, it could easily be that if it went up a few dollars, it’s still a 95 deal. It’s still the… we don’t know what the Justice Department will do, we don’t know what, but the EU, we don’t know what 30 other jurisdictions we 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?

Charlie Munger [03:18:52] No.

Warren Buffett [03:18:53] Yeah. And instantly, I don’t even, I don’t talk this over with Charlie. I mean, you know, he knows what I… 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. But occasionally it looks like the odds are in our favor. But absolutely we could 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 have to see what happens. Okay, enough. Becky?

Becky Quick [03:19:48] You know, Charlie just mentioned index funds and 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. 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 [03:20:40] Well, I’ll take that. I think the guy’s right. I think any good thing is out of control and counterproductive. And I don’t think it’s good for the country to have three passive investors with bright young men from Harvard or whatever telling them what proper governance of corporations is. It’s not a good development. And it is… 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 [03:21:24] Yeah, well, the one 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, they’re now, 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 getting a lot of assets that are bad. 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 bad at us and regulate us in some ways, so we’ll head it off.

And I would predict fairly confidently that if the American public doesn’t like the idea of three people controlling things, the three people and their organizations and everything, but the three, they’re… what they want to do is they want to get bigger, 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. And it doesn’t mean 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. Then they can figure out their self-interest. I mean, it, and it’s, it just so happens that in this case it would achieve the right result, which is that they would not control America. But they don’t know 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 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 him, and that’s trying to do that sort of thing, and they don’t need to do it. And they just say, well, we’ll give up voting, or we’ll vote our shares as the rest of people do. And of course if you vote your shares of the rest, as the rest of the people do, then if the passive, if the index funds had 90% of the country, you could take over a company by somebody else buying 3% or 4%, because you’d automatically get the funds to follow your very small little percentage. You’ll see it all play out. I mean, it’s not a, it’s a big case, but it’s not an unusual case. Okay, station 7.

[03:24:32] Shareholder (Eric Erta, Albuquerque, New Mexico): Yeah, Eric Erta, and I live in Albuquerque, New Mexico. So I wanna first say thank you so much for a lifetime of knowledge you 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.

Warren Buffett [03:25:10] Thank you. (Applause)

[03:25:11] Shareholder (Eric Erta, Albuquerque, New Mexico): 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 1% of the company. The first part of that question is related to Greg’s ownership and his corresponding incentive alignment with overall Berkshire. 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 his 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? The second part is about leverage at the entity. You’ve always said that BHE operates with an appropriate amount of leverage given its 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 owned 100% of Berkshire Hathaway Energy, would you still operate the business with the same amount of leverage? Okay, thank you.

Warren Buffett [03:27:04] The second part is the easiest one to answer, so I’ll take that, and I’ll throw the first one back, Charlie. But Berkshire Hathaway Energy actually is required, with its 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 the regulatory authorities will say, in Iowa, or to pick any state, the regulatory authorities are going to say, you can get that money cheaper than you can get equity money, which historically has largely been, almost always been true. And though they say that since we’re going to allow you every turn on equity, we’ll say, just pick a figure, but let’s say they allow us to return on equity of 9%, and we can borrow a lot of capital at 3%, though they say it’ll result in higher rates to customers if you use it, put in all equity.

We would love to have all equity in our utilities, but we wouldn’t, the regulator wouldn’t stand for it, because it would result, under the traditional system, it would result in higher prices to consumers. So that’s built into the system. And we would, well, our regulator wouldn’t allow us essentially to get the same return on equity and have an all-equity structure. They, and the answer is, you know, we put, well, he actually saw in the film earlier, which the people that are listening, were hearing the webcast, didn’t see, but just in Iowa, you know, we recently got approval to spend $3 in a fraction billion. But they want us, Iowa has a history, in like every other state in the union except Nebraska, which is all public power, but every private powers, you know, they have a history of wanting X percent to be in debt. I want you to raise a lot of money in debt because it’s cheaper, means cheaper power for the consumer. So the answer is, if we owned 100% of Berkshire Energy, we would be 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 know…

Charlie Munger [03:30:10] 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, known 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 interest of Berkshire.

Warren Buffett [03:30:43] Yeah, and we’ve had various percentages of Berkshire Hathaway Energy ever since we bought it around 2000. And it happened, we were, my sister who’s here, we were at our house, and it was a party going on, and 20 or 30, probably 30 people, and Walter said to me, if you’ve got a minute or two, I’d like to talk to you about something. We went in the library or some place, 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 line, would you want to buy in, go private? I said sure, you know, depends on the price. And when we got back to Omaha, I was out on the West Coast, we got back to Omaha and we met with David Sokol, who was the big holder aside from Walter, and we agreed on a prize. And remember Walter saying to Dave, don’t negotiate with Warren, he’ll tell you to forget it and he’ll do something else.

So we bought it, and it, so it was kind of a weird structure from the start, and we had a Public Utility Holding Company Act to 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 them. In the end, the estate now close to 8, I guess, and Greg’s got 1. And in the, you know, from our standpoint, yep, we made a deal with, if they ever came to us and the sky that just wanted to do something, you know, we’d say find one. We’ll do the same thing with Greg if he wants, no one, he probably wouldn’t 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 would not be, it 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 I’ve got no interest in, 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 relatively, but they just say, well, Warren thinks the deal is okay, I must be okay, which is true. And so I could make a deal with anybody, and it doesn’t get all messed up with process. But other than if I’m not around, you know, the pressures are the 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 a value, and the whole thing is a game from that point forward. And it’s expensive, it takes a lot of time, the people. 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 to Greg. But that, who knows what happens in the future. The one thing I guarantee you, Berkshire Hathaway holders will never be taken advantage of. And, you know, you can sue my estate or something like that, but 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.

Charlie Munger [03:35:18] But I wish we had 20 more complex events just like it.

Warren Buffett [03:35:23] Yeah, that’s exactly true. Yeah, it’s a perfectly logical question, I mean. But it is not a problem, and any answer that’s arrived at will be good for all concerned. And right now I’ve got no, I’ve got no feeling that, why don’t, I have no knowledge at all of where the stock that the Scotts have goes, or what they, how they feel about it, or anything, and that’s up to them. You know, Walter was our partner, and as far as we concerned, we’re concerned, we treat anybody connected with them as our partner, and they know that they don’t have to worry about us taking advantage of them. And we can understand why, 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. Okay, Becky.

Becky Quick [03:36:26] This question comes from Steve Blackmore in Bozeman, 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? 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, etc., 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 [03:37:12] 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 to invest in China more in recent months and years than he did in earlier periods. So there’s been some tension, and it’s affected the prices of some of the Chinese stocks, particularly enter, internet stocks. Just in the last day or two, the Chinese leader as sort of reverse coursed 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, I mean, of dealing with the regime in China than there are in the United States. And it’s different, it’s a long way away, and they have 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 more, so much better companies, at so much lower prices, and I was willing to take a little political risk to get them, to get into the better companies, 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 [03:38:45] I have nothing to add. Okay. (Applause) Station 8.

[03:38:49] Shareholder (Tom Ringe, Wayne, Pennsylvania): 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 [03:39:04] Thanks for coming.

[03:39:06] Shareholder (Tom Ringe, Wayne, Pennsylvania): In this year’s letter you talked about insurance float, the evolution of float, the per share flow, 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. 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 [03:40:18] 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 flow 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 a winning bet, 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 here? You know, I mean, okay, I mean, it is not a sure thing.

Charlie Munger [03:41:31] 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 floats, that would be a hell of a lot of money.

Warren Buffett [03:41:47] Billions. I can tell you what it would be, and 10 or 12 billion.

Charlie Munger [03:41:51] Yes, it’s an enormous amount of money annually.

Warren Buffett [03:41:54] Yes, and the float has been growing. So relax, we’re glad to have the float. But Charlie, Charlie stuck in a couple of this there, if we could earn and if we could. The answer is, you know, that 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, didn’t have the faintest idea back in 1967 when Jack Ringwalt stopped by the opposite, a quarter… he stopped by at about a quarter of 12, and Charlie Heider 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 the heat, you know. I said, bring him wrong. So he came up, and quarter of 12, and Jack said he wanted to get rid of this damn business, the regulators were driving him nuts or something. I said, fine, I’ll buy it. And I said, what price do you want? And he said, I think $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 he says, well, he says… 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… and of course if I’d said yes, then he said, well, then we can’t do it. So I just said, no, yeah, you keep him, Jack, you know. And he said, I suppose you’ll want me to do this. 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 followed through, and that was that. And, you know, it’s pure luck. And we really like our float, don’t we, Barney? We really like our float.

Charlie Munger [03:44:14] Oh yeah, we love it.

Warren Buffett [03:44:16] No, we made the most of it, but we didn’t make the most of it till AJ came along. 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? And who knew it… 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, you just move. And fortunately operate in an environment, and I wouldn’t operate in any other environment, I get out of there, but I operate an environment where I can do it. And it’d 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 I just don’t like to go through all that stuff. You know, I’ve got other things to do the rest of my life as a… So there’s so much luck, but there is that you do have to be mentally prepared, and to do something when it makes sense, and do it big time, but do it instantly. And then you got to be sure you’ve got the resources to do it.

Charlie Munger [03:45:47] And I mean, the relative absence of bureaucracy at Berkshire, unbelievable, has made the company a lot of extra money for a very, very long time.

Warren Buffett [03:45:59] And it’s made my life happier. And yes, but that’s ideal. 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 before, well before AJ, two companies. I 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 have been, they’d have gone bankrupt, and we just didn’t want to do it. So we, you know, we we could pay the liabilities, and if the parent company got involved, and, or we put in another insurance company or something, and we just, we did it. I mean, it’s 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 when I want. And if somebody wants to paint something else, then I’ll go someplace and I’ll get a smaller little thing and I’ll paint away. And, you know, I actually, you know, I’m no good, 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 it’s, 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, and, 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 the paint. And, you know, the object, obviously I want my partners to come out well in them, 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, it’s, you know, the closest thing I can come to enjoying myself every minute of the day. And it’s not, I don’t prescribe it for other people. And occasionally I, I’m not so occasionally, I see things in the painting, you know, I think, well, I should have done that differently, and 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. I found what makes me happy, so why in the world will I change it? So that’s has a short answer to a question that I can’t remember what it was. Okay, Becky.

Becky Quick [03:49:26] This question comes from Andrew Kesau 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 [03:50:01] Well, we’ve sort of attacked them, what you do yourself, and, you know, you develop 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, with the, I think you interviewed Irv Blumkin at the Furniture Mart, and for two years, you know, the prices have just kept coming in higher for these things, and with, 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’t buy it, 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 could, couldn’t even buy as much sugar or coffee or things as they wanted. They had little stamps, and 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. Now, 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 in the first, because the first affects people’s attitudes in the second, and this, their attitudes always influence the activity itself. I mean, it is an interesting phenomena. There are people write a textbook and they really run it based on the last experience, and people read the textbooks, so they behave differently next time, and they, then they wonder why they get, they’re getting a different result than they got the time before. So anyway, we have sent out lots and lots and lots, when I say we, I mean the United States government, we’ve, the government has sent out lots of money to people, and at some point, you know, that the money can’t be worth as much as it was when there was less money out.

Here’s an, there’s an interesting figure that I think probably will astound you. Sounds me, anyway. The Federal Reserve every Thursday puts out a balance sheet. The Federal Reserve and program, 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. And, 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 that’s the one, there’s the current one, and they print these pieces of paper, and they, one way or another, they got it in 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 10 or 15 years, but there was 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, there’s 300, there’s 300, there’s a 100, and there’s 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 whether, 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, it’s a staggering something. 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’re working out in private, and they decide that they’re going to send, Federal Reserve, and I’m not going to blame the Federal Reserve for this, somebody 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 gonna 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 it was 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 you’ve, the household wealth of the United States, Federal Reserve puts out an estimate, it’s 130 trillion or something like that. So basically you’ve doubled the household wealth, and all you’ve done is mail out people, but they 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, that on average people have doubled it. They’ve got this extra 130 trillion of wealth, and in a month I can spend it. Well, what’s going to happen? Well, that, what, prices are going to go up. But they’re going to go up immediately, you know. 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 got to rush out and buy things. But as soon as word gets around what we’ve mailed out, if you look at the amount we’ve distributed, the federal government, I’m not talking about, I’m just talking about the distribution of resources, we’re talking numbers like that. And it affects prices. It has to affect prices. And if you had 10 times as much, if you want a home and you find out 10 times the net worth you had yesterday, but everybody else did the same thing, it doesn’t increase the amount of bread in the economy or the number of cars that… 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 had lots of money sent out to people one way or another, we’re getting it, that they didn’t find as many place things to buy as before, and we had supply chains, we have all these things happen. But the end of it is they go out to the Nebraska Furniture Mart and they 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, you know, 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 are just come in and buy. I mean, and 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 bought something, and they pay for it. They 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 we talk about a big system, but this is what’s happened. And I will guarantee you that if we just, if we mail out a million dollars to every household in the United States tonight, and you don’t know that it’s happened, you, you know, you don’t really expect much to happen in behavior tomorrow. But somehow at some point, and then if you start doing it every month, we’ll say, people really know you’re doing it, then they start anticipating and buying at a 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 built up. 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, the, if they hadn’t done it, their lives would be a lot worse, a whole lot worse now. And that was an important decision, and that’s the way that, that’s the… 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. Country’s going to have recessions, incidentally, and it’s going to have depressions periodically, and things don’t, 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.

I mean, 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, it was just probably the way partly every kid fell about the country when we just gone into a war, you know. We thought America was going to win, and 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 they called them to defend response, and they called them savings bonds, but they were the same thing. And it’s, you print loads of money and money is going to be worthless. Not worthless, I got in trouble doing that one time with CNBC because I said it was going to be worth separately less, but got contracted down to worthless. So I 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 [04:02:22] Well, it happened on a scale of stem we’d never seen before. Those checks that were just mailed out to everybody who claimed to have a business and claim to have employees, they 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. But we had a problem we hadn’t had before.

Warren Buffett [04:02:49] Yes. No, I’m not, I’m not saying it wasn’t a good idea. I mean, in my book Jay Powell’s a hero. I mean, it’s very, very simple. I mean, he did what he had to do, you know. When, if he had done nothing, it would be, I mean, he would be, you know, be very easy to engage in what you would call thumb sucking then. And plenty of, I shouldn’t say plenty, but there are other Fed chairmen that would have been sucking their thumbs, and the world would have fallen around them, and nobody would have exactly blamed them. They would have blamed the virus and the Chinese and all kinds of things.

Charlie Munger [04:03:28] Well, the really interesting company is Japan, where they first, they buy back all the debt, and they start buying back all the common stocks. Now that’s really weird. And what did they get? 25 years of stasis. Who would have predicted that?

Warren Buffett [04:03:44] Well, nobody preached with anything. I mean, there’s nobody’s predictions that we’re interested in, including our own. I mean, that’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 what, but basically we think we’re trying to build a Berkshire that cannot, can’t withstand a nuclear exchange, but it can withstand just about, withstand as much as then anything we can, that we can do anything about. And that leaves us feeling good. It doesn’t leave us feeling perfect, that we’d like to even promise you more than that, but we can’t promise more than that. So it’s very simple, but, and with that we’ll move on to 18. Let’s see, that’s station nine.

[04:04:53] Shareholder (Eli Abushakar, Montreal, Canada): Dear Mr. Buffett and Mr. Munger, I’m Eli Abushakar 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 and what it would look like? Thank you.

Warren Buffett [04:05:16] Well, I would resign the job. What would you do, Charlie?

Charlie Munger [04:05:21] No, it’s an impossible problem, because first of all you have to decide whether 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 is, 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.

Warren Buffett [04:06:08] I, and I don’t know how I would write the rules. I mean, I’ve watched people who I would be delighted to have lived 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 I found it, they’d return it to me. But they play it, they’d play games with any number that came to him. 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 that, 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 up for, 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 course, or wire, but anyway, let me just clear to be what was, what was happening. But you had to, you really had to follow the charader, 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, it, 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 is better off because the SEC.

But it is a hopeless question, the question or problem, to devise rules that people can’t get around. I mean, it’s, it’s not, I think it would, who was it that, my friend that was a writer said, it’s not the, it’s not the illegal things that are outrageous, it’s the legal things. It’s just, it’s very hard. You try, and it’s worthwhile. You need an SEC, but the SEC can’t really stop the stuff that, you know, you would find outrageous. Now that explained that the auditors have the same question. I mean, the auditors really want to, they want rules and they want processes and they want it to be so they can operate.

Charlie found a, 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, that Arthur Andersen, as I remembered, they’re gone now. Yeah, they’re gone now. But they were the, but they were the largest. And Charlie found a $20 million error, I think, one type of, they call it a plug. When your accountant starts talking about a plug, it’s not good.

Well, I’ll tell you a story I haven’t told before. You saw in that movie, people over here saw me testify in August before a subcommittee who were out to, you know, get their way. And I just decided I was just gonna answer every question honestly, and I was not gonna try and draw up anything. And so I just sat in front of them and said, well, I knew it, didn’t know. And one of the things I said, which was absolutely true, is that I’d only been there 10 days or so at Salomon, but I said, I really haven’t seen anything yet that strikes me as terrible and accounting. But I’ve been there 10 days. But this guy who got us in all this trouble, so far he’s the only thing I found. I don’t know what else was going to be found. How in the hell could I know what to go on in a place that was doing, you know, incredible numbers of transactions, everything? Well, but I said, you know, what I’ve seen, the accounting strikes me as legit.

About a month later, I was so happy I testified earlier, 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?” He said, “Well, 12 years earlier,” or whatever it was, Salomon emerged with Phibro, which was a huge trading company. Salomon was a huge investment banking company. It became a huge powerhouse. And he said, “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 they said we’ve never really figured out how to put the books together.” This is the largest audit company in the United States, Arthur Andersen, that’s responsible for signing this thing. “So we have this number, and every day it moves around, and it’s just put in there to make assets equal liabilities. And, you know, today it’s $173,412,000, you know, it’s not a penny, and tomorrow it’ll be something different,” you know.

And I thought to myself, I am sure glad I tested my work Congress a month ago, and I did not know then. But if they ever ask me again, I’m gonna tell them exactly what happened. We 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. And, you know, you got to make the assets equal the liabilities, right? So what else do you do? And that’s exactly what happened. And strange things happen in this world.

Charlie Munger [04:12:48] There’s one, I think my name was the floating plug.

Warren Buffett [04:12:52] Yeah, yeah. And Charlie’s on the audit committee. 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 something, you know, there’s certain hedging that even the regulators want us to do in terms of giving new television, we put a little number in. And I’ve made the suggestion once or twice that if you really want to do something sort of interesting, you know, just get some young guy that, give him a couple of weeks, and pick the 100 most kind of complicated long-term, you know, lots of wording derivative contract, and look at what one side, who promises to do something, values of that, and look at what the other side, who also reports, and just let them do it for a hundred operations that random. I just like to know if somebody’s valuing some, we’re valuing a contract with $28 million, the other guy’s valuing $33 million, you know, and you’ve got the same auditing firm on in both cases. They’re sending their name to them.

Nobody ever, I don’t think anybody’s ever done anything with that suggestion, and it’s, 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, all kinds of things, and I don’t blame them.

I did, I said, I brought one thing, I just couldn’t resist. I was hoping I’d get a question, so I’ll ask it myself. I was hoping to get a question that, how could these, some guy be so idiotic as to propose a price that of $848.02 or whatever it was or is for Alleghany Corp? And I mean, that is not getting a little scientific at. And of course I did provide, when I made the offer, that it’d be $850 less whatever was paid to whatever investment banker they wanted to select, Alleghany’s 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 the Delaware judges someday, del oro Delaware statute makers, maybe people that are writing papers, who knows. But I suggest that we just, since I’m willing to pay $850 a share for the place as is, you know, if they ought to fees, or I mean, if the advisory fees are $10 million or $40 million, that it makes a difference to someone, and it has 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 in the, nobody’s ever paid attention to this, but it, 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’d 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 stair holders that were different than the other group of shareholders at Berkshire, and the two one emerged. So you have two companies with me being the biggest beneficiary in between. And it really, it wasn’t up to me to determine the ratio, I mean, even though I had the most involved, but I had a little more of one company than the other. So anyway, a fairness and 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 to,” I mean, Charlie told me he knew a better idea, “we need a fairness opinion in this case.” And I said, “You know, I know it’s fair, you know what’s fair, and Sandy’s knows what he thinks is fair. If the three of us owned it, in 10 minutes we could have worked out a deal that all three of us regarded despair.” But because there were public shareholders and everything, it wasn’t right to do it that way. And the first time, the first one, we have two of these, but the first one was November 27, 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 not, 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 it. So I, which was fine, I committed myself, you know, that let the other 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, I said, “You know, these things are going for a million or two million bucks, where they get some guy that they hired last week, and he writes up a little thing, and then we get a bill for a million or two, and 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?” I go to Charlie with these kind of problems. I said, “Warren, it’s very simple,” he said, “pick out 10 prestigious investment banks and do exactly what I say.” So, “Okay, Charlie, what do I do when I call? I get these ten.” He says, “Well, put him 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. They’ll look back and they’ll say, “Well, Buffett only paid $60,000, why should I pay $2 million?” And it’s, but he says, “Just tell them that that’s what you’ll pay. And if they’re installed by it, which they probably should be, and then you’ll go to number two, and they’ll offer them the same deal, and you’ll just keep going down until you get to number 10. And if you don’t have anybody by number 10, 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 everything.

Well, so I picked 10 names out, and number one name was Jack Shad. And Jack Shad was a friend of Tom Murphy’s in front of Bill Ruane’s, and he was running E.F. Hutton, and he was, he was a very, very, very successful investment banker. I didn’t know him as well as the others, but I’d met him from my friends. So I called up and I said, “Jack,” I said, “I’ve got this crazy request.” He says, “Only because everybody admires you so much, my friends are your friends,” and blah, blah, blah, and E.F. Hutton’s so well regarded. I said, “I’m going to do something that’s, 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’ve 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 the, and then go through. I tell him there’s these 10 people, and if we don’t get any yeses, I’m going to come back to you again and I’ll offer you 75, and we’ll do the same thing until somebody says yes. And I said, “Jack, you know, but you are the first caller, so $60,000, and it’s gonna 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, I can take care of that.” He says, “We’re in.” And so we got a fairness opinion, but for one side.

Now the next call I made was the Paine Webber, and I gave him the same story, and I said, “E.F. Hutton was dumb enough to take the one side for $60,000 bucks. You know, I don’t know why the hell are doing it, you know, they’re destroying their reputation” and all that. And Paine Webber said, “We’ll take the other side for $60,000.” So we have a perspe…, we have a thing here that describes the whole process, and they got, well, low…

Charlie Munger [04:23:26] They sent out an amiable alcoholic they had to do something with.

Warren Buffett [04:23:32] Well, what they did was they each built us for $60,000 bucks, and we paid it.

Charlie Munger [04:23:40] That’s what you get for $60,000 bucks.

Warren Buffett [04:23:43] No, no, no, we got the same thing everybody else got, Charlie. And of course Jack Shad, this is 1978, he was appointed chairman of the SEC about seven years, I mean, Jack likes to do business. And it was true, it didn’t hurt him. They paid those $60,000, and they went back and charged somebody else $2 million, you know, the next week, and those guys, it’s all play money. And so we did the same thing when we got to Blue Chip Stamps, where we were similarly conflicted, poor five years later. We went back to the same two guys, and there’d 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, 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 it. 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, it’s, so I just decided that somebody at some point ought to point out what actually is happening in this situation, and that’s why we did it that way. And, you know, they 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 it’s, you’ve got an eccentric chairman, and that’s what he did. Charlie, how do you feel about this whole matter? It was your idea originally.

Charlie Munger [04:25:55] Well, it’s, we’re a little peculiar, and it’s not all, all the peculiarities are not bad.

Warren Buffett [04:26:06] I talked to Charlie before, and I didn’t talk to Charlie before I did it this time, but yeah. But Charlie has given me four ideas, and together that, on extremely practical matters, was so much, I mean, they just changed everything. I think you really ought to talk about the experience with the fraud.

Charlie Munger [04:26:36] What, on the fraud claim?

Warren Buffett [04:26:39] It, that, you know, that the fidelity claim with the guy, you know. Yet he had a very well known insurance company that, you don’t have to name names, but, well then, you know, you basically told them just raise the stakes to make the game fairer. This was back in the 1960s. Do you remember that?

Charlie Munger [04:27:04] I don’t remember.

Warren Buffett [04:27:06] Oh, well, I do. I remember. Well, tell them. (Laughter) 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, Munger. It was called Wheeler, Munger first, later it changed itself to Munger, Wheeler, and Jack Wheeler said, well, pretty soon it’ll be a buggered company, but that’s okay. They, 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 bucks or something like that from…

Charlie Munger [04:27:41] Yeah, well, he hit, hit, I remember, he had the trading tickets.

Warren Buffett [04:27:45] Yeah. Some guys, some guys steal some money, and Charlie’s firm, Wheeler, Munger, was required to have a fidelity bond and all these things that covered 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 his claim. They say, you know, the guy really wasn’t an employee, 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, “this guy stole the money, and we thought we had a insurance policy against people still paid us, 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 gotta work on this thing, and it isn’t worth the $12,000 for me to pull 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 a bargaining position to avoid playing at 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, which is, we’ll just multiply it by 10 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. Now it’s worth my while.” And he dresses the letter to the chairman and says that’s the guy. He gets a $12,000 check by return mail. (Applause) 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 it myself someday. Okay, let’s go to Becky.

Becky Quick [04:30:37] 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 respect? I’m conflicted about this, because his own views have slightly evolved during the past two years, from Bitcoin as a fraud and waste to Bitcoin isn’t a speculative bubble but might have some uses.”

Warren Buffett [04:31:03] Well, I shouldn’t answer any questions 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. I don’t blame them. I don’t like people step on my windpipe. But I would say this, that if all the people, listen, 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, from 1% interest in all the farmland in the United States, pay me, pay our group, well, let’s see, hey, it says bargain price, $25 billion, I’ll write your check this afternoon. $25 billion, now I own one 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% of all the apartment houses in the country, and you want whatever it may be for another $25 billion or something, I’ll write you 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, they have the 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, you know, 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 if I’m trying to get rid of it, you know, people will say, “Well, you know, why should I buy some Bitcoin? I mean, why don’t you call it Buffett coin, you know, make your own or somewhat 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 there’s, I mean, there’s all kinds of frictional costs that are very real, that somebody has paid too much 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, it’s other people have entered the room and they’ve moved money around, but no money has, 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 and get the equation. And they, 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 that probably will have some value 500 years from now, 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 something brave if somebody wants to sell you a pyramid or something, and you can charge the viewers, or, you know, it’ll be around a long time and won’t produce anything, but people will find it interesting to go there because they’re better about their parents.

But basically, assets, to be that value, they have to deliver something to somebody. And there’s only one currency that’s acceptable. And I’d say, I mean, you can come up with all kinds of things. We can put out Berkshire coins, or, you know, we put up Berkshire money or anything like that, but we 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, we literally, there’s 2.3, just under $2.3 trillion just of these little pieces of paper floating around some places, $7,000 for every man, woman or child in the United States. And of course most of them probably are 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, it’s out of their mind.

I mean, so anyway, with those few deficiencies, you know, you can, 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, it doesn’t multiply, doesn’t produce anything. It’s got a magic to it, and people have attached magics to lots of things. I mean, the goal in Wall Street, great magic, you know, “We are not an insurance company, we’re a tech company.” Well, they’re an insurance company, but a dozen people ourselves raise a lot of money. They just say, “Just don’t pay 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 that. You can make up things that work well in getting money from other people, and that’s why…

Charlie Munger [04:37:48] Well, I have a slightly different way of looking at it.

Warren Buffett [04:37:54] I’ll sell you something.

Charlie Munger [04:37:56] Well, I, the, 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.

Warren Buffett [04:38:11] Yeah.

Charlie Munger [04:38:12] And in the first place it’s stupid, because it’s very likely to go to zero. The same way, 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 so on. And third, it makes us look foolish compared to the Communist leader in China. He was smart enough to ban Bitcoin in China. With all of our presumed advantages of civilization, we are a lot dumber than the Communist leader in China.

Warren Buffett [04:38:54] Yeah. And when 25% of the people of the country get mad because we’ve said what we’ve said today, just remember Charlie spoke last. It was the most… (Applause)

The one development that I really do think is actually important, but I don’t know any way to do anything about it, but I would, my general assistant, 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, it gets pretty tribal. And I want to tell you, 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 guys, step, Nebraskan, 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 and then they stepped out, you know. That’s tribal behavior, and it’s fun, I mean, participated. But I guess it can get very dangerous when people, one group of people say two plus two is five and another says 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 that, just from memory, that the last time that the country was seeing this 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 Willkie 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, no third term, and, you know, I mean, 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 happen 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 to ask me about Roosevelt. And so you train them young, and, you know, all kinds of things. And so I’ve been, I’ve seen it. I think I’ve seen a period that it wasn’t that way, when, you know, if Eisenhower was running against Stevenson, or, you know, or whatever it might be. I mean, it, you know, people, they didn’t, they didn’t just, they had a partisan behavior, and they had a certain amount of tribal always. But I think that, I don’t think it’s a good development for society generally when people get tribal regardless navies. (Applause) Charlie, what tribes are you members of? (Laughter)

Charlie Munger [04:42:40] Well, in California we have a legislature which is completely gerrymandered, so nobody can ever be thrown out by the voters, and therefore the only people in the legislature are insane rightists and insane leftists. They get together every 10 years, and they’re usually six moderates somewhere in the legislature, and so they rejigger all the districts to throw them out, because neither party can stand them. Now that is government in California.

Warren Buffett [04:43:20] And you live there, and you have to go back.

Charlie Munger [04:43:26] Yes, yes, I’m sure you’ll have a wall. And I prefer living there they’re living in Russia. (Laughter) (Applause)

Warren Buffett [04:43:35] Okay, who haven’t we gotten in trouble with? Him, what was it, Lenny Bruce, that you say, is there anyone I forgot to offend? You, the section 10, I believe.

[04:43:50] Shareholder (Sahej, New Jersey): Hello, Mr. Buffett and Mr. Munger. My name is Sahej, I’m 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 [04:44:24] Well, that isn’t, it is a very interesting question, because I got, 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 that some books down there, and I loved my dad, and I go down, read the books, and they interested me. And, you know, I’m glad he wasn’t a, you know, a professor, professional boxers. I mean, I, you know, I wouldn’t have any teeth left or anything. It was, it was accident, just totally accident.

But I do think, I do think you know it when you see it, and it doesn’t mean you can follow. I would tell the students, wrote in the report, I mean, you know, find out what you love doing, and you spend most of your life doing it. And that, 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? And just work for whomever you admire the most. And I gave the talk at Stanford one time, and somebody showed up at Tom Murphy’s office, I think, a couple of days later. I mean, 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, that was, I just, I didn’t care what I got paid. It didn’t make it, you know, it just is, 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. So I’ve been working for myself ever since.

But I worked for, I had about four bosses in my life. You know, I had done the Lincoln Journal with, names looks my mind at the moment, his wonderful boss, it was Cooper Smith, and JCPenney’s here in Omaha. They all were wonderful people, but I still prefer working for myself. And of course Charlie and I both worked for my grandfather, and we just didn’t, we didn’t find it that interesting, that, I never, I don’t remember how, why did you ever decide to go to work at the store? Apparently Charlie worked there in 1940.

Charlie Munger [04:47:02] I worked, I worked just for the experience of working. I didn’t need the money. My father gave me ample allowance, and I also had a private business. So I was kind of working as a lark.

Warren Buffett [04:47:17] In your grocery store, 12 hours a day.

Charlie Munger [04:47:19] Yes.

Warren Buffett [04:47:20] For a large.

Charlie Munger [04:47:21] Yeah, as a lark, yes.

Warren Buffett [04:47:23] Do you consider that a good investment of your time, I’m looking back on it?

Charlie Munger [04:47:29] 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. That sure as hell wasn’t the reason I worked. Well, but I could give that young lady the advice: figure out what you’re bad at and avoid all of it.

Warren Buffett [04:47:48] Yeah.

Charlie Munger [04:47:48] That’s the way Warren and I found our provision.

Warren Buffett [04:47:51] Absolutely. We, yeah, we failed at everything else. We worked at everything until we found the ideal employers, ourselves, you know. And that was an organ, that was something we really admired, was, I know, the ones that weren’t, for somebody you admire.

Charlie Munger [04:48:09] The only one he knew was the one he was shaving, boys. (Laughter)

Warren Buffett [04:48:14] But it isn’t bad advice. It isn’t bad advice. I mean, who wants this if they’ve got an option? I mean, if you’re, you know, Charlie went into the service and whatever year 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, who worked for Charlie, did it?

Charlie Munger [04:48:43] Well, if you stop to think about the two things that neither one of us has ever succeeded at: one, we’ve never succeeded anything that didn’t interest us.

Warren Buffett [04:48:53] Right, right.

Charlie Munger [04:48:54] And we’ve never succeeded in anything that was really hard where we didn’t have much aptitude for it.

Warren Buffett [04:49:00] Yeah.

Charlie Munger [04:49:01] And we’ve been doing whatever we pleased.

Warren Buffett [04:49:03] Yeah, I mean, and we get, you know, we have fun in our way. And I’m just amazed, you’d think if you’re smart you could do things that don’t interest you.

Charlie Munger [04:49:15] Well, but you can’t.

Warren Buffett [04:49:16] Well, I’ve certainly got a lot of examples in my own case, but we won’t get into them here. And we will go to Becky.

Becky Quick [04:49:25] 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 of global oil production went below 85 million barrels in 25 years. We are at the 14-year mark in 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 10 years if we do not become more proactive?”

Warren Buffett [04:50:06] Well, Charlie’s the expert on oil.

Charlie Munger [04:50:09] Well, I bet only compared to me. Samuel Johnson said it’s harder, hard to determine the order of presidency between a louse and a flea. It’s hard to tell which of us is more incompetent than oil.

Warren Buffett [04:50:25] The, yeah, we’re still competing.

Charlie Munger [04:50:28] I have a different view on this subject. I like having big reserves of oil. If I were running the benevolence by 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 so, and nobody else has my view, so I, it doesn’t bother me. I just think they’re all wrong. But at any rate, I, that is not the normal view.

Warren Buffett [04:51:13] And we’ve been pretty flexible in our own view. I mean, actually the, you know, the federal government is serving up over many billion barrels of the stuff that entered 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, 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 nice 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?

Charlie Munger [04:52:46] 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, more. 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 they know. And I see very little trouble with the oil supply thing in the United States. So I’m basically in love with Standard Oil. So, 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 old companies.

Warren Buffett [04:53:30] Well, we better move on to station 11. I’m not sure whether station 11 is operative.

[04:53:35] Shareholder (Glenn Tongue, New York): Well, we’re here. Greetings from the overflow room. My name is Glenn 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.

Warren Buffett [04:54:10] Well, that’s my kind of a question.

Charlie Munger [04:54:13] Yeah, that’s fine.

Warren Buffett [04:54:14] Let’s have more of those. Yeah, or you might say it again. I mean, maybe you could sing it. (Laughter)

[04:54:22] Shareholder (Glenn Tongue, New York): Maybe I should quit at this point. Go to it. 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 percent 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 about right, and approximately, approximately right? And do any other factors influence the rate of share repurchases?

Warren Buffett [04:55:04] Well, after you’re so nice in your introduction, I have to say that, yeah, you’re actually wrong in the, in our, if somebody 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, of controlling factors how much money we have, we’d rather buy businesses. And so it isn’t, 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 you said you wanted to get out, and if you said one number, we’d have the funds in the, our little lemonade company, and we’d buy you out. And if we didn’t like the price, we wouldn’t buy you out. And that’s, but it’s the same way we feel. We don’t, but we do feel an obligation to do things that we think are intelligent and in no way risk, absolutely no way and present any risk of financial problems under any circumstances we can envision, except maybe something like nuclear war. You know, we will, we’ll, we will do it, but it never can be that big a factor.

Certain companies, well, Charlie, I think, spoke the other day, and the next one, Henry Singleton, I think he bought back 89% of the company over time. And he sold stock like crazy, or issued it, much earlier when it was overpriced, and they bought it back underpriced. But the key to that, of course, is having people think you’re wrong in doing it. So he was able to buy a ton of it, and there’s some other companies that have bought a ton of it. And Berkshire isn’t going to get the chance to do that, because we, if people think we’re buying them, we’ve got sensible shareholders. That’s what it amounts to. If we had the same group of shareholders that own two-day puts, and they were our shareholders, we’d buy back the whole company, you know, and in a very short period of time.

But it’s such an easy concept to assess. I mean, the second stock I bought, what, Cities Service preferred, that was the first one. 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 3 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, 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 lived to be 100, I would own the whole place. Well, I haven’t lived to be 100 yet, and I didn’t buy the whole, I wouldn’t have bought the whole place. So both calculations are so far and perfect.

But it’s been a remarkable company, just plain remarkable, because they would talk about raising fees of $6,000 a year or something like that, you know, maybe, when they had 3 million acres. And then they kept finding oil and more oil and more oil, and they’ve changed the form and all kind of things. But they bought in 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 calculations, because it wouldn’t work that way. But it still was apparent to me it would be a very good idea, if they had 3 million acres down there that they got all through with and they kept their mineral rights and all kinds of things, which they were doing, you know, a lot of them at a very cheap price, it ought to work out well for anybody who’s sat around for a long time. And it has worked out extremely well for anybody sat around a long time. But nobody knew that they were going to find a lot of oil, and eventually El Paso would grow out far enough so that the surface lands became worst cell money, that they were somewhat near El Paso. Then you had to go a couple hundred more miles to find the next person, but that was another problem.

So it’s just, so some of the stuff is so simple, you know. But, you know, people want to get their PhD or something, so they work out hundreds of pages and have lots of Greek letters in it and all that sort of thing. And, you know, either you’re buying, buying out your partner at an attractive price, sure, you’re not buying a monitor, you’re pricing. If you’ve got the money around to do it, and the price is attractive, you don’t have some other opportunities, you know, why not? I mean, you got to come out ahead by doing it. And if certain other, you’ve got other things that are more intelligent, you don’t do it. And it, and if it isn’t intelligent on an absolute basis, you also don’t do it. Charlie, if you got anything to add to that? What were you doing in 1943? We’re in the service at all?

Charlie Munger [05:01:46] 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.

Warren Buffett [05:02:02] Yeah, we’ve been very fortunate. Yeah. And tomorrow, Monday, I can tell you it’s almost certain that if anybody offers us, well, they’ll be shared straight a Berkshire, and we won’t buy any. But it’s also a pretty fair chance someday a lot of shares, quite a few shares, not a lot. Berkshire’s got the, our shareholders are too smart. That’s one of our problems, that we want to repurchase shares, but we really don’t want to squeeze it. We don’t want to squeeze out anybody. But we also are here to do things that increase the value to the people who stick with us. I mean, it’s not very complicated. And we’ll get, we’ll, there’ll be times when we’ll do it and there’ll be times when we won’t. But it 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 Glenn, thanks for coming. And Becky, here next.

Becky Quick [05:03:14] This question was sent in by Dave Shane 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 multi-billion dollar decisions without board approval?”

Warren Buffett [05:03:35] Well, my guess is that the board, it’s just the responders people do, they’ll be, they’ll put some more restrictions, or they’ll have some more consultation on a lot of matters that, or some matters, than they do with me. I mean, that, they won’t need to, but they’ll feel that they haven’t had the experience, they haven’t seen them as long, and a whole bunch of things, and they’ll feel that the Delaware laws protects them 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, to come on the board, and you’re a trustee for a whole bunch of people that trust you, and me, I’m talking about the directors and me, you know, finding it. But it’s very interesting. People go on museum boards, you know, and they’re expected to contribute. People go on college boards, and they’re expected to contribute money. And it’s, they say it’s a great honor to be on a university board or museum board or whatever, it’s a great on earth, 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, or a hospital board or something. I wouldn’t know what they were talking about anyway on museum board or artboard. So, and in, you know, but people have found that they could make $300,000 a year, you know, which is way more, which is enormously important to some people, and it’s 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 people wanted to be directors, and that’d be a prestigious sort of thing and all that. But in effect it’s money, I, that comes very easily. I did, the whole idea of the independent director, frankly, is, it just doesn’t really make any sense.

Charlie Munger [05:06:08] You don’t think a director is independent who needs $300,000, needs the money?

Warren Buffett [05:06:13] Yeah.

Charlie Munger [05:06:14] I mean, he’s independent of the way a slave is independent.

Warren Buffett [05:06:19] I am going to read a few sentences which are absolutely the case, except I’m doctoring the justice. I don’t want anybody to be identified, obviously, with us. And these are just, but these are word for word excerpts was. And I’m not telling whether it’s a woman or a man. I’m going to use a male pronoun because it’s 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 have 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 it 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 has composed 100% of my board fees.”

Well, he, I just looked him up, and the time he was a director of five prestigious companies, and had been directors of others, and directors, and he was going to be directing a whole bunch of things. But he was desperate for money, and he says he’s getting 100% of it for 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 that, you know, we’re going to have a shareholders meeting just a couple of minutes, 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 coat, I mean, but we own 9% at Berkshire Hathaway. We obviously cared about the future of the Coca-Cola Company. And it so happened in that year CalPERS and a few others have recommended that we be voted against for something or other. And at one time there were two big institutional ambassadors voted because they didn’t think I was independent, because Dairy Queen bought some Coca-Cola, or the, or actually the people that had our franchise want some Coca-Cola. I mean, do they think I can’t add things? And if we’ve got billions and billions and billions of dollars, but that I’m going to be compromised? And, but it’s just nutty. And so one year my vote fell from 90, 96, maybe it’s 98% vote approval to 84 because, I forgot whether it’s 2004, to the, somewhere along the line they just decided that I wasn’t the right sort of person to be able to handle these responsibilities.

And, you know, the idea that somebody, 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 does, it doesn’t mean they’re terrible people. But if the difference is whether you, how you live In this case, whether the person might go broke, how in the world you can call somebody like that independent and say that anybody owns a lot of, you know, women, Walter Scott’s, you know, not independent, or maybe it’s just ridiculous, but it’s the way the rules are, and we will, we follow the rules. But…

Charlie Munger [05:10:44] Well, they don’t want them just independent now, they want one horse, one rabbit, one cow, one whatever.

Warren Buffett [05:10:51] I mean, I, you know, I feel like Galileo.

Charlie Munger [05:10:55] Independence is not enough. You gotta have a very diverse kind of independence.

Warren Buffett [05:11:01] Yeah, yeah. And if you desperately need the money, in this case 100% of the income coming from it, you’re on five of the most prestigious boards in the country, and classify as independent on each and other, other, and all you’re hoping is that, well, if your CEO gets called by another CEO and says, “Is this guy okay?” And you say, “Of course he’s okay,” which means of course he doesn’t cause trouble, and so he gets on a sixth board. Anyway, I know, oh, he says it’s not our idea of an independent director. It’s all a little crazy.

Which brings us to the fact that we’re now going to have our annual meeting here, and about 15 minutes. We’ll reconvene it 3:45, and then we’ll do the business of the meeting that is required, and you’re all welcome to stay here, and it’s very…

We’ll now come to the moment you’ve all been waiting for. We’ll all, 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 we’ve solved that one. And we’re now going to have a, an annual meeting where I follow a script, and you may think that’s impossible, but I’ll do it.

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 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?

MHMarc Hamburg [05:13:30] 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 the 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 the 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 [05:14:29] Okay. And I will interrupt this meeting for one second to announce that we’re still selling things next door, and we’ve sold 15 votes. So with that brief commercial, and if anybody leaves, I will not be offended. Thank you.

The number represents the quorum, and we will therefore directly proceed with the meeting. The first order of business will be a reading of the minutes of the last meeting of shareholders. I recognize Ms. Decker, who will place motion before the meeting.

SDSue Decker [05:15:05] I move that the reading of the minutes from the last meeting of shareholders be dispensed with and the minutes be approved.

Warren Buffett [05:15:13] Do I hear a second?

[05:15:15] Unidentified speaker: I second the motion.

Warren Buffett [05:15:16] The motion is carried. The next item of business is to elect directors. If a shareholder is present who did not send in a proxy or wishes to withdraw a proxy previously sent in, you may vote in person on the election of directors and other matters to be considered at this meeting. Please identify yourself to one of the meeting officials in the aisle so that you can receive a ballot. I recognize Miss Sue Decker to place a motion before the meeting with respect to election directors.

SDSue Decker [05:15:47] I move that Warren Buffett, Charles Munger, Gregory Abel, Howard Buffett, Susan Buffett, Stephen Burke, Kenneth Chenault, Christopher Davis, Susan Decker, Davis, David Gottesman, Charlotte Guyman, Ajit Jain, Ronald Olson, Wallace Weitz and Meryl Witmer be elected as directors.

[05:16:04] Unidentified speaker: I second the motion.

Warren Buffett [05:16:06] It has been moved in second another, the 15 individual named in Miss Decker’s motion be elected as directors. The nominations are ready to be acted upon. They’re any shareholders voting in person, they should now mark their ballot on the motion. Ms. Amick, when you are ready, you may give your report.

BABecki Amick [05:16:28] 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 [05:17:01] Thank you. Then 15 nominees have been elected as directors. 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 have recommended that the shareholders vote against the proposal. I will now recognize Peter Flaherty, a representative, National Legal and Policy Center, to present the proposal.

PFPeter Flaherty [05:17:35] Good afternoon. I am Peter Flaherty, chairman of the National and 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. And right outside my hotel window here in Omaha is a homeless encampment, and all too familiar site 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, transgenderism, and/or the myriad of other woke causes that permeate corporate advertising and messaging.

Why has corporate America embraced both economic and cultural radicalism? It’s pretty simple. When you have so much money, your fortune is going to come under 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 allow Mr. Buffett to advocate for higher taxes, even though they will fall in 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 and 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 his racist bandwagon by signing a statement by corporate leaders suggesting that Republicans seek to extrict 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 are used by human rights activists. And of course, Apple is the world’s most successful corporate tax minimizer, famous for routing profits through offshore tax shelters.

Over at American Express, the company instituted an anti-racist initiative for employees that 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 in the trust parents place and 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 drip in 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 [05:23:26] Okay. Thank you, Mr. Flaherty. Now, if there are any shareholders voting in person, they should now, should mark their battle on the motion. Ms. Amick, when you’re ready, you may give you a report.

BABecki Amick [05:23:43] 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 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 [05:24:25] Thank you, Ms. Amick. The proposal fails. (Applause)

The second proposal requested the company published an annual assessment addressing how the company manages physical and transitional climate-related risks and opportunities. Directors are recommended the shareholders vote against the proposal. I now will now recognize Tim Youmans, a representative, Federated Hermes, to present the proposal.

TYTim Youmans [05:24:52] 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 co-sponsored by Brunel Pension Partnership Limited, represented by EOS, Caisse de dépôt et placement du Québec, 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 CDPQ co-sponsored her 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 tallies showing that the majority of non-insider votes cast supported last year’s proposal. ISS 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 co-sponsors 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 his charter to now include climate risk oversight.

We welcome the company’s new engagement approach, Vice Chair Abel 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 3 asked for, which is that the parent company should, A, commence annual climate-related financial reporting for its 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 supplement talks about emissions reductions. We ask the parent company to report on climate-related financial risks, not just 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 and 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 asked 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 asked 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+ 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+ 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 name CEO 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 asked Vice Chair Abel to commence climate risk reporting at the parent company level. This would give the company a head start in complying with the SEC’s new proposed climate disclosure rules that ask for more disclosure than we asked 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 [05:30:37] Thank you.

I do think it’s worth discussing just a little bit who the actual, the actual constituency is, a public pension plan. It, generally speaking, we hear from various pensions, it’s not limited to California in the least, but saying, you know, they’re protecting their, the holders of the pensions and the retired people and all of that, and therefore they’re usually suggesting that 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 getting, 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 of 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, and the, to the extent possible, the states will attempt to realize from the taxpayers of the state in the future about money so they can pay the checks. I mean, that’s why as states have adopted pension plans and that sort of thing, and many of the states upon their taxes to go up. I mean, in effect, no state government, public opinion, 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 grant, so 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, where you’re, as you essentially are, 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 and moves. They don’t feel the same way about U.S. taxes. Not very many people are going to move from one place to another, but they may even be 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, or the pension pens may become insolvent, but they’re gonna 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.

The country, the United States is not going to stiff a bunch of people, particularly people that vote. But they’re, the moral feeling is to do it. So the real, the people that are, that the trustee 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, it’s going to sit there for 50 years, is whether they’re going to be any people around are going to pay the tax, and we can’t move our plant. So all these invisible decisions go on all the time.

And it, 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 really is, they really are representing, and they’re representing future taxpayers, and in some cases they’re creating some tremendous problems for future taxpayers, because like politicians, I mean, you know, they’ve got promises they’re going to fill, they’ll fail, 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, 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 was, in my opinion, would have spread like wildfire, and who knows what would have happened, just like in 2009, you know, when Lehman fell on 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 2008-9.

And on a Sunday in August, the Treasury Department, the Securities 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 on here, the other, Trillion Dollar Triage, in the first early page, 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 at 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 o’clock, which was kind of unprecedented, they were going to reverse themselves.

Now, can you imagine trying to get institutions like 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 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.

And when some guy from almost, if they, 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 was 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 be producing 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 the 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 have $130 billion. And there was a guy, a wonderful guy, John Macfarlane, he was the treasurer. He slept down at the downtown offices, right near their offices of Salomon, for days and days and days and days, because a billion dollars a day was draining out. There was a run on Salomon, and it was a run that the Treasury and the Fed, the SEC did not want to have happen, and reverse 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. So they were going to precipitate them, they were going to accelerate the runner. And they announced one day that they kind of approved of everything was going on, but they just didn’t want anything to do with us, even though we were giving them government bonds with security. And this was accentuating the problems for the Federal Reserve, of the U.S. Treasury, at SEC, and no one knew how it was going to come out. But they pulled, and other people pulled, and John Macfarlane stayed downtown and kept trying to raise a billion dollars every day to pay all people in terms of ruin 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. And it was a terrible problem.

And CalPERS, like they say, they said, “Well, we don’t want anything to do with these guys, so we won’t land on government securities, even though the loan is good.” And then a little later, it was sent, they sent word to me that if I would come out to California and talk to the people, the trustees, that the thing would be considered. So that was what they wanted as part of their deal not to cause them, keep participating in this run, and take a different position. And I never would have 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 have paid attention.

And they still paid attention. They were very nice to me when I went out there, and I talked to him, and they were happy and they clapped, and they paid, didn’t pay any attention to what I said, because I wasn’t charging a big fee or anything of 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 in terms of when they come around and they present a percent of proposal.

And they say that in their proposal, and this is in our proxy statement, and we file 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, that they make a mistake and say something about the shareholders voting. It says 2021 annual meeting, this is part of their supporting proposal, where a significant majority of non-inside shareholders supported the similar version of this real solution. Well, we say in our response, “The proponent’s assertion that at the 2021 annual meeting is a significant majority of non-inside shareholders supported a similar resolution is incorrect, and in fact a significant majority of such 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, and that handles our material, and at, at Roy Moore is a Broadridge, and it reports the number of shareholders, it’s the last day before the voting or something like that, and it’s got the number of shareholders that support us and against us, and it’s four to one in our favor and 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, it, I would, I would be willing to wager somebody, if we could find an impartial judgment, if you go to any group you want to pick, let’s take the CEOs of the five leading utility companies in the United States, the CEOs of the ten league, 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 to be, we want you to do things our way, and we’ve got three 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 it.”

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, it is the, it is the renewables capital of the world, practically, and we’re the ones that have done it. And they just, that isn’t what they want. So I like, you know, I’m first shareholder democracy and all that sort of thing. But the answer is that the resolution, you know, they pay lots of money to somebody that probably works in these groups, and they’ve got groups of the, you know, they’ve got their way of doing. I get letters from institutions in Europe, and they say, “Well, you know, you’ve got, you may have 40 pages or a history of going back to 2006 of explaining what you’re doing, but here’s what we, the way we want you to do it.” And, you know, and you know how much energy is granimals, which we own this.

Charlie Munger [05:46:50] I think it’s just, it, you have to think, you know, as a person sitting here, you know, it’s nutty. But it’s, these are the rules. You get on the proxy statement under certain 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 him, just like Warren did when he flew across the whole country because he had…

Warren Buffett [05:47:25] It wasn’t money. I just, I was worried about a company surviving that the people in Washington, the supervisor were about to survive again. And if I came, if I flew across country and paid them sufficient respect, I mean, it was kind of like The Godfather or something, you know, I just bought out and then flew back. That, so I have a certain reservation about shareholder proposals. Should have some meaning. I mean, I, it’s kind of thing I argued for when I was younger. But, you know, basically it’s become, in my opinion, there’s certain items that you can put on the ballot and certain that you can’t.

And practically every executive at the country now, the chief executive wants to have a virtual meeting. The last thing you have is 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 as to the vote. And this time, and I can assure you we’re not, we’re not stuffing the ballot boxes, you know, we’re not doing anything. I mean, voter fraud, you know, it, 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, one hour, and they vote a certain way, and then they feel pure. And they don’t really, what they care about is whether we check their boxes, and the people that work for them, a certain number of people are getting employed by them, and their hearts are pure. But ours aren’t impure.

And with that, I think we ought to, well, and I won’t do this again, but I, it just, it’s, it’s a really interesting development in terms of getting more a rules-based type of situation, where basically every, no, no company, almost every company figures out how to negotiate with the people later. And they all have con, a good many of the CEOs, I mean, they don’t, they just figure it’s something that they endure in the business, and they set up a department to answer the questions and meet with the people and show 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 similar.

I thought, 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 pub tens of billions of dollars into the business. Most, probably 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 of transmission lines and all kinds of things that would be helpful to the country. And we’re doing a fair amount of that. 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 Macfarlane was trying to raise a billion dollars a day, and the Treasury and the Fed and 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, well, the last… Ms. Amick… (Applause) Can you give your report? (Applause)

BABecki Amick [05:52:23] My report is ready. The ballot of the proxy holders, in response to proxies that were received through last Thursday evening, cast 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 [05:53:02] Yeah. And I will just add that, you know, I got a report a day or two ago, the last report they sent me from this firm, and it’s four to one. If I don’t want to, be glad to share it with anybody. But in terms of number of shareholders, there are a number of shareholders that, based on what these people in New Jersey tell me, the vote was, we’re against them. And, you know, it’s… And 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 spent, they announced their proposals and all that sort of thing.

Okay. Well, the third proposal requested the company issue report addressing if, and 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 Jalen Spann, representative of the Whistle Stop Capital, to present the proposal.

JSJalen Spann [05:54:19] Chairman Mr. Buffett and board members, good afternoon. My name is Jalen Spann, and I want to first thank you for the opportunity to present proposal number four on behalf of shareholder representative As You Sow. This proposal asked 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 risk 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 fast 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 it 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 coal 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 degrees 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 [05:58:52] Thank you. Thank you, Miss Spann. (Applause) The motion is not ready to be acted upon. If there are any shareholders voting in person, mission now, how about a little light up here? They should not mark their proposal, they’re bound on the motion. Ms. Amick, when you are ready, you may give your report.

BABecki Amick [05:59:16] 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 of the precise count of the votes given to the secretary to be placed with the minutes of this meeting.

Warren Buffett [05:59:57] Thank you, Miss Amick. Proposal fails. The fourth proposal request the company report to shareholders on the outcome of the diversity, equity and inclusion efforts. Directors are recommended the shareholders vote against the proposal. I will now recognize Jalen Spann, representative, Whistle Stop, to present the proposal.

JSJalen Spann [06:00:17] Hello, I’m Jalen Spann. I’m speaking on behalf of the non-profit 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. 42% of Americans have witnessed or experienced racism at work. 64% 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 callbacks than Blacks and 36% more callbacks 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, 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 [06:05:18] I certainly agree with you that my sisters were better looking, smarter, had better personalities, and in 1930, they had a father and mother, teachers, who love them like they love me. And if I’ve been born female, Black, in various other countries, I would not have had remotely the life I’ve enjoyed.

But I, if what the people at the top believe is important in terms of how our subsidiaries behave, they 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 every, virtually every company we have. Every now and then we find we’ve made a mistake, obviously. But if, the idea that I should replace any of the people that run from the businesses, do I, 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 boat bonus. So the owners of the Berkshire company, whether not forgetting about, forgetting about A or B shares, you know, basically the big funds that are worried about what their perception is, and, 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 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, it’s something that I could, if you could change that in people, it would do a lot more from American, Americans in the future. But you can’t, basically can’t change that. I mean, it’s a situation of how people behave and 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 they had a chance to, you gave them a chance to express their view on it. So, Ms. Amick, when you’re ready, you may give your report.

BABecki Amick [06:09:16] My report is ready. The ballot of the proxy holders, in response to proxies that were received through last Thursday evening, cast 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 within minutes of this meeting.

Warren Buffett [06:09:56] Thank you, Miss Amick. Proposal fails.

[06:09:59] Unidentified speaker: I move that this meeting be adjourned.

[06:10:02] Unidentified speaker: I second the motion to adjourn.

Warren Buffett [06:10:10] Motion to adjourn has been made and seconded. The meeting has adjourned. Thank you all for coming.