2011 年股东大会 · 下午场

Two clarifications on David Sokol and Lubrizol

WARREN BUFFETTOK. If you'll all be seated. I can't see whether Ron Olson is in the front row or not. Ron, are you here? OK. Ron wanted to — well, we'll get you a mic. Because we're transcribing this and we want to get it all corrected, Ron has one point or two points that he wants to correct in terms of dates that I used. So we are going to give the microphone to him.

RON OLSONNot that they're all that telling, but I thought since we are creating a record, I wanted to clarify two points. The Berkshire law firm, namely Munger, Tolles & Olson worked with the Lubrizol counsel in pulling together what Warren described as Lubrizol's proxy describing the background of the transaction. We, as counsel for Berkshire, started to work on that gathering of facts pertaining to Berkshire's involvement, essentially David Sokol's and Warren's, during the week of March 15. Warren, in speaking to you about the facts this morning, I believe, placed the beginning of that work in the subsequent week. So I simply wanted to clarify that as we gathered the facts, and that gathering included several interviews of David Sokol during that week. Secondly, in describing internal policies at Berkshire to protect against misbehavior or negligent behavior, Berkshire maintains a — something that those in the trading business describe as restricted lists. And on that restricted list are any securities in which Berkshire is buying, selling, has a peculiar interest, and that prohibits any of the corporate officers or the top officers of the subsidiaries of Berkshire from participating in trades in those securities without the consent of the CFO, Marc Hamburg. That is what I wanted to clarify, Warren.

WARREN BUFFETTThanks, Ron.

Munger still bullish on electric-car maker BYD

WARREN BUFFETTOK. We'll move right along. And we're going to go to 3:30 and then we'll adjourn for a couple minutes, and then we'll go to the regular meeting.

WARREN BUFFETTCarol again leads off.

CAROL LOOMISWarren and Charlie, both of your expressed a very positive view of BYD and its chairman, Wang Chuanfu, when MidAmerican bought its stake in 2008. Does BYD remain as attractive a long-term investment now as it was when you acquired your stake? If so, why? Has BYD's recent pattern of unexplained product launch delays affected your confidence in the operation?

WARREN BUFFETTCharlie is the BYD expert, so I’m going to let him start on that one.

CHARLIE MUNGERWell, of course, the price is still way higher than the price Berkshire paid, and so almost by definition it's not quite as cheap as it was then. Any company that tries to move as fast as BYD does, and on as many fronts, is going to have various delays and glitches. But I would say I'm quite encouraged by what's going on, and I expect delays and glitches. They had trouble in the auto distribution, but they tried to double auto sales every year for six years, and it worked the first five times. (Laughter)

WARREN BUFFETTI have nothing to add. (Laughter)

Making money by trading oil is too hard

WARREN BUFFETTOK. Number 10.

AUDIENCE MEMBERHi, Warren and Charlie. My name is Catherine Brood (PH). I'm from Los Angeles, California. I invest primarily in commodities and commodity equities. I started out back 2007 buying oil. In the summer of 2008, we reached the peak of the oil bubble. That's when I reversed my holdings and started shorting oil. I made a nice profit. In 2009, I started buying oil again and oil equities, and I've been doing pretty well. But given the status of the world today and the price of oil, I'm questioning my investments. Is this another oil bubble? Has oil reached its peak? Should I keep my holdings? Should I short oil? Should I exit oil altogether and move into other commodities or other investments? So my question to you is, what your sentiments regarding oil?

WARREN BUFFETTWell, I would say you've done a whole lot better than we have. (Laughs) I think the crowd would rather hear from you. We actually did take a position in oil — I don't know how many years ago.

CHARLIE MUNGERA long time ago.

WARREN BUFFETTA long time ago.

CHARLIE MUNGERIt was $10 a barrel. (Laughter)

WARREN BUFFETTIt wasn't that long ago though, incidentally. That was in the 1990s, although we've seen oil a lot cheaper than that. East Texas Oil sold for a dime a barrel in 1932. The — we really don't know. I mean, obviously, you're dealing with a finite resource. I don't know whether the world is up to 88 million barrels or — it was down around 85 million barrels, but there's got to be some comeback, so I wouldn't be surprised if the current figure is getting pretty close to 88 million barrels a day. That's a lot of oil to take out of the ground every day. And, of course, there are — new frontiers have been found, but you are — you've stuck a lot of straws into the Earth, and it is a finite number. So, the one thing I can promise you is — almost promise you — is that oil will sell for a lot more someday. Interestingly enough, how many producing oil wells do you think there are in the United States? The answer is something like 500,000. You know, there's these stripper wells, there's wells out near Charlie that have been going for a hundred years.

CHARLIE MUNGERYeah.

WARREN BUFFETTBut we have looked in a lot of places now. And what's happening, of course, from the standpoint of United States companies, is that the smaller countries where oil is being found now are quite a bit smarter about how they grant their concessions than people were 50 or 75 or 100 years ago, so that they drive much more intelligent deals than was originally the case when we went exploring around the world. But I have no idea — you know, we — traditionally, BNSF had hedged a certain amount of oil and — because they obviously use huge quantities of diesel — and I suggested to them — although how they run the BNSF is up to them — but I really didn't think we could guess the price of oil. And I thought if we could guess the price of oil, we didn't need to run the railroad. I mean, it was a — took a lot of effort, time to run that railroad. And if we know how to make money just sitting in a room trading oil, why not do that instead? So I don't really — we don't hedge — well, in terms of Berkshire's parent company policies, we don't hedge anything in the way of commodities. Some of our subsidiaries do, and that's fine. They're responsible for their businesses. But there are very, very few commodities that I've ever thought I was going to — would know the direction of their movement in the next six months or a year. The one thing I'm quite convinced of, as we talked about this morning, is the fact the dollar will become less valuable over time, so that the dollar price of most things will go up, and maybe go up very substantially. Whether they go up enough so that you have the same amount of purchasing power after you pay tax on your nominal gains is another question. I really think that an intelligent person can make more money, over time, thinking about assets that — productive assets — rather than speculating in commodities, or for that matter, fixed dollar investments, but that's maybe my own bias. Charlie?

CHARLIE MUNGERWell, if we'd done nothing but oil from the very beginning, I'm confident that we would not have done nearly as well as we have. To me, that's perfectly obvious. So I think what we've done is much easier than what you're trying to do.

WARREN BUFFETTAnd we like easy.

CHARLIE MUNGERWe're not trying to make it any more difficult than we have to.

WARREN BUFFETTI really don't know any way to have an edge in that sort of activity. I mean, if you are going to try and figure out whether when to be long or short oil, or natural gas, or copper or cotton or whatever, I don't know of people who I feel would have an edge in trying to do that over the next 10 years. But I do know people where I think they'd have a very significant edge in investing in common stocks, and maybe distressed bonds, for that matter, too.

CHARLIE MUNGERYeah, trading oil worked best of all for the people who bribed Nigeria. That's not our milieu.

WARREN BUFFETTWell, that's an insight I hadn't heard before. (Laughter)

Clarification of the clarification on Sokol and Lubrizol

WARREN BUFFETTBecky? Oh, I got Ron here.

RON OLSONI wanted to clarify my clarification. (Laughter) Sounds like a lawyer, doesn't it?

WARREN BUFFETTIt sounds like a lawyer. (Laughter)

RON OLSONMarc Hamburg was concerned that when I spoke of our insider trading policy and mentioned that we had a restricted list, that it — somebody may interpret that as suggesting that Lubrizol was on that restricted list. It was not. What goes on our restricted list are securities that we have a position in that we publicly reported. So I just simply wanted clarify that point. Lubrizol was not on the restricted list.

"I'm going to have Charlie write the next press release"

WARREN BUFFETTOK. Becky?

BECKY QUICKCharlie, I've got several variations of this question, but this one comes from Peter Kerr (PH) in Waterloo, Canada. He says, “Could you please let us know a couple of the most important things you learned during the last year?”

WARREN BUFFETTI'll let Charlie go first. (Laughs)

CHARLIE MUNGERWell, I hate to admit this because I've ignored high-tech all my life, but I actually read that book "In the Plex" about Google, and I found it a very interesting book. And so here I am at my advanced age, and I find it interesting the way people have created these engineering cultures, which are quite peculiar and different from most of what we have at Berkshire. And will I ever make any use of this? I doubt it. But I certainly enjoyed learning it. And if I enjoy learning it, I regard it as important, because I think that's what you're here for, is to go to bed every night a little wiser than you were when you got up.

WARREN BUFFETTI'm just trying to hold my own, actually. (Laughs) What I learned in the last year is that I'm going to have Charlie write the next press release. (Laughter)

CHARLIE MUNGERWarren, I approved that damn press release with no objections. (Laughter) The Berkshire shareholders are going to be in terrible trouble if they're relying on me to fix your errors. (Laughter)

CEO should be left "dead broke" after a bailout

WARREN BUFFETTOK. Let's go to number 11.

CHARLIE MUNGERYeah.

WARREN BUFFETTGetting too close to confession time up here. (Laughter)

AUDIENCE MEMBERGood afternoon, Warren and Charlie. My name is Phil Drew (PH), and I'm here with my wife Tina and our good friends the Grummys (PH) and the Henriksens (PH). We're all from Indianapolis, and we're all small businesspeople. So we are not too big to fail. And our question, basically, is simply this: do either of you gentlemen think that we might be headed down the same type of path years from now when we get into a situation as taxpayers, that we might have to bail out a company on Wall Street that is too big to fail? And if so, have we done anything to avert that?

WARREN BUFFETTThere are institutions around the world that I think governments should properly — although people won't like it — but I think that there are institutions around the world that governments would properly — I think bailout has got a little bit of a pejorative term on it, in the sense that stockholders should not be saved, managers should not be saved — but certainly the institutions, in some cases, should not be allowed to collapse immediately. I mean, right now, we're continuing to follow that policy, for example, with Freddie Mac and Fannie Mae. I mean, they have not reconstituted themselves, as many of the banks and the auto companies. I mean, Chrysler is even paying back, which, you know, surprises me, but my hat is off to them, and I mean that sincerely. I was really on the fence on saving the auto companies, but I think the administration did the right thing. I mean, there were — they weren't saving the auto companies, per se, they were still working at saving a very fragile economy. And, like I say, particularly in retrospect, they certainly, in my view, made the right decision. There are — right now, you know, in Europe they're deciding whether countries are too big to fail. And so I think that problem will always be with us. I think for that reason that you have to do things to reduce the propensity to fail, and among those things, I think you have to make it so that the CEO, and to some extent the board — but not to the draconian degree that I'll suggest for the CEO — I think that any institution that requires society to come and bail it out for society's sake should have a system in place that leaves their CEO, basically, and his spouse, dead broke, because I think that the upside and downside incentives are vastly different. (Applause) And I think the board of directors of those institutions should suffer severe penalties. Nothing like that, but they certainly, you know, should give back, say, the last five years of directors’ fees or whatever it may be that they received. Because they — if you run an institution that actually needs — society can suffer such a blow if you fail — that society needs to come in and save you, you ought to have somebody running that institution, and you ought to have incentive practices in place that make it very, very, very painful to the people involved for the failure if it indeed happens. And you also ought to reduce leverage in the system, and I think we've gone, to some degree, in that direction. But there will be too big to fail institutions 10 years from now or 20 years from now. Right now Freddie Mac and Fanny Mae are sort of too big to figure out. We just sit there — and incidentally, here's nothing wrong with that. It's more important to come up with the right solution than it is to come up with an immediate solution on those. But particularly, I would say, in Europe there are banking institutions in countries that people are facing the question of whether they are too big to fail. Charlie?

CHARLIE MUNGERWell, my answer is that the past panics and depressions, by and large, started on Wall Street or in stock brokerages. They tended to involve great waves of excessive speculation and bad behavior in the people who were profiting from those waves as salesman, or market makers, or promoters or what have you. And I think that this last mess, which created so much danger, should have caused something like happened in the aftermath of the '30s, where we prevented a new mess for a long, long time, but, of course, it hasn't done that. And so I think you can confidently expect a new mess or two before you career is over, and I think it is really stupid for our country to have allowed this. Partly the failure is not one of evil, it's one of stupidity. And part of the stupidity is in our great academic institutions who believe a whole lot of things that aren't true. And that is a really hard problem to solve.

WARREN BUFFETTYou're talking about particularly in finance?

CHARLIE MUNGERYes, of course, and economics, too.

WARREN BUFFETTYeah.

CHARLIE MUNGERThose are not hard sciences, finance and economics. And finance really attracts people who should have gone into snake charming or — (Laughter)

WARREN BUFFETTIf there's anybody we've forgotten to insult, just pass a note up, and we'll get to you. (Laughter)

CHARLIE MUNGERYeah.

No Washington Post shares will be sold after board resignation

WARREN BUFFETTOK. Andrew?

ANDREW ROSS SORKINThis question comes from a shareholder based in Washington, DC, who has asked to remain anonymous. This person says, “Warren, in the past year you and Melinda Gates resigned from the board of the Washington Post. What does this say about Berkshire's intention to hold the Washington Post stock over the long term, and is this related to the problems at its for-profit education business, Kaplan?”

WARREN BUFFETTNo, I made this statement, actually, publicly, and they may have only run it in the Post, I'm not sure about elsewhere. But I made the statement that we would not be selling any stock, and it had nothing to do with that, that I'm a phone call away from Don Graham or anybody else at the Post, and they can just save a lot of directors fees and I can save a lot of travel if at age 80 I decide that I'd rather spend a few more days at Berkshire and less on the road. I am — we will not be selling any Post shares. Normally I won't comment about what we'll do on marketable securities, but I'll be unequivocal about that. And my enthusiasm for the Post itself and the management is 100 percent what it's always been, and I — I'm just available a lot cheaper than before if the Post management wants any advice. I don't think Melinda did it on the basis of age. You'll have to ask her. I really decided at 80 that I'd been there since 1974, with an interruption when I was at Cap Cities/ABC, and it's just a lot easier this way. Charlie, do you have any thoughts on serving on boards generally? Charlie is on the Costco board.

CHARLIE MUNGERWell, that's because I really admire Costco. And that's one of the pleasures of my life, is interfacing with those people. But that's the only one where we don't — where I don't have a big ownership interest. I think, generally speaking, serving on a whole lot of different boards is for the birds. (Laughter)

WARREN BUFFETTYeah. I agree. (Laughs)

Can't predict if Berkshire will outperform the Australian dollar

WARREN BUFFETTOK. Area 12.

AUDIENCE MEMBERGood afternoon, Mr. Buffett and Mr. Munger. I'm Marc Rabinov from Melbourne, Australia. As an investor from the Asian region, I am concerned that a weaker dollar will erode the value of my Berkshire stock. However, Berkshire is highly productive with real pricing power, so can I be confident that over the long term any fall in the dollar will be offset by a rise in the value of my Berkshire stock? And by that I mean in addition to any intrinsic growth in the underlying business.

CHARLIE MUNGERThe answer is no. (Buffett laughs)

WARREN BUFFETTIt would be a lot easier if you just had the Australian dollar go down. The Australian dollar was one of two currencies that we did own last year that contributed to the $100 million profit. But, no, I cannot tell you what policies will be followed in the United States and what policies will be followed in Australia that will — what they will be and how they will affect the relative value of those two currencies, say, 10 years from now. I think the movement could be quite dramatic, and I think it actually could be dramatic in either direction. That's why I don't know what to do. But the only promise you'll get from Charlie and me about Berkshire is that we do every day, as I said in the annual report, try to think about increasing the earning power and the intrinsic value of Berkshire. And to the degree we increase it, the shareholders will — or to the degree we decrease it — the shareholders will share in exactly the same proportion as Charlie and I do. We will — our interests are 100 percent aligned. We will make or lose money through our stock and luck, to some extent, will depend — will determine — how well we do. We know we can't do remotely as well in the future as we have in the past. There is no way to compound — there's no way we know to compound the kind of sums we're working with now at rates that are anywhere close to what we were able to do when working with much smaller sums. But you'll get our best efforts. Charlie?

CHARLIE MUNGERI can't add to that. Australia has these fabulous open pit mines, and at a time when Asia is just totally booming with its demand for metals, I can't tell you how Berkshire stock is going to perform vis-a-vis mines in Australia. I think we'll do pretty well compared to companies here in the United States.

WARREN BUFFETTYeah, I think so, too.

We're not neglecting the stock portfolio

WARREN BUFFETTCarol?

CAROL LOOMISThis shareholder wishes to be known only by his initials, AJ. The importance of Berkshire's equity portfolio has diminished other the past few decades. Today I view Berkshire's appetite for equity as an afterthought and instead see its focus as being on large acquisitions. Would you agree with this, and where do you see the equity portfolio going over the next five or 10 years?

WARREN BUFFETTWell, I prefer large acquisitions, but it's not an afterthought at all in terms of the portfolio. I mean, we — Charlie and I spend — well, we probably spend more time thinking about the portfolio because it's only occasionally that we get a chance to think about acquisitions that are sizable and that are available to us. So we are equally interested in both aspects of Berkshire's operations. But where we hope we really get lucky is in adding significant companies to what we have already, and having our — the companies that we already own — make various bolt-on acquisitions. We've had several of those already this year that you don't read about. A lot of our companies have the potential to do — to earn — considerably more money five or 10 years from now than they're earning now. So both the development of those businesses, which really resides with the managers — Charlie and I don't contribute anything on that — but we will — we spend as much time thinking about the portfolio as we ever did. And, you know, it's important. I mean, if you talk about $150-some billion in cash and marketable securities, the performance of that particular segment is going to have a lot to do with how well Berkshire does over time. Charlie?

CHARLIE MUNGERYeah, we'll always have a fair amount of marketable securities because of our insurance subsidiaries and — but as we get forced by our size into the bigger and bigger stocks, of course we're going to do less well than we did when we had a bigger universe of practicable things to consider.

WARREN BUFFETTA lot less well. I mean, it really is the nature of things. We are buying securities where we have to put billions of dollars in them in most cases, and that is not a field that is unlooked at by other analysts. So it's impossible to have a big edge. We hope we have a small edge.

CHARLIE MUNGEROn the other hand, when we were doing so well in marketable securities, nobody called us and said, I have a wonderful business, and you're the only place in the world where I would want to transfer it. And now that happens, what, a couple times a year at least?

WARREN BUFFETTYeah.

CHARLIE MUNGERAnd I really prefer, in some ways, this part of the game to the earlier game. It's more fun to create permanent partners doing constructive things than just outsmart other people and shuffling little pieces of paper.

WARREN BUFFETTIt's fun to do both, actually. (Laughter)

CHARLIE MUNGERYeah. Well, I don't see you holding back. (Buffett laughs)

"We have an unbelievable insurance operation"

WARREN BUFFETTOK. Let's go to the other room. 13.

AUDIENCE MEMBERHi, I'm Whitney Tilson, a shareholder from New York. Thank you for including in your latest annual letter such complete and clear valuation information regarding Berkshire. You stated that the operating earnings of the insurance businesses are excluded from your earnings table, and I know you said this morning that 2011 is going to be a break-even year at best. But in light of the disclosure in the annual report that Berkshire earned $17 billion in profit over the last eight years without a single money-losing year, are you being overly conservative? Don't you think the intrinsic value of your insurance businesses is more than just their float, especially GEICO, for the reasons you discussed this morning?

WARREN BUFFETTYeah, I'd agree with that, Whitney, but I — it's very hard to estimate, you know, what the normal underwriting profit might be — might be over the next 20 years or something of the sort. And so I agree with you. I don't know whether I'd call it overly conservative. I would say it's conservative to assume break-even underwriting. But as you — I mean, if we had another Katrina or something of the sort — and forget about, you know, winter storms in Europe and all that — I mean, we could lose significant money in underwriting this year, and we expect to lose significant money in underwriting, you know, maybe every fifth year, every tenth year, whatever it might be. But I think you're right in saying it would not be inappropriate to include some normalized underwriting profit in addition to the calculation that I made in the annual report.

CHARLIE MUNGERWhitney, let me help you by asking another question of Warren. Is there any other large casualty insurance operation in the world that you know of that you would trade for ours?

WARREN BUFFETTNot remotely — no, no. Nothing close. I mean, we — however we lucked into it, we've got — we have an unbelievable insurance operation. And, I mean, GEICO, you know, is fabulous. And, you know, if you think about — since 1936, the idea has been out there, but, you know, with all the strength that all the other companies had, and the agency plants and everything else, GEICO has now moved to where it's the third largest in the United States and gaining ground every day on the two ahead of them, and doing it very profitably. GEICO's combined ratio — GEICO had an underwriting profit of close to eight points, as I remember it, in the first quarter. Now that's going to be, probably, the best quarter of the year, I should add, but it's a marvelous business. Ajit [Jain] has built an insurance business from scratch in the reinsurance business, that, in many respects, you know, he operates all alone. He may not see a lot of transactions in any given period of time, but there are certain things, where if somebody wants huge amounts of insurance and a quick answer, or even a slow answer sometimes — we'll give them a quick one — there's really nobody else to call. It's a little like Charlie mentioned on acquisition opportunities. So he's — and he's done it. I mean, it didn't exist when he got there. Tad Montrose has got a magnificent operation at Gen Re. It had to get shaken out to quite a degree, but Tad has got a very, very disciplined business there. And then we have a group of smaller companies that some of them have some very unusual franchises. So there really — you know, I didn't have anything to do with it, so I can brag about these people, but they have really done a job in building an insurance company that I don't think there's anything like it.

CHARLIE MUNGERSome of you people that have been around a long time, you invested with an Omaha boy, and you ended up owning part of the best casualty insurance business in the world.

WARREN BUFFETTIf you go to 30th and Harney, you'll see a building there, National Indemnities. We paid 7 million for National Indemnity, a million-four for its sister company National Fire & Marine, and that's the same building that we operated out of in 1967, we're operating out of today. The only difference is that today it's got more net worth than any insurance company in the world.

CHARLIE MUNGERYeah, so we — it's not that great a business as a business, casualty insurance. It's a tough game. There are temptations to be stupid in it. It's like banking. (Laughter) And — but if you're in it, I think we've got the best one.

Why See's Candies does well in inflationary times

WARREN BUFFETTWith those modest statements, we'll move onto Becky. (Laughs)

BECKY QUICKThis question comes from Mark Jordan (PH) in Charleston, South Carolina. He writes, “In a period of high inflation, which particular businesses owned by Berkshire Hathaway will perform the best, and which will perform the worst and why?”

WARREN BUFFETTWell, the businesses that will perform the best are the ones that require little capital investment to facilitate inflationary growth and that have strong positions that allow them to increase prices with inflation. And, you know, we have a candy business, for example, and the value of the dollar since we bought that candy business has probably fallen at least 85 percent, I would say — 80 to 85 percent — and that candy business sells 75 percent more pounds of candy than it did when we bought it, but it has ten times the revenues and it doesn't take a lot more capital. So that kind of a business — any business that can — that has enough freedom to price to offset inflation and doesn't commensurate invest — or huge investment — to support it, will do well. Businesses like our utilities which get, in effect, a bond-like return but require — you know, if you're going to build a generating plant and it costs twice as much per kilowatt hour of capacity, and all you're going to get is a fixed return and yields on bonds go up, perhaps dramatically, to get high inflation, is not going to do that well in an inflationary period, just because it has certain aspects of a bond-like investment, and bonds generally are not going to do well in inflation. Charlie?

CHARLIE MUNGERWell, but like our insurance operations, our capital intensive railroad business is certainly one of the best railroads in the world. And our utility operations are certainly one of the best utility operations in the world. And so it isn't all bad to be up there, world class, in your main businesses.

WARREN BUFFETTOur railroad — the government has talked about building a high-speed rail system in California. I think they're talking about 800 miles of track, and their estimated cost was about 43 billion, and estimated costs on construction and things like that go up dramatically much more often than they get reduced even by a minor amount. And, of course, we paid 43 billion, counting debt assumed, for our rail system, which has 22,000 miles of main track and 6,000-plus locomotives, and 13,000 bridges, if you ever want to buy a bridge. So that — the replacement value of that asset during inflation already is huge and it would grow dramatically, and the world — our country will always need rail transportation. So it — it is a terrific asset to own, I'll just leave it at that.

"May you live until the A stock splits"

WARREN BUFFETTOK. Area 1 again.

AUDIENCE MEMBERI'm Martin Greenberger, UCLA Anderson School, where I work in disruptive technologies, not finance.

WARREN BUFFETTYou're forgiven. Go ahead. (Laughs)

AUDIENCE MEMBERMy friend Walt would like to know if Berkshire has been considering splitting its Type A shares, like it did its Type B shares, and if so, what are the pros and cons, in your opinion? And what would be the short-term and longer-term effects?

WARREN BUFFETTYeah. Well, in effect, we've already split it, you know, 1500-for-one by having the B available. And, you know, we have a situation where the company will never be sold, but if any transaction involves the A stock, the B shares are going to get treated exactly the same. So there's really no disadvantage to owning the B stock, except it has somewhat less voting power than the A stock. But in every other way it's the same instrument, and so we already have a split stock available. So I would tell Walt that he really should not count heavily on the A stock getting split. Charlie?

CHARLIE MUNGERYeah, Warren used to cheer up his old friends by telling them, may you live until the A stock splits. (Laughter)

WARREN BUFFETTAnd I would love to make that deal myself. (Laughs)

Buffett's best deal: hiring Ajit Jain

WARREN BUFFETTAndrew?

ANDREW ROSS SORKINThis question comes from Matthew Palmer of North Andover, Massachusetts. And he writes, “Mr. Buffett, you have praised [Berkshire Hathaway reinsurance chief] Ajit [Jain] as a possible successor. Since he may be in line as our next CEO, can you give us a concrete example of a policy that he's written that's impressed you, and can you talk a little about the way he thinks since we rarely get an opportunity to hear from him?”

WARREN BUFFETTYeah, Ajit is not exactly a publicity hound. Ajit — (laughs) — he — I can't think of any decision he's ever made that I think I could have made better. And I've — I'm not privy to all of his transactions anymore. There just — there are lots of them that are not of huge size or of great interest, but he tells me about all the interesting things that come along and all the very big things that come along. And I would say this: you'd be better off voting with him than with me after listening to any proposition he brings up. He is as rational a thinker as Charlie is, as anybody I've met. He loves what he does. He's creative. He's very creative. We have moved into one area after another in reinsurance when people came in copying us in one area of business that we would be operating in. Ajit comes up with something else. Lately we've been much more active in life reinsurance, but who knows tomorrow brings. I mean, if there happens to be a huge cat in the third quarter of this year or something of the sort, that might open up all kinds of opportunities in writing covers when — if capacity got strained. But who knows what will happen. All I know is that Ajit's mind works like a machine, you know, day after day. And he does love what he does, which is an important part of doing well at any activity. And I really — I don't know what his best deal was. I know what my best deal was, which was hiring him. Charlie?

CHARLIE MUNGERYeah. Sir William Osler, who created a model medical school for the world, used to say that the secret of success in a field is getting very interested in it. Well, Ajit is real interested in what he does. Many of you don't know this, but every Thanksgiving, Ajit flies to London because they don't have a Thanksgiving holiday. (Laughter)

WARREN BUFFETTWe give him Christmas off, though. (Laughter) Ajit, we just — he — I say how invaluable he is, and I'm not exaggerating when we talk about him. He is — to an extraordinary degree, he thinks of Berkshire first. Ajit, at various periods when insurance companies became popular for one reason or another, there was, you know, there was the big thing about Bermuda companies some few years ago, Ajit could have monetized himself to an incredible degree. Still could do it. I mean, people would hand him a significant percentage of any company being formed with lots of money, so that immediately he could create, I would guess, in the hundreds of millions of wealth without lifting a finger, just by somebody putting up, you know, a couple billion dollars and saying you've got 20 percent of it or whatever it may be. I mean, listen, he's smart. He knows that, and it doesn't cross his mind to do anything like that. I mean, he — we have, in comp — he always thanks me for what I do at the end of the year, and I feel I've left off a zero, you know, when I get all through. (Laughs) He's just a remarkable human being. And we are very, very lucky that, I think, he has a lot of fun in what he does at Berkshire. He's got a cadre of about 30 people that work with him. There's many more that are settling claims and doing that sort of thing on runoff business, but it's — you won't find anything like it, in my view, not only in the insurance world, but really in almost any part of the business world. (Applause)

WARREN BUFFETTLet's go —

CHARLIE MUNGERYou didn't answer the question. Maybe you avoided it on purpose.

WARREN BUFFETTOh.

CHARLIE MUNGERHe said, what are our worst businesses?

WARREN BUFFETTWhat are our worst businesses? Well, generally speaking — and this is general — I have — well, made certain mistakes in going into smaller businesses that really never had the potential of becoming big. But I would say overall, probably, I would call retailing — you know, Dexter was our worst business, but I've — the Furniture Mart, obviously, is a terrific operation. But we have not made — despite being in numerous retailing — quite a few — retailing business for quite a while, we have not created major earning power there. Wouldn't you agree on that, Charlie?

CHARLIE MUNGERYeah, but luckily it's a small part of the operation.

WARREN BUFFETTYeah.

CHARLIE MUNGERBut you're right. That's been the hardest game for us. And, you know, if we were a little smarter we could have figured that out better. (Laughs)

WARREN BUFFETTWell, if we were a little smarter we could have done a lot of things. (Laughs) Of course, See's is a retailing business, to some degree.

CHARLIE MUNGERYes.

WARREN BUFFETTAnd we had enormous success there, so maybe we started thinking we were geniuses. We are like the duck on the pond when it was raining, and we thought we were rising in the world because of merit and it was just because it was raining. (Laughter)

"Forget about goodwill" when evaluating a business

WARREN BUFFETTOK. We'll go to number 2.

AUDIENCE MEMBERJoe Tellinghas (PH), Boston, Massachusetts. What's the proper way to think about goodwill and return on capital? Berkshire's manufacturing, service, and retail businesses earn pretax returns on tangible capital over 20 percent, which suggests either skilled managers or fantastic businesses. But the return on allocated equity is in the single digits, which looks drab. Accountants treat intangibles similarly because they have different economics. (Inaudible) For an indestructible brand like See's or Coca-Cola, I can see why the intangibles should not be amortized because it's worth more every year, and your comments on GEICO policyholders were one way to think about that. But all the tobacco companies have billions of dollars of goodwill in unit sales of cigarettes to claim every year in developed countries, so perhaps they should be amortized. And for Time Warner- AOL, goodwill definitely needed to be amortized.

WARREN BUFFETTYeah, goodwill — you mention AOL-Time Warner or something of the sort, it should be written off, actually. It was just a mistake in purchase price. Goodwill should not be used in evaluating the fundamental attractiveness of a business. There you should look at return on tangible assets, and even then there's some minor — some other adjustments you may want to make. But basically, in evaluating the businesses we own, in terms of what the management are doing and what the underlying economics of the business are, forget about goodwill. In terms of evaluating the job we're doing in allocating capital, you have to include goodwill, because we paid for it. So if we buy — you know, Coca-Cola goes back to 1886 and John Pemberton at Jacobs Pharmacy in Atlanta, and there was not a whole lot of goodwill put on the books when he sold that first Coca-Cola. If you were to buy the company now, the whole company, you'd be putting a figure, you know, of 100 billion or something like that on it. You shouldn't amortize that, and you shouldn't, in judging the economics of the business, look at that. But in terms of judging the economics of the business that purchased it — we'll call it Berkshire — then you have to allow for the goodwill, because we are allocating capital and paying a lot for it. I don't think the amortization of goodwill makes any sense. I think write-offs of it, when you find out you've made the wrong purchase and the business doesn't earn commensurate with the tangible assets employed plus the goodwill, I think write-offs of it make sense. But when looking at businesses as to whether they're good businesses, mediocre businesses, poor businesses, look at the return on net tangible assets. Charlie?

CHARLIE MUNGERWell, I think that's right. But as the gentleman says, when we buy a business, a whole business, we never get a huge bargain and, of course, we may get down toward 10 percent pretax earnings on what we pay. That isn't so awful as you think when you — a lot of the money comes from insurance float that costs you nothing. In other words, if you have 60 billion of float and God gives you 6 billion a year earnings, it's not all bad.

WARREN BUFFETTWell, on Lubrizol we're paying close to 9 billion for the equity, and it earns — and you should make adjustments for debt but it's not an important factor there — and, you know, current rate of earnings is probably a billion pretax. And now Lubrizol itself is employing far — you know, they're employing, you know, call it 2 1/2 billion of equity to earn that billion of pretax, so it's a very good business, in terms of the assets that are employed. But when we end up paying the premium we pay to buy into it, it becomes a billion pretax on something close to 9 billion. You have to judge us based on close to a $9 billion investment. You have to judge James Hambrick in running the business based on the much lower capital that he has employed. It can turn out to be a very good business, and we could turn out to have made at least a minor mistake if it isn't as good a business as we think it is now, but still is a very satisfactory business based on the tangible capital employed. Charlie, can you make that clearer? (Laughs)

CHARLIE MUNGERWell, it's just — we are not going to buy, in the climate we're in now, operating businesses that are at all decent for low prices. It's just not going to happen.

Munger really loves Costco

WARREN BUFFETTCarol?

CAROL LOOMISIn a book about Charlie, "Damn Right!" by Janet Lowe, Charlie talks about his view on teaching finance. He says that he would use the histories of a hundred or so companies that did something right or wrong as a basis for teaching the course. Could each of you — and since this concerned Charlie, could each of you — we'll start with Charlie — give us an example or two from either category, right moves or wrong moves?

WARREN BUFFETTI predict Charlie is going to talk about Costco. Go ahead, Charlie. (Laughs)

CHARLIE MUNGERWell, Costco, of course, is a — (laughter) — a business that became the best in the world in its category, and it did it with an extreme meritocracy and an extreme ethical duty, self-imposed, to take all its cost advantages as fast as it could accumulate them and pass them onto the customers. And, of course, that created ferocious customer loyalty. And it's been a wonderful business to watch, and, of course, strange things happen when you do that and do that long enough. Costco has one store in Korea that will do over 400 million in sales this year. These are figures that can't exist in retailing, but, of course, they do. And so that's an example of somebody having the right managerial system, the right personnel selection, the right ethics, the right diligence and et cetera, et cetera, et cetera. That is quite rare. And if you — if once or twice in a lifetime you're associated with such a business, you're a very lucky person. And the more normal business is a business like, say, General Motors, which became the most successful business of its kind in the world and wiped out its common shareholders, what, last year? That is a very interesting story, and if I were teaching in a business school, I would have Value Line-type figures that took people through the entire history of General Motors. And I would try and relate the changes in the graph and in the data to what happened in the business. And to some extent, they faced a really difficult problem: heavily unionized business, combined with great success, and very tough competitors who came up from Asia and elsewhere, and to some extent from Europe. And that is a real problem, which, of course — to prevent wealth from killing you, your success turning into a disadvantage, is a big problem in business. And so there are all these wonderful lessons in those graphs. And I don't know why people don't do it. The graphs don't even exist that I would use to teach. I can't imagine anybody being dumb enough not to have the kind of graphs I yearn for. (Laughter) But so far as I know there's no business school in the country that's yearning for these graphs. Partly the reason they don't want it is if you taught a history of business this way you'd be trampling on the territories of all the little professors in subdisciplines. You'd be stealing some of their best cases. And in bureaucracies, even academic bureaucracies, people protect their own turf. And, of course, a lot of that happened at General Motors. (Applause) Yeah. It's a — I really think the world — that's the way it should be taught. Harvard Business School once taught it much that way, and they stopped. I'd like to make a case study as to why they stopped. (Laughter) I think I can — I think I can successfully guess. It's that, of course, the history of business trampled on the territory of barons of other disciplines like the baron of marketing, the baron of finance, the baron of whatever. And IBM is an interesting case. I mean, there's just one after another that are utterly fascinating, and I don't think they're properly taught at all because nobody wants to do the full sweep.

WARREN BUFFETTCharlie and I were on a plane recently that was hijacked.

CHARLIE MUNGERWith what?

WARREN BUFFETTIt was hijacked. I'm telling about our experience on that hijacked plane when the hijackers picked us out as the two dirty capitalists that they really had to execute. But they were a little abashed about it. They didn't really have anything against us, so they said that each of us would be given one request before they shot us, and they turned to Charlie and they said, “What would you like as your request?” Charlie said, “I would like to give once more my speech on the virtues of Costco, with illustrations.” (Laughter) And the hijacker said, “Well, that sounds pretty reasonable to me." And he turned to me and said, “And what would you like, Mr. Buffett?” And I said, “Shoot me first.” (Laughter)

CHARLIE MUNGERAnyway.

Incentivizing kids

WARREN BUFFETTOK. Number 3.

AUDIENCE MEMBERSumat Mehra (PH) from Kashmir in India. Mr. Buffett, hope you enjoyed your first trip to India.

WARREN BUFFETTI sure did.

AUDIENCE MEMBERHere's my question. One of the most important things that drive people are incentives, but if you live in a rich society it's very hard to get your kids to work hard and reach their full potential because they just don't need to. So if you or Charlie decide to have a kid in the next five years — (Laughter)

CHARLIE MUNGERIt would be a star in the east.

WARREN BUFFETTIt will take more than a decision. (Laughter)

AUDIENCE MEMBERHow would you incentivize him or her —

WARREN BUFFETTI thought you were going to say, "How would you?" (Laughter) No, it's a good question. I apologize for interrupting.

AUDIENCE MEMBERHow would you incentivize him or her to compete among the hungry and highly motivated kids from emerging markets like China, Brazil, Russia, or India?

WARREN BUFFETTI think certainly that if you are very rich and you bring up your kids to think that they are more important in society, or that they have some special privilege, simply because they came out of the right womb, that, you know, that's just a terrible mistake. But Charlie has raised eight children that I know quite well, most of them, and I don't think any of them have that sense. But it's — if you really are going to raise your kids to think that other people should do all the work for them and that they will be entitled to sit around and fan themselves for the rest of their lives, I mean, you know, you will probably not get a good result. I — you know, in my — Charlie has been rich most of the time when his kids — many of his kids — were growing up — some of his kids were growing up, I've been rich while my kids were getting — certainly when they got into high school and college — but I don't think — I certainly didn't want to give them the idea that they were special just because their parents were rich. And I don't think you necessarily have to get a bad result or have children that don't have any incentives simply because their parents are rich. The one thing I don't think you want to give them an incentive to do is try and outdo their parents at what their parents happen to be good at. I don't think that makes sense, whether if you are a professional athlete, or a rich person, or whatever it may be, a great novelist, you name it. But I really think if you're rich and your kids turn out to have no incentives, I don't think you should point at them. I think you should probably point at yourself. Charlie?

CHARLIE MUNGERWell, I don't think you can raise children in an affluent family and have them love working 60 hours a week in the hot sun digging fence post holes or something. That's not going to work. So to some extent, you are destroying certain kinds of incentives. And my advice to you is to lose your fight as gracefully as you can. (Laughter)

WARREN BUFFETTI'm not sure if you're poor if you can get your kids to love the idea of working 60 hours a week. They may have to, but —

CHARLIE MUNGERKids that really get interested in something will work no matter how rich they are. But it's rare to have an Ajit-like intensity of interest. You know, if you were a proctologist, you might not like your day as it went on and on. (Laughter)

WARREN BUFFETTI think we better move along. Becky? (Laughter)

Compensation incentives for Berkshire's next CEO

BECKY QUICKThis question comes from a shareholder from central Iowa who asks, “Berkshire Hathaway does well, in part, because its managers want to be there for nonpecuniary reasons. But it seems likely that the next operations CEO will be best be filled by someone who insists on a salary of more than $100,000. "What kind of compensation structure do you expect for the next generation of Berkshire leadership?”

WARREN BUFFETTWell, I think the next CEO will make a lot of money and should make a lot of money. I mean, the responsibility for running a company with a couple hundred billion dollars of market value should pay well. I think that whatever the level the board decides then, in terms of a base salary, should be supplemented by, probably, an option system that incorporates a couple things that are perhaps unusual. I don't think the option price — the original strike price — should be less than if the company were for sale, the assets would bring. So the idea of giving somebody an option during some depressed part of the stock market at the market price, I think, is crazy because you wouldn't sell your business at that price and why sell part of it on that basis. So I think the base price should be what the business is worth at the time you start, and then I think if, because of the compounding feature of leaving money there — you know, no management at all would produce some gain in value over time — so I think there should be an increase in the base price annually at some rate, and then minus the dividend that's being paid. So, if you assume a 3 percent dividend was paid, and you wanted to have a hurdle rate of increasing at 7 or 8 percent a year, then you would have the option price accelerate, maybe, at 4 or 5 percent. But with that kind of a structure, I think you can give a very large option because you — if somebody is creating excess value above a given rate on a very large sum, I think they deserve something quite significant in terms of that excess earned. Now, they — the present compensation system has no relevance at all to what my successor should earn. The main thing is getting the right person with the right values who interacts well with the managers and who knows how to allocate capital. And as you just heard a little earlier, our managers who accomplish a lot, if they — and if they're working with big operations so that it turns into a lot of dollars — they can make a lot of money with Berkshire. They — nothing is worked off the eccentricities of Charlie and me at the top level. So, you know, people make well into eight figures, sometimes, at Berkshire. But they earn it, and they don't get it because of any phony targets or anything of that sort. They get it because they really deliver incredible, in some cases, excess value to Berkshire. Charlie?

CHARLIE MUNGERWell, I hope it will be a long time in the future, and I don't regard it as absolutely inconceivable that Warren's spot will someday be occupied by a very rich man who has adopted Warren's system of pay. I think somebody in America has to be the exemplar for not grabbing all that you can. I think it's a very important part of the whole scheme. (Applause)

WARREN BUFFETTI don't think you better run an ad, though, after I go, that says CEO wanted, $100,000 pay plus pleasant surroundings. (Laughs)

Societal issues are important but don't affect investment decisions

WARREN BUFFETTOK. We'll go to number 4.

AUDIENCE MEMBERHi, Mr. Buffett, Mr. Munger. My name is Vern Cushenbery and this question is on behalf of a group of investors that made the trip up today from Overland Park, Kansas. Given your interest in renewable energy and natural resources, I wonder if you'd be willing to share your thoughts on how a world of limited and depleting clean water supplies and declining food stocks affects your investment strategies and thinking on the future.

WARREN BUFFETTYeah, I would say it's an important subject but it doesn't affect our investment strategy to any real degree. In other words, you know, we would love to buy another GEICO. We would love to buy another BNSF. We'd love to buy another MidAmerican. And we look at those businesses over a long time frame, but we are looking at what we expect their earning power to be three, five, 10, 15 years down the road compared to what we are paying. So I would say that there are a number of societal issues that really do not enter into our investment or purchase of business-type decisions. Charlie?

CHARLIE MUNGERWell, I would advise not paying too much attention to the clean water issue. If there's enough energy, you can always get enough clean water. Israel sometimes goes month after month making half its water from sea water. With enough energy, why, you have — the water problem goes away. And that's very helpful in considering the future. And regarding the agricultural productivity, I think one of the main reasons for being restrained in the use of hydrocarbons is that modern agriculture won't work without them. So I'm a great believer in being conservative, in terms of blowing all the hydrocarbons on heating houses and running cars. I think that — think of how happy we'd be if we'd taken a bunch of that dollar oil in the Middle East and just carted it here and put it in salt caverns. I mean you could argue that we really screwed up the past, and you could argue all the people who think that our main solution is to drill, drill, drill. They're all nuts. (Laughter and applause) It's probably quite wise to use up the other fellow's hydrocarbon while preserving our own. It's not going away because we are not drilling it now. But you can see that this will lead into unproductive discussion. (Laughter)

We wouldn't participate in an auction for any company

WARREN BUFFETTOK. We'll move right onto Andrew.

ANDREW ROSS SORKINThis next question, actually, just came in by email from someone in the audience from their BlackBerry, actually a prominent investor that asked that his name not be named. And his question is the following: He writes, “Your purchase of Lubrizol was done in a negotiated transaction. The board of Lubrizol did not market the company for sale nor run an auction. "According to the proxy, you did not permit the company to run a go-shop process, despite the requests you allow them to do so. "Did the board of Lubrizol breach its fiduciary duty by not running a more competitive process to sell the company? And if not, why not?”

CHARLIE MUNGERLet me do this.

WARREN BUFFETTOK. Charlie will. (Laughter) He volunteers —

CHARLIE MUNGERThe answer is no, the board at Lubrizol did not breach its duty because we were not going to participate in the transaction if they didn't do it our way. (Laughter and applause)

WARREN BUFFETTYeah, we basically don't participate in auctions. And actually, just very, very recently we were asked to participate in one, and we're just not interested. They may end up getting less money than they would have gotten from us. But if they want to auction it, the one thing I can guarantee them, you know, is that when they get all through, we will not pay them what we would have them paid originally if they stepped up. So they get a very certain deal, they got a very significant price, in my view, and in the view of two advisors. And if they had said we want to conduct an auction, we would have said good luck, and we'd have looked at something else.

CHARLIE MUNGERHas anybody else got an easy question? (Laughter)

How to judge if Buffett is doing a good job of allocating capital

WARREN BUFFETTOK. Number 5.

AUDIENCE MEMBERHi, Charlie. I think I have an easy question. My name is —

WARREN BUFFETTGive it to me then. (Laughter)

AUDIENCE MEMBERMy name is Stuart Kaye from Matarin Capital Management in Stanford, Connecticut. And, Warren, you've often described a big part of your job is allocating capital. Going forward, by just looking at Berkshire's financial statements, how can we determine how good of a job you have done at allocating capital?

WARREN BUFFETTWell, the real test will be whether the earnings progress at a rate that's commensurate with the amount of capital that's being retained. And over time, a market value test — but markets can be very volatile and capricious — but over time, obviously, we — unless the market value of Berkshire is significantly greater than the amount of capital that we have kept from you, retained, and used to buy businesses, you know — the verdict is against us if we ever start selling at a discount to that factor. But you just have — and, you know, it is not a perfect measurement and certainly is not on any three-month or six months or even one-year basis, but over time, if we're going to keep your money, we have to earn a better-than-average return on that money we keep and that has to translate into the stock selling at a premium over the money we retain from you. And so far we've done OK on that, but the job gets tougher every year. Charlie?

CHARLIE MUNGERYeah. We have continued to beat the market averages. We just aren't beating our own past record. And I guarantee that will continue, at least the last half of it. (Laughter)

WARREN BUFFETTYeah. Only the last half of it, right?

CHARLIE MUNGERYeah.

Don't compare opportunities now to your best-ever deal

WARREN BUFFETTOK. Carol?

CAROL LOOMISThis question is from Mike Rifkin (PH). He wants to ask about five transactions you've made in recent years with very different terms. Goldman, 5 billion at 10 percent plus warrants; GE, five billion at ten percent plus warrants; Dow Chemical, 3 billion at 8.5 percent convertible to common; Wrigley- M&M Mars, 4.4 billion at 11.45; Swiss Re 2.7 billion at 12 percent. Now, why the different interest rates you set and how about why the warrants in some cases, and why did the rich Mars family need 4.4 billion to do a deal, and at 11.45 percent?

WARREN BUFFETTWell, we'll let the Mars family speak for themselves. But in terms of comparing those five deals, it was 3 billion with GE, and the Mars deal actually involved a $2.1 billion preferred stock, which has some usual characteristics, so you have to look at it as a package. But the important thing is that every one of these deals was done at a different time, although the Goldman and the GE deals were done in close proximity with each other. And market conditions — you know, you heard Charlie in the movie talk about opportunity costs. Our opportunity costs were different in every single one of those five transactions. And incidentally, we could have done a much better — I could have done a much better — job of allocating our money, you know, in terms of the post-panic period. I was early on Goldman and GE, compared to the situation five months later. But, you know, we don't have — we not only don't have perfect foresight, sometimes it's pretty bad. But each deal — when I did the Swiss Re deal, I was not thinking about the Dow Chemical deal, which was committed to, maybe, a year-plus earlier. I was thinking about what else I could do with $2.7 billion, and that's the way all the decisions are made. So they are not related — they're not related to each other. They go through a mind that is looking at everything available that day, including the amount of cash we have, the likelihood of being able to do something else next week or next month, what else we can do that day. And past deals we've made don't really make any difference. In fact, one of the things — one of the errors people make in business — and sometimes it can be a huge error — is that they try and measure every deal against the best deal they've ever made. So they say, you know, I made this wonderful deal for, maybe, an insurance policy written, or it might be a company bought, it might be a stock bought, and they're determined that they're never going to make a deal that isn't that attractive in the future. So they, in effect — sometimes they take themselves out of the game. The goal is not to make a better deal than you've ever made before. The goal is to make a satisfactory deal that's the best deal you can make at the time. And Charlie relates it to marriage, and I'll let him expand on that. (Laughter)

CHARLIE MUNGERNo, those are — of course, we're going to make different deals at different times based on different opportunity costs. There's no other rational way to make deals.

You don't have to read quickly but you should read

WARREN BUFFETTOK. We'll go to number 6.

AUDIENCE MEMBERKeith McGowan, Norfolk, Massachusetts. Thank you, Mr. Buffett and Mr. Munger. Thank you for being a role model. Your ethics, frugality, sense of humor, honesty, sharing your ideas on investing, sharing your ideas on business, make this world a better place for everyone. (Applause) Charlie mentioned in a prior answer about continuous learning. Mr. Buffett, you read about five newspapers a day. You also read many annual reports and other business-related reports. You have the ability to read much faster than the vast majority of people. Reading is a fantastic thing. What advice would you give to children in high school, college, or adults who want to increase their ability to read faster?

WARREN BUFFETTWell, you know that's an interesting question because I do read, as you described, the five papers and lots of 10Ks and 10Qs. Unfortunately, I'm not a fast reader, and I'm not as fast as I used to be on reading. But I don't know how effective various speed reading classes may be, but if they are effective, you know, I would — I would really suggest anybody that can improve their speed — I wish I could read a lot faster than I can. Charlie can read faster than I can. And it's a huge advantage to be able to read fast. And, you know, there's a that old Woody Allen story about how he took the speed reading course, and he met somebody, he was telling him how wonderful it was, and the guy said, "Well, give me an example." And Woody Allen said, "Well," he said. "I read 'War and Peace' last night in 20 minutes. It's about Russia." (Laughter) That's the problem I have when I try and read fast. I get all through reading the book, and I say, it’s about business, you know, so — I really don't know the effectiveness of speed reading-type courses, but if you know of any friends or — you can learn more about that, and there are effective techniques. Obviously, the thing to do is to learn them very young because there really — there's nothing — there's hardly anything more pleasurable, you know, than reading and reading and reading and reading. And Charlie and I do a lot of it. We continue do a lot of it. But I don't do it as fast as I would like to. Charlie?

CHARLIE MUNGERWell, I think speed is overestimated. I had a roommate at Caltech who had a very distinguished mind, and I could do problems faster than he could, but he never made a mistake, and I did. (Laughter) So, I wouldn't be too discouraged if you have to go a little slower. What the hell difference does it make? (Laughter and applause) Pass that peanut brittle, Warren.

WARREN BUFFETTYeah.

CHARLIE MUNGERThank you. Thank you.

WARREN BUFFETTYou may have noticed we have a 15-pound box out for sale in the other room, but Charlie is looking for a 25-pound box.

Buffett: There shouldn't even be a debt ceiling

WARREN BUFFETTBecky?

BECKY QUICKThis question comes from Eric Wiseman (PH) who asks, "Are you worried about Congress playing politics with the raising of the debt ceiling? What would this do to Berkshire Hathaway stock and to the overall economy?"

WARREN BUFFETTYou mean if they didn't raise it?

BECKY QUICKIf they didn't raise it, right.

WARREN BUFFETTYeah, well. It would probably be the most asinine, you know, act that Congress has ever performed. One time in Indiana back in the 1890s, I think they passed a bill — I know it was introduced — you can look it up on a search engine. They passed a bill to change the value of pi, the mathematical term pi, to an even 3 — (laughter) — because they said it would be easier for the school children to work with. Well, that's the only bill I can think of that would give competition to a refusal to raise the debt ceiling. I mean, it's extraordinary. I mean, it really is extraordinary that with our deficit running, you know, well over $100 billion a month, and all kinds of items that can't be changed — I mean, there's — having a debt ceiling to start with is a mistake. I mean, it doesn't — the United States of 2011 has a different debt capacity than the United States of 1911, and we're always — it's going to be a growing country, and we're going to have a growing debt capacity. That doesn't mean I think it's a great idea at all to have debt growing, as a percentage of GDP. But this — the debt ceiling's on — so that these games get played and all the time that gets wasted and everything, and, you know, the amount of — number of — silly statements that you hear. It just seems such a waste of time for a country that's got a lot of things to do. But in the end, they won't, in my view — there's no chance that they don't increase the debt ceiling and I would love to see them — well, I'd love to see them eliminate the idea, because it results in these periodic kind of stalemate operations where everybody uses it for posturing purposes and everything of the sort. The United States is not going to have a debt crisis of any kind as long as we keep issuing our notes in our own currency. You know, the difference between being able to borrow in your own currency and having to borrow in another currency is night and day. The only thing we have to worry about is the printing press and inflation. And if you're a member of the euro, European Monetary Union, you have to worry about — you can't print money. You can go and get your co-members to try and help you out. But giving up the right to issue debt in your own currency is a huge step. And the United States has not done it. I don't know whether we've ever issued U.S. bonds in any other currency but we certainly haven't made a habit of it. And the Japanese, incidentally, which have a very ratio of debt-to-GDP, also have consistently borrowed in their own currency. And believe me, when it's time to pay somebody back, and you have a choice of paying — and you're forced to pay somebody else's currency versus paying in your own — it's entirely a different proposition. As a matter of fact, Charlie and I, we were trying to buy that bank back in —

CHARLIE MUNGERChicago.

WARREN BUFFETTYeah, in Chicago in the late 1960s, and this was a time of really tight money. And tight money was different then than tight money is today. I mean, tight money meant no money. And somebody — we wanted to buy this bank, and they wanted — the only place we could find some money, I think, was in Kuwait in dinars, wasn't it?

CHARLIE MUNGERKuwaiti dinars. (Laughter)

WARREN BUFFETTAnd I thought to myself, and Charlie concurred, who the hell knew what they were going to say the value of the dinar was when we went to pay it back. It was not something over which we had a lot of control. So we decided not to borrow the money in dinars even though I kind of wish we'd bought the bank. Charlie, do you have anything to say on that?

CHARLIE MUNGERNo. (Laughter) I do think — I do think — you know, I remember an era when we had a bipartisan foreign policy and all that, and I liked that era. And that was the Marshall Plan, and a lot of wonderful constructive things were done, and they were generous things. Now, it seems to me that both parties are trying to compete to see who can be the most stupid — (laughter) — and they keep topping one another. (Laughter and applause)

WARREN BUFFETTYou can tell Charlie is a fellow who has always filed an accurate income tax form. (Laughter) He's not worried.

Nuclear power is "important" and "safe"

WARREN BUFFETTNumber 7.

AUDIENCE MEMBERGood afternoon, Mr. Buffett and Mr. Munger. I'm John Gorrie (PH) from Iowa City, Iowa, where I'm a happy customer of MidAmerican Energy. Around 2004, Mr. Buffett, you told us of a great attention you had given to limiting Berkshire's exposure to mega-catastrophes so that one could not break Berkshire. Today, MidAmerican Energy is seeking approval to build a nuclear power plant in eastern Iowa. At the same time, another utility company, Tokyo Electric and Power, faces claims that Merrill Lynch has estimated as exceeding 12 trillion yen, or $140 billion, to compensate residences and businesses that have been displaced and farmers that cannot produce. Do you believe that the bond-like return that MidAmerican Energy might receive from a nuclear power plant can justify the mega-catastrophe risk that it would pose to Berkshire?

WARREN BUFFETTYeah, I don't think it does pose — I don't know the details of it, and Greg Abel can speak to it better than I can, but I don't think there's anything like the exposure that you refer to. I think nuclear power is an important part of the world's equation, really, in dealing with its problems on — it's very long term because you're not going to change the installed base in any hurry. And as you know, France has a very high percentage of nuclear power. And, actually, 20 percent of the electricity generated in the United States comes from nuclear power. I probably am getting some of mine from — we have — at Fort Calhoun, we have a nuclear facility — not we, but Omaha Public Power District has a nuclear facility I've actually been in. But I think nuclear power is important, and I think it's safe. I think that — I know — I don't think nuclear power is going to go any place in the United States for a while — maybe quite a while — because of the reaction to what happened in Tokyo — with Tokyo Electric Power. But that doesn't change my view as to the advisability of continuing to develop nuclear power, not only in the United States, but around the world. I think some people misinterpreted what I said when I was interviewed, when I said that I thought it would have a major setback in its development, just because of the popular reaction to what happened in Japan. But that does not change my view that nuclear power is important for the future of this country and the world. Charlie? (Applause)

CHARLIE MUNGERYeah, we can't be so risk averse that things that have a very tiny chance of making a big dent in one subsidiary are unendurable for us. We have to have a certain reasonable amount of courage in operating this company.

WARREN BUFFETTWe have pipelines — we have gas pipe — you can dream of all kinds of worst-case situations. We have to carry toxic materials. We're required by law to carry those on the railroad, and, you know, you can picture the wrong place, the wrong time, the wrong everything. But we are not bearing any risks, in my view, ever, that threaten the enterprise. I mean, that is one thing I think about all the time. I regard myself as the Chief Risk Officer of Berkshire, and that is not something to be delegated to a committee, in my view, at all. So I think about — whether I think about derivative positions, whether I think about leverage, whether I'm thinking about nuclear power plants or anything, I mean, we are not doing anything that I know of that — pressing my imagination as far as I can — threatens me losing a night's sleep over Berkshire's well-being.

CHARLIE MUNGERAnd I think you'd also count on any new nuclear plant built in Iowa will be a hell of a lot safer than the ones we already have. We are learning as we go along here. (Applause)

WARREN BUFFETTYeah. Obviously, more people — more people have lost their lives, by far, in coal mine accidents, you know, than ever in the United States — have suffered no losses from anything involving nuclear — with it producing 20 percent of the electricity used by 309 million people.

CHARLIE MUNGERAnd if a tsunami gets to Iowa, it will a hell of a tsunami. (Laughter)

WARREN BUFFETTYeah. And our railroad won't do so well, either. (Laughter)

Charity program fell victim to pressure groups

WARREN BUFFETTAndrew?

ANDREW ROSS SORKINThis question comes from Mary and Jim Beaumont (PH) from Springfield, Illinois. They've been Berkshire shareholders since 1971, and I should note that we received several questions from some long-term shareholders along these lines, and this one reads: "Would Berkshire ever consider reinstating its shareholder-directed charitable giving program now that you have a big cash position and are urging people to give away their wealth to worthy causes? "When you had that program, we were able to support many local schools and charities over the years."

WARREN BUFFETTYeah, I love that program, which we had for, maybe, 20 or so years. Charlie loved it. A lot of the shareholders loved it. And it was interesting because it was a tax-efficient way to let shareholders give away some money to whatever they chose, as long as it was a 501(c)(3), and they could pick up to three charities. And some families, for example, used it as a learning device. When they would get the form from us, they'd get their kids around the table and they'd talk about philanthropy and why they were choosing what they did. Two things — well, one thing that was very interesting about it is nobody else copied it. I mean, the rest of corporate America was not interested in having their shareholders direct contributions. They were much more interested in having the CEO direct contributions. So it did not catch on, despite a fair amount of publicity. We always had a small backlash of sorts from people who didn't like the charities that our shareholders were choosing. So Berkshire's name was on the check. The shareholders would tell us we want $20 a share, let's say — and they own ten shares, so they can direct $200 — they'd say, we want our $200 to go to more —churches and synagogues, actually, were number one — but there were schools and there were all kinds of things. And we would always get some letters where Berkshire would be contributing to, say, Planned Parenthood of California, and people would say, "Well, we're not going to buy See's Candy because Berkshire is supporting Planned Parenthood in California." And sometimes I would write the people a letter and tell them that when See's bought almonds or milk or anything like that we didn't get into the charitable preferences of the person supplying us, but it never really amounted to anything. Then we bought the Pampered Chef, and that was a different situation because with the Pampered Chef we operated through 50,000-plus independent contractors. These are women, largely, women, who sometimes, to supplement their income — we have at least one in the office that — a woman that sells Pampered Chef products — sometimes as a main source of income — were — these 50,000 were independent contractors, and a campaign developed where people said that because Berkshire Hathaway gives money, probably primarily to pro-choice organizations, and that was at the direction — we had other people giving them to pro-life organizations. I mean, these reflected the views of our shareholders, not of Berkshire management — but that they were going to boycott these independent contractors. And these were people who depended on the income, who had nothing to do with Berkshire's policies, and they were being hurt, in terms of their livelihood, and in some cities it became a radio campaign, and in some cities people regularly started interfering with the parties arranged for our Pampered Chef consultants. And it was hurting a whole lot of innocent people who had nothing to do with Berkshire's policies, who had nothing to do with Berkshire. And at that time, reluctantly, we decided to end the program. I did not — I didn't mind at all losing some See's Candy business or whatever to some people. But when we start affecting individuals — most of these are not high-income individuals — and we're cutting off their livelihood because of something Berkshire is doing, it became — it just became apparent to me that it was unfair to continue it, and reluctantly, we stopped it, and I think it's too bad. Charlie?

CHARLIE MUNGERWe don't want the parent company involved in distracting arguments about the social issues of the times.

WARREN BUFFETTWell, we certainly don't want it where it affects —

CHARLIE MUNGERYeah.

WARREN BUFFETT— people who are just bystanders, basically, who have counted on us over the years to work with them. And it was literally affecting the income of thousands, primarily women, concentrated in certain communities around the country. OK.

CHARLIE MUNGERA lot of stock — Berkshire stock — is given away every year. It isn't like we've lost the flow of charity totally.

WARREN BUFFETTNo, a huge amount is given away. Partly that’s because Charlie and I started our partnerships back in the 50s and 60s, and we've got a number of partners that are now in their 80s, and some of them have given away some exceptional amounts of money. You had a question earlier from Dick Holland, for example, and Dick Holland — I think it's a matter of record as to exact numbers — but he's given away huge amounts of money over the years and continues to. And we've got dozens like that that I would say are going to end up giving back 90 percent or more of all the money they've made in Berkshire.

Why we hate projections

WARREN BUFFETTOK. (Applause) Number 8.

AUDIENCE MEMBERTanya Laneva (PH), Boston, Massachusetts. When you think about long-term cash flows, do you try to forecast growth? Or do you just think about certainty? If you have an indestructible company like Coca-Cola or Burlington Northern, do you try to estimate growth?

WARREN BUFFETTWell, we think — are you finished on that?

AUDIENCE MEMBERYes, thank you.

WARREN BUFFETTWe — growth is part of the investment equation, and obviously, we love profitable growth. So we would love to figure out a way to, say, take a See's Candy, to move it geographically into new areas, all kinds of things. I mean, if we could find areas for growth with See's, it would be likely to be very, very profitable. If Coca-Cola, which is in 200 countries, I mean they have pursued that policy successfully now for 125 years. And some products travel way better than others. But when we look at a business and we're looking out in the future, obviously, if we see growth in that picture and it's growth which is — produces a high return on incremental capital involved, we love it, but we do not rule out companies where we think there will be little or no growth, if the price is attractive relative to the earning power. You know, there will be some growth, over time, in something like lubricants, you know, at Lubrizol, but it won't be dramatic growth. Would we love it if it, you know, if it were going to grow ten percent a year in units or something of the sort? Sure. But that's not going to happen. So it's a factor in every investment decision because we're really looking out to the future as to future earning power, but also future capital requirements. And we think plenty about whether any business we go into is likely to grow profitably, and sometimes we're right and sometimes we're wrong. But we don't rule out companies that have very slow growth or no-growth possibilities. Charlie?

CHARLIE MUNGERYeah, well, the interesting thing is that in our country, the business schools teach people to make these projections way in the future, and they program these computers to grind these projections out. And then they use them in their business decision making, et cetera, et cetera. I've always regarded those projections as doing more harm than good. And Warren has never prepared one that I know of, and where an investment banker prepares one, we tend to throw them aside without reading them.

WARREN BUFFETTWe them upside down, actually.

CHARLIE MUNGERWhat?

WARREN BUFFETTWe turn them upside down.

CHARLIE MUNGERYeah, yeah. And I think an enormous false precision gets into things when you program computers to make forward projections for a long period of time. We make rough projections in our head all the time.

WARREN BUFFETTSure.

CHARLIE MUNGERAnd we don't do any of those formal projections, because the fact that they're there on paper and came out of a computer makes some people think they must be significant. I really think they do more damage than they do good.

WARREN BUFFETTWhen we bought Scott Fetzer, which was back in about 1985, it had been shopped by First Boston to more than 30 parties. They never got around to calling us. So after shopping it to about 30 parties, Scott Fetzer, finally, was working on a deal with an ESOP after something else had fallen through, I forget the exact details. And I sent a letter to Ralph Schey. I’d read about it in the paper. I’d never met him, never talked to the guy. But I sent him a letter. I figured I'd gamble 21-cents, or whatever the first class rate was then, and I said, "We'll pay $60 a share. If you like the idea, I'll meet you in Chicago Sunday, and if you don't like the idea tear up the letter." So that took place and Ralph met me, and we made the deal, and we paid the $60 a share or whatever it was. And Charlie and I went back to sign up the deal, and the follow from First Boston was there, and he was a little abashed since he had not sent us — contacted us at all — when they were looking for something. But naturally he had a contract that called for a few million dollars of commission even though he'd not bothered to ever contact us and we made the deal by ourselves. So, in a moment of exuberance while he was collecting his few million dollars, he said to Charlie, he said, "Well, we prepared this book in connection with Scott Fetzer, and since you're paying us a couple million dollars and have gotten nothing so far," he said, "maybe you would like to have this book." And Charlie, with his usual tact, said I'll pay you $2 million if you don't show me the book. (Laughter) And I should mention, this will — in connection with Lubrizol, Dave Sokol met James Hambrick, I think on whatever it was, January 25, or whatever the date, and he — Lubrizol had already made projections publicly out to 2013. And Dave told me that they had — they — that James had also given him some projections, I guess out to 2015 or something, and did I want to see them? And I told him no. I mean, I don't want to look at the other follow's projections. I've never seen a projection from an investment banker that didn't show the earnings going up over time, and believe me, the earnings don't always go up over time. So, it's just — you know, it's the old story: don't ask the barber whether you need a haircut, you know. You do not want to ask an investment banker what he thinks the earnings are going to be in five years of something he's trying to sell. So I pay no attention to that sort of thing. But we do, as Charlie says, we are doing projections in our head, obviously, when we look at a business. I mean, when we look at any company to buy, or any stock to buy, we are thinking in our mind, we've got a model in our mind, of what that place is likely to look like over some period of years. And then we also have some model in our mind of how far off we can be. I mean there's some things we can be way off on, there's other things we're likely to be in a fairly narrow range on. So all that is taking place, but we sure don't want to listen to anybody else's projections.

CHARLIE MUNGERThose of you about to enter business school, or who are there, I recommend you learn to do it our way, but at least until you're out of school you have to pretend to do it their way. (Laughter and applause)

Buffett owns a few stocks and lots of bonds

WARREN BUFFETTOK. Carol?

CAROL LOOMISOn Berkshire's quarterly 13F filings at the SEC, three stocks are held only by the entity recorded on the form as Warren E. Buffett, and not by a Berkshire subsidiary company. Please clear up some confusion on this matter. Are these holdings your own personal investments outside of Berkshire, or do they belong to Berkshire Hathaway?

WARREN BUFFETTWell, you’ll have to tell me what the names are.

CAROL LOOMISUnfortunately, the questioner didn't include those. But these are the three, I think, that are — that say Warren E. Buffett is the owner.

WARREN BUFFETTYeah. Well, Marc Hamburg prepares those forms. Marc, do you have a microphone that you can — you could —

MARC HAMBURGI think —

WARREN BUFFETTYeah. Go ahead.

MARC HAMBURGWell, those are securities that are owned by certain employee benefit plans and so that — Warren is directed into those plans, but it doesn't — they're not owned by Warren, or there's no indication that they're owned by Warren. Warren is part of the filing because he's considered to be a controlling shareholder of Berkshire. So every security listed on there shows Warren as one of the — one of the owners.

WARREN BUFFETTYeah. Do we file stocks owned by pension plans?

MARC HAMBURGTo the extent that you direct — have directed —

WARREN BUFFETTI got you, yeah.

MARC HAMBURGRight.

WARREN BUFFETTYeah. No, I don't — I don't think I — well, Marc knows the rules on it better than I do. I own very, very few securities. I really spend my time thinking about Berkshire, so I've got a lot of the very security I've been telling you not to buy, which is government bonds, but that's not because it's a good investment. It's a place to have some money and forget about it, and I'll work on Berkshire.

Evaluating a company outside the U.S.

WARREN BUFFETTArea 9.

AUDIENCE MEMBERMr. Buffett, Mr. Munger, it's an honor and a pleasure. My name is Ben Anderson (PH), I’m from Los Angeles. When you're looking at an investment in China, where the business culture is a lot different than it is here in the U.S., and successful business practices are, again, very different than they are here, what are the characteristics you look for when placing investment in that company, and is that any different than the general principles at Berkshire?

WARREN BUFFETTWe follow the same principles, but we recognize that we know less about tax laws, about customs, about attitudes towards shareholders, any time we get outside the United States, than we know in the United States. Now, to varying degrees, we weigh in that uncertainty. At the time I bought PetroChina stock, which, I don't know, was probably 2003 or thereabouts, it was extraordinarily cheap, in relation to any calculation of reserves or refining capacity or cash flow or you name it. And at the same time, Yukos in Russia was similarly very, very cheap, and they were both huge. And I'm no geopolitical expert or anything of the sort, but I decided I was more comfortable buying PetroChina than I was buying Yukos. Now, was I as comfortable buying PetroChina as I would have been buying, you know, some domestic company of similar size? No, because I don't know as much — I didn't know then, and I don't know as much now, about all the intricacies of Chinese tax law and what the policies might be. But I was fairly impressed — quite impressed — when I read the report of PetroChina. For one thing, they said they were going to pay out 45 percent of — as I remember — 45 percent of their earnings in dividends. That's more than any company — oil company — in the United States would tell me. So I regarded it as a plus and an indication of intent that I thought would be fulfilled, and it has been fulfilled. So we do make allowances for our lack of understanding, as well as we might in the United States, various key factors. But the basic principles of trying to value the business, trying to find managements in which we have confidence, in both their ability and integrity, and then finding attractive purchase price, those principles apply wherever in the world we would be investing. Charlie?

CHARLIE MUNGERWell, we make so few investments in China that trying to draw general lessons from us would be hard. It reminds me of the time a professor went west for the summer and came back to his faculty and he said, “I've learned that Indians always walk single file.” And they said, “How did you figure that out?” And he said, “I saw one and he did.” (Laughter)

WARREN BUFFETTHow did we get from there to China? (Laughter)

CHARLIE MUNGERWell, we only had a couple of things in China. They're like the one Indian. You can't draw general lessons from them.

WARREN BUFFETTBut we're willing to look tomorrow. I mean, obviously, if we had a call on some — that could be a significant size investment because we — it just doesn't make any sense for us to look at things we can just put a couple of hundred million dollars in — but we, you know, I love the idea of looking at various ideas. I mean, I find it a fascinating game to hear about companies or businesses that are new to me. And the problem now is that the universe has gotten much smaller because of our size. But we welcome a call from a lot of countries. There's some countries that are just too small. They're not going to have businesses that could move the needle at a place like Berkshire, and so those are off the list, but —

CHARLIE MUNGERChina has at least one private company that makes over $3 billion a year after taxes. There's some big things out there.

WARREN BUFFETTI'll get the name from him later, but I don't want you to hear. (Laughter)

Where Berkshire's short-term cash goes

WARREN BUFFETTBecky?

BECKY QUICKThis question comes from Ed Schmidt (PH) in Alaska. He's asking about Berkshire's cash. He writes, “Where is that money held? All in Treasury bills or notes? If so, what will happen in June when the biggest buyer, the Fed, quits buying? Where is all that money on the sidelines? Is it under the mattress we saw two years ago? "I don't see how any significant amount of money can be in banks that aren't paying interest, corporate bonds that are risky and not paying much interest, or government bonds that seem less and less sound as each day passes.”

WARREN BUFFETTWell, he's certainly right that all of the choices are lousy for short-term money now, but we don't play around with short-term money. So we did not own commercial paper in 2008 before problems occurred. We did not own money market funds. When I say we didn't own them, maybe small amounts at various subsidiaries, but in terms of the big money, which we run out of Berkshire, we basically keep it in Treasurys. And we get paid virtually nothing now for it, and that's irritating, but the last thing in the world we would do at Berkshire is to try and get 5 or 10 or 20 or 30 basis points more by going into some other things with our short-term money. It is a parking place. It's an unattractive parking place, but it's a parking place where we know we'll get our car back when we want it. You know, when we need — certainly the case — in September of 2008, we had committed for some time to put $6.5 billion in Wrigley when the Mars/Wrigley deal occurred, and we certainly didn't contemplate at the time we made that commitment, which was probably in the summer, that the events would take place like they did in September and — but we had the money. I knew I had to show up with 6 1/2 billion dollars — I think it was on October 6 — and, you know, I had to show up. (Laughs) I couldn't show up with a money market fund or some commercial paper or anything of the sort. I had to show up with cash. And the only thing I feel — virtually the only thing I feel good about, in terms of having large amounts of ready cash is Treasury bills, and that's where we've got — if you look at our March 31st statement, I think you'll see 38 billion, and overwhelmingly that will be in Treasurys. Charlie?

CHARLIE MUNGERWell, of course, I've watched a lot of people struggle who thought it was their duty in life to get an extra 10 basis points on the short-term money. I think it's really stupid to try and maximize returns on short-term money if you’re in an opportunist game the way we are, where we want to suddenly deploy money. Some of those pipelines we bought, they came for sale on Saturday, and we had to close on Monday or something?

WARREN BUFFETTYeah.

CHARLIE MUNGERWhy fool around with some dubious instrument when we had sudden needs for money like that?

WARREN BUFFETTWe bought one pipeline where the seller was worried about going bankrupt the following week. And there's a Hart-Scott-Rodino clearance required through the FTC, and they needed the money right away, and we — I wrote a letter, as I remember, to the FTC, and I said that we will do whatever you tell us to do later on. You can look at this all you want. We'll give you all the data you want. And if you tell us, you know, to unwind the deal, whatever you tell us, we will do. But these guys need the money, and so we closed it earlier. And our ability to come up with cash when people need it and when the rest of the world is petrified for some reason, has enabled several deals to get done. We don't know whether — that could happen tomorrow. I mean, if — you know, Ben Bernanke runs off to South America with Paris Hilton or something — (laughter) —I mean, who knows what will happen. And we want to be able, at that moment, to have our check clear. So, we figure we never know what tomorrow will bring, although it won't bring that, I want to — leave that off the transcribed part of the report. (Laughter) But we are — when somebody comes to us and they say, we need a deal right now, we can do it, and they know we can do it, and it can be big. It just has to be attractive.

Wind power needs government subsidies

WARREN BUFFETTOK. Area 10.

AUDIENCE MEMBERHi, Warren. Hi, Charlie. Thank you very much for taking the time to have a terrific shareholders meeting. Four years ago we announced that we're naming our son after you, so we're happy to say hi to both you and Charlie. Charlie, since Berkshire bought Wesco, we wanted to see if you can take some time to host a meeting of your own? It can be anywhere, anytime.

CHARLIE MUNGERWe're going to do that.

AUDIENCE MEMBERGreat.

CHARLIE MUNGERWe won't call it a Wesco meeting. We'll call it, “An Afternoon with Charlie.”

AUDIENCE MEMBERGreat.

CHARLIE MUNGERIt's only for hard-core addicts. (Laughter)

AUDIENCE MEMBERWarren, MidAmerican Energy is investing over a billion dollars in wind power. How do you feel about wind power as a source of renewable energy and its economics? Will this scale of investment continue and what type of returns do you expect to come from wind power?

WARREN BUFFETTYeah, it's terrific, but wind power is terrific, but only when the wind blows. And the wind blows about — as I remember— about 35 percent of the time in Iowa. So you never can count on wind power, obviously, for your base load. And, you know, that is a real limitation. On the other hand, wind power, you know, is basically, I guess, the cleanest energy you can come up with, except for the fact that it can't be relied on. It — the economics only make sense with an incentive credit — tax credit — provided by the federal government, which they've been doing for a considerable period of time. It does not — standing on their own, the investment will not return anything like an adequate return on capital. So there is a tax credit that your government has made a decision that it wants to subsidize, in effect, wind power. And Iowa has been — Iowa is a good wind state. This whole central belt is good and — central part of the country is good — so it's made sense to locate a lot of megawatts of generating capacity in Iowa, and we have more under construction now, and I think we're now, I think, number one in the country in respect to wind power. So we'll be doing more. It is dependent, in terms of the price you can get, the percentage of the time that you’re generating capacities actually get used and everything, it only makes sense with the tax credits. And one thing that is kind of interesting — one of the assets of Berkshire is that it pays a lot of taxes. That doesn't sound like much of an asset, but in these days, a lot of utilities, when you get both a hundred percent depreciation, which has been put in now by the federal government for a short period of time, and you get these sort of tax credits on wind, they really don't have the tax paying capacity to be able to use the tax credits. So they are in a different position than Berkshire, which pays a lot of taxes. We’ve probably paid something like 2 percent of all the corporate taxes in the United States, maybe, over the last five years. I want to check that, but it's not — I don't think that's way off. So we have a lot of tax paying capacity. We can use it to build more wind projects. And I think it's very likely we will continue to do it. It helps our Iowa customers. Because these projects are successful, it's enabled us to keep rates — among other reasons — it's helped to keep rates absolutely unchanged now for more than a decade, which is very unusual among electric utilities in the United States. Charlie?

CHARLIE MUNGERNo, I've got nothing to add.

We would not have let NetJets go bankrupt

WARREN BUFFETTAndrew?

ANDREW ROSS SORKINWell, this is not a David Sokol question, but it relates to him. It's actually a NetJets question. This shareholder asked, “I was struck by your statement when you praised Sokol for, quote, 'having resurrected an operation that was destined for bankruptcy.' "This really got my attention because I don't recall you or Berkshire Hathaway saying earlier that NetJets was on the verge of bankruptcy at the time that his predecessor, Richard Santulli, had stepped down. "In fact, at the time, the company seemed to give the impression it was dealing with a few short-term problems but that it was fundamentally sound. In truth, how close was it to bankruptcy? And if that was the case, why didn't you tell us? "And finally, was it ethical for NetJets to be asking perspective clients to part with their money at a time when it was, in the eyes of its main shareholder, quote, 'destined for bankruptcy?'”

WARREN BUFFETTYeah, I think I said it was — maybe we can find the exact words here — but I think I said it was destined for bankruptcy, absent the fact that Berkshire Hathaway owned it, if it had been a standalone entity. And Berkshire never had any intent, never would have had any intent of any kind, to bankrupt NetJets. But if it had been owned as a standalone by somebody else, the public, that's what would have happened to it. With Berkshire's ownership, Berkshire has had two insurance companies that would have gone bankrupt as standalone insurance companies. And we — it never crossed our mind that we would let them do it. So we put money into companies that were bankrupt that Berkshire owned to make them whole, basically. And, essentially, we were doing the same thing with NetJets when we put in — we got it up to 1.9 billion. But NetJets, in my opinion — well, it would have been bankrupt, absent somebody like Berkshire owning it. I'm almost positive that I said that, that absent Berkshire's ownership, or some words to that effect — let's see if I can find it. Maybe Charlie can be commenting while I'm looking for this. In any event — (Laughter) Well, I'm not finding it immediately where I even discussed it, but I know I talked about it on the bankruptcy thing, but I also know that I conditioned it on not being owned by Berkshire. Charlie?

CHARLIE MUNGERNo comment.

WARREN BUFFETTNo comment. (Laughter) We've pointed that out to Standard & Poor’s and Moody's. We look at — Berkshire has a lot of different companies, but we feel that it's one entity and, you know, Moody’s or Standard and Poor’s has to look at each one separately and all of that, but Charlie and I did not — have not been running this business to walk away from some company. We had one in Louisiana, Southern Casualty, and we had another one in Chicago, both of which, if left to their own devices, would have gone bankrupt, and we didn't even think about not making them whole.

Buffett's advice: invest in your own skills

WARREN BUFFETTArea 11?

AUDIENCE MEMBERGood afternoon. My name is Christopher David (PH). I'm an entrepreneur from Arlington, Virginia. My question is about the youth. I work with a lot of high school and college students and recent graduates who are facing a job market with 20 percent youth unemployment, and at the same time one of the most favorable entrepreneurial environments. It's easier than ever to start a business or get involved with a startup. So considering that these kids are politically savvy, they like studying economics, they're brilliant and they’re willing to learn, what advice can you give them from an investment perspective that could help them chart their own course, as opposed to get a nine-to-five job?

WARREN BUFFETTWell, the main thing you could do — and people do it different ways. I used to do it by doing a lot of reading — I was — practically lived at the Omaha Public Library for three or four years in pre- — when I was 9 or 10 or 11. I mean, anything you do to improve your own skills, you know, you never know where it's going to pay off later on. I only — I have one diploma hanging in my office, and I got a couple of others, but the one diploma I have hanging up there is one I got from a Dale Carnegie course, which cost me a hundred bucks back in 1951, and I can't — it's incalculable how much value I got from that hundred dollars. There's nothing like working to improve your own skills, and I would say communications skills are the first area I would work on to enhance your value throughout life, no matter what you do. I mean, if I had stayed in the same position I was in, in terms of communicating, back in 1950 or '51, my life would have turned out differently. I mean, I started selling securities. If you can't talk to people, you've got a real problem selling securities. The — so I — you know, I think people — I think the — if you get lucky, you find your passion early on, but you want to work at something you're passionate about, and then you want to work to improve your skills in that. And I think if you do both of those things, I think you're likely to do very well. Charlie?

CHARLIE MUNGERYeah, I think economics is a really tough subject, and I think it's easy to teach the basic microeconomics and certain of the basic ideas, but the minute it gets into the full range of complexity, you have the difficulty that the experts disagree. So, I don't think I would hurry if I were trying to learn something into the parts of the fields where none of the experts can agree among themselves. I would master the easy stuff first.

WARREN BUFFETTYeah, I don't think — yeah, I would not advise taking lots of courses in economics to somebody going to school. I'm just trying to think back. It's been a long time since I took my economics courses at Wharton, but I don't regard them as the ones that pushed me forward in any significant way.

Reinsurance is a lot harder than it looks

WARREN BUFFETTCarol?

CAROL LOOMISQuestion from Jon Brandt. Does Berkshire's equity ownership in Munich and Swiss Re reduce the amount of catastrophe-exposed insurance business you are willing to write directly? If so, assume that prices return to being attractive, would you then limit the quantity of other reinsurance stocks you buy so that you could do more direct business?

WARREN BUFFETTWe have invested in Munich and Swiss Re less than — well, let's see what it would be — it's less than $4 billion, so we're talking 2 1/2 percent of our net worth. So those investments, in aggregate, are not of a magnitude that would cause me to change at all what we're willing to do — the risks we're willing to bear — in the reinsurance field. We're way below, sort of, capacity, in terms of risk that we will tolerate in insurance. I mean, I put in the report, you know, I expect our normal earning power to be in the $17 billion or something pretax range. Well, that is so unlike any other reinsurance company in the world. We went through the worst quarter in reinsurance history, except for Katrina's quarter, you know, and we end up earning, you know, very substantial sums. So those investments are no constraint at all on our willingness to write insurance. We would love to have a lot more attractive reinsurance business on the books, we just — we just can't find it at prices that we think are commensurate for the risk. But it's not because of an aversion to risk overall. Charlie?

CHARLIE MUNGERYeah, it's — insurance, and particularly reinsurance, it's not that easy a business. It's taken you a long time to do as well as you do. And if it weren't for Ajit, why, we wouldn't — we'd be a lot smaller business.

WARREN BUFFETTWell, it should be pointed out, we really didn't succeed at all in the reinsurance business in the first 15 years. We started in reinsurance around 1970, and we had a fellow that I thought the world of running it, George Young, but net, counting the value of float, it was not a good business for us for 15 years until Ajit came along. It is not an easy business. It looks easy most of the time. I mean —

CHARLIE MUNGERThat's the trouble with it. It looks easier than it is.

WARREN BUFFETTIt looks way easier than it is. And, you know, it's like having a pair of dice, and, you know, accepting bets on boxcars or something like that, and, you know, it's going to come up once in 36 times, so you can win a lot of bets by giving the wrong odds, but if you keep do it long enough, you lose a lot of money. So these infrequent events, you better have factored in to your pricing, and not fool yourself by whether you make money in a given year or two years or even three or four years. And most people have a little trouble with that, and we had a little trouble with it for about 15 years.

CHARLIE MUNGERAnd incidentally, the investment bankers of the world, now that they trade so much for their own account and derivatives, they have sold some of these products where most of the time the customer wins but when the customer loses, he really loses big. In other words, they're smarter than the customers, and they have caused some of the most horrendous losses to ordinary businessmen. It happened in Korea, it happened in Mexico, it happened — Just beware of the salesman who's selling a new derivative product.

WARREN BUFFETTOr an old one. An old one, too.

CHARLIE MUNGERYeah, but new ones are worse.

WARREN BUFFETTYeah.

How Buffett first met Todd Combs

WARREN BUFFETTOK. Area 12.

AUDIENCE MEMBERHi, my name is Bottle Pondy (PH). I'm from Philadelphia, Pennsylvania. Question’s about Todd Combs, the young money manager you hired late last year. For Mr. Munger, I understand you introduced him to Berkshire. Could you talk a little bit about that — how that relationship started, and how we as shareholders, are we going to be able to assess his progress?

CHARLIE MUNGERWell, I hate doing this because I may get more letters than I want, but he sent me a letter. That's how it happened. It was like Warren's letter to the guy at — Ralph Schey. And at any rate, I had a meal with him, and then I called Warren and I said, "I think this is the guy you should talk to." We have a very complicated business and very elaborate procedures, as you can tell. (Laughter)

WARREN BUFFETTAnd his results will be known over a five-year period or something. I mean, you cannot judge an investor by what they do in six months or a year.

CHARLIE MUNGERTodd has the advantage that he's been thinking about financial companies like Berkshire for a great many years. That's useful for us to have around.

WARREN BUFFETTAnd as we put in the annual report, it's more likely than not, but not a sure thing, that over time, we have more than one investment manager. You know, there's a lot of money at Berkshire to be managed. And it would not be a bad idea, but we have to find the right people, and the right people just does not mean a given IQ or a given past record, it means a lot of things. And if we end up with two or three, you know, that — that's a plus. But it's not — we don't mandate that sort of a result.

Acquisitions and stock

WARREN BUFFETTBecky?

BECKY QUICKThis question comes in from Scott Wilkin, and he's from Chicago, but he's sitting in the audience right now. Johnson & Johnson is one of Berkshire's biggest holdings, and he asks for your thoughts, Warren, on Johnson & Johnson's recent acquisition of Synthes for $21 billion. You were quite outspoken in your opposition of Kraft's deal for Cadbury, particularly because of their use of stock. J&J's deal also is primarily with stock, and do you support this deal?

WARREN BUFFETTI have not talked to anybody in the Johnson & Johnson management, and I have no specific knowledge of the company, but basically, I would like the deal a whole lot better if it was all for cash. The idea — when a management trades away — I think this deal is about two-thirds stock, roughly, and one-third cash. And Johnson & Johnson has plenty of ability to pay cash for a $22 billion deal. And when they trade away their present businesses for some other business, they're either saying their own businesses are pretty fully valued, or they're saying the guy is making a hell of a mistake that's selling to them. So I would — like I say, if it was all for cash, I would like it a lot better. And I think that it is — by using a lot of stock for a deal like this, that it certainly — you can — you can draw the inference that J&J is not valuing its own businesses, you know, as attractively as you might think they should be evaluated. And if you use your own company stock to pay 20 percent or more than market for some other company and, you know, there probably are not a lot of synergies involved or anything in the management. There may be some, but there's usually some offsets too. But like I said, I would have much preferred it if they'd done it for cash. Charlie?

CHARLIE MUNGERYeah, you also have the disadvantage in (inaudible) that you know a hell of a lot more about chocolate and pizza than you know about medical devices.

WARREN BUFFETTYou think I know more about chocolate?

CHARLIE MUNGERWell, you — (Laughter) But at Kraft, I mean, you’re talking about businesses that Warren knew a lot about, and neither of us knows much about medical devices.

WARREN BUFFETTYeah, the pizza has business has done pretty well since it was sold by Kraft. (Laughs)

Why we won't issue stock to make an acquisition

WARREN BUFFETTWe go to 13 in the other room.

AUDIENCE MEMBERHi, I'm Glenn Tongue from New York. First off, thank you for a terrific day. My question deals with acquisitions. Pre-Lubrizol, we estimated Berkshire's year-end 2011 cash balance could approach $60 billion. I believe you commented recently on an elephant that you thought was too big. What is your acquisition appetite? What size is too big? Has the phone been ringing lately? And what if anything can we, as shareholders, do to help?

WARREN BUFFETTI got through college answering fewer questions than that. But the — (Laughter) But anything you can do to help, I appreciate, Glenn. The — you know, it's hard to name a precise figure. This one, you know, was way too big unless we used a lot of stock, which, like I say, we wouldn't do. Our appetite is always there. We are not going to borrow a lot of money. We're not going to issue shares, except perhaps in some minor amount to make a deal that couldn't get made otherwise. But — and, obviously, we'll never sell a business to buy some other business. So, you know, our cash balances will tend to build month to month unless we do something. And we can, and will, sell some portfolio securities. But doing Lubrizol requires close to $9 billion of cash, and obviously we could do another one of that size. In fact, we're looking at a couple, but they're no more than a gleam in the eye, but they would take sums roughly similar to Lubrizol, and, you know, we would be comfortable doing those, and they would add significant — significantly to Berkshire's earning power. They're worth doing. But we can't do a really — a really big elephant now, and we won't — you know, we won't stretch. We never — we've never really taken any risks because we don't need to, and we will not trade something that we have and need for something that we don't have and don't need, even if we'd kind of like to have it. Charlie?

CHARLIE MUNGERWell, I certainly agree with all that. We are very reluctant to issue shares. And in that, we're different from most places. I have a friend that sold out to a socialist country, and they issued shares in a controlled corporation, and the socialist executive said, "Isn't this wonderful we're getting this business for nothing."

WARREN BUFFETTSome people really have that, and, of course, there are some companies — and we talked about the wave that took place in the late '60s, but periodically — one certainly happened during the internet period — companies just couldn't issue shares fast enough, because they basically were trading confetti for real assets. And that is a business model that has been applied successfully for some periods of time by certain companies in the past. It usually ends in some kind of a fiasco, but — well, I shouldn't say it usually does, but it runs out of gas at some point. But, you know, essentially, we've never been in that game. We hate issuing shares and the idea of selling our — when we issue shares we're divesting ourselves of a portion of every wonderful business we have, from GEICO to ISCAR to you name it. And we don't like doing that. We like owning those businesses. We'd like to own more of them. We — you know, we have a deal, for example, on Marmon where we bought some more of it this year, and we will buy the rest of it a few more years, and we feel good about that. We pay a fair price for it, but we get a business we know, a management we like, and that's really what we'd like to continue doing at Berkshire. In fact, we will continue doing it.

Housing market is terrible, but we'll profit on the rebound

WARREN BUFFETTAndrew?

ANDREW ROSS SORKINThis question comes from Larry Pitkowsky, who is a long-time shareholder, I think he's in the audience, from the GoodHaven Fund. He asks, “Over the years, you built or acquired a significant number of businesses that are related to the residential and commercial real estate markets, including such segments as brokerage servicing, insulation, carpeting, construction products, painted furniture. "Berkshire's ownership with these businesses would seem to give you a unique window through which to view current conditions. Could you give us some insight into the current state of the housing and commercial real estate market and what we might expect to see in these businesses over" — and this might be a long shot — "over the next decade.”

WARREN BUFFETTWell, the immediate situation is it's terrible. It's been flatlined now for a long time, and it affects Shaw, it affects MiTek, it affects Acme Brick, it affects Johns Manville, it affects our HomeServices operation. And there has been no bounce, at all, but you see that in the housing start figures, too. I'm not telling you anything you don't see, except I see it with pain as I look at the monthly earnings figures. But those are good businesses. And as I mentioned in the annual report, we bought the largest brick operation in Alabama. And I think Alabama uses more brick per capita than any state in the union, but that doesn't mean much currently, because nobody is using any brick to speak of. But we bought it. We wrote a check for cash, and we like improving our position. MiTek has bought operations. Shaw is spending a couple hundred million dollars this year, partly because of a change in the nature of the carpet business. This country, over time, will build houses at a rate, overall, in total, commensurate with household growth, and I think we're going to see plenty of household growth in future decades, and I think that our companies are well-positioned to make significant money when we get to a normalized level of home building. I said in the annual report I thought it would — we would be seeing the upswing by year-end. I've seen nothing since I wrote the annual report that makes it look like I'm certain to be correct or anything, that there's been no movement that I've seen so far in the two months since I wrote the report. I would think it would start occurring by then, but if it doesn't, you know, it may be a year later. I don't think anybody knows the answer on that. If I had to bet one way or another, though, I think it will be turning up by year-end. It really isn't that important to us. When I made the decision to buy the brick company in Alabama, it was not because I thought brick was going to turn in two months or six months or a year. I thought that over time, being a very important brick manufacturer and distributor in Alabama adjacent to our strong operation in Texas, it would be a good investment at the price that we paid. And I feel good about the decision, but I won't feel good about our brick results in the next six months. I can be sure of that. Charlie?

CHARLIE MUNGERWell, one advantage of buying these very cyclical businesses is a lot of people don't like them. And what difference does it make to us if the earnings average, say, 300 million a year, if it comes in in a very lumpy fashion? In the big scheme of things, what do we care if it's lumpy, as long as it's a good business? And we have an advantage on that stuff. Nobody else was bidding for a brick plant in Alabama with no customers to speak of. (Laughter)

WARREN BUFFETTWe'll be there if you need brick in Alabama. (Laughter) You know, See's Candy, a wonderful business, loses money roughly eight months of the year. Now, it just so happens we know the seasonal pattern, so we don't worry in July that somehow Christmas won't come, you know. We've got a couple thousand years on our side. (Laughter) So the — but that's — you know, that's easy to see. If you just looked at one month of See's earnings or looked at one quarter, you'd think, what are these guys doing in this business? Now, obviously, cyclical businesses, you know, are not going to behave exactly the same as seasonal businesses, but why look at it any differently? I mean, if you take the next 20 years, there will be, you know, three or four terrible years for residential housing, and there will be a lot of them that are pretty good, and there will be a few that are terrific. And I don't know the order in which they're going to appear, but I know if I can buy the assets cheap enough to participate in those 20 years, that we'll do OK over that time. So that's why we're in the brick business.

Short adjournment before formal business meeting

WARREN BUFFETTNow let's see. Yeah, we're at 3:30, so we will adjourn for about five minutes, and then we will conduct the business meeting of Berkshire Hathaway, and we can turn the lights up, and we'll rejoin you in just a couple of minutes. (Applause)

Berkshire formal annual meeting begins

WARREN BUFFETTOK. If you'll settle down, we'll conduct a little business. This morning I introduced the Berkshire Hathaway directors that are present. Also with us today are partners in the firm of Deloitte & Touche, our auditors. They are available to respond to appropriate questions you might have concerning their firm's audit of the accounts of Berkshire. Forrest Krutter is secretary of Berkshire. He will make a written record of the proceedings. Becki Amick has been appointed inspector of elections at this meeting. She will certify to the count of votes cast in the election for directors and the motions voted upon at this meeting. The named proxy holders for this meeting are Walter Scott and Marc Hamburg. Does the secretary have a report of the number of Berkshire shares outstanding, entitled to vote, and represented at the meeting?

FORREST KRUTTERYes, I do. As indicated in the proxy statement that accompanied the notice of this meeting that was sent to all shareholders of record on March 2, 2011, being the record date for this meeting, there were 942,559 shares of Class A Berkshire Hathaway common stock outstanding, with each share entitled to one vote on motions considered at the meeting, and 1,059,055,810 shares of Class B Berkshire Hathaway common stock outstanding, with each share entitled to 1/10,000th of one vote on motions considered at the meeting. Of that number, 663,042 Class A shares, and 659,697,109 Class B shares are represented at this meeting by proxies returned through Thursday evening, April 28th.

WARREN BUFFETTThank you. That number represents a quorum and we will therefore directly proceed with the meeting. The first order of business will be a reading of the minutes of the last meeting of shareholders. I recognize Mr. Walter Scott, who will place a motion before the meeting.

WALTER SCOTTI move that the reading of the minutes of the last meeting of the shareholders be dispensed with and the minutes be approved.

WARREN BUFFETTDo I hear a second?

VOICESecond.

WARREN BUFFETTThe motion has been moved and seconded. Are there any comments or questions? We will vote on this motion by voice vote. All those in favor, say aye. Opposed? The motion is carried.

Election of directors

WARREN BUFFETTThe next item of business is to elect directors. If a shareholder is present who wishes to withdraw a proxy previously sent in and vote in person on the election of directors, you may do so. Also, if any shareholder that is present has not turned in a proxy and desires a ballot in order to vote in person, you may do so. If you wish to do this, please identify yourself to one of the meeting officials in the aisles, who will furnish a ballot to you. I recognize Mr. Walter Scott to place a motion before the meeting with respect to election of directors.

WALTER SCOTTI move that Warren Buffett, Charles Munger, Howard Buffett, Stephen Burke, Susan Decker, William Gates, David Gottesman, Charlotte Guyman, Don Keough, Tom Murphy, Ron Olson, and Walter Scott be elected as directors.

WARREN BUFFETTIs there a second?

VOICEI second the motion.

WARREN BUFFETTIt has been moved and seconded that Warren Buffett, Charles Munger, Howard Buffett, Stephen Burke, Susan Decker, William Gates, David Gottesman, Charlotte Guyman, Donald Keough, Thomas Murphy, Ronald Olson, and Walter Scott be elected as directors. Are there any other nominations? Is there any discussion? The nominations are ready to be acted upon. If there are any shareholders voting in person, they should now mark their ballots on the election of directors and allow the ballots to be delivered to the inspector of elections. Miss Amick, when you are ready, you may give your report.

BECKI AMICKMy report is ready. The ballot of the proxyholders in response to proxies that were received through last Thursday evening, cast not less than 701,770 votes for each nominee. That number far exceeds a majority of the number of the total votes of all Class A and Class B shares outstanding. The certification required by Delaware law of the precise count of the votes will be given to the secretary to be placed with the minutes of this meeting.

WARREN BUFFETTThank you, Miss Amick. Warren Buffett, Charles Munger, Howard Buffett, Stephen Burke, Susan Decker, William Gates, David Gottesman, Charlotte Guyman, Donald Keough, Thomas Murphy, Ronald Olson, and Walter Scott have been elected as directors.

Shareholder advisory vote on Berkshire's executive compensation

WARREN BUFFETTThe next item on the agenda is an advisory vote on the compensation of Berkshire Hathaway's executive officers. I recognize Mr. Walter Scott to place a motion before the meeting on this item.

WALTER SCOTTI move that the shareholders of the company approve, on an advisory basis, the compensation paid to the company's named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including compensation discussion and analysis, the accompanying compensation tables, and related narrative discussion, in the company's 2011 annual meeting proxy statement.

WARREN BUFFETTIs there a second?

VOICEI second the motion.

WARREN BUFFETTIt has been moved and seconded that the shareholders of the company approve, on an advisory basis, the compensation paid to the company's named executive officers. Is there any discussion? The motion is ready to be acted upon. If there are any shareholders voting in person, they should now mark their ballots on the motion and allow the ballots to be delivered to the inspector of elections. Miss Amick, when you are ready, you may give your report.

BECKI AMICKMy report is ready. The ballot of the proxyholders in response to proxies that were received through last Thursday evening, cast not less than 720,883 votes to approve, on an advisory basis, the compensation paid to the company's named executive officers. That number far exceeds a majority of the number of the total votes of all Class A and Class B shares outstanding. The certification required by Delaware law of the precise count of the votes will be given to the secretary to be placed with the minutes of this meeting.

WARREN BUFFETTThank you, Miss Amick. The motion to approve, on an advisory basis, the compensation paid to the company's named executive officers has passed.

Shareholders decide to hold a compensation vote every three years

WARREN BUFFETTThe next item is an advisory vote on the frequency of a shareholder advisory vote on compensation of named executive officers. I recognize Mr. Walter Scott to place a motion before the meeting with respect to this item.

WALTER SCOTTI move that the shareholders of the company determine, on an advisory basis, the frequency, whether annual, bi-annual, or tri-annual, with which they shall have an advisory vote on the compensation of the company's named executive officers, set forth in the company's proxy statement.

WARREN BUFFETTIs there a second?

VOICEI second the motion.

WARREN BUFFETTIf has been moved and seconded that the shareholders of the company determine the frequency with which they shall have an advisory vote on compensation of named executive officers, with the options being every one, two, or three years. Is there any discussion? The motion is ready to be acted upon. If there are any shareholders voting in person, they should now mark their ballots on the motion and allow the ballots to be delivered to the inspector of elections. Miss Amick, when you are ready, you may give your report.

BECKI AMICKMy report is ready. The ballot of the proxyholders in response to proxies that were received through last Thursday evening, cast 112,395 votes for a frequency of every year; 4,615 votes for a frequency of every two years; and 609,699 votes for a frequency of every three years, of an advisory vote on the compensation of named executive officers. The certification required by Delaware law of the precise count of the votes will be given to the secretary to be placed with the minutes of this meeting.

WARREN BUFFETTThank you, Miss Amick. The shareholders of the company have determined, on an advisory basis, that they shall have an advisory vote on the compensation paid to the company's named executive officers every three years.

Shareholder motion on reduction of greenhouse gases

WARREN BUFFETTThe next item of business is a motion put forth by Miss Coward, a Berkshire shareholder represented by Mr. Bruce Herbert and Mr. Larry Dorrs (PH). The motion is set forth in the proxy statement. The motion requests Berkshire Hathaway to establish goals for the reduction of greenhouse gas at its subsidiaries' power plants, and prepare a report for shareholders on how it will achieve these goals. The directors recommend that the shareholders vote against the proposal. I will now recognize Mr. Herbert to present the motion. To allow all interested shareholders to present their views, I ask Mr. Herbert to limit his remarks to five minutes. The microphone at, well, let's have Mr. Herbert first, if we can turn up the lights.

BRUCE HERBERTThank you. Good day, ladies and gentlemen. My name is Bruce Herbert and I'm chief executive of Newground Social Investment in Seattle, Washington. It is such a pleasure to be here today, representing a life-long owner of Berkshire Class A shares. And I stand to present the resolution found on page 12 of the proxy, that asks our company to set goals for reducing greenhouse gas emissions at its energy holdings. This is because serious investors know, and studies show, that climate change creates financial liability. The Investor Network on Climate Risk, whose members manage more than $10 trillion, and the Carbon Disclosure Project, representing more than $70 trillion in assets globally, call on companies to disclose risks related to climate change, as well as the actions taken to mitigate those risks. In 2010, 66 percent of U.S. electric utilities had already set greenhouse gas emission reduction goals. Sixty-six percent. Unfortunately, Berkshire MidAmerican was not among them. Now, investors have cause to be concerned. Just last year, the SEC announced that climate risks are material, and that they must be disclosed. We do applaud MidAmerican for having the largest wind energy portfolio of any utility in the United States. However, it is also true that MidAmerican generates close to three-quarters of its power burning coal. Investors, globally, want to reduce risk through cleaner generation, and 66 percent of public utilities have already published their plans for doing so. But MidAmerican offers no such plan, despite the public proclamation via its website, that, quote, "We will set challenging goals and assess our ability to continually improve our environmental performance," unquote. There is no more important environmental goal for a coal-burning utility than to reduce pollution. But more than this, Berkshire is uniquely vulnerable, in that the financial burdens of climate change are pushed onto insurance companies, and as a major insurer, this has serious financial ramifications for our company. Berkshire enjoys a remarkable and well-earned reputation, earned over many decades, for being practical visionaries. Addressing climate change offers an opportunity for our company both to uphold and to enhance this reputation. So in closing, the world's largest institutional investors call on companies to set greenhouse gas reduction goals. Such goals are key tools for managing the extraordinary business risk of climate change. Two-thirds of utilities in the United States have already set these types of reduction goals, and this resolution, importantly, gives Berkshire managers the freedom to determine what those goals should be and to shape the process for meeting them. And the major proxy advisory firms have repeatedly recommended voting for similar resolutions. So I will close with a request and a question. The request is for all of you here to please join us in supporting this common sense proposal. And the question, gentlemen, is, have you evaluated the business risk of climate change to our companies and what did you find out? Thank you.

WARREN BUFFETTThank you, Mr. Herbert. We have a microphone at zone 1. It's available for anyone wishing to speak for or against the motion. You've seen where zone 1 is there. I'll wait just a minute or two in case anybody would like — is there an additional speaker there that —? I'll ask that, for the benefit of those present, I ask that each speaker for or against the motion limit themselves to two minutes and confine your remarks solely to the motion. So go ahead.

AUDIENCE MEMBERHi, I'm Paul Herman, founder of HIP Investor. HIP stands for Human Impact and Profit. We're a registered investment advisor in the states of California, Illinois, and Washington. Climate change is obviously one of the risks to Berkshire Hathaway conglomerate companies, including MidAmerican Energy and Burlington — the Burlington railway — which transports coal, much of which is getting exported to China. So we are concerned about, also, about the disclosure, quantification, and impact on profit, of greenhouse gases, as well as the quantification of the asset of the carbon credits that might be available for eco-efficient companies. So we strongly support this resolution for increased disclosure, increased transparency and evaluation of the financial returns that are possible, or the financial liabilities, especially with your expertise in reinsurance, because reinsurance companies typically put a quantification of potential carbon exposure and liabilities, whereas traditional insurance companies may not do so. So we strongly advocate for transparency, disclosure, and quantification as to the potential risks and liabilities. The SEC has encouraged this type of disclosure, though they have not mandated it. So Berkshire Hathaway would be a leader in doing this, as companies like GE, which their Ecomagination initiative, the 10 percent of revenue that they generate from their Ecomagination products, and other leaders from Jeff Immelt to the leaders of Duke Power that take a positive position on the financial returns that are possible for addressing climate change and carbon efficiency. Thank you.

WARREN BUFFETTThank you. We have some more speakers there?

AUDIENCE MEMBERMr. Buffett, Mr. Munger. My name is Jefferson Lilly (PH), a long-term Berkshire shareholder. It's my personal opinion that it's the previous two speakers that are the hot air in the problem around global warming, and that we — (applause) — that we not regulate Berkshire Hathaway to force it to have carbon disclosure or other silly rules. It's fine if the managers of the individual businesses choose to do that on their own, but it's completely inappropriate to bring this false religion of global warming to try and regulate Berkshire Hathaway. You guys are doing a great job on your own. (Applause)

WARREN BUFFETTAre there any other speakers there that —?

AUDIENCE MEMBERMr. Munger and Warren Buffett. I would just like to say one thing, which I think is really important. Berkshire Hathaway can be a leader in the environment. And I'm for transparency, as I know these two gentlemen are, and John Doerr, who is very passionate about the environment, and I know if he was here today, he would have the same sentiments as these two gentlemen. And it's important that as American citizens, we care about the environment. And not keep polluting the environment. And I'm with these two gentlemen 100 percent.

WARREN BUFFETTThank you. (Applause) Do we have any others that haven't spoken?

AUDIENCE MEMBERYes. My name is Eric Shlime (PH). I am not for this, so against the motion. I think Berkshire Hathaway has a pretty good reputation at being clean, being environmentally responsible. I don’t think anyone is saying that either Mr. Buffett or Mr. Munger is somehow — doesn't care about the environment. I think most people care about the environment. But it doesn't mean that we should for Mr. Buffett and Mr. Munger, or any of the CEOs, to tell them how to run their business. You guys care a lot about Berkshire's reputation. If Berkshire's subsidiaries are just polluting oceans and ponds and destroying the reputation in different towns and cities, I don’t think that would be too cool with either Buffett or Munger. So, doesn’t mean you don’t care about the environment just because you're not going to somehow regulate and tell other people how to run their business. Let's just do things voluntarily, do things to make money, and be responsible. At the end of the day, that's what wins. Thank you.

WARREN BUFFETTThank you. (Applause) Anyone additional?

AUDIENCE MEMBERYeah, my name's Larry Dorrs (PH) and I support this resolution. I don’t think anybody is saying anything other than you're gentlemen of great integrity. But this is a dollars and cents issue. And the EPA is releasing new rules that are calling for more regulation of greenhouse gas emissions. So this — you know, we're really approaching this from a point of view of a conglomerate that has insurance holdings, and it really is insurance companies that are bearing the great costs. So I'm looking very much forward to your point of view on this. Thank you.

WARREN BUFFETTThank you. Anyone else?

AUDIENCE MEMBERYes, thank you. David Hughes (PH), a shareholder. It's my opinion that this is the right thing to do and I think that it makes sense to do it, as an organization, prior to being forced to do it. And if this gives you the tools to set the rules your way, as you see fit, then I think that's far more powerful and sets a precedent, as Berkshire has done in the past, so I am for the resolution.

WARREN BUFFETTThank you. (Scattered applause) Anyone additional?

AUDIENCE MEMBERHello. My name is Thomas Dankenburter (PH) and my background was in biochemistry, and I'm very passionate about the environment, and I think it's very important for Berkshire to work to be a leader, and so I'm very much in support of this proposition.

WARREN BUFFETTThank you. (Scattered applause) Got somebody else there?

AUDIENCE MEMBERHi. My name is Sarah Cleveland. I'm from Portland, Oregon. I want to just also put a voice in favor of this resolution, and I think it's not about rights or wrong. It's about a willingness to take a look at risks and opportunities. And also for Berkshire Hathaway to be a leader. And also work with the subsidiary companies on specific possibilities.

WARREN BUFFETTThank you. (Scattered applause)

AUDIENCE MEMBERHi.

WARREN BUFFETTYou’re on.

AUDIENCE MEMBERMy name is Sam Roy (PH). This is my first meeting. Mr. Munger and Warren Buffett, I'm so impressed how you run your business, but I think you will care for the environment as well. I don't know whether we should impose a route, but at least you will, by your act, how the local businesses are run, and all the operating goes out and appears, and there is no question that we do everything possibly that we never pollute the air that cannot be changed. It is not hot air, but it is something I'm very passionate about. You can do anything with your environmental, but if you are not taking charge right now, we don't know what the implications would be for our kids and grandkids. I request you give it total investigation, and I think you will do that. Thank you for this opportunity.

WARREN BUFFETTThank you. (Scattered applause)

AUDIENCE MEMBERYes. Mr. Buffett and Mr. Munger, my name is Bob Stein (PH). I'm a registered, professional engineer, and I have a couple comments, and I'm a Berkshire stockholder. One, I think we all support very sound environmental protection. But the science before this — that's being used by EPA for greenhouse gases is not necessarily sound, and is not necessarily in the best interests of Berkshire Hathaway shareholders. Also, everything that the EPA has proposed is not practical and has caused a lot of problems making U.S. competitive in the world industrial market. Thank you.

WARREN BUFFETTThank you. (Scattered applause)

AUDIENCE MEMBERJason Bang (PH), Palo Alto, California. For me, one thing that's been very interesting about the issue is that it is something that deserves the passion that people bring to it. And I actually side with many of these people on the science of the issue. What concerns me is, not necessarily that Berkshire agrees to the motion, I'm actually against it, but that the enterprises under Berkshire are about to help evangelize the true science behind what's actually going on and help the American public get a better understanding, so they can also bring about change, rather than have it all occur from the executive level.

WARREN BUFFETTThank you.

AUDIENCE MEMBERGood afternoon. My name is Bill Guenther. I'm a shareholder from Newfane, Vermont. I work as a state forester back home and I want to say for folks that don’t believe global warming is reality, I wish you would follow me around in the woods. It definitely is. I want to support this resolution and I hope that the rest of the shareholders will feel it important enough to see it through. Thank you.

WARREN BUFFETTThank you. (Scattered applause)

AUDIENCE MEMBERGood afternoon. I'm (inaudible). I care about energy. I care about energy and environment more than anybody else because I'm currently still studying energy and environment issues. But I truly believe the power of private sector, the power of free markets. And I think it's not your responsibility to put the resources of the shareholder for this issue. It's not your expertise. I can personally do a better job to provide (inaudible) to do environmental advocacy than you do. So actually, against this resolution. Thank you.

WARREN BUFFETTThank you. (Scattered applause)

AUDIENCE MEMBERSorry, I have a friend to say something. I can translate it. (OFF-MICROPHONE SPEAKING) OK. He says the development of the solar panel has great impact on China. And the question — and he also thinks that, actually, Berkshire should do something, as should think about the implication of that.

WARREN BUFFETTThank you. (Scattered applause) OK. Whoops, we have one more.

AUDIENCE MEMBERHi, I'm Kevin Thompson (PH). I'm a shareholder. I'm for the motion. I am a career engineer that works with an oil company. And what we found when we started looking at greenhouse gas emissions was that what we thought was going to end up costing the company more money actually created more revenue for the company. And those are some of the stories that generally don't get told, but they are out there. And I would recommend that you take a look at it, because in actuality, what you may be dismissing may actually be revenue for your shareholders. Thank you.

WARREN BUFFETTThank you. (Scattered applause)

AUDIENCE MEMBERHello, Mr. Buffett. I'm Mike from (inaudible) and there's obviously a fine line between, like, cutting down the Amazon forest and, like, just burning some coal. So sometimes you can give up a little but you can't really give up that much. So that's why I don’t support the motion.

WARREN BUFFETTThank you. (Scattered applause)

AUDIENCE MEMBERYou’re welcome.

MEETING OFFICIALThere do not appear to be any further comments.

WARREN BUFFETTOK, thank you. (Applause) Democracy in action at Berkshire. The — a couple of questions that were raised. In terms of material information, or material risks, in respect to Berkshire and specifically to our insurance operation, annually in the 10-K, there's a recitation of risk. And, in my own opinion, in terms of our insurance operation, this question does not pose material risk to Berkshire's insurance operations. The question one gentleman, toward the end, mentioned the fact that it might even be more profitable for Berkshire, in terms of what might happen if we followed the motion. Ironically, he could well be right if it were in our determination, but just take our three major states in electric utility operation, where we serve almost two million customers, Iowa, Utah, and Oregon, but it's true of other states as well. We operate under the dictates of the utility commissions in those three states, all of which — or each of which — sets their own rules regarding operation, and each of which we end up obeying. If we were to unilaterally, for example, decide to close down significant coal generation, we would be told to depreciate those plants over a shorter period, and that would translate, not in the cost to Berkshire, it would translate into higher rates for electricity there. We are entitled to a return on our investment and the faster the depreciation, the higher the rates have to be in order to achieve allowed returns. So there was a woman from Oregon speaking, for example. And the burden of any unilateral attempt by us — and we couldn’t do it without the approval of the utility commissions — but the burden would fall on customers. And it is true, actually, that we would recoup accelerated depreciation and we would probably have a much larger investment on which we would be allowed a return in other generating facilities. But this is a question — this is not something that the stockholders of Berkshire end up incurring the costs of. It's something that the rate, or the users of electricity in these various states, will pay for. And that judgment, quite properly, should be made by the public utility commissions of those various states. And whatever they decide, you know, we will follow. And over time, there's no question, just like we've talked about our wind generation in Iowa, this country will move toward a different composition of electricity generation. And as I stated earlier, I personally favor more nuclear over time, but that will be determined both at the state level, and in some ways, at the national level. So it's our recommendation that the motion be voted down. And I think the motion is now ready to be acted upon. If there are any shareholders voting in person, they should now mark their ballots on the motion and allow the ballot to be delivered to the inspector of elections. Miss Amick, when you are ready you may give your report?

BECKI AMICKMy report is ready. The ballot of the proxyholders in response to proxies that were received through last Thursday evening cast 67,733 votes for the motion, and 608,576 votes against the motion. As the number of votes against the motion exceeds a majority of the number of votes of all Class A and Class B shares outstanding, the motion has failed. The certification required by Delaware law of the precise count of the votes will be given to the secretary to be placed with the minutes of this meeting.

WARREN BUFFETTThank you, Miss Amick. The proposal fails.

Formal meeting adjourns

WARREN BUFFETTDoes anyone have any further business to come before this meeting before we adjourn? If not, I recognize Mr. Scott to place a motion before the meeting.

WALTER SCOTTI move this meeting be adjourned.

WARREN BUFFETTIs there a second?

VOICEI second it.

WARREN BUFFETTA motion to adjourn has been made and seconded. We will vote by voice. Is there any discussion? If not, all in favor say aye. All opposed say no.