1995 年股东大会 · 下午场

Banks are in our circle of competence

WARREN BUFFETTOK, we're ready to start here with a question from zone 1, if you'll take your seats, please. We’ve got to —

AUDIENCE MEMBERMr. Buffett, I'm Brian Murphy (PH) from Clearwater, Florida. I'd like to ask you a question concerning your present thinking behind your acquisitions of banks, such as PNC and SunTrust, particularly in light of the fact that banks were selling so cheaply in 1990 and now many have tripled in price. And it would appear from recent publications and the financial literature that you've become much more interested in banks at these higher prices, relative to the 1990 valuations. Could you comment on your thinking there?

WARREN BUFFETTYeah, we really have no different — there's no difference in the criteria we apply to banks than to other businesses. And a couple of publications have, maybe, made a little more of that than is warranted, because I doubt if there's more than a couple percentage points difference in — And we don't think of it that way, incidentally. And we do not have a lot of sector — we don’t have any sector allocation theories whatsoever. So, we simply apply the same criteria when looking at banks that we would at any other business that — There — incidentally, there — sometimes, you should know, that there’s — I would say that maybe half, or maybe even a little more, of the reports about our activities are — in the press are erroneous. Now, some are accurate, too. And then, of course, some are way out of date. I mean, we get confidential treatment on our — on the filings we make with the SEC as to our holdings, so they're published well over a year after we've filed them. And therefore, there have been a couple of stories in the last month or two as to something we've bought. And of course, if you read the story carefully, we bought it a year and a half ago, maybe. And we may have sold it, we may have bought more, all kinds of things. So that, I'd be careful about press reports, generally. We’ve — we actually — we bought a bank for Berkshire in 1969, the Illinois National Bank and Trust of Rockford. We've had an interest in the banking business. We feel it's something that we can — that falls within our circle of competence to evaluate. That doesn't mean we'll be right every time, but it — we don't think it’s beyond us to understand the banking business. And so, it’s — we look at businesses in that area. Charlie?

CHARLIE MUNGERNothing to add.

Buffett always plans to write a book "six months from now"

WARREN BUFFETTOK. And do we have zone 2?

AUDIENCE MEMBERLarry Myers from Omaha. Warren, two quick questions, the first one very brief. Do you have any timetable regarding when you will write your own book about your career and philosophy?

WARREN BUFFETTYes, my timetable's always been six months from now. (Laughter) The answer on that is I've thought about doing it a few times, and I think about it. It always seems to me there's way more interesting things yet to happen than have happened so far, and I don’t want to — I know I won't write a second one, so I keep postponing it. That's my rationale on it, anyway.

Coca-Cola "doing exactly the right thing" with its cash

AUDIENCE MEMBERThank you. Second question concerns dividends. Last Friday night, by coincidence, on Louis Rukeyser's weekly television show, the special guest was Philip Carret. And Mr. Carret made the statement that his favorite American stock is Berkshire Hathaway. And one of the major reasons he stated was that, "Berkshire has never paid a dividend, as we all know," and consequently, you had superior utilization of the extra cash. Now, if you extend that reasoning, could it also be a beneficial policy if Coca-Cola and Gillette stopped paying dividends and utilized the cash in other ways?

WARREN BUFFETTWell, it depends what they could use the — how they would use — utilize the cash, what they could use it for. Those are more focused enterprises than Berkshire, at least in terms of products. And they — I think — I commend managements that have a wonderful business for utilizing cash in those wonderful businesses, or in businesses that they understand and that will also have wonderful economics, and for getting the rest of the money back to the shareholders. So, Coca-Cola, in my book, is doing exactly the right thing with its cash when it both — when, A, it uses all the cash that it can, effectively, in the business to expand in new markets and all of that sort of thing. But then beyond that, it pays a dividend which distributes cash to shareholders, and then it repurchases shares in a big way, which returns cash on a selective basis to shareholders, but in a way that benefits all of them. So, we — you will benefit from us not paying dividends just as long as we can use the — every dollar we retain — to produce more than a dollar of value, and of market value over time. Whether we can continue doing that, you know, how long we can continue doing that, I can't promise you, but that is the — that’s the yardstick by which the decision is made. And that is the yardstick, I think, by which Coca-Cola's making the decision, too. And I think that they deserve great credit for exercising the discipline to quit when they — using cash — when they've run out of the opportunities to use it well, and then to use it — then to further deploy it advantageously by repurchasing shares. I think one of the things I admire about my friend, Bill Gates, he’s got 4 1/2 billion of cash in Microsoft, and very few managements can stand having 4 1/2 billion of cash and not doing something unintelligent with it. So far, it's made sense for us to retain everything we earn, and I think it'll make sense for a while longer, but it may not make sense indefinitely. Charlie?

CHARLIE MUNGERI hope it lasts a long time. (Laughter)

Why is Wall Street compensation so high?

WARREN BUFFETTZone 3?

AUDIENCE MEMBERMy name is Dan O'Neil from Santa Fe, New Mexico. And I would ask — like to ask you a more specific question about Salomon Brothers, which is, why do we pay our employees there so much?

WARREN BUFFETTWhy what?

AUDIENCE MEMBERWhy do we pay our employees there so much money? The conventional theory seems to be that there's just a different pay scale on Wall Street than the rest of the world. And it's based on the idea that traders are smarter than — that some traders are smarter than others, and, in some supernatural way, are able to receive signals that the future is sending back to the present. And how do we know that that isn't just an urban legend like alligators in the New York City sewers? Another theory would be that the large amount of shareholders' capital allows the traders to capture inefficiencies that are in the market in the same way that the house does in Las Vegas. I mean, if we owned a casino, it wouldn't make any difference if we hired Albert Einstein or Forrest Gump to run the blackjack table, and we would pay them the same. And I wonder which theory you think is closer to the truth.

WARREN BUFFETTWell, you put it well. (Laughter and applause) In the end, of course, you end up paying at a, what you think, at least, is a market rate. And to some extent, the market tests you out by whether people leave because they can get a higher rate. But the limiting factor on that should be that you pay them a market rate as long as you are getting a market rate on capital. But it's harder to measure the market rate on capital in a short period than it is to measure the market rate on compensation. So, the — a good many of the people that have left — but far from all — have left because they felt that they would obtain — presumably — because they would obtain greater compensation elsewhere. The market was working in that way, just as it works in entertainment that way and it works in the athletic field that way. And whether it — when it works that way, it leaves a return for capital that's adequate, is an open question. I mean, I haven't looked at the figures on all the baseball teams, but I've seen some of them. And certainly, in some of the smaller markets, I mean, the books were not phony. I mean, it is very hard to pay market rates for ballplayers in Kansas City and still make money running a ball team, where you've got a smaller television market and all of that of the big cities. So, in the end you're going to have to pay market rates to retain people, but part of that will also depend upon the period over which they measure their — what they are going to be paid. I mean, if you want to look at Goldman Sachs last year, they were paid nothing. Does that mean that everybody will leave because they can get paid something someplace else? No, because 80 percent of the partners, or 90 percent of the partners, have a longer time horizon than that. And they have an anticipated earnings figure in mind when comparing it with what they're being offered elsewhere. If you have a situation where market rates, you know, exceed the earning capacity of the business, then at some point, capital will flow away from the business. In the airline industry, which I use as an example, the market rate — most — well, the — in terms of the bigger airlines, people are not being paid market rates, they're being paid contractual rates. Well, you can't blame anybody for that. If you have a contract that entitles you to X and the current market is a half of X, you're going to hang onto that contract very aggressively. And like I say, you don't blame anybody for that, it's just if you end up in that condition, though, you've got a real problem. And if you have the same problem that you have if the market is higher than — or a similar problem — the one you have if the market is higher than one that you can sustain in your own business. My guess is that there — that, in effect, Salomon has put in a more Goldman Sachs-like system because, essentially, it created, to a degree, a partnership within it. That — To have that work, A, over time, the partners have to earn good money or it won't work, but, B, you have to have people that have a partnership mentality in it. And if you change from one culture to another, you are not going to get a hundred percent acceptance of any new system. Charlie?

CHARLIE MUNGERYes, it was kind of a bad break to put in a new compensation system and then have a very bad year. In the very nature of things, people are going to blame the compensation system subconsciously. And then, two, I think that Wall Street generally has more envy-jealousy effects than are typically present elsewhere.

Buffett on the "real" advantage of being rich

SPEAKERI have a friend whose grandmother used to say that she couldn't understand why people got into envy-jealousy, because it was the only one of the sins that you could never possibly have any fun at. And — (Laughter) But generally speaking, on Wall Street I think a lot of people have had the wrong kind of grandmothers. (Laughter and applause)

WARREN BUFFETTYeah, I've commented from time to time that — what's his name? Robin Leach has it all wrong on “Lifestyles of the Rich and Famous,” because he's presenting all these wonderful things that will happen to you if you get rich. But they really aren't that all that wonderful, these fancy houses and boats and all that. The real advantage of being rich, as I explain to people, is that it enables you to hate so effectively. That if you're terribly rich, you know, and — but your brother or whomever, cousin or somebody, is getting a little more attention in the world or something of the sort, you can hate in a very major way. You can hire accountants and lawyers to cause him all kinds of trouble. If you're poor, you just snub him at Thanksgiving and don't show up or something of the sort. (Laughter) But I've noticed that these rich people, particularly when they inherit great amounts of money, sooner or later they start — frequently — they get very antagonistic toward siblings, or cousins, or whatever it may be. And they really can — they can hate in a way that — or get envious in a way that the rest of us really can't really aspire to. So, that's the benefit that hasn't appeared on Robin Leach lately, but I — But you see that — you see a little of that in the athletic field and the entertainment field, and perhaps even on Wall Street, that making a million dollars a year looks great until this guy that sits next to you that can't possibly be as smart as you is making a million-two. And then the whole world, it turns into a very unfair place. (Laughter)

"It's never a policy of ours to hold a lot of cash"

WARREN BUFFETTZone 4?

AUDIENCE MEMBERGood afternoon. My question is simply about the cash and cash equivalents that are shown on the balance sheet this year versus last year. In my thinking, cash equivalents is always something good to have around in case of a big market drop, being able to make opportunistic buys, as I know you've referred to "Mr. Market" getting manic-depressive at times. Is there something that is less than obvious here that I'm not seeing? Or is the position not there now, should that happen in the marketplace?

WARREN BUFFETTCash at Berkshire is a residual. I mean, we would like to have no cash at all times. We also don't want to owe a lot of money at any time. But we — if we have cash around, it's simply because we haven't found anything we like to do, and we hope — always hope —- to deploy it as soon as possible. We never are thinking about whether the market's going to go down or something of the sort, or whether we might buy something even cheaper. If we like something, we'll buy it. And when you see cash on our balance sheet of any size, that's an acknowledgement by Charlie and me that we have not found anything, in size anyway, attractive at that point. It's never a policy of ours to hold a lot of cash.

Newspaper business is "exceptionally good," but not as good

WARREN BUFFETTZone 5?

AUDIENCE MEMBERDavid Winters, Mountain Lakes, New Jersey. I'll stand up. David Winters, Mountain Lakes, New Jersey. Years ago, you said you loved the newspaper business and then, over time, I guess, it — said it declined a bit in how much you loved it. And I'm kind of wondering how you feel about it now, and if you can prognosticate a little bit for us at all?

WARREN BUFFETTWell, I used to love it in two respects. I loved the economics and I loved the activity, both. The activity — the love of the activity has not diminished. The economics are still exceptionally good compared to virtually any business in the world. They aren't quite as good as they were 15 years ago. So, they have — I wrote about that a couple of years ago, whereas what was — seemed almost the most bulletproof of franchises is still an exceptionally good business, but it isn't quite as bulletproof as might've been the case 10 or 20 years ago. I still think it's about as interesting a business as there is in the world I’m in. But if you're talking pure economics, the — I can't think of many other businesses that, if I just owned one asset over my life, that I would rather own than a newspaper in a single-newspaper town. But I wouldn't have quite the feeling of absolute certainty that I had — that I would've had 10 or 15 years ago. Charlie?

CHARLIE MUNGERYeah, I think it's obvious, I — the newspaper proprietors are getting a touch of paranoia for the first time. I mean, they worry about the electronic revolution, they worry about the fact that young people, you know, don't read. It's not as much fun going to newspaper conventions as it used to be.

WARREN BUFFETTThey're still making exceptional money. I mean, that's the interesting thing.

CHARLIE MUNGERAh, but they — I've heard you say a dozen times, "People don't seem to care what floor they're at, just whether the elevator is going up or down."

WARREN BUFFETTThat's right, that is true. (Laughter) People feel better when they're on the second floor of an elevator that's just come from one than they do when they're on the 99th floor coming down from a hundred, there's no question about that. They have this projection. And of course, it's particularly the case where they've been in a business where the money — the profits — were automatic, because they start thinking about, you know, questions of whether they really have the ability to make a lot of money, absent this favored position. And that's not something they've had to dwell on before. So, it can make them uncomfortable. They're all screaming about newsprint prices. We'd probably scream about them a little bit, too. I mean, if you compare being in the newsprint business over time to being in the newspaper business, I mean, it's a joke. And newsprint prices, if you — you can graph them from any point, you know, 15 or 20 years ago, or 10 years ago, and the price of the newspaper, the price of advertising has gone up more. I mean, it is interesting to hear them yelling foul, because they have moved a lot in the last 12 months and they'll move some more in the next six months. But believe me, it's better to be in the newspaper business than the newsprint business.

Buffett's semi-hostile takeover of Berkshire

WARREN BUFFETTZone 6?

AUDIENCE MEMBERMr. Buffett, my name is Liz Pruce (PH), I'm from New York City. I was wondering, on your acquisition criteria — I know part of that is that Berkshire Hathaway won't participate in unfriendly takeovers. I wondered how that philosophy may or may not apply to your role as a member of the board of several other companies.

WARREN BUFFETTThat's an interesting question. And I haven't been on the board of any company where the CEO has brought to the board the question of a hostile takeover. Can you think of anything I'm forgetting? No, and — but there's no rule that that can't happen. So, I don't know exactly what I would do if that came along. That's a very good question. I used to be — I used to have a whole different attitude on that. I mean, in effect — we actually — if you go back 40 years, we bought, in effect, control of companies. Well, in the case of Berkshire, Malcolm Chace, the chairman, was all in favor of us buying our stock in Berkshire. But Seabury Stanton, the president, would not have been in favor of it, and Seabury was the — was managing the business. So, it wasn't hostile, but Seabury would not have been in favor of it. It would — but Malcolm would've been. So, I don't know what the situation would be today if somebody walked in Gillette or Cap Cities, or someplace like that. I don't think it's going to happen, but I have not — I don't have any policy on it at this point. What do you think we'd do, Charlie?

CHARLIE MUNGERI don't think our behavior is totally predictable. (Laughter and applause)

WARREN BUFFETTAnd he's right. (Laughter)

Comparing investing styles of Ben Graham and Phil Fisher

WARREN BUFFETTZone 1?

AUDIENCE MEMBERYes, Neil McMahon (PH), New York City, also a Sequoia shareholder. Ben Graham investing encouraged turnover. Looking at Berkshire's holdings, concentration and long-term, are you still a 15 percent Phil Fisher and 85 percent Graham?

WARREN BUFFETTI don't know what the percentage would be. I'm a hundred percent Ben Graham in those three points I mentioned earlier, and those really count. I am very — I was very influenced by Phil Fisher when I first read his two books, back around 1960 or thereabouts. And I think that they're terrific books, and I think Phil is a terrific guy. So, I think I probably gave that percentage to — I think I first used it in Forbes one time when Jim Michaels wrote me. And I think I, you know, it was one of those things. I just named a number. But I think I'd rather think of myself as being a sort of a hundred percent Ben Graham and a hundred percent Phil Fisher in the points where they don’t — and they really don't — contradict each other. It's just that they had a vastly different emphasis. Ben would not have disagreed with the proposition that if you can find a business with a high rate of return on capital that can keep using more capital on that — that that's the best business in the world. And of course, he made most of his money out of GEICO, which was precisely that sort of business. So, he recognized it, it's just that he felt that the other system of buying things that were statistically very cheap, and buying a large number of them, was an easier policy to apply, and one that was a little more teachable. He would've felt that Phil Fisher's approach was less teachable than his, but his had a more limited value because it was not workable with really large sums of money. At Graham-Newman Corp — Graham-Newman Corp was a closed-end fund — oh, it was technically an open-end fund, but it had $6 million of net worth. And Newman and Graham, the partnership that was affiliated with it, had 6 million. So, you had a total pool of 12 million. Well, you could go around buying little machine tool companies — stocks in machine tool companies, whatever it might be, all statistically cheap. And that was a very good group operation. And he had — you have — if you own a lousy business, you have to sell it at some point. I mean, if you own a group of lousy businesses, you better hope some of them get taken over or something happens. You need turnover. If you own a wonderful business, you know, you don't want turnover, basically. Charlie?

CHARLIE MUNGERWhat was interesting to me about the Phil Fisher businesses is that a very great many of them didn't last as wonderful businesses. One of his businesses was Title Insurance and Trust Company, which dominated the state of California. It had the biggest title plant, which was maintained by hand, and it had great fiscal solvency, and integrity, and so forth. It just dominated a lucrative field. And along came the computer, and now you could create, for a few million dollars, a title plant and keep it up without an army of clerks. And pretty soon, we had 20 different title companies, and they would go to great, big customers like big lenders and big real estate brokers, and pay them outlandish commissions by the standards of yore, and bid away huge blocks of business. And in due course, in the State of California, the aggregate earnings of all the title insurance companies combined went below zero — starting with a virtual monopoly.

WARREN BUFFETTFrom what looked like a monopoly.

CHARLIE MUNGERSo, very few companies are so safe that you can just look ahead 20 years. And technology is sometimes your friend and it's sometimes your bitter enemy. If Title Insurance and Trust Company had been smart, they would've looked on that computer, which they saw as a cost reducer, as one of the worst curses that ever came to man.

WARREN BUFFETTYou can — it probably takes more business experience and insights, to some degree, to apply Phil Fisher's approach than it does Graham's approach. If you — The only problem is, you may be shut out of doing anything for a long time with Ben's approach, and you may have a lot of difficulty in doing it with big money. But if you strictly applied, for example, his working capital test to securities, you know, it will work. It just may not work on a very big scale, and there may be periods when you're not doing much. Ben really was more of a teacher than a — I mean, he had no urge to make a lot of money. It did not interest him. So he was — he really wanted something that he thought was teachable as a cornerstone of his philosophy and approach. And he felt you could read his books sitting out here in Omaha and apply — buying things that were statistically cheap, and you didn't have to have any special insights about business or consumer behavior, or anything of the sort. And I don't think there's any question about that being true, but I also don't think you can manage lots of money in accord with it.

Munger's sales of Berkshire shares

WARREN BUFFETTZone 2?

AUDIENCE MEMBERHi, Rob Pitts, shareholder from New York City. This is a question for Mr. Munger. I've noticed, in the insider sales activity sheets, that you've been a rather consistent seller of your Berkshire stock over the last few months. Wondered if you would comment on why you're doing this, especially in light of the prospective tax change in capital gains, where it might be reduced, which would obviously be beneficial to you and beneficial to Berkshire by reducing its deferred tax liability?

CHARLIE MUNGERI've given away a fair amount of Berkshire in the last couple of years and I've also sold some. I gave away the Berkshire because I thought it was the right way to behave, and I sold some because I had uses for the money. (Laughter and applause)

WARREN BUFFETTHe doesn't know anything I don't know. I (Inaudible) it's selling, I'd checked that, but — (Laughter)

When a company's accounting is confusing, stay away

WARREN BUFFETTZone 3? Charlie has a very high percentage of his net worth in Berkshire, as do I. Go ahead. I'm sorry, go ahead. I don't think it's working, quite —

AUDIENCE MEMBERHello?

WARREN BUFFETTOK.

AUDIENCE MEMBERHi, Gorem Pulich (PH) from New York City. I have a two-part question, first part very short. I think a lot of people have difficulty valuing businesses because of some convoluted accounting schemes that are out there. Do you have any suggestions, in terms of books, or something you can read, where you can sort of make sense of some of the accounting stories that are going around?

WARREN BUFFETTWell, that's a good question. Abe Briloff used to write for Barron's quite frequently on various accounting machinations, and Barron's has continued that somewhat. But you're right that there are people out there who will try to paint pictures with accounting that are something far from the economic reality. And sometimes, the rules of accounting themselves lead to that. I would say that when the accounting confuses you, I would just tend to forget about it as a company. I mean, it’s probably — it may well be intentional, and in any event, you don't want to go near it. I — we have never had any great investment results from companies whose accounting we regarded as suspect. I can't think of a one. Can you, Charlie?

CHARLIE MUNGERNo.

WARREN BUFFETTIt's a very bad sign.

CHARLIE MUNGERI made a short sale once that worked out well — (laughter) — in a case like that.

WARREN BUFFETTIt really — accounting can be a — accounting can offer you a lot of insight into the character of management. And I would say there’s a lot — you know, there’s a — you run into a fair amount of bad accounting. I used to call it creative accounting. And you'd probably run into a lot more, if it was allowed. But some companies have been able to push their auditors pretty far, and I would be very skeptical of anything that looks suspicious to you. I think there have been — there’ve been a couple of things written, but I can't think of where they've appeared, where people talk about the questions of, you know, what — Obviously, if some prepaid expense, deferred asset accounts start building up suspiciously high, and inventories look out of line, you know, with sales and, particularly, the trend of them and all that, you want to look twice at companies like that. Life insurance, you know, frequently, you know, we see weak accounting in. You can — when you don't have a product where revenues and expenses are being matched up on something close to cash in the short-term, you have the opportunity for people playing games with numbers. And some people have learned how to do that very well, and they've sometimes created long-lasting stock manipulation or promotion schemes that have enriched themselves, or they’ve enriched the managers or the creators of it, at the expense of the public, over time. If you ever get suspicious about accounting, just go onto the next company.

Lloyd's of London has slipped in recent years

WARREN BUFFETTZone 4?

AUDIENCE MEMBERYes. Miss Wasserman (PH) from Chicago. In order to understand the reinsurance business a little better, can you explain your relationship with Lloyd's of London in the marketplace, how you — which is probably the leader in the field? How often do you compete directly, or if you've ever done reinsurance business for them, since they've had losses in recent years, and how you see the industry changing as their economics changes?

WARREN BUFFETTWell, Lloyd's, which is not an insurance company, as you know, but a — well, originally it was a place — it was a coffee house, but people think what — it's a place where a large number of syndicates operate and congregate in a given physical location. And it's had a history for larger, more exotic risks over time. Lloyd's has lost its relative position to a fairly significant degree in the last 10 or so years, partly because — well, in significant part, because of bad results, which had the other effects of causing capital to withdraw and people who backed the syndicates to become unhappy. So, Lloyd's is still an important competitive factor in the reinsurance business and in certain specialized kinds of primary insurance. It’s a very — you know, it's very important factor. But it's not the factor it was 10 or 15 years ago. And I'm not sure how Berkshire's capital compares with the capital of all those syndicates at Lloyd's, but it's certainly changed in its relative importance in the last five or 10 years. And the ability of Lloyd's to attract capital with the problems they had has been diminished, although they're working on that problem. But we regard Lloyd's as a competitor just like we would regard any one of a number of reinsurance companies as competitor. But we also do business with a number of syndicates at Lloyd's, and we'll probably do a lot of business over the next 10 years with various syndicates. Charlie?

CHARLIE MUNGERYeah, Lloyd's is a very interesting institution because it had this reputation for integrity, what they paid off in — what, the San Francisco fire, and so on, and so on. But I would argue that 10 or 15 years ago, a lot of slop and folly got into Lloyd's, in certain syndicates particularly. And too many commissions coming off the top as the same risks circulated around the system. Too much fine tailoring and three-hour lunches with fine wines. And it wasn't right, and they got in a lot of trouble.

WARREN BUFFETTActually, in the history of Berkshire, the most significant insurance problem we ever had was in connection with Lloyd's almost — or certain syndicates of Lloyds — almost 20 years ago. And as Charlie said, they had this terrific reputation — behavioral reputation — over centuries. And I think that they coasted for a while on that. And we had a behavioral problem with — in one situation. And it was very expensive to us. So, we may have gotten an early lesson in what was coming. There are a lot of different syndicates at Lloyd's, and there are different people running them, and they have had different standards of behavior, to some extent. And people who assumed that, because they were dealing with Lloyd's, that they would have no problems of any kind have found out otherwise. But they will continue to be a major force in insurance, and they will get by their present troubles, and they'll probably come out of it better structured than they went in.

We'll keep a dollar if we can make more than a dollar of value

WARREN BUFFETTWas that zone 5 that we did there?

AUDIENCE MEMBERChristopher Jones (PH) from Scottsdale, Arizona. I had a couple of questions for you. You've mentioned several times today about the difficulty and the frustration that you both have in trying to find capable companies to acquire, or acquire parts of, in the United States. And I realize that, of course, when we own Coca-Cola and Gillette we are a part of the global environment. But it's surprising to me that there haven't been any global franchises or global managements that have been interesting to either of you that — and I realize, in the past we've owned some pieces of some. So, I was — questioned, because of the size of Berkshire now, might we see something more of a global flavor to the portfolio? And second question, you've also addressed the intelligent use of cash as something that you look for in management. Many management teams now are buying back their own shares because they can't find anything cheaper or better in the marketplace. Does your current philosophy of not buying back your own shares suggest that maybe you think Berkshire's overpriced at these prices?

WARREN BUFFETTWell, we have never bought back shares. I — we actually bought a few back in the '60s — but we basically have never bought back shares, although there were plenty of times when we thought it would be quite attractive to do it. But we've also felt that if we could create more than a dollar of market value by — and maybe well over a dollar of market value — by retaining a dollar, that on balance that that would work out better over time. As long as we can find ways to use the cash, which, overall, we feel will turn dollar bills into something larger than dollar bills, we will — we'll keep retaining the money. And we won't measure that on whether we can find anything this week or this month, but we'll certainly measure it based on whether we can find anything in a couple of years, always. We've had dry spells. Actually, right now, there's a little more going on than usual. But we've had dry spells a lot of times over a 20-odd year period. And you know, as I said, I wound up the partnership during one dry spell. So that — it will be measured — it's measured partly on what's going on now, and it's measured partly on the expectancy. And I don't think, whether our stock was selling at X or three-quarters of X right now, would make a lot of difference. But it would make a difference if we thought we couldn't find things to do with the money externally.

"Not too likely" we'll buy a business outside the U.S.

WARREN BUFFETTThe question about nondomestic operations, as you mentioned, we’ve got almost $8 billion in Coca-Cola and Gillette combined, and Coke has 80 percent-plus of their earnings from non-U.S. sources, and Gillette has maybe two-thirds or thereabout. So, you can argue that almost 40 percent of the net worth of Berkshire — 35 to 40 percent — is operating outside the United States, just in those two investments alone. In terms of buying a business outright, we don't preclude buying a non-U.S. domicile business. But it's not too likely that it'll happen. We'd like to do it, particularly if it were large and if we understood it. But are we as likely to get a fix on a Helzberg's of Europe as we would a Helzberg's in the United States? You know, I doubt it. I just don't know whether we would develop as much confidence in understanding the scene in which they operated, and understanding the management, and all that. But we might. It would have to be a pretty simple business, and it would have to be a business where we thought we really understood the moat for a long time. And it would have to be a business where we could establish a rapport with the management, despite coming from somewhat different backgrounds. It's not impossible, but I would say it's, you know, it’s less than likely. Charlie?

CHARLIE MUNGERI’ve got nothing to add.

Buffett: my growing fame isn't a distraction

WARREN BUFFETTZone 6?

AUDIENCE MEMBERHi there. My name is Lee Debroff (PH) from Morgantown, West Virginia. Ever since the Salomon debacle, it appears that you have attracted more and more media attention. In this regard, there have been numerous displays that would appear to be distractions from the actual business of investing. To wit, we have watched as you attended Bill Gates' wedding in Hawaii, and bought a personal computer, and now wear striking designer ties. (Laughter) And yesterday —

WARREN BUFFETTBill would've invited me to the wedding even if I hadn't have been at Salomon. (Laughs)

AUDIENCE MEMBERYesterday, we got those pennants during the rainout. A very serious question, now that you've become this media darling, how can you assure us that you're still keeping your eyes concentrated on the proverbial ball? (Laughter)

WARREN BUFFETTWell, I do get more mail than I used to, so we've developed a little more of a system on that. But I just — I do what I like to do. Just take speeches, I probably get asked to make, maybe, 20 times as many speeches as I would've been asked to make 10 years ago, but I make the same number. You know, I’ve got the — I’ve got my own selection process for what I do on that. And it’s the same way, you know, I'm invited to, you know, I don't know how many dinner tributes, et cetera. And you know, they basically — I don't change the way I — what I do, because I don’t want to change the way — If I wanted something else — if, while I was building Berkshire, that was being done to end up in some other spot, I’d have been there by now. And it just doesn’t change anything. It does change the volume of mail, but I’ve got that so that that is not a big distraction. Pardon me?

WARREN BUFFETTOh, I'll remain in Omaha. Yeah, there's no question about that. I mean, I — if I hadn't wanted to be in Omaha, I would have figured out ways to change, and it would have been very easy to change decades ago. I think it’s — we’ve got a lot of people here who aren't from Omaha, but that's their problem. I mean — (Laughter)

CHARLIE MUNGERI have been watching Warren for a long time, and people who are concerned that he will change have a huge appetite for needless worry. (Laughter)

WARREN BUFFETTThe odds that I will change are about as good as the odds that Charlie will change. (Laughter) The mail thing is a, you know, you wish you didn’t — that there was an easier way to handle it. But you essentially can't answer all the letters you get, it's that's simple. And that’s about the — once you get past that and get a form letter that takes care of it, that takes care of it.

Decline in GEICO's return on equity

WARREN BUFFETTZone 1?

AUDIENCE MEMBERYes. I'm Samuel Park (PH) from Tulsa, Oklahoma. My question is regarding GEICO. I noticed that, for the last five years, their return on equity has come down every year. Is this something that signifies change of a business, or just temporary things?

WARREN BUFFETTQuestion is about GEICO's return on equity?

AUDIENCE MEMBERYes.

WARREN BUFFETTYes. Well, it's true, it has come down to some extent. The — GEICO’s growth is, more or less, a function of, basically — I mean there's a natural rate of growth there. And the growth in capital has been greater than the growth rate in premium volume and in invested assets, so that achieving the same success on underwriting and achieving the same success on investments will produce a lower return on capital unless they buy in stock, which they have done fairly significantly. But that's limited by availability, too, but — It's a very good business. But it's not a business where, if you double the capital, you can double the earnings easily. Charlie?

CHARLIE MUNGERI have nothing to add.

No comment on Guinness investment

WARREN BUFFETTZone 2?

AUDIENCE MEMBERMy name's Mark Hake (PH) from Scottsdale. And I think your question — my question — about foreign equity investment was pretty much answered by the other gentleman. But I noticed that you had made an investment in Guinness in the past. And can you comment on that? Do you — is it still owned? And if not, why not?

WARREN BUFFETTWe don't comment on purchases and sales of securities or ownership, unless either we're legally required to, or they hit this threshold level where we report annually. And we move the threshold level up as our assets move up. We don't move it up as a percentage of assets. So that we used, as a cutoff this year, 300 million, I believe, of market value as to where we reported. Now, if we'd owned the same amount of Guinness — which I'm not saying that we did — but if we owned the same amount of Guinness on December 31st, 1994, it would not have hit that threshold as we had on December 31st, '93. It would not have hit that threshold. And we really don't want to get in the business where we are talking at all about what we're buying or selling. We get a lot of speculation on that, but it's of no use to Berkshire to be talking about purchases or sales. If we were acquiring a piece of land downtown and we bought a quarter of what we intended to buy, for example, we would not feel we were benefitted by a front-page story in the paper saying that we were acquiring land. And it — we are not in the business of giving investment advice, basically. We'll talk about our principles. So, the only conclusion you can come to about Guinness, or anything else that does not show up on our list at year-end, is that we did not own $300 million's worth at market value at that time.

Buffett's Berkshire shirt isn't available

WARREN BUFFETTZone 3?

AUDIENCE MEMBERYes, Mr. Buffett. My name is Don Bresca (PH), I'm from Boston, Massachusetts. Recently I've noticed you wearing an IZOD shirt with Berkshire Hathaway in the middle — there was a fist grasping cash. Is that the new insignia? And the second question is, is that shirt available to stockholders? (Laughter)

WARREN BUFFETTThe shirt is not available. That shirt was a gift from someone, and the shirt is not available to stockholders. But you can draw your own conclusions, the meaning of it. (Laughs)

No matchmaking for Mrs. B and Phil Carret

WARREN BUFFETTZone 4?

AUDIENCE MEMBERYes. I'm Lyle McIntosh from Missouri Valley, Iowa, about 25 miles up the road. And Warren, recognizing this is corn country, and I farm, and there's several other farmer shareholders, this meeting hits right in the middle of corn planting. Could you move it back about three weeks? (Laughter) And also, I noticed [mutual fund pioneer] Phil Carret was on “Wall Street Week” Friday night. I'm sorry I don't know his marital status, but if he is available have you thought about introducing him to Mrs. B. [Nebraska Furniture Mart founder Rose Blumkin]? (Laughter)

WARREN BUFFETTWell, Mrs. B., incidentally, was out working yesterday. I went out and dropped by to see her about 4 o'clock, and she was doing fine. She will be 102 late this year, and my guess is she will be working on her 102nd birthday as well. But I'll let Phil and Mrs. B. handle their own affairs, in that respect. (Laughter)

CHARLIE MUNGERHe's probably a little too young for her. (Laughter)

"We're open to buying anything"

WARREN BUFFETTZone 5?

AUDIENCE MEMBERWell, I'm Ken Donovant (PH), a Cincinnati investor. You've addressed the subject of your feelings about buying entire foreign corporations. I wonder if you'd say something about, or is Berkshire looking for opportunities to buy, we'll call them near-franchise companies, that might be based overseas — buying a stock interest or a part interest? And also, how do you feel about fixed-debt investments of overseas companies?

WARREN BUFFETTDebt investments, was that?

AUDIENCE MEMBERYes. Well, the first part was buying a stock investment rather than a whole company.

WARREN BUFFETTRight.

AUDIENCE MEMBERAnd the second part was debt investments.

WARREN BUFFETTYeah. Well, we're open to buying anything. When you say, are we looking at them, I've never been quite sure how we look at things anyway. I mean, they just seem to sort of pop up from reading or something of the sort. But we’re — it's less likely we end up doing it, for some of the reasons I've given earlier. But we have bought stock in companies that — aside from Guinness, that are domiciled outside of the United States. And we would have — we could conceivably buy debt instruments. We don't buy a lot of debt instruments anyway, so it'd be very unlikely. But we will do anything we think makes sense at Berkshire, that's compatible with the way we want to operate. And certainly, we don’t care where — the domicile is not that important. Charlie?

Helzberg has unusually good sales for jewelry retailer

SPEAKERWARREN BUFFETTL OK, zone 5, is it?

AUDIENCE MEMBERScott Spilcovich (PH), New York City. My question is regarding the Helzberg acquisition. Can you comment on things such as the acquisition price, your sales and profit expectations, and how much debt was on the books at the time of the acquisition?

WARREN BUFFETTThis is in reference to which acquisition?

AUDIENCE MEMBERHelzberg.

CHARLIE MUNGERHelzberg.

WARREN BUFFETTWell, we have not put out the figures on Helzberg's, and we won't be. But we evaluate — the sales have been published at about 280 million for the year that ended in February, and there'll be considerably more in the current year. But we have not put out the figures. I can tell you that, obviously, that we think that, in terms of the amount we are laying out in terms of shares and/or cash — we think, over time, that it's going to be a very decent acquisition. It's the same line of reasoning we've applied in other businesses. Retailing, as I mentioned earlier, is the kind of business where you have to stay smart over time, and we have a terrific manager, a fellow named Jeff Comment, who's going to be running it. And his record is extremely good, and I would bet the record would stay good. It earns good returns on invested capital or we wouldn't be buying into it. We always look for good returns on capital. And a lot of companies in the jewelry business do not get good returns on capital. I mean, it's not an industry that — where most of the participants are prosperous. It takes unusual sales per square foot compared to competitors to succeed in that, and we have one operation that does that in spades at Borsheims, and then a different type of operation that does it at Helzberg's. The typical jewelry store operation is not a very good business, but we think we've got two good operations. Charlie?

CHARLIE MUNGERYeah, we frequently find that owners of entire businesses have schizophrenia. They want to sell their business for a little more than it's worth, taking stock, so they don't have to pay taxes. And they want the stock to be the kind of — to be in a kind of business that will make just one dumb acquisition — theirs, and thereafter will guard the stock like gold, making no more dumb acquisitions. (Laughter) Needless to say, the world is not that easy. And I think over time, we've made acquisitions that were fair on both sides, and averaged out, they've worked well for Berkshire. And I think a company that behaves that way is giving the best long-term value to the private owner who wants to sell. You do not want to sell your business for stock to a firm that likes issuing stock.

Insurance float important in estimating intrinsic value

WARREN BUFFETTZone 6?

VOICEThat was six.

WARREN BUFFETTWhere do we have the mic? Oh, there. I don't think it's on.

AUDIENCE MEMBERCan you hear me now?

WARREN BUFFETTYeah, sure.

AUDIENCE MEMBERJack Glanding (PH) from Knoxville, Tennessee. I have a question which may not be appropriate for the officers of Berkshire to answer, but I think I'll ask it anyway. You focused on intrinsic value in your annual report, and you suggested that by reviewing the grey pages in the back that one could come up with a — possibly come up — with a value of intrinsic value for Berkshire. I've made an effort to do this, and I think I come up with a price-to-earnings ratio somewhere around 21, which seems to be a little overvalued. I'd like to ask you, Mr. Buffett, if you would care to divulge what you believe is the intrinsic value of Berkshire? And if you're not willing to do that, do you consider the price of Berkshire at this level to be fair?

WARREN BUFFETTI — every year I get asked that, in one form or another, and I always say that I don't want to spoil the fun for those of you who are working out the intrinsic value for yourself. You have all the numbers that we have that are key to it. And I would say that there are some important factors besides P/E. I mentioned earlier that I thought that the page where we describe float, for example, is probably as important a page as there is in the report. And then the question is, you know, what do you do with the capital as you allocate it over time? And obviously, that makes a difference in intrinsic value, too. But I would say in a general way that I — and this has been true virtually all of the time that — I think — I would say that the intrinsic value of Berkshire in relation to its — actually, I’ll put it the other way. The price of Berkshire in relation to its intrinsic value, I think, probably offers as much value as, or more, than the majority of stocks that I see. But I don't want to go any further than that. Charlie?

CHARLIE MUNGERI've got nothing to add. The — your story about the fun of working it out, though, there's a famous English headmaster who used to say to each graduating class, he said, "Five percent of you are going to become criminals, and I know just who you are. "But I'm not going to tell you, because I don't want to deprive your lives of a sense of excitement." (Mild laughter)

WARREN BUFFETTWe'll explain that later on. (Scattered laughter and applause) There is a lot more to — there's more to intrinsic value, as we've discussed earlier, than just adding up what you think you can sell the pieces for at any given time, because it is a prospective figure. It is future cash discounted back to the present. And capital allocation is a good part of that. What you expect the float to do, for example, over time, would not — that would lead to a large swing in possible numbers relative to value. I mean, if — when we bought National Indemnity in 1967, when it had whatever it had, 15 or 20 million in float, we didn't see it then. But if we could have foreseen the eventual development of float over time, it might have turned out that the intrinsic value of National Indemnity was many multiples of what most people might have thought at the time, and probably what we thought at the time.

Hagstrom book had "some effect" on Berkshire's stock price

WARREN BUFFETTZone 1.

AUDIENCE MEMBERRichard Ducheck (PH) from Melbourne, Florida. I have a two-prong question, first on the stock. As we all know, the first month this year we ramped up about 25 percent and then we pulled back, I guess, about 20. Just wondering your thoughts on that, if specifically you attribute that to the books perhaps, or institutional buying or, you know, what explanation you might have for that. And second —

WARREN BUFFETTI would say — I'll answer that first. I would say [Robert] Hagstrom's book ["The Warren Buffett Way"] undoubtedly had some effect on that. It's impossible to measure, but that book sold a lot of copies. And my guess is that that had some effect.

AUDIENCE MEMBEROK. More so than institutional buying? Because I’ve heard rumors like Fidelity and whatever were buying —

WARREN BUFFETTI can’t — I just don't know the — I don’t know how to separate out the variables, but I would say that the book was certainly a factor at that time, and it's unreasonable to assume that it had no effect.

CHARLIE MUNGERWell, a lot of the buying came in in odd lots, so —

WARREN BUFFETTA lot of odd lot activity, yeah.

CHARLIE MUNGERCertainly looked like book buyers. (Laughter)

Buffett doesn't understand Microsoft, despite his friendship with Gates

AUDIENCE MEMBERSecondary question, I'm an electronics engineer by profession. So, the technology sector is of prime interest to me, and I think we'll all agree, at least the last six to eight months has been phenomenal for the technology sector. And I also see that you're somewhat befriending Mr. Gates, inviting him into your house, et cetera. Is there a possibility down the road apiece of you doing some type of purchase of Microsoft, or acquiring that? Or is there something — (laughter) — you two could work out together?

WARREN BUFFETTI bought a hundred shares one of the day — first day — I met Bill, and that was the end of it. I just want to be sure I got his reports from that point on. This is personal, not in the — not in Berkshire. There's no chance we'll be in businesses we don't understand, and I won't understand it.

AUDIENCE MEMBERNo, you're quite clear on that. I just thought maybe there'd be an exception, because apparently —

WARREN BUFFETTWell, if you made an exception, he would be a good guy to make — a very good guy — to make an exception with. But I don't think I'll make an exception.

Business schools should study Mrs. B's success

WARREN BUFFETTZone 2?

AUDIENCE MEMBERMy name is (inaudible) from Arlington, Texas. Mr. Buffett and Mr. Munger, what possibility to use these two great minds for a long term in life, by either taking apprenticeship in Berkshire or open a school?

CHARLIE MUNGERI didn't follow that one. Warren, you handle it.

WARREN BUFFETTIs it a question of what —?

AUDIENCE MEMBERWhat the possibility of using these two great minds of yours to educate a new generation as a long-term investment in this country, either through apprenticeship in Berkshire for young people or open a business school?

CHARLIE MUNGERWell, let me try that one because I have a demonstrated record of nonperformance. (Laughter) I have had great difficulty enabling my children to know what I know. (Laughter) And Warren, maybe you have failed less. (Laughter)

WARREN BUFFETTMy children, in many ways, are a lot smarter than I am. So, I've had different experience, Charlie. (Laughs) No, I think you can — you know, I've mainly learned by reading myself, so I don't think I have any original ideas that — I’ve certainly got a lot — I mean, I've talked about reading Graham, I read Phil Fisher, and I've gotten a lot of ideas myself from reading. And in my own case, I mean, talk about your parents having influences, you know, my parents had an enormous influence. So, I think you can learn a lot from other people. In fact, I think, if you learn reasonably well from other people, you don't have to get any new ideas or do much on your own. You can just apply the best of what you see.

CHARLIE MUNGERGenerally speaking, I think we always get a group of wise people after sifting millions. But I don't think anybody's invented a way to teach so that everybody is wise. It's extraordinary how resistant some people are to learning anything. (Laughter and applause)

WARREN BUFFETTReally, what is astounding is how resistant they are when it's in their self-interest to learn. I mean, I was always astounded by how much attention was paid to Graham — I mean, he was regarded 40 years ago as the dean of security analysts —but how little attention was paid, in terms of the principles he taught. And it wasn't because people were refuting them, and it wasn't because people didn't have a self-interest in learning sound investment principles. It's just this incredible resistance to thinking or change. I mean, I quoted Bertrand Russell one time as saying — who said that, "Most men would rather die than think. Many have." (Laughter) In the financial sense, that's very true. It's not complicated. I mean, human relations, you know, usually aren't that complicated, but — and certainly it's in people's self-interest to develop habits that work well in human relations, but an amazing number of people seem to mess it up one way or another.

CHARLIE MUNGERHow much has Berkshire Hathaway been copied, either in investing America or corporate America? I'm not saying we deserve to be, necessarily. But people don't want to do it differently than they're presently doing it.

WARREN BUFFETTYou might argue that Mrs. B. [Nebraska Furniture Mart founder Rose Blumkin], having started what you may have seen out there this weekend, with $500 in 1937, you know, without a day in school in her life, and building that into a great enterprise, you might say, "Well, that is something to study." I mean, is it because she couldn't speak English when we got — you know, she got over? Maybe we can explain to people — I mean, what is there to learn from seeing somebody create an incredible success like that in a competitive business? She didn't invent something that the world had never seen before. She didn't have a lock on some piece of real estate that protected her from competition. You know, all of these — and yet, she accomplished something that virtually no one has accomplished. Now, why aren't business schools studying her? You know, why are they talking about EVA, you know, economic value added, as we talked about earlier? I mean, here is a success. Something has made her a success. You know, is it something — is it a 200 — and she's very smart — but is it a 220 IQ? No, it isn't. It's a very smart woman, but it's not something that's incapable of being replicated in the habits and the way of thinking. But who is studying her? I mean, they present her as a curiosity. But if you go to any of the top 20 business schools, you know, there's not one page that's being given to anybody to study what is an incredible success. And I just — I find that very interesting that — and to some extent, you know, I've seen it in the investment world. There's this — for one thing, the high — you know, it's probably a little discouraging to a professor of management at some major business school that has gone on to get his doctorate and everything, to think he has to come and hang around the Furniture Mart — (laughter) — study a woman in a golf cart, I mean — (Laughter) But you could — they'd be better off if they did.

Do what you like now, not later

WARREN BUFFETTWhere were we on that? What zone are we on, four, are we? Wherever it is. Zone 3 maybe, huh?

AUDIENCE MEMBERYes, thank you. I'm Jim Ludke (PH) from Phoenix, Arizona. And I haven't been to one of your annual meetings for about 10 years now. The last one was down at the Red Lion Inn by the water. And I congratulate you on your popularity.

WARREN BUFFETTThank you.

AUDIENCE MEMBERI wish I had bought more stock then. (Laughter) But like Charlie, I too, have been giving mine away for charitable purposes. So, your beneficial effects have reciprocated and rippled throughout the economy. I congratulate you.

WARREN BUFFETTNo, I congratulate you.

AUDIENCE MEMBERWhat do you think has changed — well, one thing is that Ben Graham — commenting on what you just said — I'm a student of Ben Graham, and he said it never ceased to amaze him how widely read he was and least followed. But how have you changed in the last 10 years? Much, if any? Or none at all? Or —

WARREN BUFFETTWell, we'll let Charlie — he's been watching me. (Laughter)

CHARLIE MUNGERI'd say about one stone. (Laughter) Takes one to know one. (Laughter)

WARREN BUFFETTIf we’d wanted to change, we would have changed a long time ago. I mean, I've never believed much in this theory of, you know, if I have 2X instead of X that I'm going to do this or that, or I'll take this job I don't like now, and I'll get one I like later on, or — It doesn't make that much sense to me. I mean, there aren't that many years around, so you ought to be doing what you like at the present time, and Charlie and I have always followed that pretty well.

"We let .400 hitters swing the way they want to swing"

WARREN BUFFETTZone 4?

AUDIENCE MEMBERPeter Borma (PH), Chicago. Every year, you have your operating companies send a check back to Omaha. What percentage do the heads of the operating companies keep as a bonus, and how do you set that figure?

WARREN BUFFETTWell, we have different bonus arrangements at different companies. It would be a big mistake, with businesses with as many different economic characteristics, or as varying economic characteristics existing, as they do at Berkshire, to try and have some formula approach that paid managers in all of these different businesses based on a simple formula of one kind. So, we have, I think, four businesses where they own a part of it. And we have varying arrangements with the various businesses. Some businesses, capital employed is unimportant. There simply isn't a way to employ a lot of capital. So, we do not have a capital charge, even, at those businesses. We don't believe in going through a lot of machinations if it's going to involve peanuts at the end. So, some businesses have a capital charge, some businesses don't have a capital charge. If they use a lot of capital, they're going to have a capital charge, is what it amounts to. Some businesses are easy businesses, some businesses are tougher businesses. So, we have different thresholds where things kick in based on that. We simply sit down and try and figure out, in the case of each business, what makes sense. And that usually isn't very hard to figure out. I mean, we want something that's fair. The best managers, we aren't going to change their behavior much by the compensation thing. We may a little bit, in terms of teaching them how we think about capital employed. But in terms of their enthusiasm for the business, imagination, and marketing, and all that, basically we usually buy businesses with those people in place. But it would be — A, it'd be wrong not to treat people fairly, and they would resent it if they weren't treated fairly, too, understandably. So we try to have a system that rewards the things that we want to have rewarded, and treats them fairly in a way that they understand they're treated fairly. And I don’t think we have any two businesses that have the same arrangement. They're different in each case. Incidentally, that applies in their policies, too. We don't get into — very seldom, I should say, maybe once or twice — but they have different arrangements in terms of compensating their employees. Some of our businesses have budgets, some of them don't. We don't have any budgets that come up to headquarters. We let .400 hitters swing the way they want to swing. And some of them, you know, have a little different swings than others, but overall, they're extremely effective. And they feel, and we want them to feel, like they own their own business. If they felt — if somebody that's independently wealthy sold us a business and we started telling them how to swing, they would tell us what we could do with it very quickly, because they don't need that in life. So, what we have to do is create a situation, or maintain a situation, where they are having more fun doing what they're doing than anything else they can do in life, and that's what's we're designing for. And then we have to treat them fairly in respect to that. Charlie?

CHARLIE MUNGERNothing to add.

"Foreign exchange baffles me, frankly"

WARREN BUFFETTZone 5.

AUDIENCE MEMBERRoger Hill from Racine, Wisconsin. Gentlemen, a little change of pace. Could we get your opinion on the present situation with international exchange? Do you think we have a dollar problem, or is — the Japanese have a yen problem?

WARREN BUFFETTWell, I'm going to let Charlie answer that. (Laughter)

CHARLIE MUNGERI have no comment. (Laughter)

WARREN BUFFETTThat's probably — that's a very good question, but the trouble is anytime I say, "That's a very good question," it's probably because I don't know the answer. And I — you know, I don't know the answer to that. Foreign exchange baffles me, frankly. I mean, you know, I think in terms of purchasing power parity, because that's a natural way to approach it. But purchasing power parity does not work very well as a guide to how exchange values will behave in any shorter, medium, or maybe even long term, because the world adapts in different ways. Sometimes it adapts by high rates of inflation to a sinking currency. Usually it does. It hasn't done that in respect to ours, but we're only sinking relative to a couple of other important currencies. I don't have a great answer for you on that, sorry.

We don't look for small stock bargains anymore, but they exist

WARREN BUFFETTZone 6?

AUDIENCE MEMBERHi, I'm Howard Winston (PH) from Cincinnati, Ohio. First, I wanted to thank you and Charlie for sharing your time with us today.

WARREN BUFFETTThank you.

AUDIENCE MEMBERMy question is, you've repeatedly said that you see many wonderful stock ideas but can't invest because they're too small. Given that many in the audience today have a lower dollar investment threshold — (Laughter)

WARREN BUFFETT"Do these stocks have names?" (Laughter)

AUDIENCE MEMBERYeah. Well said. (Laughter)

WARREN BUFFETTWell, the answer to that is that we don't look anymore. We assume that there are a reasonable number of opportunities as you work with smaller amounts of capital because it's always been true. I mean it was — over the years, as I looked at things, clearly, you run into companies that are less followed as you get smaller. And there's more chances for inefficiency when you're dealing with something where you can buy $100,000 worth of it in a month, rather than 100 million. But that is not because I am carrying around in my head the names of 25 companies that we could put 100,000 in. I just don't look at that universe anymore. I — Sometimes, people send me annual reports, or I get letters from managers and they say, you know, "I've got this wonderful thing." I look — I usually know ahead of time, but I mean, I would first look at the size. And if the size isn't right — and it isn't going to be virtually any time — I don't look any further, because there's just no time to be looking at all kinds of smaller opportunities. I do think, if you're working with very small amounts of money, that there almost always are some significant inefficiency someplace — to find things. I've mentioned to some people, when I started out, I actually went through all of the Moody's manuals and the Standard and Poor's manuals page by page. And you know, it was probably 20,000 pages, but there were a lot of things that popped out, and none of them were in any brokerage report or anything of the sort. They were just plain overlooked, and you had to — You could find out about them, but nobody was going to tell you about them. And my guess is that continues to be true, but not on anything like the scale it was then. Charlie?

Early Buffett cigar butt: Delta Duck Club

CHARLIE MUNGERWell, I can remember when you bought one membership in some duck club that had oil under it, when you were young.

WARREN BUFFETTYeah, that was a company called Atled —

CHARLIE MUNGERWhen you get down to one duck club membership, well, you're really scavenging for cigar butts. (Laughter) But —

WARREN BUFFETTNot a bad cigar butt. There were 98 shares outstanding. It was the Delta Duck Club. And the Delta Duck Club was founded by a hundred guys who put in 50 bucks each, except two fellows didn't pay, so there were only 98 shares outstanding. They bought a piece of land down in Louisiana, and one time somebody shot downward instead of upward, and oil and gas started spewing forth out of the ground. (Laughter) So, they renamed it Atled, which is Delta spelled backwards, which was — sort of illustrated the sophistication of this group. (Laughter) And a few years later, they were taking up — at $3 a barrel oil — they were taking about a million dollars a year in royalties out of the place. And the stock was selling at $29,000 a share, and it was earning $10,000 a share — No, it was earning about $7,000 a share after-tax, about 11,000 pretax, and it had about 20,000 a share in cash. And it was a long-lived field. So, you know, I use that sometimes as an example of efficient markets, because somebody called me and offered me a share of it, and those things, you know — is that an efficient market or not? You know, 29,000 for 20,000 of cash, plus 11,000 of royalty income at 25 cent gas and $3 oil? I don't think so. You can find things out there. I'll give you hunting rights on all my duck clubs in the future. (Laughter)

Secret to avoiding lawsuits: "You can't make a good deal with a bad person"

WARREN BUFFETTZone 1. Don't think the mic —

AUDIENCE MEMBERHow do Berkshire and Berkshire companies protect themselves against lawsuit-happy lawyers? And is it possible for American businesses to survive the financial and time-consuming costs of dealing with lawyers?

WARREN BUFFETTWell, that's a good question and we've probably had less litigation than any company, you know, with a $25 billion market value in America. But it’s, you know — we were sued one time at Blue Chip Stamps — what was it for, Charlie, and how many billion by some guy?

CHARLIE MUNGERLots.

WARREN BUFFETTYeah. It was — you know, there — you cannot protect yourself against lawsuits, and there are certainly a lot of frivolous ones we’ve — like I say, we have — it's not been a drain on our time or money — but particularly time — to date. And I think one thing you'd have to do is, if you ran into anything of that sort, you would not pay and you would make life as — try to make life comparably difficult for the other party as they made it for you. But that has not been our experience so far. Charlie?

CHARLIE MUNGERYeah. Well, I can tell an Omaha story on that one which demonstrates the Berkshire Hathaway technique for minimizing lawsuits. When I was a very young boy, I said to my father, who was a practicing lawyer here in Omaha, "Why do you do so much work for X," who was an overreaching blowhard — (Laughter) — "and so little work for Grant McFayden," who was such a wonderful man? And my father looked at me as though I was slightly slow in the head. And he said, "Charlie," he said, "Grant McFayden treats his employees right, his customers right, everybody right. "When he gets involved with somebody who's a little nuts, he gets up from his desk, and walks to where they are, and extricates himself as soon as he can." And he says, "Charlie, a man like Grant McFayden doesn't have enough law business to keep you in school. (Laughter) "Ah, but X," he said, "he's a walking minefield of continuous legal troubles, and he's a wonderful client for a lawyer." Now, my father was trying to teach me, and I must say it worked beautifully, because I decided that I would adopt the Grant McFayden approach. And I would argue that Warren independently reached the same approach very early in life. Boy has that saved us a lot of trouble. That is a — it is a good system.

WARREN BUFFETTYou can’t — yeah, we basically have the attitude that you can't make a good deal with a bad person. And you can — that means we just forget about it. I mean, we don't try and protect ourselves by contracts, or getting into all kinds of, you know, due diligence, or — We just forget about it. We can do fine over time, dealing with people that we like, and admire, and trust. So we have never — and a lot of people do get the idea, because the bad actor will tend to try and tantalize you in one way or another, and —you won't win. It just pays to avoid them. We started out with that attitude, and you know, maybe one or two experiences have convinced us, even more so, that that's the way to play the game.

Why there's just one Borsheims store

WARREN BUFFETTZone 2.

AUDIENCE MEMBERI'm Clarence Cafferty from Long Pine, Nebraska. I'd like to know if we can get another .400 hitter by starting another Borsheims store someplace in this United States.

WARREN BUFFETTWell, it's an interesting question about both the Borsheims and the [Nebraska Furniture] Mart. I mean, they — and of course, they're owned — as you probably know — historically, by the same family. I mean, it was Mrs. B.'s sister's family that bought Borsheims, but, in effect, started it virtually from scratch. And the — both of those institutions offer this incredible selection, low prices brought about by huge volume, low operating costs, and all of that. Operating multiple locations, you would get some benefit, obviously, from the name and the reputation. But you would lose something, in terms of the amount of selection that could be offered. There's $50 million-plus at retail of jewelry at Borsheims' one location. Well, when someone wants to buy a ring, or a pearl necklace, or something of the sort, they can see more offerings at a place like that than they possibly could at somebody who is trying to maintain inventory at 20 or 50 locations. Similarly, that gives us a volume out of a given location that results in operating costs that, again, can't be matched if you have an enormous number of locations. So, I think those businesses tend to be more successful in that particular mode as one-location businesses. Now, a Helzberg's will be bringing merchandise to people all over the country at malls. And they will do — through that mode of operation, they perform that exceptionally well. But Borsheims can’t be Helzberg's, and Helzberg's can't be Borsheims. They're both going for two different — in a sense, two different customers, to some degree. Sol Price, Charlie's friend who started the Price Club, the first big wholesale club, said that part of his success was due to figuring out the customer he didn't want. I think that's right, isn't it, Charlie?

CHARLIE MUNGERRight.

WARREN BUFFETTYou have to figure out what you're good at and who you really can offer something special to. Borsheims offers something very special to people, but in part, it comes about through being at one location. You can see more of almost any kind of jewelry you want there than you're going to see virtually any place in the world. And that will bring people there, or it will bring male people there. And that gives you operating costs that are many — oh, 20 percentage points — off of what somebody else will be doing without that pulling power. And that, in turn, enables you to offer the lower prices, which keeps the circle going. I mean, it's very hard to replicate something like that. And trying to do it in 10 spots probably wouldn't work well. But it's a question you ask yourself as you go along, obviously, when you — McDonald's certainly did well by deciding to open a second store. I mean — (Laughter)

Factors boosting reported return on equity

WARREN BUFFETTZone 3?

AUDIENCE MEMBERWarren, I'm Frank Martin from Elkhart, Indiana. You have written extensively on the subject of the immutability of return on equity for American industry, as a whole, being stuck in the 12 to 13 percent range. What forces do you see, since we're above the mean, to cause that number to regress to the mean over time?

WARREN BUFFETTYeah, it's true, it has been higher in the last few years. Although Fortune's got some interesting figures in the current issue, on the 500, that shows decade by decade what the return has been on the Fortune 500 group — which is a shifting group, of course. And it’s tended to stick, although I would say it was more between 12 and 13 than 11 and 12, probably, in that one. The return, to some extent, in certain business has gotten a big kick because they finally put the health liabilities on the balance sheet, and therefore reduced equity. So if you — anything you do that tends to pull down equity, if it doesn't change your ability to do the same sales volume — it's leveraged American business, in effect, by putting the health liabilities on the balance sheet. It may be wrong. It may be that business can earn 15 percent or so. But I think competitive factors tend to, over time, keep pushing that number down, somewhat. And 12 or 13, when you think about it, is not bad at all. I mean, it's a level, with 7 percent interest rates, that allows stocks and equity to be worth much more when employed in equity than elsewhere in the world. But if I had to pick a figure for the next 10 years, I would pick some figure between 12 and 13, but that doesn't mean I'd be right on it. Charlie?

CHARLIE MUNGERYeah. I think all of those published averages overstate what's earned anyway. They're the biggest companies, they're the winners, they're the ones whose stock sells at high multiples, so they can issue it to other people for high-earning assets. And many of the low-return people are constantly being dropped out of the figures. Now, you can say that was true in the past, too. But it would be remarkable to me if, on average, American business earned 13 percent on capital after taxes.

WARREN BUFFETTThose figures, incidentally — it isn't a huge item, but it's not totally insignificant. They don't show as a cost, for example, the cost of stock options. And the American shareholders pay that, so the American shareholder has not gotten the returns on equity shown by those numbers, although it's not a huge factor. But I wouldn't be surprised if it was, you know, two or three-tenths of a percent just for that one cost that's omitted. If you let me omit my costs, I can show a very high return on equity. (Laughter)

Return on capital at Berkshire subsidiaries

WARREN BUFFETTZone 4?

AUDIENCE MEMBERJeff Peskin (PH) from New York. And I have a question for you. It's really more of an observation, in that you've written about when you look at acquiring a business, you look a lot at how they allocate capital. And my question is, once you acquire a stake in a company, do you find that, just by the fact that you are helping doing the allocation of capital and doing the compensation, that that alone makes a company have a lot higher return? Or is there some benefit by the fact that you own, or some major shareholder, owns a big slug of the company that also allows a company to increase its return on capital?

WARREN BUFFETTWell, that's a good question. The answer is sort of, some of the time, some of the places. It’s the — There's no question, in a business that earns a high rate on capital, that doesn't have natural ways to employ that money within the business, that we actually may contribute significantly to the long-term results of that business by taking the capital out. Because if they don't have a place to use it, nevertheless, they might well use it someplace. And we have the whole universe to spread that money over. So we can take the money that's earned in some operating business and we can buy part of the Coca-Cola Company with it, and buy into another wonderful business, whereas very few managements probably would do that. So, there's an advantage there. Now on the other hand, Helzberg's, for example, will probably grow very substantially. They'll probably use all the capital they generate. Maybe they'll even use more. Well, they don't really need us for that. I mean, they would've done that under any circumstances. We may actually give them the ability to grow even a little faster because if a company — and this is not the — these are not the Helzberg's figures — but if a company is earning 20 percent on equity but can grow 25 percent a year, you know, they're going to feel equity strains at some point. And we, obviously, would love the idea of supplying extra capital that would earn 20 percent on equity. So, there can be some advantage to having us as a parent, in terms of sending capital to the business, as well as taking capital from the business. We also, I think, can be helpful in some situations, in that once we are there, a lot of the rituals — particularly in a public company — but a lot of the things that people waste time doing in business, they don't have to do with us. I mean, there's an awful lot of time spent in some businesses just preparing for committee meetings, and directors meetings, and all kinds of things like that, show-and-tell stuff. And none of that's needed with us. We won't go near them. And so, we really free them up to spend a hundred percent of the time thinking about what is good for the business over time. If they have extra money, they don't have to worry about what to do with it. If they need extra money for a good business, it'll be supplied. So, there are some advantages that way. And I guess — Charlie, can you take it any further?

CHARLIE MUNGERYeah. I think our chief contribution to the businesses we acquire is what we don't do. (BREAK IN RECORDING)

"Advanced math is of no use" in investing

AUDIENCE MEMBER— it's hard to continue to grow at the rate you've grown in the past because the company has gotten so big. And I'm wondering if you could elaborate a little bit on that. And my second question, which is totally unrelated, but I've also read where you're very good with numbers, with working things in your head. And I'm totally a rookie when it comes to economics and accounting and things like that, but I'm very good with numbers and keeping things in my head. And I'm wondering if there's some way a mathematician who knows very little about the business world, what I could read or what I could do to learn how better to invest and how you did that.

WARREN BUFFETTWell, going to the first question, when you say it's going to be hard — it's going to be impossible. I mean, now that's the answer. We cannot compound money at 23 percent from a $12 billion base. We don't know how to do that, and it would be a mistake for anybody to think that we could come close to that. We still — we think we can do OK with money, but we did not start with a $12 billion base. And we've never seen anybody in the world compound numbers like that, at that rate. So, we'll forget it — that part of it, but there are intelligent things we can be doing. The second part of the question, I don’t think any great amount of mathematical aptitude is — not aptitude, but mathematical knowledge is a — advanced math is of no use in the investment process. And understanding a mathematical relationship, sort of an ability to quantify — a numeracy, as they call it, I think that's generally helpful in investments because something that tells you when things make sense or don't make sense, or sort of how an item in one area relates to something someplace else. But that doesn't really require any great mathematical ability. It really requires sort of a mathematical awareness and a numeracy. And I think it is a help to be able to see that. I mean, I think Charlie and I probably, when we read about one business, we're always thinking of it against a screen of dozens of businesses — it's just sort of automatic, and — But that's just like a scout in baseball thinking about one baseball player against an alternative. I mean, you only have a given number on the squad and thinking, you know, "One guy may be a little faster, one guy can hit a little better," all of that sort of thing. And it's always in your mind, you are prioritizing and selecting in some manner. My own feeling about the best way to apply that is just to read everything in sight. You know, I mean, if you're reading a few hundred annual reports a year and you've read Graham, and Fisher, and a few things, you'll soon see whether it kind of falls into place or not. Charlie?

CHARLIE MUNGERYeah. I think the set of numbers — the one set of numbers in America that are the best quick guide to measuring one business against another are the Value Line numbers.

WARREN BUFFETTI'd agree with that.

CHARLIE MUNGERThat stuff on the log scale paper going back 15 years, that is the best one-shot description of a lot of big businesses that exists in America. I can't imagine anybody being in the investment business involving common stocks without that thing on the shelf.

WARREN BUFFETTAnd, if you sort of have in your head how all of that looks in different industries and different businesses, then you’ve got a backdrop against which to measure. I mean, if you’d never watched a baseball game and never seen a statistic on it, you wouldn't know whether a .300 hitter was a good hitter or not. You have to have some kind of a mosaic there that you're thinking is implanted against, in effect. And the Value Line figures, you know, they cycle it every 13 weeks. And if you ripple through that, you'll have a pretty good idea of what's happened over time in American business.

CHARLIE MUNGERBy the way, I pay no attention to their timeliness ratings, or stock ratings.

WARREN BUFFETTNo, none of that means anything. It's too bad they have to put that there, but that —it's the statistical material, not the —

CHARLIE MUNGERI would like to have that material going all the way back. They cut it off about, what, 15 years back?

WARREN BUFFETTYeah, but I save the old ones. (Laughter)

CHARLIE MUNGERYeah. But you know, I wish I had that in the office, but I don't.

WARREN BUFFETTYeah, we — Charlie and I — maybe even, I do it more — we tend to go back. I mean, if I'm buying Coca-Cola, I'll probably go back and read the Fortune articles from the 1930s on it or something. I like a lot of historical background on things, just to, sort of, get it in my head as to how the business has evolved over time, and what's been permanent and what hasn't been permanent, and all of that. I probably do that more for fun than for actually decision making. But I think it is — I think if you think about if — we're trying to buy businesses we want to own forever, you know, and if you're thinking that way you might as well see what it's been like to own them forever, and look back a ways.

Management made the difference for Wells Fargo

WARREN BUFFETTZone 6.

AUDIENCE MEMBERI'm Stewart Horejsi from Salina, Kansas. When you first bought part of Wells Fargo a few years back, I looked at it and I couldn't tell it was any better than any of the other banks. I think, now, anybody that would look at it can tell it's better than almost any bank. Now you've bought PNC Bank, and again, I can't see how it's distinguished from any of the other banks. (Laughter) What did you see in PNC Bank that made you select it over all the other banks that were available?

WARREN BUFFETT(Laughs) Well, we're not going to give any stock advice on that. So, I think that going back to Wells, it was very clear that, if you — I knew something about Carl Reichardt, and to a lesser extent at that time, Paul Hazen, from having met them and also from having read a lot of things they said. So, they were different — they were certainly different than the typical banker. And then the question was, is how much did that difference make, in terms of how they would run the place? And they ran into some very heavy seas, subsequently. And I think, probably, the difference — I probably think those human differences that were perceived earlier are what enabled them to come through as well as they did. But that's about all I can say on banks.

CHARLIE MUNGERYou know, you might add to that slightly, because that Wells Fargo thing is a very interesting example. They had a huge concentration of real estate lending, a field in which people took the biggest — It was the biggest collapse in 40 or 50 years in that field, so that if they had been destined to suffer the same sort of average loss per real estate loan that an ordinary bank would've suffered, the place would've been broke. So, we were basically betting that their real estate lending was way better than average. And indeed, it was. And they also handled it on the way down, way better than average. So, you can argue that everybody else was looking at this horrible concentration of real estate loans and this sea of troubles in the real estate field, and in bankers to the real estate field. And they just assumed that Wells Fargo was going to go broke. And we figured, no, that since their loans were way higher quality, and their loan collection methods were way higher quality than others, that it would be all right. And so, it worked out.

WARREN BUFFETTYeah, we couldn’t have told that — if we hadn't gone a little further, though, than just looking at numbers, we would not have been able to make that decision.

Nothing "magic" about a positive shareholders' equity

WARREN BUFFETTZone 1.

AUDIENCE MEMBERDavid Carr, Durham, North Carolina. Tambrands and U.S. Tobacco are two companies which are primarily single-focus product companies, that seem to possibly have some barriers to growth in unit sales and pricing, and have employed a strategy of returning cash to shareholders through stock repurchases. Both companies have, at times — when they thought the stock was at a discount to intrinsic value — used debt to accentuate the repurchases. Those companies recently have talked about problems with going into a negative shareholders — a negative stake to shareholders’ equity position — through the use of additional debt to repurchase more shares, at a time when both companies believe their stock's very cheap. And they appear to have the type of long-term cash flow that would at least allow that. Would you comment on the, at least, accounting treatment and the stated shareholders' equity, and if you think that should be a real concern for management in those areas?

WARREN BUFFETTWhat was the first company, besides U.S. Tobacco?

AUDIENCE MEMBERTambrands.

WARREN BUFFETTDo you want to?

CHARLIE MUNGERTambrands?

AUDIENCE MEMBERYes.

WARREN BUFFETTYeah, I don't think there's anything magic about whether shareholder equity is positive or negative. The — Coca-Cola has a shareholder equity of $5 billion. It has a market value of 75 billion or so. Now, they're not going to do it and I'm not going to recommend it, but if they were to spend $10 billion buying in their stock they would have a negative shareholders' equity of 5 billion. They would — their credit would be sound. I mean, if somebody else were to buy the company for 75 billion, they'd have 5 billion of tangible assets and 70 billion of intangible assets. And there is nothing magic about a company having a positive shareholders' equity. And it isn't done very often. And I can't even think of a case where it's been done, but it may have been. But I see no — I see nothing wrong with a company having a negative shareholders' equity, although it may be prohibited by the state in which they're incorporated, in terms of repurchasing shares at a time that would produce that. You'd have to look at the state law on that. But anytime a company in an LBO, or something, is bought out at some very large number over book value, in effect, they’re creating a negative— if they borrow enough money on it — they're creating a negative shareholders' equity, in terms of the previous shareholders' equity. And it's just a fiction, as to the numbers between the two organizations. You should buy in your stock when you don't have a use for the money. And that could be management specific. I mean, some managements might have a use for the money if their field of capital allocation were large enough, whereas another management that was more specialized in their own business might not. But once a company has attended to the things that are required or advantageous for the present business, we think reacquisition of stock is a very logical thing to consider, as long as you don't think you're paying more than the intrinsic value of the business in doing it. And obviously, the bigger the discount from intrinsic value, the more compelling that particular use of money is. Charlie?

CHARLIE MUNGERI’ve got nothing to add. Generally speaking, maybe Coca-Cola can have a negative equity, but I don't think it would be a good idea for General Motors. I think there is something to be said for a positive shareholders' equity.

Looking for winners in competitive credit card business

WARREN BUFFETTZone 3.

AUDIENCE MEMBEREdward Barr, Lexington, Kentucky. I had a two-fold question. Number one, you mentioned American Express earlier. And I was curious as to whether the fact that credit card usage is only 10 percent of all transactions, and that may continue to grow for some time going forward, was a factor in your decision? And the other part of the question pertains to the durability and permanence of the banking franchise with regard to alternative delivery channels that may appear over the next few years, including the possibility of the Microsoft/Intuit merger.

WARREN BUFFETTWell, the specific number you mentioned about credit card usage and so on, that's not a big factor with us. We think credit cards are both here to stay and likely to grow, to some extent. Although at some point you start reaching limits, at least in terms of outstandings [outstanding credit card debt] that people are — that make any sense. But the credit card field is a very big field. The question is, is who's got the edge in it? Because everybody is going to want to be in it, and they already are. And there are a lot of different ways you can play the game if you're in the credit card business. And you better have some way of playing one part of the game, preferably a large part. But you better have some way of playing one part of the game better than others or natural capitalistic forces are going to grind you down. I mean, it's a business that people are willing to change their minds about what they do in. I mean, if you offer somebody a credit card that gives them some advantages that don't exist on their earlier card, people are quite willing to shift cards. So, you need some kind of an edge in some particular segment of the market. So, the growth aspects overall of the market were not a big — are not a big factor with us. It's really a question of figuring out who's going to win what game, and who's going to lose what game. And what was the second question again on that?

Expect big changes in banking over next 20 years

AUDIENCE MEMBERThe second question pertained to the permanence and durability of the banking franchise.

WARREN BUFFETTOh yeah, sure.

AUDIENCE MEMBERAnd whether alternative delivery channels over the next few years may erode the durability of that, including the Microsoft/Intuit merger.

WARREN BUFFETTWell, that's a good question. You're certainly seeing the value of bank branches diminish significantly. It used to be a point of enormous pride with managements, in how many branches they had. And it was, you know, often political influence and everything else was called into obtaining branch permits. The world will change in banking, probably in some very major ways, over a 20 or 30-year period. Exactly what players will benefit and which ones will be hurt, you know, is a very tough question. But I would expect — I would not — I don't think I'd expect really significant change in banking over the next five years, but I'd certainly expect it over the next 20 years. And there are a lot of people that have their eye on that market, including Microsoft, as you mention. It may be to their advantage to hook up with the present players. I mean, I know it's certainly something that gets explored. But they may figure out a way to go around the present players, too. And that's one investment consideration. Charlie?

CHARLIE MUNGERYeah. The interesting player that went around the rest was Merrill Lynch. Merrill Lynch went heavily into banking with its cash management accounts. And I don't think it's the only innovation that'll come along.

WARREN BUFFETTWhat's the name of that book?

CHARLIE MUNGERYou know, I'd forgotten, that's a marvelous book.

WARREN BUFFETTYes, there's a great book.

CHARLIE MUNGERMaybe Molly remembers. What was that book you gave me? It was the history of the credit card.

WARREN BUFFETTWas it Joe Nocera's? Yeah, Joe Nocera was the author. I don't remember the title ["A Piece of the Action: How the Middle Class Joined the Money Class"]. But it came out about six months to a year ago. It's a terrific history of the credit card business. And if you read that you will get some idea of the amount of change that can occur in something like, you know, the movement of money. And my guess is that if there's another edition of it in 20 years, there'll be plenty more to write about. So —

CHARLIE MUNGERBy the way, that is a fabulous book. Most of the people who are here will not be able to put it down. I mean, for a book about an economic development, it captures the human background in a very interesting way.

No comment on SunTrust and PNC moats

WARREN BUFFETTIs it zone 4? That seems far away for zone 3. Yeah.

AUDIENCE MEMBERI was — Adam Engel (PH) from Boulder, Colorado. I was wondering if you could comment on the moat you see around the castles of SunTrust and PNC.

WARREN BUFFETTWell, I don't think I should comment on specific holdings like that. But — so I would say you would look at those in a general way very much as you'd look at banking operations first. And then you'd try and figure out what are the specific strengths or weaknesses of both organizations. But there, again, I don't want to spoil the fun for you. Charlie?

CHARLIE MUNGERNothing to add.

"Wiseass" comment on Salomon that Munger wishes hadn't occurred

WARREN BUFFETTZone 5.

AUDIENCE MEMBERMy name is Bob McClure (PH). I'm from the States but I live in Singapore. About a week ago, in the Asian Wall Street Journal, a remark was attributed to Mr. Munger, specifically that owning Salomon Brothers was like owning a casino with a restaurant in the front. (Laughter) The casino, eluding to the proprietary trading, and the restaurant, to the so-called client-driven business. If that attribution is correct or accurate can you — Charlie Munger: Well, I don’t think —

AUDIENCE MEMBER— elaborate on why you view the business in that way?

CHARLIE MUNGERI don't think it's entirely correct, but I have a pithy way of speaking on occasion. (Laughter) And I frequently speak in a way that works with an in-group, but wouldn't necessarily work everywhere else. And every once in a while, when you take one of those wiseass comments — (laughter) — out of context — why, I very much wish that it hadn't occurred. (Laughter) This was such a case. (Laughter and applause)

WARREN BUFFETTIt won't stop him in the future, though. (Laughter) Or me.

National debt isn't scary now, when compared to GDP

WARREN BUFFETTZone 6? Or are we in 5? Which one are we in? Kelly? Or —

AUDIENCE MEMBERMr. Buffett, I'm Randall Bellows (PH) from Chicago. And the two questions I have, since you're answering questions so far afield, are, if you were to look at the balance sheet of the United States of America, is the national debt as frightening as — that it appears to be? And secondly, in terms of redeployment of capital, if Coca-Cola is such a wonderful investment, as it returned so much, why not redeploy some capital in purchasing additional shares of Coca-Cola? And finally, thank you for letting Jane do that portrait of you. And if it's good, we'll do Mr. Munger next. Thank you.

WARREN BUFFETTFirst question about the U.S. balance sheet, it — the net national debt is about — it would be about 60-odd percent of GDP.

CHARLIE MUNGERWithout counting unfunded pensions.

WARREN BUFFETTYeah, but that's — but also with a claim on the income, in effect, of future citizens, which was an asset, too, that you could set up the — But that figure, I think, at the end of World War II, may have been — I know it was around at least 125 percent, may have been 150 percent or so, of GDP. So we have sustained — Now, the interest rate on that debt was much lower. A lot of it was at 2.9 percent because that's what savings bonds paid. But that level of debt, which I don't advocate in relation to GDP, turned out to be quite sustainable. And as a matter of fact, it drifted down year after year for a long time until the early '80s, when it started rising again. And now it's actually fallen a little bit in the last few years, the ratio of debt to GDP. There are a lot of measurements of how much debt is too much and all of that. But, probably, I think that if I had to look at one single statistic, I would look at that ratio, just like I would look at a ratio of debt to income for an individual. Then you'd get into the question of the stability of the income and to whom it is owed. But I do not think that the level of debt, relative to the economy, is of anything that's of a frightening nature. I like the idea of it trending downward a little bit over time rather than trending upward. And if it keeps trending upward, it can get awkward. Although, it’s — I think, in Italy, I think it's close to 150 percent now. And you start getting to 150 percent, and talk 8 percent interest rates, and you're talking 12 percent of GDP essentially going to interest. If you were to put a balance sheet of the country together, it's kind of interesting, because you would have this 4 billion of net debt on the liability side, and you'd also have a lot of pension obligations, as Charlie mentions, on the liability side. But you've got a lot of assets, too. You’ve got a 35 percent interest — profits interest — in all the American corporations. I mean, the government, if it has a 35 percent tax rate, really owns 35 percent of the stock of American business. They own a significant part of Berkshire Hathaway. We write them a check every year. We don't write you a check every year, but we write them a check. We plow your earnings back to create more value for their stock, in other words, the taxes they get.

CHARLIE MUNGERAre you trying to cheer these people up? (Laughter)

WARREN BUFFETTBut what would you pay to have the right, today, to receive all the future corporate tax payments made by all the companies in the United States, the discounted value? You'd pay a very big number. What would you pay to have a right to take a percentage of the income of every individual that makes more than X in the United States, and also the right to change your percentage as you went along? That's a very big number, too. (Laughter) So, you’ve got a very big asset there that — and you've got some very big liabilities, too. But the country is very solvent. And I would not like to see debt rise at any rapid rate. I wouldn't like to see it rise at all, but I wouldn't like to see it, particularly, rise at a rapid rate, because that sets a lot of things in motion, if it's rising as a percentage of GDP. But if you tell me that 20 years from now the national debt will be $10 trillion, but that it'll be the same percentage of GDP, does that alarm me? Not in the least. I mean, I expect it to increase and I think there's some arguments why — even, why it may be advisable to have it increase. But I don't think it's a good idea to have it take up more and more of your income, because that sets a lot of other things in motion. So, I welcome what's happened in the last couple of years, which is to see it decrease modestly from the trend that existed the previous 10 or 12 years. Charlie?

CHARLIE MUNGERWell, generally I think that you're right, that it isn't all bad. And to the extent that it is bad, a great nation with a capitalistic economy will stand quite a bit of abuse on the political side. It's a damn good thing, too, because — I don't think we should be terribly discouraged. If there's anything that's really going to do the country in it'll be what I call a "Serpico effect," where you start rewarding what you don't want more of, and it then just grows, and grows, and grows. But I don't think that's necessarily a bad fiscal result, it's just a bad result.

WARREN BUFFETTBerkshire owes 7 or 800 million — or whatever it is now, in debt, and we owe another 3 billion-some of float. You know, those numbers would've sounded very big to me 25 years ago, but — and yet we're one of the most conservatively financed operations you'll find. Ten years from now we may owe more money, and it may be a smaller percentage still. I mean, you can't talk about debt levels without relating it to the ability to pay debt. And this country is probably in better financial shape now than it was in 1947.

Coca-Cola as "measuring stock" to evaluate alternatives

SPEAKERZone 1. What, there was a second — was there a second question that I didn't answer on that? Or —

AUDIENCE MEMBER(Inaudible)

WARREN BUFFETTOh, in terms of repurchasing shares. Right.

CHARLIE MUNGERNo, you said, "Why don't we buy more?"

WARREN BUFFETTWell, we think about it.

CHARLIE MUNGERWe did, not long ago —

WARREN BUFFETTYeah, we did. We bought more last year, and it's not a bad measuring stick against buying other things. But there’s — I would not rule out Berkshire buying more. I don't have any plans to do it right now, but I wouldn't rule that out at all because it’s — if I'm going to look at another business I will say, you know, "Why would I rather have this than more Coca-Cola?"

CHARLIE MUNGERWell, there he is saying something that is very useful to practically any investor, when he said, "Use this as a measuring stick," in terms of buying other things. For an ordinary individual the best thing you have easily available is your measuring stick. If it isn’t — if the new thing isn't better than what you already know is available, it hasn't met your threshold, then that screens out, you know, 99 percent of what you see, and it's an enormous thought conserver. And it is not taught in the business schools, by and large.

WARREN BUFFETTNo, and that's why we think it's slightly nuts when big institutions decide, because everybody else is doing it, to put 4 percent of their money in international equities or 3 percent in emerging growth countries — some damn thing like that. I mean, the only reason to put the money in there is if they've measured against what they're already doing. And if they measure it against what they're already doing and they think it's a screamingly good idea to leave 97 percent in the other place and put 3 percent in, you know, I mean, it just doesn't make any sense whatsoever. But it's what committees are talked to about and what keeps investment managers going to conferences and everything, so —

CHARLIE MUNGERThey're deliberately using a technique that takes away the best mental tool they have. And you can say this is nuts, and you're right. And I think {German philosopher Friedrich] Nietzsche said it pretty well when he said he laughed at the man who thought he could walk better because he had a lame leg. I mean, they literally are blinding themselves and then they're teaching our children how to do this in our own business schools. Very interesting, don't you think? And all Warren says is, deciding whether to do something, just compare the best opportunity you have. If that one is better and you're not taking it, why would you do this just because somebody tells you you need 2 percent in international equities?

Buy Berkshire or let your money manager loose?

WARREN BUFFETTZone 1?

AUDIENCE MEMBERHi, my name is Mark Wheeler (PH), I'm from Portland, Oregon. And I have a few eggs in your basket. My grandmother always said, "Don't put all your eggs in one basket." I have a question, and I think you answered this a couple of years ago in one of your reports about Little Abner's investment approach. Suppose I had $100,000 and I decide to buy four or five more of your shares, and that was sort of a buy and hold thing for four or five years. And also I have a money manager — I've already got one — and he does pretty well – 10, 15 percent. But he churns the assets all the time. You know, every time I turn around all this mailbox full of paperwork. And I guess my question is, how can I arrive at which is a better deal for me? In other words, to buy Berkshire, which I like, and obviously I'm here, so I'm interested in it, or hang onto my money manager, who just seems to be churning the hell out of the account?

WARREN BUFFETTWell, it's better than having a broker churning the hell out of the account. (Laughs) He had a little less incentive if he's getting a management fee. But I can't answer your question as to which decision you should make in that case. But I would say that if — you're right, in the sense that, if you buy Berkshire, you should only think about buying it for a very long period of time. We have no idea what Berkshire is going to do, either intrinsically or in the market, in the next year. And you know, we care about the intrinsic part of it. We don't care about the market aspect. We do care about building intrinsic value. And you know, in the end, we don’t think — well, when we own Berkshire, we don't think of all our eggs being in one basket, I mean, because we have got a lot of good businesses. But if you're talking about some, you know, lightning from someplace, the huge liability suit or something like that hitting one corporate entity, we're one corporate entity. But if you think about it in terms of the business risk implicit in an entity, we have a lot of different good businesses. In fact, we probably have as decent a collection of good businesses as any company I can think of. But your money manager will also undoubtedly have the advantage of working with, probably, with smaller sums, too, and that gives him a bigger universe of opportunity. We're not set up, taxwise, perfectly, as compared to an individual working with their own capital. We're set up, taxwise, fine for somebody that's going to sort of own it forever. But we're not set up, taxwise, as well for somebody that's going to own it a year or something of the sort. Charlie? Anything?

CHARLIE MUNGERNothing to add.

"We like people who are candid"

WARREN BUFFETTZone what? Oh, back there. I don't think it's on. OK.

AUDIENCE MEMBERI'm Jeff Johnson (PH). I'm grateful to be here from Tulsa, Oklahoma. I have two questions. First, I was hoping you could explain, or offer an opinion as to why investors in property-casualty insurance companies are willing to accept traditionally below-average type of returns. Second question relates to an answer you gave me yesterday, that being that intuition or gut feeling has nothing to do in your — in making investment decisions. I was wondering if there is anything subjective in yours and Mr. Munger's assessment of whether or not you like someone, and how it is that you determine whether or not you like the lord of the castle?

WARREN BUFFETTWell. I don't know. Charlie, do you want to answer that second part?

CHARLIE MUNGERWell, we spoke about agency costs. And there are two different kinds of agency costs. One, the guy favors himself at the expense of the shareholders, and the other is he’s — he does foolish things. Or he's not trying to favor himself, he just is foolish by nature. Either way, it's very costly to you, as the shareholder. So, you have to judge those two aspects of human character, and they're terribly important. And on the other hand, there are some businesses so good that they'll easily stand a lot of folly in the managerial suite. And I — much as we like perfect people, I don't think we've always invested with them.

WARREN BUFFETTNo. But generally, we like people who are candid. We can usually tell when somebody's dancing around something, or where their — when the reports are essentially a little dishonest, or biased, or something. And it's just a lot easier to operate with people that are candid. And we like people who are smart, you know. I don't mean geniuses. But that — and we like people who are focused on the business. It's not real complicated, but we generally — you know, there may be a whole bunch of people in the middle that we don't really have any feeling on one way or the other, and then we see some that we know we don't want to be associated with, and some that we know we very much enjoy being associated with.

CHARLIE MUNGERAveraged out, we've been very fortunate.

WARREN BUFFETTVery lucky.

Difficult to get capital out of a sub-par business

CHARLIE MUNGERAnd your other question, you said, why is it that these investors accept below-average results? Well, in the nature of things, approximately half the investors are going to get below-average results. They didn't exactly accept it in advance. It's just the way it turned out.

WARREN BUFFETTAnd the money tends to be fairly captive, once it's in a company. I mean, it takes a lot — if you have a business that gets subnormal returns over time, there's a big threshold in terms of either a takeover, or a proxy fight, or something like that to unleash the capital. So, money that's tied up in an unprofitable business, or a sub-profitable business, is likely to stay tied up for a good period of time. Eventually something will probably correct it. But capitalism does not operate so efficiently as to move capital around promptly when it's misallocated. We are in a better position to do that when Berkshire owns a company. And obviously, we're in no position to do it — because it involves something we don't want to do — if we own it through some other enterprise. We just sell to somebody else who takes another — who takes our chair — at the table, in effect.

Focus on future, not current, earnings

WARREN BUFFETTZone 3?

AUDIENCE MEMBERHi, Philip King (PH) from San Francisco. I've got another question about valuation — more specifically, the relation of P/Es to interest rates. I understand that you don't want to lay down a rigid formula for valuation, but I also know that you don't want people to think that a multiple of 20 times earnings is cheap, or a multiple of five times earnings is expensive. So, Benjamin Graham, he devised a central value theory that valued the average stock at an earnings yield that's about a third above bond yields. In other words, that would work out to maybe 11 times earnings, currently. And I know that you've compared the average business to a 13 percent bond that's worth roughly book at 13 percent interest rates, and worth perhaps roughly twice book at 6 percent interest rates. So, given current interest rates of 7 to 8 percent, as they are now, that would tend to imply that stocks are worth perhaps 12 to 13 times earnings. And yet, the acquisitions that I've seen in the private market have gone out at more like 17 to 20 times earnings. And I'd like to know, what do you think is the rough range of multiples that make sense?

WARREN BUFFETTYeah. Well, it isn't a multiple of today's earnings that is primarily determinate of things. We bought our Coca-Cola, for example, in 1988 and '89, on this stock, at a price of $11 a share. Which — as low as 9, as high as 13, but it averaged about $11. And it'll earn, we'll say, most estimates are between 230 and 240 this year. So, that's under five times this year's earnings, but it was a pretty good size multiple back when we bought it. It's the future that counts. It's like what I wrote there, what Wayne Gretzky says, to go where the puck is going to be, not where it is. So, the current multiple interacts with the reinvestment of capital and the rate at which that capital's invested, to determine the attractiveness of something now. And we are affected in that valuation process to a considerable degree by interest rates, but not by whether they're 7.3, or 7.0, or 7.5. But I mean, we'll be thinking much differently if they're — long-term rates are 11 percent or 5 percent. And — but we don't have any magic multiples in mind. We’re thinking — we want to be in the business that 10 years from now is earning a whole lot more money than it is now, and that we will still feel good about the prospects of the business at that time. That's the kind of business we're trying to buy all of, and that's the kind of business that we try and buy part of. And then sometimes we buy others, too. (Laughs) Charlie?

CHARLIE MUNGERWe don't do any of that rigid formulaic stuff.

WARREN BUFFETTThere's a general framework, that you can call a formula, in our mind. But we also don't kid ourselves that we know so much about the specifics that we would actually make a calculation, in terms of the equation. When we bought Coke in '88 and '89 we had this idea about what we thought the business would do over time, but we never reduced it to making a calculation. Maybe we should, but I mean, it just — we don’t think there’s that kind of precision to it. We think it's the right way to think in a general way. And we think, if you try to — if you think that you can do it to pinpoint it, you're kidding yourself. And therefore, we think that when we make a decision, there ought to be such a margin of safety that it ought to be so attractive that you don't have to carry it out to three decimal places. We'll take a couple more and then we'll have to leave. We've got a directors — we have one directors meeting a year and we don't want to disappoint them.

USAir was mistake, despite five years of dividends

WARREN BUFFETTZone 4? (Laughs)

AUDIENCE MEMBERYes, I'm Roy Christian from Aptos, California. I wanted to ask one question about USAir, which has not been questioned much at this meeting. When you were on television talking about the losses there, it was funny how so many of my friends or, maybe, acquaintances came forward to tell me this piece of startling news. And, you know, I tried to stand up for you, a little bit. And at least —

WARREN BUFFETTIt was a mistake. (Laughter) You should've just taken a dive. (Laughter)

AUDIENCE MEMBERWell, at least I wanted to point out to them —

WARREN BUFFETTNo —

AUDIENCE MEMBER— that you did have dividends over a period of —

WARREN BUFFETTRight. AUDIENCE MEMBER — about five or six years, and that that money was reinvested, maybe at a better return than USAir. So, that it wasn't quite the disaster that was pictured on television when you spoke about it, or the impression that all my friends — or I should call them acquaintances — pointed out to me. Just a comment, I guess, is what I'm asking for.

WARREN BUFFETTYes. Well, you're right, it could've been worse. But it was a mistake. But we received five years, I guess — yeah, it'd be five years of dividends at a good rate while we got it. But it's like somebody says, "It isn't the return on principal that you care about, it's the return of principal." And we — But we're better off — we’re a lot better off, obviously, than if we'd bought the common [stock], and we're even better off than if we bought some other stocks. But it was still a big mistake on my part. But keep standing up for me. I need all the help I can get on this one. (Laughter)

Charlie’s and Warren’s book recommendations

WARREN BUFFETTZone 5?

AUDIENCE MEMBERHi, I'm Chris Stabru (PH) from New York. Charlie, in addition to the book that you mentioned on credit cards, are there any other books you have been reading that you'd recommend to us? And Warren, are there any books that you have been reading that you'd recommend? I know you're a fan of Bertrand Russell. Any favorite one or two of his books?

WARREN BUFFETTBeen a long time since I've read those, though. I mean, I read a lot of Russell, but I did that a — he hasn't written much in the last 10 or 15 years. (Laughs) Charlie?

CHARLIE MUNGERThere's a textbook which is called, I think, “Judgment in Managerial Decision Making.” And it's used in some of the business schools, and it's actually quite a good book. It's not spritely — it's not written in a spritely way that makes it fun to read, but there's a lot of wisdom in it. It's something like Braberman [Max Bazerman]. But it's “Judgment in Managerial Decision Making.”

WARREN BUFFETTSince taking up computer bridge, which is 10 hours a week, it's really screwed up my reading. (Laughter) It's a lot of fun, though.

Despite "awkward to disadvantageous" per share price, Berkshire won't split stock

WARREN BUFFETTZone 6? We'll take a couple more and then we'll —

AUDIENCE MEMBERYes. I am Dick Leighton from Rockford, Illinois. This is the first annual meeting that I've attended and it's been very beneficial to me. I've been extremely impressed with the number of people here, but even more so with the number of young people who have come. And I would like very much to be able to bring my grandchildren as shareholders, but I find it difficult to get shares into their hands with the current per unit value.

WARREN BUFFETTThat's the nicest introduction to the stock split question we've had. (Laughter) It really is, too.

AUDIENCE MEMBERI thought you would appreciate that. (Laughter) Obviously you understand the question. I understand the position you've taken over the years and the fact that it adds no value to make the split. In this case, however, it could be a tax savings to many of us who would like to get stock shares into the hands of other family members. Should I just go to work on my congressman to change the tax code, or would you consider a change? (Laughter)

WARREN BUFFETTWell, that's a very valid question. And there's certainly a couple of areas, one of which you've just mentioned. And I had someone else mention to me that they had their Berkshire in an IRA account. And now they were getting into the mandatory payment arrangement, and it didn't work well, in terms of using the Berkshire — although I think they could sell it and then pay out a percentage of it. There are certain aspects, primarily of gifting, where it is anywhere from awkward to disadvantageous to have the price per share on a stock that exists with Berkshire. And you know, we're aware of it, we've thought about it, and we’ve got our own personal situations even, sometimes, that are involved in that. I’ve got one in the family, which we've worked — figured out ways around. The disadvantage, of course, is that you saw a little even earlier this year of what a book ["The Warren Buffett Way"] can do. We want to attract shareholders who are as investment-oriented as we can possibly obtain, with as long-term horizons. And to some extent, the publicity about me is negative, in that respect. Because I know that if we had something that it was a lot easier for anybody with $500 to buy, that we would get an awful lot of people buying it who didn't have the faintest idea what they were doing, but heard the name bandied around in some way. And secondly, to the extent that ever created a market that was even — that was stronger — you then would have people buying it simply because it was going up. We got a little bit of that going on this year. There are a lot of people that are attracted to stocks that are going upward. It doesn't attract us, but it attracts the rest of the world to some degree. So we are almost certain that we would get — we don't know the degree to which it would happen — we are almost certain we would get a shareholder base that would not have the level of sophistication and the synchronization of objectives with us that we have now. That is almost a cinch. And what we really don't need in Berkshire stock is more demand. I mean, that is not — we don't care to have it sell higher, except as intrinsic value grows. Ideally, we would have the stock price exactly parallel to change in intrinsic value over time because then everybody would be treated fairly among our shareholders. They would all gain or lose, as the company gained or lost, over their ownership period. And anything that artificially stimulated the price in one period simply means that some other period's shareholders are going to be disappointed. I mean, we don't want the stock to sell at twice intrinsic value, or 50 percent above intrinsic value. We want the intrinsic value to grow a lot. And I don't think there's any question, but that we would get a worse result in that aspect if we introduce splits in, because then people would think about other possibilities that might give the stock a temporary boost. We — they had a tabulation in Businessweek a couple of months ago on turnover on the exchange. We were at 3 percent, and I don't think anybody was, that I saw on the list, was under double digits and bigger numbers. But those are people who are simply, you know, their shareholders leaving frequently, and new shareholders coming in with shorter-term anticipations. We have wanted this to be as much like a private partnership as we can have, with everybody having the ability to buy it. We don't think the minimum investment is too high to — in this investment world. I mean, there are all kinds of investment opportunities that are limited to 25,000 or 50,000, and that sort of thing. But the problem of making change, you know, in terms of gifts or — you know, that I wish I had a better answer for, because I think that is a —

CHARLIE MUNGERMy grandchildren pay me the difference between $20,000 and the current price. And I think that's a very reasonable way for them to behave, particularly when they are, sometimes, they're only six weeks old. (Laughter)

WARREN BUFFETTYou need a spouse's consent to make it — to work with 20, obviously. But most of the things can be solved, but I'll admit it isn't as easy to solve as if we just had a stock denominated in lower dollars per share. I do think that once you get a shareholder base that is — has got — that has different objectives or expectations or anything, you can't get rid of it. I mean, you can keep a shareholder base like Berkshire, but you can't reconstruct it if you destroy it in some way. And it's important to us who we're in with. I mean, it enables us to — I think it helps us in our operation. I think it even may — in some cases, it may even help us in acquisitions, in terms of who we attract. It may — for all I know, it may hurt us someplace, too, that I don't know about. But I don't think so, because I think we can design — particularly with a preferred stock — we can design something to satisfy somebody who might have in mind a different denomination of security.

CHARLIE MUNGERLook around you. Are we really likely to do a lot better? This is a good bunch.