2018 年股东大会 · 下午场

Thanks to meeting organizer Melissa Shapiro

WARREN BUFFETTOK. Last year, for several years, we had a wonderful woman who carried this meeting off without a hitch, Carrie Sova. And she just had her third child here about a few weeks ago, and decided that — she decided right after the last meeting that that was going to be her full-time occupation. And this year, again, we've had everything carried off without me having to do anything, without a hitch. And I would just like to have Melissa Shapiro stand up. And we'll get a spotlight on her. (Applause) I can't believe it, how she does it. It's just been — it’s remarkable. I mean, we — I just tell her the date and then that's all the help I am — (laughs) — and it goes on from there. So, Melissa, thank you. OK, I think we next go to station ten, and we will continue until 3:30. Then we'll take a 15-minute break, and at 3:45 we'll convene the actual annual meeting.

Why Berkshire won't be buying Microsoft stock

WARREN BUFFETTStation 10?

AUDIENCE MEMBERHi, I'm Theresa Lukasinski (PH). I'm from Omaha, Nebraska. And I have a question about Microsoft. You have gotten into the tech world with buying Apple. You have Mr. [Bill] Gates there. I'm just wondering why you've never bought Microsoft.

WARREN BUFFETTWell — (laughter) — in the earlier years, it's very clear it’s — the answer’s stupidity. But the — (Laughter) Since Bill has — particularly since Bill has joined the board, but even earlier than that because of our friendship, it would be — it just would be a mistake for Berkshire to buy Microsoft. Because if something happened a week later, a month later, in terms of them having better earnings than expected, or making an acquisition — anything — both Bill and I would — incorrectly, but — would be a target of suggestions and accusations, perhaps even, that somehow he had told me something or vice versa. I stay away from — I try to stay away from a few things just totally because the inference would be drawn that we might have talked — that I might have talked to somebody about something. So I've told the fellows, Ted [Weschler] and Todd [Combs] for example, that there are just a few things that are off the list because there would be a lot of people who wouldn't believe us if something good immediately happened after we bought it. And of course, we — to buy a lot of stock, it can take six months to buy it or something of the sort. We just don't need it. But both that and my stupidity have cost us a lot of money. (Laughs) It's a very — it’s a good question, and I think the answer makes sense. Charlie?

CHARLIE MUNGERWell, it’s part of theology that a late conversion is better than never — (laughter) — and you’ve greatly improved yourself. (Laughter)

"Through it all … America really, really moves ahead"

WARREN BUFFETTBecky. (Laughs)

BECKY QUICKAll right, this question comes from Dave Shane (PH). He says, "Warren, you are a big believer in the U.S. political system, the financial system, and in every American. "You've said that regardless of who is president, the economy and the U.S. consumer will continue to prosper over the long run. All that said, do you believe that people in this country are more divided today than 50 years ago? "Or is it just social media, and media in general, that blows this divide out of proportion? And if you do believe the divide has grown, what words of wisdom do you have to possibly help remedy it?"

WARREN BUFFETTYeah, I would say this. Multiple times in my life, people have felt the country was more divided than ever. And I've gone through periods where people I knew and admired thought that, because the other party was in power, that there never would be another election. That the Constitution would — I've heard everything. Now, the interesting thing is this paper from 1942. Since then, there have been 14 American presidents, just since my young venture into the stock market at 11, I've lived under 14 of the 44 presidents the United States has had. Now, they call Trump 45, but they count Grover Cleveland twice, so there's really only been 44 presidents of the United States. And 14 of the 44 have been during this period when that $10,000 became 51 million. Seven have been Republicans, seven have been Democrats. One has been assassinated, one has resigned under pressure. It works, you know. It — if you'd told me at the start, you know, that you'd have a Cuban Missile Crisis, and you've have nuclear weapons, and you'd have a panic in 200[8] — a financial panic — and you'd have many recessions, and you'd have war in the streets in the late '60s from a divided country, you'd say, "Why the hell are you buying stocks?" And through it all, you know, America — in fits and starts — but America really, really moves ahead. And we are always — we survived the Civil War. I mean, it — I hate to think of having to do it that way. But this country, in only less than three of my lifetimes — If you go back three of my lifetimes, you go back 263 years, I guess, and Thomas Jefferson is 12 years old. And that’s just three — and there was nothing here. You know, you've flown in from all over to Omaha today, and you flew over a country with more than 75 million owner-occupied homes, and 260 million vehicles, and great universities, and medical systems, and everything. And it's all a net gain in less than three of my lifetimes. So — and we've had these events since I started buying my first stock. This country really, really works. And it always will have lots of disagreements, and after every election you'll have people feeling the world is coming to an end and, you know, "How could this happen?" And I remember my future father-in-law in 1952, he wanted to have a talk with me before his daughter and I got married. So kind of reluctantly I sat down with him, and he said, "Warren," he said, "there's just one thing I want to tell you." He said, "You're going to fail." He said — (laughter) — you know, "The Democrats are going to get in," you know, "they’re going to take over the country. And you're going to fail, but don't feel responsible for it because it's not your fault." And he wanted to absolve me from this feeling that, while his daughter was starving to death, it was my fault. And — (laughter) — I kept buying stocks and doing a little bit better all the time. And, but — And if the Republicans were in, it was OK, and it was because of them that I was doing well. And if they were out, forget it, it was all going to disappear and stuff. I mean, I've seen a lot of American public opinion over the years. I've seen a lot of media commentary. I've seen the headlines. And when you get all through with it, this country has six times the per capita GDP growth — the GDP per capita — that it had when I was born. One person's lifetime, six-for-one change. Everybody in this room, essentially, is living better in multiple ways, than John D. Rockefeller Sr. was, who was the richest person, you know, in the world at that — during my early years. And we're all living better than he could live. So this is a remarkable, remarkable country, and we found something — (applause) — very special.

CHARLIE MUNGER(Inaudible)

WARREN BUFFETTI would love to be a baby being born in the United States today. Charlie. OK, Charlie, you give the other side of this.

CHARLIE MUNGERWell — (laughter) — there's a tendency to think that our present politicians are much worse than any we had in the past. But we tend to forget how awful our politicians were in the past. I can — (Laughter) I can remember a prominent senator [Roman Hruska] arguing with an absolute earnestness that mediocre people ought to have more representation on the United States Supreme Court.

WARREN BUFFETTYeah. He came from Nebraska, incidentally.

CHARLIE MUNGERHe did. He came from Nebraska. (Laughter) So we're not quite as bad as that yet.

WARREN BUFFETTYeah. He succeeded my dad in the House of Representatives.

"We’ll have a somewhat larger operation at Gen Re"

WARREN BUFFETTOK. Gary.

GARY RANSOMYes, on reinsurance. I know we've talked in the past about reinsurance not really being as attractive an industry in, say, the next ten years as the last ten. But I don't think we've talked specifically about General Re. And I looked this morning at the 10-Q and I see General Re has grown nicely. I know there's been some changes in the management. And I wondered if you could just give us a sense of what's going on at the company to bring about some of that growth and what looks like improvement.

WARREN BUFFETTYeah. Well, the reinsurance business — I don't think I'd say that it's tougher than it was ten years ago. But you go to 40 or 50 years ago, it was not brutally competitive, I'll put it that way. And at Gen Re — Tad Montross, who did a fantastic job for us at Gen Re, retired. And we have under Ajit [Jain] — and then Kara [Raiguel] in addition — but under Ajit, the focus of the place has changed somewhat. And it probably is more growth oriented than before. But I can assure you that anything associated with Ajit is — also has underwriting discipline attached to it. But, I — there has, as you've correctly noticed, there's been some pick-up. And I think you actually will see the property-casualty reinsurance business grow a fair amount. And the life business — reinsurance business — and this is really the only place we do much in life — but that has grown very substantially ever since we took it over, particularly internationally. And so that part, I like. And we will have a somewhat — I think we’ll have a somewhat larger operation at Gen Re. But we have various methods, as you know, of being in reinsurance. We do these huge bulk deals. That's why our net revenues are down this year. We did that $10 billion deal with AIG, which was the biggest deal in history, last year. And we don't have a repeat of it this year. We will be in the reinsurance business five years from now, 10 years from now, 20 years from now, and 50 years from now, in my view. And we will have some unusual advantages that stem both from our capital position, our attitude toward the business, and the talent that we have. We have an — we have a way better than average insurance business, generally. We have some real gems that nobody really knows much about. And we have a very, very good reinsurance business that will be subject to more ups and downs than something like GEICO will be, which just moves ahead every year. But it will be an important part of Berkshire. Charlie?

CHARLIE MUNGERYeah. I would argue the part that any idiot financier can easily get into has gotten way tougher. And why wouldn't it?

WARREN BUFFETTCharlie is my substitute for my father-in-law that was — (Laughter)

"I can't reduce that to a formula for you"

WARREN BUFFETTOK, Station 11.

AUDIENCE MEMBERHey, Warren. Charlie. Thank you again for having us and having me. I just can't thank you guys enough and appreciate you guys enough for the body of work that you guys have delivered to us and the exemplar example that you guys have set with your principles. Thank you. (Applause) Charlie, you've mentioned that, if given the chance — or the same chance with a smaller capital base — you would still look for mispriced stock opportunities.

CHARLIE MUNGEROf course.

AUDIENCE MEMBERAnd that would be determined through, obviously, what we've called the intrinsic value of the organization — or the company in question — an aggregate of the discounted future cash flows. Would you work the arithmetic using a fictional data set to illustrate the mathematical principia to determine an intrinsic value? And I hope you include the comprehensive mental model of the key metrics considered, and quantitative assessments of the management, and any assumptions of its industry to determine the durability of its earning power. And, Warren, same to that effect. Would you also demonstrate or illustrate an arithmetic problem set using, with a significant capital base, and provide the object lessons on how those have changed from a small to a large capital base?

CHARLIE MUNGERWell, I can't give you a formulaic approach because I don't use one. (Laughter) And I just mix all — (laughter) — I just mix all the factors and if the gap between value and price is not attractive, I go on to something else. And sometimes it's just quantitative. For instance, when Costco was selling at about 12 or 13 times earnings, I thought that was a ridiculously low value, just because the competitive strength of the business was so great and it was so likely to keep doing better and better. Well, I can't reduce that to a formula for you. I liked the cheap real estate. I liked the competitive position. I liked the way the personnel system worked. I liked everything about it. And I thought, even though it's three times book, or whatever it was then, that it's worth more. But that's not a formula that anybody — If you want a formula, you should go back to graduate school. (Laughter) They'll give you lots of formulas that won't work. (Applause)

WARREN BUFFETTThis is the longest we've ever gone in a Berkshire meeting without Charlie saying that — getting to the point where he prefers Costco to Berkshire. (Laughter)

Why Apple and thoughts on Apple’s buybacks

WARREN BUFFETTOK, Andrew?

ANDREW ROSS SORKINWe got a handful of questions relating to Apple. This is a bit of a mash-up of a couple of them. Warren, you have bought in and sold out of IBM. You have praised [Amazon CEO] Jeff Bezos but never bought Amazon. And you have doubled down on Apple. Can you tell us what it is about Apple? And given your sometimes critical views on buybacks, do you think Apple would do better spending a hundred billion dollars on buybacks, or buying other productive businesses the way you have generally preferred? A hundred billion dollars is a lot of money.

WARREN BUFFETTI used to think so. (Laughter) The — Apple has a incredible consumer product which you understand a lot better than I do. Whether they should buy in their shares — they shouldn't buy in their shares at all, unless they think that they're selling for less than they're worth. And if they are selling for less then they're worth, and they have the money, and they don't see an acquisition that's even more attractive, they should buy in their shares. And I think that that’s very — Because I think it's extremely hard to find acquisitions that would be accretive to Apple that would be in the 50 or 100 billion, or $200 billion range. They do a lot of small acquisitions. And, you know, I'm delighted to see them repurchasing shares. We own — let's say we own 250 million or so shares. They have, I think, 4 billion, 923 million or something like that. And mentally, you can say we own 5 percent of it. But I figure with, you know, with the passage of a little time we may own 6 or 7 percent simply because they repurchase shares. And it — I find that if you’ve got an extraordinary product, and ecosystem, and there's lots to be done, I love the idea of having our 5 percent, or whatever it may be, grow to 6 or 7 percent without us laying out a dime. I mean, it's worked for us in many other situations. But you have to have some very, very, very special product, and — which has an enormous wide — enormously widespread ecosystem, and the product's extremely sticky, and all of that sort of thing. And they're not going to find 50 or a hundred billion dollar acquisitions that they can make at remotely a sensible price that really become additive to that. And they may find it, who knows? But there certainly, as I look around the horizon, I don't see anything that would make a lot of sense for them in terms of what they'd have to pay and what they would get. Whereas I do see a business that they know everything about, and where they may or may not be able to buy it at an attractive price when they repurchase their shares. That remains to be seen. Incidentally, that's one thing that I always enjoy. People say, "Well, you're talking your book," or something if you talk — From our standpoint, we would love to see Apple go down in price. They’re going to — well, just put it this way. If Andrew and Charlie and I were partners in a business that was worth $3 million so each of us had a million dollar interest in it, if Andrew offered to sell out his one-third interest at 800,000 and we had the money around, we'd jump at the chance to buy him out. I mean, it's so simple. But people get all lost — and if he'd wanted a million-two for it, we wouldn't pay it to him. (Laughs) It's very simple math, but it gets lost in all these discussions. And of course, like I say, [Apple CEO] Tim Cook could do simple math. And he could probably do very complicated math, too. So, we very much approve of them repurchasing shares. Charlie?

CHARLIE MUNGERI think, generally speaking in America, when companies go out hell-bent to buy other companies, they do — they’re worth less after the transaction is made than they were before. So I don't think you have a general way to wealth for American corporations to go out and buy other corporations. Averaged out, it's a way down, not up. And I think that a great many places have nothing better to do than to buy in their own stock, and nothing as advantageous to do as they can — as buying in their own stock. So, I think we know pretty damn well what's going to happen to Apple. They'd be very lucky to — if there was something available at a low price that they could buy. It’s — I don't think the world’s that easy. I think that the reason these companies are buying their stock is that they're smart enough to know that it's better for them than anything else.

WARREN BUFFETTAnd that does not mean we approve of every buyback, at all, though. I mean, we've seen —

CHARLIE MUNGERNo, no, no. I think some people just buy it to keep the stock up. And that, of course, is insane. And immoral. But apart from that, it's fine. (Laughter)

"I like very much our holdings of American Express"

WARREN BUFFETTOK, Gregg?

GREGG WARRENWarren, if we look at the performance of your equity investment portfolio the last three to five years, some of the strongest performances come from Visa and Mastercard, which put up returns that are three to four times greater than American Express. Unfortunately, your holdings of the two names, which we assume were held by Todd [Combs] or Ted [Wechsler], have accounted for less than one percent of stock holdings on a combined basis the past five years, while American Express has tended to be a top-five holding, accounting for 10 percent of the portfolio, on average, and closer to 8 percent of late. Given that all three firms benefit from powerful network effects along with valuable brands, were there any particular reasons Berkshire did not ramp up its stakes in Visa and Mastercard to more meaningful levels, especially during those years when American Express was struggling? After all, you've shown a willingness to own several stocks from the same industry, holding shares in several competing banks, and buying stakes in all four domestic airlines in fairly equal amounts when you picked them up in late 2016.

WARREN BUFFETTYeah. When Ted and Todd, or either one of them — I won't get into which specifically — which one of them specifically — bought, or for that matter they could both have bought — Visa and Master Charge (Mastercard) — they were significant portions of their portfolio. And there was no embargo or anything on them owning those stocks because we had a big investment in American Express. And I could have bought them as well. And, looking back, I should have. On the other hand, I think American Express has done a fabulous job, and now we own 17 and a large fraction percent of a company that not that long ago we may have owned 12 percent. We’ve done it without spending a dime and without — you know, it's a company that has really done a fantastic job in a very competitive field where lots of people would love to take their customers away from them. But they have more customers than ever, and they're spending more money than ever. The customers are. And the international growth has accelerated. The small business penetration is terrific. It's really quite a business. And, you know, we love the fact we own it. Like I say, it didn't preclude me from, in any way, from buying Master Charge (Mastercard) or Visa. And if I had been as smart as Ted or Todd, I would have. (Laughs) Charlie?

CHARLIE MUNGERWell, we would have been a little — a lot better with all of our stock picking if we could do it in retrospect. But — (laughter) — at the time, we have a big position in American Express, and there is one tiny cloud on the horizon of the payments processors and that is the system of WeChat in China. And so it isn't as though there isn't a little cloud somewhere off in the — and I don't have the faintest idea how important that cloud is, and I don't think Warren does either.

WARREN BUFFETTNo. No. Payments are a huge deal worldwide. And you've got all kinds of smart people working at various ways to change the payment arrangements. And —

CHARLIE MUNGERTo destroy what we have now.

WARREN BUFFETTSure, sure. And you've got some very smart people that, you know, I am — the — but there — building a company. And American Express made a decision a few years ago not to bid as low as somebody else did to retain the Costco business. And I think — Charlie and I disagree on this — but I think it was a smart decision. He doesn't think it was a smart decision. But one of us will be right. And — (laughter) — and one of us will remind you that they were right. (Laughter) The — but if you look at American Express, it is — it's a remarkable company. I mean, you know, they came after them with Sapphire last year. People want that business. And payments are changing. And you can see in different countries different ways things are going on in that. And there are a lot of people that will play the game of gaming the system, and switch from one to another based on the rewards on this card or that, and all of that sort of thing. But there also is a — I think there's a very substantial group for which American Express does something very special, and they keep capitalizing on that premier position with that group. And they're doing it successfully around the country. And you’ll see in the first quarter — you've seen in the first quarter — you know, where in Britain, in Mexico, in Japan, you're seeing gains of 15 percent or better in local currencies. And the base is not tiny, but it's not huge, so there's a lot of room left to go in that. And the small business penetration is good. The loan portfolio has behaved sensationally compared to, really, just about anybody. So, I like very much our holdings of American Express. The first half, because of the accounting changes, they had to suspend their repurchase program for six months. But I — they've announced that they expect to renew it. And someday we’ll even, you know, we'll own a greater percentage of American Express and it will be a bigger company, in my opinion. And I think we'll do very well. But as Charlie says, nobody knows how payments is — for sure — comes out. And nobody knows how autos for sure come out. And there — that is true of a great many businesses we're in, and we've faced it before. We used to buy things that were certain failures, like textiles and second-rate department stores and trading stamps in California. Now we just face things that face real difficulty. So we're actually moving up the ladder. (Laughter)

Capital-intensive businesses are "good enough"

WARREN BUFFETTOK, Station 1.

AUDIENCE MEMBERMr. Buffett, my name is Daphne Collier Starr (PH). I'm eight years old and live in New York City. I've been a shareholder for two years and this is my second annual shareholders meeting. Berkshire Hathaway's best investments on which the company built its reputation have been in very capital-efficient businesses — (laughter) — such as Coke, See's Candy, American Express, and GEICO. But recently, Berkshire has made really big investments in a few businesses that require huge capital investments to maintain and that offer only a regulated low rate of return such as — (laughter) — Burlington Northern Railroad. My question to you, Mr. Buffett, is could you please explain why Berkshire's largest recent investments have been departed from your old capital-efficient philosophy? And why specifically have you invested Burlington Northern instead of buying a capital-efficient company like American Express? (Applause)

WARREN BUFFETTYou're killing me, Daphne. (Laughter) Yeah.

CHARLIE MUNGERI'm certainly glad she's not nine years old.

WARREN BUFEFTTYeah. (Laughter) I'm just sitting here thinking which of the six panelists we're going to bump next year and put you in. (Laughter) Well, I thought I was doing well when I bought that City Service at 11. (Laughs) The answer is that we have — we’d love — we always prefer the businesses that earn terrific returns on capital, like a See's Candy when we bought it or a good many of the businesses. And, we’ve — and, you know, American Express, you know, earns a terrific return on equity, and has for a very long time. The fact that we buy a Burlington — BNSF, Burlington Northern — means that, essentially, we can't get more money deployed in capital-light businesses at prices that make sense to us. And so we have gone into more capital-intensive businesses that are good businesses. But wouldn't it be wonderful if we could run the railroad without trains, and track, and tunnels, and bridges, and a few things? We get a decent return on the capital-intensive businesses. We bought most of them at very decent prices, and they've been run very well since we bought them. We still love a business that takes very little capital and earns high returns, and continues to grow, and requires very little incremental capital. We can't deploy as much money as we have in doing that. And so as the second-best choice, still a good choice, the answer is yes. It's not as good as the best choice. Charlie?

CHARLIE MUNGERYes, I like the aspiration of that young lady. She basically wants her royalty on the other fellow's sales. And of course that's a very good model, and if everybody could do that, why, nobody would do anything else. The reason we're satisfied with our utility returns and our railroad returns is they're quite satisfactory. And we — and the — quite satisfactory. I wish we had two more just like them. Don't you, Warren?

WARREN BUFFETTYeah.

CHARLIE MUNGERSo —

WARREN BUFFETTDefinitely.

CHARLIE MUNGERSo the answer is they're good enough, and you're asking us to get perfection if you would want us to have all our money in Coke at, say five percent of what it's now selling for.

WARREN BUFFETTYeah. And a business like Apple really doesn't take much capital. But — so, you've got to spend a lot of money to buy businesses like that. Very few are for sale. And the answer is we have not foregone any opportunity to buy businesses that earn high returns — very high returns — on equity capital, when we could buy them at a sensible price, to buy these other businesses. So they haven't shoved anything else off the table. But you are — you definitely have a job in our capital allocation department. (Laughter)

Buffett "surprised" rate of decline for newspapers hasn't moderated

WARREN BUFFETTOK, Carol.

CAROL LOOMISThis question is from Max Taylor (PH) of Chicago, and it concerns the newspapers that Berkshire owns. "In your 2012 letter to shareholders, Mr. Buffett, you had a section devoted to Berkshire's buying 28 newspapers during the year just past. Since then, you have not come back to the newspaper subject. "But this year, at the end of the annual report, you published a list of the newspapers Berkshire owns today, along with their circulation. I compared that list with the one you published five years ago at the end of 2012. "As you no doubt know better than anyone, the circulation of the 26 newspapers that Berkshire still owns, of the 28 originally bought, fell sharply. In many cases, by big amounts like 30 percent to almost 50 percent. "I know that five years ago, you acknowledged the risk in owning newspapers, but you still said, 'Charlie and I believe that papers delivering comprehensive and reliable information to tightly-bound communities, and having a sensible internet strategy, will remain viable for a long time.’ "Skip to today, and imagine that you are writing about Berkshire's experience with newspapers. What would you be saying?"

WARREN BUFFETTYeah. I would say that — I forget the modifying word on internet strategy — but I think I said "sensible." The problem has been — about 1,300 daily newspapers in the United States — there were 1,700 not that long ago — is that no one except The Wall Street Journal, The New York Times, and now probably The Washington Post has come up with a digital product that, really in any really significant way, will replace the revenue that is being lost as print newspapers lose both circulation and advertising. And if you look at the communities in which we operate, or the communities in which, you name it — other newspapers operate, the community could be prospering. We're in a prosperous economy presently. And all are losing daily circulation, they're losing Sunday circulation, they're losing street — all street sales, they're losing home-delivered. And it is — I've been surprised that the rate of decline has not moderated in the last five years. We bought all the papers at reasonable prices, so it is not of great economic consequence to Berkshire. But I would like to see daily newspapers, actually, you know, be economically viable, because of the importance to society. But I would say that the trends which — I put those circulation figures in there because I think the shareholder’s entitled to look, year-to-year, at what is happening. And it's not only — It’s happening to 1,300 newspapers throughout the United States. And it happens in small towns, where you would think that the alternative sources of information would not be that good. It happens every place. And The Journal, The Times, and probably The Post, have a viable economic model in the digital world, and probably will continue to shrink — I'm almost certain will continue to shrink — in the print world. But the digital world will be big enough that — and they'll be successful enough — so that they have, in my view, a sustainable business model. But it is very difficult to see, with the lack of success, in terms of important dollars arising from digital, it's difficult to see how the print product survives over time. And that’s — I'm afraid that's true of 1,300 papers in this country. And we'll keep looking to see if there is a way to do it. But you'd have to look at our experience, and look at the experience of everyone else’s. McClatchy newspapers came out the other day, you know, and I think that newspaper — which is very good — fine cities that they operate in — and advertising revenue is down something like 17 or 18 percent, and circulation. But it isn't just them, it's everybody in the business. And I wish I had a better answer for you, but I don't. I would say that the economic significance to Berkshire is almost negligible, but the significance to society, I think, actually is enormous. And, you know, I hope that we find something. I hope others find something because we'll copy it. But so far, we have not succeeded in that. Charlie?

CHARLIE MUNGERWell, the decline was faster than we thought it was going to be. So it was not our finest bit of economic prediction. And I think it's even worse. I think, to the extent we miscalculated, we may have done it because we both love newspapers and are — and have considered them so important in our country. These little local newspaper monopolies tended to be owned by people who behaved well and tended to control the politicians. And we're going to miss these newspapers if they disappear. We're going to miss them terribly. And —

WARREN BUFFETTI think you may continue —

CHARLIE MUNGER— I hope to God it doesn't happen, but the figures are not good, Warren.

WARREN BUFFETTNo. No, they aren't. And it isn't just — you know, it isn’t some town that has a particular problem with unemployment or anything of the sort. And it isn't due to general economic conditions. It's due to the fact that a newspaper, if you wanted to know the baseball results from the present day, and the box scores, and everything else, they told you the following morning and it was still news to you. And the financial material that I read from there, and in terms of looking at the stock prices and everything, they were news to you the following morning. And the — What was developing in the Pacific in terms of the war was news to you when you read about it in the morning in The New York Times. And it’s — news is what you don't know that you want to know. And the — And those Help Wanted ads, you know, segregated as they may have been, still were the place to go to look to find a job. And you can go up and down the line and one element after another where the daily print newspaper was primary, they're no longer primary. And the business has changed in a very material way, and we haven't been able to figure out any solutions to that, and we’ll keep trying. Like I say, it's not of economic consequence, but I think it is societal consequence. And we haven't been able to solve it.

TTI has "improved dramatically in the past year"

WARREN BUFFETTOK, Jonathan?

JONATHAN BRANDTTTI has been a nice growth story since Berkshire acquired it 11 years ago, more than doubling its pre-tax earnings to about $400 million due to fine organic growth and at least two successful bolt-on acquisitions. Business momentum appeared to accelerate in the first quarter. Can you please talk about the competitive landscape in the electronic components distribution industry and what TTI's advantages are? Is it just a great industry to be in or is TTI's business model and/or management team special?

WARREN BUFFETTWell —

JONATHAN BRANDTDo you expect it to continue to be one of Berkshire's faster growing non-insurance subsidiaries?

WARREN BUFFETTTTI is run by a fellow named Paul Andrews who's done an absolutely sensational job with us. He's a wonderful man. He's a wonderful manager. And in the last — he's quadrupled the business, basically, but in the last year and accelerating right to this point. They distribute little electronic components. They actually — their average — they're a many-billion dollar business — and their average item is less than a nickel that they sell. So it's kind of like being in the jellybean business or something like that. Except these things go into all kinds of fancy machines that I don't understand. And we have a worldwide operation based in the Dallas, Fort Worth area. And built by one man who left a division of General Dynamics 45 or 50 years ago. And step-by-step built up this business — like we just bought within the last two months, we bought an operation in South Korea that will be another substantial addition. We do business worldwide. And electronic components that have absolutely taken off in the last year. And they use something called, you know, well, it's essentially a measure of backlog. And book-to-build is the ratio they call it. But it's just kind of a special term. The — but, it's grown — I mean, it's just improved dramatically in the last year. And it continues month after month. So something is going on out there because nobody buys these things to store them in their basement or anything of the sort. I mean, these get used, these electronic components. Some of them are on allocation. We have a great relationship with suppliers. We have a very good relationship with our customers because we carry more inventory than most of our competitors. So particularly when the business is tight we can deliver and do a very first-class job doing it. So I give credit to Paul. He increased his physical facility, started on that a few years ago. And it's a godsend that he did it because with the business going through there now we wouldn't have been able to handle it. But it's a competitive business. I mean, if you look at Arrow Electronics, you know, on the New York Stock Exchange — we've got competitors. I think Paul is doing a better job, by a considerable margin, than they are. And I'm delighted as a part of the Berkshire family. There will be times when that business slows down because their customers, you know, will have their own cycles. And what it does will go down. But over time that business is going to grow. Charlie?

CHARLIE MUNGERYeah, it's a wonderful business because it's so difficult to do that competitors don't want try it. When I lived in Omaha there was a man who lived in great prosperity and almost no work. And his business was gathering up and rendering dead horses. And he never had any competitors. (Laughter) He used to come up to the Omaha Club and start drinking about 11 in the morning. It was not a difficult business. But nobody ever crowded him with new competition. And very few people want to distribute zillions of electronic parts that are worth a nickel each. It's very complicated. And of course that business is terribly good at it. And it keeps getting more and more of the same. So you're right. It's a huge growth business which is sort of the electronic equivalent of gathering up and rendering dead horses. (Laughter)

WARREN BUFFETTImagine keeping track of close to a million different items, you know, with very small values attached to them and getting them out to your customer fast because they want them fast, all over the world. You know, and those things are not easy to manage. I mean, yeah.

CHARLIE MUNGERAnd staying in stock on so many items. It's very complicated. And that business is very good at it.

WARREN BUFFETTYeah, we're luck —

CHARLIE MUNGERAnd of course it'll grow. The horses went away but these parts aren't going to go away. (Laughter)

WARREN BUFFETTCharlie made a profession of studying businesses where the owners could sit around and drink all day and have — (laughter) — he thought that was where we ought to be competing but — or buying.

CHARLIE MUNGERMy theory, Warren, is if it can't stand a little mismanagement, it's no business. (Laughter)

WARREN BUFFETTYeah and we're testing that sometimes. (Laughter)

Phillips 66 and staying below 10 percent ownership

WARREN BUFFETTOK, Station 2.

AUDIENCE MEMBERHi, Ben Sherber (PH), Topeka, Kansas. Just want to say, Warren and Charlie, thank you again for hosting us all. This is a great event.

WARREN BUFFETTThank you.

AUDIENCE MEMBERMy question is about the recent decision to sell shares back of Phillips 66. Not to put you on the hot seat. But right after that, share prices jumped up about $22 a share. You mentioned at the time that there's some regulatory requirements if you own over 10 percent of a company. Could you talk about the factors that go into how you decide whether to retain more than that or get under that threshold? And then what are your thoughts long-term on Phillips 66, like, their business mid-stream refining?

WARREN BUFFETTYeah, well, it was the City Service preferred of last year. (Laughter) We sold the stock at around 93 or '4. And it's probably 115 now. But we own just under 10 percent of the company. And the more Ted [Weschler] and Todd [Combs] and I think about various problems connected with regulatory problems and trading problems and so on, overwhelmingly we will stick below 10 percent on marketable security holdings. We've done it with the airlines. Now that does not mean we're going to reduce our holdings in American Express or anything of the sort. But — and Greg Garland has done a great job at Phillips 66. We've had very good relations with the company. They're very — he's a very, very, very experienced and sensible manager. But I did decide that I wanted to be below 10 percent in that holding. And we, like I say, we'll stay just slightly under 10 percent of Wells Fargo. We've actually sold a few shares just to stay below 10 percent in the case, I think, of both American Airlines and United Continental. Unless there's something unusual we're going to stay under ten. But we have nine and a significant fraction percent of Phillips. And I think they've been good at operations. I think they've been good at capital allocation. We traded them a business — we traded them stock for a business some years ago, which has been a very nice business that we've retained in operation. So we've got a lot of money still in Phillips. And I wish I'd made the deal at a higher price. But we made money on what we sold and we accomplished an objective. Charlie?

CHARLIE MUNGERWell, we like the subsidiary [Phillips Specialty Products] we traded the stock for. (Laughter)

WARREN BUFFETTI missed that —

CHARLIE MUNGERWe traded the stock for a subsidiary.

WARREN BUFFETTYeah, well, yeah.

CHARLIE MUNGERWe like the subsidiary.

WARREN BUFFETTOh yeah. Well, it improved —

CHARLIE MUNGERIt isn't like the stock went away for nothing.

WARREN BUFFETTYeah. Yeah, actually we've done pretty well with Phillips.

Cryptocurrency craze will "come to a bad ending"

WARREN BUFFETTBecky?

BECKY QUICKThis question comes from Vlad Koptev (PH) in Ukraine. He says, "Capitalization of cryptocurrency has approached that of Berkshire and Apple last year. And clearly the idea behind crypto will affect conventional banking groups where Berkshire is a shareholder. You always say you didn't go into too much detail to obtain an understanding on cryptocurrencies. So what factors caused you to say that it's a bubble?"

WARREN BUFFETTWell, generally non-productive assets remain not only — if you'd bought gold at the time of Christ and you figured the compound rate on it, you know, it may be a couple tenths of 1 percent. It essentially is not going to deliver anything other than supposed scarcity, you know, because they'll only — you can only mine so many. But so what? I mean, what does it produce itself? You know, the check is a wonderful idea. Just imagine how the world would be without being able to write checks or have wire transfer of funds. But it doesn't make the check intrinsically itself worth a lot of money. And if you said you can't use something called "check" with a little piece of paper you'd do something else to transfer money. I think that anytime you buy a nonproductive asset you are counting on somebody else later on to buy a nonproductive asset because they think they can sell it to somebody for more money. And it's been tried with tulips and it's been tried. It's been tried with various things over time. And it does come to a bad ending. I mean, having — you have a hard time. You can think of raw land. I mean, the Louisiana Purchase was, say, $15 million for 800,000 or so square miles of land. In fact, you're sitting on land that came with the Louisiana Purchase. And so what'd we pay? We paid 20 bucks a square mile. And, you know, 640 acres in a square mile. And you're down to three cents or something. So that was a pretty good purchase of what was then a nonproductive property. But it'd depend — but it's very hard. You can buy stamps. Bill Gross got, you know, collected a wonderful stamp collection. It sold for more money in the end. But it's dependent on somebody else wanting to buy, hoping they will sell it for more money and so on. And in the end you make your money on productive assets. If you buy a farm, you try to estimate what the crops, what amount per acre of soybeans or corn or whatever may be raised, and how much you have to pay the farmer that farms it for you, and what your taxes will be, and various things. And you make a conclusion based on what the asset itself will produce over time. And that's an investment. When you buy something because you're hoping tomorrow morning you're going to wake up, you know, and the price will be higher, the only reason, you know, you need more people coming into it than are leaving. And you can get that. And it will feed on itself for a while, and sometimes for a long while, and sometimes to extraordinary numbers. But in the end — but they come to bad endings. And cryptocurrencies will come to bad endings. And along with the fact that there's nothing being produced in the way of value from the asset that you also have the problem that it draws in a lot of charlatans and that sort of thing who are trying to create various sorts of exchanges or whatever it may be. You know, it's something where people who are of less than stellar character see an opportunity to clip people who are trying to get rich because their neighbor's getting rich buying this stuff that neither one of them understands. It will come to a bad ending. Charlie?

CHARLIE MUNGERWell, I like cryptocurrencies a lot less than you do. (Laughter) And so to me it's just dementia. And I think the people who are professional traders that go into trading cryptocurrencies, it's just disgusting. It's like somebody else is trading turds and you decide, "I can't be left out." (Laughter and applause)

WARREN BUFFETTTo the extent that this — we are being webcast around the world, I hope some of our stuff doesn't translate very well, actually. (Laughter)

Shareholders will get a lot of the corporate tax cut benefit

WARREN BUFFETTOK, Gary.

GARY RANSOMYes, I had a question on the corporate tax rate. And we have a debate in my investment world about where the benefits of that cut fall. And I'd say the consensus is going to the consumer as it gets competed away over time. But perhaps some of it sticks to shareholders. And my question is, do you think, over the long run, some of the benefits sticks to shareholders? And maybe it's even beyond auto insurance? Maybe it's other businesses you have as well.

WARREN BUFFETTWell, what people do generally with that is they take what they want to be the answer for them and then they hire — or they just attach themselves to some economist that gives them a more complicated way of saying it's all going to be wonderful because it's happened. But the answer is that in the case of our regulated public utilities, the benefits are all supposed to go, and will go, to the utility customer, because we're entitled to a return on equity if we perform well. And we're not entitled to get excess returns because our tax rates changed. And similarly, if tax rates would go back up, we would expect to get compensated for that. So in that area — and that was 5 or $6 billion for us. But in that area, absolutely, it goes to the user, the consumer. And it should. Then the question is, with the remainder, does it get competed away or not? And the answer is sometimes it does, sometimes it gets competed very quickly and substantially. Sometimes it may be slow. And other times it probably won't. The one thing to know is that the change in the corporate tax law was good for shareholders, generally, and Berkshire shareholders. I mean — and that's what Congress passed. And the intent had to be that if you were going to cut taxes that shareholders would get a particularly large portion this time. And some of you will agree with that politically and some of you won't agree with it politically. But you'll all benefit equally. (Laughs) And I think it's human nature if you're getting a break to say it's going to work wonderfully for everybody else. And we'll find out whether it will or not. It's very, very, very difficult in economics to measure the impact of single variables. You cannot just do one thing in economics. People kind of learn that in physics and talk about butterflies in China and all that sort of thing. But the — every question you get in economics the next, any statement, you should say "and then what?" And when you get into the "and then whats" you get start favoring people who give an answer to that in political life that happens to usually help you in some way or another, including your pocketbook. And we've see that with this. And it's helped the shareholders at Berkshire Hathaway. I would say that some will be competed away. Some, by law, will go to the utilities and some will benefit Berkshire shareholders. Charlie?

CHARLIE MUNGERI have nothing to add.

Utilizing multicultural backgrounds to improve international economies, and the benefits of multiculturality

WARREN BUFFETTOK. Station 3.

AUDIENCE MEMBERHi, Mr. Buffett and Mr. Munger. My name's Kevin and I'm from Shenzhen, China, currently studying finance and philosophy at Boston College. I have a rather broad question. In this more and more globalized world, what do you think our younger generation can do to best leverage our background and experience of both China and U.S. to create values and for the benefit two countries' economy and relationship? And what do you see valuable in a person with a multicultural background? Thank you.

WARREN BUFFETTWell, I think in answer to the last question, I think it's terrific to have a multicultural background. And I never was any good at languages. But if I were in college today, in either country, I'd be learning the language of the other country, because I think it would be a great advantage over time. The first part of the question, I'd like to have that stated again to me. I want to make sure I'm answering your specific aspect there on the — I think it's going to be good for your future. But can we have the microphone on up there again?

AUDIENCE MEMBERSo the first part of the question is, like, what do you think our younger generation can do to best leverage our background and experience of both China and U.S.?

WARREN BUFFETTWell, I'd start with being multilingual, I mean, certainly, in terms of, you know, I mean, obviously you want to be able to express yourself in both. And the better you can understand, obviously, the culture of another society, obviously, that's a benefit. But I think the market system, modified as it may be, both in China and in the United States, in a way, it really does — there will be an invisible hand, to some extent, that does work to improve the lot of future generations by the fact that both China and the United States, and the rest of the world, is improving. I mean, it is much better, in my view, particularly in a nuclear world. But it's much better to have people prospering throughout the world, partly through their own efforts but partly through their interactions with the rest of the world. And we've made a lot of progress in that respect particularly since World War II. I mean, it was a terrific idea to have the Marshall Plan, you know, instead of behaving like we did after World War I and getting the result that we got. I think we behaved much more intelligently after World War II. So I'm bullish on the future of United States. But I'm bullish on the future of China, and to a significant extent, you know, the rest of the world. People are going to be living better 10, 20, 50 years from now. And I don't think that's something that can be stopped even. Charlie? Absent weapons of mass destruction.

CHARLIE MUNGERYeah, well, the multicultural stuff, it wouldn't do you much good to be fluent in both English and Chinese if you were, say, a proctologist in China or a proctologist in Nebraska. (Laughter) So if you're going to use your multicultural background, you've got to work at some interface between the United States and China. And you can raise money in the United States and invest it in China like Li Lu does or you can be some kind of an importer or a trade specialist. But you've got to get near that interface to benefit from being bilingual and so on.

WARREN BUFFETTBut you would bet that the interface will be substantially greater.

CHARLIE MUNGERHuge.

WARREN BUFFETTYeah.

CHARLIE MUNGERHuge.

WARREN BUFFETTAnd that's what you want to prepare for.

CHARLIE MUNGERYes. And I think that, generally speaking, that we get multicultural you can also be multidisciplinary. But generally I think people make more money if they're very narrowly specialized, like the proctologist. (Laughter) And it's much harder to make a lot of money for most people if you try to imitate Warren and me.

WARREN BUFFETTI'm glad I didn't meet him earlier. I mean — (Laughter)

Subsidiaries encouraged to offer low-cost 401(k) options

WARREN BUFFETTOK, Andrew.

ANDREW ROSS SORKINOK, this question comes from someone who says, "I am a Berkshire employee and shareholder."

WARREN BUFFETTUh huh.

ANDREW ROSS SORKIN"I read an investigative article from ProPublica and The Washington Post that many of Berkshire's various units only offer 401(k) plans with high fees that are actively managed rather than the low-cost indexes you have advocated as the best path for savings for retirement. "The article's author said he contacted the company and nobody would comment. "Will you do something to improve our 401(k) offerings to match your investment philosophy? And from an operational perspective, how did this happen, given your strong views on the topic?"

WARREN BUFFETTWell, I've absolutely said what — many, many times through annual reports — and our managers know what I think about the attractiveness of having an index fund option. But they all have different plans, different histories. And they run their businesses. And who knows, you know, which particular — if you go back to the older businesses, they have defined benefit pension plans, generally. Nobody puts them in anymore. And then the question is, you know, do you transition to something else. In the end, we overwhelmingly thought our managers make those kind of decisions and others. And my guess is that a very high significant percentage of people who have — who work at a company that has a 401(k) plan will have an index fund option, but they may not, in some cases. The only thing we — I think we have asked the companies to have a limit on the percentage, I think, that they might put in Berkshire's stock through the 401(k). We don't want people to lose jobs who are tied to Berkshire. We certainly don't want to be in the position of encouraging to put 100 percent or something of their savings in Berkshire itself. I don't want to be in that position. But I don't think even there we've insisted on any company doing that. I think we've probably made that, when we've been asked about it once or twice, I think we've given that suggestion. But the managers will run the companies. The employees, if they feel — and some of our companies have human relations departments — if they feel that they'd like different options or something like that, you know, they should make those views known to the managers. And in some cases the managers, I think, will pay attention to them and in others they probably won't. We've got a wide variety of managers that run our businesses. And we're not going to start trying to run them from Omaha. Charlie?

CHARLIE MUNGERWell, you're right. That has happened. That business of the high-fee choices, because we've delegated the whole subject to the managers of the subsidiaries. And so no attention at all is being given to the employee choices at headquarters. And what you're pointing out is that a lot of the employees in the subsidiaries would do better if they indexed instead of choosing what they did choose. My guess is you're absolutely right about that. You know.

WARREN BUFFETTYeah.

CHARLIE MUNGERAnd if there are any people, managers, in the business today, I hope we'll do a little better at encouraging better choices.

WARREN BUFFETTYeah, although we don't want them to interfere too much in —

CHARLIE MUNGERNo.

WARREN BUFFETT— directing what they, you know, we can take over human relations.

CHARLIE MUNGERNo, it's up to the managers. But we wouldn't object to a little different viewpoint.

WARREN BUFFETTAnd we have made it very clear what we think. I mean, some of them don't listen to us. (Laughter)

Berkshire's culture will continue because "it works"

WARREN BUFFETTOK, Gregg.

GREGG WARRENWarren, you've noted time and again that there is a strong common culture shared across Berkshire subsidiaries built on a commitment to honesty and integrity, a focus on the long-term, and an emphasis on customer care. And it's also critical to find cultures that mesh well with Berkshire's when acquiring operating companies. In most cases, the managers that are currently running these subsidiaries are the same individuals who are members of the families that originally sold their firms to Berkshire, leaving them with a vested interest in the businesses they are running and a strong connection to the culture they tend to share in common with Berkshire. It seems to me that the greater challenge is in ensuring that the large publicly-traded firms that have been acquired and account for a meaningful and growing amount of Berkshire's overall value, stay the course. Could you comment on whether or not this is the case and what the greatest challenge is for you and Charlie when it comes to not only maintaining Berkshire's culture but in finding firms that would fit in well with what you've built?

WARREN BUFFETTYeah, I think the culture is very, very strong. And I think it gets reinforced — frankly, I think it gets reinforced by the shareholders we have. I mean, we have a different body of shareholders and we look at those shareholders, I think, in a somewhat different way than a good many other companies do. I mean, I think there are a fair number of public companies that wish they didn't have, you know, public shareholders. We're happy to have public shareholders. And we like having individual shareholders. And we don't favor institutions. And we're not going to, you know, give guidance and talk especially to them on investor calls and all that sort of thing. We want our — we want it to be directly with — we want shareholders who are partners, basically. And it begins with that. It goes to the directors. We have directors who are not — well, I've been on 19 boards, and I've never seen another board like ours. And I think it's terrific that we've got the people who represent, in many cases, lots of shares themselves. They didn't gets special deals. It's a group of owner-oriented, Berkshire-conscious, business-savvy owners. And we don't have anybody on the board because they're a leading, you know, educator or whatever it may be. We want people who, basically, think about how to run a business well for themselves and for their partners. And we've got managers who fit into that culture, who have chosen that culture in coming with us. And sometimes we have the second or the third or fourth generation, say at the Nebraska Furniture Mart, that share that. Is it perfect? No, it's far from perfect. I mean, you don't get everybody thinking the same way. We have people — we have people that are very independently minded running a lot of businesses. And some of them have different political beliefs, they have different — they see through different lenses than we do, to some degree. But in terms of having a common, strong, positive culture, I don't think there's any big public company that has it any better than Berkshire. And I think that will continue because people opt into it to a great deal. Cultures get passed along. You do things that are consistent with the culture, so you do — what you talk about is what you do. And you don't find people saying, you know, "We're a wonderful partnership," and then voting themselves, you know, huge options. And then a whole bunch of other people will say options beneath them because they can't look like they're taking it all for themselves, and arranging — I read about some deal where it could pay off with many, many, many billions of dollars, the other day. We won't name names. But we've got as good a culture as you can get. And I would say, net, it grows stronger. We have a few people all of the time that really don't buy into it entirely. I mean, it is not 100 percent. But it's as close to it. And I think it gets closer all the time as we go along. And we will keep — we will try to keep behaving in a way that reinforces it and doesn't dilute it. And I think that will not only work for Charlie and me but it will work for our successors very well. It won't be perfect. Charlie?

CHARLIE MUNGEREvery time I come to one of these meetings and sit in the manager's luncheon, I feel more strongly at the end of the luncheon that the culture and values of Berkshire Hathaway will go on and on for a long time after the present management is gone. In fact, I think it'll go on after all of the present managers are gone. I think we've started something here that will work well enough that it will last. And one of the reasons it will last is it's not that damned easy to duplicate. So the one that is present is likely to just keep going and going. Think of how little direct copying of the Berkshire system there's been.

WARREN BUFFETTBut it won't produce the returns it's produced in the past even.

CHARLIE MUNGERNo, I think it's going to last a long time for a very simple reason. It's going to —

WARREN BUFFETTIt works.

CHARLIE MUNGER— deserve to last a long time.

WARREN BUFFETTIt works.

CHARLIE MUNGERAnd it's going to work.

Cash needed to support Berkshire insurance operations

WARREN BUFFETTOK. (Applause) Station 4.

AUDIENCE MEMBERMy name is Christian Marx. I'm a proud shareholder from Cologne, Germany. It is my pleasure to be here. My question relates to the Berkshire insurance operations. When I look at the quarterly balance sheets of the last two decades, I noticed a pattern that I kindly ask you to discuss. The sum of cash plus fixed income always hovers around 100 percent of the amount of insurance float. Therefore, my question is, is it fair to say that from the 128 billion of consolidated cash plus fixed income as of March, 116 billion are actually needed to support the insurance operations?

WARREN BUFFETTNo, I appreciate —

CHARLIE MUNGERThe answer is no. Yes.

WARREN BUFFETTThe answer is no. But he deserves an explanation of how this — maybe I haven't looked at it the way he's looked at it. We would much rather have a number closer to 20 than to have 116. And we do not correlate or, in effect, measure the float and then decide how much to put or leave in cash, in fixed income. The fact —our float keeps growing. And lately our — which is by design and has been terrific for us — and our cash and cash equivalents have has grown because the competition for acquisitions has become much stronger as — both as money has piled up with the buyers of businesses and because debt has been so cheap and a variety of factors. But I don't think those are necessarily permanent. In fact, it would be reasonably true they aren't permanent. It's just a question of when they change. We are not tying, as Charlie said, we're not tying the cash and cash equivalents at all to float. The float is (inaudible). The float went up $2 billion in the first quarter. And there is no way that that that float can shrink a lot in any short period. It just structurally has been set up in such a way that it will not — it cannot shrink. And actually, I think it'll grow a little bit for a while. I mean, I've always been amazed by how much it has grown. We've got so much more float than any property-causality company in the world. And it's pretty amazing that it all came from that little building that Jack Ringwalt built and picked the location because it was near the tennis courts. (Laughs) OK, Carol. Oh, and Charlie.

CHARLIE MUNGERThere are encouraging recent developments. Some of the cash has gone out recently for securities we vastly prefer over the cash. And we have a lot of cash that could be — remaining — that could be deployed in securities we might like a lot better than Treasury notes. So stay tuned.

WARREN BUFFETTYeah, to make it very simple, in the first quarter we earned five and — from operations we earned a little over $5 billion. Now, we only spent about our depreciation. Normally we would spend somewhat more than that. But that's 5-and-a-fraction billion. Two billion came, in net, from float. So that's $7 billion that — basically in the first quarter — that would have been added to our cash if we hadn't done something with it. And instead our cash and equivalents went down, because we, net, invested more in equities by some margin than the seven that came in. But we do have this position where, even absent a change in float, about 400 million comes into Berkshire every week, which is very comfortable. (Laughs) And we will — we want to get it so that more than 400 million is going out into productive assets. And we succeeded in doing that in the first quarter. And, net, net we improved our position in the first quarter.

"Amazing" earnings in the new "asset-light economy"

WARREN BUFFETTCarol?

CAROL LOOMISIn your 1999 article in Fortune magazine, you stated your belief that after-tax corporate profits were unlikely to hold much above 6 percent for any sustained period, due not only to competition but also to public policy. You stated in the article, "If corporate investors, in aggregate, are going to eat an ever-growing portion of the economic pie, some other group will have to settle for a smaller portion. That would justifiably raise political problems." Since 2008, after-tax corporate profits have been 8 to 10 percent of GDP. Do you believe that is a permanent shift in the U.S. economy? And of course, we have to think about the latest tax bill. Or will corporate profits revert back to the 4 percent to 6 percent of GDP range that was normal in the 20th century?

WARREN BUFFETTWell, it's been an interesting development during that period. It goes back a little bit before that period. But you now have the four largest companies, by market value, in the United States — a $30 trillion market — you have four companies that essentially don't need any net tangible assets. And if you go back many years, I mean, if you looked to the largest companies — Carol used to put out the Fortune 500 list. And you know, it would be AT&T and General Motors, and it was companies that — Exxon Mobil — it was companies that just required lots of capital in order to produce earnings. So American industry has gotten incredibly more profitable, in aggregate, in the last 20 or 30 years. You look at the return on the S&P 500, the earnings as a percent of net tangible assets, and the rest is just, you know, if you buy a company that has a million dollars' worth of net worth and you pay a billion for it, it still only had the million dollars' of net worth. I mean you just paid more for it. So the basic profitability of the company is huge, even though your investment may be at a significantly higher price. So that what has happened is that, I think if you look at the earnings on tangible net worth of the S&P 500 and compare it to 20 years ago, it is amazing. And that is really due to the fact that this has become somewhat, you could call it an asset-light economy. And you know, those four companies that earn 10 percent of the — they comprise close to 10 percent of the market value of the entire publicly-traded corporate America, they don't — and they don't take any money, basically. And that is a changing world. And they will earn even more money with the tax rate going down. And I don't think people have quite processed all that information in terms of what has gone on in the market. You don't — you know, [Andrew] Carnegie built a steel mill, and then he paid it off. Or he borrowed a little money, and then he built another steel mill, and all of that sort of thing. But it was enormously capital-intensive. And one industry after another. AT&T was enormously capital-intensive. And now the money is in the asset-light — I mean, huge money is in the — not only asset-light business — but the negative asset. You know, IBM even, you know, had — it has no tangible — it has a net — minus tangible net worth. There's nothing wrong with that. It's terrific. But it is not the world we lived in 30 years ago. And in that sense, I didn't see that coming in 1999 when I wrote whatever I wrote there. It hasn't changed the profitability of the asset-heavy companies particularly. I mean, it isn't like oil. If you take the five most capital-intensive industries in the '90s, I don't think you'll find that their earnings on tangible asset have increased a lot. But you will find that this group has moved in that really doesn't — they don't need any net tangible assets at all, or they need very minor amounts. Charlie?

CHARLIE MUNGERThere's also a lot of financial engineering that's raised leverage, even in the capital-intense businesses. And you know, while Warren may have predicted a little wrong when he wrote that very scholarly article, he didn't invest wrong. And so it just shows that it's hard to make these economic predictions.

WARREN BUFFETTOK, Jon —

CHARLIE MUNGERWe weren't very right on that one, Warren.

WARREN BUFFETTYeah, actually, the performance of the stock market since then has been pretty accurate. (Laughs)

CHARLIE MUNGERYes. That's true.

WARREN BUFFETTYeah. Being right for the wrong reason or something. (Laughs) Or wrong for the right reasons.

"We still feel OK" about AIG's $10.2 retroactive premium

WARREN BUFFETTAnyway, Jonathan? (Laughs)

JONATHAN BRANDTBerkshire received a 10.2 billion retroactive premium from AIG early last year. If the upwardly revised estimate of 18.2 billion of ultimate claims proves to be correct, will the cost of float, adjusted for favorable tax attributes, likely be lower or higher than what Berkshire would have paid to borrow 10 billion for a similar duration?

WARREN BUFFETTWell, we certainly go in with the idea that it will be — the cost will be lower. And it's an interesting situation. We — essentially, AIG, which is one of the largest property-casualty, particularly commercial property-casualty companies in the world, said, "We want to give you all of the losses that we incurred in a very big percentage of our domestic business before December 31st of 2015, and we will pay the first 25 billion. And then after we pay 25 billion and AIG pays $25 billion, then you pay 80 percent of the next 25 billion." And they gave us $10 billion for doing that. And that's — If we are correct about our estimates of how much money will be paid and when it will be paid, we should come out being better off than if we had borrowed a similar amount. We have a history of doing 10 or so — maybe 12 — big deals like that. We hold the record. We did it for Lloyd's of London 10 or more years ago, and we did it now with AIG. And sometimes we've been on the low side in our estimate, and sometimes we've been on the high side so far. AIG just said that they — I think they paid 15-and-a-fraction billion on these pre-12/31/2015 losses. They paid 15-and-a-fraction billion. But the payments tend to trickle down over years as you get further away from when the losses occurred. So I would say that we still feel OK about it, and we'll be wrong one way or the other. Everybody is when you estimate losses that may not get settled for 20 or 30 years. But so far, on the group as a whole of these deals we've done, we've been OK. And I think on the AIG thing, we think we'll be OK. And I think AIG thinks we'll be OK. I mean, they entered into it for good reasons of their own. So it looks OK. Sorry to get into this technical stuff, but Jonathan always asks me questions like that, so I have to be ready to — I want to answer them.

"We really want products where people feel like kissing you"

WARREN BUFFETTOK. Station 5.

AUDIENCE MEMBERGood afternoon. My name's Adam Bergman with Sterling Capital in Virginia Beach, Virginia. I'm here with my daughter Michelle from Cape Henry Collegiate in Virginia Beach.

AUDIENCE MEMBERHi Warren, hi Charlie.

AUDIENCE MEMBEROur question for you is how you go about attempting to forecast the degree of future success of one specific product in a good business versus another, such that you invest in American Express and Coca-Cola rather than Diners Club or RC Cola, for example. Thanks.

WARREN BUFFETTWell, with American Express — (laughs) — it was an interesting situation, because Diners Club got there first. I think American Express, in a certain sense — I mean, they did it for a lot of reasons — but they went into the credit card business because they were worried about what was going to happen to traveler's checks. And — although traveler's checks are — still exist in a significant way. But the interesting thing when American Express went into competition with Diners Club, and with Carte Blanche, as I remember that — which also existed at the time — was that instead of charging less than Diners Club and going in figuring they were going against the established guy and they'd come in at a lower price, they went in it at a higher price, as I remember. And the American Express centurion was on that card. I've got one that I got in 1964, but they were in it before that. It had more value in time. I mean, it got better representation. And frankly, if you were a salesperson out with somebody, and you could pull out that American Express card with that centurion, you looked you were JP Morgan. And if you pulled out the Diners Club, it had a whole bunch of flashy symbols, you looked like a guy that was kiting his checks from one month to the next, and — (Laughter) A fellow named Ralph Schneider — Ralph Schneider and Al Bloomingdale developed the Diners Club. And they were very smart about getting there first, but they weren't smart about how they merchandised it subsequently. RC Cola, you know, it did — there are all kinds of colas that came after Coke. I mean, you know, you go back to 1886 and come up with something at Jacobs' Pharmacy that's incredibly successful, you know, fairly soon you're going to get lots of imitators. But Coke really is the real thing. And you know, you offer me RC Cola and say, "I'll give it to you at half the price of Coca-Cola," in terms of drinking it, I mean, just, this is a product that's 6 1/2 ounces, sold for a nickel in 1900, you know. And now if you buy it on the weekend and buy it in large quantities and everything, you're not paying that much more. This newspaper was three cents in 1942, you know. I mean, the amount of enjoyment per real — in terms of the real — of what you pay for this, has gone dramatically down in inflation-adjusted money. So it is a bargain product. You know, you have to look at — See's Candy, you know, if you live in California and you were a teenage boy, and you went to your girlfriend's house and you gave the box of candy to her or to her mother or father and she kissed you, you know, you lose price sensitivity at that point. (Laughter) So we really want products where people feel like kissing you, you know — (laughs) — rather than slapping you. It's an interesting thing. I mean, you know, in effect we're betting on the ecosystem of Apple products, but — led by the iPhone. And I see characteristics in that that make me think that it's extraordinary. But I may be wrong. And you know, so far we've been — I would say we've been right on American Express and Coca-Cola. American Express had this huge salad oil scandal in 1960 happen — in '63, November, right around the time [President John] Kennedy was shot. And there was really worry about whether the company would survive. But nobody quit using the card. Nobody quit using the traveler's checks. And they charged a premium price for their traveler's checks. So there are things you can see around consumer products that sometimes can give you a pretty good insight into the future. And then sometimes we make mistakes. Charlie?

CHARLIE MUNGERI've got nothing to add, except that if we'd been offered a chance to go into Coca-Cola right after it was invented, we probably would have said no.

WARREN BUFFETTWe'd have turned it down. Yeah.

CHARLIE MUNGERIt would've looked kind of silly to us.

WARREN BUFFETTWell, unless we drank it, now, Charlie, listen. (Laughs) No, he's right. I mean, we don't foresee things that we haven't got a lot of evidence in on. And —

CHARLIE MUNGERNo.

WARREN BUFFETTWe want to see a lot of — if we're talking about a consumer product — we want to see how a consumer product behaves under a lot of different circumstances, and then we want to use something — actually, there was a book by Phil Fisher written around 1960 called "Common Stocks and Uncommon Profits." It's one of the great books on investing. And it talks about the "scuttlebutt method" of investing, which was quite a ways from what Ben Graham taught me in terms of figures. But it's a very, very good book. And you can learn a lot, you know, just by going out and using some shoe leather. Now they call them channel checks now or something like that. But it's — you can get a feel for some products, and then there are others you can't. And then sometimes you're wrong. But it is a good technique. It's an important investing technique, I would say that. And Ted [Weschler] and Todd [Combs] do a lot of that. And they have people — some people that help them out on doing it, too. Charlie's done it with Costco. I mean, he's — (Laughs) I mean, all the time he is finding new virtues in Costco, you know, and then it — and he's right, incidentally. I mean, Costco has an enormous appeal to its constituency. They delight — they surprise and delight their customers. And there is nothing like that in business. You have delighted customers, you're a long way home.

Hostile bids aren't "evil" but Berkshire doesn't do them

WARREN BUFFETTOK, Becky.

BECKY QUICKThis comes from John Hegarty (PH) at Brightstar Capital Partners, who writes, "Warren, you're stepping down from the Kraft Heinz board at a time when the company's looking to do a large acquisition: Unilever, for example. Do you fundamentally disagree with the combative nature of hostile bids, activist investing, and competitive proxy contests?"

WARREN BUFFETTWell, we will not make hostile tenders ourselves. I do not believe that there's anything fundamentally wrong with the idea. I mean, if you take the Fortune 500 companies, I'm sure that all 500 are not managed by the best, or in some cases even the friendliest to investor managements in the world. So I don't think it's evil or anything to conduct a hostile offer for a company. It's just we won't do it, and we don't want to get into that. We like being liked by the managements that we join, because we're counting on them to run the company, and we're not bringing in a whole bunch of people that know how to change businesses. We seldom take a position opposite the management — very seldom — on anything involving a proxy, but — contest of sorts. But we don't rule it out. We don't think every management is entitled to be — you know, they don't have a lifetime hold on their business. But it's not our style at all to — well, we won't do it in terms of initiating it ourselves, and we'd be very, very, very unlikely to support a contest. But we have voted against a couple of propositions over 50 years that managements have had — made — in relation to stocks options. We withheld a vote at Coca-Cola a few years ago to express our opinion. But we don't think it's evil for the shareholders, in some cases, to have different opinions about who should run the company, or whether compensation's appropriate, or matters of that sort. The stockholders still own the company. Charlie?

CHARLIE MUNGERI've got nothing to add to that. I don't envy these people that are in these unfriendly uproars all the time. Imagine doing that after you're already rich. It's insane. (Laughter)

WARREN BUFFETTYeah. Yeah, we are definitely not looking for it. We don't — There are certainly companies that deserve challenge. And they propose things that deserve challenge occasionally. But again, it's not our main activity. And incidentally, this has — the question was asked in reference to Kraft Heinz. The people at 3G are great, great managers. They've been wonderful partners. I had made a determination, before we got involved there, I was going to be on no more public boards. I'd been on 19 of them, and it takes a lot of time. And they asked me if I'd go on for a while, and I did. But it really is, like, seven-and-a-half days or something. And if you're on a bank board, it may be quite a bit more than that. I mean, there just — Being on a public board usually means quarterly meetings plus maybe an extra one. And, you know, at 87, I think I've now learned what happens, and it's fine, but I don't want to spend seven-and-a-half days a year when I — maybe I can call up people that I trust and admire who are on the board in five minutes, you know, and find out what's going on or whatever it may be, any questions that come up. And so we are their partners, and delighted to be their partners. And now we have two people on the board of Kraft Heinz, and they can do the traveling and I can stay home. Charlie, how many public — you're on Costco, of course, over the — your lifetime, how many public boards?

CHARLIE MUNGEROh, I — Costco — except for something —

WARREN BUFFETTKansas City Power.

CHARLIE MUNGER— like The Daily Journal where I own part of it, Costco's the only public board —

WARREN BUFFETTYou were on Kansas City Power.

CHARLIE MUNGER— if it wasn't Berkshire or something I owned personally.

WARREN BUFFETTYeah.

CHARLIE MUNGERI was on Kansas City Power and Light. Boy, that goes way back. But basically it hasn't happened. I don't envy people who float around to a lot of different board meetings.

WARREN BUFFETTNo, generally speaking you have very little influence and spend a lot of time. And the trouble is, if you're going to a board meeting, particularly if you get to the international, and sometimes they feel they have to have one that's international, you know, they feel they have to take up a fair amount of your time or it wouldn't have been worth coming, you know, thousands of miles for. So you get a lot of the show and tell stuff and — that — I find my mind drifting. OK. (Laughter)

Berkshire still not on radar screen of international business sellers

WARREN BUFFETTGary.

GARY RANSOMYes, you've said that you are looking for non-insurance large acquisitions to put that cash to work. And when you've said that, I've usually thought of the United States, because you're a big fan of the U.S. business. And I just was wondering whether you're seeing more opportunities as the rest of the world opens up, grows, whether there's opportunities for some of those mega-transactions in other parts of the world, say Asia or Europe.

WARREN BUFFETTYeah, Gary, I would say that I've been disappointed in that, because we do see some outside the United States, and thank heavens we saw the one we saw in Israel some years ago [ISCAR] when Eitan [Wertheimer] wrote me a letter. But — and you know, we bought a business which is a very important part of Berkshire now. But we are still not — they're certainly aware of Berkshire Hathaway outside the United States. But they don't sort of pick up the phone automatically. In the United States, I think any large — particularly private — company that thinks — is thinking about doing something, they at least think about Berkshire. But that — in Europe or Asia, that — we are not embedded in the minds the same way. They know about us, they know we've got a lot of money and they know we like to buy things. But we really, we're on the radar screen big-time in the United States, and we're not as — we don't — the immediate desire to be sure that they've thought about the Berkshire option does not occur the same way outside the United States. And we've tried to encourage it a few ways. But I would say that the results have not been great at all. But I hope tomorrow, you know, I get a call from Germany or Britain or Italy or you name it, and Australia, wherever it may be. And I hope I get a call and we get an opportunity to do it. There's a good many countries we'd be quite happy to put substantial money into it. And like I say, our experience in Israel has been just terrific. Charlie?

CHARLIE MUNGERYeah, but the corporate acquisition game now is so driven by the leveraged buyout and the so-called, whatever they call them, strategic, yes, strategic. I usually translate that into barnyard language. (Buffett laughs) And we're so — there's so much craziness in price from our viewpoint. Of course, it's very hard for us to do it. The people in the leveraged buyout game, who love massive leverage and don't mind high prices, even they are getting nosebleeds. It's hard. And it's not an environment that means that — that allows Berkshire just to go out and buy a whole lot of companies.

WARREN BUFFETTHave you ever made a strategic deal that you —

CHARLIE MUNGERWe have to wait.

WARREN BUFFETTWe've made a strategic deal that you can remember?

CHARLIE MUNGERHmm?

WARREN BUFFETTHave we ever made a deal that we would have regarded as strategic?

CHARLIE MUNGERWe've never had a strategic plan unless you've hidden it from me. (Laughter)

WARREN BUFFETTOK. That answers that.

Investing "doesn't require advanced learning"

WARREN BUFFETTStation 6.

AUDIENCE MEMBERHi, I'm Brady Ritchie (PH) from St. Louis, Missouri. Shareholder since 1996.

WARREN BUFFETTTerrific.

AUDIENCE MEMBERWarren, you and Charlie have been critical of business schools in the past and what they teach. With respect to value investing, in "Superinvestors of Graham-and-Doddsville," you featured the returns of many great investors with different backgrounds' work in education, with the lesson being, "Following the philosophy is the key." To be successful today, does it still just fall back to chapter eight of "The Intelligent Investor?" And what do you think of programs and designations such as CFA, CFP, et cetera, which purport high standards yet root it heavily into academia? And I'd like to challenge you to a round of bridge tomorrow. (Laughter)

WARREN BUFFETTAnd what was the last part?

CHARLIE MUNGERWell, he was talk — what do we think about —

WARREN BUFFETTYeah, business schools and all that.

CHARLIE MUNGER— business schools and all that.

WARREN BUFFETTI didn't catch the last —

CHARLIE MUNGERThey're better —

WARREN BUFFETTOh, he's challenged me to a round of bridge. OK. The — (Laughter) I went to three business schools, and at each I found a teacher or two. I went to one specifically to get a given teacher. But at each one of them I found a teacher or two that I really got a lot out of. The — so we're not anti-business school here at all. We do think that the priesthood, say, 30 years ago, for example, in terms of — or 40 years ago — in terms of efficient market theory and everything. They strayed pretty far, in our view, from the reality of investing. And I would rather have a person — if I could hire somebody among the top five graduates of number one, two or three of the business schools, and my choice was somebody that had — was bright — but had chapter eight of "The Intelligent Investor" absolutely — it just was natural to them — they had it in their bones, basically — I'd take the person from chapter eight. This is not — what we do is not a complicated business. It's got to be a disciplined business, but it is — it does not require a super IQ or anything of the sort. And there are a few fundamentals that are incredibly important, and you do have to understand accounting. And it helps to get out and talk to consumers and start thinking like a consumer in many ways in certain — and all of that. But it just doesn't require advanced learning. And — I — I certainly — you know, I didn't want to go to college, so I don't know whether I would have done better or worse if I'd just quit after high school, you know, and read the books I read and all of that. I think that if you run into a few great teachers, and they really change the way you see the world to some degree, you know, you're lucky. And you can find them in — you can find them in academia and you can find them in ordinary life. And I've been extraordinarily lucky in having great teachers, including Charlie. I mean, Charlie's been a wonderful teacher. And, you know — Anyplace you can find somebody that gives you insights into things you didn't understand before, maybe makes you a better person than you would have been before, you know, you get — that's very lucky, and you want to make the most of it. If you can find it in academia, make the most of it. And if you can find it in the rest of your life, make the most of it. Charlie?

CHARLIE MUNGERWell, when you found Ben Graham he was unconventional, and he was very smart. And of course, that was very attractive to you. And then when you found out it worked and you could make a lot of money while you're sitting on your ass — (laughter) — of course you were an instant convert. And so —

WARREN BUFFETTIt still appeals to me, actually. I mean — (Laughter)

CHARLIE MUNGERBut the world changed. Before he died, Bill Graham — I mean, Ben Graham — recognized that the exact way he sought undervalued companies wouldn't necessarily work for all times under all conditions. And that's certainly the way it worked for us. We gradually morphed into trying to buy the better companies when they were underpriced, instead of the lousy companies when they were underpriced. And of course, that worked pretty well for us. And Ben Graham, he outlived the game that he played personally most of the time. He lived to see most of it fade away. I mean, just to find some company that's selling for one third of its working capital, and figure out it could easily be liquidated and distribute $3 for every dollar of market price. Lots of luck if you can find those in the present market. And if you can find them, they're so small that Berkshire wouldn't find them of any use anyway. So we've had to learn a different game. And that's a lesson for all the young people in the room. If you're going to live a long time, you have to keep learning.

WARREN BUFFETTYeah.

CHARLIE MUNGERWhat you formerly knew is never enough. So if you don't learn to constantly revise your earlier conclusions and get better (inaudible), you are — I always use the same metaphor. You're like a one-legged man in an ass-kicking contest. (Laughter)

WARREN BUFFETTIf anybody has suggestions for another metaphor, send them to me. (Laughter) Graham, incidentally, one point, important point. Graham was not scalable. I mean, you could not do with really big money. And when I worked for Graham-Newman Corp, here he was, the dean of all analysts. And you know, he was an intellect above all others around that time. But our — the investment fund was $6 million, and the partnership that worked in tandem with the investment company also had about $6 million in it. So we had 12 million bucks we were working with. Now, you can make adjustments for inflation and everything. But it was just a tiny amount. It wasn't really scalable. And the truth is that Graham didn't care, because he really wasn't interested in making a lot of money for himself. So he had no reason to want to find something that could go on and on, become larger and larger. And so the utility of chapter eight, in terms of looking at stocks as a business, is of enormous value. The utility of chapter 20 about a margin of safety is of enormous value. But that's not complicated stuff.

CHARLIE MUNGERI finally figured out why the teachers of corporate finance often teach a lot of stuff that's wrong. When I had some eye troubles very early in life, I consulted a very famous eye doctor. And I realized that his place of business was doing a totally obsolete cataract operation. They were still cutting with a knife after better procedures had been invented. I said, "Why are you in a great medical school performing absolute obsolete operations?" And he said, "Charlie, it's such a wonderful operation to teach." (Laughter) Well, that's what happens in corporate finance. They get these formulas, and it's a fine teaching experience. (Laughter) You give them a formula, you present the problem, they use the formula. You get a real feeling of worthwhile activity. (Laughter) There's only one there. It's all balderdash.

WARREN BUFFETTYeah, whenever you hear a theory described as elegant, watch out, you know. (Laughter)

CHARLIE MUNGERRight.

Buffett "bullish on human race" as women enter the workforce

WARREN BUFFETTOK, Andrew.

ANDREW ROSS SORKINThis question — we got a couple like this one — comes from Lauren Taylor Wolfe. She's a managing partner at Impactive Capital. "Warren, you've recently said that one of the things that makes you optimistic about America is women entering the workforce and the quote 'doubling of the talent that's effectively employed in that workforce.' When it comes to positions of leadership, however, women make up less than 21 percent of boards of S&P 500 companies, and an even smaller 5 percent of the CEOs. "What can Berkshire do, and what is Berkshire specifically doing, as a major investor in many of these large companies, to advance gender equality, both at the board level and among senior leadership?"

WARREN BUFFETTYeah. Well, again — (applause) — you know, as I've pointed out in the past, one of my sisters is here. And I have two sisters that are absolutely as smart as I am. And they have better personalities, as anybody that knows both of us — or all of us — can attest. And they didn't remotely have the same opportunities I had. And you have this 1942, or — New York Times — and you know, women could be nurses or teachers or retail clerks or stenographers. And that actually worked enormously to my advantage when I was a kid in Omaha in the '30s, because I had way better teachers, because they were — that was a job open to women, I didn't have a single male teacher in grammar school, and Charlie didn't when he went to Dundee, I don't think, either. And we had this huge talent pool that was being funneled into very few opportunities, and therefore we got better than we deserved in terms of a market system producing it. The — Again, our managers run their companies. But I've probably named — before we made this management change — I probably named only six or seven CEOs in the last five or six years. We don't change that much. But I would say that half of them that I've named have been women, which is about what you would — what should turn out to be the case in terms of ability. Now, there is a certain pipeline problem, but that gets cured with time, and you can't use that forever as an excuse. And you know, I feel very good about the decisions we made for CEOs. I prefer all our CEOs to live forever. And one woman almost did that, that we hired. Mrs. B. [Nebraska Furniture Mart founder Rose Blumkin] lived to be 104. She retired at 103. And that's a lesson to our other managers, that if you retire prematurely, you know — (laughter) — no telling what'll happen. But it is absolutely true. It does make me bullish. It makes me bullish on the human race. But it's certainly on our country. Because if you look at what happened, you know, before the 19th Amendment, and then after the 19th Amendment for a long time, and continuing to this day, but it's — that — there's been significant improvement. And I do feel more optimistic about the future, because I think there will be more selection by merit, rather than, you know, by gender or by race or by inheritance. I think that if you had a system where all businesses got passed on to the eldest son or something, I think it — I think that society would make a lot less progress than one that's merit-based. Charlie?

CHARLIE MUNGERWell, we did live in a different age. There's an old saying that the past is a very strange country. People behave quite differently there. And it was just totally different. And it was ridiculous that — I cannot remember — I had one or two male teachers in my high school. But almost none. And the world has really changed. And within Berkshire, I've never seen any overt discrimination anywhere on the grounds of gender.

WARREN BUFFETTThere probably has been some, though. I mean —

CHARLIE MUNGERNo, no, I'm sure that we have our —

WARREN BUFFETTOh, there has —

CHARLIE MUNGER—share of all the peculiarities of human nature.

WARREN BUFFETTSure.

CHARLIE MUNGERBut it's generally, it's — everything has always improved, wouldn't you agree with that?

WARREN BUFFETTYeah.

CHARLIE MUNGERAnd I think it'll keep improving.

Berkshire buybacks not limited by state insurance rules

WARREN BUFFETTOK. Gregg?

GREGG WARRENWarren, in this year's annual report it was noted, much as it is every year, that payments of dividends by the company's insurance subsidiaries are restricted by insurance statutes and other regulations, with Berkshire's insurance operations currently allowed to declare up to 16 billion as ordinary dividends during 2018. My question here is, should we view this annual regulatory threshold for dividends as a benchmark for allowable share repurchases as well? And in the event that Berkshire wanted to buy back more stock than that, or pay out even more as dividends, would there be an issue with you using capital from operations that aren't held by the insurance operations to return additional capital? With the side question here being, would the annual cash distribution from BNSF, which is held on National Indemnity's books, be excluded?

WARREN BUFFETTYeah. The — we will obviously follow the rules of the states in which we're domiciled, and all the rules, of course. But basically it's the state of domestication in the insurance companies, and they do restrict the amount of dividends in any given year. Although you could, if you wanted to, request some additional amount. But we don't ever consider that. But repurchases — if repurchases were really attractive, we would do it in a very big way. And, you know, I wouldn't rule — there's all kinds of ways that we could arrange things to do either a very large acquisition, which is what I would prefer, or a very large repurchase, would I don't think is probably in the cards just because the way our stock trades, not because we wouldn't like it at a large discount. So Charlie and I, we've got the appetite. And we would have — we've got a lot of cash — but we could have a lot more cash. We can make any deal of — even one of a very large size. We can make anything that came along — we could work out how to get it done. We would — we would have — we're not going to be doing this, but we would have partners who would come in and give us a preferential part of a partnership. That's not going to happen, in all probability. But there's a lot of things that we could do. So don't rule out anything based on statutory limitations of distributions from insurance companies —

CHARLIE MUNGERAnd that — we could get special permissions to —

WARREN BUFFETTOh, we can get —

CHARLIE MUNGER— declare bigger dividends. We are not — you should not assume that we're constrained by the laws of nature to the amount that we can take out under the statutes now.

Munger: "I don't think the world is going to be changed that much by machine intelligence"

WARREN BUFFETTOK, station 7.

AUDIENCE MEMBERHi, Warren and Charlie. Thank you for everything. I'm David (inaudible), an investment manager in Shanghai. I've been here for eight years. If investment is a sport in the Olympics, you are our champion team. So my question is, facing the fast-growing machine challenges, how do you see the new competition impact the capital allocation productivity in the future? For Charlie, what is the first principle of capital allocation from a general economic interest point of view? Thank you.

CHARLIE MUNGERWell, two questions. Machine intelligence. I'm afraid the only intelligence I have is — is being provided by something that's not a machine. And I don't think I'm going to learn machine intelligence. Yeah. If you ask me how to beat the game of Go with my own intelligence, I couldn't do it. And I think it's too old for me to learn computer science. Generally I'm — I think that the machine intelligence has worked. After all, a machine now can beat the best human player of Go. But I think there's more hype in that field than there is probable achievement. So I don't think the world is going to be changed that much by machine intelligence. Some, but not hugely. And what was the other question?

WARREN BUFFETTWell —

CHARLIE MUNGEROne of them was machine intelligence.

WARREN BUFFETTI think he was getting at capital allocation —

CHARLIE MUNGEROh yeah. That's such a general question. Generally speaking, we're always trying to get the best — to get something that's worth buying. And the human mind rejects that if you're in academia, because you could come in and make one declaratory sentence at the opening of the semester and you wouldn't have anything to do for the rest of the — of your time. So people want to find some formula. It's what I call "physics envy." These people want the world to be like physics. But the world isn't like physics, outside of physics. And that false precision just does nothing but get you in trouble. So I would say you've got to master the general ideas, and you've got to work to improve your judgment slowly, the way all the rest of us had. And I don't think most individuals have much hope of individual gain from machine intelligence.

WARREN BUFFETTNo, I don’t — I don't think that — I'm impressed when machines beat Go or something of the sort, or even win at chess or whatever it may be. I don't really think they bring much to the table in terms of capital allocation or investing. And then I may be missing something entirely, you know, maybe I'm just blind to what's out there.

CHARLIE MUNGERYou're missing a lot of very remunerative, fee-earning twaddle. (Laughter)

WARREN BUFFETTYeah, well. Well, that takes care of that. So we'll go on to station 8. (Laughter)

Munger: "American investors are missing China"

AUDIENCE MEMBERDear Mr. Buffett and Mr. Munger, thank you very much for hosting the meeting. It's truly been remarkable. Thank you. My name is Yen (PH), and I'm a partner at Tiger Brokers, a leading electronic brokerage firm from China. Let me rephrase that. So, I and my colleagues flew half a way from the globe with (inaudible) to be here, and it is honor, just like everyone else in the stadium, we're honored to be here. My question is, you mentioned earlier that investors don't really have to be struggling in picking the right stocks. They would do well in picking, probably, the right market and the right country. China is the second-largest economy, and probably has the biggest growth potential. Just by passively weighting a portfolio — by passively valuating a portfolio — U.S. investors are significantly underweighting China. So in your opinion, what are stopping the investors from investing in China? Thank you.

CHARLIE MUNGERWell, I think the answer is that you're absolutely right. That we are — American investors are missing China. And they're missing it because it's a long way away, it looks different, they're not used to it, it's complicated, the headlines confuse them. In other words, it just looks too hard, sitting in Omaha, to outsmart the Chinese market. But I think you're absolutely right. It's where they should be looking.

WARREN BUFFETTOK. (Laughter) We've actually had a couple investments in China. We've done pretty well. But there were — well, if you go back a number of years, (inaudible). In terms of getting a lot of money into something, you know, many billions, and we have to get billions into things in — to move any kind of a needle, that can be tougher in markets that you've got — you're unfamiliar working in. And it's difficult under any circumstances. But accumulating a 6 or 8 or $10 billion position in investments outside the United States can be very difficult. For example, in U.K. and much of Europe we have to report when we own 3 percent of a company. In fact, we can be asked to report if we even have less than 3 percent. That really gets very tough when we get a bunch of followers and a lot of publicity that probably isn't deserved in terms of what we're doing in the markets and everything. Some of the problems are, just by the nature of our size. It would be lot — it'd be a lot easier if we were running a smaller fund. PetroChina, we managed to get a very big position. But the government owned 90 percent of it. So we bought 14 percent of what the government didn't own, but it was still only 1.4 percent of the company. But Charlie, Charlie actually keeps pushing me to do more in China. And we've tried a couple of times, actually. And there was one operation that we got involved in —

CHARLIE MUNGERWell, you did so poorly the first time, you put in 200,000 and got about 2 billion, so.

WARREN BUFFETTYeah. Yeah. Well.

CHARLIE MUNGERWasn't encouraging enough. (LAUGHTER)

"What Jeff Bezos has done is something close to a miracle"

WARREN BUFFETTOK. Station 9.

AUDIENCE MEMBERMy name is Dr. Sherman Silber. I'm an infertility doctor from St. Louis. And I've been a shareholder and coming to this meeting for 23 years, and I want to thank you very much for making my grandchildren very rich. (Laughter and applause) And they sometimes compare me in the medical world — infertility world — as the Berkshire Hathaway of infertility, because I'm so old and I come from a relatively small community. But I'm wondering about your interests in not just Apple, but all of the tech stocks, like Amazon and Google. Because you've avoided them, you've stated in the past, because they're complicated, you should stick with something you understand. On the other hand, Amazon and Google have what you call a very durable competitive advantage. They really hardly have any competitor. And that's true in China, too, of Alibaba and Tencent. So it seems like it's a conflict, and I'm wondering if you're going to be turning the corner and going into these tech companies that seem to have no serious competition.

WARREN BUFFETTWell, we certainly looked at them. And we don't think of whether we should be in tech companies or not, or that sort of thing. We are looking for things when we do get into the durability of the competitive advantage, and whether we think that our opinion might be better than other people's opinion in assessing the probability of the durability, so to speak. But the truth is that I've watched Amazon from the start, and I think what Jeff Bezos has done is something close to a miracle. And the problem is, if I think something will be a miracle, I tend not to bet on it. (Laughs) It would have been better — far better, obviously — if we — if I had some insights into certain businesses. But you know, in fact, Bill told me early on — Bill Gates told me early on — you know, that I think I was on AltaVista and he suggested I turn to Google. But the trouble is I saw that Google was skipping past AltaVista, and then I wondered if anybody could skip past Google. And I saw at GEICO that we were paying a lot of money for something that cost them nothing incrementally. We've looked at it, and you know, I made a mistake in not being able to come to a conclusion where I really felt that at the present prices that the prospects were far better than the prices indicated. And I didn't go into Apple because it was a tech stock in the least. I mean, I went into Apple because I made certain — came to certain conclusions about both the intelligence with which the capital would be employed, but more important, about the value of an ecosystem and how permanent that ecosystem could be, and what the threats were to it, and a whole bunch of things. And that didn't — I don't think that required me to, you know, take apart an iPhone or something and figure out what all the components were or anything. It's much more the nature of consumer behavior. And some things strike me as having a lot more permanence than others. But the answer is, we'll miss a lot of things that — or I'll miss a lot of things — that I don't feel I understand well enough. And there is no penalty in investing if you don't swing at a ball that's in the strike zone, as long as you swing at something at some point, then you know, eventually that you find the pitches you like. And that's the way we'll continue to do it. We'll try to stay within our circle of competence. And Charlie and I generally agree on sort of where that circle ends, and what kind of situations where we might have some kind of an edge in our reasoning or our experience or something that — where we might evaluate something differently than other people. But the answer is, we're going to miss a lot of things. Charlie?

CHARLIE MUNGERYeah, we have a wonderful system. If one of us is stupid in some area, so is the other. (Laughter) And of course, we were not ideally located to be high-tech wizards. How many people of our age quickly mastered Google? I've been to Google headquarters. They look to me like they're — it looks like a kindergarten. (Laughter)

WARREN BUFFETTA very rich kindergarten.

CHARLIE MUNGERYes. (Laughter)

WARREN BUFFETTNo, it's extraordinarily impressive, what they've done. And like I say, at GEICO we were paying them a lot of money at the time they went public. And all three of the main characters — Eric [Schmidt] and Larry [Page] and Sergey [Brin] — they actually came and saw me. But they were more interested in talking about going public and the mechanics of it and various things along that line. But it wasn't like what they were doing was a mystery to me. The mystery was how much competition would come along, and how effective they would be, and whether it would be a game where four or five people were slugging it out without making as much money as they could if one company dominated. Those are tough decisions to make. You can have industries where there's only two people in it, and they still don't (inaudible) very good because they beat each other's brains out. And that's one of the questions in the airline business. It's a better business now than it used to be, but it used to be suicide, so — (Laughs) And you know that the competitive factors are extraordinary in airlines, and how much better business is it with four people operating at 85 percent capacity than it was at — with seven or eight operating in the mid-70s, and with more planes run. Those are tough decisions. But I made the wrong decision on Google. And Amazon, I just — I really consider that a miracle, that you could be doing Amazon web services and changing retail at the same time, with — you know, without enormous amounts of capital, and with the speed and effectiveness of what Amazon has done. I just — I underestimated — I had a very, very, very high opinion of Jeff's ability when I first met him. And I underestimated him. (Laughs) Charlie?

CHARLIE MUNGERWell, my comment would be that the shareholders have one thing to be thankful for. Some of the age-related stupidity at headquarters has been ameliorated by Ted [Weschler] and Todd [Combs] joining us. We are looking at the world with the aid of some younger eyes now. And they've had a contribution —

WARREN BUFFETTSignificant.

CHARLIE MUNGER— beyond their own investments. And so you're very lucky to have them be shareholders. Because there's a lot of ignorance in the older generation that needs removal. (Applause)

"We already have a family office. It's sitting right here"

WARREN BUFFETTOK, station 10.

AUDIENCE MEMBERHi, good afternoon. Good afternoon, Warren. Good afternoon, Charlie. And my name is Yujin. I come from China, and I work for Hen Tian Tsai Fu family office. And we are serving high-worth individual clients in China. And you two would be my dream customer. I know your shareholder Bill Gates has a family office, which, helping his wealth. So my question is, do you have a family office, and what — can we know what they do, some — anything for you? And if not, are you planning to have a family office in the future?

CHARLIE MUNGERWe already have a family office. It's sitting right here. (Laughter)

WARREN BUFFETTYeah, we would be the last guys in the world to have a family office, actually. (Laughter) There are a lot of them around, and — but it's not something that fits the Munger family or the Buffett family. (Laughs) Charlie, you have anything?

CHARLIE MUNGERNo.

WARREN BUFFETTOK.

No "precise formulas" on Berkshire's incentive plans

WARREN BUFFETTLet's — we'll do one more. Station 11.

AUDIENCE MEMBERHi Warren, Charlie. My name is Adam Mead, Mead Capital Management from Derry, New Hampshire. In the past you have touched on certain compensation arrangements with key executives. Could you please provide some specific examples of compensation arrangements within Berkshire that speak to incentivizing good behavior while not penalizing the manager for size or the relative ease or difficulty of the business or industry? Thank you.

WARREN BUFFETTWell, that is a very, very good question, and a very, very tough question. Because some of our —

CHARLIE MUNGERHe really doesn't want to answer.

WARREN BUFFETTWell, some of our managers — (Laughter) No, some of our managers are in businesses that are just much easier. I mean, we bought into a variety of businesses. People are obviously influenced by what pay arrangements are elsewhere. They wouldn't be human if they weren't. And trying to come to the right answer when you have different degrees of capital intensity, different degree — very different degrees — of basic profitability, and how much you scale up based on size, because there is an incentive to grow businesses. Usually if businesses get much larger, everybody from the CEO down expects to earn more money for something that — where they really bring the same amount of intensity and work and (inaudible) to it. It is really a tough question. I think that if you engage compensation consultants at public companies, which they all do, they're going to recommend things that cause them to have CEOs recommend them to other companies. (Laughs) It's just, you're working against human nature when you have an arrangement like that. I would say that we have obviously kept a very, very, very high percentage of the managers that we hoped to have stay with us. In fact, just about a hundred percent. It's — And I think people do like — they do like to make their own decisions. They do like recognition. You know, they — most people respond — they like doing a good job, and they like the fact that we understand it. And compensation's part of that. But it's not the whole thing. And I wish I could give you some precise formulas, but there aren't any —

CHARLIE MUNGERNo, you really don't, Warren.

WARREN BUFFETTWhat?

CHARLIE MUNGERIt's an advantage at Berkshire to keep our individual deals private. There would be no advantage to just publishing them all.

WARREN BUFFETTNo, we're not going to do that.

CHARLIE MUNGERNo, of course not. So what we're saying, he makes all those decisions personally. He's got every formula in the book. And he keeps them all private. That's our system. (Laughter)

WARREN BUFFETTWell, we do — (Laughter) We publish what the directors are paid.

CHARLIE MUNGERWe publish what we have to, yes.

WARREN BUFFETTOK. It's 3:30 now. We're going to reconvene at 3:45. Charlie and I, we love the fact that our partners basically turn out for this. So we thank you for coming. I hope you've had a good time, both at the meeting and in Omaha. And we look forward to seeing you again next year. Thanks. (Applause)

Formal business meeting

WARREN BUFFETTWe're going to move it right along — do a little gun-jumping here. If you'll please take your seat, thank you. This is the formal meeting, so the meeting will now come to order. I'm Warren Buffett, chairman of the board of directors of the company, and I welcome you to this 2018 annual meeting of shareholders. This morning, I introduced the Berkshire Hathaway directors that are present and also with today are partners in the firm of Deloitte & Touche, our auditors. Jennifer Tselentis is the assistant secretary of Berkshire Hathaway. 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 the meeting. The named proxy holders for this meeting are Walter Scott and Marc Hamburg. Does the assistant secretary have a report of the number of Berkshire shares outstanding entitled to vote and represented at the meeting?

VOICEThis is the important part.

VOICEYou sit there.

WARREN BUFFETTWe're building the suspense here. (Laughs)

JENNIFER TSELENTISYes, 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 7th, 2018, the record date for this meeting, there were 748,347 shares of Class A Berkshire Hathaway common stock outstanding with each share entitled to one vote on motions considered at the meeting, and 1,344,969,701 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, 537,524 Class A shares and 823,145,874 Class B shares are represented at this meeting by proxies returned through Thursday evening May 3rd.

WARREN BUFFETTThank you. That number represents a quorum. And we will therefore directly proceed with the meeting. First order of business will be a reading of the minutes of the last meeting of shareholders. I recognize 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 shareholders be dispensed with and the minutes be approved.

WARREN BUFFETTDo I hear a second?

RON OLSONI second the motion.

WARREN BUFFETTMotion has been moved and seconded. We will vote on this motion by voice vote. All those in favor say aye.

VOICESAye.

WARREN BUFFETTOpposed. The motion is carried. The next item of business is to elect directors. If a shareholder is present who did not send in a proxy or wishes to withdraw a proxy previously sent in, you may vote in person on the election of directors and other matters to be considered at this meeting. Please identify yourself to one of the meeting officials in the aisles so that you can receive a ballot. I recognize Mr. Walter Scott to place a motion before the meeting with respect to the election of directors.

WALTER SCOTTI move that Warren Buffett, Charles Munger, Greg Abel, Howard Buffett, Stephen Burke, Susan Decker, William Gates, David Gottesman, Charlotte Guyman, Ajit Jain, 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 has been moved and seconded that Warren Buffett, Charles Munger, Gregory Abel, Howard Buffett, Stephen Burke, Susan Decker, William Gates, David Gottesman, Charlotte Guyman, Ajit Jain, 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 their ballots on the election of directors and deliver their ballots 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 Thursday evening cast not less than 605,906 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, Gregory Abel, Howard Buffett, Steve Burke, Susan Decker, William Gates, David Gottesman, Charlotte Guyman, Ajit Jain, Thomas Murphy, Ron Olson, Walter Scott, and Meryl Witmer have been elected as directors.

Shareholder motion on methane emissions

WARREN BUFFETTThe next item of business is a motion put forth by Freeda Cathcart on behalf of shareholder Marcia Sage. The motion is set forth in the proxy statement. The motion requests that the company provide a report revealing 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 Miss Cathcart to present the motion. To allow all interested shareholders their views, I ask that the representative of the Baldwin Brothers limit the presentation of the motion to five minutes.

FREEDA CATHCARTGood morning Chairman Buffett, Mr. Munger, members of the board and fellow shareholders. I am presenting this proposal on behalf of Baldwin Brothers on the issue of methane asset risk. This is the second year for this methane-focused proposal. Last year 10 percent of shareholders approved of it. Methane asset risk is a serious financial safety and environmental issue across the entire natural gas supply chain. The failure of a gas injection well at Southern California Gas Aliso Canyon Storage facility in Los Angeles revealed major vulnerabilities in the maintenance and safety of natural gas facilities. In that situation, cleanup and containment costs have soared to close to $1 billion. Governor Jerry Brown of California has threatened to shut down the facility. Berkshire Hathaway owns the largest interstate natural gas pipeline system in the United States. It has natural gas storage distribution and transportation facilities that may face similar safety risks through the Northern Natural Gas Company, Kern River Gas, and MidAmerican Energy Corporations. On an environmental front, research indicates methane leaks could erase the climate benefits of reducing coal use to meet internationally agreed upon climate change targets. Methane emissions have an impact on global temperature of roughly 84 times that of CO2 over a 20-year period. Berkshire is a voluntary member of the EPA's Methane Challenge and ONE Future Emissions Intensity Commitment Framework and should be applauded for reducing its leakage rates to below the 1 percent target along its value chain. Since this framework is a cost-effective versus prescriptive approach, shareholders would like to understand if this cost-effective approach employed at Berkshire is sufficient — maintenance and enhanced disclosure should help mitigate the potential for these financial and regulatory risks. In closing, we think it prudent that Berkshire Hathaway issue a report revealing and disclosing the company's specific best practices, policies, and safety standards for methane assets and required upgrade costs to facilities to mitigate potential business risks. The report would make it easier for investors, customers, and regulators to understand Berkshire's overall approach to managing methane emissions and risks. Thank you for your consideration.

WARREN BUFFETTMiss Cathcart, could you help me out? Are there some other people that are there to speak? I can't quite see from here.

VOICENo, there are no other shareholders who wish to speak on this issue.

FREEDA CATHCARTThere's nobody behind me to speak.

WARREN BUFFETTDid you get that, Charlie?

CHARLIE MUNGERNo.

WARREN BUFFETTGreg — could we put up slide one and then if somebody will give Greg a microphone, that'd be helpful. He could elaborate some on this chart and knows what we're doing.

GREG ABELOK. Thanks, Warren and appreciate the comments there. What we've prepared here is in response to the proposal. It demonstrates the ONE Future Initiative goal as it was highlighted. They'd like to see our pipelines operating by 2025 at a 1 percent throughput — or a loss of throughput at 1 percent. I'm happy to report, as this slide shows, that in 2017 our throughput loss was 0.046 percent, 20 times better than the request in 2025. (Applause) Thank you. It's a great compliment to our operating team, obviously. They take the issue that has been highlighted very seriously. I would also add, as it was noted, we're part of the EPA program where we report on a voluntary basis. Our practices are disclosed and reviewed by the EPA and additionally added on our website. Accordingly, I strongly feel we're getting the results and disclosing the appropriate information. Thank you.

WARREN BUFFETTYeah, and thanks Greg. And Miss Cathcart, we are on the same side you are on this basically. We just are not looking for ways to conduct more studies and prepare reports that may cost us money and generate more reports and all that. But I can tell you two things. This is something that is reported to the board of directors of Berkshire Hathaway Energy quarterly. And I'm on that board. And we believe in achieving the same things and we think Berkshire Hathaway Energy is both sensitive and effective — sensitive to and effective — in reducing methane emissions. So if — I think we're now ready. 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 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 Thursday evening cast 48,040 votes for the motion and 558,640 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 proposal on sustainability reports

WARREN BUFFETTThe next item of business is a motion put forth by shareholder Freeda Cathcart. The motion is set forth in the proxy statement. The motion requests that Berkshire adopt a policy to encourage more Berkshire subsidiary companies to issue annual sustainability reports. I will now recognize Freeda Cathcart to present the motion, and to all interested shareholders to present their views I ask her to limit her remarks to five minutes. You have the floor, Miss Cathcart.

FREEDA CATHCARTThank you so much. It is a privilege to be here and a privilege I can give thanks to my grandfather James Cathcart, who started out in the mailroom of Gen Re and worked himself up through the company to become the chair of Gen Re. During that time he accumulated a lot of Gen Re stock, which he bestowed generously upon his family. And when he did so, he encouraged the members of his family to do good and to pay it forward, to do something that would make a difference in the world and in our communities. For my father, he did so by being philanthropic with educational institutions with the theory that if you give a person a fish you feed them for a day, but if you teach them to fish, you feed them for a lifetime. My focus has been on the environment with the thought that when people fish, it would be nice if they were able to eat the fish. I want to take this opportunity to clarify my proposal about the sustainability reports and put the emphasis on the word encourage. It is evident that Berkshire Hathaway's management of allowing the subsidiaries to work without getting guidance — well, mandates from you is being very successful. And I wouldn't recommend changing it. You're doing a great job. Please keep it up. But I do think that there's something to be said to encourage them and support them, and in many ways you already are. There is a high level of interest from investors and the public in corporate social responsibility. One-fifth of investments are based on socially responsible investment strategies. And back in 2012, I found an article by Planet Earth Herald where they wrote, "When Warren Buffett talks, people listen. He is now talking about the environment. He believes that companies need to have a triple bottom line. And respecting the environment is absolutely critical to a company's economic performance." In times — and this is a direct quote from you, Mr. Buffett, "In times such as these a company must invest in the key ingredients of profitability: its people, communities, and the environment." One-third of Berkshire Hathaway's subsidiaries already have a sustainability presence on the web. And one of them is Berkshire Energy that has the acronym respect, R-E-S-P-E-C-T, which stands for Responsibility, Efficiency, Stewardship, Performance, Communication, and Training. And Berkshire Hathaway provides an annual sustainability summit to help bring the subsidiaries together so they can learn how to be more sustainable, how to share tips, and how to be profitable. And that's excellent. But when I try to find a web presence about the sustainability summit, I wasn't able to find it. And that's where I think that we can do a better job in Berkshire Hathaway when it comes to communication with our shareholders and with the outside world about the good work that we're doing. A simple solution to that would just be to create a link on the Berkshire Hathaway website to sustainability that people could click on and go and find out about initiatives like the sustainability summit. And from there, perhaps, they could click on to go to the subsidiaries that have a web presence about sustainability to see what they're doing. In doing so, we give a window to the world where they can see what we're doing to make a difference that might inspire other corporations to follow the example. Or perhaps a college student working on a paper would read about it and think that that is a good business model, that that's something that he wants to bring forward when he goes into his career. There is a Facebook page called "Berkshire Hathaway's Sustainability" that will be available for shareholders and the outside world to look at to see research and to encourage each other to learn how we can support sustainability practices. And that is available now. I greatly appreciate this opportunity to speak with you today and to clarify what my proposal is. And I do greatly applaud and appreciate all the work that you're doing on behalf of our corporation and the world. Thank you so much.

WARREN BUFFETTAnd thank you. (Applause) Many of the managers — a great many of the managers — of Berkshire are here and are listening to you. And I suspect that a very high percentage of them agree with what you're saying. Whether they — what they do in terms of web pages and so on, in our view, is basically up to them. But I can tell you that one leading proponent, as you mentioned, was Greg Abel, who until recently was running Berkshire Hathaway Energy and now is vice chairman. And Greg may want to say a few words on this, too. But I can assure you that the managers are listening to you.

GREG ABELThanks, Warren. Yeah, we do everything that was touched on. I'll just maybe add a few points for our shareholders. Obviously, sustainability is a priority for Berkshire and each of our operating subsidiaries. It was highlighted that a number of them have sustainability reports. But I would go beyond that. If you go to our various companies' websites, you'll see specific actions they're taking relative to sustainability. So it may not be summarized in a specific report, but that type of information is available. I can also add that when you think of the Berkshire Hathaway Energy Corporation, we're trying to lead by example with support from Warren, Charlie, Walter Scott. I'm happy to report, if you look at where our energy production is right now at the end of 2017, 50 percent of our energy that is produced and consumed by our customers comes from renewable energy. That's something we're strongly communicating across the U.S. and globally as an example of what can be done in our industry. And I'm happy to report by the end of 2021, 100 percent of the energy utilized by our customers can be met through renewable energy in Iowa. So I understand the concept of sustainability. We're working across our organizations to share best practices. But as Warren highlighted, it really resides in each of our companies. But it will be encouraged and you'll continue to see great results. Thank you.

WARREN BUFFETTThank you. (Applause) 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 Thursday evening cast 67,282 votes for the motion and 544,256 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. And I would say Miss Cathcart, our managers heard you. I mean, you have had an impact and I appreciate what you have done. Walter, I guess we're now ready for a motion?

WALTER SCOTTI move that this meeting be adjourned.

WARREN BUFFETTIs there a second?

RON OLSONI second the motion.