2020 年股东大会 · 下半场

Q&A begins

WARREN BUFFETTSo now we're ready to have questions which Becky Quick has selected from those that's been forwarded to her directly and from Carol Loomis and Andrew Ross Sorkin, and Greg and I are available to be — we'll be answering them for some time. So, Becky, you're on and I hope all the tech — I hope everything works. (Laughs)

BECKY QUICKYeah, Warren, I should tell you that since you put that address up on the screen, I've gotten more than 2500 emails that have been coming in. So, there is a lot of demand from shareholders wanting to get in and ask questions. And I'll ask some that we've compiled before and some that are coming in right now.

Buffett confirms all airline shares were sold

BECKY QUICKThe first question, though, comes from one that just came in based on the comments that you were actually saying. This is a question that comes from William Lewis. He said, "Please, did I understand correctly Mr. Buffett to say that Berkshire Hathaway sold its interest in four different airlines, and if so, can you name them? Can the names of those airlines be identified?"

WARREN BUFFETTYeah, I wouldn't normally talk about it. But I think it requires an explanation. And it requires an explanation that means we were not disappointed at all in the businesses as they were being run, and the management, but we did come to a different opinion on it. The four large — there're the four largest U.S. airlines. It's American Airlines and Delta Air Lines and Southwest Airlines and United Continental. And I think collectively they probably are at least 80 percent of the revenue passenger miles in the — that is flown in the United States. And they have significant international flying, too, excluding Southwest. So, we like those airlines. We like them, but we do not like — the world was changed for the airlines. And I don't know how it's changed, and I hope it corrects itself in a reasonably prompt way. I don't know whether Americans will have now changed their habits, or will change their habits, because of an extended period, if it happens, that we're semi-shut down in the economy. I don't know whether the trends toward, you know, what people have been doing by phone. I mean I've been — it's been seven weeks since I've had a haircut. It's been seven weeks since— more than seven weeks — since I put on a tie or anything. It's just a question of which sweatsuit I wear. So, who knows how we come out of this, but I think that there are certain industries — and unfortunately, I think that the airline industry, among others — that are really hurt by a forced, in effect shutdown by events that are far beyond our control. Greg, would you like to add anything to that?

GREG ABELReally nothing to add, Warren.

WARREN BUFFETTOK. (Laughs) We've got another Charlie here. (Laughs)

GREG ABELI didn't — I didn't intend to use that as a line. But you know, you've covered it well.

WARREN BUFFETTWe would have bought other airlines too, incidentally. But those were the four big ones. And those were the ones we could put some money into. And we put, whatever it was, 7 or 8 billion into it, and we did not take out anything like 7 or 8 billion. And that was my mistake. But it was — it's always a problem if — There are things on the lower levels of probabilities that happen sometimes. And it happened to the airlines. And I'm the one who made the decision.

BECKY QUICKBut Warren, just to clarify on his question, he asked, did you sell your whole stake in all four of those?

WARREN BUFFETTYeah, the answer is yes. Yeah, when we — when we sell something — when we sell something, very often it's going to be our entire stake. I mean, we don't trim positions or — that just not the way we approach it, any more than if we buy a hundred percent of a business, we're going to sell it down to 90 percent or 80 percent. I mean, if we like a business, we're going to buy as much of it as we can and keep it as long as we can. But when we change our mind —

BECKY QUICKAll right. The next question —

WARREN BUFFETTGo ahead, I'm sorry.

BECKY QUICKNo, go ahead. When you change your mind?

WARREN BUFFETTWell, when we change our mind, we don't take half measure or anything of the sort. So, I was amazed at how, frankly — now we were selling them at far lower prices than we paid — but I was amazed at the volume. The airlines always trade in large volume, relatively. But we have sold the entire positions.

BECKY QUICKOK, thank you.

You need the right psychology to buy stocks

BECKY QUICKThe next question comes from Robert Tomas, from Toronto, Canada, and he says, "Warren, why are you recommending listeners to buy now, yet you're not comfortable buying now, as evidenced by your huge cash position?"

WARREN BUFFETTWell, A, as I've explained, the position isn't that huge when I look at worst-case possibilities. I would say that there are things that I think are quite impossible — improbable — and I hope they don't happen, but that doesn't mean they won't happen. I mean, for example, in our insurance business, we can have the world's — or the country's — number one hurricane that it's ever had, but that doesn't preclude the fact we could have the biggest earthquake a month later. So, we — we are not — we don't prepare ourselves for a single problem, we prepare ourselves for problems that sometimes create their own momentum. I mean, in 2008 and '09, you didn't see all the problems the first day when really — what really kicked it off was when the Freddie and Fannie, the GSEs, went into conservatorship in early September. And then when money market funds broke the buck, I mean — there are things that trip other things. And we take a very much — a worst-case scenario into mind that probably is a considerably worse case than most people do. So, I don't look at it as huge. And I'm not — I'm not recommending that people buy stocks today or tomorrow or next week or next month. I think it all depends on your circumstances. But you shouldn't buy stocks unless you expect, in my view, you expect to hold them for a very extended period and you are prepared financially and psychologically to hold them the same way you would hold a farm, and never look at a quote, and never pay — you don't need to pay attention to them. I mean, the main thing to do — and you're not going to pick the bottom and you're not going — nobody else can pick it for you, or anything of the sort. You've got to be prepared, when you buy a stock, to have it go down 50 percent — or more — and be comfortable with it, as long as you're comfortable with the holding. And I pointed out — I think a year, maybe two years ago in the annual report — almost just the one before this most recent one — I pointed out that there have been three times in Berkshire's history when the price of Berkshire stock went down 50 percent — three different times. Now, if you hold it on borrowed money, you know, you could have been cleaned out. There wasn't anything wrong with Berkshire when those three times occurred. But if you're going to — if you're going to look at the price of the stock, and think that you have to act because it's doing this or that, or somebody else tells you a line, I mean, "How can you stay with that," when something else is going up or anything. Really, you've got to be in the right psychological position. And frankly, some people are not really careful. Some people are more subject to fear than others. It's like the virus — it strikes some people with much greater ferocity than others. And fear is — fear is something I've really never felt financially, but — I don't think Charlie's felt it, either. Some people can handle it psychologically. If you can't handle it psychologically, then you really shouldn't own stocks, because you're going to buy and sell them at the wrong time. And you should not count on somebody else telling you this. You should you should do something you understand yourself. If you don't understand it yourself, you're going to be affected by the next person you talk to. And so, you should — you should be in a position to hold. And I don't know whether today is a great day to buy stocks. I know it will work out over 20 or 30 years. I don't know whether it will work out over two years at all. I have no idea whether you'll be ahead or behind on a stock you buy on Monday morning — or the market.

April's $426M in stock buys was meaningless

BECKY QUICKWarren, the next question comes from Scott Kelly. And he writes in based on the numbers you just put up. He said, "What did you spend the $426 million on equities in April? Was that adding to existing positions? Or was that initiating new positions?"

WARREN BUFFETTWell, I don't remember, to tell you the truth. But one thing you have to allow for — well, these are the figures for Berkshire Hathaway, and they include both Todd and — Todd Combs and Ted Weschler manage significant sums of money. So, it could well be something they bought. It could be something I bought. But I — 462 million is not much money — (laughs) — at Berkshire. It's more to Todd and Ted than it is to me, in terms of our positions. But I literally have no memory of — We're not doing anything big, obviously. We're willing to do something very big. I mean, you could come to me on Monday morning with something that involved 30 or 40 billion or $50 billion. And if we really liked what we were seeing, we would do it. And that will happen someday. If it happens in the market, we can't put it all in in one day or one week or one month. It took us months to build up our airline position — many months. We were able to sell them faster than we bought them, but we were selling them at lower prices. So, the 462 is essentially meaningless, and it may not have even — probably was not mine.

We haven't seen any attractive deals to provide capital

BECKY QUICKAll right, this next question comes from Lee Yan Dar, and his question is, "In the last financial crisis, Berkshire acted as a lender of support for eight different deals. Despite the injection of expensive capital through preferred stocks and securing warrants, these companies were, in fact, paying for the sign of confidence from Berkshire in the midst of a crisis. And that was invaluable. "Today we have QE infinity, low interest rates, and hungry hedge funds, even though the economy has deteriorated rapidly over the last few months. Why have we not acted as a lender of support?"

WARREN BUFFETTWell, we haven't seen anything attractive. And, frankly — it wasn't predicated on this — but the Federal Reserve did the right thing. And they did it very promptly, which they should have. And I salute them for it. But that means that a lot of companies that needed money, and probably should have done their financing a little earlier — but they're perfectly decent companies — got the chance to finance in huge ways in the last five weeks or there abouts. I mean, it's set records. Some companies have come back twice — a number — very big companies that didn't bother to extend out their borrowings — came a couple times. Berkshire actually raised some more money. We don't need it. But we'll — I think it's still a good idea over time. And then there are some pretty marginal companies that have also had access to money. So, there is no shortage of funds at rates which we would not invest at. So, we have not — we have not done anything because we don't see anything that attractive to do. Now, that could change, you know, very quickly or it may not change. But in 2008 and '09, the truth is, we weren't — we weren't buying those things to make a statement to the world. They may have made a statement to the world to some extent, and I'm glad that they did, if they did. But we made them because they seemed intelligent things to do. And markets were such that we didn't really have much competition. Now it turned out that we would have been a lot better off if we'd waited four or five months to do similar things. So, my timing was actually terrible in 2008 or '09, but the — what was available was so attractive that even though my timing was terrible, we still — we still came out OK, or a little bit better than OK. But it was not — it was not designed — what we did was not designed to make a statement. It was designed to take advantage of what we thought were very attractive terms. But they were terms that nobody else was willing to offer at that time because the market was in a state of panic. And the market in equities was in a state of panic for a short period of time when the virus broke out — or spread to the United States — and it became apparent — and the debt market was frozen — or in the process of freezing. And that changed dramatically when the Fed acted. But who knows what happens next week or next month or next year? The Fed doesn't know. I don't know. And nobody knows. There's various — there's a lot of different scenarios that can play out. And under some scenarios, we'll spend a lot of money. In other scenarios we won't. Greg, you've been watching what's been happening around Berkshire.

GREG ABELYeah. Yeah. Well, I think your comment on the Fed, Warren — because as you know, interestingly, when it was first occurring, there were calls coming in — not the size of transactions we're interested in nor companies we were inclined to act upon. But there were — there was that general interest out there as people were in a difficult point in time, i.e., looking at their balance sheet and deciding what they were going to do. But the reality is those companies were not — not of interest. And post — basically, effectively — March 23rd, the companies have been able to act. And Warren touched on it. At Berkshire Hathaway Energy, post the Fed action, we actually issued $4 billion of securities that was associated with debts or obligations we had maturing — some short-term obligations we wanted to clearly lengthen out. And we pre-funded one of our capital programs at PacifiCorp, with the thought this was the time to get the funds in place such that we could proceed with what is really an excellent opportunity both for PacifiCorp, our customers, and ultimately for the Berkshire shareholders. So, we've taken action within Berkshire, as Warren noted.

WARREN BUFFETTThis is a very good time to borrow money, which means it may not be such a great time to lend money. But the — it's good for the country that it's a good — it's a good time to borrow money. Not good for Berkshire, particularly, although we borrowed some money so we — we've put our money where our mouth is.

We won't subsidize our companies with shareholder money

BECKY QUICKThat gets kind of to another question that came in from Mark McNicholas in Chicago, Illinois. He says Berkshire itself has a Fort Knox-like balance sheet, but some of its operating companies may be tight on cash during the pandemic. Would Berkshire consider sending cash to its operating companies to, one, ensure that they can get through the pandemic and, two, allow them to increase market share while their competitors struggle?

WARREN BUFFETTWell, we've sent money to a few and — we're in a position to do that. We're not going to send money indefinitely to anything where it looks like their future is not — it's just changed dramatically from what it was a year ago or so, or even six months ago. You know, we made that decision in terms of the airline business. We took money out of the business, basically, even at a substantial loss. And we will not fund a company that — where we think that it's going to chew up money in the future. We started out with a company like that in our textile business at Berkshire Hathaway in 1965. And we went for 20 years, trying to think we could solve something that wasn't that solvable. So, we are not in the business of subsidizing any companies with shareholders' money. If people want to do that with their own money — but we're not going to do it on their behalf. But we have advanced money — we are perfectly ready to advance money. Gaining market share and all that. That may happen but the companies that need money, probably, market share is not their number one problem. I'll put it that way. Greg, would you —?

GREG ABELYeah, well, yeah. It's interesting when we look at our different companies as we went into the pandemic, where we're addressing the COVID-19 crisis. Obviously, the first focus by our management team — and appropriately — was our employees, and effectively making sure they're safe in that the business environment we're in that, that they could continue to operate. Then we quickly moved to looking at where our customers were in the cycle, i.e., what was the underlying demand within the business. And to great credit to our managers, they very much have adjusted their businesses consistent with the underlying needs and demands of customers. So effectively, they're moving with the customer, meaning very few of our businesses have actually required funds. Some have, and as Warren said, we've advanced the funds to them. But the businesses have really reacted in a way where they're managing consistent with the — with where the market's at, i.e., their — the demand for their products.

WARREN BUFFETTYeah. Berkshire is almost certain to generate cash. I mean nothing's 100 percent certain but — and we're, as Greg mentioned, at Berkshire Hathaway Energy we had some short-term financing. We don't have short-term financing to any degree. We'll never get ourselves in a position where we have a lot of money that can come due tomorrow. And people that were financing heavily with commercial paper and then found their business stopped — well, you've seen what's happened to the airlines. I mean, they need money. Cruise lines need money. There's some businesses that, you know, it's just the nature of what they're in. Berkshire will never get in a position where it makes money. And we factor in — like I say — we factor in some things that are not ridiculously unlikely. And I'm not going to spell out scenarios because I, to some extent, you start — spreading — spelling out scenarios, you may increase the chance of them happening. So, it's not something that we really want to talk about a lot, but — Our position will be to be — to stay a Fort Knox. But we don't need — we don't need a hundred and — it's a little higher now than it was at quarter end — we don't need 130 or 35 billion, but we need a lot of money that's always available. And that means we own nothing but Treasury bills. I mean, we do not — we've never owned — we never buy commercial paper — we don't buy — we don't count on bank lines. One or two of our subsidiaries — a few of our subsidiaries have them but the — we've — we basically want to be in a position to get through anything. And we hope that doesn't happen, but you can't rule out the possibility any more than in 1929 you could rule out the possibility that, you know, you would be waiting until 1955 — or the end of 1954 — to get even. Anything can happen, and we want to be prepared for anything, but we also want to do big things. If the prices are attractive — as Greg said — there was a period right before the Fed acted — we were starting to get calls. They weren't attractive calls. But we were getting calls. And the companies we were getting calls from — after the Fed acted — a number of them were able to get money in the public market, frankly, at terms we wouldn't have given it to them.

Berkshire may have short-term layoffs but expects long-term job gains

BECKY QUICKAll right, this next question is one that Greg, you actually touched on the answer to this to some extent, but maybe the two of you could expand on it. It comes from Richard Sercer from Tucson, Arizona. He says, "Berkshire's annual report indicated that Berkshire had 391,539 employees at the end of 2019. Which areas of our operations have already been hardest hit, or will be, by the coronavirus pandemic? And what are the implications for the continued employment of those people?

WARREN BUFFETTThose people are employed in dozens and dozens of different industries. And there's — there are a few industries that there's a fair likelihood that our employment could be reduced but they're not large. I'm just thinking as I'm talking. I mean, it's not like — it's not like we're — you know — in the — some of the businesses that are — you know — we're not in the hotel business, or various aspects of travel and entertainment and all of that that could really be changed in a very major way. So, I don't see our employment — I'll put it this way. Five years from now, I think Berkshire will be employing considerably more people. And I don't — I don't see where we'll have large dips. But the virus could take off in certain ways that in some of our manufacturing businesses, for example, the demand could be dramatically reduced. And in those cases, we would have — we would have layoffs at some point. Greg?

GREG ABELWhat I would add, Warren, is that as we are in the, you know, sort of crux of the pandemic, we're still dealing with it, so our businesses have adjusted. Some have had to adjust more. We have — if you look at Berkshire Hathaway Energy, for example, you can see U.S. electricity consumption's down 4 percent. That, realistically, doesn't impact that business in a significant way, and longer term we'll continue to grow that business. So even in — even during the crisis, a relatively small impact to the business. But, as Warren knows, we do have retailers that — their doors are shut right now. Be it our See's Candy, the — some of our jewelers. And at that point in time, we do adjust and adapt to the environment, i.e., we adjust our workforce. But equally, we do see, for example, See's — at a point, our stores will reopen. And at that point, we reemploy the folks. And overall, for Berkshire as a whole, as Warren said, five years from now, we see our employment numbers being far, far, far greater than they we are today, in that we see great prospects within the operating businesses as a whole.

WARREN BUFFETTYeah. See's — See's is an interesting example, because we've owned that since 1972. That's a long time. And we love it. And we continue to love it. And I have a box here of our peanut brittle, and I've got another box of fudge right here, and I'll probably take them all home and not share with Greg. (Laughs) But, we were in the midst of our Easter season. And Easter is a big sales period for See's. And I don't know whether we were halfway through, but we weren't halfway through in terms of the volume that was going to be delivered, because it comes toward the end. And essentially, we were shut down and we remain shut down. The malls that — we've got 220 or so retail stores and we've got a lot of — you know, (Nebraska) Furniture Mart sells our candy, but the Furniture Mart's closed down. And so —

GREG ABELYep.

WARREN BUFFETT— See's business stopped. And it's a very seasonal business to start with. So, we have a lot of seasonal workers, too, that come in, particularly for the Christmas season. But we have — we have a lot of Easter candy — (laughs) — and Easter candy is kind of specialized, too, so we won't sell it, and we produced a good bit of it. We couldn't ship it — we couldn't— we couldn't put it in stores and — and there's — some of that's going on. And, of course, I — Greg does all the work on those sort of situations — and our managers are terrific, of course, and dealing with it — but this is a very, very unusual period. And like I say, a few years from now, I think Berkshire will be employing more people than 395,000. Over the years, we've — we started with 2000 at a textile business, and we still got the same playbook — is —

Only very small Berkshire subsidiaries may not reopen

BECKY QUICKThis next question comes from Drew Johnson, who says that he's a longtime shareholder who has attended a couple of meetings. He says in an interview on April 17th, Charlie mentioned that some small businesses owned by Berkshire would not reopen after the pandemic eases. Can you elaborate on which businesses might be impacted?

WARREN BUFFETTWell, even — we have businesses within businesses. At Marmon, don't we have 97 different businesses, for example?

GREG ABELExactly. Yeah.

WARREN BUFFETTYeah. And there are some that weren't doing that well before — and I'm not talking about Marmon specifically — but they got a couple of them and there's a couple of — and — and it may be that in effect, the — you know, what's happened in the last couple months has accelerated the decline in — of those businesses, or their customers are developing different habits. I mean, people are developing different habits in retail. There's no question about that. Now, that doesn't mean we haven't got a bunch of good retail businesses. But there are businesses that were — that were having problems before, and that have even greater problems. Now, we don't own our newspapers anymore, but we're financing the enterprise which does have them. We've actually increased our investment in the newspaper business by selling the papers to Lee and then refinancing their debt. And the newspaper business was having plenty of problems with both circulation and advertising before the virus came along. But advertising declines everyplace have accelerated, fairly dramatically. You know, when the automobile industry stops, the auto dealers don't advertise as much. It's — it's made certain businesses that were tough before, even tougher now. And there will be management of at least one of the subsidiaries that you suggested to us. And so, there'll be — but there'll be — there'll be some changes in a few businesses, but they're very small businesses. Our major businesses, and our businesses of intermediate size, I can't think of anything that's of significance that won't reopen. But it won't be any fun with the businesses where the world has really changed. You're seeing a lot of change. If you own a shopping center, you've got a bunch of tenants who don't want to pay you right now — we don't — and, you know, the supply and demand for retail space may change fairly significantly. The supply and demand for office space may change significantly. A lot of people learned that they can work at home or that there's other methods of conducting their business, and they might have thought that — from what they were doing a couple of years ago. When — when change happens in the world, you adjust to it.

GREG ABELYeah, I think the — go ahead.

BECKY QUICKThe next question is —

WARREN BUFFETTBecky, I think that Greg —

GREG ABELWell, I was just going to add on the Marmon example, there are 97 companies there. For example, we have a food service group, which sells equipment to a variety of the restaurants. We have a few businesses that realistically were challenged when the industry was performing really well. And as we come out of the, you know, crisis, their economic prospects aren't going to be better. And in fairness to the teams and the employees in there, they understand that, and they're working through it, and there'll be other opportunities, potentially within the company, within Marmon, and things like that. But you know, there's a very specific answer — or example — relative to the question.

Selling or closing underperforming subsidiaries is not a new policy for Berkshire

BECKY QUICKThis next question is a follow up on that. It comes from Chris Fried of Philadelphia. And he says, "It's been a long-term policy at Berkshire to not sell or close any ongoing subsidiaries as long as their business prospects weren't a money hole. "Over the last year," he points out, "The sale of Berkshire Hathaway Media, and then Charlie's comments from that interview, saying that several small Berkshire subsidiaries will not be opening when the coronavirus lockdown is lifted. "So, should shareholders assume that Berkshire has now changed its long-term policy in regards to keeping underperforming subsidiaries?"

WARREN BUFFETTNo, I think that policy was spelled out for, maybe, 30 years or so in an addendum to the annual report, that we have said that if a company — or if an operation — we think its prospects are that it will continually lose money in the future, that we will certainly — we'll try to sell it to somebody else — but one way or another, we will not continue to hold it. That is not a new policy and it's not been changed. You can say, in effect, we did that with the airline industry, to some extent. If we owned all of an airline now, it would be a tough decision to decide whether to sustain billions of dollars in operating losses, when you know, A, you don't know how long it's going to happen — or occur — and secondly, you know that it's very likely that there'll be too many planes around, and we know what happens in airline pricing when load factors go down, and there's an oversupply of airline seats. So, you know, we didn't have to make that decision in terms of our own operation on it. But we did make a decision that — that's a very tough management decision to make. And the government, of course, is willing that the first wave of financing for the airlines, but to the airlines' credit, they have very aggressively raised money. I mean, it's amazing to me how — what a good job they've done of that. And, in the case of — I think, in the case of three of them — no, two of them — but there may be more coming — that they've raised equity money, too. I mean, they are saying to the debt holders and investors, you know, you got to put more money into this business if we're going to be able to continue. And the government's done it, and private sources have done it, and it's going to — it's exactly the right thing for the managements to be doing. But, you know, whether it's — whether it makes sense, we'll find out, for the investors.

Precision Castpart's future is tied to uncertainty for Boeing

BECKY QUICKThis next question comes from Eric LeFante, and it's directed to Greg. He asks, "How is Precision Castparts handling the severe slowdown in the aerospace industry?"

GREG ABELSo, very consistent with everything we've just discussed, which is, obviously, a large part of their businesses, is the aerospace industry. And it can really be broken into three areas as we do in our (10-)Q, but two are being impacted. The defense contract business remains very sound and strong within Precision Castparts. But if you look at the large-body aircraft, the aircraft that they use within the regional jets, that business will move directly with the demand there, and the jets that are ordered longer term. So, Precision Castparts is, literally as we speak, continuing to adjust their business relative to the demand that would come out of Boeing. They would be having weekly calls with Boeing, recognizing what are their production orders there and adjusting the business accordingly.

WARREN BUFFETTBoeing raised 25 billion just a day or two ago, and they raised 14 billion before that. And a year ago, they felt they were in a fine cash position, and I understand how all that happened. Airbus has had the same situation. They've made some comments recently, within the last week, you know, the fact that they — they really don't know what their future is. And I don't know what their future is. We're going to — we're going to have aircraft in this country. We're going to be flying. But the real question is, whether you need a lot of new planes or not, and when you'll — when you're likely to need them. And it affects a lot of people. And it certainly affects Precision Castparts. It affects General Electric. It, obviously, affects Boeing. And it's — it is a blow to, essentially, have your demand dry up. And it goes up in the chain. And, you know, the aircraft manufacturers didn't — they didn't bring it on themselves. The airlines didn't bring it on themselves. Precision Castparts didn't bring it on itself. General Electric didn't — It's, basically, that we shut off air travel in this country. And what that does to people's habits, how they behave in the future, it's just hard to evaluate. I don't know the answer. But we do know that it will have an effect on Precision Castparts. And how severe it will be depends on the same sort of variables that are hitting Boeing. You name the company in aircrafts — and aircraft's a big business. And this country's good at it, incidentally, too. I mean, if you think about Boeing, you know, it is one hell of a company and it's important. It's a huge exporter and it affects a lot of jobs. And some of them are with us. And, you know, we hope for the best and we wish everybody the best. Obviously, we wish ourselves the best in it. But part of it is out of our — certainly out of our control.

COVID-19's effect on GEICO

BECKY QUICKThis next question is for Warren. "Do you think GEICO will experience unusually high profitability in 2020 due to the reduced amount of driving, even after giving customers a 15 percent credit?"

WARREN BUFFETTWell, we have promised to give our customers — at GEICO, we're the second-largest auto insurance company and — and different auto insurers are handling a sharing of the better experience with their policyholders in different ways. We — our plan — we'll deliver back 2 1/2 billion, roughly or so, in recognizing the reduced frequency of accidents during this period. What we don't know is how long this will continue. I mean, people want to drive their cars still. But conditions have reduced that driving dramatically, obviously. Now, we have instituted a program that runs — saving people money — for six months. And so far, other people have largely been two months, but some of them have given a little more for those two months than we give per month. Our total is the greatest at 2 1/2 billion, and — In addition to that, we and all the others in the industry — it's not just GEICO — we've also — and insurance commissioners, in many cases, I believe have required it — but we have — we give people more time to pay, if they aren't paying. And if they cancel their policy, or if they don't end up paying us, we've, in effect, given them free insurance during that period. And the delay in payments is, obviously — increased delay of payments — if you've got a shopping center getting rent, it — delay in payments is what happens during a period like this. And that will be a significant cost to us. We don't know how significant it will be. There will be more uninsured motorists driving, and they cause a disproportionate amount of accidents, and that — so there's a lot of variables. We made our best guess as to what we're going to do to reflect the current reduced accidents in our — in our premiums that we receive, really, over the next year. It applies for six months on renewals, but that — we'll be renewing policies in October that will extend it into next April. And so, we've made a guess on it , and we'll see how it works out.

Berkshire insurance subsidiaries don't have big COVID-19 risk

BECKY QUICKThis next question comes from Stephen Tedder. He's a shareholder in Atlanta, Georgia, and he says, "Would you please help us understand the effects of COVID-19 on our insurance businesses. Other insurance companies have reported losses from boosting reserves for future insurance claims that they expect to be paying as a result of coronavirus. "Yet in Berkshire's 10-Q released this morning, we do not appear to have reported much of these future expected losses. Can you tell us why this is the case? What kind of risks Berkshire is underwriting that allows us not to be affected by the pandemic? Or conversely, what we are writing that might be?"

WARREN BUFFETTWell, the amount of litigation that is going to be generated out of what's already happened, let alone what may happen, is going to be huge. You know, just the cost of defending litigation is a huge, enormous expense, depending on how much there. Now, in the auto insurance field, which is our number one field in terms of premium volume, by some margin, that's more definable. But who knows what comes out of it in terms of litigation? But in what they call "commercial multiple peril," which involves property losses, and where some people elect to buy business interruption coverage, many policies, quite clearly in the contract language, would not have a claim for business interruption under a commercial multiple peril policy, where you've elected that. But other policies do. I know of — I think I know of one company — I don't know the details — that's written a fair amount where they cover — or they — certainly there's a good argument perhaps that they cover — business interruption that might arise from a pandemic. Well, they're in a very different position than the standard language, which says that you recover for business interruption only if there's — involves physical damage to the property. And you can buy all kinds of different policies. We are not big in the commercial multiple peril business. So, I mean, this is not like our auto business or anything of the sort. But we will have — we will have claims. We'll have litigation costs. But proportionally, it's not the same with us as with some other companies, which have been much heavier in writing business interruption as part of a commercial multiple peril. But you don't automatically get coverage if you have business interruption. I mean, for example, I think it would be unusual if, say, General Motors had a strike, which they did, and that they have business interruption that covers a strike. Now, we actually wrote about — probably the only annual report in the United States — we wrote about business interruption insurance — (laughs) — because we had it over in France, when one of our properties was adjacent to a property that's — much smaller property — that had a fire, and then it spread to our plant, and it caused a lot of physical damage. And we had bought — we have business interruption that ties in with that. But, if we had some company we were selling auto parts to, and they had a strike, our business would be interrupted, but it's not covered by that. I mean, that is not part of the coverage, unless you specifically really buy it. So, there's some claims that are going to be very valid related to this, the present situation. There'll be an awful lot that there'll be litigation on that won't be valid. There's no question that some insurance companies — I know one in particular — that will pay a lot of money, relative to their size, in terms of policies that they've written. And I think we have reserved — and our history shows we generally have reserved — on the conservative side, adequately, at least. And that's certainly our intent. And we tell no managers of any of our insurance operations what numbers we expect from them, or do any of that. They evaluate their losses. And they build in something for social inflation. They build in things for — all kinds of things. And generally speaking, Berkshire has been pretty accurate in its reserving, and I have no reason to think that we're otherwise than that currently.

We would sell pandemic insurance "at the right price"

BECKY QUICKSteven Stoller from Atlanta, who says he's a 10-year Berkshire shareholder, writes in and he says, "Do you see Berkshire offering pandemic coverage in future insurance policies?"

WARREN BUFFETTWell, the answer is, we insure a lot of things. Sure. I don't — We had somebody come to us the other day wanting insurance involving a $10 billion protection on something very unusual. We're not going to make that deal, in all probability — in fact, I would say it's dead — but we would have written — we would have written pandemic insurance if people had come to us and offered us what we thought was the right price. We would have been wrong — (laughs) — probably, in doing it. But we — we have no reluctance to quote on very unusual things and very big limits. We're famous for it. We haven't done that much of it in certain periods because the prices aren't right. But if you want to come and insure almost anything — and we don't want you to insure against fire if you happen to be a known arsonist or something — but if you come to us with any unusual coverages, either in the size or in the nature of what's covered, Berkshire is a very good place to stop. And so, if somebody wants to buy — they can dream up the coverage, and they can tell us the price they'll pay, and — we will — we'll consider writing it. We wrote a lot of business after 9/11, for example, when there were really only a couple companies in the world that were willing to write the business. And Berkshire and AIG wrote a lot of business, and we thought we knew what we were doing. But we could have been surprised. I mean, there could have been some follow-on incidents from 9/11 that we wouldn't have known about, and, you know, you don't know for sure the answer. That's why people are buying insurance. But we would — we would be willing to write pandemic coverage at the right price.

Berkshire will still do great deals after Buffett and Munger

BECKY QUICKThis next question is for Greg and it comes from a shareholder named Todd Flaska. He says, "I don't expect Berkshire to outperform the S&P 500 during good times. However, I remain a long-term investor because of the huge war chest that can be deployed during the downturns in the market like we're seeing right now. "Warren has been brilliant at negotiating mutually favorable deals with companies that have somewhat urgent capital needs during these downtimes. These opportunities may only come about once a decade. There's a small window of time for these deals. They all come at once, and you don't really know if you're at the bottom of the market when the deals start coming. "Will Berkshire be able to continue this approach when Warren and Charlie are no longer at the helm?"

GREG ABELI fundamentally, without Warren and Charlie at the helm, I don't see the culture of Berkshire changing. I don't see our billet, which a large part of that is having the business acumen to understand the transaction, the economic prospects, and then the ability — the ability to act quickly. I really don't see that changing. As we've all listened, you know, there's no one better than Warren and Charlie, but equally, we've got a talented team in Berkshire, both at the Berkshire level and within our managers, that can, obviously, look at opportunities, too, very quickly. But you know, the reality is, it's a huge advantage we have right now, and we would clearly want to be in a position to maintain that — that position of strength. Warren?

WARREN BUFFETTYeah, we will maintain it. And we not only have it with the managers of the — in some cases — not all cases by a longshot — but in some cases, we have managers that will occasionally come up with something that can be quite attractive. But between Greg and Todd (Combs), and Ted (Weschler), we've got three extraordinarily good (inaudible), in terms of allocating capital. And — you know, I — Charlie may get — we may get an occasional call, because of someone we knew 20 years ago or something — but they know a lot more people, they've got a lot more energy. And their minds work the same way as ours have in the past. So, I think it could very well be a significant improvement when the three of them are thinking about capital allocation than when Charlie and I are now — particularly now that he's found Zoom. (Laughter)

No Berkshire businesses have received government "bailout" money

BECKY QUICKAll right, this next question comes from Max Rudolph in Omaha, Nebraska. And he asks if Berkshire or any of its fully-owned businesses have participated in any of the bailouts from the Fed or the Treasury?

WARREN BUFFETTI certainly don't know of any. I guess you could say while we owned the airlines — well, you know, the question is about fully-owned businesses. And there's no way that I wouldn't know about anybody that did any of that. Greg?

GREG ABELNo. In fact, we've been very clear with the businesses. But we — our businesses understood our — how Berkshire operates. And equally, we're very clear that we would not be participating in any of those programs or quote, "bailouts."

With COVID-19, the future is a "huge unknown"

BECKY QUICKThis is a similarly related question. It comes From Seth Freiden, who says, "As a long-term shareholder of Berkshire B shares, I'd like to know Warren's viewpoint around smaller holdings, specifically Oriental Trading Company and Nebraska Furniture Mart, that are based in your hometown of Omaha." He imagines that those smaller business units have been adversely impacted by COVID shelter-in-place mandates. So he would like to know if Oriental Trading, or other small business units, applied for PPP (Small Business Administration Paycheck Protection Program) loans or participated in those acts? And if they didn't qualify for a loan or didn't participate, then how will Berkshire support those smaller businesses to make sure that they can continue to employ their employees?

WARREN BUFFETTWell, to my knowledge, none of them have gone in for government money and — The two that are mentioned — I don't like to get into specific companies — but I can assure you that the Nebraska Furniture Mart and Oriental Trading, in my view, have a fine future. But I — I don't want to talk about — go down the list, obviously, of every single company, because some of them I don't know the answer to. You know, we actually decided some time ago that our newspapers would have a much better chance of surviving if they were run as part of Lee, than if we ran them independently. And, as I said earlier, we actually put considerably more money — we probably put more money in the newspaper business than virtually anybody in the country in the last six months, because we took over a loan that would have been a problem in the year — whatever it might have been, maybe, a year and a half — and we enable them to just deal with one lender rather than a group. And they are doing a better job with the newspapers then we would do. And that's always our preference. If we've got a business that's — that does not have — looks like it is not going to sustain itself over time in our hands, if we can find somebody else that we think will do a better job, we'd love to have them run it. So, if we have a problem business, we would prefer to find somebody that thinks they can do a better job, and probably can do a better job, of running it than we can. But some businesses just disappear. We — we started with a textile business. We started a company called Diversified Retailing, which merged into Berkshire — became part of Berkshire — and it started with a department store in Baltimore. And department stores looked good in 1966, but the world has gone against them. And we had a trading stamp business at one time, and we stayed longer than anybody else, but the world left trading stamps behind. And that's going to happen with some businesses. That's capitalism. And it will happen to some Berkshire businesses over the next 10 years, in the next 50 years. We think we'll find more of them that will grow and, net, that Berkshire will grow, but we do not think if you own a great many businesses, that everyone is destined for success. That's why I suggest to people they buy an index fund. I do not — with the exception of Berkshire — I would not want to put all my money in any one company, although there's a few I wouldn't mind being very close to that. But — I don't think — you know — you get surprises in this world. And there will be businesses that we think are very good that turn out not to be so good. And there will be other businesses that turn out better than we think. And It's up to the world to judge our batting average over time. Greg?

GREG ABELWell, I would just add, and echo again, that when it comes to the PPP loans, we're not aware of any of our businesses taking them. And, you know, as I said, we encouraged them, if they were ever thinking that there is going to be a dialog, and we're not aware of any businesses pursuing them. I would also just add that when you look at our businesses as we went into the crisis, they responded very well. So, as we look at our businesses — and Warren touched on this — our large businesses, our mid-sized businesses, and even as you go down from there, they're in very sound shape as we go through the pandemic, and are really preparing to emerge now. So, they're evaluating, they listen. They're going to have a different customer. There's going to be different consumer behaviors — how our employees work, i.e., a lot of them work at home now — does that make sense? And the communities we're operating in have all changed. But we're literally moving from the point of — OK, we're making it through the crisis, and really planning to reemerge now. And I would say our businesses are in an extremely sound place.

WARREN BUFFETTWe don't know when the —

BECKY QUICKThis next question —

WARREN BUFFETTWell, I just — what we don't know — we don't — we don't know how long this period lasts. And nobody knows. You know, we don't know whether the — most people think — and they know more about it than I do — that the virus will, you know, to some extent, decline in its spread during summer months. And I would say — but many think that it will come back at some later date. And how the American public reacts, if they get their hopes up through some reopening — some through — through some summer diminution — and how they would react to a second attack, in effect, by the virus — it's like Dr. Fauci — you know, the virus is going to determine our behavior. You know, we — and we're doing a lot of smart things, and we've got a lot of very smart people, but there are unknowns. And the unknowns that apply to the health aspect create unknowns in the economy. And we will — we'll have to keep evaluating things as we go along. I hope, like crazy, obviously, that — that once suppressed, it doesn't come back and that we readjust. But things don't always work perfectly. That doesn't mean there was a better course of action that would not — I would not go around criticizing people at all for what they've done, or anything of the sort. I just think you're dealing with a huge unknown. And I think that the degree to which it's disturbed the world, and changed habits, and endangered businesses, in the last couple of months, indicates that you'd better be — not be too sure of yourself about what will — what it'll do in the next six months or year or whatever.

Index funds are still better than paying big fees to Wall Street

BECKY QUICKWarren, a moment ago, you mentioned that you still are recommending that people invest in an S&P 500 index fund. Let me ask this question that came in from Kevin. He says, "The last few weeks, we've been hearing from active money managers that the day of passing — passive investing is over, the historical safety of investing in an index fund long-term is gone. "Would you please provide your thoughts on this topic? Particularly in regards to an investment time span of 10 years?"

WARREN BUFFETTWell, I can tell you, I haven't changed by will. (Laughs) It directs that my widow would have 90 percent of the funds in index funds. And it's — I think it's better advice than people are generally getting from people that are getting paid a lot to give other advice. You don't make a lot of money advising an S&P 500 index fund, I mean and — How you can say the day of index funds is over? I mean, you're — if you say the day of investing in America is over, I would disagree quite violently. And then, is there something special about index funds being a terrible way to invest? I just don't think — it really — it's very hard to have evidence of that. I mean, the index funds reflect the market. And one side has high fees, that — they think they can pick out stocks. And the other side has low fees. I know which side is going to win over time, and — It's — you have to recognize that it's in a great many people's interest to convince you that they can do something that they may well even believe they can. And a certain percentage of them will do it from luck, and a few people will do it from skill. And that's what makes it so enticing, that you can find the Jim Simons, or somebody, that is going to produce extraordinary returns. And Jim and his group (Renaissance Technologies) have done it by brainpower, but it's very unusual. And incidentally, they are going to charge you a lot of money, and they're going to actually maybe close up their fund, if they do it, because they can't do it with really huge amounts of money compared to what they've — how the record's been established in the past, so — It's — you just have to recognize you're dealing with an industry where it pays to be a great salesperson. And it pays even better if you're a great salesperson, and you can actually produce something. But the money is in selling. There's a lot more money in selling than in managing, actually, if you look to the essence of investment management.

Berkshire won't always beat the S&P, but it's a strong company

BECKY QUICKI got a number of variations on this next question, some more polite than others. This one's right down the middle. This is from Mark Blakely, who writes in from Tulsa, Oklahoma. And he says, "Like many, I'm a proud Berkshire Hathaway shareholder. However, in comparing the performance of Berkshire with the S&P 500 over the last five, 10, or 15 years, I've been disappointed in Berkshire's underperformance. "Even year-to-date, Berkshire is trailing the S&P 500 by 8 percent. To what would you attribute Berkshire's underperformance? While I can't imagine ever selling my Berkshire stock, at some point, money is money."

WARREN BUFFETTNo, I agree with everything that — I forget his name, but — just said. I mean the truth is that — that's — I recommend the S&P 500 to people. And I happen to believe that Berkshire is about a sound as any single investment can be in, in terms of earning reasonable returns over time. But I would not want to bet my life on whether we beat the S&P 500 over the next 10 years. I think there's, you know, I obviously think there's a reasonable chance of doing it, but — and we've had periods — I don't know how many out of the 50-55 years that we've been doing it or — I don't know how many we've beaten or not. I mentioned earlier that 1954 was my best year, but I was working with — absolutely with peanuts, unfortunately. And, I think if you work with small sums of money, I think there is some chances — some chance — of a few people that really do bring something to the game. But I think it's very, very hard for anybody to identify them. And I think that when they work with large funds, it gets tougher. And it's certainly gotten tougher with — for us with larger funds. And I would make no promise to anybody that we will do better than the S&P 500. But I will promise them is that I've got 99 percent of my money in Berkshire, and most members of my family are — may not be quite that extreme, but they're close to it. And I do care about what happens to Berkshire over the long period about as much as anybody could care about it. But, you know, caring doesn't guarantee results. It does guarantee attention. Greg?

GREG ABELWell, I would agree, Warren, that there's never guarantees, but when I look at the assets we have in place, and the teams that are in place, i.e., you're committed to Berkshire, but we have dedicated teams that equally are dedicated to Berkshire, and they're sure going to give it their best effort every day. And I — when I look at the assets and the people, I think we have, as you said, you can't guarantee it, but we have a great chance of sure giving it a good effort to outperform it.

WARREN BUFFETTIt's hard to imagine getting a terrible result with Berkshire, but, you know, anything can happen. And what I do know is it would be easier to be running 5 million than — our book net worth at Berkshire at the quarter-end, I think, was 370-some billion, which is down, but it's still greater than the book net worth of any corporation in the United States. That's right, I mean, maybe there's some federal corporation that has more, but in terms of — and it may be the greatest in the world. I'm not sure.

GREG ABELWarren, I would —

WARREN BUFFETTThat makes that makes life difficult in some ways, too. (Laughs)

GREG ABELRight, and the potential of our operating businesses are substantial. When you think — we've talked about energy, you touched on it — that infrastructure is continuing to (inaudible), and we're ready for a hundred billion dollars of investment opportunities there. If we just look at the business over the next 10 years and the infrastructure that's required and how it's changing — substantial, substantial investments there — that just tell me we have very good prospects, and we're well positioned to pursue them. Which again, to me — when you look at our core businesses — you touched on them — Burlington, the insurance, and energy — our downside is very nicely protected. We have three really core great businesses.

WARREN BUFFETTYeah. And we're better positioned than anybody in the energy business, just because we don't have dividend requirements. We've retained 28 billion of earnings over 20 years that — you can't do it if you run a normal public company. And we've got a huge appetite and the country needs it. The world needs it. And we are a very, very logical, well structured, well managed —I would say because it doesn't involve me — company to participate in just huge requirements around the world. Now, you know, they're slow and they involve governments and, I mean, you know, state governments. And there's a lot of — it's not anything that happens dramatically. It will happen and Berkshire should participate in a huge way. We can do things in insurance nobody else can do. That doesn't mean much, many times, but occasionally, it may be important. So, there are — there are some advantages to size and strength, but there are disadvantages to size, too. If we find some great opportunity that — for a billion dollars — to double our money, that's a billion pre-tax, and that's 790 million after tax, and on a market value of 450 billion or whatever it may be, it doesn't amount to much, unfortunately. We'll still try and do it if we can. (Laughs)

GREG ABELYeah. (Laughter)

Ajit Jain is great at insurance, but doesn't do capital allocation

BECKY QUICKI want to ask this question that came in, because I think some people may have had a misinterpretation about something you said a few minutes ago. This is the benefit of being able to get these questions real-time. But a few moments ago, you were talking about the people at the company who will be allocating capital after you and Charlie are no longer doing it. And you mentioned that you've got Todd (Combs), Ted (Weschler), and Greg all doing that. But I've gotten a few questions that read similar to this. This one's from Edward Popoola in New York City, who says, "Dear Warren, I noticed you didn't mention Ajit Jain when you reeled off your list of future management. Is he out of the picture?"

WARREN BUFFETTWell, Ajit is not in the capital allocation business. He is the best — well, he's got one of the best minds in the world. I mean, I wrote his father after he worked for us for a few years — I wrote him again the other day — but 20 years ago, I wrote him and I said, "If you've got another son like this, send him — send him over from India, because we'll own the world." No, Ajit is one of a kind. Anybody will tell you, that's had any contact with him, and particularly anybody in the insurance business where they know him well, he is absolutely one of a kind. But his job is not capital allocation. It's evaluating insurance risk. And that is a rare — he possesses a rare talent and he has a huge capital backing to do it. So, he's an incredible asset. But Greg, and Todd, and Ted have been in the asset allocation business in a big way, for a long time. That's their game, and Ajit's game is insurance. So that's why I mentioned those three. And incidentally, while Charlie and I are around, we kind of like capital allocation ourselves. (Laughs) We're not going anyplace voluntarily, but we probably will go someplace involuntarily before that long. (Laughter) Charlie is in good health, incidentally. I'm in good health. (Laughs)

Depreciation of assets at Berkshire Hathaway Energy

BECKY QUICKGreg, let me ask you one of these capital allocation questions. This one comes from Matt Libel, and he says, "Berkshire directed 46 percent of capital expenditure in 2019 to Berkshire Hathaway Energy. Can you walk us through, with round numbers, how you think differences in capex spending versus economic depreciation versus GAAP depreciation, and help explain the timeframe over which we should recognize the contract — the contractive return on equity from these large investments, as we are shareholders in — as we, as shareholders, are making in Berkshire Hathaway Energy."

GREG ABELSo, when we look at Berkshire Hathaway Energy and their capital programs, we try to really look at — look at it as it was highlighted, really, in a couple different packages. One, what does it actually require to maintain the existing assets for the next 10-20-30 years? I.e., it's not incremental, it's effectively maintaining the asset, the reflection of depreciation. And our goal is always to clearly understand, across our businesses, do we have businesses that require more than our depreciation, or equal, or less. And, happy to say, with the assets we have in place and how we've maintained the energy assets, we generally look at our depreciation as being more than adequate, if we deploy it back into capital to maintain the asset. Now, the unique thing in the lion's share of our energy businesses that are regulated — and that exceeds 85 percent of them — 83 percent of them — we still earn on that capital we deploy back into that business. So, it's not a traditional model where you're putting it in, but you're effectively putting it in to maintain your existing earnings stream. So, it's not drastically different, but we do earn on that capital. But what we do spend a lot of time, and that's what, when Warren and I think about the substantial amounts of opportunities, that's incremental capital that is truly needed within new opportunities. So, it's built — it's to build incremental wind, incremental transmission, that services the wind or other types of renewable solar. That's all incremental to the business and drives incremental growth in the business. It does require capital, but it does drive growth within the energy business. So, there's really the two buckets. I think we would use a number a little bit lower than the depreciation we're comfortable the business can be maintained at that level. And as we deploy amounts above that, we really do view that as, quote, incremental or growth capex.

WARREN BUFFETTYeah, we have what — what — 40 billion or something of — what do we have in, sort of, kind of, in the works?

GREG ABELOh, yeah. So, we have basically, as Warren's highlighting, 40 billion in the works of capital, that's over the next, effectively, nine years, 10-year period. A little — approximately half of that, we would view as maintaining our assets. More — a little more than half of it is truly incremental, but — and that are known — those are known projects we're going to move forward with. And I would be happy to report, we probably have another 30 million — 30 billion — that aren't far off of becoming real opportunities in that business. Now, as Warren said, that takes a lot of time. It's a lot of work. The transmission projects, for example, we're finishing in 2020 were initiated in 2008 when we bought PacifiCorp. I remember working on that transmission plan, putting it together, thinking six to eight years from now, we'll have them in operation. Twelve years later, and over that period of time, we earned on that capital we have invested, and then when it comes into service, we earn on the whole amount. So, we're very pleased with the opportunity, but it — we plant a lot of seeds, put it that way.

WARREN BUFFETTYeah. And these are not — it's not like they're super-high return thing. But they're decent returns over time. And we're almost uniquely situated to deploy the capital, as opposed — I mean, you could have government entities do it too —but in terms of a private enterprise — and they take a long time. They earn decent returns. I've always said about the energy business, it's not a way to get real rich, but it's a way to stay real rich, and — We will deploy a lot — a lot of money at decent returns — not super returns, you shouldn't earn super returns on that sort of thing, I mean — it does — you are getting rights to do certain things that governmental authorities are authorizing. And they should protect consumers and — but they also should protect people that put up the capital. And — You know, it's worked now for 20 years, and it's got a long runway ahead.

Occidental deal hurt by unexpected oil price plunge

BECKY QUICKAll right, this next question comes from Jason (Plawner) in New Jersey. "As both a Berkshire and Occidental shareholder I was encouraged to see your investment in the company, but with passing weeks, it became evident that your investment facilitated Occidental management's ability to avoid a shareholder vote on the Anadarko acquisition, a very shareholder unfriendly outcome. "This deal proved to be irresponsible and expensive from an OXY perspective, and ultimately, very value destructive for OXY shareholders. In my view, it also permanently hurt Berkshire's reputation in the marketplace. "Please comment on this unfortunate outcome and tell me why OXY shareholders and other market observers shouldn't feel this way."

WARREN BUFFETTWell, yeah. We said right from the beginning — although we didn't certainly expect the degree of what's happened — we said, essentially, when you buy into an oil — a huge oil production company — you know, how it works out is going to depend on the price of oil to a great extent. It's not going to be your geological home runs or super mistakes or anything like that. It is a — it is a investment that depends on the price of oil. And, you know, I — when oil goes to minus $37 — (laughs) — it happened the other day for, I guess, it was the May contract. You know, that's off the chart, and — If you own oil, you should only own oil, if you expect these prices to go up significantly. I don't know whether they'll go up significantly or not. We're in the transaction. Our commitment was made on a Sunday when the management of Anadarko favored Chevron. And Chevron had a breakup fee of a billion dollars and the Occidental people had been working on it for several years. And it was attractive at oil prices that then prevailed. And it doesn't work, obviously — it doesn't work at $20 a barrel — it certainly doesn't work at minus $37 a barrel — but it doesn't work at $20 a barrel. And everything the oil companies have been doing, whether it's Exxon or Occidental or anybody else, it doesn't work at these oil prices. That's why oil production is going to go down a lot in the next few years, because it does not pay to drill now. That's happened at other times in the past. But the situation is, you know, you don't know where you're going to store the incremental barrel of oil, and oil demand is down dramatically, and for a while the Russians and the Saudis were trying to outdo each other in how much oil they could produce. And when you've got too much in storage, it doesn't work its way off that very fast. Now, you will have production of oil go down in the United States significantly. It does not pay to drill in all kinds of formations that paid before, and it doesn't pay — it doesn't pay to have paid the price that oil was trading at in the ground a year or two ago. And to that extent, if you're an OXY shareholder, you know you've — or any shareholder in any oil producing company — you'll join me in having made a mistake, so far, in terms of where oil prices went. And who knows where they go in the future.

Low prices pose a risk to oil equity investments

BECKY QUICKLet me follow up with this one, and this one comes in from Mohnish Bahl, who says, "Is there a risk of permanent loss of capital in the oil equity investments?"

WARREN BUFFETTWell, there certainly is, you know — there's no question if — if oil stays at these prices, there's going to be a lot of money — a whole lot of money — in middle extended bank loans, and it'll affect the banking industry, to some degree, not — it doesn't destroy them or anything, but there's a lot of money that's been invested that was not invested based on a $17 or $20 or $25 price for WTI, West Texas Intermediate oil, and — But you can do the same thing in copper. You can do the same thing in some of the things we manufacture — I mean it — but with commodities, it's particularly dramatic. And, you know, farmers have been getting lousy prices, but to some extent, the government subsidized them. I'm all for it, actually. But if you're an oil producer, you take your chances on future prices, unless you want to sell a lot of futures forward. OXY, actually, did sell 300,000 barrels a day of puts, in effect, that — or they bought puts — and sold calls, in effect, to match it. And they were protected on $10 — for a layer of $10 a barrel on 300,000 barrels a day. But you're really buying — when you buy oil, you're betting on oil prices over time, and over a long time. And oil prices — there's risk. And the risk is being realized by oil producers as we speak. There will be— if these prices prevail — there will be a lot of bad loans in energy loans and or— bad debts in energy loans. And if there are bad debts in energy loans, you can imagine what happens to the equity holders. So yes, there's a risk.

No "surprise" liabilities in Berkshire's stock derivatives contracts

BECKY QUICKAll right, this question comes from Bob (Coleman). He says, "Warren, could you bring us up to date with the status of your equity put contracts? Sourcing the 2019 — "

WARREN BUFFETTYeah.

BECKY QUICK" — annual report, found on page 60, it appears at 2019 year-end, the fair value liability was just under a billion dollars. And if the indexes decline 30 percent, the liability obligations balloon to $2.7 billion. "So, if the indexes are down 60 percent, would Berkshire's obligation be close to 5 1/2 billion dollars? Does that math seem reasonable? And are there any loose ends or open exposures associated with — "

WARREN BUFFETTNo, they — we — between 2004, I think, and 2006, I think we wrote 48 — maybe 50 contracts — something like that. The shortest was 15 years. The longest was 20 years. And we received, as I remember, roughly $4.8 billion, which we were free to do with what we wanted. And we agreed to pay based on where one or more of four indices were selling for, at the time of expiration. They were so-called European style puts, where they're only payable based on one date. And we did not have — with a small exception — we did not have to put up collateral, which was part of the deal. And we've had that $4.8 billion — we probably had an original nominal value of something over 30 billion, maybe 35 billion — that's if everything went to zero. I mean, if the Dow Jones went to zero, the FTSE went to zero, and the Nikkei and so on. A number of those have run off. So, we now have about 14 billion, nominal. We have something less than half left. We haven't paid out anything significant. We bought back a few of them. If everything went to zero, we would owe 14 billion. If everything were to sell at the same price it was selling for on March 31st, I think the number is some — I think it's somewhat less than we carry as a liability on the balance sheet, which is two-and-a-fraction billion. So far, so good. I mean, we've, had the use of a lot of money, and the outstanding potential of them is, if the market went up a lot, we wouldn't have to pay anything, and if it goes down some more, we have to pay more than a couple of billion, but we've had the liability set up for that. But so far, so good, on that. And it is not anything that causes us any problem. They come due — the final one — I think comes due sometime in 2023. I think there's — I think maybe 20 or 25 percent of them come due late this year. And so, it's — there's nothing — the questioner doesn't really understand about them, I can tell by the question — and there's no surprises there. There's — there's no way that some liability could double up on us, except based on — except relating to where those indices close at the expiration of a group of different puts, which, like I said, have been more than cut in half. And we've done very well on it. Key to that —

BECKY QUICKWarren, you mentioned a few minutes ago that you —

WARREN BUFFETTWell, I was just going to say, key to that was — with just a couple of tiny exceptions — we did not — we did not agree to put up collateral. We never would have gotten ourselves in that position, and — That was — when we made the deals, we would just would not get ourselves in that position. And we never, never, will, where on a given date, we could have some tremendous obligation that would come due that we weren't counting on getting — having come due. I'm done, then, Becky, yeah.

Berkshire will stay intact after Buffett

BECKY QUICKOK, thanks. And you mentioned a few minutes ago that you're very concerned about Berkshire's long-term health, too. This question came in from Drew Estes in Atlanta, Georgia, who says, "There's already speculation of a post-Buffett breakup of Berkshire, and given the sway carried by modern activists, the speculation should be taken seriously. "Many long-term owners see the folly in this view. A $25 billion auxiliary earnings stream provides a lot of flexibility when investing insurance float. "On our, and your estate's, behalf, could you more forcefully make the case of maintaining Berkshire's current architecture? If you don't, that responsibility will fall on an unknown set of shoulders with far less credibility>'

WARREN BUFFETTWell, if you were to — if you were to sell Berkshire's various subsidiaries, you would incur a very significant amount of tax at the corporate level before anything was distributed to the shareholders. You can spin off a given one, or something of the sort. But the ability to break up a diverse company without tax implications — there was there was something called the General Utilities Doctrine that prevailed in various ways up until 1986. And a lot of people seem to comment based on the fact that that didn't happen in 1986. (Laughs) And there's imaginative ways where people try to avoid taxes, and can do it in some cases, on certain types of transactions. If you were to break up Berkshire, that would be one factor. But the interaction of being able to move capital around, in terms of being able to do things in insurance that we couldn't do unless there were the backup earnings, and capital employed in the other entities — there's enormous advantages in capital deployment within the place, so I — There is not a big discount to breakup value embodied in Berkshire's price. And the situation actually is that although all my Berkshire shares — every share — will be given to charities pursuant to a plan I developed back 14 years ago and followed ever since, and will continue following this July — I'll be giving away 3 billion or so worth of the stock and — but it's all — it still involves a big voting percentage that — including other people's that still remain in the picture, aside even from the Buffett family — it isn't going to happen. Now, I will tell you everybody in the world will come around and propose something, and say it's wonderful for shareholders, and by the way, it involves huge fees. I mean— (laughs) — you do not — you do not get impartial advice from Wall Street — (laughs) — when there's (an) enormous amount of fees possible from one action, and no fees applicable from another action. But you can be sure I've thought about it. And I would say that you can you can count on Berkshire's present posture being continued for a long time. I can't tell you what's going to happen a hundred years from now. And I can't tell you exactly what would happen, for example, if certain ideas, in terms of wealth taxes, changed, or taxes on foundations change. I mean, they could — But my plan has been thought out and in place for a long time. And it not only ensures that the money that's been made off Berkshire — all of it ends up going to various philanthropies staggered over time — but it also — it will keep the wolves away. Greg, do you have any thoughts on that? (Laughs)

GREG ABELWell, I think the comment on the capital allocation is critical, that we have the ability to move the capital amongst the — be it the operating businesses or up to the insurance or down — with really no consequences to our shareholders. That's the value driver, the unique structure of Berkshire, and it creates immense value, so — That's all I would add, or second, I guess.

Big question: Can U.S. keep issuing money without consequences?

BECKY QUICKAll right, this question comes from Robb Grandish in Washington, D.C. He says, "Interest rates are negative in much of Europe, also in Japan. Warren has written many times that the value of Berkshire's insurance companies is derived from the fact that policyholders pay up front creating insurance float, on which Berkshire gets to earn interest. "If interest rates are negative, then collecting money up front will be costly rather than profitable. If interest rates are negative, then the insurance float is no longer a benefit but a liability. "Can you please discuss how Berkshire's insurance companies would respond if interest rates became negative in the United States?"

WARREN BUFFETTWell, if they were going to be negative for a long time, you better — you better own equities. Or you better own something other than — than debt. I mean, it's remarkable what's happened in the last 10 years. I've been wrong in thinking that you could really have the developments you've had without inflation taking hold. But we have 120-odd billion — well, we have some — almost — very high percentage in Treasury bills — some in other — and some just in cash, but we — but those Treasury bills are paying us virtually nothing. Now, they're a terrible investment over time. But they are the one thing that when opportunity arises — it will arise at a time — and maybe the only thing you can look to pay for those opportunities is the Treasury bills you have. I mean, the rest of the world may have stopped. And we also need them to protect— be sure that we can pay the liabilities we have, in terms of policyholders over time, and we take that very seriously. So, if the world turns into a world where you can issue more and more money and have negative interest rates over time, I'd have to see it to believe it, but I've seen a little bit of it. I've been surprised. So, I've been wrong so far. I do not think that— I don't see how you can create — I would say this, if you can have negative interest rates, and pour out money and incur more and more debt, relative to productive capacity, you think the world would have discovered it in the first couple thousand years rather than just coming on it now, but we will see. It's one of the most — it's probably the most interesting question I've ever seen in economics — is can you keep doing what we're doing now, and — We've been able to do it — or the world's been able to do it — for now, a dozen years or so and — But we're — we may be facing a — we may be facing a period where we're testing that hypothesis that you can continue it with a lot more force than we've tested it before. Greg, do you have any thoughts on that. I wish I knew the answer. Maybe, you do? (Laughter)

GREG ABELNo, I think, as you articulated — I think it was in the annual report, too — I mean, we don't know the answer. But, as you said, some of the fundamentals right now are very interesting relative to having a negative interest rate. But I know — I hate to say it, but I don't have anything to add. (Laughter)

WARREN BUFFETTI'd love to be secretary of the Treasury, if I knew I could just keep raising money at negative interest rates, that makes life pretty simple. We're doing things that we really don't know the ultimate outcome. I think — and I think, in general, they are the right things, but I don't think they're without consequences. And I think they could be, kind of, extreme consequences if pushed far enough. But there would be, kind of, extreme consequences if we didn't do it as well. So, somebody has to — you know, balance those — those questions.

Businesses that don't need a lot of capital are better

BECKY QUICKAll right, this question comes from Adam Schwartz in Miami, Florida. And he says Berkshire is the largest holding in his partnership, which also houses most of their net worth. He says, "Berkshire's invested in many capital-intensive businesses through the years, railroads as an example. How do you think about the inflationary, or even deflationary, risks for all of the capital-intensive businesses? And could this prove to be an existential problem for businesses?" "I'm kind of referencing what you were just talking about, that eventually the bill for the debts being issued comes due. Will it eventually come from all businesses through some combination of higher tax rates on corporations, increased wages for the lower-middle classes?"

WARREN BUFFETTWell, I certainly think that increased corporate taxes are a much higher probability than having lower corporate taxes. So, I — I think that we got handed, as a corporation, a big chunk of what used to be the government's profits from our business a couple of years ago. And it would depend on, to some extent, which party is elected and — and whether they have control of both houses as well as the presidency, and who knows what else. But we could very easily have higher corporate income taxes, and perhaps much higher corporate income taxes, at some point. And in terms of capital-intensive businesses, they're just not as good, if you can find an equally good business — I mean, in terms of operations — that doesn't require capital. I mean — they're — you know, the — See's never — See's (Candies) never really required. It didn't grow, but it's — it just doesn't — it didn't take money to expand it and it's delivered enormous sums to us. And because we own it within Berkshire, to redeploy it elsewhere didn't require a lot of tax expense either at the corporate level or at the personal level. So, you really want a business — and everybody wants a business — that doesn't take any capital to speak off — and keeps growing — that doesn't take more capital as it grows. Now, our utility business (inaudible) the energy business requires more capital as it grows. Our railroad business, to some extent, requires more capital if it doesn't grow, even. So capital-intensive businesses, by their nature, you know, are not as good as something where people pay in advance and you don't need the capital. I mean, if you look at — if you look at where the top market value is in a $30 trillion market, you know — if you take the top four or five companies that account for, you know, maybe 3 — 4 trillion or so of that 30 trillion, basically, they don't take much capital. And that's why they're worth a lot of money, because they make a lot of money and they don't require the money, to any great extent, in the business. We own some businesses like that. But it's certainly not the railroad. And it's not — it's not the energy business. They're good businesses. We love them. But if they didn't take any capital, they'd be unbelievable. But that's just — that's what we've learned from 50 or 60 years of operating businesses, that if you can find a great business that doesn't require capital when it grows, you've really got something. And to a certain extent, because insurance uses the kind of assets we would like to own anyway, our insurance business doesn't really take capital. It requires having capital available. But, we're able to invest that money, largely, in things we'd like to own anyway. So, we're particularly well suited for the insurance business. And it's really been the most important factor in our growth over the years, although a lot of other things contribute. Greg, you're in a capital — you were in a capital-intensive business. (Laughs) Tell us about it. (Laughter)

GREG ABELWell, I think there's no question, obviously, we'd prefer to be in a less capital-intensive business, but there are unique opportunities there. The one I would touch on when I think of inflation — or even potentially, as we go through this crisis, and maybe a prolonged one — or depending on how long it takes to recover — I mean, we are in a unique — when we're looking at energy or rail — we do have a certain amount of pricing power. And it's through our regulatory formulas or how our arrangements are with our customers. So, if we then were to move into a deflationary period, it's not perfect protection, but those businesses, generally, can recover a significant portion of their costs, even in an inflationary environment, and still earn a reasonable return. They're not going to be great returns, as you highlight, Warren. But they're still going to earn a —

WARREN BUFFETTOh yeah.

GREG ABEL— reasonable return on their capital, even in an inflationary period. There may be some lag and some things like that, but they're still going to be very sound investments.

WARREN BUFFETTOh, yeah. If there was 10- for-1 inflation — make it extreme — yeah, we'd be happy we own the railroad — very happy. Well, we'd be investing a lot of capital in it, but that businesses, in my view, is a very, very solid business for many, many, many, many decades to come. I said originally, we bought it with a hundred-year time horizon, and I've extended that, so — It will earn more dollars if there's a lot of inflation. In real terms, who knows? But it would earn a lot more dollars. And a lot of the energy projects would in the — But it's better if we don't have inflation. And it's better if we don't have capital — (laughs) — if we can find the same sort of businesses that aren't as capital intensive. We — we've got capital. I mean, we — we're ideally positioned for capital-intensive businesses that other people have trouble raising capital for, but they've still got to promise decent returns.

U.S. can't default on its debt, but inflation is a risk

BECKY QUICKAll right, this question comes from Charlie Wang. He's a shareholder in San Francisco. He says, "Given the unprecedented time of the economy and the debt level, could there be any risks and consequences of the U.S. government defaulting on its bonds?"

WARREN BUFFETTNo. The — if you — if you print bonds in your own currency, what happens to the currency is — it can be a question, but you don't default. The United States has been smart enough, and people have trusted us enough, to issue its debt in its own currency. And Argentina is now having a problem because the debt isn't in their own currency. And lots of countries have had that problem, and lots of countries will have that problem in the future. It is very painful to owe money in somebody else's currency. But if you — listen, if I could issue a currency — Buffett Bucks — and I had a printing press, you know, I could borrow money — and I could borrow money on that — I would never default. (Laughs) So, what you end up getting, in terms of purchasing power, can be in doubt. But in terms of the U.S. government — when Standard and Poor's downgraded the United States government — I think it was Standard and Poor's, some years back — that, to me, did not make sense. I mean, in the end, how you can regard any corporation as stronger than a person who can print the money to pay you, I just don't understand. So, don't worry about the government defaulting. I think it's kind of crazy, incidentally — this should be said — to have these limits on the debt and all of that sort of thing, and then stopped government arguing about whether it's going to increase the limits. We're going to increase the limits on the debt. The debt isn't going to be paid, it's going to be refunded. And anybody that thinks they're going to bring down the national debt, I mean — that — you know — there's been brief periods — I think in the late '90s or thereabouts — when the debt has come down a little bit. The country is going to print more — incidentally, the country is going to grow, in terms of its debt paying capacity. And — but the trick is to keep borrowing in your own currency.

Stock buybacks aren't immoral, but they can be stupid

BECKY QUICKEmphasis on trick. This question comes from David Kass. He is a clinical professor of finance at the University of Maryland. And he says, "Berkshire has invested in many companies with stock buyback programs. Recently there's been a backlash against buybacks. What are your views on this subject?"

WARREN BUFFETTWell, it's very politically correct to be against buybacks now, you know, and they're going to incorporate it in the loan program. The — there's a lot of crazy things said on buybacks. Buybacks are so simple. I mean, it's a way of distributing cash to shareholders. And let's just say that you and I and Greg — the three of us — decide to buy an auto dealership, or a McDonald's franchise, or something. We each put a million dollars in, you know, or whatever the number may be. And we get along with each other and the business grows and all of that. And one of us really wants to spend our share of the earnings. And the other two want to leave the money in the business to grow. Now if the three of us did that, and we’re the only shareholders, we would not establish a 100 percent dividend payout for everybody. And we wouldn't freeze the one that wanted to get out, either. The logical thing to do is to buy a portion — whatever that person wants to spend annually from the earnings — buy a portion of their stock, and the other two find their interest in the company goes up. And the third person still has a little more of an interest by what they leave in, but they also can take some money out of the business. You're taking money out of the business in either case. And one you call dividends and you send it to everybody whether they want it or not. And with buybacks, you give it to the ones who want the money. And I have been following a policy of giving away stock, now, since 2006. And I'll give away a lot of stock. But the people — the philanthropies — that that receive it — the gifts — have to spend the money very promptly, within, you know — on a current basis, more or less. So, they are getting $3 billion worth of stock, or whatever it may be. And I'm, in effect, reducing my interest in Berkshire. But I'm still — Berkshire is still retaining more capital than I'm giving away, so I have more dollars invested, but my interest goes down, and the people that need the cash to carry out the philanthropic efforts, they cash out the stock. And I don't force — I don't force my sister, or whoever it may be, to take a bunch of money she doesn't want. She wants it reinvested — all of it — reinvested in the business. And people that don't want to, can sell some of their stock. And the company ends up in the same position. We've distributed some of the capital that we don't need for growth. Now, whether the company should buy it depends on a couple of things. One is they ought to retain the money they need for intelligent growth prospects, that's fine. And secondly — and this is a point that's never mentioned — they should be buying it back below what they think it's worth. Now, they'll make mistakes in that, but you make mistakes in a lot of businesses. But over — that should be the guiding principle. And to my knowledge — JPMorgan — (CEO) Jamie Dimon said it once, and we've said it various times, you know — we retained — we will repurchase shares when it's to the advantage of the continuing shareholder to have us do so. But you read about all these buyback problems that we're going to spend 5 billion buying it back, or 10 billion. Well, that's like saying, I'm going to go out and buy some business this year for 5 billion without knowing what you're going to get for the money. It should be price sensitive, obviously. It should be needs sensitive, obviously. But when the conditions are right, it should also be obvious to repurchase shares, and there shouldn't be the slightest taint to it any more than there is to dividends. And people that have now, sort of, taken up the cries about how terrible it was that companies bought back stock — I will say it was terrible for them to pay dividends, too — (laughs) — and they'd have more money now, but they were doing what was intelligent at the time, and I hope they continue to do what's intelligent as they go forth. Greg?

GREG ABELNo, I — the only thing I know you've commented on in the past, Warren, is that — I think the one thing we are seeing, and obviously, we're supportive of buybacks — but there are companies that used — probably their financial engineering was just a little —

WARREN BUFFETTExtreme.

GREG ABEL— extreme and too cute, that effectively you're using every ounce of your balance sheet to buy back stock at a time where you're really creating no cushion for your business for any type of event or bump in the road, and I — you know, we're going to see that, and I think that's a very unfortunate outcome of them, and hence you get some of the backlash. But there's still companies, as you highlighted, many that do it right.

WARREN BUFFETTYeah. No, if they're buying it back because it's fashionable, because they really do like the idea that —there's nothing wrong with doing — taking an action that increases the value of the remaining shares, but if they're doing it very — and incidentally, I've been witness to some programs, where it really is stupid. But I don't think it's immoral. I just think it's stupid — (laughs) — you know, basically. And — on the other hand, I — we favor companies that take care of all their requirements for growth and, as Greg says, maintain sound balance sheets and all of that, leave a margin of error for things that you can get surprised with, and if they find their stock selling below the — what the business is intrinsically worth, I think that they're making a big mistake if they don't buy in their stock, and — It's going to be a political football, and like I say, that when it becomes politically correct to do something in this country — if you're a politician, the best thing to do is get on board. But Berkshire is going to do what it thinks makes sense for shareholders. And we — and we like investing in companies that think that way, too. And not all companies, obviously, do.

Convert A shares to B shares if you want a smaller tax liability when cashing out

BECKY QUICKAll right, here's a question from Lou — Lou Bogart in Boca Raton, Florida. He says, "I'm a longtime shareholder with a concern as I head into retirement. I understand the theory that splitting shares does nothing for the value of shares. However, with the extremely high price on A shares, when I wish to draw down some money on my portfolio in retirement, I'm facing a large tax hit. "Say the average price has been about $300,000 this year, and I'm sitting on a $200,000 capital gains liability for each share. If I need $60,000 in additional cash during my retirement, I need to sell a full share and get hit with $200,000 tax liability. "If you would split the stock 10-for-1, I could sell two $30,000 shares and keep my tax liability at a more manageable 40,000. I could also maintain more of my investment in Berkshire." He said, "Have you thought about this? In retrospect, I should have bought B shares but didn't think about it the time."

WARREN BUFFETTWell, you can convert A to B shares, which is exactly what takes place when I give away the money in July to the five foundations. I actually convert it immediately before the gift, I mean, and so they get B shares. And the truth is, the B shares are very useful to people that want to, either, give away a small portion of what they have, or spend it, or whatever it may be. So, you can convert the A to B shares, which is exactly what I've been doing now for 14 years as I give it away, and — and solve that problem, and we — We split the B shares, as I remember it, from one point, you know, just to make it even more manageable, so that people could deal with smaller denominations. The B shares — the A shares have a different voting power — but, we passed some resolution some time ago, I think — and it certainly would be the case — in any event, we're never going to give the A shares an advantage over the B. They used to have an advantage in a shareholder-designated contribution program that we had, and we put that in there when we started but that's in — that goes way back in time, and that doesn't exist anymore, so that the B and the A are going to get treated exactly the same over time. It's true the A have more votes, but — and they sell — they sell very close to parity all the time. So, I would say that if you want to do anything, in terms of raising cash, and you've got a lot of A shares, you know, you take one or two shares of A — and plenty of people I know have done this — and just cash in, and turn it into B, and give yourself whatever amount of cash you want to get.

No "special problems in the banking industry now"

BECKY QUICKThis is one that comes from Thomas Lin in Taiwan. He says, "Warren once said that banking is a good business if you don't do dumb things on the asset side. Given that the pandemic might put a lot of pressure on the loans, dumb things that got done in the past few years are likely to explode. "Through reading annual reports, 10-Qs, and other public information, what clues are you looking for to decide whether a bank is run by a true banker who avoids doing dumb things?"

WARREN BUFFETTThat's a very good question. But I would say that the one thing that made (Federal Reserve) Chairman (Jerome) Powell's job a little easier this time than it was in 2008 and '09, is that the banks are in far better shape, so — In terms of thinking about what was good for the economy, he wasn't at the same time worrying about what he was going to do with bank A or bank B, to merge them with somebody else, or put strain — added strains on the system or anything. The banks — the banks were very involved with the problem in 2008 and '09. They had — they had done some things they shouldn't have done in —some of them. And they were certainly in far different financial condition than now, so that — the banking system is not the problem in this particular shutdown. The government — we decided, as a people, to shut down part of the economy in a big way. And it was not the fault of anyone that it happened. Things do happen in this world. Earthquakes happen, you know. Huge hurricanes happen. This was something different, but — The banks — banks need regulation. I mean, you know, they benefit from the FDIC, but part of having the government standing behind your deposits is to behave well, and I think that the banks have behaved very well, and I think they're in very good shape. I mean, that's why the FDIC has built up a hundred billion dollars that I've talked about. I mean, they've assessed the banks, in recent years, at accelerated amounts in certain periods, and they even differentiated against the big banks. So, they built up great reserves there. And they built their own balance sheets, and they are not, presently, part of Chairman Powell's problem, whereas they were very much a part of Chairman Bernanke's problem back in 2008 and '09. How you spot the people that are doing the dumb things is not easy because — well, sometimes it's easy. But — (laughs) — I don't see a lot that bothers me. But banks are, in the end, institutions that operate with significant amounts of other people's money, and if problems become severe enough in an economy, even strong banks can be under a lot of stress, and we'll be very glad we've got the Federal Reserve System standing behind them. I don't see special problems in the banking industry now. I could think of possibilities. And (CEO) Jamie Dimon referred to this a little bit in the Morgan — JPMorgan report. You can dream of scenarios that puts a lot of strain on banks, and they're not totally impossible. And that's why we have a (inaudible). And I think that — I think overall, the banking system is not going to be the problem. But I'm not — I wouldn't say that with a hundred percent certainty because there are certain possibilities that exist in this world where banks can have problems. They're going to have problems with energy loans. They're going to have problems some — you know, they're going to have extra problems with consumer credit. They're going to have — you know, they're in — but they know it. And they're well reserved. Well, they're well capitalized for it. They were reserve building in the first quarter, and they may need to build more reserves. But they are not a primary worry of mine at all. We own a lot of banks. We own a lot of bank stocks. Greg, do you have any thoughts on it?

GREG ABELNo, I really — you touched on it earlier, too, just in general, which is we don't know how long this pandemic will go, we don't know if there's going to be a second event, which are just risks that are really unknown at this time, and the banks will have to continue to manage through that, as businesses do. But you've already highlighted that, obviously.

WARREN BUFFETTYeah.

Despite its drop, Berkshire's stock price hasn't made buybacks compelling

WARREN BUFFETTBecky?

BECKY QUICKAll right. So, this question — I was looking for one of these, because I got several questions that came in similar to this — I was looking for one of these a moment ago. This one's from Andrew Wenke. He says, "Can you ask Warren why he didn't purchase — repurchase — Berkshire shares in March when they dropped to a price that was 30 percent lower than the price that he had repurchased shares for in January and February?"

WARREN BUFFETTYeah. It was very, very, very short period where they were 30 percent less, but — We — I don't think Berkshire shares, relative to present value, are at a significantly different discount than they were when we were paying somewhat higher prices. You know, it's like (economist John Maynard) Keynes said, or whoever it was, "If the facts change, I change my mind. What do you do, sir?" So — it's — we always think about it. But I don't feel that it's more — far more compelling to buy Berkshire shares now than I would have felt three months, or six months, or nine months ago. It's always — it's always a possibility. And we'll see what happens. Greg, you've — you think about repurchasing shares. (Laughs)

GREG ABELNo, I — I think our approach, Warren, is the right approach. I mean, you're always — I can't really add anything other than the approach is the right approach. We approach it when we see it's the right thing for our shareholders to be repurchasing. And that doesn't mean we're repurchasing all the time, or the view doesn't change.

WARREN BUFFETTThere could be a price, relative to value at the time, not relative to what it was worth a year ago, I mean. The value of certain things have decreased. Our airline position was a mistake. Berkshire is worth less today because I took that position than if I hadn't. And there are other decisions like that. And they're not, you know — it is not more compelling to buy the shares now than it was when we were buying them. It's not less compelling. I mean, it's a wash. But we didn't do any — we — It's not gotten — the price has not gotten to a level — or not been at a level — where it really feels way better to us than other things, including the option value of money, to step up in a big, big way.

Don't owe money on your credit card

BECKY QUICKThis question comes from three investors in Israel, Lidor Zloof, Yossi Zloof, and Dan Gorfung. They want to know about the credit card industry. It says, "How do you explain the rise in the average credit card interest rate in recent years compared to the federal funds rate? What are the forces that you think might keep it at or around current levels, and what are the forces that might drive it lower in the future?"

WARREN BUFFETTWell, that is not a subject that I'm — you know — obviously, it affects American Express to some degree, it affects the banks we own. But interest rates on credit cards respond to competition, obviously, to loss potential, which, obviously, has gone up significantly in the last few months — although it's gone down, perhaps from some other periods you can pick in the past — but I don't really have much I can bring to the party on that question. We are not in the — well, that isn't true. Our furniture companies, a couple of them, have their own credit card, although they do a lot of business on other people's credit cards. My general advice to people — I mean, you know — we have an interest in credit cards, but people — I don't — I think people should avoid using credit cards as a piggy bank to be raided. I had a woman come to see me here not long ago, and she'd (inaudible) some money — and not very much, but it was a lot to her — she's a friend of mine — and she said, "What should I do with it?" And I said, "Well, what do you owe on your credit card?" And she's, "Well, I owe X." And I said, "Well, what you should do" — I don't know what interest rate she was paying, but I think, you know — maybe — I think I asked her, and she knew, and something like 18 percent or something. I said, "I don't know how to make 18 percent." You know, I mean — if I owed any money at 18 percent, the first thing I'd do with any money I had, would be to pay it off. It's going to be way better than any investment idea I've got. And that wasn't what you wanted to hear. And then later on in the conversation, she talked about her daughter, and her daughter had a thousand dollars or two thousand dollars, or something. And she said, "Well, what should I do with …" — and she named the girls — "… money?" And I said, "Have her lend it to you." (Laughs) "I mean, if you're willing to pay 18 percent —(laughter) — or whatever, I mean, she's not going to find a better deal. I'll lend you money." It just doesn't — it doesn't make sense. You can't go through life, you know, borrowing money at those rates and be better off (inaudible). So, I encourage everybody — it's contrary to my own — or Berkshire's interests in certain cases — but the world is in love with credit cards — but I would suggest to anybody that the first thing they do in life is not owe — I don't think — you can get to something else later on — but don't be paying — don't be paying, even 12 percent, to anybody. I mean it's — Pay that off and then — and if they're really a good credit and they don't want to do it, come and see me personally, I'll lend you the money — (laughs) — at that rate. Greg, what do you tell your children? (Laughs)

GREG ABELThe same advice — excellent advice. (Laughs) No, I have three that carefully use their credit card, and more I would say for — not the — but, obviously, people use it a lot more as they go into the digital world and e-commerce world, but then the goal has to be to repay it. It doesn't mean you — because you have to use it for those type of transactions, you run up the balance, but there's an incremental risk there now.

WARREN BUFFETTIt's a matter of convenience for some people.

GREG ABELYeah, yeah.

WARREN BUFFETTBut — I would have trouble — if I were paying 12 percent for money, or whatever it might be, it would not be a good thing. (Laughs) You won't see Berkshire paying that. (Laughter)

"I'm 100% for taking care of people" hurt economically by COVID-19 shutdowns

WARREN BUFFETTBeck.

BECKY QUICKWarren, this question is from Lindsay Schumacher.

WARREN BUFFETTWell —

BECKY QUICKDid you have something you were saying?

WARREN BUFFETTWe probably ought to wind this up, maybe, in 15 minutes. Can you select the best ones? (Laughs)

BECKY QUICKOK. Absolutely. Yeah. Well, I've got a couple more questions for you. This one's from Lindsay Schumacher. She says, "Warren, what's your opinion regarding the (COVID-19) Payroll Protection plan?"

WARREN BUFFETTWell, I don't want to get into politics generally. But I think that's a very good idea to take care of the people who are having terrible trouble taking care of themselves in a period like this. I mean, if the government — and surrounding conditions and whatever it may be — if you're telling a lot of businesses, essentially, you know, quit doing business for a long time — and it's one thing to tell me, but to tell somebody that is living from paycheck to paycheck that way — you know — I'm — I'm all for it. It must be hell to administer. I mean it — you know — any huge program. I don't want to — I'll never get into criticizing on how people do this or that, because I've had problems myself in running a few big things. It just isn't that easy to inaugurate incredibly large problems (programs). There's going to be a certain amount of fraud. There's going to be — you know, everything doesn't go perfectly. But I am a hundred percent for taking care of the people that really get hurt by something that they've got nothing to do with, and where it's — you know — who knows how long it lasts. You've got millions and millions of people that are worrying about something that they weren't worried about a few months ago. And they didn't do anything. They showed up for work on time, and they pleased the people they dealt with, and whatever it may have been. And now they don't have a job, or they've been furloughed, or whatever. So, I — I'm totally for the basic idea. And I think it's very difficult. We can't carry it out perfectly. You do your best and you do it promptly. And I give — I give real credit to both Congress for acting promptly on what the problem is. They've sort of caught on from what they learned in 2008 and '09, I think. And I give credit to trying to do what I think is very much the right thing, and I don't sit around and think about how I could do it better. Greg?

GREG ABELI agree with the comments.

As a prosperous nation, we need to take better care of people fighting COVID-19

BECKY QUICKWarren, this question comes from Bill Murray, the actor, who's also a shareholder in Berkshire. He says, "This pandemic will graduate a new class of war veterans, health care, food supply, deliveries, community services. So many owe so much to these few. How might this great country take our turn and care for all of them?"

WARREN BUFFETTWell, we won't be able to pay, actually — you know, it's like people that landed in Normandy or something. I mean, the poor, the disadvantaged, they suffer. There's an unimaginable suffering, and at the same time, they're doing all these things that — you know, they're working 24-hour days, and we don't even know their names. So, we ought to a — If we go overboard on something, we ought to do things that can help those people. And this country — I've said it a lot of times before — but the history of it, I mean — we are a rich, rich, rich country. And the people that are doing the kind of work that Bill talks about, you know, they are they're contributing a whole lot more than some of the people that came out of the right womb, you know, or got lucky and thinks they're — know how to arbitrage bonds, or whatever it may be. And I'm, you know, in large part, I'm one of those guys. So, you really try to create a society that under normal conditions, with more than $60,000 of GDP per capita, that anybody that worked 40 hours a week can have a decent life without a second job, and with a couple of kids, and have, you know — They can't live like kings. I don't mean that. But that — nobody should be left behind. It's like a rich family. You know, you find rich families, and if they have five heirs, or six heirs, they know they try and pick, maybe, the most able one to run the business. But they don't forget about — you know — the kid that actually may be a better citizen in some ways even than the one that does the best at business, but he just doesn't happen to have that market value — skill. So, I do not think that a very rich company ought to totally abide by — totally abide by what the market dishes out, you know, in 18th century style or something of the sort. So, I welcome ideas that go in that direction I — we've gone in that direction — you know, we did come up with Social Security in the '30s. We — we've made some progress, but we ought to. We have become very, very, very rich as a country. And we've been — things have improved for the bottom 20 percent. I mean, you can see various statistics on that. But I'd rather be in the — I'd rather be in the bottom 20 percent now than be in the bottom 20 percent a hundred years ago, or 50 years ago. But it's — what's really improved — (laughs) — is the top 1 percent. And I hope we, as a country, move in a direction where the people Bill's talking about get treated better. And it isn't going to hurt — it isn't going to hurt the country's growth, and — It's overdue, but a lot of things are overdue. We are — I will still say we're a better society than we were a hundred years ago. But you would think with our prosperity, we could — we would — hold ourselves to even higher standards of taking care of our fellow man, particularly when you see a situation like you've got today, where it's the people that — whose names you don't know, that are watching the people come in and watching the bodies go out. Greg?

GREG ABELYeah, I — the only other group that I would highlight, and I think it's — it'll be very interesting how it plays out — is with the number of homeschooling and the children that are home — I think there's a — we've always had so much respect for teachers, but we all talk about how we don't take care of them. And, you know, it is remarkable to hear how many people comment that, clearly, we don't recognize or — you know, I have a little 8-year-old — Beckett — at home and, you know, plenty of challenges for Mom. But all of a sudden, you respect the institution, the school, the teachers, and everything around it. So, there's — and then when I think of our companies and the delivery employees we have, it's absolutely amazing what they're doing, and they're truly on the front line. You know, that's where we have our challenges around keeping them health and safety. And then you go all the way to the rail. The best videos you see out of our companies are when we have folks that are actively engaged in moving supplies, food, medical products, and they're so proud of it, and they recognize they're making a difference. So, a lot of it is, we just owe them a great thanks. And, Warren, you touched on it. We can — some way — maybe, hopefully, longer term compensate them, but there's a great deal of thanks, and I probably just think an immense amount — new appreciation for a variety of folks.

WARREN BUFFETTWe're going the right direction (inaudible) the country, but it's been awfully slow.

GREG ABELYeah.

Capitalism needs government to make sure everyone participates in prosperity

BECKY QUICKGentlemen, I'll make this the last question. It comes from Phil King. He says, "Many people in the press and politics are questioning the validity of capitalism. What can you say to them that might prompt them to take a look at capitalism more favorably?"

WARREN BUFFETTWell, the market system works wonders. And it's also brutal, if left entirely to itself. And we wouldn't be the country we are, if the market system hadn't been allowed to function. And to some extent, you can say that other countries around the world that have improved their way of life dramatically, to some extent, have copied us. So, the market system is marvelous in many respects, but it needs government and it — you know — it is creative destruction, but for the ones who are destroyed It can be a very brutal game, and for the people who work in the industries and all of that sort of thing, so I — I do not want to come up with anything different than capitalism, but I certainly do not want unfettered capitalism. And it's — I don't think we'll move away from it, but I think we capitalists — and I'm one of them — you know, I think there's a lot of thought that should be given to what would happen if we all drew straws — again — for particular market-based skills. You know, it's — Somewhere way back, somebody invented television. I don't know who it was. And then they invented cable. Then they invented pay systems and all of that. And so, the fellow that could bat .406 in 1941 was worth $20,000 a year, and now a marginal big leaguer, you know, will make vastly greater sums because, in effect, the stadium size was increased from 30 or 40 or 50,000 people to the country, and the market system — capitalism — took over. And it's very uneven. And incidentally, I think that Ted Williams — (laughs) — was worth a whole lot more money than I ever should make. But the market system can work toward a winner takes all-type situation, and we don't want to discourage people from working hard and thinking hard, but that alone doesn't do it. There's a lot of randomness in the capitalist system — including inherited wealth — and I think we can — I think we can keep the best parts of a market system and capitalism, and we can do a better job of making sure that everybody participates in the prosperity that that produces. Greg?

GREG ABELYeah. No, I think it's always keeping the best parts of it. And I even think if we look at the current environment we're in, i.e., in the pandemic, and we have to do it only when we can do it properly and reemerge, but in some ways the best opportunity for people is when we're back working, clearly, and that the systems function again, but that — that's the obvious and then there's, as Warren, you've highlighted, there's, you know, there's a lot of imperfections but it's still — it's definitely the best model out there, that just needs some fine tuning.

"Smartness does not necessarily equate to wisdom"

WARREN BUFFETTAnd Becky, at the end, I would just —

BECKY QUICKHey Warren —

WARREN BUFFETTI would just say that, you know — oh sure, go ahead.

BECKY QUICKCan I? Can I just —

WARREN BUFFETTSure.

BECKY QUICK— look at one more quick question. I forgot this one. Someone sent it in earlier. Thanks. Anderson Haxton wrote in. He said, "Warren mentioned that Ben Graham is one of the three smartest he's ever met." (Buffett laughs) "I'd like to ask him the names of the other two."

WARREN BUFFETTWell, I may not be one of the smartest, but I'm smart enough not to name the other two. I'd make two people happy. But — (Laughter) But I would — it isn't a — Ben Graham is one of the three smartest people, and I've known some really smart people. Smartness is not necessarily — does not necessarily equate to wisdom, either. And Ben Graham, one of the things he said he liked to do, every day, was he wanted to do something creative, something generous, and something foolish. And he said he was pretty good at the latter. (Laughs) But he was pretty good — he was amazing, actually, creating. But it's interesting that IQ does not always translate into rationality and behavioral success or wisdom, and so — I know some people that are extraordinarily wise that would not be in the top three on an IQ test. But if I wanted their judgment on some matter, even if I want to put them in a position of responsibility someplace, I might prefer them to — we'll say one of the three. That'll leave the other two feeling fine — (laughs) — of the three. (Laughs) Greg, you have any thoughts on that? (Laughter)

GREG ABELNope. I agree with the person you named.

WARREN BUFFETTYeah.

Conclusion: Never bet against America

WARREN BUFFETTAnd Becky, I would just — I would just say, again, that we may have — I hope we don't — but we may get some unpleasant surprises, you know. We're dealing with a virus that — that spreads its wings in a certain way, you know, in very unpredictable ways, and how the — how all Americans react to it, you know, there's all kinds of possibilities. But I definitely come to the conclusion, after weighing all that sort of stuff, never bet against America. So, thanks.

BECKY QUICKThank you.

WARREN BUFFETTOK.

BECKY QUICKI appreciate your time tonight.

WARREN BUFFETTAnd we'll see you next year. We'll have — we'll fill this place. OK. (Laughs)

BECKY QUICKOK, good night, everybody.