2017 年股东大会 · 下午场

Berkshire and 3G's different approaches to job cuts

WARREN BUFFETTPanel all here? OK. We're back for action. And we'll go right to Becky.

BECKY QUICKAll right. This question comes from Anne Newman (PH). She says that she's a shareholder of the Class B stock. And her question is, "The primary investment strategy of 3G Capital is extreme cost-cutting after the purchase of a company. This typically includes the elimination of thousands of jobs. "With the current U.S. president focusing on retention of U.S. jobs, will Berkshire Hathaway still consider future investments with 3G Capital if those investments result in the purchase of U.S. companies and the elimination of more U.S. jobs?"

WARREN BUFFETTNow, the, essentially, 3G management — and I've watched them up very close at Kraft Heinz — is — basically, they don't — they believe in having a company as productive as possible. And, of course, the gains in this world, for the people in this room, and people in Omaha, and people throughout America, have come through gains in productivity. If there had been no change in productivity, we would be living the same life as people lived in 1776. Now, the people — the 3G people — do it very fast. And they're very good at making a business productive with fewer people than operated before. But that — they've been, you know, we've been doing that in every industry, whether it's steel, or cars, or you name it. And that's why we live as well as we do. We prefer at Berkshire — I wrote about this a year ago — we prefer to buy companies that are already run efficiently because, frankly, we don't enjoy the process at all of getting more productive. I mean, it's not pleasant. But it is what has enabled the country to progress. And nobody has figured out a way to double people's consumption per capita without, in some way, improving productivity per capita. It's a good question in the — whether it's smart overall if you think you're going to suffer politically because political consequences do hit businesses. So I don't know that I can answer the question categorically. But I can tell you that they not only focus on productivity and do it in a very intelligent way, but they also focus, to a terrific degree, on product improvement, innovation, and all of the other things that you want a management to focus on. And I hope that, at the lunchtime, if you had the Kraft Heinz cheesecake, you'll agree with me that product improvement and innovation there is a — is just as much a part of the 3G playbook as productivity. I don't — Personally, we have been through the process of buying into a textile business that employed a couple thousand people and went out of business over a period of time, or a department store, a business that was headed for oblivion. And it is just not as much fun to be in a business that cuts jobs rather than one that adds jobs. So, Charlie and I would probably forego, personally, having Berkshire directly buy businesses where the main benefits were come — would come from increasing productivity by actually having fewer workers. But I think it's pro-social to think in terms of improving productivity. And I think that people at 3G do a very good job at that. Charlie?

CHARLIE MUNGERWell, I agree. I don't see anything wrong with increasing productivity. On the other hand, there's a lot of counterproductive publicity to doing it. Just because you're right doesn't mean you should always do it.

WARREN BUFFETTYeah. I'd agree with that.

Pressure to deploy Berkshire's cash grows as it nears $100B

WARREN BUFFETTJay?

JAY GELBBerkshire's cash and Treasury bill holdings are approaching $100 billion. Warren, a year ago, you said Berkshire might increase its minimum valuation for share buybacks above 1.2 times book value if this occurred. What are your latest thoughts on raising the share repurchase threshold?

WARREN BUFFETTYeah, the — when the time comes — and it could come reasonably soon, even while I'm around — but [if] we really don't think we can get the money out in a reasonable period of time into things we like, we have to reexamine then what we do with those funds that we don't think can be deployed well. And at that time, we'd make a decision. And it might include both, but it could be repurchases. It could be dividends. There are different inferences that people draw from a dividend policy than from a repurchase policy that, in terms of expectations that you won't cut a dividend and that sort of thing. So you have to factor that all in. But if we really — if we felt that we had cash that was unlikely to be used — excess cash — in a reasonable period of time, and we thought repurchases at a price that was still attractive to continuing shareholders was feasible in a substantial sum, that could make a lot of sense. At the moment, we're still optimistic enough about deploying the capital that we wouldn't be inclined to move to a price much closer where there's only a narrow spread between an intrinsic value and the repurchase price. But at a point, the burden of proof is definitely on us. I mean, that — I — the last thing we like to do is own something at a hundred times earnings where the earnings can't grow. I mean, we're — as you point out, we've got almost a hundred billion — it's $90-plus billion invested in a business, we'll call it a business, where we're paying almost a hundred times earnings. And it's kind of a lousy business.

CHARLIE MUNGERIt's more after after-tax earnings.

WARREN BUFFETTYeah. So, it — you know, we don't like that. And we shouldn't use your money that way for a long period of time. And, then, the question is, you know, are we going to be able to deploy it? And I would say that history is on our side, but it'd be more fun if the phone would ring instead of just relying on history books. And, you know, I am sure that sometime in the next 10 years — and it could be next week or it could be nine years from now — there will be markets in which we can do intelligent things on a big scale. But it would be no fun if that happens to be nine years off. And I don't think it will be, but just based on how humans behave and how governments behave and how the world behaves. But like I say, at a point, the burden of proof really shifts to us, big-time. And there's no way I can come back here three years from now and tell you that we hold 150 billion or so in cash or more, and we think we're doing something brilliant by doing it. Charlie?

CHARLIE MUNGERWell, I agree with you. The answer is maybe. (Laughter)

WARREN BUFFETTHe does have a tendency to elaborate. (Laughter)

CTB and animal rights

WARREN BUFFETTStation 11.

AUDIENCE MEMBERThank you, Mr. Buffett and Mr. Munger. I am Anil Daron (PH) from Short Hills, New Jersey and New Delhi, India. This is my 18th time to this wonderful event, and profoundly thank you for your extraordinary wisdom, generosity, and time. As I'm involved with sustainable investments that also do not directly harm animals, I would appreciate your perspective, if any, on the practices of your CTB subsidiary, which is somewhat involved in pig, poultry, and egg production. Somewhat indirectly related, as you share your concern on nuclear war extensively at the last annual meeting, I would love to pick your brain on Albert Schweitzer's Nobel Peace Prize acceptance speech, shortly after the first nuclear bombs were detonated, that compassion can attain its full breadth and depth if it is not limited to humans only. Thank you.

WARREN BUFFETTWell, that's a pretty broad question. I would say on your first point, we have a subsidiary, CTB, run by Vic Mancinelli. And I sit down with him once a year. And he's a terrific manager. He's one of our very best. You don't hear much about him. And they do make the equipment for poultry growers. And I would — I can't answer your question specifically, but I would be glad to have you get in contact with Vic directly because I know that what — question you raised is a — it's a major factor in what they do. I mean, they do care about how the equipment is used, in terms of poultry and egg production. And, as you know, a number of the largest purchasers and the largest producers are also in the same camp. But I can't tell you enough about it directly that I can give you a specific answer. But I can certainly put you in touch with Vic. And I think you would find him extremely well-informed and doing some very good things in the area that you're talking about. In terms of the nuclear weapon question, I'm very pessimistic on weapons of mass destruction, generally. Although, I don't think that nuclear, probably, is quite as likely as either biological — primarily, biological — and maybe cyber. I don't know that much about cyber. But I do think that's the number one problem with mankind. But I don't think I can say anything particularly constructive on it now. Charlie?

CHARLIE MUNGERWell, I don't think we mind killing chickens. (Laughter) And I do think we're against nuclear war, so — (Laughter)

WARREN BUFFETTYeah. (Applause) We are not actually a poultry producer, but we do — they use our equipment. And that equipment has been changed substantially in the last 10 or 15 years. But, again, I'm not that good on the specifics that I can give them to you. But I can certainly you put you in touch with Vic.

Giving Weschler and Combs more to manage wouldn't help them

WARREN BUFFETTAndrew ?

ANDREW ROSS SORKINWarren. Since Todd [Combs] and Ted [Weschler] joined Berkshire, the market cap of the company has doubled, and cash on hand is now nearly a hundred billion dollars. It doesn't look like Todd and Ted have been allocated new capital on the same relative basis. Why?

WARREN BUFFETTWell, actually, I would say they have been. I think we started out with two billion. That could be wrong, but my memory was two billion with Todd when he came with us. And so, there have been substantial additions. And, of course, their own capital has grown just because — say, in a sense, they retain their own earnings. So yeah, they are managing a proportion of Berkshire's capital — also measured by marketable securities — I think they're managing a proportion that's pretty similar, maybe even a little higher than when each one of them entered. And Ted entered a year or two after Todd. You know, they — I think they would agree that it's tougher to run 10 billion than it is to run one or two billion. I mean, your expectable returns go down as you get into larger sums. But the decision to bring them on has been terrific. I mean, they have — they've done a good job of managing marketable securities. They made more money than I would've made with that same, what is now 20 billion, but originally was two billion. And they've been a terrific help in a variety of ways beyond just money management. So that decision, I'll — you know — that's been a very, very good decision. And they are — they're smart. They have money minds. They are good, specifically, at investment management. But they're absolutely first-class human beings. And they really fit at Berkshire. So, that was — Charlie gets credit for Todd. He met Charlie first. And I'll claim credit for Ted. And I think we both feel very good about the decisions. Charlie?

CHARLIE MUNGERWell, I think the shareholders are very lucky to have them because they both think like shareholders.

WARREN BUFFETTTotally.

CHARLIE MUNGERAfter all, it came up that way. And that is not the normal way headquarters employees think. It's a pretense that everybody takes on, but the reality is different. And these people really, deeply think like shareholders. And they're young, and smart, and constructive. So we're all very lucky to have them around.

WARREN BUFFETTYeah. Their mindset is a hundred percent, "What can I do for Berkshire," not, "What can Berkshire do for me?" And, believe me, you can spot that over time with people. And on top of that, you know, they're very talented. But, you know, it's hard to find people young, ambitious, very smart, that don't put themselves first. And I would — every experience we've had, they did not put themselves first. They put Berkshire first. And believe me, I can spot it when people are extreme in one direction or another. Maybe I'm not so good around the middle, but you've got — You couldn't have two better people in those positions. But — and you say, "Well, why don't you give them another 30 billion each or something?" I don't think that would improve their lives or their performance. They may be handling more as they go along, but the truth is, I've got more assigned to me than I can handle at the present time, as proven by the fact that we've got this 90 billion-plus around. I think there are reasonable prospects for using it. But if you told me I had to put it to work today, I would not like the prospect. Charlie, anything?

CHARLIE MUNGERWell, I certainly agree with that. It's a lot harder now than it was at times in the past.

Private transactions not needed now for Class A shares

WARREN BUFFETTGregg?

GREGG WARRENWarren, plans for your ownership stake, which is heavily concentrated in Class A shares, are fairly well known, with the bulk of the stock going to the Bill and Melinda Gates Foundation and four different family charities over time. Your annual pledges to these different charities involve the conversion of Class A shares, which hold significantly greater voting rights than the Class B shares. As such, the voting control held by your estate will diminish over time, with a whole layer of super-voting shares being eliminated in the process. While the voting influence of Class B shareholders are expected to increase over time, it will not be large enough to have a big influence on Berkshire's affairs. With that in mind, and recognizing the great importance on having Berkshire buy back and retire Class A shares in the long run, I was just wondering if the firm has compiled a pipeline of potential future sellers from the ranks of the company's existing shareholders. Given the limited amount of liquidity for the shares, privately negotiated transactions with these sellers, like the one you negotiated in December of 2012, would end up being in the best interest of both parties.

WARREN BUFFETTWell, again, it would depend on the price of Berkshire. So, in terms of what I give away annually, you know, it's — the last two years, it's been about 2.8 billion per year. That can be — you know that's one day's trading in Apple. I mean, the amount I'm giving away is, in terms of Berkshire's market cap, I mean, you know, you're down to seven-tenths of one percent of the market cap. So, it's not a big market factor, and it really wouldn't be that illiquid. So, I know a few big holders that, you know, might have 8- or 10,000 shares of A. But the market can handle it now. When we bought that block of — I think it was 12,000 shares of A, I mean, we bought it because we thought it increased the intrinsic business value of Berkshire by a significant amount. And we paid the seller what the market was at the time. And, you know, we're open to that up to 120 percent. And who knows? If it came along at a time and it was 124 percent or something, it was a very large block and the directors decided that that was OK, it still was a significant discount, we might very well buy it. But in terms of the orderly flow of the market or anything like that, there will be no problems just as there haven't been, you know, when I've given away — I do it every July — when I've given away the last two years. Some of the foundations may keep it for a while. But they have to spend what I give them. And they may build up a position in B for, you know, a fairly significant dollar amount. But they're going to sell it. And it is true that for a period after I die, there'll be a lot of votes still in the estate and later in a trust. But, you know, that will get reduced over time. I see no problem with our capitalization over time. You know, I like the idea of a fair number of votes being concentrated with people that believe in the culture strongly and, you know, would be thinking about whether they'd get a 20 percent jump in the stock if somebody came along with some particular plan. But, eventually, that's going to get diminished. It continues to get diminished. And I think, in terms of — you know, there's a very good market in Berkshire shares. And if we can buy them at a discount from intrinsic business value and somebody offers some sum — a big piece — and it may be at a hundred — stock may be selling at 122 percent, 124 percent, you know, I would pick up the phone and call the directors and see if they didn't want to make a change. And we did it once before. And if it made sense, I'm sure they'd say yes. And if it didn't make sense, I'm sure they'd say no. So, I don't think we have any problem in terms of blocks of stock or anything. I don't think people that own it have a problem selling it. And I don't think we have a problem in terms of evaluating the desirability of repurchasing it. Charlie?

CHARLIE MUNGERNothing to add.

Deciding whether to exercise Bank of America warrant

WARREN BUFFETTOK. Station 1.

AUDIENCE MEMBERHello. My name is Erin Byer. And I was born and raised in Pasadena, California, and I currently live in New York City. It's been a dream of mine to come here today. I've been a proud BH shareholder for almost 20 years. I asked my dad for stock for Christmas when I was 15. And I kept thinking at the opportunity to ask you a question today that I should make it one that would change my life. Well, that question is, do you know any eligible bachelors living in the New York City area? (Laughter and applause)

WARREN BUFFETTWell, you certainly have the approach toward life that Charlie and I would. (Laughs)

AUDIENCE MEMBERBut the question that might make my Monday, back in the office: back in 2011, you purchased Bank of America preferred stock with a warrant. You had the opportunity, at a later date, to exercise and convert those into common shares. When you're looking at evaluating that decision to exercise that position, which would increase all of our Berkshire holdings — or the value of the Berkshire holdings — what are you going to consider when you're looking at that?

WARREN BUFFETTWell, it's almost — well, if the price of the stock is above seven dollars a share, which seems quite likely, whether we were going to keep it or not, it would still make sense for us to exercise the warrant shortly before it expired, because it would be a valuable warrant, but it's only a valuable warrant if it's converted — or if exercised — and exchanged into common. And that warrant does expire. So, as I put in the annual report, our income from the investment would increase if the Bank of America ever got to where it was paying 11 cents quarterly. We get 300 million off the — a year — off the preferred. And for us to use the preferred as payment in the exercise of the warrant, we would need to — we would want to feel we were getting more than 300 million a year by — and that would take 11 cents quarterly. They may or may not get to where they pay that amount before the warrant expires in 1921 — or 2021. If we — if it does get to there, we'll exercise the warrant. And then, instead of owning the five billion of preferred and the warrant, we'll have 700-plus million shares of common. Then that becomes a separate decision. Do we want to keep the 700 million shares of common? I — if it were to happen today, I would definitely want to keep the stock. Now, who knows what other alternatives may be available in 2021 or — But as of today, if our warrant were expiring tomorrow, we would use the preferred to buy 700 million-plus shares of common. And we would keep the common. If they get to 11 cents quarterly dividend, we'll convert it. And we'll very likely keep the common. And if we get to 2021, if the common's above seven dollars, which I would certainly anticipate, we will exercise. So that's all I can tell you on that. But I certainly wish you success on your other objective. (Laughter) And I think, probably, the fellow will be using very good judgment, too. OK. Charlie?

CHARLIE MUNGERWell, I think it's a very wise thing for a woman that owns Berkshire stock and is a good looking woman to put her picture up like that. (Laughter and applause)

WARREN BUFFETTIt does give me a thought, though. We might actually start selling ads in the annual report. And — (Laughter) OK. That — incidentally, that BofA purchase, it literally was true that I was sitting in the bathtub when I got the idea of checking with the BofA, whether they'd be interested in that preferred. But I've spent a lot of time in the bathtub since, and nothing's come to me. So — (Laughter) Clearly, I either need a new bathtub or we got to get in a different kind of market.

Defending 3G's job cuts

WARREN BUFFETTCarol?

CAROL LOOMISThis is a question from George Benaroya. And it adds a layer to the discussion about 3G a little bit ago. He says, "I am a very happy, long-term shareholder. But this is a concern I have regarding Berkshire Hathaway's Kraft Heinz investment. "This investment has done well in economic terms. The carrying value is 15 billion, and the market value was 28 billion in 2016. "But the DNA of 3G is quite different from ours. We do not make money by buying companies and firing people. 3G fired 2,500 employees at Kraft Heinz. That is what private equity firms do, but we are not a private equity firm. "Our values have worked for us for over four — 50 years. There is a risk that as 3G continues to deviate from our principles, they will, eventually, harm both our value and our values. How do we prevent that from happening?"

WARREN BUFFETTWell, that's interesting. I mentioned earlier that it was very gradual. But it would've been, probably, a better decision. We fired 2,000 people over time — and some retired and left and all of that — but at the textile operation [Berkshire Hathaway]. You know, it didn't work. And at Hochschild Kohn, the successor — we fortunately sold it to somebody else — but eventually, they closed up the department stores because department stores, at least that particular one and a good many, actually, including our competitors in Baltimore, could not make it work. Walmart came along with something — and, now, Amazon's coming along with something — that changed the way people thought they knew. You — We mentioned our poultry with CTB, which is a lot of different farm equipment. The farm equipment, often, that CTB develops, the idea is that it's more productive than what already is out there, which means fewer people are employed on farms. We had 80 percent of the American public — population, working population — working on farms a couple of hundred years ago. And if nobody had come up with things to make it more productive — farming — we'd have 80 percent of people working on farms now to feed our populace. And it means that we'd be living in a far, far more primitive way. So there — you know — if you look at the auto industry, it gets more productive. If you look at any industry, they're trying to get more productive. Walmart was more productive than department stores, and — That will continue in America. And it better continue or we won't live in — or our kids won't live any better than we do. Our kids will live better than we do, because America does get more productive as it goes along. And people do come up with better ways of doing things. The — When Kraft Heinz finds that they can do whatever amount of business — $27 billion worth of business or something — and they can do it with fewer people, they're doing what American business has done for a couple hundred years and why we live so well. But they do it very fast. They're more than fair, in terms of severance pay and all of that sort of thing. But they don't want to have two people doing the job that one can do. And I, frankly, don't like going through that, having faced that. I faced that down at Dempster in Beatrice, Nebraska. And it really needed change. But the change is painful for a lot of people. And I just would rather spend my days not doing that sort of thing, having had one or two experiences. But I think that it's absolutely essential to America that we become more productive because that is the only way we have more consumption per capita, is to have more productivity per capita. Charlie?

CHARLIE MUNGERWell, I — you're absolutely right. We don't want to go back to subsistence farming. I had a week of that when I was young on a western Nebraska farm. And I hated it. (Laughter) And I don't miss the elevator operators who used to sit there all day in the elevator, run the little crank, you know. So, on the other hand, it — as you say it's terribly unpleasant for the people that have to go through it and why would we want to get into a — the business of doing that over and over ourselves? We did it in the past when we had to, when the businesses were dying. I don't see any moral fault in 3G at all, but I do see that there's some political reaction that doesn't do anybody any good.

WARREN BUFFETTMilton Friedman, I think it was, used to talk about the time — probably apocryphal — he would talk about the huge construction project in some communist country. And they had thousands and thousands and thousands of workers out there with shovels digging away on this major project. And, then, they had a few of these big, earth-moving machines behind — which were idle — and which could've done the work in one-twentieth of the time of the workers. So the economists suggested to the local party worker or whoever it was that, you know, why in the world didn't they use these machines to get the job done in one-tenth or one-twentieth the time instead of having all these workers out there with shovels? And the guy replied, "Well, yeah. But that would put the workers out of work." And Friedman said, "Well, then, why don't you give them spoons to do it instead," you know? (Laughter)

Berkshire's $20B cash cushion is an "absolute minimum"

WARREN BUFFETTJonathan?

JONATHAN BRANDTI understand that Berkshire is much more liquid than is ideal right now with a 113 billion of consolidated cash and bonds versus policyholder float of 1-0 — 105 billion. But I have trouble calculating how much incremental buying power Berkshire has at any point in time. You've talked about having a minimum of 20 billion in cash on a consolidated basis. But for regulatory, risk control, or liquidity purposes, is there some minimum amount of float beyond the 20 billion that has to be in cash bonds or, say, preferred stocks? Or can all but 20 billion be put into either common stocks or invested into wholly-owned businesses if you found attractive opportunities?

WARREN BUFFETTYeah.

JONATHAN BRANDTWhat does the balance sheet look like if you were fully invested? And where does additional debt fit into the equation, if at all?

WARREN BUFFETTYeah. The — I wouldn't conflate the cash and the bonds. I mean, when we talk about 20 billion in cash, we can own no bond beyond that. Twenty billion would be the absolute minimum. As a practical matter, I never — Since I've set 20 billion as a minimum, I'm not going to operate with 21 billion any more than I'm going to see a highway, a truck sign that says maximum load 30,000 pounds or something and, then, drive 29,800 across it. So, we won't come that close. But the answer is that, A, we could use — we're not inclined to use debt. Obviously, if we found something that really lit the — lit our fire — we might use some more debt, although that'd be a — it's unlikely under today's circumstances. But we can — Twenty billion's an absolutely minimum. You can say that because I say 20 billion's an absolute minimum, it probably wouldn't be below 24 or 25. And we could do a very large deal if we thought it was sufficiently attractive. I mean, we have not put our foot to the floor on anything for really a very long time. But if we saw something really attractive — We spent 16 billion back when we were much smaller in a period of two or three weeks — probably three weeks maybe — in the fall of 2008. And we never got to a point where it was any problem for me sleeping at night. And now, we, obviously, have a lot more money to put out. So, if a good — Charlie, at what point, if I called you, would you say, "I think that's a little bit big for us today?"

CHARLIE MUNGERI would say about $150 billion.

WARREN BUFFETTWell, in that case, I'll call you. (Laughter) Don't — I'm a little more conservative on that than, actually, Charlie. But we both would do a very, very big deal if we —

CHARLIE MUNGERWe don't have to agree perfectly.

WARREN BUFFETTYeah. It'd have to be — But, if we find a really big deal that makes compelling sense —

CHARLIE MUNGERNow, you're talking.

WARREN BUFFETT— we're going to do it. (Laughter)

Very unlikely Jorge Paulo Lemann would succeed Buffett as CEO

WARREN BUFFETTOK. Station 2.

AUDIENCE MEMBERHello, Mr. Buffett, Mr. Munger. My name is Felipe Kioni (PH). I'm 19 years old from Brazil. And your partnership with Jorge Paulo Lemann and his associates at 3G has been very successful, taking into account great outcome of transactions such as the Kraft Heinz merger. Even though you and Jorge Paulo have different investment methods, would you and Charlie consider him to be your — a member of your board, or even your successor?

WARREN BUFFETTI don't think that will happen, but I — but then, I think it would complicate things, in terms of the board membership. But we love the idea of being their partner. And I don't think — I think there's a good chance that we will do more, and perhaps even bigger, things together. But the — we're probably unlikely to be doing much change in the board, certainly in the next few years. And there will be a successor, and the successor could very well be while I'm alive. But that will be — there's a very high probability that will be from somebody that's been in our company for some time. I mean, the world could change in very strange ways, you know. But that's a very, very high probability. Charlie?

CHARLIE MUNGERAll I can say is that my back hurts when I come to these functions because I want to indicate to the — my fellow shareholders — that they probably got seven more good years to get out of Warren. (Laughter and applause)

WARREN BUFFETTCharlie's inspiring me. I got to tell you that. But we've been very, very lucky in life. And so far, our luck seems to be holding.

Online competition hasn't yet affected Berkshire retailers

WARREN BUFFETTOK. Becky?

BECKY QUICKThis question comes from Drew Estes in Atlanta, Georgia. And he asks, "Is Fruit of the Loom experiencing difficulties related to the distribution channel shift towards online and the troubles in the brick and mortar retail world? If so, do you believe the difficulties are short term in nature?" And, then, Drew goes on to add, "I'm hoping millennials haven't bucked the underwear trend, too." (Laughter)

WARREN BUFFETTYeah. Well, he may know more about that than I do. (Laughter) The answer is essentially no, so far. But anybody that doesn't think that online isn't changing retail in a big way, and that anybody who thinks they're totally insulated from it is correct — I mean, the world is changing big time. And like I say, at Fruit of the Loom, I don't — it really hasn't changed. And at our furniture operation, which is setting a record so far again this year for the shareholder's weekend. You know, I mentioned it in the report, but I think we did $45 million in one week. And our furniture operations — it's hard to see any effect from online, outside of our own online operations. It had really good same-store gains. You can take, you know, whether it's the Nebraska Furniture Mart, but RC Willey, whether it's in Sacramento, or Reno, or Boise, or Salt Lake City, or Jordan's, which, in Boston, has done very well on a same-store basis. So, we don't really see it, but there were a lot of things we didn't see 10 years ago that then materialized. One thing you may find interesting is that the Furniture Mart here in Omaha, which is an extraordinary operation — the online has grown very substantially. And I may be wrong on this, but I think it's getting up to — I'd like to check this with the Blumkins before I say it, but I think it's getting pretty close to 10 percent or so of volume. But it's a very significant percentage of those people still go and pick the product up at the Furniture Mart. So apparently, they — it's the time spent entering the store or maybe at check-out lines or whatever it may be. I'm surprised that it gets to be that percentage. But the one thing about it is we keep looking at the figures and trying to figure out what they're telling us. So far, I would not say that it's affected Fruit of the Loom in a significant manner. I would not say it's affected the furniture operation in a significant manner. But I have no illusions that 10 years is going to look — from now — is going to look anything like today. If you think about it, you know, if you go back a hundred years to the great department stores, what did they offer? They offered incredible selection. You know, if you had a big department store in Omaha, you had the thousand bridal dresses. And if you lived in a small town around, the local guy had two or something of the sort. So the department store was the big, exciting experience of variety and decent prices and convenient transportation, because people took the street cars to get there. And, then, along came the shopping center. And they took what was vertical before. And they made it horizontal. And they changed it into multiple ownerships. But they still kept incredible variety, and assortments, and convenience of going to one place, and accessible transportation because, now, the car was the method. And now you go to — and, you know, and then, we went for the discount stores and all of that. But now you've got the internet. And you've got the ultimate, in terms of assortments. And you've got people that are coming in at low prices. And the transportation is taken care of entirely, so the evolution that has taken place — The department store is online now, basically, except much expanded in assortment, much more convenient, and lower prices. So the world has evolved, and it's going to keep evolving. But the speed has increased dramatically. And what'll happen with — the brands are going to be tested in a variety of ways that — and they have to make decisions as to whether they try to do an online themselves, or work through an Amazon, or whether they try to hang onto the old methods of distribution while embracing new ones. There's a lot of questions in retail and in branding that are very interesting to watch. And you'll get some surprises in the next 10 years, I can promise you that. Charlie?

CHARLIE MUNGERIt's — it would be certainly — be unpleasant if we were in the department store business. Just think of what we avoided, Warren.

WARREN BUFFETTYeah, we got very lucky, actually, because we were in the department store business, and our business was so lousy that we recognized it. If it had been a little bit better, we would've hung on. And we owe a tremendous gratitude to Sandy Gottesman, our director who's here in the front row, because he got us out of the business when Charlie and I, and Sandy, were partners in that. And something we paid six dollars a share for, I think it's worth about $100,000 a share now, because we got out of the business. And if it had been a somewhat better business, you know, it might be worth 10 or $12 a share now. So, sometimes you get lucky. We don't miss it either, do we, Charlie? Hochschild Kohn.

CHARLIE MUNGERNo. We don't miss it.

Book value a "whole lot less" relevant to Berkshire

WARREN BUFFETTJay.

JAY GELBThis question is on Berkshire's intrinsic value. A substantial portion of the company's value is driven by operating businesses rather than the performance of the securities portfolio. Also, the values of previously acquired businesses are not marked up to their economic value, including GEICO, MidAmerican, and Burlington Northern. Based on these factors, is book value per share still a relevant metric for valuing Berkshire?

WARREN BUFFETTWell, it's got some relevance, but it's got a whole lot less relevance than it used to. And that's why — I don't want to drop the book value per share factor, but the market value tends to have more significance as the decades roll along. It's a starting point. And clearly, our securities aren't worth more than we're carrying for — carrying them for — at that time. And, on the other hand, we've got the kind of businesses you've mentioned. But we've got some small businesses that are worth 10 times or so, you know, what would — could carry it for. We've also got some clunkers, too. But I think the best method, of course, is just to calculate intrinsic business value. But it can't be precise. We know — we think the probability's exceptionally high that 120 percent understates it. Although, if it was all in securities, you know, 120 percent would be too high. But as the businesses have evolved, as we built in unrecognized value at the operating businesses — unrecognized for accounting purposes — I think it still has some use as being kind of the base figure we use. If it were a private company and 10 of us here owned it, instead we'd just sit down annually and calculate the businesses one by one and use that as a base value. But that gets pretty subjective when you've got as many as we do. And so, I think the easiest thing is to use the standards we're using now, recognizing the limitations in them. Charlie?

CHARLIE MUNGERYeah. I think the equities in the insurance company offsetting shareholders equity in the company are really not worth the full market value because they're locked away in a high-tax system. And so I, basically, like it when our marketable securities go down and our own businesses go up.

WARREN BUFFETTYeah, we're working to that end. We've been working that way for 30 years now or something like that.

CHARLIE MUNGERWe've done a pretty good job, too.

WARREN BUFFETTYeah.

CHARLIE MUNGERWe have a lot of — we've replaced a lot of marketable securities with unmarketable securities that are worth a lot more.

WARREN BUFFETTYeah. And it's actually a more enjoyable way to operate, too, beyond that, but —

CHARLIE MUNGERYeah. We know a lot of people we wouldn't otherwise —

WARREN BUFFETTYeah.

CHARLIE MUNGER— be with. Good people.

I don't know tech, but I know consumer behavior

WARREN BUFFETTOK. Station 3.

AUDIENCE MEMBERHello.

WARREN BUFFETTHi.

AUDIENCE MEMBERMy name is Michael Monahan (PH). And I'm from Long Island, New York. I don't know if this question qualifies as investment advice. So I have a short, different question if you don't want answer this one. (Laughter) Unlike the last shareholder from zone 3, this will not be a stump speech, nor a protest. One of your most well-known pieces of investment advice is to buy what you know. Additionally, you said earlier, one of the main criteria for buying is if you could ever understand the business. Ever since I came to my first meeting in 2011, you were not known for being a tech guy. You have said smart phones are too smart for you, you don't have a computer at your desk, and you've only tweeted nine times in the last four years. (Laughter)

WARREN BUFFETTIt was either that or going to a monastery. (Laughter)

AUDIENCE MEMBERDespite this, you've recently been investing, looking, and talking more about tech companies. My question to you and also to Charlie to comment is, what you turned you from the Oracle of Omaha to the Tech Maven of Omaha?

WARREN BUFFETT(Laughs) Well, I don't think I would — I don't think I've talked that much about tech companies. But the truth is, we made a large investment in IB — I made a large investment in IBM, and — which has not turned out that well. We haven't lost money. But in terms of the bull market we've been in, it's been a significant laggard. And, then, fairly recently, we took a large position in Apple, which I do regard as more a consumer goods company, in terms of certain economic characteristics. Although, that — You know, it has a huge tech component in terms of what that product can do, or what other people might come along to do, to leapfrog it in some way. But I've — I think I'll end up being — no guarantees — but I think I'll end up being 1- for-2 instead of 0- for-2. But we'll find out. Charlie? I make no pretense whatsoever of being on the intellectual level of some 15-year-old that's got an interest in tech. I think I may know — have some insights into consumer behavior. I, certainly, can get a lot of information on consumer behavior and, then try to draw inferences about what that means about what consumer behavior is likely to be in the future. But we will find with — The one — the other thing I'll guarantee is I'll make some mistakes on marketable securities, and I've made them in other areas than tech. So it — you'll not bat a thousand, you know, no matter what industries you stick — you try to stick by. I know insurance pretty well. But I think we probably lost money on an insurance stock, perhaps, you know, once or twice over the years. So it — you don't bat a thousand. But I have gained no real knowledge about tech in the last — well, since I was born, actually. (Laughter) Charlie?

CHARLIE MUNGERI think it's a very good sign that you bought the Apple. It shows either one of two things. Either it is you've gone crazy or you're learning. (Laughter) I prefer the learning explanation.

WARREN BUFFETTWell, so do I, actually. (Laughter)

Artificial intelligence impact is hard to predict

WARREN BUFFETTAndrew?

ANDREW ROSS SORKINHi, Warren. This one's a fun one. Thomas Kimay (PH) is here. He's a 27-year-old shareholder from Kentfield, California. And I should preface this question by saying that he was here 17 years ago at 10 years old, asked you a question from the audience asking you if the internet might hurt some of Berkshire's investments. At the time, you said you wanted to see how things would play out. He's now updated the question. (Buffett laughs) "What do you think about the implications of artificial intelligence on Berkshire's businesses, beyond autonomous driving and GEICO, which you've talked about already? In your conversations with Bill Gates, have you thought through which other businesses will be most impacted? "And do you think Berkshire's current businesses will have a significantly — will have significantly more or less employees a decade from now as a function of artificial intelligence?"

WARREN BUFFETTWell, I —

ANDREW ROSS SORKINI mixed a couple questions together.

WARREN BUFFETTYeah. I certainly have no special insights on artificial intelligence, but I will bet a lot of things happen in that field in the next couple of decades, and probably a shorter timeframe. They should lead, I would certainly think — but again, I don't bring much to this party. But I would certainly think they would result in significantly less employment in certain areas. But that's good for society. And it may not be good for a given business, but let's take it to the extreme. Let's assume one person could push a button and, essentially, through various machines and robotics, all kinds of things, turn out all of the output we have in this country. So, everybody's — there's just as much output as we have. It's all being done by, you know, instead of 150-some million people being employed, one person. You know, is the world better off or not? Well, certainly we'd work a lot less hours a week — of work per week and so on. I mean, it would be a good thing, but it would require enormous transformation in how people relate to each other, what they expect of government, you know, all kinds of things. And, of course, as a practical matter, more than one person would keep working. But pushing the idea that way is one of the — you'd certainly think that's one of the consequences of making great progress in artificial intelligence. And that's enormously prosocial, eventually. It's enormously disruptive in other ways. And it can have huge problems, in terms of a democracy and how it reacts to that. It's similar to the problem we have in trade where trade is beneficial to society, but the people that see the benefits day by day of a — of trade — don't see a price at Walmart on socks or whatever they're importing, that says, you know, "you're buying — you're paying X, but you would pay X-plus-so-many-cents if you bought this domestically." So they're getting these small benefits and invisible benefits. And the guy that gets hurt by it, who's the roadkill of free trade, feels it very specifically. And that translates into politics. And so, you can — it gets very uncertain as to how the world would adjust, in my view, to great increases in productivity. And without knowing a thing about it, I would think that artificial intelligence would have that hugely beneficial social effect, but a very unpredictable political effect if it came in fast, which I think it could. Charlie?

CHARLIE MUNGERWell, you're painting a very funny world where everybody's engaged in trade. And the trade is, I give you golf lessons and you dye my hair. And that would be a world kind of like the royal family of Kuwait or something. And I don't think it would be good for America to have everything produced by one person and the rest of us just engaged in leisure.

WARREN BUFFETTHow about if we just got twice as productive?

CHARLIE MUNGERWhat?

WARREN BUFFETTHow about if we got twice as productive in a short period of time, so that 75 million people could do what 150 million people are doing now?

CHARLIE MUNGERI think you'd be amazed how quickly people would react to that.

WARREN BUFFETTIn what way?

CHARLIE MUNGERFavorably.

WARREN BUFFETTI —

CHARLIE MUNGERThat's what happened during the period when there — I'm sure everybody remembers with such affection — back in the Eisenhower years, five percent a year or something — people loved it. Nobody complained that they were getting air conditioning and they didn't have it before. Nobody wanted to go back to stinking, sweating nights in the South and —

WARREN BUFFETTWell, if you cut everybody's hours in half, it's one thing. But if you fire half the people and the other people keep working, I just think it gets very unpredictable. I mean, I think we saw some of that in this election because I think that —

CHARLIE MUNGERWell, we've adjusted to an enormous amount of it. It just came along a few percent per year.

WARREN BUFFETTWell, and the question, then, is —

CHARLIE MUNGERDon't think you have to worry — I don't think you have to worry about coming out at 25 percent a year. You know, I think you have to worry about it — you're going to get less than two percent a year. That's what's worrisome.

WARREN BUFFETTOK. We'll move on. But it will be, you know, it's an absolutely fascinating subject to see what happens with this. But it's very, very hard to predict. If — in some way, you know, we've got 36,000 people, say, employed at GEICO, you know. And if you could do the same — perform all the same functions, virtually all the same functions even, and do it with five- or 10,000 people, and it came on quickly, and the same thing was happening in a great many other areas, you know, I don't think we've ever experienced anything quite like that. And maybe we won't experience anything like it in the future. I don't know that much about AI, but —

CHARLIE MUNGERI don't think you have to worry about that.

WARREN BUFFETTWell, that's because I'm 86. (Laughter)

CHARLIE MUNGERIt's not going to come that quickly.

We have a "huge appetite" for both wind and solar projects

WARREN BUFFETTOK. Gregg.

GREGG WARRENWarren, during the past five years, Berkshire Energy's investments in solar and wind generation have been about equal, with around 4.7 billion dedicated to capital projects in each segment. Based on the company's end-of-year capital spending forecast for 2017 through 2019, investments in wind generation were expected to be more than seven times greater than investments in solar generation the next three years, with just over $4.5 billion going into wind generation. Just wondering how much of that future spending is tied to PacifiCorp's recently announced $3.5 billion expansion plan, which is heavily weighted towards improving and expanding the subsidiary's existing wind fleet, and whether the economics for wind are that much better than solar given that MidAmerican has also been spending heavily on wind investments? Or is this disparity between the two segments being driven more by genuine capacity needs, which would imply that you have much more solar capacity than you need?

WARREN BUFFETTYeah. It is — we don't look at it as having more solar capacity than we need or anything like — It's really a question of what comes along. I mean, and these — the projects, they're internally generated, they're externally offered to us, and we've got a big appetite for wind or solar. We have seen — you know — just based on those figures, we've seen more wind lately. But we have no bias toward either one. I mean, if we saw five billion of attractive solar projects we could do and didn't happen to see any wind during that period, it wouldn't slow us down from doing the five billion or vice versa. So we are — we have an appetite, a huge appetite, for projects in either area. We're particularly well situated, as I think I've explained or talked about in the past, because we pay lots of taxes. And therefore, solar and wind projects all involve a tax aspect to them. And we can handle those much better than many other — certainly, electric utilities. Most electric utilities really, A, don't have that much money left over after dividends and these — frequently, the taxes aren't that significant. At Berkshire, we pay lots of taxes, and we've got lots of money. So it's really just a question of doing the math on the deals as they come along. We've been very fortunate in Iowa, in finding lots of projects that made sense. And as a result, we've had a — we've got a much lower price for electricity than our main competitor in the state. We've got a lower price than in any states that touch us. We've told the people of Iowa we won't — they won't have a price increase for many, many, many years — guaranteed that. So this worked out extremely well. But if somebody walks in with a solar project tomorrow and it takes a billion dollars or it takes three billion dollars, we're ready to do it. There's no specific — And the more, the better. There's no specific preference between the two. Obviously, it depends where you are in the country. I mean, Iowa's terrific for wind. And, obviously, California's terrific for sun. And there are geographical advantages to one or the other. But from our standpoint, we can do them anyplace. And we will do them anyplace.

I "underestimated the brilliance" of Jeff Bezos at Amazon

WARREN BUFFETTOK. Station 4.

AUDIENCE MEMBERHi. My name is Joey (PH). And I'm an MBA candidate at Wharton. Thank you for having us. Amazon has been hugely disruptive, due to the brilliance of Jeff Bezos, whom Charlie earlier called the business mind of our generation. What is your current outlook and — on Amazon? And why hasn't Berkshire bought in?

WARREN BUFFETTWell, because I was too dumb to realize what was going to happen — (laughs) — even though I admired Jeff. I've admired him for a long, long time and watched what he was doing. But I did not think that he could succeed on the scale he has. And I certainly didn't — I didn't even think about the possibility of doing anything with Amazon Web Services or the cloud. So if you'd asked me the chances that, while he was building up the retail operation, that he would also be doing something that was disrupting the tech industry, you know, that would've been a very, very long shot for me. And I've underestimated — I've really underestimated the brilliance of the execution. I mean, it's one thing to dream about doing this stuff online, but it takes a lot of ability. And, you know, you can read his 1997 annual report. And he laid out a roadmap. And he's done it, and done it in spades. And if you haven't seen his interview on Charlie Rose three or four months ago — CharlieRose.com — go to it and listen to it because you'll learn a lot. At least, I did. So, I just plain — It always looked expensive. And I really never thought that he would be where he is today. I thought he would do — I thought he was really brilliant. But I did not think he would be where he is today when I looked at it three, five, eight, 12 years ago — whenever it may have been. Charlie, how did you miss it? (Laughter)

CHARLIE MUNGERIt was easy. (Buffett laughs) What was done there was very difficult, and it was not at all obvious that it was all going to work as well as it did. I don't feel any regret about missing out on the achievements of Amazon. But other things were easier. And I think we screwed up a little.

WARREN BUFFETTNo. We won't pursue that line. (Laughs)

CHARLIE MUNGERWell, I meant Google.

WARREN BUFFETTWell, we missed a lot of things.

CHARLIE MUNGERYes.

WARREN BUFFETTWe missed a lot of things.

CHARLIE MUNGERAnd we'll keep doing it.

WARREN BUFFETTYeah. (Laughter) And we'll have a two —

CHARLIE MUNGERLuckily, we don't miss everything, Warren. That's our secret. We don't miss them all. (Laughter)

WARREN BUFFETTOK. We better move on, I think. (Applause) He may start getting specific.

"If I died tonight, I think the stock would go up tomorrow."

WARREN BUFFETTCarol?

CAROL LOOMISThe creator of this question, Jim Keifer (PH) of Atlanta, has even higher expectations for Warren's longevity than Charlie does. "Mr. Buffett, we all hope you win the record as mankind's oldest living person. But at some point, you and/or Charlie will go, and Berkshire stock may then come under selling pressure. "My question is, if Berkshire stock falls to a price where share repurchase is attractive, can we count on the board and top management to repurchase shares? "I ask this question both because of past comments you have made about not wanting to take advantage of shareholders and because some of the passages in the owner's manual lead me to believe this might be an instance when the board does not choose to repurchase shares. "Can you clarify what course of action we might expect about repurchases in the circumstances I have outlined?"

WARREN BUFFETTYeah. Well, as far as I'm concerned, they're not taking advantage of shareholders if they buy the stock when it's undervalued. That's the only way they should buy it. And they should — But in doing so — there were a few cases back when Charlie and I were much younger — where there were very aggressive repurchases — or the equivalent of repurchases — by people. And the repurchases, incidentally, made a lot more sense than they do now. But they were done by people who either — for various techniques — tried to depress the shares. And if you're trying to encourage your partners to sell out at a depressed price by various techniques, including misinformation — but there's other techniques — you know, I think that's reprehensible. But our board wouldn't be doing that. I'll take exception to the first part of it, but I'll still answer the second. I think the stock is more likely to go up. If I died tonight, I think the stock would go up tomorrow. And there'd be speculation about break ups and all that sort of thing. So, it would be a good Wall Street story that, you know, this guy that's obstructed breaking up something that — where some of the parts might sell for more than the whole. They wouldn't necessarily be — probably be worth less than the whole — but might sell for — temporarily — for more than the whole. And it would happen. So I would bet in that direction. But if, for some reason, it went down to a level that's attractive, I don't think the board is doing anything in the least that's reprehensible by buying in the stock at that point. No false information, no nothing. It should — And their buying means that the seller would get a somewhat better price — if there are a lot of sellers — they'd get a mildly better price than if they weren't buying. And the continuing stockholders would benefit. So I think that — I think it's obvious what they would do. And I would think it's obvious that it's pro-shareholder to do it. And I think they would engage in pro-shareholder acts as far as the eye can see. I mean, we've got that sort of board. Charlie?

CHARLIE MUNGERWell, I think you or I might suddenly get very stupid very quickly, but I don't think our board is going to have that problem. (Laughter)

WARREN BUFFETTWell, I want to think about that one. (Laughter)

We try to explain material accounting issues to shareholders

WARREN BUFFETTOK. Jonathan.

JONATHAN BRANDTWarren, in the past, you've enjoyed discussing accounting for options grants. So I'm curious, what's your view of the new accounting standard which mandates that companies report lower tax provisions, based on so-called excess tax benefits enjoyed when share-based compensation ends up being more profitable for the grantees than when it's initially modeled? These so-called benefits — excess benefits — used to go through the shareholder's equity line on the balance sheet. Which accounting method makes more sense to you, the old method or the new?

WARREN BUFFETTJonny, I think you know a lot more about it than I do. So, if I were asked to answer that question, I'd probably call you up and say, "What should I say?" (Laughter) It's not a factor that will enter into Berkshire, so I really have not — I mean, I've heard just a little bit about that accounting standard. But I really don't know anything about it. Charlie?

CHARLIE MUNGERIt's not a big deal, Warren.

WARREN BUFFETTYeah. Well, I know that. (Laughter) Yeah. We — there are few things in accounting we really disagree with and whether they might be material to somebody trying to evaluate Berkshire. And, you know, that primarily gets into amortization of intangibles. It will certainly — it certainly gets into realized capital gains and that sort of thing. And we will go to great lengths to try to tell our partners, basically, not all of whom, you know, are accounting experts or anything. And we will try to make clear to them, at least, what our view is. You know, the same way as if I had a family business and I was talking to my sisters or something about it. But unless it's material, we'll probably stay away from trying to opine on any new accounting standards. If it's material to Berkshire, we'll go to great lengths to, at least, give our view. Charlie?

CHARLIE MUNGERWell, I certainly agree with that.

WARREN BUFFETTOK —

CHARLIE MUNGERThat is, that what he's talking about is not very material to Berkshire.

WARREN BUFFETTNo. It isn't. And it really won't be. You know, and —

CHARLIE MUNGERNo.

WARREN BUFFETTSome of these others are, though, and we will bring those up as they come up. The — yeah. We are reporting 400-and-some million dollars less in our earnings than if Precision Castparts had remained a public company. Well, is Precision Castparts — I mean, are the earnings less real? Is the cash less real? Is anything — because it's moved, the ownership? I don't think so. And I want to convey that belief to shareholders. And they can debate whether it's right or wrong. But I think it's a mistake not to comment if — and just assume that the owners understand that because it, you know, it's a fairly arcane point. And so, we point it out. But we also point out if we think depreciation is inadequate. As for valuation purposes, the depreciation is inadequate at a very capital-intensive business like BNSF, which we, I must say, still love anyway. Charlie, any more?

CHARLIE MUNGERNo.

"Valuation … is not reducible to any formula"

WARREN BUFFETTOK. Section 5.

AUDIENCE MEMBERThank you, and good afternoon. I'm Adam Bergman with Sterling Capital in Virginia Beach, Virginia. Earlier today, Mr. Munger commented on the valuation of China versus the U.S. market. My question for you is, are market cap to GDP and cyclically adjusted P/E still valid ways to consider market valuation? And how do those influence Berkshire's investment decisions? Thank you.

WARREN BUFFETTCharlie, I think — well, I expect that I guess Charlie's overall valued in China. I would say that both of the standards you mention are not paramount at all in our valuation of securities. It's harder — People are always looking for a formula. And there is an ultimate formula, but the trouble is you don't know what to stick in for the variables. But the — And, you know, that's the value of anything, being the present value of all the cash it's ever going to distribute. But the P/E ratios — I mean, every number has some degree of meaning, means more sometimes than others. Valuation of a business is — it's not reducible to any formula where you can actually put in the variables perfectly. And both of the things that you mentioned get — themselves, get bandied around a lot. It's not that they're unimportant. But sometimes they're — they can be very important. Sometimes they can be almost totally unimportant. It's just not quite as simple as having one or two formulas and, then, saying the market is undervalued or overvalued or a company is undervalued or overvalued. The most important thing is future interest rates. And, you know, and people frequently plug in the current interest rate saying that's the best they can do. After all, it does reflect a market's judgment. And, you know, the 30-year bond should tell you what people who are willing to put out money for 30 years and have no risk of dollar gain or dollar loss at the end of the 30-year period. But what better figure can you come up with? I'm not sure I can come up with a better figure. But that doesn't mean I want use the current figure, either. So, I would say that — I think Charlie's answer will be that he does not come up with China versus the U.S. market based on what you've mentioned as yardsticks. But, no, Charlie, you tell them.

CHARLIE MUNGERAll I meant was that — I said before that the first rule of fishing is to fish where the fish are — is that a good fisherman can find more fish in China if your — if fish is the stock market. That's all I meant.

WARREN BUFFETTYeah. One — I'm going to go back to one —

CHARLIE MUNGERIt's a happier hunting ground.

Lessons from running a "lousy business"

WARREN BUFFETTThis doesn't really directly relate. Just going — I want to go back to one question that was mentioned earlier. I really think if you want to be a good evaluator of businesses — an investor — you really ought to figure out a way, without too much personal damage, to run a lousy business for a while. I think you learn a whole lot more about business by actually struggling with a terrible business for a couple of years than you run by — than you learn by getting into a very good one where the business itself is so good that you can't mess it up. I don't know what — I don't know whether Charlie has a view on that or not. But it's certainly — it's — it was a big part of our learning experience. And I think a bigger part, in a sense, than running — being involved — with good businesses was actually being involved in some bad businesses and just seeing —

CHARLIE MUNGERHow awful it was.

WARREN BUFFETT— how awful it is, and how little you can do about it, and how IQ does not solve the problem, and a whole bunch of things. It's a useful experience. But I wouldn't advise too much of it. Would you think so, Charlie? Or —

CHARLIE MUNGERIt was very useful to us. There's nothing like personal, painful experience if you want to learn. And we certainly had our share of it.

Weapons of mass destruction pose biggest risk to Berkshire

WARREN BUFFETTOK. Becky.

BECKY QUICKThis question comes from Tom Spanfelner (PH). And he'd like to be called Tom Span from Pennsylvania. He says, "In life, business, and investing, strategies often work until they don't work. Other than a massive insurance loss, any thoughts on what could cause the Berkshire enterprise to not work?"

WARREN BUFFETTI think the only —

CHARLIE MUNGERGood question.

WARREN BUFFETTYeah. Well, if there were some change, if we got some infection — outside agent of some sort that changed the culture in some major way, an invasion of different thought. But as a practical matter, I don't think anything — you know, and it's the things you can't think of — but I can't think of anything that can harm Berkshire in a material, permanent way except weapons of mass destruction. But I don't regard that as a low probability. It would take a recession, a depression, a panic, you know, hurricanes, earthquakes. They all would have some effect. And in some cases, it might even be that we would do better because of them. But if there were a successful — as measured by the aggressor — nuclear, chemical, biological, or cyber-attack on the United States — and there are plenty of people that would like to pull that off or organizations and maybe even a few countries — it could disrupt society to such an extent that it would harm us. But I think — with the variety of earning streams, with the asset positions, with the general philosophy at play — the culture — I think that we would be close to the last one affected. But if somebody figures out how to kill millions of Americans and totally disrupt society, then, you know, then all bets are off. Charlie?

CHARLIE MUNGERWell, I agree. It would take something really extreme.

WARREN BUFFETTYeah.

CHARLIE MUNGERAnd just take the question like — British Petroleum took a huge loss with one oil well blowing. And Berkshire has all these independent subsidiaries. And they really are independent. And the parent company is not (inaudible) if there's one horrible accident somewhere. We would tend to pay, of course, maybe more than our legal liability, but we are not — one accident in one subsidiary that caused a big lot of damage, we're better protected than most companies.

WARREN BUFFETTYeah.

CHARLIE MUNGERIn every way, Berkshire is structured to handle stresses.

WARREN BUFFETTIt's the kind of thing we think about all the time. We've thought about it ever since we started. But I really don't know any company that can take more general adversity or even some specific adversities. But if you get into the "what could happen with weapons of mass destruction?" that is something we can't predict about. But if that ever happens, there'll be more to worry about than the price of Berkshire.

Buffett confident about growth for property-casualty business

WARREN BUFFETTJay?

JAY GELBBerkshire Hathaway Specialty Insurance generated $1.3 billion of premium volume in 2016. This business is on the smaller end of commercial property-casualty insurers in terms of scale, although its volume did grow 40 percent last year. In a highly competitive commercial P&C environment, what gives you confidence that Berkshire Hathaway Specialty is destined to become one of the world's leading commercial P&C insurers, as you said in this year's annual letter?

WARREN BUFFETTYeah. I think it will be. And I think how fast it grows depends very — it does depend very much on the market. I mean, we're, you know, we are not interested in trying to be a price-cutter in a market where the prices already aren't that attractive. But we have built the scale, worldwide. And a lot of this has just been added in, you know, recent months and just over the past year. We have — We will grow a lot. But if the market should turn hard for any reason, we would grow a lot faster. But we are destined, at Berkshire Hathaway Specialty, to be one of the leading PC firms in the world, just as we were destined to have — when Ajit [Jain] came in, even though we had nothing — we were destined to become a very important reinsurer throughout the world and, in certain ways, almost the only reinsurer for certain types of risks in the world. And we've got the people. We've got the capital. We've got the reputation. There is no stronger company in the insurance world — and there won't be — than the Berkshire Hathaway insurers. We've got the talent there. So it will grow. It may grow slowly some years. It may have big jumps just like the reinsurance operation did many years ago. But it's a very important addition to Berkshire that brought that on. I wish — just wish we could've started a little earlier. But we had to have to right people. And they came to us. And, as you say, we wrote whatever it was, a billion-three or a billion-four last year, and we'll write more this year. But we won't write as much as if we were in a hard market.

"My God, we're still learning"

WARREN BUFFETTStation 6?

AUDIENCE MEMBERGood afternoon. My name Sally Burns. I'm from Australia. But I currently reside in Austin, Texas. My question, Mr. Buffett, I have heard that Mr. Munger says your greatest talent is that you're a learning machine, that you never stop updating your views. What are the most interesting things you've learned over the last few years?

WARREN BUFFETTWell, it is fun to learn. I would say Charlie is much more of a learning machine than I am. I'm a specialized one, and he's a much — he does as well as I do in my specialty. And, then, he's got a much more general absorption rate than I have about what's going on in the world. But, you know, it's a world that gets more fascinating all the time. And a lot of fun can occur when you learn you were wrong on something. It — you know, that's when you really learn that the old ideas really weren't so correct. And you have to adapt to new ones. And that, of course, is difficult. I don't know that I would pick out — well, I think, actually, what's going on, you know, in America is terribly, terribly interesting, you know, and politically, all kinds of things. But just the way the world's unfolding, it's moving fast. I do enjoy trying, you know, to figure out not only what's going to happen, but what's even happening now. But I don't think I've got any special insights that would be useful to you. But maybe Charlie does.

CHARLIE MUNGERWell, I think buying the Apple stock is a good sign in Warren. (Laughter) And he did run around Omaha and ask if he could take his grandchildren's tablets away. (Buffett laughs) And he did market research. And I do think we keep learning. And more important, we keep — we don't unlearn the old tricks. And that is really important. You look at the people who try and solve their problems by printing money and lying and so forth. Take Puerto Rico. Who would've guessed that a territory of the United States would be in bankruptcy? Well, I would've predicted it because they behave like idiots. (Laughter) And so —

WARREN BUFFETTAnd we did not buy any Puerto Rico bonds. (Laughs)

CHARLIE MUNGERNo. And if you go to Europe — you go to Europe, you should look at the government bond portfolios we're required to hold in Europe. There's not only no Greek bonds, they're the bonds of nobody but Germany. Everywhere you look in Berkshire, somebody is being sensible. And that is a great pleasure. And if you combine that with being very opportunistic so that when something comes along like a panic, why, it's a nice — it's like playing with two hands instead of one on a game that requires two hands. It helps to have a fair-sized repertoire. And, Warren, we've learned so damn much. There are all kinds of things we've done over the last 10 years we would not have done 20 years ago.

WARREN BUFFETTYeah. That's true, although if you take — it's interesting. I've mentioned this before. But one of the best books on investment was written, I think, in 1958. I think I read it around 1960, by Phil Fisher, called Common Stocks and Uncommon Profits. And he told —

CHARLIE MUNGERAll the countries went — companies went to hell eventually.

WARREN BUFFETTBut it talked about the importance, I mean, or the usefulness of, what do you call, the "scuttlebutt method." And, you know, that was something I didn't learn from [Benjamin] Graham. But every now and then, it's turned out to be very useful. Now, it doesn't solve everything. And, I mean, there's a whole lot of more —

CHARLIE MUNGERI saw you do it with American Express in the Salad Oil scandal.

WARREN BUFFETTYeah, yeah.

CHARLIE MUNGERYou're still doing at Apple, you know, decades later.

WARREN BUFFETTYeah. It — in certain cases, you actually can learn a lot just by asking a lot of questions. And I give Phil Fisher credit. That book goes back a lot of years. But as Charlie said, some of the companies he picked as winners forever did sort of peter out on him. But the basic idea, that you can learn a lot of things just by asking in some cases — I mean, I used to — I mean, if I got interested in the coal industry — just say to pick one out of the air — you know, when I was much younger, more energetic, if I went and talked to the heads of 10 coal companies and I asked each one of them — way later into the conversation, after they got feeling very — they felt like talking. And I would just, you know, I'd just say, "If you had to go away for 10 years on a desert island and you had to put all of your family's money into one of your competitors, which one would it be and why?" And then, you know, and then I'd ask them if they had to sell short one of their competitors for 10 years, all their family money, why? And they — everybody loves talking about their competitors. And if you do that with 10 different companies, you'll probably have a better fix on the economics of the coal industry than any one of those individuals has. I mean, the — it — there's ways of getting at things. And sometimes they're useful. Sometimes, they're not. But sometimes, they can be very useful. And, you know, the idea of just learning more all the time about — I'm more specialized in that by far than Charlie. I mean, he wants to learn about everything. And I just want to learn about something that'll help Berkshire. But — (laughs) — it's a very, you know, it's a very useful attitude toward — have toward — the world. And, of course, I don't know who said it. But somebody said the problem is not in getting the new ideas but shedding the old ones. And there's a lot of truth to that.

CHARLIE MUNGERWe would never have bought ISCAR if it had come along 10 years earlier. We would never have bought Precision Castparts if it had come along 10 years earlier. We are learning. And, my God, we're still learning.

"We're getting too much medicine"

WARREN BUFFETTOK. Andrew?

ANDREW ROSS SORKINHi. Warren, this is my final question. In 2012, you were quoted as saying, "I think the health care problem in — is the number one problem of America and of American business. We have not dealt with that yet." Do you believe that the current administration's plan to repeal and replace ACA will ultimately benefit the economy and Berkshire or not?

WARREN BUFFETTYeah. Well, I'll answer — I'll give you two answers here, the first one being that if you go back to 1960 or thereabouts, corporate taxes were about four percent of GDP. I mean, they bounced around some. And, now, they're about two percent of GDP. And at that time, health care was five percent of GDP. And now, it's about 17 percent of GDP. So when American business talks about taxes strangling our competitiveness or that sort of thing, they're talking about something that, as a percentage of GDP, has gone down from four to two while medical costs, which are borne to a great extent by business, have gone from five to 17 percent. So medical costs are the tapeworm of economic — American economic competitiveness, I mean, if you're really talking about it. And that — and business knows that. They don't feel they can do much about it, but it is not — The tax system is not crippling Berkshire competitiveness around the world or anything of the sort. Our health costs have gone up incredibly and will go up a lot more. And if you look at the rest of the world, there were a half a dozen countries that were around our five percent if you go back to the early years. And while we're at 17, now, they're at 10 or 11. So they have gained a five or six point advantage — the world — even in these countries with fairly high medical costs.

CHARLIE MUNGERAnd that's with socialized medicine.

WARREN BUFFETTYeah. So it's a huge — whatever I said then goes and is accentuated now. And that isn't a problem — I mean, that is a problem this society is having trouble with and is going to have more trouble with, and — regardless of which party's in power or anything of the sort. It almost transcends that. In terms of the new act that was passed a couple days ago versus the Obama administration act, it's a very interesting thing. All I can tell you is the net effect of that act on one person is that my taxes — my federal income taxes — would've gone down 17 percent last year, if the act — if what was proposed went into effect. So, it is a huge tax cut for guys like me. And you'll have to figure out the effects of the rest of the act. But the one thing I can tell you is if it goes through the White House — put in, I mean, it — anybody with $250,000 a year of adjusted gross income and a lot of investment income is going to have a huge tax cut. And when there's a tax cut, either the deficit goes up or they get the taxes from somebody else. So, as it stands now, it is — that is the one predictable effect, if it should pass, as it — and it — the Senate will do something different and hold a conference. And who knows what happens? But that is in the law that was passed a couple days ago. Charlie?

CHARLIE MUNGERWell, I certainly agree with you about the medical care. What I don't like about the medical care is that a lot of — we're getting too much medicine. There's too much chemotherapy on people that are all but dead, and all kinds of crazy things go on in Medicare and in other parts of the health system. And every — there are so many vested interests that it's very hard to change. But I don't think any rational person looking objectively from the outside of the American system of medical care — we all love all the new life-saving stuff, and the new chemotherapies, and the new drugs, and all that. But, my God, the system is crazy. And the cost is just going wild. And it does put our manufacturers at a big disadvantage with other people where the government is paying the medical bills. And so, I agree with Warren totally.

WARREN BUFFETTIf you had to bet, 10 years from now, we'll be higher or lower than 17 percent of GDP?

CHARLIE MUNGERWell, if present trends continue, it'll get more and more. There are huge vested interests in having this thing continue the way it is. And they're very vocal and active. And the rest of us are indifferent. So, naturally, we get a terrible result. And I would say that on this issue, both parties hate each other so much that neither one of them can think rationally. And I don't think that helps, either.

WARREN BUFFETTIt's — (Applause) It is kind of interesting that, you know, with — the federal government spends — or raises, we'll say — 3 1/2 trillion or something like that — I mean, the degree of concern everybody has about that — although that's stayed fairly steady in the 18 percent or so of GDP plus or minus a couple points — but three trillion-plus is spent on health care. And everybody wants the best. And it's perfectly understandable. But it's a very, very — it's a big number compared to the whole federal budget. I mean, there's some overlap and all of that. But it's — If you talk about world competitiveness of American industry, it's the biggest single variable where we keep getting more and more out of whack with the rest of the world. And it's very tough for political parties to attack it. Yet, it's, you know, it — basically, it's a political subject.

CHARLIE MUNGERA lot of it is deeply immoral. If you have a group of hospital people and doctors that are feasting like a bunch of jackals on the carcass of some dying person, it's not a pretty sight.

WARREN BUFFETTTell them about that group out — (applause) — in California that —

CHARLIE MUNGEROh yes.

WARREN BUFFETTPerfect — this is —

CHARLIE MUNGERThis is Redding. This is one of my favorite stories. There are a bunch of very ambitious cardiologist and heart surgeons in Redding. And they got the thought that, really, what a heart was was a "widowmaker." So everybody — every patient that came in, they said, "You've got a widowmaker in your chest. And we know how to fix it." And so they recommended heart surgery for everybody. And, of course, they developed a huge volume of heart surgery. And they got very wonderful results because nobody comes through heart surgery better than the man who doesn't need it at all. (Laughter) And they made so much money that the hospital chain, which was Tenet, brought all its other hospitals — why can't you be more like Redding? And this is a true story. And it went on and on and on. And finally, there was some beloved Catholic priest. And they said, "You've got a widowmaker in your chest." And he didn't believe them. And he blew the whistle.

WARREN BUFFETTHe was a priest. You could see why he didn't believe them. (Laughter)

CHARLIE MUNGERAt any rate — well, when you get a routine, you just keep using it, you know. A heart is a widowmaker. It's a widowmaker. Later, I met one of the doctors who threw these people out of the medical profession. And I said to him, "In the end, did they think they were doing anything wrong?" He said, "No, Charlie. They thought that what they were doing was good for people." That is why it's so hard to fix these things. The self — the delusion that comes into people as they make money and get more successful by doing God-awful things should never be underestimated. And it's — there's a lot — (Applause) A lot of that goes on. And you're (inaudible) such gross craziness. And you thought little Wells Fargo looks like innocence. He only has a little trouble with his incentive system. But the heart surgery rate was 20 times normal or something. You'd think you'd notice if you're running a hospital. And — but they did notice. They wanted the other hospitals to be more like it.

WARREN BUFFETTThey had a terrific success ratio.

Buffett expects Berkshire will own more utilities

WARREN BUFFETTOK. Gregg? (Laughs)

GREGG WARRENThank you, Warren. As you look forward, in taking into consideration some of the headwinds faced in the U.S.-based utilities, including weaker electricity demand growth as increasing energy efficiency impacts demand, distributed generation, which hits vertically integrated utilities doubly hard as they face both declining energy sales revenue and increased network cost to support reliable delivery and, third, higher interest rates, which would increase borrowing costs, what are the key attributes that Berkshire Energy would be looking for in future acquisition candidates? In —

WARREN BUFFETTYeah. Oh, excuse me. I'm sorry.

GREGG WARRENI'm sorry. In particular, are there advantages or disadvantages attached to, say, transmission assets relative to generation assets that would make you favor one over the other?

WARREN BUFFETTYeah. Well, generation assets, you can say, have inherently more risk because that — some of them are going to —

CHARLIE MUNGERBe stranded.

WARREN BUFFETT— stranded, yeah, and obsoleted. Now the question is how they treat stranded and all of that sort of thing. We — on the other hand, more of the capital investment is in the generating assets. So that tends to be where a good bit of the capital base is. We like the utility business OK. I mean — electric — electricity demand is not increasing like it was, as you point out. They're going to be stranded assets. They — If they're stranded because of rank foolishness, you know, they will probably be less inclined — or the utility commissions — will be less inclined to let you figure that in your rate base as you go forward as opposed to things that are — where societal demands are just changing. But we still think the utility business is a very decent asset. The prices are very high, but that's what happens in a low interest rate environment. I would be — I'd be surprised if 10 years from now, we don't have significantly more money in not only wind and solar, but probably — we'll probably own more utility systems than we own now. We're a buyer of choice with many utility commissions. In fact, if we can put up the slide, there's a slide which shows something about our pricing compared to other utilities. And Greg Abel and his group have done an extraordinary job. They've done it in safety. They've done it in reliability. They've done it in price. They've done it in renewables. It's hard to imagine a better run operation than exists at MidAmerican Energy. And people want us — with that record — people want us to come to their state in many cases. But when prices get to the level they have, I mean, some utilities have sold at extraordinary prices. And we can't pay them and have it make sense for Berkshire shareholders. But just because we can't do it this year doesn't mean it won't happen next year or the year after. So I think we'll get a chance.

CHARLIE MUNGERAnd our utilities are not normal. The way Greg has run those things, they're so much better run in every way than normal utilities. They're better regarded by the paying customers. They're better regarded by the regulators. They have better safety records. They charge — It's just everything about it is way the hell better. And it's a pleasure to be associated with people like that and to have assets of that quality. And it's a lot safer. If somebody asked Berkshire to build a $50 billion nuclear plant, we wouldn't do it.

WARREN BUFFETTYeah. And we have public power here in Nebraska. I mean, it's been sort of the pride of Nebraska for many decades. It's all — there are no privately-held utility systems, and totally public power. And, you know, those utilities have no requirements for earnings on equity. They have — They can borrow at tax-exempt rates. We have to borrow at taxable rates. And Nebraska — you know, the wind — it's not that much different than Iowa. And we're selling electricity across the river, a few miles from here, you know, at lower prices than exist in Nebraska. So it's an extraordinary utility. And it was lucky when we got involved in it. I thank Walter Scott, our director, for introducing me to it almost 17 or 18 years ago or so. And — But I don't think the utility business, as such — I mean, if I were putting together a portfolio of stocks, I don't think there would be any utilities in that group now. But I love the fact we own Berkshire Hathaway Energy.

CHARLIE MUNGERBut it's different —

WARREN BUFFETTYeah.

CHARLIE MUNGER— radically different —

WARREN BUFFETTA lot —

WARREN BUFFETT— and better.

WARREN BUFFETTA lot better, actually.

McLane: lots of revenue, but very thin profit margin

WARREN BUFFETTStation 7.

AUDIENCE MEMBERHi.

WARREN BUFFETTHi.

AUDIENCE MEMBERMy name's Grant Misterly from beautiful, historic Saint Augustine, Florida. I've been a fan of yours and of Berkshire since I was a kid, looking through the stock pages and seeing one crazy stock that traded for $10,000 a share. Unfortunately, I wasn't able to convince my parents to buy it at that point. But now I'm a shareholder as an adult. And I'm here with my daughters, Mabel, who's seven and Willa, who's one year old, my wife. I voraciously read the letter every year. And I love the stories of — from the different companies, GEICO and See's, BNSF, that kind of teach investing lessons. And this year, when I was looking through the accounting information in the back, I noticed that one company, McLane, contributes a lot of revenue, a large portion of Berkshire's revenue and, to a lesser extent, earnings. But I don't ever see much about it in the annual report. So I'm curious why we don't hear more about that company? And are there any investing lessons like we get from See's and GEICO that you can share about that company?

WARREN BUFFETTYeah, McLane — the reason you see their figures separately is because the SEC has certain requirements that are based on sales. And McLane is a company that has an extraordinary amount of sales in relation to intrinsic value or to net income. It, basically, is a distributor of — well, it's a huge customer, for example, of the food companies, the candy companies, the cigarette companies, it — go up and down the line of anything that goes into convenience stores. But we bought it from Walmart. And Walmart is our biggest customer. I can't tell you the precise volume, but — well, if you get Walmart's and Sam's together, you know, you're getting up to 20 percent-plus. But it's nationwide. But in the end, it operates on about six percent gross margins and five percent operating expenses, so it has a one percent pre-tax margin. And, obviously, a one percent pre-tax margin only works in terms of return on capital if you turn your equity extraordinarily fast. And that's what McLane does. Being a wholesaler, it's moving things in, moving things out very fast, very efficiently. And it does this — It also has a few liquor distribution subsidiaries that have wider margins. But the basic McLane business is, you know, 45 billion-plus, makes one percent pre-tax on sales. But the return on capital is very decent. But it sort of has an outsized appearance simply because of this huge volume of sales that go through it. Grady Rosier, who runs it, is exceptional. He was there when we bought it from Walmart, whenever it was, a dozen years ago. And I've been there once. We've got thousands and thousands of trucks, big distribution centers all over the country. It is a major factor in moving goods at wholesale. I mean, if you're a Mars Candy or something of the sort, I mean, we — we're — we'll be the biggest customer. But that pretty well describes the business. You know, it's a business that earns good returns in relation to invested capital and in relation to our purchase price. But, you know, every tenth of a cent is important in the business. In collect — moving your receivables exceptionally fast, and consequently you have — you know, you have payables moving big time. So the sales are 30 times receivables and 30 times payables, you've got — and maybe, yeah, 35 or so times inventory. I mean, this is a business that's moving a lot of goods. But, in terms of its — It's an important subsidiary but not remotely as important as would be indicated by the sales. It's still very important making the kind of money that shows up in the 10-K. Charlie?

CHARLIE MUNGERYou said it all. (Buffett laughs)

WARREN BUFFETTThat was an interesting thing. Walmart wanted to sell it. They came to see us, and we made a deal. And the CFO came. We talked for a while. He went into the other room and called the CEO and came back and said, "You have a deal." And Walmart has told me subsequently that they never had a deal that closed as fast as the one with Berkshire. I mean, they — you know, we said what we would pay. It was cash. And we got it done very promptly. And they were terrific on their side.

CHARLIE MUNGERBy the way, that reputation for being quick and simple, and doing what we promised and so on, has helped at Berkshire time after time.

WARREN BUFFETTYeah. Yeah, we wouldn't have made that deal without, essentially, having that reputation. But they knew —

CHARLIE MUNGERWell, you bought the Northern Natural Gas Company in one weekend. And they wanted the Monday — that money on Monday.

WARREN BUFFETTThey needed the money on Monday.

WARREN BUFFETTBefore the lawyers could complete the legal papers, we managed to do it.

WARREN BUFFETTWell, not only that, but I think it took some clearance by — in Washington. And, essentially, I think I wrote a letter and said that if they didn't — if they decided after looking at it they didn't want to clear it, we'd undo the deal. But these guys needed the money so bad, we were going to give them the money, essentially, based on the deal clearing. And there wasn't any reason why it wouldn't clear, but that was just a procedural problem. But most companies can't do that. I mean, we can. We've got a flexibility that, really, in most large companies just plain doesn't exist. There's too many people have to sign off on it or something of the sort. So the Northern Natural deal would not have been made if we'd had to follow the normal timetable. It —

CHARLIE MUNGERAnd it's a lovely business to own.

WARREN BUFFETTYeah. Absolutely.

Buffett wants to be remembered as a (very old) teacher

WARREN BUFFETTNow, we're moving from one station to another between now and 3:30, so we now go to station 8.

AUDIENCE MEMBERGood morning or good afternoon, Warren and Charlie, John —

WARREN BUFFETTHi.

AUDIENCE MEMBER— Norwood from West Des Moines, Iowa. You guys have iron bladders. (Laughter)

WARREN BUFFETTWe won't tell you the secret to that.

AUDIENCE MEMBERFine — (Laughter) I was wondering about a contraption under the —

WARREN BUFFETTNo.

AUDIENCE MEMBER— table there.

WARREN BUFFETTNo. You can come down and inspect.

AUDIENCE MEMBERAll right. (Laughter) Hey, I had a question for each. Warren, I was fortunate to ask you a question, I think, in 2011 about legacy and what you wanted to be known for a hundred years from now. And I'm kind of curious to hear what Charlie would like to be known for. Warren, I'm 52. So I guess you started this — doing this — when I was born. And I'm kind of interested in a memory from your first annual meeting.

CHARLIE MUNGERMy first memory when Warren got on this subject and they asked him what he wanted said at his funeral. He said, "I want them to all be saying 'that's the oldest looking corpse I ever saw.'" (Laughter) And —

WARREN BUFFETTThat may be the smartest thing I ever said. (Laughter) Oh, it — well — with me, it —very simple. It — I really like teaching. So, basically, I've been doing it formally and, you could say, somewhat informally, all my life. And I certainly had the greatest teachers you can imagine. So, if somebody thought that I did a decent job at teaching, I'd feel very good about that. (Applause)

CHARLIE MUNGERYeah. To make the teaching endurable it has to have a bit of wise-assery in it. And that we've both been able to supply. (Laughter)

WARREN BUFFETTAnd for those of you who are old-time basketball fans, have I mentioned that on Wilt Chamberlain's tomb it was reputed that it was going to say, "At last, I sleep alone?" (Laughter)

"Don't wait till you're 93"

WARREN BUFFETTOK. Station 9.

AUDIENCE MEMBERGood afternoon, Mr. Munger and Mr. Buffett. My name is Ji Wen Yue (PH). I come from China. It's my first time to come to this meeting. And I think I'm very lucky to have a chance to ask question.

WARREN BUFFETTWe're glad to have you.

AUDIENCE MEMBERThank you. Everyone has personal dreams. And at a different age, maybe dreams will come different to you. And what's your dream now?

WARREN BUFFETTCharlie, we'll let you go first.

CHARLIE MUNGERI didn't quite hear that.

WARREN BUFFETTOh, I — what's your dream now? She says —

CHARLIE MUNGERMy dream. Well — (Laughter)

WARREN BUFFETTLet's skip the first one. (Laughter)

CHARLIE MUNGERSometime when I'm especially wishful, I think, oh, to be 90 again. (Applause) And I got some advice for the young. If you got anything you really want to do, don't wait till you're 93.

WARREN BUFFETTNo, do it. (Laughter) No, that's the same thing I would tell students is, you can't always find it the first time or the second time. But when you go out in the world, look for the job that you would take if you didn't need a job. I mean, don't postpone that sort of thing. Somebody — I think it was Kierkegaard, said that, you know, life must be evaluated backwards but it must be lived forwards. And you want to sort of — Charlie says all he wants to know is where he'll die so he'll never go there, you know. And so you — (Laughter) You do want to do a certain amount of reverse engineering in life. I mean, that's not — that doesn't mean you can do everything that way. But you really want to think about what will make you feel good, when you get older, about your life. And you, at least generally, want to keep going in that direction. And, you know, you need some luck in life. And you got to accept some bad things that are going to happen as you go along. But life has been awfully good to me and Charlie, so we have no complaints.

CHARLIE MUNGERWhat you don't want to be is like the man, when they held his funeral, and the minister said, "Now, it's the time for somebody to say something nice about the deceased." And nobody came forward. And nobody came forward. He said, "Surely, somebody can say somebody — something nice — about the deceased." And nobody came forward. And finally, one man came up. And he said, "Well," he said, "His brother was worse."

WARREN BUFFETTYeah. (Laughter)

Buffett's regret: "I wish I'd met Charlie earlier"

WARREN BUFFETTOK. We'll move to station 10 and see if we can improve on it. (Laughter)

AUDIENCE MEMBERHi. My name is Andy Lijun Lin from Loyal Valley Innovation Capital from Shanghai. This is my sixth year from Shanghai to here. I have say — I have to say to you two, Warren and Charlie, you are highly respected and deeply loved by millions and millions, or even billions, globally. I have two questions today. First question, in your letters to shareholders you said you believe EBITDA is not a good parameter to value a business. Why it's not? Can you elaborate on that? Second question, you both have very successful and happy lives with great respect. My question is to each of you. In retrospect, from a personal standpoint, do you have regrets in life? If there is one thing you could have done differently in your life, family, personal, or business, what is it? Thank you very much.

WARREN BUFFETTYeah. I don't think you should expect us to answer that on personal. But in business, I would say I wish I'd met Charlie earlier. (Laughs) We've had a lot of fun ever since I was 29 and he was 35. But it would've been even more fun if we'd started many, many years earlier. We had a chance to. We worked in the same grocery store but not at the same time.

Teaching the "delusion" of EBITDA is "horror squared"

WARREN BUFFETTIn respect to EBITDA, depreciation is an expense. And it's the worst kind of an expense. You know, we love to talk about float. And float is where we get the money first and we have the expense later. Depreciation is where you spend the money first, you know, and, then, record the expense later. And it's reverse float. And it's not a good thing. And to have that enter into a multiple — it's much better to buy a business that has, everything else being equal — has no depreciation because it has, essentially, no investment and fixed assets that makes X, than it is to buy a company where there's a lot of depreciation in getting to X. And I — actually, I may write a little bit more on that next year, just because it's such a mass delusion. And, of course, it's in the interests of Wall Street, enormously, to focus on something called EBITDA because it results in higher borrowing power, higher valuations, and all of that sort of thing. So it's become very popular in the last 20 years, but I — it's a very misleading statistic that can be used in very pernicious ways. Charlie, on either one of those subjects?

CHARLIE MUNGERI think you've understated the horrors of the subject and the disgusting nature of the people that brought that term into the valuation of business. It was just — It would be like a leasing broker of real estate who's got a thousand square-foot new suite to be leased, and he says it's got 2,000 feet in it. That's not honorable behavior. And that's the way that term got into common usage. Nobody in his right mind would think that depreciation is not an expense.

WARREN BUFFETTYeah. It — but it's very much in the interest of Wall Street.

CHARLIE MUNGERYes. That's why —

WARREN BUFFETTYou —

CHARLIE MUNGER— they did it.

WARREN BUFFETTYeah.

CHARLIE MUNGERIt made the multiple seem lower.

WARREN BUFFETTAnd what's amazing is the way it's accepted, actually. But anyway, it just illustrates how people use language, you know, and sell concepts that work to their own use. And "2 and 20" has the same sort of thing. I mean, the number of people — the amount of money that's overperformed after paying 2 and 20, compared to the expenses that have been incurred, I will assure you, makes for a terrible indictment of that particular arrangement. But as long as it can get sold, it will get sold. And —

CHARLIE MUNGERAnd, now, they use it in the business schools. Now, that is horror squared. I mean — (laughter) — it's bad enough that a bunch of thieves start using a term. But when it gets so common that the business schools copy it, that is not a — that's not a good result.

WARREN BUFFETTOK. (Applause)

"Nobody should be roadkill in this sort of society"

WARREN BUFFETTStation 11.

AUDIENCE MEMBERGood afternoon. I'm Whitney Tilson, a shareholder from New York. My question is related to the ones asked earlier about job cuts. Perhaps, the only thing that makes American workers angrier than layoffs is to shut down an operation entirely and move the jobs overseas. Ask anyone in Ohio or Michigan, and they'll tell you stories about companies that have been operating in those states for decades, benefitting from the educational system, infrastructure and so forth, things that were paid for by local taxpayers. But, then, some high-paid consultants came along and showed the company how it could reduce its costs by relocating production to Mexico or China. And poof, the good U.S. jobs disappeared. My observation is that most investors and those in corporate America today worship at the altar of maximizing shareholder value, which is code for doing whatever is necessary to boost the share price as high as possible. But in doing so, companies are taking actions that make millions of workers feel, at best, fearful and left behind and, at worst, deeply harmed by corporate America. It makes so many people so angry that I think it's testing the post-World War II economic order, which is rooted in free trade, and even the strength of our democracy. I'd argue that it was decisive in our last election. So my question to you is, do you think that businesses should consider factors outside of pure economics when making these types of decisions? What obligations, if any, do they have to their employees and communities in which they operate? And lastly, if a Berkshire CEO came to you and asked for your approval to close a U.S. operation and relocate it overseas to save money, what questions would you ask beyond the economics of this decision? Thank you.

WARREN BUFFETTYeah. Well, the truth is that — (applause) — in certain cases, production that would otherwise — that had formerly been in the United States has definitely been supplanted by production that comes from other parts of the world. Originally — I was there when Fruit of the Loom was called Union Underwear and bought by Graham-Newman Corp in 1955, I believe. And it was probably all domestic then. And the truth is if it was all domestic now, it wouldn't exist. We had the same thing happen with Dexter Shoe. And it was a wonderful company and skilled workers. And in the end, if we sold the shoes at a price that yielded what they cost us, they were not competitive with shoes from around the world. Trade, I would argue — both ways, export, import — massive trade should be — and is, actually — enormously beneficial both to the United States and the world. I mean, it will — it — greater productivity will benefit the world in a general way. But to be roadkill, to be the textile worker in New Bedford that was put out of a job eventually, to be the shoe worker in Dexter — at Dexter to be — was put out of work, you know, is — I mean, it would be no fun to go through life and say, "I'm doing this for the greater good and so that shoes or underwear will sell for five percent less," or something, "and the American public will actually never know." So what you need is two things, in my view. You've got an enormously prosperous country. You've got almost $60,000 of GDP per capita. It's unbelievable — six times what it was when I was born, in real terms. So we've got the prosperity. And that prosperity is enhanced by trade. We were only exporting five percent of our GDP back in 1970, and that's — I think it's around 12 percent or something like that now. We're doing what we do best. But we need an educator-in-chief, logically the president — I don't mean this specific president. I mean any president who's been around for decades — has to be able to explain to the American public the overall benefits of, essentially, free trade. And then, beyond that, we have to have policies that take care of the people that become the roadkill in the process. Because it doesn't make any difference to me if — as far as I'm concerned, if my life is miserable because I've been put out of business by something that's good for 320-some million people in some infinitesimal way, and it's messed up my life when I've tried to live it in a proper way. So we have got the resources to take care of those people. The investors, I don't worry about. I wrote about this a few years ago. The investors can diversify their investments in such a way that, overall, trade probably benefits them and they don't get killed by a specific industry condition. But the worker, in many cases, can't do that. You're not going to retrain some 55-year-old worker in New Bedford who may not even speak English in our textile mill or something. I mean, they — If they get destroyed by something that's good for society, they get destroyed, unless government puts in some policies that takes care of people like that. And we've got a rich society that can do that. And we got a society that will benefit by free trade. And I think we ought to try to hit both objectives of making sure that there is not roadkill and that, at the same time, we get — 320 million people — get the benefits of free trade. (Applause) Charlie?

CHARLIE MUNGERWell, I don't quarrel with that. And we have unemployment insurance for that exact reason. But I'm afraid that a capitalist system is always going to hurt some people as it modifies and improves. There's no way to avoid it.

WARREN BUFFETTYeah. Well, capitalism is brutal to capital if you're in the wrong businesses. And, like I say, you can diversify those results. Capitalism is brutal to people that have the bad luck to be skilled or develop their skills for decades. But a rich — a very rich society can actually — if it's beneficial to society overall, it can take care of those people. I mean, it just — you know, the new tax — The bill that was passed a couple days ago reduces my taxes, you know, by 17 percent. You know, and is that needed by the government or anything of the sort?

CHARLIE MUNGERI wouldn't start spending the money.

WARREN BUFFETTNo. And — (laughter) — but that was the will, I mean, of the — No, I agree. I don't think — who knows what happens with the bill? But I'm just — to have that happen, and I don't think — I think if you polled a thousand people in Omaha that were walking to a shopping center as to whether my tax bill had been cut by some very large sum because of what passed, I don't think many people would have the faintest idea what happened, in terms of the coverage of it and all of that that took place. So I — we've got — we do have — it's probably more like 57- or $58,000 of GDP per capita — family of four, $230,000. But nobody should be roadkill in this sort of society —

CHARLIE MUNGERWell, remember what Bismarck said: There are two things that nobody should have to watch. One is the making of the sausage. And the other is the making of legislation. (Laughter)

WARREN BUFFETTYeah. Well, I would say that somebody ought to watch. (Laughter) Anyway, we've hit the magic hour of 3:30. We'll reconvene at 3:45 to do — have a formal shareholders meeting. And that may take a while. So, you're welcome to stay and watch that. Or you're welcome to shop. And I might even have a small preference of that. But go — do whatever you wish. OK. (Applause)

Formal business meeting begins

WARREN BUFFETTOK. Let's regroup. If you'll all take your seats, we'll begin the formal meeting. And I'll work from a script in this. The meeting will now come to order. I'm Warren Buffett, chairman of the board of the directors of the company. I welcome you to this 2017 annual meeting of shareholders. This morning, I introduced the Berkshire Hathaway directors that are present. Also with us today are partners in the firm of Deloitte and Touche, our auditors. Sharon Heck is secretary of Berkshire Hathaway, and she will make a written record of the proceedings. Becki Amick has been appointed inspector of elections at this meeting, and she will certify to the count of votes cast in the election for directors and the motions to be voted upon at this meeting. The named proxy holders for this meeting are Walter Scott and Marc Hamburg. Does the secretary have a report of the number of Berkshire shares outstanding —?

VOICES(Inaudible)

WARREN BUFFETTif you don't mind, keep the lights on a little more so I can read this — outstanding, entitled to vote, and represented at the meeting?

SHARON HECKYes. 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 8th, 2017, the record date for this meeting, there were 770,994 shares of Class A Berkshire Hathaway common stock outstanding, with each share entitled to one vote on motions considered at the meeting, and 1,310,304,247 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, 538,915 Class A shares and 734,450,954 Class B shares are represented at this meeting by proxies returned through Friday afternoon, May 5th.

WARREN BUFFETTThank you, Sharon. That number represents a quorum and will therefore — we will therefore directly proceed with the meeting. The first item 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?

RON OLSONI second the motion.

WARREN BUFFETTThe motion has been moved and seconded. We will vote on the motion by voice vote. All those in favor say, "Aye."

VOICESAye.

WARREN BUFFETTI didn't hear very many. But opposed? The motion is carried.

Election of Berkshire directors

WARREN BUFFETTThe next item of business is to elect directors. If a shareholder is present who did not send in a proxy or who wishes to withdraw a proxy previously sent in, you may vote in person on the election of directors and other matters to be considered at this meeting. Please identify yourselves to one of the meeting officials in the aisle so that you can receive a ballot. I recognize 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, Thomas Murphy, Ron Olson, Walter Scott, and Meryl Witmer be elected as directors.

WARREN BUFFETTIs there a second?

RON OLSONI second the motion.

WARREN BUFFETTIt's been moved and seconded that Warren Buffett, Charles Munger, Howard Buffett, Stephen Burke, Susan Decker, William Gates, David Gottesman, Charlotte Guyman, Thomas Murphy, Ronald Olson, Walter Scott, and Meryl Witmer be elected as directors. Are there any other nominations or any discussion? The nominations are ready to be acted upon. If there are any shareholders voting in person, they should now mark the ballots on the election of directors and deliver their ballot to one of the meeting officials in the aisles. Miss Amick, when you are ready, you may give your report.

BECKI AMICKMy report is ready. The ballot of the proxy holders in response to proxies that were received through last Friday afternoon cast not less than 601,375 votes for each nominee. That number exceeds a majority of the number of the total votes of all Class A and Class B shares outstanding. The certification required by Delaware law of the precise count of the votes will be given to the secretary to 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, Thomas Murphy, Ronald Olson, Walter Scott, and Meryl Witmer have been elected as directors.

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 at this time.

WALTER SCOTTI move that the shareholders of the company approve, on an advisory basis, the compensation paid to the company's named executive directors as disclosed pursuant to Item 402 of Regulation S-K, including the compensation discussion and analysis, and the accompanying compensation tables, and the related narrative discussion, in the company's 2017 annual meeting proxy statement.

WARREN BUFFETTIs there a second?

RON OLSONI 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. Miss Amick, when you are ready you may give your report.

BECKI AMICKMy report is ready. The ballot of the proxy holders in response to proxies that were received through last Friday afternoon cast not less than 608,765 votes to approve, on an advisory basis, the compensation paid to the company's named executive officers. That number exceeds a majority of the number of the total votes of all Class A and Class B shares outstanding. The certification required by Delaware law of the precise count of the votes will be given to the secretary to 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.

Advisory vote on frequency of advisory compensation votes

WARREN BUFFETTThe next item on the agenda is an advisory vote on the frequency of a shareholder advisory vote on 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 determine, on an advisory basis, the frequency, whether annual, biannual, or triannual, with which they shall have an advisory vote on the compensation paid to the company's named executives as set forth in the company's 2017 annual meeting proxy statement.

WARREN BUFFETTIs there a second?

RON OLSONSecond the motion.

WARREN BUFFETTIt 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 option being every one, two, or three years. Miss Amick, when you are ready, you may give your report.

BECKI AMICKMy report is ready. The ballot of the proxy holders in response to proxies that were received through last Friday afternoon cast 131,268 votes for a frequency of every year, 1,954 votes for a frequency of every two years, and 476,661 votes for a frequency of every three years of an advisory vote on the compensation paid to the company's 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 to disclose political contributions

WARREN BUFFETTThe next item of business is the motion put forth by Clean Yield Asset Management on behalf of shareholders, Tom Beers and Mary Durfee. The motion is set forth in the proxy statement. The motion requests that the company provide a report on its political contributions. The directors recommended that the shareholders vote against the proposal. I will now recognize Eileen Durry (PH) — I hope I'm pronouncing that right — to present the motion. To allow all interested shareholders present their views, I ask to limit the — I ask to limit her remarks to five minutes. And the microzone — the microphone at zone 1 is available for those wishing to speak for or against the motion. Zone 1 is the only microphone station in operation. For the benefit of those present, I ask that each speaker for or against the motion, with the exception of the original proposer, limit themselves to two minutes and confine your remarks solely to the motion. And do we have, at station 1, the representative of Clean Yield Management? Or, wait. Sorry. Clean Yield Asset Management.

EILEEN DURRYGood afternoon, Mr. Chairman, board of directors, and my fellow shareholders. My name is Eileen Durry. And I have been asked to read the following statement by the filers of this proposal, Tom Beers and Mary Durfee. Our proposal, number four on the proxy ballot, calls on Berkshire Hathaway to fully disclose the extent of its political spending. Why do we ask for this? Corporate political spending is a controversial activity that must be carefully managed and overseen at the most senior levels of management. Mismanagement or misjudgment around political contributions can bring reputation damage, political risks, and legal consequences. In recent years, at the urging of shareholders and other stakeholders, scores of companies have adopted stronger disclosure and better oversight of political contributions. Best practices in this area include full disclosure of direct and indirect political contributions, descriptions of policies and procedures to ensure full legal compliance, and a commitment to board oversight. But our company's policies in this area are so nonexistent or hidden that they have earned it a score of zero for six years running on the leading rating system for corporate political disclosure and accountability, the CPA-Zicklin Index. In contrast, 56 percent of the S&P make public a detailed policy governing political expenditures from corporate funds. Peers such as GE, Travelers, Unum, CSX, and Norfolk Southern disclose political spending. In contrast, all we know about Berkshire's political spending is contained in the two paragraph response to our proposal in this year's proxy statement, which seeks to reassure us that Berkshire's political spending is small, relative to its size. But management's statement raises more questions than it answers. It says nothing, for example, about whether Berkshire gives to third party, like trade associations and 501(c)(4)s, which are leading sources of dark money contributions that are nearly impossible to trace. Since 2012, over $670 million in dark money was spent in the U.S. elections with no disclosure of who the underlying donors were. Fellow shareholders, as you know, our company is a large and complicated enterprise. Berkshire Hathaway ranks number four in the Fortune 500. At a time when the trend among large companies is to be more open about their political spending and their policies regarding dark money vehicles, it doesn't behoove or benefit Berkshire Hathaway to be so secretive if it has nothing to hide. If you agree, please vote in favor of proposal number four.

WARREN BUFFETTThank you. Are there other people that wish to speak on the motion?

EILEEN DURRYNot that I know of.

WARREN BUFFETTOK. Thank you. And I will tell you that, to my knowledge, in 52 years, Berkshire Hathaway, at the parent company level, has not made a political contribution. I don't — I, personally, disagree strongly with the Citizens United decision, which was a five-to-four vote. And I think that having unlimited contributions by wealthy individuals through super PACs and — or wealthy corporations — I do not think it's a plus at all. And I think it's a minus in our democracy. And I think that big money does — can often distort the political process. It's a reality that any of our subsidiaries in heavily regulated industries are probably going to have to make some political contributions. Their competitors do it. And I tell our managers, basically, if they — I don't want them making contributions on their own personal preferences in elections to be made from corporate funds. And I would regard that as a breach of trust with Berkshire. But I do recognize that if they're in the railroad industry, or the electric utility industry, or whatever it may be, that there is a necessity, essentially, to make political contributions. And I'm sure they give money to people that I wouldn't vote for. But that is a reality of doing business in certain businesses which have a significant political aspect to their activities. So, I (inaudible) and my heart is with you to some extent, in terms of I wish Citizens United had gone the other way. I don't like the idea of great sums being spent. But I do not think we — I think it — personally, I think that it could be disadvantageous to actually list all of the political organizations to which people contribute when competitors don't. And I think there's expense involved in all three of the proposals that are coming up on this one. So I, personally, voted against the proposition. But I do hope, like you, that money plays a lesser part in politics — big money — in the future — and undisclosed money — than it does now. And I don't think the odds are good that the Supreme Court is going to reverse Citizens United. So with that, I would say the motion is now ready to be acted upon. If there are any shareholders voting in person, they should now mark their ballot on the motion and deliver their ballot to one of the meeting officials in the aisles. Miss Amick, when you're ready, you may give your report.

BECKI AMICKMy report is ready. The ballot of the proxy holders in response to proxies that were received through last Friday afternoon cast 64,449 votes for the motion and 542,399 votes against the motion. As the number of votes against the motion exceeds a majority of the number of votes of all Class A and Class B shares properly cast on the matter, as well as all votes outstanding, the motion has failed. The certification required by Delaware law of the precise count of the votes will be given to the secretary to be placed with the minutes of this meeting.

WARREN BUFFETTThank you, Miss Amick. The proposal fails.

Shareholder motion on methane emissions

WARREN BUFFETTThe next item of business is put forth by Baldwin Brothers Inc. on behalf of shareholder Marcia Sage. The motion is set forth in the proxy statement. The motion requests that the company provide a report reviewing the company's policies, actions, plans and reduction targets related to methane emissions from all operations. The directors have recommended that the shareholders vote against the proposal. I will now recognize Eileen Durry to present the motion. To allow all interested shareholders to present their views, I ask her to limit her remarks to five minutes. The microphone at zone 1 is available for those wishing to speak for or against the motion. Zone 1 is the only microphone station in operation. For the benefit of those present, I ask that each speaker for and against — or against the motion — limit themselves to two minutes — although, Miss Durry, that's five minutes in your case — and to confine your remarks solely to the motion.

EILEEN DURRYGood afternoon, Mr. Chairman, members of the board, and fellow shareholders. My name is Eileen Durry. I am here to move Arjuna Capital and Baldwin Brothers' proposal on behalf of Marcia Sage, a long-term investor in our company. Proposal five seeks to protect shareholder value by ensuring the transparent disclosure for information regarding methane emissions. The reason for this proposal are clearly in the interest of protecting long-term shareholder value. Leaked gas has a direct economic impact on our company as it is no longer available for sale, establishing a clear business case for reduction targets and control processes. In fact, leaked methane represented $30 billion of lost revenue in 2012, equivalent to three percent of gas produced globally. The National Resources Defense Council estimates that capturing currently wasted gas for sale could reduce methane pollution by roughly 80 percent. And while the climate benefit of replacing coal with natural gas has been widely publicized, that benefit is negated when leakage rates exceed 2.7 percent, as methane carries 84 times the global warming impact of CO2 over a 20-year period. Recent academic studies are particularly troubling as they have identified methane leakage far north of current EPA estimates. Additionally, gas storage presents outsized risks. The 2015 failure of a gas injection well at Southern California Gas Company's Aliso Canyon storage field in Los Angeles revealed major vulnerabilities in the maintenance and safety of natural gas storage facilities. The incident exposed both a lack of oversight and contingency planning in the face of a well blowout. Berkshire Hathaway has storage facilities that face similar risks as it is estimated to hold the 11th highest volume in natural gas in the country. There are over 400 gas storage facilities around the country, many of which were drilled decades ago. Numerous independent researchers have concluded that if natural gas is to lead to a more sustainable energy future, then missing emissions must be addressed. Ongoing concerns have spurred public debate and led to regulatory action at the state and federal level. A strong program of target-setting measurement, mitigation, and disclosure would indicate a reduction in regulatory risk as well as efficient operations maximizing gas for sale and shareholder value. Given this, we believe our company has a tremendous opportunity to move forward by providing shareholders with this important information. ISS, the leading provider of proxy voting advice, agrees and has a recommended a vote in favor, noting such disclosures would allow shareholders to better understand the company's management of its methane emissions and any related risks. Thank you for your consideration.

WARREN BUFFETTAre there other people who wish to speak on this motion?

EILEEN DURRYI don't believe so.

WARREN BUFFETTOK. The motion is now ready to be acted upon. If there are any shareholders voting in person, they should now mark their ballot on the motion and deliver their ballot to one of the meeting officials in the aisles. Miss Amick, when you're ready, you may give your report.

BECKI AMICKMy report is ready. The ballot of the proxy holders in response to proxies that were received through last Friday afternoon cast 57,600 votes for the motion and 542,870 votes against the motion. As the number of votes against the motion exceeds a majority of the number of votes of all Class A and Class B shares properly cast on the matter, as well as all votes outstanding, the motion has failed. The certification required by Delaware law of the precise count of the votes will be given to the secretary to be placed with the minutes of this meeting.

WARREN BUFFETTGreg, incidentally — is there a live microphone? You're — yeah, there we — you might talk a little bit about the methane situation.

GREGORY ABELSure, Warren. So thank you for your comments. And when you think about methane emissions, it is a serious issue, relative to carbon. It was highlighted 84 times worse than a carbon emission. But I'd be very pleased to report on our situation at Berkshire Hathaway. So, three different issues were raised in the comment. One was overall emissions from oil and gas production. So, the first thing I would just highlight is that we do not own any oil and gas producing assets. So we don't have any wells and, effectively, don't have that risk. The second thing that was highlighted was the significant loss of gas at Aliso Canyon. It was a injection well that failed. Took many months to fix the well. And if you fundamentally look at the problem there — and we do own other storage facilities, but we do not use their technology or that type of well. All of our wells are cased to the top which creates a very different risk and, literally, can be mitigated within hours. And, then, the third issue which was raised was leakage rates. And it was highlighted, at least in a second response to the proposal, that the leading companies in the industry have a leakage rate of one percent, or they've put together programs to achieve a leakage rate of one percent. And I'm happy to report, when we look at our leakage rate from our pipelines, we're at 0.53 of one percent. So, basically, half of the leading companies in the industry. So that, obviously, support the recommendation of the shareholders. Thank you.

WARREN BUFFETTThanks, Greg. You've heard the vote. And the proposal fails.

Shareholder motion to divest fossil fuel holdings

WARREN BUFFETTThe next item of business is a motion put forth by a shareholder, the Nebraska Peace Foundation. The motion is set forth in the proxy statement. The motion requests that the company divest of its holdings in companies involved in the extracting, processing, or burning of fossil fuels. The directors have recommended the shareholders vote against the proposal. I will now recognize Mark Vasina to present the motion. And, again, to allow all interested shareholders to present their views, I asked him to limit his remarks to five minutes. And the microzone at zone 1 is available for those wishing to speak for or against the motion. Zone 1 is the only microphone station in operation. And for the benefit of those present, subsequent speakers should — I ask that they limit themselves to two minutes and confine your remarks solely to the motion. With that, if you'll proceed.

MARK VASINAThank you. My name's Mark Vasina. I represent the Nebraska Peace Foundation. We're here to present our proposal asking Berkshire Hathaway to divest of its carbon-based assets over a period of 12 years, a period of time we believe is a very modest proposal indeed. Last year, we were here with a proposal that Berkshire Hathaway evaluate and report on the impact of climate change on their insurance companies. After our — after the meeting, we were approached by a number of shareholders who suggested we were pulling our punches. And they suggested the real question is divestiture. So we thought about it. We came back to ask for divestiture of the carbon-based assets. We recognize that for a public company that's involved in investing in other companies, divestiture represents different kinds of challenges from those of university endowments, pension plans, public foundations, such as the Bill and Melinda Gates Foundation — organizations which have divested or have implemented divestiture plans. However, we believe that the necessity for divestiture involves more than just a social, ethical, or even moral question, but also involves financial risk. As the Bank of England, in their recommendation to the insurance companies that they regulated, that they investigate and report on the climate change risk to these companies, they pointed out that financial risk of holding these carbon-based assets was real — unpredictable. Things like regulatory risk, political risk, technology changes, investment — investor sentiment changes — these things pose risks towards the financial value of assets in this type of investment. So we are proposing, as I said, divestiture of all carbon-based assets over 12 years. I'm going to be followed by three prominent American climate scientists, Frank LaMere of the Winnebago tribe of Nebraska, and Richard Miller, Creighton University theologian. Thank you for giving us the opportunity to make our case for this proposal.

WARREN BUFFETTThank you. And we'll proceed to the next speaker, please.

MICHAEL MANNChairman Buffett, board members and shareholders, my name is Michael Mann. I'm a professor at Penn State University and a climate scientist. And as a scientist who spends much of my time communicating the reality and threat of climate change, it's an honor to have this opportunity to speak to you today. Warren Buffett, known as the Wizard of Omaha, is an inspiration to many, a symbol of the value of work ethic, self-made success, and the great reward that comes with foresight. Now, foresight means recognizing both opportunity and risk. And when it comes to risk, there is no better example than climate change. I recently co-authored an article in the journal, "Scientific Reports," for example, demonstrating that climate change played a key role in the onslaught of unprecedented, devastating droughts, floods, and heat waves in recent years. And the impacts we're seeing now are just the veritable tip of the iceberg. Carbon emissions must be brought down dramatically within the next few years if we are to avert the worst impacts of climate change. Mr. Buffett coined the term "Noah's Law" in his 2015 shareholder letter to describe the risk posed by climate change, stating, "If there is only a one percent chance the planet is heading toward a truly major disaster and delay means passing a point of no return, inaction now is foolhardy." Well, I couldn't agree more. And the science tells us that we are heading toward disaster in the absence of substantial reductions in greenhouse gas emissions. Board member Bill Gates demonstrated bold leadership a year ago when the Bill and Melinda Gates Foundation announced it was divesting of fossil fuel holdings. Were Mr. Buffett to follow suit, it would send a profound message to the rest of the global business community, a message that we can both mitigate risk and seize opportunity in the form of massive growth in clean energy technology by tackling this problem now head-on before it's too late. Thank you.

WARREN BUFFETTThank you. And I believe there's another speaker or maybe two. If you'll identify yourself, please.

RICHARD SOMERVILLEMy name is Richard Somerville. I'm a climate scientist and a professor at the University of California San Diego. Chairman Buffett, board and shareholders, the world is warming. It is due to human activities. It is getting worse. The observational evidence is overwhelming. All the warmest years, globally, are recent years. We see the weather changing. We see more severe floods and droughts. Sea level rise is accelerating. Ice sheets and glaciers are shrinking worldwide. Climate change will become more and more serious unless emissions of heat-trapping gases and particles are quickly and drastically reduced. The biggest unknown about future climate is human behavior. Everything depends on what humanity does now. We have our hands on the thermostat that controls the climate of our children and grandchildren. In 2015, the nations of the world agreed in Paris on how much warming can safely be allowed. The Paris target was informed by science. And the science shows that to meet the target, emissions need to be reduced drastically and quickly. We cannot just muddle through. Dithering and procrastinating lead to catastrophe. Alleviating the disruption of climate change is cheap compared to coping with the damage that unmitigated climate change will cause. Want an example? Doing nothing about climate change means that sea level will become so high that coastal cities must eventually be abandoned. We caused this problem. We can solve it. And polls show that most Americans want strong actions to limit climate change. The forces driving clean energy are powerful. The market is turning against fossil fuels. The prices of solar and wind energy are dropping. They can already compete without subsidies. Vehicle electrification is happening fast. Clean energy provides jobs and economic growth. Progress and prosperity do not require emitting heat-trapping gasses. Berkshire Hathaway and Warren Buffett are rightly admired and respected worldwide. Helping the world confront climate change should be an important part of their legacy. We owe it to our children and grandchildren. Thank you.

WARREN BUFFETTThank you. I believe there's one more speaker. (Applause)

DAVID TITLEYThank you, sir. I am David Titley, retired rear admiral, former oceanographer of the Navy and now a professor of practice at Penn State. I've been a shareholder of Berkshire Hathaway since December of 2000. Thank you, sir, for your leadership of this enterprise. When I was stationed at the Pentagon, I had the privilege of working directly for the Pentagon's foremost strategic planner, Mr. Andrew Marshall. He taught me how to think about risk, and especially risks that may seem distant or low probability, but one with very high impact, such as weapons of mass destruction. Climate change is a fat tail, emerging risk. It's really a risk to people, to us. And when this risk is not managed, we have a security problem. One example would be Syria. Climate is one of the links in a long chain of events that led to the tragic outcome. Non-climate events, such as over a million refugees pouring into Syrian cities from the Iraq War, stress Syrian governance. Then, about a decade ago, an exceptionally intense drought and heat spell, linked with high confidence to a changing climate, devastated Syrian agriculture. Now, you have millions of desperate people with nothing and a breeding ground for extremists. Syria is an example of why, in the security community, we say that climate change accelerates the risks of instability. It can make bad places worse, a lot worse. Senior military officers know you must address risks and take precautions while you can, before it's too late. The U.S. Defense Department understands the risks of climate change. And it's been working quietly to adapt to the changing climate for years. Winston Churchill is alleged to have said, "Americans can always be counted upon to do the right thing after exhausting every other possibility." But we will prevail. And you, sir, can help. Here's my ask. What are government and business leaders doing to stabilize the climate? We should reduce rather than accept the risks of unchecked climate change because the ice doesn't care which party controls the White House or the Congress. It just melts. Thank you. (Applause)

FRANK LAMEREI am Frank LaMere, of the Bear Clan of the Winnebago Tribe of Nebraska. It was the indigenous people of this continent who first consecrated the ground on which we live and grow, who offered up prayers and petitions asking that we be allowed to live and to provide a way for the generations to come. In exchange for the blessings given by the creator, our forbearers agreed to be good stewards of the land. The stewardship of our Mother Earth, who provides for us, has now changed. But the covenant remains the same. Let there be no mistake about that. If we continue to disrespect our earth mother, those things given us, bountiful harvest, protection from the elements and good, clean water will surely be taken from us. Our elders speak of this. It has been foretold. On Christmas Eve, my son came from Standing Rock to visit us for one hour. His mother and I worried about him. "How is it there? Why did you go?" I asked. He said, "It is dangerous, dad. But someone has to protect our water." I nodded and said, "Ahoo! That is good." He is a water protector. I stand on his shoulders. Mni wiconi. The protectors proclaim water is life. Bearing that in mind, I am told that this waterway flowing south from Standing Rock and passing just a short walk from here would be fouled by any kind of breach in the Dakota Access Pipeline. My sense and my years tells me that this will happen. Millions would be poisoned. I'm further told that this collective body holds a 15 percent interest in the — an oil company that is a 25 percent shareholder in the Dakota Access Pipeline. I would ask that you walk away from that investment, stand with Mother Earth today. I'm a Winnebago Indian. The Missouri River brought us here when we had no place to go. We stand with our Mother Earth now as she stood with us. Think about that. Mni wiconi. Water is life. Pinagigi. Thank you.

WARREN BUFFETTThank you. (Applause)

RICHARD MILLERDear Chairman Buffett, board members and shareholders. I am Richard Miller. I am an associate professor of philosophical theology and sustainability studies at Creighton University. I write and teach on ethical issues raised by the climate crisis. As a rationale for voting no on the divestment resolution, the board maintained that Berkshire should not limit its universe of potential investments based upon complex social and moral issues, and that following state and federal laws was sufficient to meet your obligations. There is not only an overwhelming consensus in the scientific community about the reality and dangers of climate change, but there is also an overwhelming consensus among all major ethical theories that is one not morally justified to use increased profit as a rationale for doing harm to others. By continuing to invest in, and thus promote, the extracting, processing, and burning of fossil fuels, Berkshire is doing harm to people around the world and creating conditions that will threaten future generations. While one is not morally justified to use increased profits as a rationale for doing harm to others, one cannot also opt out of ethical considerations by appealing to moral complexity. When you're doing harm to others, especially at that — this scale, there is no neutral space. Nor can you simply appeal to the fact that Berkshire is following state and federal laws when those laws are, themselves, unethical in that they allow the United States to violate the human rights of people around the world and set in motion catastrophic future for young people. The consensus among ethical theories will, in due time, become self-evident to the average person, analogous to the way slavery, as an evil, is self-evident today. Indeed, the recognition of the immorality of investing in fossil fuels is rapidly gaining ground as more and more institutions divest their fossil fuel holdings. Mr. Buffett, you're standing on an ethical house of cards. It is only a matter of time before it comes tumbling down. Like the thousands gathered here and the millions on live stream, I admire your considerable achievements. But I am afraid that if you do not change course very soon, history will not judge you kindly. Thank you for your time.

WARREN BUFFETTOK. Thank you. (Applause) The motion is now ready to be acted upon. If there are any shareholders voting in person, they should now mark their ballots on the motion and deliver their ballots to one of the meeting officials in the aisles. Miss Amick, when you're ready, you may give your report.

BECKI AMICKMy report is ready. The ballot of the proxy holders in response to proxies that were received through last Friday afternoon cast 7,784 votes for the motion and 594,044 votes against the motion. As the number of votes against the motion exceeds a majority of the number of votes of all Class A and Class B shares properly cast on the matter, as well as all votes outstanding, the motion has failed. The certification required by Delaware law of the precise count of the votes will be given to the secretary to be placed with the minutes of this meeting.

WARREN BUFFETTThank you, Miss Amick. The proposal fails. And Mr. Scott, do you have a motion?

WALTER SCOTTI move the meeting be adjourned.

WARREN BUFFETTIs there a second?

RON OLSONI second the motion.

WARREN BUFFETTThe motion to adjourn has now been made and seconded. We will vote by voice. Any discussion, if not, all in favor say, "Aye."

VOICESAye.