2019 年股东大会 · 下午场

Union Pacific has higher profit margins than BNSF

WARREN BUFFETTOK. If you'll take your seats, we'll proceed in a minute. And it looks like we're ready for Gregg.

GREGG WARRENGood morning, Charlie. I have a follow up on the railroad business. By nearly all measures, BNSF had a solid year in 2018, full-year revenue growth of 11 1/2 percent was better than the 7 1/2 percent topline growth at Union Pacific — which is BNSF's largest direct competitor — came up with, with Burlington Northern seeing both larger increases in average revenue per car unit and total volumes than its closest peer. Even so, Burlington Northern once again fell short of Union Pacific when it came to profitability, with its operating ratio declining 130 basis points to 66.9 percent, while Union Pacific's ratio fell only 120 basis points to 62.7, further cementing the spread that exists between the two companies' margins, at more than 400 basis points. Can you explain what is driving the difference in profitability between Burlington Northern and Union Pacific, as theoretically we should not see that wide of a spread between two similar-sized companies that are basically competing for the same business, with the same customers in the western half of the United States? And while you noted that Burlington Northern is in a wait and see mode with regards to precision-schedule railroading, we've kind of heard the same line historically with regards to GEICO's approach to telematics. And what worries me here is that the potential now exists for a much wider gap to emerge between profitability levels at Burlington Northern and Union Pacific, which has recently adopted a version of PSR some of which Union Pacific could eventually use to get more price competitive.

CHARLIE MUNGERWell, Warren knows the answer to that a lot better than I do. My guess is that they work a little harder than we do at billing the rates. But Warren, you answer that one.

WARREN BUFFETTYeah. Well, it's true that we receive the lowest ton mile revenue of any of the six big railroads in North America, and there's some explanation for that — obviously, a significant explanation — in the particular types of hauls we have and that sort of thing. We have longer hauls, generally. But the answer — Union Pacific's profit margin, they talk about operating ratios, but that goes back to the Interstate Commerce Commission. It's really profit margin, pre-tax, pre-interest profit margin. And Union Pacific, at one time, probably 15 or maybe a little more years ago, they really went off the tracks, so to speak. But they've done a very good job of getting — well, they got a lot of underpriced coal contracts that worked out, as did we. But they've also — they've done a very good job on expenses. And there's no fundamental reason why the BNSF franchise — I always like the western railroads better than the eastern — not by a dramatic margin — but I think the west will do better in terms of ton miles over time than the eastern roads. And we've got some great routes, some of which were underwater in March for a while. (Laughs) We pay a lot of attention to what's going on at the Union Pacific, as we should. And the future, it's not like we're losing business to anybody. But they have been operating more efficiently, in effect, than we have during the last few years. And like I said, we take notice of it. They've cut a lot of people, right here in Omaha. And we'll see what that does in terms of passengers — or in terms of shipper satisfaction. But we are measuring ourselves very carefully against what they do. And if changes are needed, we'll do that. We've got a wonderful asset in that business. And when I bought it, I said it's for a hundred years. It's for a lot more than a hundred years. It is a very, very fundamental business. And we've got a wonderful franchise, and we should have margins comparable to other railroads. Charlie?

CHARLIE MUNGERI don't know much about it.

WARREN BUFFETTYou don't? (Laughter)

Buffett: I'm lucky that I can "control my own time"

WARREN BUFFETTStation 9.

AUDIENCE MEMBERHi, Warren and Charlie. My name is Rob Lee (PH) from Vancouver, Canada. Could you please share with us what you value the most in life now? Thank you.

WARREN BUFFETTWell —

CHARLIE MUNGERI'd like to have a little more of it. (Laughter and applause)

WARREN BUFFETTIt's the two things you can't buy, time and love. And that, I value those for a long time. And I've been very, very, very lucky in life, in being able to control my own time to an extreme degree. Charlie's always valued that, too. That's why we really wanted to have money, was so we could do what we damn pleased, basically — (laughs) — in our life. It wasn't six houses or boats or anything. Well, Charlie's got a boat. But it doesn't do us that much good. But time is valuable. And we are very, very lucky to be in jobs where physical ability doesn't make any difference. And, you know, we've got the perfect job for a couple of guys with aging bodies. And we get to do what we love to do every day. I mean, I literally could do anything that money could buy, pretty much. And I'm having more fun doing what I do than doing anything else, and Charlie is designing dormitories. And I mean, he's got an interesting life, and he brings a lot to it. He still reads, you know, more books in a week than I get done in a month, and he remembers what he reads. So, we've got it very good, but we don't have unlimited time. And whatever we do to free up the time to do what we like to do — and we both maximize that in our lives — we do.

CHARLIE MUNGERAnybody's lucky if he so that what he spends his time at, he really likes doing. That's a blessing.

WARREN BUFFETTYeah, we've had so much good luck in life. It sort of blows your mind. Starting with being born in the United States. And Canada would be fine too, incidentally. I don't want to offend anybody. (Laughter)

"We're not in the business of explaining why we own a stock"

WARREN BUFFETTOK, Carol?

CAROL LOOMISThis question is from Brian Neal (PH), who writes from the Mayo Clinic Education Site. "Berkshire owns approximately 200 billion in publicly traded stocks. I appreciate the disclosure of Berkshire's holdings, but I am disappointed by the lack of specific performance information. "Since investing in publicly owned stocks is so much a part of Berkshire's business, why do you not tell us every year how our portfolio performed?"

WARREN BUFFETTWell, obviously it could be calculated fairly easily, and it's about 40 percent of Berkshire's value. But 60 percent is the businesses. And if you look at the top ten stocks I would guess, you know, you're down to where beyond those ten stocks you're talking about less than — probably less than 10 percent of Berkshire's value. So, I — again — we're not in the business of explaining why we own a stock. We're not looking for people to compete to buy it. We have a portfolio of companies where I would say that, of that 200 billion or so, at least 150 billion of them are buying in their stock and increasing our interest every year. And why in the world should we want to tell a whole bunch of people to go out and buy those stocks so that we end up paying — or the company on our behalf — ends up paying more money for them? I mean, people get very happy when their stocks go up. But if we're going to own whatever, whether it's Bank of America, whether it's Apple, whether it's any of the big holdings, we will do considerably better in the next ten years if their stocks do terribly during certain periods and that they buy lots of stock in. It's just exactly like buying it ourselves, except we're using their — they're using our money. But it's so elementary. And why in the world would we want to go out and tell the world that these stocks should go up so that maybe they can sell or something when it costs us money? And we're not going to be able to move in and out of the stocks to our advantage. So, our holdings are filed quarterly — our domestic holdings, as it was pointed out earlier — filed quarterly. But we would rather not tell the world what we own, any more than we'd like to tell them what our strategy is at NetJets or what we're going to do with Lubrizol and what we're working on in the way of better advances in additives or whatever it may be, or where we plan to build a new store for the Furniture Mart or something. That's proprietary information. And we have to disclose a certain amount, but we're certainly not going to be touting the stocks to other people. In terms of calculating our performance, you can take the top ten or 12 stocks, and anybody could make the calculation. I mean, at the end of the year the Wall Street Journal runs — all the papers run something — where it says a year-to-date performance or something of the sort. So that's a simple calculation. Charlie?

CHARLIE MUNGERI've got nothing to add to that.

FlightSafety probably won't get more demand for its simulators after Boeing MAX 737 crashes

WARREN BUFFETTOK. Jonathan.

JONATHAN BRANDTNo one's ever asked a question about FlightSafety, but perhaps this year it's somewhat topical given the 737 MAX controversy. The New York Times spoke to engineers who said that Boeing explicitly designed the MAX in a manner that allowed airline customers to avoid paying for simulators to train their pilots. Do you expect the worldwide regulatory and commercial response to the MAX's problems to result in increased demand for FlightSafety simulators? And could you please more generally discuss FlightSafety's competitive position and growth prospects?

WARREN BUFFETTYeah, well, FlightSafety is — their specialty would be with corporate pilots. They train our NetJets pilots, for example. They have a major facility with simulators for that. I don't think what's happened with the 737 MAX will have any particular effect. I mean, we have — I don't know how many of the Fortune 100 companies that we do business with, but it's a very significant percentage. And they train their pilots with FlightSafety because we've got the talent and the simulators like nobody else has for that business. And Charlie, didn't you have that friend of yours that was trying to get Al Ueltschi to pass him when he shouldn't?

CHARLIE MUNGERWhat?

WARREN BUFFETTYou remember that story of your friend that wanted to have FlightSafety —

CHARLIE MUNGEROh yes.

WARREN BUFFETTYeah, why don't you tell them? I mean, Al Ueltschi, who started FlightSafety with a few thousand dollars and a little visual simulator, or whatever it may have been at, LaGuardia, I mean, he really cared about saving lives. And he made a lot of money in the process, but he was dedicated throughout his lifetime to truly train better pilots and reduce the chance of accidents dramatically. It was a mission with him. And that spirit still continues. And as I say we've got a — I can't tell you the percentages, I don't know, but I know it's very high — of certainly the corporate business. We have government business, we have some airline businesses and all of that. But I don't expect any great change in the flight training business. But tell them about your friend, Charlie.

CHARLIE MUNGERWell, of course, people pass those tests with flying colors, and then some of them just barely pass. And one of my friends just barely passed and they called me and told me. It's (inaudible) of the business.

WARREN BUFFETTFlightSafety would not —

CHARLIE MUNGERThey care about everything.

WARREN BUFFETTThey care.

CHARLIE MUNGERThey watch the details.

WARREN BUFFETTThey care. And those simulators can cost over $10 million, I mean, just — and they're dedicated, obviously, to a given model of plane. You might find it interesting, at NetJets our pilots only fly one model. I mean — most charters and all those, I'm sure they — and incidentally, I think they could fly other models and all that, but we just want them to be flying one model. And we give them the maximum amount of training annually. And it's — when I bought the company for Berkshire in, I think it was 1998 or thereabouts, you know, the thought obviously bothered me that I would have a significant percentage of people who would be friends of mine that were using it, and you know, you'd hate to have anything happen. I use it, my family uses it, our managers use it. And there's nobody that cares more about safety. But I don't see — other than at NetJets — it's a first-class operation.

CHARLIE MUNGERThey've never killed a passenger. They had one pilot who hit a glider at 16,000 feet, and it was kind of a difficult landing.

WARREN BUFFETTIt was more than difficult landing —

CHARLIE MUNGERThey've never killed a — it was a woman pilot, yeah.

WARREN BUFFETTAnd she was flying the next day. The copilot was kind of taken out of operation for a while. But this woman ended up almost with the control panel in her lap because this guy turned off his battery and hit one of our Hawkers. And she had one shot at the runway and she brought it in. And we've had some remarkable training and pilots there. You should ask for her if you're flying on NetJets. (Laugher)

Buffett on tech investing: "We won't go into something because somebody else tells us it's a good thing to do"

WARREN BUFFETTStation 10.

AUDIENCE MEMBERMr. Buffett and Mr. Munger, hi. My name is Daphne. I'm from New York and I'm nine years old. And I'm excited to be at the Berkshire meeting, and this is my third year.

WARREN BUFFETTWow. (Applause) You should be rich by now. (Laughter)

AUIENCE MEMBERYou have often said that investors are well-served by identifying businesses with a wide moat, where the castle behind the moat is run by a king or queen who can be trusted to make good decisions. In the past, you have applied this advice by investing in businesses with world class strong brands, such as Coke, American Express, and See's, as well as media companies that has helped these brands protect and widen their moats, such as Cap Cities, ABC, and the Washington Post. In the past, you have also generally avoided investing in technology companies, pointing out how quickly technology changes and how hard it is to build a circle of competence in it. Today, we seem to be in a world where some of the most dominant companies in the world are technology companies. And we have built powerful platforms, such as Amazon, Google, Facebook, and Microsoft in America, and Alibaba and Tencent in China. These companies all have wide moats, strong brands, and are led by brilliant — entrepreneurs.

WARREN BUFFETTThat's good. (Laughter)

AUDIENCE MEMBERMy question to you is this: if Berkshire is to honor its tradition of investing in wide moats and strong brands, and especially in companies that are also capital efficient, do you think that Berkshire needs to expand its investing lens to include more of these leading technology platforms? In other words, do you believe that you need to adapt your model of wide moats and strong brands to embrace, not avoid, technology? (Applause)

CHARLIE MUNGERI think the answer is maybe. (Laughter)

WARREN BUFFETTI think the answer is to put her on the board and it'll bring down the average age enormously. We won't get criticized as much. You're exactly right, in that we do like moats, and we used to be able to identify them in a newspaper that was the only newspaper in town, or in TV stations where we felt the dominant position, we felt the product was underpriced in terms of advertising. We saw it in brands, sometimes. And it is true that in the tech world, if you can build a moat, it can be incredibly valuable. I've not felt the confidence that I was the best one to judge that in many cases. It wasn't hard to figure out who was winning at any given time or what their business was about, but there were a huge number of people that knew more about the game than I did. And we don't want to try and win at a game we don't understand. We may hire people, such as Ted (Weschler) and Todd (Combs), that are better at understanding certain areas of investing than I am, or maybe even Charlie is. But the principles haven't changed. You're right that some of the old ones have lost their moat and you're right that there are going to be companies in the future that have them that will be enormously valuable. And we hope we can identify one every now and then. But we won't — we'll still stay within where we think we know what we're doing. And obviously, we'll make mistakes even within that area. But we won't go into something because somebody else tells us it's a good thing to do. I mean, we are not going to subcontract your money to somebody else's judgment. You can take your money and follow somebody else's judgment, but we're not in the business of thinking that if we hire ten people with specialties in this area or that, that it will lead to superior investment results. And we do worry that we could blow a lot of money that way. So, we'll do our best to enlarge the circle of competence of the people at Berkshire so that we don't miss so many. But we'll miss a lot in the future. We missed a lot in the past. The main thing to do is to find things where our batting average is going to be high. And if we miss the biggest ones, that really doesn't bother us, as long as the things we do with money work out OK. Charlie?

CHARLIE MUNGERWell, I think we've still got an awful lot of companies with big moats, and a lot of them are very — and some are industrial brands that are just incredibly strong in the niches we're in. So, Berkshire shareholders don't need to worry about we're just one big morass of unprofitability or anything like that. But we have not covered ourselves with glory in the new fields.

WARREN BUFFETTYeah. We won't end up all in buggy whips, though, or anything. But it's a very good question, and it's what we focus on all the time. And I hope —

CHARLIE MUNGERWe're trying to improve.

WARREN BUFFETTAnd we hope we see you back here for your fourth next year.

"In the end, Berkshire should prove itself over time"

WARREN BUFFETTBecky? (Applause)

BECKY QUICKThis question comes from Stuart Boyd (PH), who's a chemical engineer from Australia. He says, "Currently Berkshire would be incredibly difficult for an activist investor to target, because number one, Warren, your ownership stake is large. Number two, shareholders appreciate the business is more valuable operating under the Berkshire umbrella rather than being sold off in pieces. "And number three, the sheer size or market capitalization of Berkshire is an entry barrier for most activist investors. "Warren and Charlie, after your ownership has been completely distributed, will Berkshire be more vulnerable to activist investors? I'm guessing this isn't something that keeps you up at night, but thought it was worth asking."

CHARLIE MUNGERNo, it's going to happen quite a few decades after my death.

WARREN BUFFETTYeah. It —

CHARLIE MUNGERI don't think I'll be bothered much by it. (Laughter)

WARREN BUFFETTNo, anything could happen. It's a low probability. It can't happen for a lot of years, in terms of the way my stock gets distributed and in terms of the way other stock is held. But in the end, Berkshire should prove itself over time. I mean, there are no perpetuities. And it deserves to be continued in its present form. It has a lot of attributes that are maximized by being in one entity, which people don't fully understand. I think if you spin off something that would command a high PE that therefore value has been unlocked, which is totally nonsense. I mean, it's already built in. One day out, you know, you might have an extra 3 percent or 5 percent in price, but over the years, we want to keep the wonderful businesses. But eventually I think the culture will remain one of a kind. I think that we will be able to do things other people can't do. I think that the advantages of having them in one spot will likely be significant over time. And if that happens, then no activist is going to take it over. And if the model doesn't work for some reason over a long period of time, then something else should happen. Charlie?

CHARLIE MUNGERNothing more.

WARREN BUFFETTOK.

GEICO trying to improve its loss ratio as it competes with Progressive

WARREN BUFFETTJay.

JAY GELBThis question is on GEICO. Progressive is gaining the most market share among the major auto insurers, based on its presence in the direct and independent agency channels, as well as now bundling its auto and homeowners insurance coverage. How does GEICO plan on responding to competitive threats so that it can retain its place as the second-largest auto insurer? I was hoping we could also hear on this topic from Ajit (Jain) or GEICO's management. Thank you.

WARREN BUFFETTOK. Progressive is a very well-run business. GEICO is a very well-run business. And I think they will, for a long time, be the two companies that the rest of the auto insurance industry has trouble not losing share to. But there's, you know, I think — I've always thought for a long, long time, Progressive has been very well run. They have an appetite for growth. Sometimes they copy us a little, sometimes we copy them a little. And I think that'll be true five years from now and 10 years from now. And we sell substantial amounts of homeowners insurance. We have an agency arrangement with that. We were in the business of writing it ourselves, until Hurricane Andrew, when a decision was made — we didn't control it then — but the decision was made that the homeowners, essentially, you could lose as much in one year as you made in the previous 25 years. And the float isn't as large. So, we became a company that placed our customers' desire for homeowners with several other large and solid organizations. The big thing is auto insurance. And we grew in the first quarter about 340,000 policies, net, which will look quite good compared to anybody but Progressive. And that was quite a bit more than last year, but not as good as two years ago. And the profit margin was in the nine-point area. So, I feel extremely good about GEICO, I mean, what has been built there by Tony (Nicely) and his people is perfect, but I would feel fine — We don't own any Progressive, but I think that Progressive is an excellent company, and we will watch what they do, and they will watch what we do. And we will see, five years from now or 10 years from now, which one of us passes State Farm first. Charlie? Oh, and Ajit, would you like?

AJIT JAINWell, the underwriting profit is really a function of two major variables. One is the expense ratio and the other is the loss ratio, without getting too technical. GEICO has a significant advantage over Progressive when it comes to the expense ratio, to the extent of about seven points or so. On the loss ratio side, Progressive does a much better job than GEICO does. They have, I think, about a 12-point advantage over GEICO. So, net-net, Progressive is ahead by about five points. GEICO is very aware of this disadvantage on the loss ratio that they are suffering, and they're very focused on trying to bridge that gap as quickly as they can. They have a few projects in place, and, you know, sometimes GEICO is ahead of Progressive. Right now, Progressive is ahead of GEICO. But I'm hopeful they'll catch up on the loss ratio side and maintain the expense ratio advantage as well. Thank you.

WARREN BUFFETTGEICO has gained market share, essentially — I'd have to look at the figures for sure — but virtually every year since Tony took over. And I would bet significant money that GEICO increases its market share in the next five years. And I think it will, for sure, this year. So, it is a terrific business. And — but Progressive is a terrific business. And we'll — as Ajit says, we've got the advantage in expenses, and we will have an advantage in expenses. And then the question is, are we — They have a very sophisticated way of pricing business. And the question is whether we give some of that five points back — or six points back — in terms of loss ratio. We are working very hard at that, but I'm sure they're working very hard too to improve their system. So, it's a — to some extent it's a two-horse race, and we've got a very good horse.

CHARLIE MUNGERBut Warren, in the nature of things, every once in a while, somebody's a little better at something than we are.

WARREN BUFFETTHa. You've noticed. (Laughter)

CHARLIE MUNGERYeah. I noticed.

WARREN BUFFETTYeah. I'd settle for second place in a lot of the businesses.

Try to have a big circle of competence but be realistic about its perimeter

WARREN BUFFETTOK, station 11.

AUDIENCE MEMBERMr. Buffett and Mr. Munger, thank you for taking my question. My name is Feroz Qayyum and I'm from Mississauga in Canada, and now live in New York. My question is how to best emulate your success in building your circle of competence. Given the environment today in investing is a lot more competitive than when you started out, what would you do differently, if anything at all, when building your circle? Would you still build a very broad, generalist framework? Or would you build a much deeper but narrower focus, say on industries, markets, or even a country? And if so, which ones would interest you? Thank you.

WARREN BUFFETTYeah, well, you're right. It's much more competitive now than when I started. And you would — when I started, I literally could take the Moody's industrial manual and the Moody's banks and financial manual and I could go through page by page, at least run my eyes over every company and think about which ones I might think more about. It's — it's important — I would just do a whole lot of reading. I'd try and learn as much as I could about as many businesses, and I would try to figure out which ones I really had some important knowledge and understanding that was probably different than, overwhelmingly, most of my competitors. And I would also try and figure out which ones I didn't understand, and I would focus on having as big a circle as I could have, and also focus on being as realistic as I could about where the perimeters of my circle of competence were. I knew when I met (GEICO executive) Lorimer Davidson in January of 1951, I could get insurance. I mean, what he said made so much sense to me in the three or four hours I spent with him on that Saturday. So, I dug into it and I could understand it. My mind worked well in that respect. I didn't think I could understand retailing. All I'd done is work for the same grocery store that Charlie had, and neither one of us learned that much about retailing, except it was harder work than we liked. And you've got to do the same thing, and you've got way more competition now. But if you get to know even about a relatively small area more than the other people do, and you don't feel the compulsion to act too often, you just wait till the odds are strongly in your favor. It's still a very interesting game. It's harder than it used to be. Charlie?

CHARLIE MUNGERWell, I think the great strategy, for the great mass of humanity, is to specialize. Nobody wants to go to a doctor that half-proctologist and half-dentist, you know? (Laughter) And so, the ordinary way to succeed is to narrowly specialize. Warren and I really didn't do that. And that — and we didn't because we prefer the other type of activity. But I don't think we could recommend it to other people.

WARREN BUFFETTYeah, a little more treasure hunting in our day, and it was easy to spot the treasures —

CHARLIE MUNGERWe made it work, but it was kind of a lucky thing.

WARREN BUFFETTYeah.

CHARLIE MUNGERIt's not the standard way to go.

WARREN BUFFETTThe business, at least I best understood, actually was insurance. I mean — and I had very little competition. You know, I went to the insurance department in Harrisburg, Pennsylvania. I remember one time I drove there just to check on some Pennsylvania company. And this is when you couldn't get all this information on the internet. And I went in and I asked about some company, and the guy said, "You're the first one that's ever asked about that company." And there wasn't a lot. I went over to the Standard and Poor's library on Houston — Houston — Street, I guess they call it. And I would go up there and ask for all this obscure information. And there wasn't anybody sitting around there. They had a whole bunch of tables that you could set and examine things through. So, there was less competition. But if you know even one thing very well, it'll give you an edge at some point. You know, it's what Tom Watson Sr. said at IBM, you know. "I'm no genius, but I'm smart in spots and I stay around those spots." And that's basically what Charlie and I try and do. And I think that's probably what you can do. But you'll find those spots in —

CHARLIE MUNGERYeah, we did it in several fields. That's hard.

WARREN BUFFETTAnd we got our head handed to us a few times, too.

Berkshire is strong on the environment but won't do expensive reports to prove it

WARREN BUFFETTOK, Andrew?

ANDREW ROSS SORKINThanks, Warren. Governance question from a shareholder. Larry Fink of BlackRock has predicted that in the near future, all investors will be using ESG —environmental, social, governance — metrics to help determine the value of a company. I'm worried we don't score well on everything from climate to diversity to inclusion. How well do you think Berkshire measures up on those metrics, and are they valuable metrics?

WARREN BUFFETTI think in reality we measure up well, but we don't participate in preparing reports for anybody that asks about it. And we have this idea that even though all shareholders are equal, we sort of — we prefer individual shareholders. We actually prefer people we know as co-owners. And we don't want to be preparing a lot of reports and asking 60 subsidiaries each to do something, where they'll set up a team, and they'll mail things to headquarters, and then we'll supply them to somebody who, if our stock goes up some, is probably going to sell it anyway. We want our managers to do the right things. We give them enormous latitude to do that. And I think that our batting average really is quite good. You saw that in the movie, we talked about having a hundred percent of the electricity we sell in Iowa come from, essentially, wind generation. Now that doesn't mean that we get to do it 24 hours a day. We sell some and we buy it. But essentially, we will be creating as much wind energy as all of our customers use in electricity. There's one competitive — there's one other utility — electric utility — that's about our size — roughly our size — in Iowa, and they have practically no wind resources. And the wind blows where they exist, too. But we have — we will have that hundred percent — and as a matter of fact, it's a moving target, because we do so well — partly — we do so well on wind generation that a number of the high-tech companies want to locate in Iowa and get clean energy from us at very low prices. And therefore, the moving target becomes our growth in customers in that area. But we are not going to put out a — we're not going to spend the time of the people at Berkshire Hathaway Energy responding to questionnaires or trying to score better with somebody that is working on that. It's just, we trust our managers and I think the performance is at least decent. And we keep expenses and needless reporting down to a minimum at Berkshire. We do not get — and I mentioned this in the annual report — I can't imagine another company like it — but here we are, with 500 billion of market capitalization — we do not have a consolidated P&L monthly. We don't need it. Now I can't imagine any other organization doing that, but we don't need it. And we're not going to tie up resources — people resources — doing things we don't need to do just because it's the sort of standard procedure in corporate America. And corporate America is very worried about, in general, they're very worried about whether somebody's going to upset their apple cart, you know, with activists and everything. So, they want to be very sure that every shareholder is happy on issues like that. And in the end, fortunately, we don't have to worry about that. So, we don't have to run up a lot of expenses doing things that don't actually let us run the business better. Charlie?

CHARLIE MUNGERWell, I think at Berkshire the environmental stuff is done one level down from us. And I think Greg Abel is just terrific at it. And so, I think we score very well. When it gets to so-called best corporate practices, I think the people that talk about them don't really know what the best practices are. They just know what they think are the best practices. And they determine that based on what will sell, not what will work. And so, I like our way of doing things better than theirs, and I hope to God we never follow their best practices. (Applause)

"Independent" board members aren't really independent

WARREN BUFFETTI'd like to point out one thing on independent directors. I mean, I have been on 20 public company corporate boards, not counting any Berkshire subsidiaries. So, I've seen a lot of corporate boards operate. And the independent directors, in many cases, are the least independent. I mean, if the income you receive as a corporate director — which typically may be around $250,000 a year — now, if that's an important part of your income, and you hope that some other corporation calls the CEO and says, "How's so-and-so as a director?" and the current CEO — your CEO — says, "Oh, he's fine and never raises any problems," and then you get on another board at 250,000 and that's an important part, how in the world is that independent? I mean, I really, just an observation. (Applause) I can't recall, particularly, any independent director — where their income from the board was important to them — I can't recall them ever doing anything in board meetings or committee meetings that actually was counter to the interest — you know, they put them on the comp committee. They're just not going to upset the apple cart, because what they're — and I'd probably behave the same way in the same position. I mean, if $250,000 a year is important to you, why in the hell would you behave in a way that's going to cause your CEO to say to the next CEO, "This guy acts up a little bit too much. You really better get somebody else." It's the way it works. But they've —

CHARLIE MUNGERI think it works a little worse than Warren's telling you. (Laughter)

WARREN BUFFETTYeah, Charlie and I —

CHARLIE MUNGERIt's really awful.

WARREN BUFFETTIt's awful. I mean, we —

CHARLIE MUNGERAnd not only that, Warren and I are — we occupy the niche for pomposity very well ourselves. We don't need any more of it. (Laughter)

WARREN BUFFETTCharlie and I were on one board. Well, I was on one board, actually, a long time ago where we owned a very significant percentage of the company. And the rest of the board was almost exclusively customers of the company. But not owners. They had absolutely token holdings. And at one point we were looking at something where a tax decision was being made in terms of the distribution of some securities. And it was a lot of money that was involved. And one of the other directors said, "Well, let's just swallow the tax." Well, his swallowing amounted to about $15 or something — (Laughs) I said, "Let's parse this sentence out. Let's swallow the tax. That's let us swallow the tax. So, who wants to swallow an equal amount, you know, to me?" It's — you know, it's — you don't get invited to be on boards if you belch too often at the dinner table —

CHARLIE MUNGERWell, at Blue Chip Stamps we had a director who said, "I don't see why you guys get to be so important just because you own all the shares."

WARREN BUFFETTYeah. (Laughter) Charlie and I used to have to cool off after the Blue Chip Stamps meetings, because we and Rick Garrett owned what percent, probably?

CHARLIE MUNGEROh, 50 percent.

WARREN BUFFETTYeah, 50 percent, and they'd appointed all these —

CHARLIE MUNGERThey were all members of the Rotary Club.

WARREN BUFFETTIt came out of a government settlement or something. And it was not an ideal form of decision making. And they just had a different calculus in their mind than we did. And I can understand it, but I'm not going to replicate it. (Laughs)

"We will put a lot of money into energy" with capital spending at utilities

WARREN BUFFETTOK, Gregg.

GREGG WARRENWarren and Charlie, U.S. electricity demand has flatlined during the past decade, but could potentially pick up over the next decade with three emerging sources of demand — electric vehicle charging, datacenters, and cannabis cultivation — expected to account for more than 5 percent of total U.S. electricity demand. Utilities will have to work hard to benefit from this new demand, though, much of which is likely to accrue to states in the South Atlantic, Central, West, and Mountain regions, with the greatest benefit going to firms that invest in grid expansion, smart networks, reliability, and renewable energy. While Berkshire Energy has been aggressive with its capital investments, and already has some of the lowest electricity rates in the areas where it competes, it seems like the firm is winding down its annual spending at a time when more might actually be required. With annual spending expected to fall from around 6 billion, on average, annually to around 4 billion in 2021, with two-thirds of that spending being more maintenance driven than growth. Is there any one area where you feel Berkshire Energy might need to commit more capital over the next decade to ensure that it captures this future expected demand growth, much as it already has with wind power in western Iowa, which is now populated with a lot of data centers, and for territories where demand growth is expected to be the strongest but where Berkshire does not have a presence, are there any avenues aside from acquisitions for the company to put capital to work?

WARREN BUFFETTI'm going to throw that over to Ajit in just a second. But I will tell you that we have three owners of Berkshire Hathaway Energy. We are the 91 percent owner. And there are no three owners that are more interested in pouring money into sensible deals within the utility industry or are better situated in terms of the people we have to maximize any opportunities. We have never had a penny of dividends in — whatever it is — close to 20 years of owning MidAmerican Energy. And other utility companies pay high dividends. They really — they just don't have the capital appetite, essentially, that we do. So, it's just a question of finding sensible projects. And I would say that there's no group that is as smart about it, as motivated about it as our group. And with that I'll turn it over to Greg.

CHARLIE MUNGERIn short, we're about as good as you can get, and you should worry about something else.

WARREN BUFFETTYeah. (Laughter) But Greg, could you stand up and talk about —? We really hope to spend a lot of money in energy.

GREG ABELYeah, yeah. Afternoon. Yeah, Gregg, you touched on it. A couple critical areas we go forward is to look realistically in the '21, 2022 timeframe. Because as you touched on, we've got a great portfolio as we finish out 2019, 2020. And it's really been focused on building new renewable energy projects in Iowa, expanding the grid. But equally, we do have those opportunities in our other utilities. The footprint in Iowa, realistically, is getting pretty full. As we hit a hundred percent renewables — Warren touched on it — every time we get a new data center, that means we can build another 300 megawatts of renewables. We'll continue to do that. But when you look at PacifiCorp, where we serve six states in the Northwest, we've really just embarked on an expansion program there. The first part was to build significant transmission, so expand the grid, and then start to build renewables. But just to give you some perspective of the regulation that exists in place, we started that project in 2008. And we're realistically building the first third of it. But we do have the planning in place for the second phase and the third phase, and that's what you'll see coming into place in 2021 and in '23. And the reality is we'll continue to do that at NV Energy, with really, again, the focus being on both grid expansion, so we can move the resources, and then supplementing it with renewables. So, it's exactly what you've touched on. And we haven't identified the specific projects yet, so we never put them in our capital forecast that we disclose to folks. But as they firm up and we know that they will go forward, clearly you'll see some incremental capital. And that's capital we clearly earn on behalf of the Berkshire shareholders as we deploy it. Thank you.

WARREN BUFFETTWe will put a lot of money into energy. (Laughs)

CHARLIE MUNGERYeah, we're really in marvelous shape in this department.

WARREN BUFFETTIncidentally, you know, Walter Scott, I mean, he gets excited looking at all these projects, and goes out and visits them. He knows way more about the business — and he's forgotten more about it than I'll ever know. But we've got a great partnership. We've got unlimited capital. We'll continue to have it. And there's needs for huge capital in the industry. So, I think 10 years from now or 20 years from now, our record will be looked at and there'll be nothing like it in the energy business.

CHARLIE MUNGERWell, Greg, is there anybody ahead of where we are in Iowa in terms of energy?

GREG ABELCharlie, there's realistically no one ahead of us in the U.S., let alone in Iowa. When you look at the amount of energy we produce relative to what our customers consume, we really do lead the nation and Iowa.

CHARLIE MUNGERAnd aren't our rates about half that of our leading competitor in Iowa to boot?

WARREN BUFFETTAbout half. Close.

GREG ABELExactly. We're right in that range.

CHARLIE MUNGERIf this isn't good enough for you, we can't help you. (Laughter)

WARREN BUFFETTIncidentally, I mean, we sell electricity five miles from here. Greg, is that correct?

GREG ABELRight across the river.

WARREN BUFFETTYeah, right across the river. And, you know, the wind blows the same and all that sort of thing. And the public power district here, in Nebraska, going back to George Norris, has always been a public power state. There's no — capitalism doesn't exist in the electric utility field in Nebraska. So, they have had the advantage of selling tax-exempt bonds. We have to sell taxable bonds, which raises cost to some degree. They have a big surplus, which they don't have to pay dividends on or anything else. And our rates are cheaper than theirs, you know, basically. I mean, we're very proud of our utility operation.

Why Berkshire doesn't put its unspent cash into a stock index fund

WARREN BUFFETTCarol?

CAROL LOOMIS"Warren, you are a big advocate of index investing, and of not trying to time the market. But by your having Berkshire hold such a large amount of cash in T-bills, it seems to me you don't practice what you preach. "I'm thinking that a good alternative would be for you to invest most of Berkshire's excess cash in a well-diversified index fund until you find an attractive acquisition or buy back stocks. "Had you done that over the past 15 years, all the time keeping the $20 billion cash cushion you want, I estimate that at the end of 2018, the company's 112 billion balance in cash, cash equivalents, in short-term investments and T-bills, would've instead been worth about 155 billion. The difference between the two figures is an opportunity cost equal to more than 12 percent of Berkshire's current book value. What is your response to what I say?" And I forgot to say the question is from Mike Elzahr, who is with the Colony Group, located in Boca Raton, Florida.

WARREN BUFFETTThat's a perfectly decent question, and I wouldn't quarrel with the numbers. And I would say that that is an alternative, for example, that my successor may wish to employ. Because, on balance, I would rather own an index fund than carry Treasury bills. I would say that if we'd instituted that policy in 2007 or '08, we might have been in a different position in terms of our ability to move late in 2008 or 2009. So, it has certain — it has certain execution problems with hundreds of billions of dollars than it does if you were having a similar policy with a billion or 2 billion or something of the sort. But it's a perfectly rational observation. And certainly, looking back on ten years of a bull market, it really jumps out at you. But I would argue that if you were working with smaller numbers, it would make a lot of sense. And if you're working with large numbers, it might well make sense in the future at Berkshire to operate that way. You know, we committed 10 billion a week ago. And there are conditions under which— and they're not remote, they're not likely in any given week or month or year — but there are conditions under which we could spend a hundred billion dollars very, very quickly. And if we did — if those conditions existed — it would be capital very well deployed, and much better than in an index fund. So, we've been — we're operating on the basis that we will get chances to deploy capital. They will come in clumps in all likelihood. And they will come when other people don't want to allocate capital. Charlie, what do you think about it?

CHARLIE MUNGERWell, I plead guilty to being a little more conservative with the cash than other people. But I think that's all right. We could have put all the money into a lot of securities that would've done better than the S&P with 20/20 hindsight. Remember, we had all that extra cash all that period, if something had come along in the way of opportunities and so on. I don't think it's a sin to be a little strong on cash when you're as a big a company as we are. We don't have to — I watched Harvard use the last ounce of their cash, including all their prepaid tuition from the parents, and plunge it into the market at exactly the wrong moment and make a lot of forward commitments to private equity. And they suffered, like, two or three years of absolute agony. We don't want to be like Harvard.

WARREN BUFFETTPlus timber and a whole bunch of —

CHARLIE MUNGERWhat?

WARREN BUFFETTPlus timber. And I mean —

CHARLIE MUNGERYeah, yeah. We're not going to change. (Laughter and applause)

WARREN BUFFETTWe do like having a lot of money to be able to operate very fast and very big. And we know — and maybe we won't — we know we won't get those opportunities frequently. I don't think — certainly, you know, in the next 20 or 30 years there'll be two or three times when it'll be raining gold and all you have to do is go outside. But we don't know when they will happen. And we have a lot of money to commit. And I would say that if you told me I had to either carry short-term Treasury bills or have index funds and just let that money be invested in America generally, I would take the index funds. But we still have hopes. And the one thing you should very definitely understand about Berkshire is that we run the business in a way that we think is consistent with serving shareholders who have virtually all of their net worth in Berkshire. I happen to be in that position myself, but I would do it that way under any circumstances. We have a lot of people who trust us, who really have disproportionate amounts of Berkshire compared to their net worth, if you were to follow standard investment procedures. And we want to make money for everybody, but we want to make very, very sure that we don't lose permanently money for anybody that buys our stock somewhere around intrinsic business value to begin with. We just have an aversion to having a million-plus shareholders, maybe as many as two million, and having a lot of them ever really lose money, if they're willing to stay with us for a while. And we know how people behave when the world, generally, is upset. And they want to be with something — I think they want to be with something they feel is like the Rock of Gibraltar. And we have a real disposition toward that group.

Fannie Mae and Freddie Mac should do more loans for manufactured housing, even if it hurts Clayton's profits

WARREN BUFFETTJonathan?

JONATHAN BRANDTFreddie Mac and Fannie Mae have new financing programs for manufactured home loans that I'm guessing could finally put purchasers of those homes who need mortgages on a somewhat more level playing field with those buying site-built homes. How positive an effect do you expect these new programs to have on manufactured home demand? And how might the programs affect Clayton's sizable profits from lending? Will Clayton sell more loans to Freddie and Fannie, and does that help profits even if spreads compress?

WARREN BUFFETTWell, it may not help profits, but it would — it definitely is good if the Freddie and Fannie are authorized to do more lending against manufactured homes. Manufactured homes are a very reasonable for people to get decent housing and have a home. And they are hard to finance to some degree. The local banks frequently do it, but the big lenders haven't wanted to do it. They are — There is the possibility, or the likelihood, that Freddie and Fannie are going to expand. We already sell — I don't know whether it's 10 million a month of loans or something like that — to Freddie and Fannie. But it would be very good for America, in my view, if Freddie and Fannie did more in that area. Obviously, we would sell some more homes, but we would lose financing, and we might come out behind, we might come out ahead. But I think it would a good thing to do. Charlie?

CHARLIE MUNGERWell, I think Freddie and Fannie will finance more and more homes, and I think they'll do it more and more of it through Clayton. And they'll do it because Clayton is very trustworthy, and will do a very good job at making good housing at cheap prices for people. And I think Clayton will get bigger and bigger and bigger as far ahead as you can see. And the guy's young, he doesn't look like Warren and me. Not at all.

WARREN BUFFETTWe've got a perfect managerial group at Clayton, and we're expanding our site-built homes. We just closed on a builder a couple — a few days ago. And we now have nine different — I believe — nine different site-built home operations, and we didn't have any a few years ago. And we think extraordinarily well of Kevin Clayton and his group. Our directors met last year in Knoxville and viewed the Clayton operation for the second time. So, we like the idea of Clayton expanding, and we like the idea of more people having very affordable housing. During the 2008 and '09 recession, our borrowers — who had very low FICO scores on average, I mean compared to typical home buyers, and they — if they kept their jobs, they made the payments. I mean, they wanted that home, and the home was an enormously important item to them. And we had various programs that helped them as well. But our loan experience was far better than people anticipated under the stress that existed then. But it was because a home really means something to people. And absent losing jobs or sickness — and, like I say, we have some programs to help people — they make the payments, and they have very decent living. But they would get that even cheaper if Freddie and Fannie expanded their programs. And, like I say, I hope they do.

"Ingenious" capitalism will replace jobs lost to automation

WARREN BUFFETTOK, station 2.

AUDIENCE MEMBERHi. Hi Warren, hi Charlie. My name is Carrie and this is my daughter, Chloe. She's 11 weeks. It's her very first Berkshire meeting. (Laughter) We're from San Francisco, and we have a question on employment for you. As both a major employer and a producer of consumer goods, what do you make of the uncertain outlook for good full-time jobs with the rise of automation and temporary employment?

WARREN BUFFETTWell, if we'd asked that question 200 years ago, and somebody said, "With the outlook for development of farm machinery and tractors and combines and so on —" meaning that 90 percent of the people on farms were going to be — lose their job — it would look terrible, wouldn't it? But our economy and our people, our system, has been remarkably ingenious in achieving whatever we have now — 160 million jobs — when throughout the period ever since 1776, we've been figuring out ways to get rid of jobs. That's what capitalism does, and it produces more and more goods per person. And we never know exactly where they're going to come from. I mean, it — I don't know if you were whatever occupation — well, if you were in the passenger train business, I mean, you know, you were going to — that was going to change. But we find ways, in this economy, to employ more and more people. And we've got now more people employed than ever in the history of the country, even though company after company in heavy industry and that sort of thing, has been trying to figure out, naturally, how to get more productive all the time, which means turning out the same number of goods with fewer people, or turning out more goods with the same number. That is capitalism. I don't think you need to worry about American ingenuity running out. I mean, if you look at people in all kind of businesses, and they like to make money, but they really like to be inventive, you know. They like to do things. And this economy, it works. It will continue to work. And it will be very — it's very tough in certain industries, and there will be dislocations. You know, we won't be making as many horseshoes and that sort of thing when cars come along and all that. But we do find ways now to employ whatever we're employing — 155, whatever it is — million people, and supporting a population of 330 million people when we started with 4 million people, with 80 percent of the labor being employed on farms. So, the system works and it will continue to work. And I don't know what the next big thing will be. I do know there will be a next big thing. Charlie?

CHARLIE MUNGERWell, we want to shift the scut work to the robots to the extent we can. That's what we were doing, as Warren said, for 200 years. Nobody wants to go back to being a blacksmith, or scooping along the street, picking up the horse manure, or whatever the hell people used to do. We're glad to have that work eliminated. And a lot of this worry about the future comes from leftists who worry terribly that the people at the bottom of the economic pyramid have had a little stretch when the people at the top got ahead faster. That happened by accident because we were in so much trouble that we had to flood the world with money and drive interest rates down to zero. And, of course, that drove asset prices up and helped the rich. Nobody did that because they suddenly loved the rich, it was just an accident, and it will soon pass. We want to have all this productivity improvement, and we shouldn't worry a little about the fact that one class or another is a little ahead at one stretch.

WARREN BUFFETTCharlie and I — (applause) — we worked in a grocery store. And when people ordered a can of peas, we had ladders that we climbed up to reach the can of peas, and then we placed it in a folding box, and then we put it on a truck. And if you looked at the amount of food actually transferred between the producer and the person who consumed it, and the number of people involved in the transaction, you know, it was — I don't know whether it was one-third or one-quarter or one-fifth as efficient as the best way now to get food delivered to you. And —

CHARLIE MUNGERAnd the food was worse.

WARREN BUFFETT(Laughs) And my grandfather, you know, was distressed about the fact that this particular credit and delivery kind of store would be eliminated. And it was eliminated, but society —

CHARLIE MUNGERIt's coming back.

WARREN BUFFETT—addressed the — pardon?

CHARLIE MUNGERIt's coming back.

WARREN BUFFETTIt's coming back, but more efficiently. (Laughter) Anyway, we've seen a little creative destruction. And frankly, we're glad that it freed us up to go into the investment business. Worked out better for us.

Regulations can be "irritating," but they're needed for banks and insurance

WARREN BUFFETTBecky?

BECKY QUICKThis question comes from Brian Gust of Grafton, Wisconsin. He's talking about regulators and politicians. It says, "The Berkshire Hathaway investment portfolio holds several large financial institutions that are heavily regulated and are politically charged. "Do you feel that, in some cases, the regulators and/or politicians are running the big banks instead of the CEO and the board of directors?"

CHARLIE MUNGERSure. (Laughter) But not too much.

WARREN BUFFETTNo, insurance has been regulated — it happens to be regulated primarily on a state basis — but insurance has been regulated ever since we went into it, and it hasn't — you know, when I looked at GEICO, it was doing 7 million of business. And, you know, it will do 30-odd billion of — billion — of business now. And it's been regulated the whole time. And regulation can be a pain in the neck, generally, but on the other hand, we don't want a bunch of charlatans operating in the insurance business. And insurance actually lends itself to charlatans because you get handed money and you give the other guy a promise. And I like the fact that there is regulation in the insurance business, or the banking business. It doesn't mean it can't drive you crazy sometimes or anything of the sort, but those businesses should be regulated. It — they're too important. And anytime you can take other people's money, and they go home with a promise and you go home with the money, I don't mind a certain amount of regulation in those businesses. Charlie?

CHARLIE MUNGERYeah. You're using the government's credit because you have deposit insurance, there's an implicit bargain. You can't be too crazy with what you do with the money. That's a perfectly reasonable — And I absolutely believe that we should have a regulation system that involves supervision of risk-taking by banks. It got particularly bad in the investment banks at the peak of the real estate crisis, and the behavior was — there's only word for the behavior — it was disgusting. And it was pretty much everybody. Warren, you — it's hard to think of anybody who stayed sane in that boom. They felt the other guy's doing dumb things, I've got to do it, too, or I'll be left out. What a crazy way to behave. And so, sure, there's some intervention, but there probably has to be.

WARREN BUFFETTYou want a Food and Drug Administration. Yeah. You'll be unhappy with how they do it, if you're in the business and all that, but — and, you know, I find any kind of regulation irritating. But nevertheless, it's good for the system. And actually, a number of regulators, you know, I would say that they've really been quite sensible about regulation. But you don't feel that way when you're being told how to run your business. But as Charlie says, you wouldn't want to be a bank that ran in an unregulated system where anybody could come in and do all kinds of things that would actually have consequences that drew you into the problems that they created themselves. We had the Wild West in banking long ago, and it produced a lot of problems in the 19th century.

Shareholders don't want or need very detailed information on the subsidiaries

WARREN BUFFETTJay?

JAY GELBFor the past several years, in Berkshire's annual shareholder letter, there's been increasingly less detail provided on its operating businesses and financial performance. For example, the company is no longer providing details on the finance and financial product segment, or a balance sheet for the manufacturing, service, and retail segment, or a breakdown of float by unit in the insurance business. For a company as large and diversified as Berkshire, why are investors being provided less information than previously?

WARREN BUFFETTWell, I don't think we actually provide less information. We may present it in a somewhat different form from year to year, just — and then this year, for example, you know, I started my letter, as usual, in my mind as saying, "Dear Doris and Birdie," my sisters, to tell them what I would tell anybody that had a very significant proportion of their net worth in Berkshire, who is intelligent, did not know all the lingo of our various businesses, that would read a lot of words, because they did have a large investment. So, if I explained anything, and did a decent job, that they would understand what I was talking about. And I tell them that in the language that I think will be understandable to a significant percentage of a million-plus people who have all kinds of different understanding of accounting and all that sort of thing. I tell them the information I would want to hear on the other side. Now, if I was a competitor, and I wanted to know what one of our furniture stores was earning or something of the sort, you know, I might love it, but it doesn't really make any difference. If you're talking about a $500 billion organization, if you understand our insurance business, in terms of giving you the picture, I think, in three or four or five pages — you know, actually we've got a whole bunch of stuff required by the SEC about loss reserve development. I think you can write a 300-page report that gives a whole lot less information than a 50-page report. And you lose people. So, I try to tell them — like I say, in my mind, it's my sisters — I try to tell them what I would tell them if we had a private business and they owned a third of it each, and I owned a third, and once a year, they like to get filled in. And they don't know what a combined ratio means because it's a dumb term that everybody uses. And the important thing is to call it a profit margin. They don't know what the operating ratio is in the railroad business, and it's an obsolete term. It'd be better to call that a profit margin. But the lingo — we're not writing it for analysts. We're writing it for shareholders, and we're trying to tell them something so they can make a — they can not only get the picture as to what we own now, but how we think about the operation, what we're trying to do over time. And we try to do the best job we can every year. And I don't think it — I think if somebody is terribly interested in the details, they really are missing the whole picture. Because you could have known every detail of our textile business in 1965, and we could give you the information as to how much we made from linings and how much we made from handkerchiefs, and you'd be in a different world. I mean, the important thing was how we looked at running money and what we would do about things over time. And it just — you could have gotten very misled — if you'd read it in 1980 or '85 and you looked for great detail on how See's candy was doing because they moved eastward, you know, we'll tell you that overall that failed, in terms of moving out the territory. But going into a whole lot of detail that might be very interesting to an analyst, but really for the shareholder, they've got to make a decision as to who's running their money, and how they're running it, and what they've done over time, and what they hope to do in the future, and how to measure that. And again, we're writing it for the individual. Charlie?

CHARLIE MUNGERWell, I suppose I should be watching every tiny little business down to the last nickel, but I don't. And I don't want that much detail. And I think our competitors would like it, and it wouldn't do our shareholders any good. So, we'll probably just keep reporting the way we do.

WARREN BUFFETTYou can see how flexible we are here. (Laughter)

Munger: "Climate getting better" for U.S. investments in China

WARREN BUFFETTStation 3.

AUDIENCE MEMBERHello, Mr. Buffett and Mr. Munger. I'm Sasha Xixi (PH) from China International Capital Corporation Limited. Last week, China announced 12 new measures further opening up the financial industry. All these measures will allow more invested institutions to enter into Chinese financial market, and to insure the policies of foreign investment to be consistent with those of domestic investment. What do you think about these new measures? Do you believe the foreign financial institutions will have more pricing power over the Chinese stock markets in the future? Do you have any plans to set up a company in China? If so, what time? Thank you.

CHARLIE MUNGERWell, we've got one now. Dairy Queen is all over China. (Laughter) And it's working fine. And we didn't wait for new laws. We did it under the old laws. But we're not that big, net, in China, right, Warren?

WARREN BUFFETTWe're not that big what?

CHARLIE MUNGERIn China.

WARREN BUFFETTNo, but we had something, you know, that could have happened that would have been quite sizable. But China, it's a big market, and we like big markets. I mean, we really can only deploy capital in a major way maybe in 15 or so countries just because of the size.

CHARLIE MUNGERBut generally, I think the climate is getting better. It really makes sense for the two countries to get along. Think of how stupid it would be if China and the United States didn't get along. Stupid on both sides, I might add.

WARREN BUFFETTYeah. We've done well in China. We haven't done enough, but — (Applause)

Buffett has "feeling" Brexit vote was a mistake, but he's still anxious for a U.K. deal

WARREN BUFFETTAndrew?

ANDREW ROSS SORKINWarren, this is a question from a member of the House of Lords in Westminster, who happens to be here today, who also is a shareholder of the company. This is Lord (Jitesh) Gadhia who says, "You've written, 'We hope to invest significant sums across borders. So, what's your appetite to invest in the U.K. and Europe, and how will Brexit impact that? And while we're at it, what's your advice for solving U.K.'s Brexit dilemma?" (Laughter)

CHARLIE MUNGERThat's yours, Warren. (Laughter)

WARREN BUFFETTWell, I can — I will tell you this. I mean, I gave an interview to The Financial Times, and I don't do that very often. But one of the considerations I have is that I would like to see Berkshire Hathaway better known in both the U.K. and Europe. And the FT audience was an audience that I hoped would think of Berkshire more often in terms of when businesses are for sale. Our name is familiar, I think, pretty much around the world in, at least, financial circles. But there is no question if anybody's going to sell a large business in the United States, they're going to think of Berkshire. They may decide, for other reasons, they'd rather do it differently. But they will think of Berkshire. And I don't think — I mean, obviously that is not as true around the world. We've had some very good luck with a few people that have thought of Berkshire, I mean, such as at ISCAR. And actually, Berkshire Hathaway Energy had one of its base holdings from way back was in the U.K. But I was looking, in doing that interview, I was willing to spend three hours with the FT reporters in the hope that when they write about — when they write the story — that somebody, someplace thinks of Berkshire that wouldn't otherwise think of it. And we'd love to put more money into the U.K. I mean, if I get a call tomorrow and somebody says, you know, "I've got an X-billion-dollar — pound — company that I think might make sense for you to own," and that I would like to actually have as part of Berkshire, you know, I'll get on the plane and be over there. But they'll have to name — they'll have to tell me what their price ideas are, and what its earnings — I'm not interested in going over and talking about it and pricing it for them and not making a deal. We like to make deals when we actually get into action. And we're hoping for it. And we're hoping for a deal in the U.K., and/or in Europe, no matter how Brexit comes out. I think it — I don't — I'm not an Englishman, but I have the feeling it was a mistake to vote to leave. But I don't think it's — I don't think it — it doesn't destroy my appetite in the least for making a very large acquisition in the U.K. Charlie?

CHARLIE MUNGERWell, all my ancestors came from northern Europe so I'm very partial to the place. On the other hand, if you asked me how I would vote on Brexit if I lived in Britain, I don't even know. It just strikes me as a horrible problem. And I'm glad it's theirs, not mine. (Laughter)

WARREN BUFFETTBut if I called you tomorrow and said we had a deal in U.K., you'd tell me —

CHARLIE MUNGEROh, I would go in, in a minute.

WARREN BUFFETTYeah.

CHARLIE MUNGERThose are my kind of people. I understand them.

WARREN BUFFETTYeah. (Laughter)

We don't need "boots on the ground" to find foreign acquisitions, we need lower prices

WARREN BUFFETTOK, Gregg. (Laughter)

GREGG WARRENYeah, Warren, just wanted to kind of maybe follow up on those past two questions, because there is sort of a theme there. It seems to me that there's definitely more of a home country bias when we look at the acquisitions and investments that Berkshire's done historically. And while there's definitely value in sticking with what you know and feel the most comfortable with, it seems like you've gone from a model that was originally focused on putting boots on the ground to find investment and acquisition opportunities to one where you're seemingly more content to have sellers or their representatives call you or drop by the office, basically more of a pull model than a push model. There's nothing wrong with this, but I just wonder, if the opportunity cost that comes with this type of model is that Berkshire misses out on a lot of overseas business where owners are unaware of your willingness to step up and buy them outright and allow them to run their companies under the Berkshire umbrella, and missing stock investment opportunities because Berkshire if not necessarily familiar enough with the local market. At this point, do you think Berkshire would benefit from putting more boots on the ground in these overseas markets?

WARREN BUFFETTYeah, we — actually, it must have been after we bought ISCAR, Eitan Wertheimer convinced me that we should get more exposure in Europe. And he helped out in doing that. I went over, he arranged various meetings. We've had a lot of contact. It isn't that they're not aware, and we do hear about some. But we do have the problem they've got to be sizable. I mean, if we do a billion-dollar acquisition, and it makes $100 million, or thereabouts, pretax, $80 million after tax, you know, it's — if we really know the business and we're sure we're not going to have a problem with the people running it being motivated in the future, and doing a similar job as to when they had their money in and everything, it's nice to add 80 million to 25 billion. But you can't afford to spend lots of time doing that. And we gain something by having Todd (Combs) and Ted (Weschler) do some looking at things, screening them and that sort of thing. But in the end, you want somebody that — you want some family that's held their business in Europe or in the U.K. for 50 or 100 years that can make a deal, and that wants to do it with Berkshire. I mean, if they're looking to get the most money, if they want to have an auction, we're not going to win and we're not going to participate because we're not going to waste our time on it. If we form an acquisition crew, they'll acquire something. I mean, I've watched so many institutions in operation that, you know, if your job every day is to go to work and screen a bunch of things with the idea that you're the strategic department or acquisition department, you're going to want to do something. I want to do something, but I don't want to do something unless — (laughs) — Berkshire benefits by it — truly benefits by it — and generally it's of a size.

CHARLIE MUNGERWarren, our problem is not a lack of boots on the ground, our problem is the people on the ground are paying prices that we don't want to pay.

WARREN BUFFETTYeah.

CHARLIE MUNGERThat's our problem. And that problem is not going to be cured by boots.

WARREN BUFFETTWe can spend $100 billion in the next year. That is not a problem.

CHARLIE MUNGERNo.

WARREN BUFFETTSpending it intelligently is a huge problem. And the —

CHARLIE MUNGEROur competitors are buying with somebody else's money, and they get part of the upside and take none of the downside.

WARREN BUFFETTAnd a lot of them —

CHARLIE MUNGERIt is hard to compete with people like that.

WARREN BUFFETTYeah. They'll leverage it up, they'll make a lot of money if it fails, and they'll make even more money if it succeeds. And that's not our equation.

CHARLIE MUNGERNo.

WARREN BUFFETTAnd that isn't always that way, but it's certainly that way now. It's probably —

CHARLIE MUNGERAnd it's not in the shareholders' interest that we get to be like everybody else.

WARREN BUFFETTYeah. (Applause)

We feel good about Berkshire as a long-term "compounding machine"

WARREN BUFFETTOK, station 4.

AUDIENCE MEMBERMr. Buffett and Mr. Munger, thank you so much for the wisdom you've shared with us over the years. This is Steven Wood from New York. And, Mr. Buffett, thank you very much for your feedback, your very generous feedback, last August on the book that I'm writing. I just had one follow-up, if I may. In studying the most significant value creators of all time, it is very evident that the major compounding effect happened later — at the later stages of the careers. Or, in (Cornelius) Vanderbilt's case, even beyond his own career. So, your recent investments have suggested to me that you are designing Berkshire to being a steady compounding machine that should continue to create value for a very long time. Would you both please elaborate on this compounding machine? And the machine's ability to continue to adapt to keep this value creation durable. And then is this legacy one of your sort of primary motivations when you wake up every day?

WARREN BUFFETTI would say it is the primary motivation, but it's been that for a very, very, very long time. No matter what was going right in my life, if things were going badly at Berkshire, I would not feel good, you know. I don't need to be spending my time working on something — (laughs) — that makes me feel bad about the results when we get through. And it's something that's doable. I mean, the culture is stronger now than it was 10 years ago, and it was stronger then than 10 years previously. It moves slowly, but it goes in the right direction. And when we get chances to deploy the capital, we've always tried to make any entity, whether it was the partnership originally, or Berkshire now, or Blue Chip Stamps when we owned it, or even Diversified (inaudible), we wanted them all to be compounding, in effect, be compounding machines. That's why people gave us capital. That's why we put our own capital in. And if we failed at it, we really felt like we'd failed. It didn't make any difference how much money we made from fees or anything like that, we knew what our yardstick was. And so that will continue. I think Berkshire is better situated than it's ever been, except for the fact that size is a drag on performance, and I probably wrote that 40 years — well, I wrote it, actually, when I closed the partnership to new money when we had like $40 million in it. I just said, really, that new — that additional capital would drag down returns from a $40 million base. So, you can imagine how I feel with a $368 billion — (laughs) — base of capital in Berkshire now. But this culture is special. It can work. It won't be the highest compounder, by a long shot, against many other businesses. I think it will be one of the safest ways to make decent money over time. But that will depend on the people that follow us. Charlie?

CHARLIE MUNGERWell, we came a long way from very small beginnings. And the fact that it slows down a little when it becomes monstrous is not my idea of a huge tragedy. And I think we will continue to do very well in the future. We had nothing like the energy operation, you know, 20 years ago, and it's a powerhouse. We had nothing like Kevin's (Clayton) operation in home building 30 years ago, and it will soon be the biggest — well, even now, it's bigger than anybody else in the country, you know, both of types of housing. Isn't it — houses? I think so. And we have a lot going for us, and I'm satisfied. I think it's going to continue reasonably.

WARREN BUFFETTAnd it would ruin our life if we did terribly. (Laughs) So, that's what we wake up thinking about in the morning. But I wouldn't want to be in a business where I was going to let down other people, and I think it would be crazy to do something like that, even if you weren't rich and 88. (Laughs) But we are motivated to have something that is regarded as something different than others, and we're actually — in a world where so much money is institutionalized, you know, I like the idea of having something that's actually owned by individuals in very significant part, who basically trust us and, you know, don't worry about what the next quarter's earnings are going to be. I think it's different than much of capitalism, and I think it's something that Charlie and I feel good about. Isn't it, Charlie?

CHARLIE MUNGERYeah, absolutely. (Applause)

Berkshire vs the S&P, with taxes thrown in

WARREN BUFFETTCarol?

CAROL LOOMISThis question comes from Stephen De Bode of Danville, California, and it raises a question I've certainly never heard before. "Mr. Buffett, in the past, you have recommended low-cost S&P — and again today — the S&P 500 Index funds as reliable, long-term investment vehicles. These funds have certain inherent structural advantages such as low costs, and automatic reshuffling of their holding. "But Berkshire also has certain structural advantages, such as financial leverage from the float, and diverse capital allocation opportunities. I think of Berkshire as being ahead in this game. "For example, it seems to me that if Berkshire's overall operating business and investment performance were to exactly match the total return of the S&P Index over a 10-year period, Berkshire's growth in intrinsic value would outperform the S&P 500. "If you agree, could you estimate by how many percentage points?"

WARREN BUFFETT(Laughs) Well, the answer is, I won't estimate anything. But the — if we just owned stocks, and we owned the S&P, our performance would be significantly worse than the S&P because we would be incurring a corporate tax, which would now be 21 percent on capital gains, plus possibly some state income taxes. And effectively, our tax rate on dividends is — depends where they're held — but somewhere between 10 1/2 or 11 and 13 percent. So, Berkshire is a mistake — or it's at a corporate disadvantage simply by the way the tax law runs, compared to owning an index fund, which has no tax at the corporate level, but just passes through to shareholders. So, I wouldn't — I don't know whether we'll outperform the S&P 500 or not. I know that we'll behave with our shareholders' money exactly as we would behave with our own money. And we will have — we'll basically tie our fortunes in life to this business, and we will be very cognizant of doing anything that can destroy value in any significant way. But we will probably — If there were to be a very strong bull market from this point forward, we would probably underperform during that period. If the market five years from now or 10 years from now is at this level or below, we will probably overperform. But I don't think that I want to — I don't quite understand the question in terms of when it said the total return of the S&P over a 10-year period and Berkshire's growth in intrinsic value would outperform. I don't know whether that will happen or not. Charlie?

CHARLIE MUNGERWell, there would be one big advantage for the shareholders that pay taxes, and that is that the Berkshire shareholders, even if we just matched the S&P, we'd be way ahead after taxes. We all have a pretty decent role in life and a pretty good position. We shouldn't be too disappointed.

WARREN BUFFETTNo. If we — we could have structured — going back to partnership days — we could have structured things so that actually, over a period of time, doing the same things we did, would have actually come out somewhat more favorably for shareholders if we had kept it to the original partnership group. But the present form hasn't worked badly, although we have had periods when our corporate capital gains tax, as opposed to the individual, I think it got up to 39 percent a couple of years or one year, and certainly was 35 percent for a long time. And then, on top of that, we had the state income taxes in some cases. And they exceeded — well, I mean, if you owned a pass-through fund, you did not have that level of possible double taxation. Now, if you hold your stock forever, you don't pay it. But if you actually sell your stock, you've had a double tax effect. We're not complaining in any way, shape, or form. This country has treated us incredibly well, and we've added this huge tailwind, which I wrote about in the annual report. And it wouldn't have happened in any other country. So, we've been very lucky that we've been operating in this country at this time. Charlie, anything?

CHARLIE MUNGERNo.

How NV Energy is working to recover from casino defections

WARREN BUFFETTJonathan?

JONATHAN BRANDTIn Nevada, several casinos have cut the cord with our NV Energy subsidiary and are seeking their electricity needs elsewhere, even though they had to pay huge exit fees. I have three questions about this phenomenon. One: do you believe that these are rational choices, or were they made for non-economic reasons? Two: what can NVD do, if anything, to stem the tide of defections? And, three: is this something that could happen in other states where you operate regulated utilities? Or is the situation in Nevada somehow unique because of super-sized customers that have more leverage in the power market than smaller industrial customers in other states? And I don't know whether that's a question for you or Greg, but I'd be happy to hear from either of you.

WARREN BUFFETTIt's a question for Greg. (Laughter)

GREG ABELThanks, Jonathan. So just for everybody, I think they heard the question from Jonathan, but we've owned the utility there for approximately five years. When we inherited the utility, we knew it had some fundamental issues around its customers. The relationships were really strained from day one because they'd had a history of continuing to increase rates, and they really weren't delivering renewable energy or meeting the customers' needs or expectations. So, we knew we had some challenges there. As we sit here today, we've had five customers leave our system. Those customers still use our distribution services. So, the only thing we do not provide them is the power. So, we have lost an opportunity to sell them power, and we've lost the associated margin on that. And we are disappointed with that. We do recover, you know, substantial fees, as you noted. How the commission looked at it was, "Well, you lose this customer; we'll give you effectively six years of profit on that. And by then, you should have grown back into your normal load." And actually, it's a fair outcome. Our load is higher than it was relative to when those customers have left. So, we've grown through that, and it's consistent with their belief. The fundamental issue, and you've touched on it, why are they leaving? There are economic reasons for them leaving. And the fundamental reason is, in year seven, they no longer bear sort of the societal costs that are being imposed by the state. They don't have to bear the costs of renewable energy. They don't bear the costs of energy efficiency. And they viewed it as sort of the time to exit out of that model. We do have a variety of legislation that's going to levelize the playing field. We've had a number of customers that announced they were leaving now who've entered into long-term agreements with NV Energy. And I really do believe our team has the right model, which is we're much more focused on delivering a great value proposition to our customers. So, it has to include price. But equally, we're building substantial renewable energy there now. And long term, our team will deliver a great proposition to them, and I think NV Energy will prosper in the long term. We're going to be happy with it as a long-term investment. Thank you.

WARREN BUFFETTGreg, could you give them, give the audience a rough approximation of what, say, in the 10 years or whatever it may be before we bought Nevada Power, what had happened with rates; what had happened with rates under us; and what has happened with coal generation under us?

GREGRight. Yeah. Yeah, that's great. So, you know, Warren's really expanding on what are — the focus we've brought to delivering something to the customer. So, if you'd looked at the prior ten years, they pretty much had a rate strategy that, every second year, their rates would go up sort of by the cost of inflation. And that pretty much materialized year after year. We came in immediately, just like we've done in Iowa — so we've built all that renewable in Iowa, and we've never increased rates since the date we acquired it, 1999. So, rates have been stable, and we don't ever see raising rates in Iowa till probably 2030 or 2031. Our team took a very similar approach in Nevada, which was to, you know, stabilize it. So, rates are down probably 5-7 percent since we've owned them. So, we haven't had rate increases. We've announced substantial rate increases (decreases) again that will take effect every two years. So just like we used to be able to have rate increases, we have a few of when we'll decrease their rates. Their rates will go down again in 2002. We've — pardon me, in two years. And then on top of that, there's been an approach to eliminate coal, as Warren touched on. So fundamentally, when we acquired it, all their coal fleet was operating. We've retired a substantial portion of the coal fleet already. And by, I believe it's within a year of this, 2023, we'll have eliminated 100 percent of their use of coal in that state. And it was a substantial portion of their portfolio in the past. So — (applause) — team's done a great job. Thank you.

WARREN BUFFETTCharlie, have anything?

CHARLIE MUNGERNo.

Portfolio managers Weschler and Combs roughly matching the S&P but making other contributions

WARREN BUFFETTStation 5.

AUIDIENCE MEMBERYes, hi. My name is Aaron Lanni. I'm a portfolio manager at a company called Medici out of Montreal, Quebec. My question is actually for Todd (Combs) and Ted (Weschler), if possible. So according to Warren, you lagged slightly behind the S&P 500 since joining Berkshire. So what recent changes, if any, have you implemented to increase your odds of beating the S&P in your respective stock portfolios over the next 10 years?

WARREN BUFFETTYeah, I'm not sure whether Todd or Ted are here, but they — I will tell you, but then — I'll make this the final report on it. But on March 31st, actually, one is modest ahead, one is modestly behind. But they are extraordinary managers. It has not been — it was a tough — it's been a tough period to beat the S&P and, like I say, one of them is now ahead of the S&P over that period, one's modestly behind. They've also helped us in just all kinds of ways. What Todd has done in connection with the medical initiative, we have — with J.P. Morgan, Amazon, I mean, I don't know how many hours a week he's worked totally on that. The things they've brought to me, what Ted did in terms of the Home Capital Group where we have essentially, in a major way — well, we stabilized a financial institution that was under attack and experiencing runs in Canada. And he did the whole thing. I heard about that on a Monday, and on Wednesday, we put an offer before the company. And previously to that, they probably had dozens and dozens of people combing over them and, meanwhile, they were struggling. And, you know, it was remarkable what he did and I think it's appreciated in the Toronto area. So, we are enormously better off because the two are with us. And while we have that measurement, like I say, I'll just put it this way, they're doing better than I am anyway. So, if you ask me to report on them all the time, I'll have to report and myself all the time, and I'm not — (laughs) — that would be embarrassing compared to how they do. They do better. They're very, very smart. They've been smart with their own money over the years. They've been smart in running other people's money over the years. And they've made us a lot of money, but they made it during a market where you'd have made a lot of money in S&P as well. Charlie?

CHARLIE MUNGERNo, I'm fine.

Power of American Express's brand will help fend off heavy credit card competition

WARREN BUFFETTOK. Becky?

BECKY QUICKThis question comes from Leiders Luff (PH), Yosis Luff (PH), and Dan Gorfung (PH) of Israel. And they write to both Mr. Buffett and Mr. Munger, "Do you think that AmEx's share of mind is enough to win the credit cards race? How do you see AmEx's competitive position now compared to the past? And who is the most threatening competitor now, compared to the past?

WARREN BUFFETTYeah, everybody's a competitor, including now Apple. It has just instituted a card, I guess, in conjunction with Goldman Sachs. Everybody — there will always be, in my view, many, many competitors in the business. Banks can't afford to leave the field. It's a growing field. They build up receivables on it. But I wouldn't think of the credit card business as a one-model business any more than I would think of the car business as essentially being one model. I mean, Ferrari is going to make a lot of money, but they're going to have just a portion of the market. Well, AmEx is growing around the world with individuals, it's growing around the world with small businesses. You just saw the contract they made with Delta — which is probably the ideal partner— that runs, what, for eight or nine, whatever it may be, nine or 10 years, actually. You know, the billings go up per capita, they go up — the coverage spreads. And they're going to have loads of competition, and they always will. But they had — you know, that's something — J.P. Morgan, you know, took on the Platinum Card. It was a competitor, and the Platinum Card had the highest renewal rates that they've had. And they increased the price I think from 450 to $550 during a competitive battle, and retention improved, and new business improved, and 68 percent or so of the new business was millennials. I mean, it is a — it is not an identical product with anything else. And as a premium card, it has a clientele which is large. It may only be — it may be X percent of the market, it may be three-quarters of X percent, or whatever it may be. It isn't for the person that likes to have five cards and look every day at which one provides the most rewards that day or in what gas stations or something of the sort. But it's got a very large constituency that has a renewal rate, a usage rate, that's the envy of everybody else in the industry. So, I like our American Express position very well. Charlie? Charlie, anything on American Express?

CHARLIE MUNGERNo. (Laughter) No, I think we own the world as long as the technology stays the same.

WARREN BUFFETTNo, we — it's an interesting thing.

CHARLIE MUNGERI have no opinion about technology.

WARREN BUFFETTThis year — (laughter) — the technology is not the whole thing. I mean, you know, fortunately. I mean, it — If you look at credit card usage, there are a lot of different things motivating different people to use different various types of payment systems. And there's a lot of them that are growing. There are some of them that are marginal. And American Express is an extraordinary operation. And I think this year, our share of the earnings — well, by next year, our share of the earnings of American Express will be equal to the cost of our position. We'll be earning a hundred percent on what that position cost us, and I think it will grow. And I think the number of shares will go down and our interest will go up without us laying out a dime. So, it's —

CHARLIE MUNGERAs you say, we own the world if it doesn't change.

WARREN BUFFETTWell, even if it changes some. The world has changed a lot. American Express was formed in 1850.

CHARLIE MUNGERNo, I'm talking about WeChat.

WARREN BUFFETTYou can talk about all kinds of competitors, but —

CHARLIE MUNGERYeah.

WARREN BUFFETTBut the — American Express actually was an express company, formed in 1850, like I say, by Wells and Fargo, of all people. And, you know, for a while they carried these big trunks around of valuables. And then the railroads came along and that wasn't going to work very well anymore, so they went into traveler's checks. And it's a very interesting thing. In 1950, when I was living at 116th and Broadway, they were down at 65 Broadway, and they were the most important name in travel. They were synonymous with the integrity of their traveler's checks. And the whole company, in a record year for travel, earned $3 million. $3 million. What a bond trader earns now in my lifetime, that's what they've done with — and their hand going in was the traveler's check, which has more or less disappeared. But American Express, the power of that brand, intelligently used, going into the credit card business, where they entered much later than the Diners Club, later than Carte Blanche, but they came to dominate the luxury end of the credit card business. It's a fantastic story, and I'm glad we own 18 percent of it.

Occidental came to us for a $10B loan because we could do it quickly

WARREN BUFFETTOK, Jay?

JAY GELBActually, I'm going to ask something about Occidental Petroleum. I'm surprised it hasn't been asked yet. So, Berkshire has committed to providing $10 billion in financing in the form of an 8 percent preferred share and attached warrants for Occidental's proposed acquisition of Anadarko. This is the first time Berkshire has committed to such a large preferred share investment since the acquisition of Heinz in 2013. What did you find attractive about the Occidental deal, in terms of its business? And should we expect other large financing transactions in the future, as a way for Berkshire to deploy a portion of its excess cash?

WARREN BUFFETTI don't think the Occidental transaction will be the last one we do. (Laughs) There may be one, you know, in a month. They may be one three or four years from now. It won't be identical. I hope it's larger. But the point is, we're very likely to get the call because we can do something that really I don't think — no institution can do it. I mean, they've got committees that have to pass on it, and they want to have so-called MAC clauses, Material Adverse Changes. They want to do this and that. And if somebody wants a lot of certain money for a deal, you know, they've seen that I can get a call on Friday afternoon, and they can make a date with me on Saturday, and on Sunday, it's done. And they absolutely know that they have $10 billion and we're not going to tell them how to structure their transaction or do anything else. They've got it. And there will be times in the future when something, not identical, but similar, comes along, and we're the one to call. And I hope its larger than 10 billion. But — It could be — it could be we'll do — you know, in the next five years. It could be we'll do a lot of money, additional money in things similar to this, not identical. And it could be that nothing will happen. But if there are any $10 billion, or $20 billion, or maybe even $50 billion two-day transactions, if there are any in the world, believe me, they'll think of Berkshire Hathaway for sure in terms of what number to call. Charlie?

CHARLIE MUNGERWell, I like it. (Laughter)

WARREN BUFFETTI called Charlie as soon as we made the — I called Ron Olson first because I was worried that he might have a conflict. And in about ten minutes, he had — I told him we — it had to be done by Monday night. And Cravath was being told the same thing by Occidental. And it was very late on Monday light, but all the papers were put in order. And Munger, Tolles was in Los Angeles, and Cravath was in New York, and I was in Omaha. And I didn't do that much; Mark Hamburg did a lot of the work. He was at work on Sunday on other things when I went down (laughs) to meet with the Occidental people. And it was the product of people who understood us, understood how we operate, and both with an incentive to put all the manpower necessary on the job. And like I say, I think their board of directors met at 10 o'clock on Monday night to approve it. But they could announce it Tuesday morning, and that's what they wanted to do. And with Berkshire, they could do it.

We have no formula for assessing risk

WARREN BUFFETTOK, station 6.

AUDIENCE MEMBERGood afternoon, my name's Tony McCall and I'm from Montgomery, Alabama. And my question is about your disciplined risk evaluation approach and how you balance that with the fact that perseverance and determination and grit are often necessary for success.

WARREN BUFFETTWell, I'm not — I certainly like determination and grit in the — with the people we work for. But we don't have any formula that evaluates risk, but we certainly make our own calculation of risk versus reward in every transaction we do. And that's true whether it's marketable securities, that's true whether it's private investments, that's true whether it's making an investment in a business. And sometimes we're wrong, and we're going to be wrong sometimes in the future. You can't make a lot of decisions in this business without being wrong. But we don't think the procedure — or the results — would be changed favorably by having lots of committees and lots of spreadsheets and that sort of thing. It just — you know — If I had a group under me, they would try and figure out what I wanted the answer to be, and they would tell me what I wanted to hear. And I've watched that approach at 20 public companies. And what the CEO wants to do, they may spend a lot of time getting there, but the investment banker gets there, and the internal committees get there, — or the internal operations — get there. The calculations are — it's the same as the insurance business with Ajit (Jain). Ajit gets calls on insurance deals, and you have to think through that deal. The main thing is you have — are you reasonably sure that you know what you're doing? And if it gets past that hurdle, then we go on to figure out the math of gain versus loss and how much loss we can afford to take in anything. And we're willing to take what sounds like large losses if we think that the rewards are more likely and proportional. Charlie?

CHARLIE MUNGERI've got nothing.

WARREN BUFFETTIt's very disappointing — we have no formulas around Berkshire. We don't sit down and write a bunch, you know — have people work till midnight calculating things and putting spreadsheets together. And if the hurdle rate is 15 percent or something, having them all come out at 15.1 or 15.2, because that's what's going to happen. I mean, you're going to get the numbers you want to hear and to an extreme degree.

Buffett describes some of the dishonest business propositions it gets

WARREN BUFFETTThe proposals we see from the investment world — I've got to tell you about one because it illustrates what goes on. We received a proposition the other day — and I'll disguise the numbers a little bit so somebody can pick it out — but it was a private company, and we'll say it was earning a hundred million dollars a year. But the seller of the business and the investment banker suggested that we should look at the earnings as being 110 million dollars a year, because as a private company they had to pay their top people in cash, which was expensed. But we could pay them in stock options and things like that, which weren't expensed, or were explained as not really counting and therefore we could report 110 million dollars if we gave away something we didn't want to give away. But by essentially — by sort of lying about our accounting, we could add 10 million dollars in earnings, and they wanted us to pay them because they couldn't do it and we could do it. And therefore — at this point, they're losing me of course, totally. But it — it's just astounding the accounting games that are played. All the adjustments are why the place should really be — will be — earning more than before. It's a business. We also had one that came in from a private equity firm and by a mistake we got the email that was sent to the manager from the email from the private equity firm that owned it, to the manager, in terms of making projections for it. And they told them to add 15 percent because they said Buffett will discount it by 15 percent or 20 percent anyway. (Laughs) So just add 15 percent to offset his conservatism. You know, it's not an elegant business, as Charlie will tell you. (Laughter) You have any better stories, Charlie? (Laughter)

CHARLIE MUNGERIt's bad enough.

WARREN BUFFETTOK, Andrew —

CHARLIE MUNGERIt's really very bad enough.

ANDREW ROSS SORKINThank you, Warren. I think it's —

CHARLIE MUNGERWhy do we want our leading citizens lying and cheating?

Buffett would bet against a car company like Tesla being able to compete on auto insurance

WARREN BUFFETTAndrew?

ANDREWI believe it's my final question and admittedly it's a two-parter, but it's the same topic. Elon Musk says that Tesla will start to offer insurance for its cars and can price it better than a typical insurance company because of the data it collects from all of the vehicles on the road. You've talked about the threat of autonomous vehicles on the insurance business. But what about to GEICO of automobile themselves getting into the insurance business? And on a very similar topic, Tesla recently announced that they are shifting to an online-only sales model. And several traditional auto dealerships are also reducing their property holdings as car buyers increasingly use smart phones and the internet to shop for cars. What does this portend for Berkshire Hathaway Automotive?

WARREN BUFFETTYeah. Actually, General Motors had a company for a long time called Motors Insurance Company and various companies have tried it. I would say that the success of the auto companies getting insurance business are probably about as likely as the success of the insurance companies getting into the auto business. (Laughter) I worry much more about Progressive than all of the auto company possibilities that I can see, in terms of getting insurance business. It's not an easy business at all. And I would bet against any company in the auto business being any kind of an unusual success. The idea of using telematics, in terms of studying people's drivers habits, that's spreading quite widely. And it is important to have data on how people drive, how hard they break, how much they swerve, all kinds of things. So, I don't doubt the value of the data but I don't think that the — the auto companies will have any advantage to that. I don't think they'll make money in the insurance business. Using the internet to shop for cars is like, you know, using the internet for shopping for everything. It's another competitor. And there's no question that people will look for better ways. The gross margin on new cars is about 6 percent or thereabouts. So, there's not lots of room in the game. But that will be a method and that will sell some cars. And if there are, you know — it's another competitor. But I don't think it destroys the auto dealer who takes good care of the customers and is there to service the customers. It's not an overwhelming threat, but it's obviously something that's going to be around and will sell some cars. Charlie?

CHARLIE MUNGERAgain, nothing. (Laughter)

Buffett: I'm betting all my wealth on the survival of Berkshire's culture

WARREN BUFFETTOK. Gregg?

GREGG WARRENWarren, a lot of Berkshire's success over the years has come from the fact that you and Charlie have had the luxury of being patient, waiting for the right opportunities to come along to put excess capital to work, even if it has led to a buildup of large amounts of cash on the balance sheet. This has historically worked out well for shareholders, as you and Charlie have been able to take full advantage of the disruptions in equity and credit markets or special situations like we saw with the Oxy deal, to negotiate deals on terms that ultimately benefit Berkshire shareholders. That said, there is an opportunity cost attached to your decision to hold onto so much cash, one that investors have been willing to bear, primarily by forgoing a return of excess capital, dividends, and share repurchases, as well as seeing lower returns on cash holdings. As we look forward, how certain can we be that this will still be the case once you're no longer running the show, especially if Berkshire's returns are expected to be lower over time. And is it not more likely that the next managers at Berkshire will have to manage the eventual migration of Berkshire from an acquisition and investment platform to a returning capital to shareholders vehicle?

WARREN BUFFETTYeah. Well, that's certainly a possibility. I mean, that's a possibility under me. It's a possibility under the successor. I mean, it's a question of can you invest truly large sums reasonably well. You can't do it as well as you can do small sums. There's no question about that. But we will have to see how that works out over many years because certain years lots of opportunities, huge opportunities, present themselves and other years there are totally dry holes. So that's not a judgment you can make in a one-year period or a three-year period. It's certainly a judgment you can make over time though. And I personally — my estate will have basically nothing but Berkshire in it for some time as it gets disbursed to philanthropies. And I have a section in there which says to the trustees, in effect, to manage it — I have a section in there that says — ignore the — your exempt, from my standpoint, from the law that trustees normally should diversify and do all that sort of thing. And I want the entire amount that they have to be kept in Berkshire as they distribute it over time to the philanthropies. And I don't worry at all about the fact — I would like to have a very large sum go to the philanthropies, and I don't worry at about the fact that it essentially will all be in Berkshire. And I'm willing to make that decision while I'm alive, which will continue for some years after I die. So, I have a lot of confidence in the ability of the Berkshire culture to endure and that we have the right people to make sure that that happens. I'm betting my entire net worth on that. And that doesn't give me pause at all. I rewrite my will every few years, and write it the same way in respect to the Berkshire holdings. Charlie?

CHARLIE MUNGERI don't own any indexes. And I have always been willing to own just two or three stocks. And I have not minded that everybody who teaches finance in law school and business school teaches that what I'm doing is wrong. It isn't wrong. It's worked beautifully. I don't think you need a portfolio of 50 stocks if you know what you're doing. And I hope my heirs will just sit.

WARREN BUFFETTMy heirs hope that I'll change my will. (Laughter)

"Having the right partners in life is enormously important"

WARREN BUFFETTOK, station 7.

AUDIENCE MEMBERHi. Good afternoon, Mr. Buffett and Mr. Munger. My name is Bill He (PH), and I'm from Vancouver, Canada. You two make up an iconic duo. And growing up, I found your investment strategies very admirable. And so, my question is, how do you deal with conflicts when they arise between the two of you?

WARREN BUFFETTAre you applying personal conflicts in terms of doing something ourselves versus having Berkshire, do it? Or — oh, between the two of you. I'm just in — Charlie and I literally, and people find this hard to believe, but in 60 years we've never had an argument. We have disagreed about things and we'll probably keep occasionally disagreeing about this or that. But if you define an argument as something where emotion starts entering into it, or anger or anything of the sort, it just doesn't happen. I think that Charlie is smarter than I am, but I also think that there are certain things where I've spent more on them than he has. And sometimes we both think we're right. And generally, I get my way because Charlie is willing to do it that way and he's never second-guessed me when things have been wrong. And I wouldn't dream of second-guessing him if he were doing something that was wrong — that turned out to be wrong. We will never have a conflict, basically. Charlie?

CHARLIE MUNGERWell, the issue isn't how long — how we get along, the issue is how is the company going to work when we're gone? And the answer is fine. It's going to work fine.

WARREN BUFFETTWe're lucky that, you know, I ran into him when I was, what, 28 years old. And — we both worked in the same grocery store and he grew up less than a block away from where I now live and everything. But I did not know who Charlie Munger was — (laughs) — until I was 28. But clearly, we're in sync in how we see the world. And we're in sync on business decisions, basically. Charlie would do fewer things than I would, but that's because I'm spending my time on this while he's designing dormitories or something. (Laughter) And we both keep busy in our own ways. And we have a lot of fun dividing the labor like we do. But you really want to work — I mean, having the right partners in life, particularly the right spouse, but having the right partners in life is enormously important. I mean, it's more fun with a partner, both in personal life and in business life. And you probably get more accomplished, too. But you just have a better time. It would not be any fun to do work in a little room and make a ton of money trading around securities but never working with another human being. So, I recommend finding — well, Charlie gave some advice in the movie, finding the best person that will have you or something like that. (Laughs) Sort of a limited objective.

CHARLIE MUNGERBut it's not hard to be happy if you're a collector and don't run out of money. Collecting is intrinsically fun. Just think who — how many people who you've known your whole life who were collectors who didn't run out of money, who weren't happy collecting? That's why we've been collecting all our lives. You know, it's a very interesting thing. There's always a new rock to be turned over. And it's interesting.

WARREN BUFFETTYeah. And in a certain way we've collected friends that make our lives better and that we have a good time with. And it's very important, you know, who you select as your heroes or friends. And I've been lucky in this. I mean, it was only because of the doctor named Eddie Davis and his wife that Charlie and I even met. But if you keep doing enough things, some will work out very lucky. And the best ones are ones that involve lifelong involvement with other people. We've got some in our directors, a number of our directors, that have had similar impacts on me. So, I recommend that you look for somebody better than you are and then try to be like they are.

CHARLIE MUNGERIt's funny, you know, we've lost people along the way. And when I lost Warren's secretary I thought, "Oh, my God. She was so wonderful. Gladys (Kaiser). We'll never get another one." Becki (Amick) is better. (Laughter) And then we had Verne McKenzie, who was a wonderful chief financial officer. He's gone and the current incumbent (Marc Hamburg) is better. We've been very lucky. And maybe the shareholders will be lucky a few more times. (Laughter)

Expand you circle of competence if you can, but don't force it

WARREN BUFFETTOK. Station 8. (Laughter)

AUDIENCE MEMBERHi, Warren. Hi, Charlie. My name is Jacob (PH). I'm a shareholder from China and also a proud graduate of Columbia Business School. Thanks for having us here. (Cheers) My question is, our world is changing at a faster pace today versus 40 years ago and even more so going forward. And in this context, for each of us individually, should we expand our circle of competence continuously over time? Or should we stick with the existing circle but risk having a shrinking investment universe? Thank you.

WARREN BUFFETTWell, obviously you should, under any conditions, you should expand your circle of competence —

CHARLIE MUNGERIf you can.

WARREN BUFFETTIf you can. Yeah. (Laughter) And I've expanded mine a little bit over time. But —

CHARLIE MUNGERIf you can't — I'd be pretty cautious.

WARREN BUFFETTYeah. You can't force it. You know. If you told me that I had to, you know, become an expert on physics or, you know —

CHARLIE MUNGERDance maybe the lead in a ballet, Warren. That would be a sight. (Laughter)

WARREN BUFFETTYeah, well. That's one I hadn't really —

CHARLIE MUNGER(Inaudible) now.

WARREN BUFFETTThat's one you may be thinking about, but I— (laughter) — it hadn't even occurred to me. (Laughter) But, you know, it's ridiculous. That doesn't mean you can't expand it at all. I mean, I did learn about some things as I've gone along in a few businesses. In some cases, I've learned that I'm incompetent, which is actually a plus, then you've discarded that one. But it doesn't really — the world is going to change. And it's going to keep changing. It's changing every day. And that makes it interesting. You know. And as it changes, certainly within what you think is your present existing circle, you have to — you should be the master of figuring that one out or it really isn't your circle of competence. And if you get a chance to expand it somewhat as you go along — I've learned some about the energy business from Walter (Scott) and Greg (Abel) as we've worked together, but I'm not close to their level of competence on it. But I do know more than I used to know. And so, you get a chance to expand it a bit. Usually, I would think normally your core competence is probably something that sort of fits the way the mind has worked. Some people have what I call a "money mind." And they will work well in certain types of money situations. It isn't so much a question of IQ. The mind is a very strange thing. And people have specialties, whether in chess or bridge. I see it in different people that can do impossible — what seem to me — impossible things. And they're really kind of, as Charlie would say, stupid in other areas — (laughs) — you know. So just keep working on it. But don't think you have to increase it and therefore start bending the rules. Anything further, Charlie?

CHARLIE MUNGERNo.

It's easy to make 50% on a million, but much more difficult on larger amounts

WARREN BUFFETTStation 9. We're just about — yeah, we got time for a couple more.

AUDIENCE MEMBERMy name is John Dorso (PH), and I'm from New York. Mr. Buffett, you've said that you could return 50 percent per annum, if you were managing a one-million-dollar portfolio. What type of strategy would you use? Would you invest in cigar butts, i.e., average businesses at very cheap prices? Or would it be some type of arbitrage strategy? Thank you.

WARREN BUFFETTIt might well be the arbitrage strategy, but in a very different, perhaps, way than customary arbitrages, a lot of it. One way or another, I can assure you, if Charlie was working with a million, or I was working with a million, we would find a way to make that with essentially no risk, not using a lot of leverage or anything of the sort. But you change the one million to a hundred million and that 50 goes down like a rock. There are little fringe inefficiencies that people don't spot. And you do get opportunities occasionally to do. But they don't really have any applicability to Berkshire. Charlie?

CHARLIE MUNGERWell, I agree totally. It's just you used to say that large amounts of money, they develop their own anchors. You're just — it gets harder and harder. I've just seen genius after genius with a great record and pretty soon they got 30 billion and two floors of young men and away goes the good record. That's just the way it works.

WARREN BUFFETTWhen Charlie —

CHARLIE MUNGERIt's hard as the money goes up.

WARREN BUFFETTWhen Charlie was a lawyer, initially, I mean, you were developing a couple of real estate projects. I mean, if you really want to make a million dollars — or 50 percent on a million — and you're willing to work at it — that's doable. But it just has no applicability to managing huge sums. Wish it did, but it doesn't.

CHARLIE MUNGERYeah. Lee Louley (PH), using nothing but the float on his student loads, had a million dollars, practically, shortly after he graduated as a total scholarship student. He found just a few things to do. And did them.

We've tried, but See's Candies gets no traction outside California

WARREN BUFFETTOK. Station 10.

AUDIENCE MEMBERHello, Warren and Charlie. I'm Luis Cobo (PH) from Panama. I'm a proud Berkshire Hathaway shareholder since 10 years ago. I've been looking at See's Candies, and I'm a pretty good fan of them. And I see Charlie is as well throughout our meeting. And even with all our consumption — and you know, the company has given us generous profits over the past decades. Why do you think the company has not grown to the scale of Mars or Hershey's, and what do you think we could do to make this company grow and become a bigger part of our company, being such an amazing product?

WARREN BUFFETTWell, we've probably had a dozen or so ideas over the years. And we used to really focus on it because it was a much more sizable part of our business. In fact, it was practically our only business aside from insurance. And like I say, we've had 10 or 12 ideas. Some of them we tried more than once. And as we got a new manager they've tried them. And the truth is none of them really work. And the business is extraordinarily good in a very small niche. Boxed chocolates are something that everybody likes to receive, or maybe give it as a gift, both sides of it. And relatively few of the people go out and buy to consume themselves. If I leave a box of chocolates open at the office — we've only got 25 people — but it's gone, you know, almost immediately. If I take it as a gift to somebody, they're happy to get it. And if you leave the box open at a dinner party again, they're all gone. But those same people that so readily grab it when it's right there in front of them, do not walk out to a candy store very often and buy it just to eat themselves. They're not going to buy. It's very much a gift product. It does not grow worldwide. Very interesting thing. People in these — last time I checked, people in the west prefer milk chocolate, people in the east prefer dark chocolate. People in the west like big, chunky pieces. People in the east will take miniatures. We've tried to move it geographically many, many, many, many times. Because it would be so wonderful if it — when it works it works wonderfully. But it doesn't travel that well. If we open a store in the east, we get enormous traffic for a while and everybody says, "We've been waiting for you to come." And then it finally — we end up with a store that does X pounds per year when we need one and a half X in the same square footage to make terrific returns. And we've tried everything because the math is so good when it works. And overall, we have a business that doesn't — chocolate consumption generally doesn't grow that much. But yeah, go ahead Charlie —

CHARLIE MUNGERYeah, well, we failed in turning our little candy company into Mars or Hershey's for the same reason that you fail to get the Nobel Prize in physics and achieve immortality. (Laughter) It's too tough for us. (Laughter)

WARREN BUFFETTBut we put 25 million dollars into it. And it's given us over two billion dollars of pre-tax income, well over two billion. And we've used it to buy other businesses. And if we were the typical company and had bought that business and tried desperately to use all the retained earnings within the candy business I think we'd have fallen on our face. I think that it just illustrates that all these formulas, you know, you learn or that having a strategic plan to use all the capital or something — some businesses work in a fairly limited area. Others really play out over this — Dr. Pepper, you know, has — I don't know what the percentage is now, but it might be at 10 or 12 percent market share or something like that in Dallas or maybe it's eight. And then you go to Detroit or Boston and it's less than 1 percent. I'm not sure about the numbers currently. But you'd think in a mobile society, you know, with Dr. Pepper having been around since the time that Coke was founded in 1886 — it's amazing how certain things travel, certain things don't travel. You know, candy bars — you mentioned Hershey. I mean, Cadbury doesn't do that well here and Hershey doesn't do that well in the U.K. And here we are, we all look alike. But somehow, we eat different candy bars. It's very interesting to observe. And the idea that you have some formula for businesses that provide that each one should pursue the course they're on because they made it in X, they should try to find other ways to make it in X. We're quite willing to find it in A, B, C, D, E, or F — the money is fungible. And I think, actually, it has worked very much to our advantage to have that philosophy. So, anything further, Charlie?

CHARLIE MUNGERI once told a very great man at dinner after he'd written a very great book, I said, "You know, you're never going to write another great book like that." And he was deeply offended. And I've read his four subsequent books and I'm totally right. (Laughter) To write one great book is a lot to do in one lifetime. And people aren't holding back on you when they don't do more. It's hard.

WARREN BUFFETTYeah. But you ought to make the most of the first one you got. (Laughs)

CHARLIE MUNGERYeah.

WARREN BUFFETTYeah, you're lucky. You know.

CHARLIE MUNGERYes.

WARREN BUFFETTAnd we were very fortunate. I would've blown the chance to buy See's Candy, but Charlie said, "Don't be so cheap," basically. And we still got it at a pretty good price. And we learned a lot —

CHARLIE MUNGERIt's amazing how much we've learned over the years.

WARREN BUFFETTYeah, we've learned —

CHARLIE MUNGERAnd if we hadn't, the record would be so much worse.

WARREN BUFFETTYeah.

CHARLIE MUNGERAt any given time, what we already knew was not going to be enough to take us to the next step. That's what makes it difficult. Think of all the people you know that have tried to take one extra step and have fallen off a cliff.

WARREN BUFFETTWell, on that happy note — (laughter) — we will conclude the meeting. (Applause and cheering) Thank you. Thank you. Thank you. Thank you, but save of it for next year. We may need it then. Just give us a carry-forward on the rest of it, and thank you. We'll come back at 3:45. We will conduct the business meeting, and it doesn't — we have no — nothing on the proxy to vote on, but we will be back here in 15 minutes. And if you enjoy a process, you can stick around and watch us reelect our board. Thank you. Thanks for coming.

Formal business meeting and election of board members

WARREN BUFFETTThe meeting will now come to order. I'm Warren Buffett, chairman of the company and I welcome you to this 2019 — 2019 annual meeting of shareholders. This morning I introduced the Berkshire Hathaway directors who are present. Also with us today are partners in the firm of Deloitte and Touche, our auditors. Jennifer Tselentis is the assistant secretary of Berkshire Hathaway and she will make a written record of the proceedings. Becki Amick has been appointed inspector of elections at this meeting, and she will certify to the count of votes cast in the election for directors and the motions to be voted upon at this meeting. The named proxy holders for this meeting are Walter Scott and Marc Hamburg. Does the assistant secretary have a report of the number of Berkshire shares outstanding entitled to vote and represented at the meeting? Jennifer?

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 6, 2019, the record date for this meeting, there were 724,765 shares of Class A Berkshire Hathaway common stock outstanding, with each share entitled to one vote on motions considered at the meeting, and 1,371,697,551 shares of Class B Berkshire Hathaway common stock outstanding, with each vote entitled to 1/10,000th of one vote on motions considered at the meeting. Of that number 503,181 Class A shares and 839,707,642 Class B shares are represented at this meeting by proxies returned through Thursday evening, May 2nd.

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, and 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 the motion by voice vote. All those in favor say aye.

VOICESAye.

WARREN BUFFETTOpposed? The motion's carried. 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 for the election of directors and other matters to be considered in this meeting. Please identify yourselves 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 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, Ronald Olson, Walter Scott, and Meryl Witmer be elected as directors.

WARREN BUFFETTIs there a second?

RON OLSONI second the motion.

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

BECKI AMICKMy report is ready. The ballot of the proxy holders in response to proxies that were received through last Thursday evening, cast not less than 543,703 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, Greg Abel, Howard Buffett, Steve Burke, Susan Decker, Bill Gates, David Gottesman, Charlotte Guyman, Ajit Jain, Tom Murphy, Ron Olson, Walter Scott, and Meryl Witmer have been elected as directors. We now — we now have a motion from Walter Scott.

WALTER SCOTTI move the meeting be adjourned.

WARREN BUFFETTIs there a second?

RON OLSONI second the motion.

WARREN BUFFETTA motion to adjourn has been made and seconded. We will vote by voice. Is there any discussion? If not, all in favor say aye.

VOICESAye.