2023 年股东大会 · 上午场

Berkshire's own 'King Charles'

WARREN BUFFETTGood morning, good morning. And thanks for coming. Omaha loves it, I love it, Charlie loves it. We're glad to have you here. We're going to make this preliminary, before the questions, very short because we want to get in at least 60 questions, half divided by the audience outside this arena and half from you. So, I would just like to get right to the directors and the earnings that have been put up on a web page this morning, but we'll cover those very fast and then we'll get to the questions. Now, when I woke up this morning, I realized that we had a competitive broadcast going out somewhere in the UK. And (Laughter) they were celebrating a King Charles, and we've got our own King Charles here today. (APPLAUSE AND CHEERING) And next to him we have Greg Abel, who's in charge of all the operations except for insurance. (Applause) And next to Greg, we have a man I ran into in 1986 and has made us look good ever since. We have the man in charge of insurance, Ajit Jain. Ajit? (Applause and cheering)

Directors introduced

WARREN BUFFETTAnd now we have our directors here in front. And if they would just stand briefly and then I'll go onto the next one, and they're all here today. First of all, doing it alphabetically, there's Howard Buffett, (Applause). There's Susie Buffett, there's Steve Burke, Ken Chenault, Chris Davis, Sue Decker, Charlotte Guyman, Tom Murphy Jr., Ron Olson, Wally Weitz, and Meryl Witmer. That's as good as you can get.

The woman who organized the whole thing

WARREN BUFFETTAnd there's one other person I would like to mention before we get onto the earnings that were put in the press release this morning. Well, let's see who we have here. We've got — This is hard to believe. Can you imagine a name, Melissa Shapiro Shapiro? (Laugh) And she was Melissa Shapiro till she married another Shapiro, and she put this whole thing together with no help from me, no help from Charlie, (Applause) and a lot of help from the people in the other room. Melissa. (APPLAUSE and CHEERING) Yeah, it's very easy. If you can remember her second name, you can remember her third name. So, Melissa Shapiro Shapiro.

Most Berkshire businesses will report lower earnings next year

WARREN BUFFETTAnd with that, I would like to next move onto the earnings and a couple small slides that explain what we're all about, and then we're going to get to Q&A. And the slide is up behind me, and there it is. We reported in the first quarter operating earnings a little over $8 billion. And when we talk about operating earnings, we're basically referring to the earnings of Berkshire Hathaway as required under GAAP, excluding however, capital gains both realized and unrealized. There's a few other very minor items, but basically, we expect to make capital gains over time. Why would we own the stocks otherwise? Doesn't always work out, but overall, it works out pretty well over time. But in any day, any quarter, any year, even occasionally over a five-year period, the stock prices move around capriciously. Now, we own a lot of other businesses. We consider those stocks businesses. We own a lot of other businesses where they get consolidated, and they don't move around in value. Now, if we had a little bit of Burlington stock outstanding, if we had a little bit of the energy stock trading, those stocks would move around a lot. But the businesses are what count. So, the operating earnings, as you'll see in the first quarter, came it at about $8 billion. And I would say that in the general economy, the feedback we get is that, I would say, perhaps the majority of our businesses will actually report lower earnings this year than last year. In various degrees in the last six months or so, at various times, the businesses have left the incredible period, which is about extraordinary as I've seen a business since World War II, which poured out a lot of money to people who couldn't get goods. It was more extreme in World War II, but this was extreme this time. And it was just a question of getting goods to deliver. And people bought, and they didn't wait for sales. And if you couldn't sell them one thing, they would put another thing in their backlog. It was an extraordinary period. And that period has ended. As you know, it isn't that employment has fallen off a cliff or anything, in the lest. But it is a different climate than it was six months ago. And a number of our managers were surprised. Some of them had too much inventory on order, and then all of a sudden it got delivered, and people weren't in the same frame of mind as earlier. And now we'll start having sales at places where we didn't need to have sales before. But despite the fact that this year I think in general will be slower than last year, we actually are situated so that I would expect, and believe me when I say expect, nothing is sure. Nothing is sure tomorrow, nothing is sure next year, and nothing is ever sure, either in markets or in business forecasts, or in anything else. And we don't pay much attention to markets or forecasts unless the markets happen to offer something interesting to do. But nevertheless, we are positioned in two respects, as you'll see from this first report. Our investment income is going to be a lot larger this year than last year. And that's built. I mean, as you'll see in a minute, we've had $125 billion or so in very short-term investments. And believe it or not, not that long ago we were getting four basis points, which is next to nothing on that $125 billion, which means we were getting $50 million a year. And now the same money, just the day before yesterday, we actually bought because of some funny twist the market, because of doubts about the debt ceiling. We bought $3 billion of bills at 5-90. That's 5.92 bond equivalent yield. So, we will have what produced just not that long ago on a 12-month basis was producing $50 million a year, producing something in the area of $5 billion a year. So, we're in a position where the investment income is certain to increase quite a bit. And insurance underwriting does not correlate with business activity. It depends on things like hurricanes, and earthquakes, and other events. So, on a perspective basis, on a probability basis, we're likely to have a better year this year in insurance underwriting than we had last year. It just isn't affected by what you might call the business cycle or what applies to generally in industry, retailing, you name it. So, I would expect in one massive earthquake or one hurricane that came in at just the wrong place could affect that prediction. But on a probabalistic basis, our insurance looks better this year. So, if you get two of the elements there of our main elements of earnings that look like they will swing in our direction, I would expect, but I can't promise, that our operating earnings will be greater than last year. And if we'll move to the second slide, I give you those operating earnings figures just to give you a overview of what has happened since the pandemic started, and also the year before as a base. And we retain all our earnings, as you know. So, if we're retaining $30 billion or $35 billion, or whatever it may be, a year, they should expect more operating earnings over time. I mean, this number should be significantly higher five, or ten, or 15 years from now because we have the advantage of retaining earnings, and that's what got us to these figures because they were essentially nothing when we started. And they got there by retaining earnings and will keep retaining earnings. So, it's no great triumph if these numbers move up. And what we hope is that they move up at a reasonable rate. Historically, they moved up at an unreasonable rate sometimes. But we were working with much smaller sums then, and that can't be repeated with our present capital base. Because I note there — I believe it's on this slide. Let's take a look. No, that will be — let's see, it's on the — well, on the next place, page. Let's move to the next slide. We show that we had on March 31st, now what was it, $504 billion of GAAP net worth. Now, what might surprise you is that there's no other company in the United States that has a number that is that large. Now, that isn't because we have the most valuable company in the United States. Other companies have used their money to repurchase shares. They could've accumulated $504 billion in GAAP. But basically, we have more under GAAP accounting now than any other company in the U.S. And of course, if you measure return on equity that becomes a very big number to increase at a rapid rate, but we hope to do so. Not a rapid rate, a decent rate. And right below that, you see something called float. And float is money that is left in our hands somewhat akin, but very importantly different, than a bank deposit. But you have to pay interest to get a bank deposit. And you have to pay more interest these days, and you have to run a bank and do a lot of things. And basically, this is money that represents unpaid losses at this time. You get paid in advance in insurance. So, what shows up as a net liability on our balance sheet gives us funds to exercise with an amount of discretion that no other insurance company that I know of in the world enjoys, just because we have so much net worth. And our float now comes to $165 billion, and the man sitting at the far left is responsible for moving that number up from a pittance in 1986 to this incredible figure, which in most years, practically all years, hasn't cost us anything. So, it's like having a bank with no employees, no interest, and no ability to withdraw the money in a hurry that we have working for us. And it's a very valuable asset that shows up as a liability. And Ajit is responsible for building up this treasure, which has been done by out-competing insurance companies all over the world. And now, a number of our insurance companies, in turn, are run by talented managers who contributed one way or another. Start with GEICO at the beginning of my career. And that float, if you think about it, just think of a balance sheet. You have liabilities here and you have assets over here, and the liability side finances the asset side. It's very simple. And stockholders' equity finances it, long-term debt finances it, and so on. But stockholders' equity is very expensive in a real sense. Long-term debt has been cheap for a while, but it can get expensive, and it can also become due eventually and it may not be available. But float is another item that's a liability but hasn't cost us anything. And it can't disappear in a hurry. And it finances the asset side in the same way as stockholders' equity. And nobody else thinks of it much that way, but we've always thought of it that way, and it's a build up over time. So, I show at the bottom what's happened with cash and Treasury bills through March 31st. And I will tell you that in the month of April, we've probably added about $7 billion to that factor. Now, part of that is because we didn't buy as much stock, because that reduces cash and Treasury bills. We bought about $400 million worth of stock in the month of April. That's a minus in terms of cash available. And we, however, sold, net, some stock, which produced maybe $4 billion. And of course, we had operating earnings, probably $2.5 billion or something in that area. And my guess is we probably increased our cash and Treasury bills $6 billion and $7 billion in the month. And I just want to give you a feel for how the cash flows at Berkshire. And then if we move to the final — I think it's the final one. We should have the one up there, Class A equivalent shares outstanding. And you'll notice that every year the number of our shares go down. So, if we own more businesses, and the businesses make more money, your share as shareholders at Berkshire increases every year without you laying out any money. Now you're laying out the alternative which you could receive in dividends. But the reason we've gotten to where we are is because we kept the money. We did pay a dividend in 1967, $0.10 a share. It was a terrible mistake. (Laugh) And I always tell people that I'd for the men's room and the directors voted while I was gone. But that isn't true. I was there, I confess. (Laugh) But we've reinvested, and it's produced the $500 billion plus of shareholders' equity and the $30 billion plus of operating earnings. And we'll continue to follow that policy because it makes a great deal of sense. And with that, I think we've taken care of the preliminaries. The 10-Q is on the web page. And if you have a week or two vacation, you could spend it reading the 10-Q. But that is the essence of Berkshire.

Failure to guarantee Silicon Valley Bank's deposits would have been 'catastrophic'

WARREN BUFFETTAnd with that, I will start with Becky Quick, and we will alternate between Becky and the audience. And her questions have come in from all of the country, and I believe you identified the sender. And go to it, Becky.

BECKY QUICKThanks, Warren. The first question comes in from Randy Jeffs in Irvine, California. And his question is, "If Silicon Valley Bank's deposit had not been fully covered, what do you think the economic consequences would've been to the nation?"

WARREN BUFFETTWell, I'd would just simply say it would've been catastrophic. (Laugh) And that's why they were covered. And even though the FDIC limit is $250,000, that's the way the statute reads, but that is not the way the U.S. is going to behave any more than they're going to let the debt ceiling cause the world to go into turmoil. And I can't imagine anybody in the administration, in the Congress, in the Federal Reserve, whatever it may have been, FDIC — I can't imagine anybody saying, "I'd like to be the one to go on television tomorrow and explain to the American public why we're keeping only $250,000 insured, and we're going to start a run on every bank in the country and disrupt the world financial system." (Laugh) So, I think it was inevitable. Charlie, do you have anything?

CHARLIE MUNGERNo, I have nothing to add.

WARREN BUFFETTOK. Well, incidentally, I should mention this now, Ajit and Greg will be here in the morning session which ends at noon. And so, if you have questions to direct to them, the time to do it is in the first half of the show. And then after lunch Charlie and I will be back.

We've never made an emotional investing decision

WARREN BUFFETTOK. Area one?

AUDIENCE MEMBERHi. Narav (PH) Patel, Harel (PH), Massachusetts. Mr. Buffett, Mr. Munger, it seems like you found the sweet spot between being too conservative and too aggressive as investors. Do you ever make bad investment decisions because of your emotions? And what do you do to try to keep that from happening?

WARREN BUFFETTWell, we make bad investment decisions plenty of times. I make more than Charlie. I like to think it's because I make more decisions, but probably my batting average is worse. (Laugh) But I can't recall any time in the history of Berkshire that we made an emotional decision. I know the movie had Jamie Lee [Curtis] in there, (Laughter) but that was for laughs. I mean, Jamie Lee, she's good, but she's not good enough to get me or Charlie to make an emotional decision. (Laughter) Charlie, I'm sure you have something to add on that.

CHARLIE MUNGERWell, it's a different movie than is shown in most corporate meetings. (Laughter)

WARREN BUFFETTBut have we ever made an emotional decision?

CHARLIE MUNGERNo. (Laughter)

WARREN BUFFETTThat's in business we're talking about. Yeah, no. You don't want to be a no emotion person in all of your life, but you definitely want to be a no emotion person in making an investment or business decision. You can argue that we've probably made an emotional decision, perhaps, when a manager has been with us for some period, and we've ignored the fact that perhaps they weren't quite what they were earlier. But our businesses are so good that they run better sometimes when — I mean, I've talked about Wesco, for example, the wonderful Louis Vincenti. And it ran on automatic pilot for a while, but I don't think we suffered by it. But you can argue if Louis as much as we did, we might've spotted it a little bit earlier. But I don't think it made any difference in the results. Would you agree with that, Charlie?

CHARLIE MUNGERYeah, (UNINTEL PHRASE) with it. I'm glad we the way we did at Wesco. By the way, we bought the thing for a few tens of millions, and it became worth $2 billion or $3 billion.

WARREN BUFFETTYeah, that wasn't common in the savings and loan business, as you may have noticed. (Laugh) They really went crazy in that industry, and we had a wonderful guy in Louis.

CHARLIE MUNGERWe didn't go crazy.

WARREN BUFFETTYeah, we didn't go crazy. Yeah.

Jain: GEICO's technology is 'still a work in progress'

WARREN BUFFETTOK, Becky?

BECKY QUICKThis question comes from Ben Knoll in Minneapolis. He says he's a Berkshire shareholder of three decades and he's attended many Berkshire meetings. He's here again this year. And this is addressed to Ajit and Greg. He says, "Last year I asked you about how GEICO and BNSF appeared to lose ground to their leading competitors, GEICO on telematics and BNSF on precision scheduled railroading. "Ajit, you responded by saying how you expected GEICO to make progress in about a year or two. Greg, you spoke about your pride in BNSF, but you didn't directly address the threat of precision scheduled railroading. Will each of you please provide perspective on these competitive challenges and our company's strategies to address them?"

AJIT JAINIn terms of GEICO and telematics, let me make the observation that GEICO has certainly taken the bull by the horns and has made rapid strides in terms of trying to bridge the gap in terms of telematics and its competitors. They have now reached a point where on all new business, close to 90% has a telematics input to the pricing position. Unfortunately, less than half of that is being taken up by the policyholders. The other point I want to make is even though we have made improvements in terms of bridging the gap on telematics, we still haven't started to realize the true benefit. And the real culprit of the bottleneck is technology. GEICO's technology needs a lot more work than I thought it did. It has more than 600 legacy systems that don't really talk to each other. And we are trying to compress them to no more than 15, 16 systems that all talk to each other. That's a monumental challenge, and because of that, even though we have made improvements in telematics, we still have a long way to go because of technology. Because of that, and because of the whole issue more broadly in terms of matching rate to risk, GEICO is still a work in progress. I don't know if any of you had a chance to look at the first quarter results, but GEICO has had a very good first quarter, coming in at a combined ratio of 93 and change, which means a margin of six and change. Even though that's very good, it's not something we can take to the bank because there are two unusual items that contributed to it. Firstly, we've had what is called prior year reserve releases. We've reduced reserves for the previous years, and that contributed to it. And secondly, every year the first quarter tends to be a seasonally good quarter for auto insurance writers. So, if you adjust for those two factors, my guess is the end of the year GEICO will end up with a combined ratio just south of 100, as opposed to the target they're shooting for is 96. I hope they reach the target of 96 by the end of next year. But instead of getting too excited about it, I think it's important to realize that even if you reach 96 it will come at the expense of having lost policyholders. There is a trade-off between profitability and growth, and clearly, we are going to emphasize profitability and not growth. And that will come at the expense of policyholders. So, it will not be until two years from now that we'll be back on track, fighting the battles on both the profitability and growth fronts.

Abel: BNSF continues to work on efficiency and safety improvements

WARREN BUFFETTGreg? Yeah.

GREG ABELMoving to BNSF, I'll start again by expressing great pride in the BNSF team. We have an exceptional group led by [CEO] Katie [Farmer] and her managers that show up every day to do great work on the railroad. At the same time, they would be the first to acknowledge there's more to be done there. The specific reference to precision scheduled railroading, the other large Class A railroads in the U.S. follow that, and including the two in Canada. We're well aware what they're doing, and obviously pay close attention to their operating metrics. And our team strives every day to be more efficient, obviously. I would say we balance it with the needs of our customers. If I look back to pre-2022, so we look at the three-year period of 2019, 2020, 2021, the BNSF team made significant progress on their efficiencies, and delivering overall value back to the shareholders and to their customers. And at the same time, maintaining a very safe railroad for our employees. So, we're making excellent progress. That didn't stop last year. They made great progress. Again, the reality in 2022 is we did go through a period of time where we had to call it, "Reset the Railroad." We came out of the pandemic, there were the supply challenges. We had certain other labor issues and other things going on at the port. And the reality is, our team prioritized getting the railroad back in place for the long-term, not a short-term focus on hitting certain operating metrics in 2022. We're well aware of where we were relative to those metrics. But the real focus was to get the railroad reset in a safe manner so it could deliver long-term value and long-term service to our customers. And that's really what we'll continue to see with that team. There'll be continual progress. There'll be years where it's not as quick, or even we go backwards. But over the long-term, we'll see exceptional results from that team, and couldn't be more proud that we have that asset. Thank you. (Applause)

WARREN BUFFETTI would just — well, he deserves — but both of them deserve applause.

Todd Combs doing 'wonderful job' running GEICO

WARREN BUFFETTI would like to add one thing. (Applause) At GEICO, Todd Combs was Ajit's choice and my choice to go back to GEICO to work on the problem of matching rate to risk, which is what insurance is all about. And he arrived with exquisite timing, right before the pandemic broke out and all kinds of things changed. But Todd is doing a wonderful job at GEICO. And he works closely with Ajit. He has a home in Omaha, he comes back here, and we get together on the weekend sometimes too. So, that's been a remarkable accomplishment under difficult circumstances. And he's not all the way home, but he's made a very, very big change in multiple ways at GEICO. And one other thing I would like to mention, there have been a lot of public companies created in the last decade or thereabouts in insurance. And there's none of them that we would like to own, and they always started out in their perspective saying, "This is a tech company, not an insurance company." Of course, they're a tech company. Everybody, whether they're insurance or a lot of other places, are using the facility but you still have to properly match rate to risk. And they invariably have reported huge losses, they've eaten up capital. But there's been one company that nobody has generally heard of. There's only been one that I know of, company started in the last ten years, that has been an overwhelming success. And that's a company that Ajit and four people who joined with him set to develop a new business. It's called Berkshire Hathaway Specialty. What's the float, Ajit?

AJIT JAINComing up to $12 billion.

WARREN BUFFETTYeah. We've built more float than probably all these companies combined. It's cost us essentially nothing in terms of an underwriting loss. The four people have turned into, I don't know, 1,500 around the world. We took on the whole industry and we brought some unique talent in the four people that came. And now have, like I said, 1,500 or so worldwide. And we brought capital, and we brought capabilities that really only Berkshire could supply. So, it was the combination of brains, and talent, and energy, and money. And no one has really successfully entered this space — plenty of people in the space who didn't like us coming. And we did it without it costing us a dime of entry. And it's been unmatched by any of the companies that went public. And people have seen us do it, but they can't duplicate it. And that's what Ajit has created. And Peter Eastwood has led this group, Berkshire Hathaway Specialty. And it's just remarkable. So, anyway, with that — let's go on — give them a hand for that. (Applause)

Munger on AI: 'Old-fashioned intelligence works pretty well'

WARREN BUFFETTOK, let's go to section two.

AUDIENCE MEMBERHi, Charlie. Hi, Warren. I'm Karen, here from Singapore.

WARREN BUFFETTI'm glad you got that in. Your priorities are right.

AUDIENCE MEMBERYes. I have questions on AI and robotics. Here's my questions. As AI and robotics continue to advance, what do you believe will be the positive and the negative impacts of this technology on both the stock market and society as a whole? And there any specific industries and companies that you believe will be most impacted? (Applause)

WARREN BUFFETTKaren, I thank you for asking Charlie that question. (Laughter)

CHARLIE MUNGERWell, if you went into BYD's factories in China, you would see robotics going at an unbelievable rate. So, we're going to see a lot more robotics in the world. I am personally skeptical of some of the hype that has gone into artificial intelligence. I think old-fashioned intelligence works pretty well. (Laughter) (Applause)

WARREN BUFFETTThere won't be anything in AI that replaces Ajit. State that unqualifiedly. It can do amazing things. You know, Bill Gates brought me out maybe not the latest version, but one he thought maybe I could handle. (Laugh) He has to be careful with me, in terms of leading me too fast. And it did these remarkable things. But it couldn't tell jokes. Bill told me that ahead of time, and it prepared me. And it just isn't there. But you know, with things like checking all the legal opinions, you know, since the beginning of time and everything, and eliminating all the — I mean, it can do all kinds of things. And when something can do all kinds of things, I get a little bit worried because I know we won't be able to un-invent it. And you know, we did invent, for a very, very good reason, the atom bomb in World War II. And it was enormously important that we did so. But is it good for the next 200 years of the world that the ability to do so has been unleashed? We didn't have any choice. When you start something — well, Einstein said after the atom bomb, he said, "This has changed everything in the world except how men think." And I would say the same thing may — not the same thing — I don't mean that — but I mean with AI, it can change everything in the world except how men think and behave. And that's a big step to take. It's a good question, and it's the best answer we can give.

Munger: Commercial real estate downturn will be 'quite significant and quite unpleasant'

WARREN BUFFETTBecky?

BECKY QUICKThis question comes from Tom Seymour. He says, "The first sentence of a recent Financial Times article read, 'Charlie Munger has warned of a brewing storm in the U.S. commercial property market with American banks full of what he said were bad loans as property prices fall.' "Please elaborate on what's going on in commercial real estate. How bad will the losses be, and what sectors or geographies look particularly bad?" I'll just add an addendum from another viewer who wrote in and wanted to know if Berkshire would be more active in commercial real estate as a result.

CHARLIE MUNGERWell, Berkshire's never been very active in commercial real estate. It works better for taxable investors than it does for corporations to act the way that Berkshire is. So, I don't anticipate huge effects on Berkshire. But I do think that the hollowing out of the downtowns in the United States and elsewhere in the world is going to be quite significant and quite unpleasant. I think the country will get through it all right, but as they say, it will often involve a different set of owners.

WARREN BUFFETTYeah, and the buildings don't go away, but —

CHARLIE MUNGERThe owners do.

WARREN BUFFETTWell, (Laughter) but most people like to buy with non-recourse in real estate. And one time I asked Charlie, there was some real estate guy, we were talking to him, you know, "How do they decide how much a building like this is worth?" And the answer is, "It's whatever they can borrow without signing their name." And if you look at real estate generally, you'll understand the phenomenon that's happening if you remind yourself that that's the attitude of most people that have become big in the real estate business. And it does mean that the lenders are the ones that get the property. And of course, they don't want the property usually, so the real estate operator counts on negotiating with them, and the banks tend to, you know, extend and pretend. And there's all kinds of activities that (UNINTEL) about us out of commercial real estate development, which occurs on a big scale. But it all has consequences, and I think we're starting to see the consequences of people who could borrow at 2.5%, and find out it doesn't work at current rates, and they hand it back to somebody that gave them all the money they needed to build it. Charlie's had more experience. Charlie got his start in real estate, though.

CHARLIE MUNGERYes, it's difficult. I like what we do better. (Laughter)

WARREN BUFFETTWell, as Charlie once said to me when I was leaving his house a few months ago — I was visiting him, we talked for a couple of hours. And as I left, there wasn't anybody else in the house except one daughter. I said, "Charlie, I'll just keep doing what we've been doing." And Charlie, without looking up or pausing a second, said, "That's all you know how to do, Warren." (Laughter) He was right too.

' What gives you opportunities is other people doing dumb things'

WARREN BUFFETTStation three, is it?

AUDIENCE MEMBERHi. My name is (UNINTEL PHRASE), I'm from Santa Clara, California. And my question is to Charlie and Warren. Given the rise of disruptive technologies that can improve productivity significantly, and AI being one of them, how do you envision the future of value investing in this new era? And what adaptations or new principles do you think investors should adopt? And any recommendations for investors to remain successful in this rapid changing landscape? Thank you.

CHARLIE MUNGERWell, I'm glad to take that one. I think value investors are going to have a harder time now that there's so many of them competing for a diminished bunch of opportunities. So, my advice to value investors is to get used to making less.

WARREN BUFFETTAnd Charlie has been telling me the same thing the whole time we've known each other. I mean, we get along wonderfully because —

CHARLIE MUNGERWell, we are making less.

WARREN BUFFETTYeah. Well, but that mostly I think is (Laughter) (UNINTEL PHRASE) —

CHARLIE MUNGERWe did that when we were younger.

WARREN BUFFETTYeah, we never thought we could manage $508 billion.

CHARLIE MUNGERNo, we never did.

WARREN BUFFETTYou know, but I would argue that there are going to be plenty of opportunities. And part of the reason there are going to be plenty of opportunities, the tech doesn't make any difference for any of that. I mean, if you look at how the world's changed in the years since 1942 when I started, you'd say, "Well, how does a kid that doesn't know anything about airplanes, that doesn't know anything about engines and cars, and doesn't know anything about electricity and all that?" But new things coming along don't take away the opportunities. What gives you opportunities is other people doing dumb things. (Laughter) (Applause) Well, the 58 years we've been running Berkshire, I would say there's been a great increase in the number of people doing dumb things. And they do big, dumb things, and the reason they do it to some extent is because they can get money from other people so much easier than when we started. So, you could start ten or 15 dumb insurance companies in the last ten years, and you could become rich if you were adroit at it, whether the business succeeded or not, and the underwriters got paid, and the lawyers got paid. And if that's done on a large scale — which it couldn't be done 58 years ago. You couldn't get the money to do some of the dumb things that we wanted to do, (Laugh) fortunately. And so, I think that investing has disappeared so much from this huge capitalistic market that anybody can play in, but that the big money is in selling other people ideas. It isn't outperforming. And I think if you don't run too much money, which we do — but if you're running small amounts of money, I think the opportunities will be greater. But then Charlie and I always differed on this subject. He likes to tell me how gloomy the world is, and I like to tell him, "We'll find something." And so far, we've both be kind of right. (Laugh) Charlie, would you budge an inch on that, or not? (Laughter)

CHARLIE MUNGERThere is so much money now in the hands of so many smart people, all trying to outsmart one another and out-promote one another, getting more money out of other people. And it's a radically different world from the world we started in. And I suppose it will have its opportunities, but it's also going to have some unpleasant episodes.

WARREN BUFFETTBut they're trying to outsmart each other in arenas that you don't have to play. I mean, if you look at that government bond market, at the Treasury bill market, I mean, you have this one bill that's out of line with the others, and went (UNINTEL PHRASE) $3 billion of it the other day. But the world is overwhelmingly short-term focused. And if you go to an investor relations call, they're all trying to figure out how to fill out a sheet to show the earnings for the year. And the management is interested in feeding them expectations, so we'll slightly be beaten. I mean, that is a world that's made to order for anybody that's trying to think about what you do that should work over five, or ten, or 20 years. And I just think that I would love to be born today, and go out with not too much money, and hopefully turn it into a lot of money. And Charlie would too, actually. (Laugh) He would find something to do, I will just guarantee you. And it wouldn't be exactly the same as before, but he would have a big, big, big pile.

CHARLIE MUNGERI would not like the thrill of losing my big pile into a small pile. (Laughter)

WARREN BUFFETTBut we might —

CHARLIE MUNGERI like my big pile just the way it is. (Laughter)

WARREN BUFFETTWe agree on that, incidentally.

CHARLIE MUNGERYes, we do. (Laughter) You're one of the most extreme lovers of the big pile. (Laughter)

AIG liability assumption deal is turning out to be 'good but not great'

WARREN BUFFETTBecky?

BECKY QUICKThis question is for both Warren and Ajit. Comes from Jason Plonner (PH) in Livingston, New Jersey. He says, "In 2016, you entered into a very unique transition with AIG where you assumed up to $20 billion of liabilities in exchange for about $10 billion upfront. Can you please provide us with an update on this transition in light of the increase in interest rates? And then in Tokyo just a few weeks ago, you talked about the risks of banks with assets that were susceptible to rising interest rates. Any insight as to how Berkshire liabilities are susceptible to duration would be appreciated."

WARREN BUFFETTIs that directed to Ajit, or me, or what?

BECKY QUICKBoth.

WARREN BUFFETTOK. Let me introduce my one thing, but Ajit is the key to this. He's the one that put the deal together. But we got handed $10 billion, we'll say. But we weren't restricted to putting that into bonds. So, interest rates affect us to some degree maybe, in terms of the deal we did with AIG, or anybody we would do a similar deal with like that. But we don't have to put it in matching bonds or anything of the sort. It goes into a general pool of assets, which we manage, and the liquid assets now are $130 plus. But it is not set aside in some little compartment like people like to think. Now, no other insurance company could do it. But they can't think that way. They aren't even used to thinking that way. But they can't think that way because they don't have our balance sheet. We account for 26% or something like that of the net worth of all property casualty companies in the United States. So far, the payments that we have had to make have run modestly. And Ajit will correct me on this if I'm wrong, because he paid attention. The amount we have had to pay has run slightly below the amount we anticipated having to pay in terms of our share of the losses. But it served AIG's purposes. It came to us where we are in a unique position. There's nobody else that was able to write that, just like when we took on Lloyd's. I mean, Lloyd's said there was no choice other than Berkshire Hathaway when they essentially resuscitated their market by laying off a lot of liabilities on Berkshire Hathaway. So, we won't see those deals very often. If they're for $500 million or something like that, somebody else will go in there and offer more money. And everybody's looking for money on Wall Street. But if they start talking with the deal like the AIG deal, there isn't any other stop now. Correct me on all my numbers there, Ajit. (Laughter)

AJIT JAINNo. One way to look at how the deal is performing since we did the deal is at the point in time when we did the deal, we had made certain projections of how much we will pay out each year. And what we do is monitor what the action payments are since the inception of the deal, and how does that compare with what we expected to pay out. As Warren mentioned, these two numbers are very close to each other. More specifically, the actual payouts are 96% of what we had projected to pay out at this point in time, which is good but not great. We are still ahead of the curve. If we do end up paying out less than what we projected, not only would we have borrowed money at a very attractive rate, meaning significantly less than 4%, in addition to that we would have made a fee, which in 2015 dollars would be $1 million. So, we would've borrowed money at less than 4% and we would've made $1 million fee, which is slightly more than what we were expecting to do. So, net/net, we're very happy with the deal, we're happy we did it. But the game is not over. There are tort liabilities that are coming down the pike every second day. So, I'm cautiously optimistic that the deal will work out better than how we expected it to work out.

CHARLIE MUNGERWell, the really interesting thing is that within Berkshire, the casualty insurance companies have four times as much stockholder capital behind each dollar of premium value. Four times normal. And of course, we see the big deals. Who would you trust if you had a big liability you wanted to dump on somebody?

WARREN BUFFETTAnd we have $25 billion or more coming in from things other than insurance, uncorrelated to insurance, every year with no obligations. We don't pay dividends. If we pay dividends, you know, and you cut your dividend, try going around trying to write insurance the next day. I mean, and it's a business where people are counting on you to pay. And when we take that $10 billion, we don't agree to put it in five-year bonds and ten-year bonds. We don't even think that way. And the people that do business with us know that they have somebody like nobody else on those that's going to be able to pay $10 billion no matter what happens to the economy. So, it's not only the presence of enormous strength in the insurance companies, it's the fact we have all these earnings that essentially come in every month, we don't have a lot of debt. I mean, we have debt at the railroad and the energy level. But in terms of the rest of the operation — And we don't guarantee that debt, but it's (UNINTEL). And there just isn't another Berkshire, and Ajit recognizes that when he's negotiating. So does the other party if the sums are big enough. There's all kinds of people that love to get $500 million or $300 million, and they may think in terms of lending it out because that's what their insurance companies can do at a somewhere higher rate. But that is not a game we play, and we don't have any interest in playing in.

Never write a will without input from your children

WARREN BUFFETTOK, station four?

AUDIENCE MEMBERHello. I'm Marvin Blum, an estate planning lawyer from Fort Worth, Texas, home to many of your companies. In fact, Warren, I met you at the memorial for our beloved Paul Andrews, who was manager of TTI. I'd like to get your thoughts on a widespread problem in the world of estate planning. And that's the failure of most parents to prepare the next generation for the inheritance coming their way. In particular, if the estate includes a family business, most parents fail to do business succession planning to plan for who'll run the business on the day when, not if, the founder is no longer there to run it. The kids aren't prepared, unlike the other King Charles, not King Charlie Munger, (Laughter) who has been preparing for his job as King of England now for more than 70 years. I sometimes describe the situation like this: Picture a football game. At one end of the field is a quarterback. He has great skills; he throws a beautiful pass to the other end of the field. And at the other end of the field are the receivers. They've never been to a practice, they don't know the rules of the game, they don't know how to work together as a team. They're clueless. So, the quarterback is the patriarch and the matriarch. The football is the inheritance or the family business, and the receivers are the kids. So, what are the odds that they're going to catch the football and go score a touchdown? Probably only around 10%.

WARREN BUFFETTI have the picture. (Laughter) (Applause) Just because of my age, and to some extent because of things like the giving pledges, I probably observed as many particularly wealthy families, the problems, and they all are very particular to the family. And in my family, I do not sign a will until my three children have read it, understand it, and made suggestions. Now, my children are in their 60s and that would not have been a great success if I'd done the same thing in their 20s. It depends on the family; it depends on how the kids feel about each other. There's all kinds of things. Depends on the kind of business you have. So, there's a thousand variables. But I do think that if the children are grown, and when the will is read to them, it's the first they've heard about what the deceased thought about things, the parents have made a terrible mistake. And I've run into all kinds of situations, and some people don't tell their children anything, and some of them try and get them to bend to their will by using their own personal will. They make a million mistakes. And that's one you don't get to correct. Well, Charlie's had a lot of experience too with the —

CHARLIE MUNGERWell, at Berkshire we have a simple problem of estate planning. Just hold the goddamn stock. (Laughter)

WARREN BUFFETTWell, (Applause) but that doesn't fit everybody, Charlie.

CHARLIE MUNGERNo, it only fits 95%. (Laughter)

WARREN BUFFETTI don't know necessarily whether if you have billions of dollars, you want to leave it to all of your children. I mean, that's something —

CHARLIE MUNGERWell, that's another question. But if you're going to place it somewhere, I'd just as soon have Berkshire stock.

WARREN BUFFETTYeah, oh, you're solving the investment problems one. But you have the personal problem of the fact that when they were four, one of the kids pulled the other kid's cat's tail or something like that. I mean, you're dealing with human beings. And the biggest thing you want is you want your children to get along. And you want that all through your life, and the estate isn't the only place where you can mess that up. But I mean, I know a number of cases where the people did not know what was in the will where there were huge sums involved. And you know, within about 15 minutes each one of them had a lawyer, and you know, they don't get along since. It's important to handle it target. And if you want your kids to have certain values, it's important that you live those values. It's important that you talk about it to them. (Laugh) They're learning from you from the day they're born, what you're really like. And don't think that a cleverly drawn will substitute for your own behavior in teaching your kids the values you hope that they will have. And then your will should be in conjunction with that. And they grow older, and then they learn to pass along their values in connection with the size of the estate. If there's family farms it's one thing, if it's a bunch of marketable securities it's something else. But I know one instance by a particularly rich fellow that once a year he'd get his kids together, and have a dinner, and do all kinds of things to get them to sign their income tax returns in blank, because he didn't want them to know how much money they had and everything. Well, that isn't going to work. I mean, I don't know necessarily what would've worked with him. But Charlie and I have said, if you want to figure out how you want to live your life, you write your obituary and reverse engineer it. You know, and Paul Andrews incidentally, who you mentioned at TTI, lived as great a life as anybody I've known. And he thought about these problems, and he came to me. He was 61, I think, had all the money way beyond what he needed. He liked to give it to people. He had all kinds of good things he wanted to do. And he said, "For a year I've been worried about my business, TTI." And he said, "I have all the money I need. The family has all the money they need. But what do I do with the business? These people have helped me throughout my life." And he said, "I can sell it to a competitor. And if I sold it to a competitor, they'd fire my people and keep their people when they put it together. "And if I sell it to a private equity firm or something, they'll be figuring out their exit strategy as they sign the papers." And he said, "It isn't that you're such a great guy, it's just that you're the only one left." (Laughter) And we bought it, and we lived happily ever after. And that was a man that knew the life was about.

BNSF takes derailments 'incredibly seriously'

WARREN BUFFETTSo, with that, let's go onto Becky. (Applause)

BECKY QUICKThis question comes from Don Glickstein in Seattle. He says, "Warren has criticized Norfolk Southern's handling of its train derailment, yet has been silent about BNSF's conduct. A federal judge ruled in March that BNSF intentionally and illegally violated an easement agreement on tribal land in Washington State by transporting long trains of crude oil. "The same money the judge made his ruling a BNSF train derailed on tribal land, spilling oil in an environmentally sensitive area" What is Warren doing to ensure that BNSF and the Berkshire subsidiaries fulfill their ethical responsibilities? He says he's been a Berkshire owner for more than two decades and he's concerned that Berkshire has no systems to identify and address what he calls reprehensible behavior at BNSF and other subsidiaries?

WARREN BUFFETTGreg?

GREG ABELSure. It is a valid issue that our team obviously has been dealing with at BNSF. We did move crude across that tribal land. We had an agreement that allowed us to move X number of units per day. And we did breach it. We went over it. There were some fundamental breakdowns there that our team didn't understand the number of trains that they could move. We have had significant discussions with the tribe looking to resolve the issues, recognizing we obviously benefited from moving those trains. And those type discussions will continue. I would say there's lessons learned there that we have to, when we make a commitment, understand what that commitment is and live by it. Or don't assume we can just move our trains as we wish or the cargo as we wish. We have to respect those agreements. There's been a moment learned there. But at the same time, we've taken it very seriously and attempted to reach a resolution. And at some point, I hope we do come to a true resolution that's fair both to the tribe and to BNSF. On the derailment side, we did have an issue around the track derailed. We worked very closely with the tribe to mitigate that issue instantly or at least over a very reasonable period of time. They were very responsive. Our team was very responsive. And there were really no long-term environmental impacts to that spill. And as our teams highlighted in other comments, obviously derailments do occur in the industry. We take them incredibly seriously. They're not all hazardous, but irrespective of that, we're constantly looking at how do we prevent them. How do we detect them when we potentially have one that's going to occur? And what do we do with our trains? And then ultimately it comes down responding properly. Because they will occur. And I think we have an incredibly dedicated team that's always ready to respond to the communities they're impacting.

WARREN BUFFETTThere are derailments. How many a year?

GREG ABELYeah, well, there's a thousand-plus in the industry.

WARREN BUFFETTYeah, yeah. You know, you start hauling freight, and we're a common carrier. And we take very heavy freight. And we take them in 100° weather. And we take it at 0° and we go around curves. And we have grades. (Laugh) And even a 1% grade, if you're going down a hill with, I don't know how much weight behind you, I mean, railroading is not an easy business. And of course, the systems were designed, you know, basically in the late 1800s, amid the late 1800s. And we have 22,000, I think it is, miles of track. And that doesn't count sidings and some other things. It is not an easy business. We'll make mistakes. We're not making a mistake because we have a derailment. We will have derailments ten, 20 years, or 30 years from now. And we have to carry certain products we wish we didn't have to carry. We're a common carrier. Do we like carrying chlorine and ammonia and all? No. But they're going to move from one place to another in this society. And we are a common carrier. And we load them if they select our railroad. But we are better than we used to be. But we've got a long way to go. Is that a fair enough statement?

GREG ABELAbsolutely.

Berkshire utilities focusing on clean energy but coordinated national effort is needed

WARREN BUFFETTOK, station five.

AUDIENCE MEMBERHi, Mr. Warren and Mr. Munger. My name is Soo Jing Hua (PH) from China, (FOREIGN LANGUAGE) company. And first of all, I'm so excited and very honored to be here today. And my question is: With more and more people focusing now on environmental competition protection and the government supporting the new energy industry as well, so what are your thoughts on the continued development of new energy? How may the new energy firms achieve better developments in the future?

WARREN BUFFETTYeah, well, Greg I think, is the best to answer that because since we bought a company called MidAmerican but now called Berkshire Hathaway Energy. But he has been talking about it yearly, preparing reports hoping that we can help solve a number of the problems. And we probably spent more money than any utility, I would guess, in the United States.

GREG ABELAbsolutely.

WARREN BUFFETTAnd we've just scratched the surface. But it is not easy when you cross state lines. I mean, you've got different jurisdictions. And this country should be ahead of where it is in terms of transmission. We have been the biggest factor in helping that. But why don't you tell them a little bit about it?

GREG ABELSure, thanks, Warren. So, there's no question there's an energy transformation going on around the globe and as Warren touched on, in the U.S. And in some ways, I would hope here in the U.S. we'd at least have a clear plan across the nation as to how to approach that. But the reality is it is state by state with some exceptions. So, as a result, when you think of Berkshire Hathaway Energy, we own three U.S. utilities there. And they all participate in multiple states. But they're developing plans state by state and then trying to integrate them across the various states. The opportunities are significant because there is a transformation going on. We've outlined our goal on where we're going relative to carbon at BHE where they'll by 2030 reduce their carbon footprint by 50% relative to 2005. So, that's the Paris Accord and the standard they want to hold the utility industry or the utility companies to. And we're well on that path. But to achieve it is a true journey. I've often talked to Warren. When we bought Pacific back in the mid-2000s, we immediately recognized to build a lot of renewable energy like we've been doing in the Midwest and Iowa. But that was basically in a single state. Now PacifiCorp, we're in six states. We started that back in the mid-2000s. Here we are. And we laid out a great transmission plan. Here's how we're going to build it. Here's how we're going effectuate it, and all the benefits for our customers over that period of time. Here we are in 2023, and we have a little more than a third of that. At the time it was a $6 billion transmission project. Today we have a little more than a third of it built. And we've spent probably closer to $7 billion. And it's the right outcome. It's still a great outcome for our customers. But as part of the transformation, you absolutely have to build it to move all that renewable energy. And that's sort of the complexity Warren was highlighting. You can't just wake up one day and solve this problem. You start with transmission, and then you build the resources. But at that same company, and if we look at what we're doing across BHE Energy and that energy transformation, we have $70 billion of known projects that are really required to properly serve our customers and achieve that type of energy transformation across those utilities. And that's in the coming ten years. So, we have a team that's absolutely up to the challenge. They're delivering on their commitments. And it's a very good business opportunity for each of our companies and for our shareholders. Because as we deploy that capital, we obviously earn a return on equity of it. But it will be a long journey. It'll happen over an extended period of time. And the further you get out there, the more dependent upon the evolution of a variety of technologies that are progressing, but not there yet.

WARREN BUFFETTYou've raised a question. I want to just take an extra minute now because it's so important. And I don't really know whether our form of government is ideal at all in terms of solving the problem you describe. We have solved it one time. In World War II, we took a country that was semi-limping along. And we found ourselves in a world war. And what we did in a world war is we brought a bunch of people to Washington at a $1 a year. I don't know whether it was Sidney Weinberg or Goldman Sachs. You just name them. And we gave them enormous power to reorient the resources of the United States to face the problem that they faced, which was to create a war machine. And what they did was they found Henry Kaiser, you know, and told him to build ships. And they went to the Ford Motor Company and said, "You build tanks and some airplanes." And they reordered the industrial enterprise of the United States in a way that was unbelievable. Because they had the power of the federal government. And they had the ingenuity of American business. And they had the facilities of American business. And it led to a very successful outcome. But can we do that in a peace time where you've got 50 states and you have to get them to cooperate? And you can issue orders. But you can't designate where the capital goes. It's the other end. And, you know, we try and do it with tax incentives and all of that sort of thing. But we haven't created the unity of purpose and the machinery that worked in World War II where essentially everybody felt their one job was to win the war. And we figured out how to use our industrial capacity to in effect defeat the Axis powers. And how do you recreate that with, you know, the present democratic system? I'm not sure I know the answer. But I sure know the problem. And I think that if you've got an emergency on your hands, I mean, you really need to re-engineer the energy system of the United States. I don't think you can do it without something resembling the machinery, the urgency, whatever. The capital's there. The people are there. The objective is obvious. And we just don't seem to be able to do it in a peace time where we're used to following a given set of procedures. And, you know, China's one country. And we've got 50 states. And we got a whole different system of government. We should be up to the test, but so far it hasn't worked. So, thank you for the question.

Abel will decide on next generation of Berkshire managers

WARREN BUFFETTBecky.

BECKY QUICKThis question comes from Chris Freed in Philadelphia. He says, "We know that Greg Abel and Ajit Jain are the next generation of Berkshire leaders. Who are currently behind Greg and Ajit in their respective roles?"

WARREN BUFFETTWell, that will be the question. Well, Greg will be, absent some extraordinary circumstance, but he's going to succeed me. And then he will be sitting in a position where he needs his equivalent or something closer to his equivalent, because he's better at many things than I've been. He will need that substitute. And when the question comes, we know Ajit's opinion on that. But Greg will probably be the one that will make the final decision, I mean, being his responsibility. And Ajit will give him his best advice. And I think the odds are very, very, very high (Laugh) that Greg would follow it. But those are not easy questions. Everybody talks about the executive bench and all of that sort of thing, which is baloney. I mean, you know, they don't have that many people that can run five of the largest net worth companies and all kinds of diverse businesses. But you don't need five people either. And you need a lot of good operating managers. And you need somebody at the top that allocates capital and makes sure that you've got the right operating manager. And we've designed something where we separate the insurance and the rest of the business. And I think it's a very good design. But we wouldn't be smart to name that decision now about the two different areas of the business because a lot can change between now and then. And the most likely (Laugh) change is that this job changes. Charlie.

CHARLIE MUNGERI got nothing to add. We have a lot of good people that have risen in the Berkshire subsidiaries. And there's a reason why our operations have by and large done better than other big conglomerate companies. And one of them is that we change managers way less frequently than other people do. And that's helped us.

WARREN BUFFETTWhen Paul Andrews died, we knew who he thought should take over there. But there wasn't any reason to announce that. I mean, we should live to be 100. We had one of our managers die not long ago. And how old was he, at Garan?

GREG ABELYeah, mid-90s, Seymour.

WARREN BUFFETTYeah, Seymour Lichtenstein. And Seymour, I wrote him a letter when he was 80 and I said, you know, "I'm glad you're 80. And I'll write you again when you're 90." And (Laugh) I wrote him again when he was 90. And (Laugh) he didn't make it to a hundred. But he had a terrific fellow following him. And he really managed it jointly, to some extent, as the years went by. But it's case by case. And the main thing to do is have the right person running the whole place.

America has too much 'tribalism'

WARREN BUFFETTOK. Station six.

AUDIENCE MEMBERGood morning, my name is Hatch Okamamti (PH) from Miyazaki, Japan. Mr. Buffett, I was one of the 8,000 employees at Salomon Brothers that you saved. I was younger back then. I was working at 7 World Trade Center. I've always, always wanted to thank you in person for saving that company, its employees, including myself and my family. So, thank you, Mr. Buffett. (Applause)

WARREN BUFFETTThank you. (Applause) And thank Deryck Maughan who actually had been over in Japan before that and who I met for the first time the day before I put him in. And it wouldn't have worked if Deryck hadn't come. So, whatever you taught him in Japan, (Laugh) thank you.

AUDIENCE MEMBERThank you, sir. Now, my question time to time you have reminded us to not bet against America. What do you think are the most important things for you guys to remain strong? On the risk side, if the strength of the country's undermined, what could be the reasons?

WARREN BUFFETTWell, we've had (Applause) a lot of tests. I mean, we're such a young country. You know, when you think about Japan and you think about the United States, it's just incredible how new we are to the block. I mean, you know, what are we? 234 years old since we started. That's nothing. I mean, you know, Charlie and I combined, we've lived two thirds the life of the country. (Laughter) I mean, we've been tested at 46 national elections. And we made some bad choices. And we've had a civil war. I mean, so the country has had enormous advantages though in some way. Because we started with one half of 1% of the world's population in 1790. And we now have something close to 25% of the world's GDP. And it wasn't because we had some incredible advantage in terms of the land. It was nice to have two oceans on each side back when people tried to rule the world by ruling the waves. You know, and we've had good neighbors in Canada and Mexico. But it's a miracle. And you say, "How do we keep the good parts of the system?" Well, culling out our obvious defects. And we do it in a very herky-jerky manner. But net, the United States is a better place to live than it was when I was born by a huge factor. I mean, I just got a root canal a week ago. And I was just thinking, "I don't know who invented Novocain, but I'm for him." You know, I mean, (Laugh) but in a million ways. I mean, you can romanticize about the past. But forget it. It is work. But now we do have an atom bomb and we wish nuclear power. You know, we wish the atom had never been split. But it has been. And you can't put it back in the bottle. So, the challenges are huge. You know, my dad was in Congress back in the 1940s. And it looked like a mess then. Although it was unified by the war to some degree. But it was still very partisan. Now the problem we have, I think, is that partisanship, it seems to me, has moved toward tribalism. And tribalism just doesn't work as well. I mean, when it gets to tribalism, you don't even hear the other side. And tribalism can lead to mobs. I mean, it just flows. I mean, you've seen it (UNINTEL). We've seen it to a degree here. So, we have to refine in a certain way our democracy as we go along. We deal with the world we live in. But if I still had a choice of any place to be born in the world, I'd want to be born in the United States. And I'd want to be born today. I mean, it is a better world than we have ever had. And with present-day communications, we can also see much more how terrible it is in many ways. And it's got problems. When I was born in 1930, there were 2 billion in the world. And now there's maybe 7.7 billion and growing. And we went millennia with really no change in population. And of course, we've introduced energy in an incredible way into something where we now have 7.7 billion people using way more energy than they did when I was born when there were 2 billion people. So, it's an exciting world. It's a challenging world. And, you know, I don't know the solutions on things. I do think that we do need to think about different solutions in terms of how we get important problems solves and that we don't kid ourselves that something magic will happen or that everybody will get together and we'll all just cheer, and it'll go away by 2050. And how well we adapt to that, we will see. I would say so far it doesn't look very promising. But then I'm sure that when Lincoln looked out at what was going on in the Civil War it didn't look very promising either. So, I think that the U.S. is capable of doing remarkable things. And I think it wouldn't surprise me if they do it again. Charlie may —

CHARLIE MUNGERWell, I'm slightly less optimistic than Warren is. (Laughter) I think the best road ahead to human happiness is to expect less. I think it's going to get tougher. And I think the solution of having a huge proportion of the young and brilliant people all go into wealth management is a crazy development in terms of its natural consequences for American civilianization. We don't need as many wealth managers as we have.

WARREN BUFFETTBut Charlie was born on January 1st, 1924. And you'd hate to go back to that, wouldn't you, Charlie? (Laugh)

CHARLIE MUNGERYes, I would. And I like more wealth managers who are just merely reflecting the fact there's more wealth. But I don't like everybody going into wealth management. Better go to MIT or something. I think the world's a little crazy now.

WARREN BUFFETTTake your choice. (Laugh)

No corporate raider will have enough money to target Berkshire after Buffett

WARREN BUFFETTOK, Becky. (Laughter)

BECKY QUICKThis question comes from Dennis DeJaniero. As Warren stated in the 2022 annual report, Berkshire will always hold a boat load of cash in U.S. Treasury bills. It will also avoid behavior that could result in any uncomfortable cash needs at inconvenient times, including financial panics and unprecedented insurance losses. After Warren passes away, his A shares will be converted into B shares and distributed to various foundations. These foundations will then sell the shares to fund their causes. Warren estimates it will take 12-15 years for all his shares to be sold. I worry that a corporate raider like Carl Icahn or a group will buy up enough of these shares to take control of Berkshire and completely disregard Warren's philosophy of holding a lot of cash and U.S. Treasury bills, and instead be greedy, reckless, and highly speculative and ruin Berkshire's position as a rock-solid financial fortress. I also worry that changes might be made in how Berkshire's subsidiaries are run. Do Warren and Charlie worry that these things could happen?

WARREN BUFFETTWell, I think it's fair to say we think about it plenty. But I don't worry enormously. It is true that Greg and the directors will have a honeymoon period for a long time simply because other votes that will still remain. But it's true that eventually they will get judged based on how well our operation fares versus others. Now if we don't pay any dividends in 12 or 15 years, you're talking a trillion and a half that it would take to take over. And I think that limits the group. They like to think about how much they can borrow against it. (Laugh) It doesn't work. And there's nobody that can come close to doing it themselves. And I think that the important thing is that Berkshire be regarded as a national asset rather than a national liability. We've got to be a plus to the country with our form of operation. And we certainly have got a record which will then be 12 or 15 years longer, done with much more capital, more companies. More things will have happened where our hundreds of billions can work its way into the economy in terms of lots of jobs, lots of products, lots of behavior. And it can be compared with other things. So, I think we win out if we deserve to win out. And I think the odds of that happening are very, very, very high. Charlie.

CHARLIE MUNGERWell, I don't spend much time worrying about something that happened 50 years ago after I'm dead. I think if you sort of take care. Each day's responsibility is pretty low. And think ahead as well as you can. Then you just take the results as they fall. So, I'm philosophical. But I'm not — I think he's fretting unnecessarily.

WARREN BUFFETTOK. Neither one of us are worried, basically. (Laughter) But we plan. We do plan. And, you know, I've got a model in my mind of what Berkshire has been the model. It's been modified plenty of times over 58 years. The one thing I knew initially or very quickly was it shouldn't be a textile company. (Laugh) That was an important decision. (Laughter) And, I mean, we've just played the hand as it came along. And we made a few really good decisions. We'll never make a decision that kills us. Only things that are a threat to the planet, we don't have any answer for those. But we keep ourselves in better shape than anybody else. And we just aren't going to have big maturities of debt that come along. We aren't going to have insurance policies that can be cashed in en masse. And we will sit with what looks a huge amount of capital. And it is a huge amount of capital. But there's a huge amount of earning power. There's a huge amount of diversity, everything. So, our business model will be graded, and it'll be graded against a lot of people that we like to be graded against. So, I think we're handing something very secure over to the future. And I think we've got a shareholder base like nobody has. I mean, there isn't anybody in the country that I know of unless they've had a employee-owned company prior to going public or something of the sort. But this is the product of, you know, 58 years of regarding the shareholder as the owner of the company. But what does that mean? That means having happy customers. It means being (Applause) welcomed by your community rather than having them turn you away. It means that the government feels better with you if there's a financial crisis. Because you can provide something that actually the country can't under some circumstances. And you'll be there. And at the same time, it'll be good for the business. And we will have crises of one sort or another. But if they aren't challenging the planet, which worries you in terms of some of the threats that we have, we'll be a plus to the United States. And if we're a plus to the United States, we'll survive.

Stories about finding Ajit Jain and Ben Rosner's Chicago submarine

WARREN BUFFETTOK. (Applause) Station seven.

AUDIENCE MEMBERMr. Buffett and Mr. Munger, thank you for having us this weekend. My name is Beau Clayton (PH), and I'm from Durham, North Carolina. One of the reasons that we are all here is that you're great storytellers. And we carry those stories back home with us. Can you please share a couple stories that maybe we haven't heard before (Laughter) about Mr. Abel and Mr. Jain that capture their character and their caliber as leaders? (Applause)

WARREN BUFFETTWell, I'll start out with Ajit. (Laugh) He walked into the office in 1986, and I'd gotten the bright idea of going into the reinsurance business I think in maybe 1969. So, I'd stumbled along for 17 years. And I had a wonderful guy that ran it. But he also liked certain brokers. I mean, he was running it the traditional way. Top quality and everything else, but he didn't try and change the system. He tried to improve the system to some degree. And we went nowhere. Seventeen years wandering around in the wilderness. And I thought we could have something good. And then Ajit came in on a Saturday and Mike Goldberg (PH) had steered him in, I think. And Mike deserves to be enshrined (Laugh) in perpetuity for that act. And I talked with him a while. I think maybe I was opening the mail on Saturday while I talked with him. And he had absolutely zero experience with insurance. But he'd actually seen a good bit about how corporate America operated, because he'd been in management consulting. And after talking with him, I knew I'd struck gold. And so, I hired him and gave him the backing of some money. And we hit a very good period in the market almost right away for him to act. And Ajit, you know, if I had the top pick of ten insurance managers in the world, I could take all ten and you can't replace Ajit. And we still enjoy talking. We don't talk as frequently as we used to, but we used to talk about every day. But he's one of a kind. And, you know, if you're going to stick around long enough, you only need one of a kind. (Laugh) Paul Andrews (PH) stuck around at TTI, had all the money in the world. Every time I talked to him about getting a raise or something of the sort, he said, "We'll talk about that next year." He was not what you get when you get the top draft picks from the leading business schools. And I will say this, I have never looked at where anybody went to school in terms of hiring. I mean, somebody mails me a resume or something, I don't care where they went to school. And it just so happens that Ajit went to some pretty good schools. But he isn't Ajit because he went to those schools. And Charlie, you can tell a story or two. How'd you find Louis Vincenti? (Laugh)

CHARLIE MUNGERWell, he was there. But you've got to recognize him. I asked Louis once how he managed to play first-string football at, I think, Stanford when he only weighed 155 pounds. And he said, "Well," he said, "I was pretty quick." And he was pretty quick. But (Laugh) we have found a lot of people within our companies who are pretty quick.

WARREN BUFFETTYeah, we had one guy that quit at fourth grade, didn't we? Ben Rosner. Am I wrong?

CHARLIE MUNGEROh yeah. Totally self-educated. Ben Rosner knew more about retailing in those old neighborhoods than anybody. And he watched everything in his business like a hawk, and he was amazing. Now there was an example. We never found anybody who could do what — when Ben died, that ability left us.

WARREN BUFFETTYeah, and you want a story that's kind of interesting, because Ben Rosner had a partner, Leo Simon. And Leo Simon was Mo Annenberg's son-in-law. And Leo, therefore, was very, very, very wealthy. And Ben started with nothing. But they liked each other. And one time well before they got involved in the business we bought, they got the idea of buying a submarine from World War I and taking it to the Century of Progress, which was the World's Fair, in effect, in Chicago I think in 1933. So, they bought the submarine for practically nothing. And they figured the average guy from Omaha who's going to his first World's Fair could get a submarine for a quarter or something, that they'd pay it. So, they hauled it from Florida, wherever they got it, hauled it to Chicago. And then they got into Chicago, and they were hauling a submarine down the streets of Chicago. (Laugh) And, you know, it was creating traffic problems like nobody could imagine. So, a cop came over and he said to Ben, he says, "Where do you think you guys are going with that submarine?" (Laugh) And Ben says, "You'll have to talk to my partner, Mr. Capone." (Laugh) And the cop says, "You're on. You know, just keep going." And (Laughter) that was Ben Rosner. And then Leo Simon died, and when he died in 1967 or so, Ben Rosner kept delivering half the profits to his widow, who was incredibly rich, of course, being Mo Annenberg's first-born daughter. I think Mo had nine girls in a row before Walter came along, the tenth. I may be off by one. But anyway, I went to his fancy apartment. And anyway, Ben kept her in for half the deal. And he had her sign the rent checks just so she would look like she was doing something in this business. And she didn't need the money, obviously, but he just felt he was obligated once his partner, Leo, died. And then she started criticizing him. And at that point, Ben went to his lawyer, who was her lawyer, actually, Will Salsteiner (PH). I don't know whatever happened to Will. But he gave me a call because Ben wanted to call me because he wanted me to buy it. And he wanted me, if I bought it, he'd be rid of the ex-partner's wife. And he had Charlie and me come back, and we went to Will Salsteiner's office. And Ben says, "I'll work until the end of the year, and that's all. But I'll sell you this thing for $6 million bucks." And I had $2 million in cash, and a couple of million in real estate, and a couple million of operating earnings. It was just crazy. But he felt if he was getting a lousy price, she was taking a half of the lousy price for half the money. So, he looked at me at some point. Charlie, you describe the rest of it. (Laugh)

CHARLIE MUNGERHe said, "I hear you're the fastest draw in the West." He says, "Draw." (Laughter)

WARREN BUFFETTWe're in a New York lawyer's office. (Laugh) And this guy is selling his baby. And he told us he's leaving. I got Charlie on the side, I said, "If this guy leaves at the end of the year, you can throw away every psychology book that's ever been written. I mean, it isn't going to happen." And so, we bought it and we lived happily ever after with Ben. And one time he was taking me over to see a property we had in Brooklyn. And along the way I said, "Ben, you know, I promised you I wouldn't interfere in the business when we started." And he knew a "but" was coming. And he just said, "Thank you, Warren," and then he shut me up. (Laughter) He was a lot of fun. We have so many Ben Rosner stories, but now you've heard one that hasn't been published before.

Jain is happy with property catastrophe reinsurance portfolio

WARREN BUFFETTOK, Becky?

BECKY QUICKThis question comes from Chai Gohill (PH). This he writes, this is for Ajit. "Reinsurance industry is going through one of the hardest pricing environments in the last 15 years. Berkshire historically has participated during these stressed times when economic returns are very attractive. "This year, it appears Berkshire has not been interested in deploying its resources towards property cat reinsurance despite such strong returns. Can you elaborate on reasons for not participating despite these returns, and your broader view on how you're planning to shape your reinsurance business post-acquisition of Alleghany?"

AJIT JAINOK. In terms of Alleghany, that's an easy response. We treat our operating units independent of each other. And as far as Alleghany is concerned, they have a major presence in the reinsurance business under the brand name of TransAtlantic Re. That company will operate the way it's been operating in the past. There will be no change in terms of strategy or management. And they will keep doing what they're doing. They've been very successful, and hopefully will keep being successful. Now, in terms of the property cat business that I have been active in over these last several years, you're right that the last 15 years has been a difficult time. Prices have not been attractive. And even though we have had some presence in the property cat business in the last 15 years, it really has been minimal. This December 31st, which is a big renewal date for cat reinsurance, we were hoping that we would get a few days in the sun, and we'd be able to deploy our capital, and be able to write some fairly attractive business. As it happened towards the end of December, until about the third week of December, I was very optimistic that we would get a chance to put several billion dollars on the books. But in the last ten days of December, unfortunately a lot of capacity came out of the woodworks. Pricing that we were expecting to realize didn't really come and meet our pricing requirements, as a result of which January 1 was a big disappointment. We did not write as much as we were hoping to write. Now, fast forward to April 1, which is another big renewal date, we had a lot of powder dry. And we were lucky that we kept the powder dry. Because April 1, suddenly prices zoomed up again, a lot higher than what they were on January 1, and started to look attractive to us. So, now we have a portfolio that is very heavily exposed to property catastrophe. To put that in perspective, our exposure today is almost 50% more than what it was five, six months ago. So, I think we have written as much as our capacity will allow us to write. We are very happy with what we've written. The margins have been healthy. The only thing that I want to mention to you is that, while the mentions have been healthy, we have a very unbalanced portfolio. What that means is if there's a big hurricane in Florida, we will have a very substantial loss. As opposed to that if we have a very big loss anywhere other than Florida, relative to our competition, we will have a much smaller loss. Net-net, I'm very happy with the portfolio. It is a lot better than what it's been in the past. I don't know how long it'll last, and of course if the hurricane happens in Florida, we could lose, across all the units, as much as $15 billion. And if there isn't a loss, we'll make several billion dollars as profit.

WARREN BUFFETTAnd, Ajit, when you called me and said you'd like to expose us to whatever it was, a couple billion more of exposure, how long I took to say yes. (Laugh)

AJIT JAINYeah, so the way we think about our exposure is, you know, in the insurance operations collectively across the entire company. Given that we have about a little less than $300 billion of capital, we think of that as a 5% exposure that we're willing to take on. So, to complete Warren's story, a few weeks ago we had about $13 billion of exposure all across the globe. And I called up Warren and I said, "We're up to $13. It'll be nice if we can go up to $15. That's a good round number." And that was less than a 30-second phone call. (Laugh) I think Warren said yes without even listening to what the numbers were. (Laughter)

WARREN BUFFETTI hope he calls me again. (Laughter)

'We don't get smarter' but 'we get a little wiser'

WARREN BUFFETTOK, station eight.

AUDIENCE MEMBERHello. My name is Adal Flores (PH), and I've been a shareholder for about 16 years. And I'm coming from Guadalajara, Mexico. My question is for Warren and Charlie. Companies have the eternal dilemma between building products that can make profits and increase their company's competitive position. In the best case, you can build products that have both characteristics at the same time, like Google did. But most of the time, companies need to choose between short-term profits and long-term defensibility. For example, Amazon was focused on building their famous Amazon flywheel with limited profits initially, in order to obtain stronger network effects, with the hope of getting more defensible profits in the future. When you invest, you constantly speak about the importance of building competitive moats. What advice would you give to CEOs about how to balance this dilemma, which is essentially short-term profits versus long-term defensibility? Thank you.

WARREN BUFFETTWell, the answer is to control your destiny, which we've been able to do at Berkshire. We feel no pressure from Wall Street. You know, we don't have investor calls. We don't have to make promises. We get a chance to make our own mistakes, and occasionally find something that works well. But we recognize that the people in this room and people like them are the ones that we're working for. And we're not working for a bunch of people that care about whether we meet the core estimate or anything. So, we have a freedom that we get to use. And we're interested in owning a wonderful business forever. We learned from many wonderful businesses. But we do learn a lot as we go along. Charlie and I have often mentioned how we learned so much when we bought See's Candies, which we did. But we learned when we bought Ben Rosner's chain of women's dress shops spread all over the eastern part of the country. We learned when we tried getting into the department store business back in 1966. And as the ink was drying on our purchase price, we realized we'd done something (Laugh) dumb. I mean, we're learning all the time how consumers behave. I'm not going to be able to learn the technical aspects of businesses. It'd be nice if I knew it, but it isn't essential. And, you know, obviously we've got a business at Apple, which is larger than our energy business. And we may only own five points, 6% or 7%. But our ownership goes up every year, and I don't understand the phone at all. But I do understand consumer behavior. And I know how people think about whether to buy a second car. I know how they go out to different — we own auto dealerships. We're learning all the time from all of our businesses how people react to Garanimals versus selling them something else. And so, See's was a sort of breakthrough. But we just keep learning as to more about how people behave and how a good business can turn into a bad business, and how some good businesses can maintain their competitive advantage over time. And so, we don't have some formula, Berkshire people. But we can also tell in ten seconds whether it's something of interest. I mean, when I get these calls and we want to send decks and all that sort of thing, which is nonsense, I mean, it's a bunch of guys (Laugh) that get paid for drawing up these projections of the future and everything like that. If they knew the future, you know, we don't know the future, but we do know certain kinds of businesses. We know what the right price is, and we know what we think we can project out in terms of consumer behavior and threats to a business. And that's what we've been about and that's what we'll continue to be about. We don't get smarter over time, we get a little wiser, though, following it over time. And you can do it while sitting in the office with a telephone, too, which we like. Charlie?

Why Buffett invested billions in Japanese 'trading houses'

CHARLIE MUNGERWell, tell them the story of the Japanese investment. That should be told again. That's a nice story.

WARREN BUFFETTWell, it was pretty simple. I mean, back when I started other people were going through Playboy and I was going through Moody's, I mean, basically. And there's a movie out called "Turn Every Page," which I saw again for the second time a couple of days ago, Lizzie Gottlieb. And I recommend everybody in this world watch that, because I turned every page in the past. And I did it for thousands and thousands of pages at Moody's, and I did it at the Department of Public Utilities in Boston. I did it in the insurance department. I just kept turning pages. Well, that goes on for a while. But now we need big ideas in order to find things. And what was your question, Charlie?

CHARLIE MUNGERTell them about the Japanese.

WARREN BUFFETTWell, the Japanese thing was simple. I mean, Ben and I liked looking at companies. I mean, I like looking at figures about companies. And here were five very, very substantial companies, understandable companies. Most of them, maybe all of them we'd done business with in a dozen different ways. If you go a couple miles from where this place is, our last coal generating plant was built by one of the companies. So here they were. They were sitting as a group where they were earning, we'll say 14% on what we were going to pay to buy them. They were paying decent dividends. They were going to repurchase shares in some cases. They owned a whole bunch of businesses that we could understand as a group, although it didn't mean we had deep understanding on any. But we'd seen them operate and everything. There wasn't anything to it. And at the same time, we could take out the currency risk by financing in the end. And that was going to cost a half of 1%. Well, if you get 14% on one side and a half a percent on the other side, and you've got money forever, and they're doing intelligent things, and they're sizable, so we just started buying them. I didn't even probably tell Greg until maybe six months after we'd gotten going. And then when we hit 5% in all of them, we announced on my birthday, 90th, that we owned over 5%. And recently went over for the first time to visit with them. And we were more than pleasantly surprised, delighted, with what we find there. And now we own 7.4% of them. We won't go over 9.9% without their agreeing, and we sold another $164, whatever it is billion by the end.

CHARLIE MUNGERThey would've done it for us if we only had $5 billion or something. And it made $10 billion simply in that way. We would look like heroes. Now $10 billion just sort of disappears as if it's a little dot in Berkshire's reports.

WARREN BUFFETTBut it's fun.

CHARLIE MUNGERIt is fun, and it is $10 billion.

WARREN BUFFETTAnd Charlie says it keeps (Laughter) me out of bars when I talk to him about it. And I probably talked to Charlie about those the year after I started. But who knows? I mean, I knew he'd like it, I mean, obviously.

CHARLIE MUNGERWe tried to do every dollar. We would do — we could only do about $10 billion.

WARREN BUFFETTWell, not even quite that much. But, you know, we are $4 or $5 billion ahead, plus dividends. And we've got a carry that's terrific. And they welcome us, and they should welcome us. But we love it the way we're operating. We're not there to tell them what to do in the least. But we did say we'd never go over 9.9%, and we mean it. And they know that we'll be true to our word. And I went over there, partly to introduce Greg to those people, because we're going to be with them 10, 20, 30, 40 years from now. And they may occasionally find something that we can do jointly. And they look forward to doing that, and we look forward to it, and in addition we have some other operating businesses in Japan. So, Greg, do you have anything?

GREG ABELNo, the only thing I would add is that 1) as, Warren, you went over there, it was to build the trust with these Japanese companies. Because we do hope there's long-term opportunities. But fundamentally, as you highlighted, they've been a very good investment. I'd also highlight the five meetings we had were really quite remarkable. I mean, these companies, the culture and the history around it, and how proud they are, you know, there's just moments of learning from them. So, it was just a great experience to spend really two days with the five companies.

WARREN BUFFETTAnd an issue that we intended to be 56 billion of yen that we were issuing and selling turned out to be 164.4 or something like that. And everything's worked so well. And as Charlie says, you know, it doesn't move $500 billion of net worth that much. But this one, you know, will keep adding over the years to Berkshire's value with this very widespread, probably $4 or $500 million a year. And, you know, we'll just keep looking for more opportunities. And Japan, Berkshire is the largest borrower, outside of corporate borrowers, outside of Japan that exists. And we didn't set out to be that. But (Laugh) it's turned out that way. And we're not done. I mean, you know, in terms of what may come along there. And we have some direct operations there, as I mentioned. And we've got some really wonderful partners working for us. And I don't have to do anything.

Apple is a 'better business' than any Berkshire company

WARREN BUFFETT(Laughter) OK, Becky?

BECKY QUICKThis next question comes from Ellie Amin Tebet (PH), who asks, "During an episode of Investing the Templeton Way podcast, Professor Damodaran, who he respects almost as much as Warren and Charlie, mentioned that he is not comfortable with positions becoming a large part of his portfolio. For example, when they reach 25-35%. He mentioned that Apple is now 35% of Berkshire's portfolio and thinks that that is near a danger zone." Wonders if Warren and Charlie can comment.

WARREN BUFFETTWell, I'd like to make one comment first, but Charlie will come up with —

CHARLIE MUNGERI think he's out of his mind.

WARREN BUFFETTYeah, I knew that was coming. (Laughter) Apple is not 35% of Berkshire's portfolio. Berkshire's portfolio includes the railroad, the energy business, Garanimals, you name it, See's Candies, they're all businesses. And, you know, the good thing about Apple is that we can go up. They buy in their stock, and instead of owning 5.6%, they got about 15 billion, 700 and some million shares outstanding. They get down to 15 and a quarter billion without us doing anything. We got 6%. So, we can't own more than 100% of the BNSF. We can't own more than 100% of Garanimals or See's Candies. And it would be nice. We'd love to own 200%, but it just isn't doable. But they're all the same. They're good businesses. And to think that our criteria for Apple is different than the other businesses we own, it just happens to be a better business than any we own. And we put a fair amount of money in it, but we haven't got more money in it than we've got in the railroad. And Apple is a better business. Our railroad is a very good business. But it's not remotely as good as Apple's business. Apple, you know, has a position with consumers where they're paying, you know, maybe the $1,500 bucks or whatever it may be for a phone. And these same people pay $35,000 for having a second car. And if they had to give up a second car or give up their iPhone, they'd give up their second car. I mean, it's an extraordinary product. We don't have anything like that that we own 100% of. But we're very, very, very happy to have 5.6%, or whatever it may be, and we're delighted every tenth of a percent that goes up. That's like adding $100 million to our share of the earnings. And they use the earnings to buy out our partners, which we're glad to see them sell out, too. The index funds have to sell if they (Laugh) bring the number of shares down. And, you know, we went up slightly last year, and I made a mistake a couple years ago when I sold some shares when I had certain reasons why gains were useful to take that year from a tax standpoint. But having heard me say that, it was a dumb decision. (Laugh) And, Charlie, you've already given your comment about it. But we do not have 35% of Berkshire's portfolio. Berkshire's portfolio is the funds we have to work with. And we want to own good businesses. And we also want to have plenty of liquidity. And beyond that, you know, the sky's the limit or our mistakes. Who knows what the bottom is? (Laugh) Charlie, do you want to add anything to your earlier comment?

CHARLIE MUNGERWell, I think one of the inane things that's taught in modern university education is that a vast diversification is absolutely mandatory in investing in common stocks. That is an insane idea. It's not that easy to have a vast plethora of good opportunities that are easily identified. And if you've only got three, I'd rather be in my best ideas instead of my worst. And now, some people can't tell their best ideas from their worst. And the act of deciding that an investment is already good, they get to thinking it's better than it is. I think we make fewer mistakes like that than other people. And that is a blessing to us. We're not so smart, but we kind of know where the edge of our smartness is. That is a very important part of practical intelligence. And a lot of people who are geniuses on IQ tests think they're a lot smarter than they are. And what they are is dangerous. But if you know the edge of your own ability pretty well, you should ignore most of the notions of our experts about what I call "deworsification" of portfolios.

U.S. and China both need to reduce 'stupid, stupid, stupid' economic tensions

WARREN BUFFETTOK. (Applause) Station nine?

AUDIENCE MEMBERHi, Charlie and Warren. Thank you for this superb shareholder meeting celebration. My name is David Chung (PH) from Hong Kong, and a proud graduate of Chicago Booth. I'm also here with my two sons, Aiden (PH) and Ashen (PH), who are currently studying at the University of Chicago as a freshman and sophomore. This is my second time attending the conference, last being 2019 four years ago, which I was only a guest shareholder of my friend, Andrew. So, after the shareholder meeting, I have decided to buy into Berkshire Hathaway, which has given me a great return of 62% since 2019. So, I wanted to thank you for that. (Applause) I have also taken your advice to give my children a share for each of their birthdays. Although they want Berkshire Hathaway A shares, (Laughter) they will do just fine with B shares. (Laughter) My question is how do you see the current U.S./China internet companies' valuation and the price disparity, given there have been many uncertainties such as geopolitical tensions, significant cost optimizations with leading U.S. tech firms, while China tech has been through all that already? Thank you.

WARREN BUFFETTCharlie, you want to?

CHARLIE MUNGERWell, there's been some tension in the economic relationship of United States and China. I think that that tension has been wrongly created on both sides. I think we're equally guilty of being stupid. If there's one thing we should do, it's get along with China. And we should have a lot of free trade with China in our mutual interest. (Applause) And I just can't imagine. It's just so obvious. There's so much safety and so much creativity that's possible. Think of what Apple has done by engaging in a partnership with China as a big supplier. It's been good for Apple and good for China. That's the kind of business we ought to be doing with China. And more of it. Everything that increases the tension between the two countries is stupid, stupid, stupid. It ought to be stopped on each side. And each side ought to respond to the other side's stupidity with reciprocal kindness. That's my view.

WARREN BUFFETTAnd it creates one enormous problem, of course, which is that you have the two superpowers of the world, and they know they have to get along with each other. Either one can destroy the other. And they're going to be competitive with each other. But part of it is, always in a game like that, is trying to judge how far you can push the other guy without them reacting wrong. And, you know, if either side is a bully in some ways, they can get away with it, to an extent, because the alternative would drive them both into destruction. But if they push it too far, they increase the probability that something really does go wrong. So, it's one of those game theory dilemmas. But you really need the leader of both countries. And you need the populace to understand, at least, the general situation in which these countries are going to operate over the next century. And know that some leader that promises too much can get you in a hell of a lot of trouble. And, you know, you've got one kind of a system that gets its leader one way. They've got another system that gets its leader another way. And keeping either side from trying to play the game too hard, and thinking the other side will go along, you know, it's like playing chicken, you know, and driving toward a cliff. So, if you've got any diplomacy skills, persuasive skills, or anything like that, you really want people that will convince the other country, as well as his own or her own country, that, "This is what we're engaged in. We've got to do it right. We won't give away the store, but we won't try and take the whole store, either." And we're just at the beginning of this, unfortunately. I mean, we learned what the situation was. It used to be the Soviet. And mutually assured destruction was our policy then. And that kept a lot of things from happening, but it also came with a very, very, very close call with Cuba. And these are different games that existed hundreds of years ago. Britain might rule and seize France or Spain, but now you're playing with a game that you can't really make a huge mistake in. And I think that the better that's understood in both countries, the more the leaders feel that their citizenry does understand that, the better off we'll be. And that a lot of demography, or a lot of inflammatory speaking, but a lot of authoritarian action, I mean, it all carries its dangers. And the world has stumbled through the years post 1945 with a lot of close calls in the nuclear arena. And now we've got pandemics. And we've got cyber, and a whole bunch of other things. So, we've got more tools of destruction than the world's ever had. And it's imperative that China and the United States both understand what the game is and understand that you can't push too hard. But both places are going to be competitive. And both can prosper. That's the vision that is out there, that China will have a more wonderful country, the United States will have a more wonderful country. And the two are not [incompatible]. They're almost imperative in terms of what's going to happen in the next 100 years or so. And I think that the leaders of both countries have got an important job in having that understood, and not to do inflammatory things. And we'll see whether the luck that has taken us from 1945 to present holds out. And I think we can affect, to some extent, that luck. And with that cheery message, we will hand it to Becky. (Laugh)

'I feel better about the capital we've deployed in Japan than Taiwan'

BECKY QUICKThis question comes from Roheet Bellany (PH). "Berkshire bought a substantial position in Taiwan Semiconductor, and contrary to its normal holding timeline, sold almost the entire position within a few short months. While you cited in a CNBC interview that geopolitical issues were the catalyst, these issues were seemingly no different when you acquired that stock. So, what else, if anything, changed in those few months and prompted the firm to offload close to $5 billion worth of Taiwan Semiconductor shares?"

WARREN BUFFETTTaiwan Semiconductor's one of the best managed companies and important companies in the world. And I think you'll be able to say the same thing five, or ten, or 20 years from now. I don't like its location. And I've reevaluated that. I mean, I don't think it should be any place but Taiwan, although they will be, obviously, opening up chip capacity in this country. And actually, one of our subsidiaries that we got in Alleghany is participating in their Arizona construction activities. But it's a question of we would rather have the same kind of company. And there's nobody in the chip industry that's in their league, at least in my view. And the man that is a 91-year-old or so connected with it, that I think I played bridge with in Albuquerque, and they're marvelous people, marvelous company. But I'd rather find marvelous people — and I won't find it in the chip industry. But marvelous people and marvelous competitive position and everything, I'd rather find it in the United States. I feel better about the capital that we've got deployed in Japan than Taiwan. I wish it weren't so, but I think that's the reality. And I've reevaluated that in the light of certain things that were going on. Charlie?

CHARLIE MUNGERWell, my view is that Warren ought to feel comfortable if he wants to. (Laughter)

WARREN BUFFETTYeah, yeah. Put that in the minutes. (Laughter)

Ben Graham's great investment book is still popular

WARREN BUFFETTOK, station ten?

AUDIENCE MEMBERFirst of all, thank you for making our lives better. My name is Bugomil Baranowsky. I'm a founding partner of Sicart Associates in New York. We manage multi-generational family fortunes, hence my question. Mr. Buffet, in 1976 in your tribute to Benjamin Graham you wrote, "Walter Lippmann spoke of men who plant trees that other men will sit under." Ben Graham was such a man. You're both such people. Could you share with us your 100-year vision for Berkshire? It's a question to you both.

WARREN BUFFETTYeah. I would like to add one thing about Ben Graham. Ben Graham did all kinds of things for me, and he never expected one thing in return. I mean, just you name it, and he did it, and there wasn't any hidden — you know, the slightest hint, I should say, of anything he expected in return. And I checked: He wrote a book in 1949 that, in a sense, said to me, in very persuasive terms, that what I'd been spending the previous eight or nine years worked at, and loving, was all wrong. And that book has been — I check it every now and then on Amazon where it ranks, and, you know, Amazon ranks hundreds and hundreds and hundreds of thousands of books by sales. And Ben Graham's book has been up there, like, number 300, or 350, or something like that, forever. And there isn't book like it. I wrote Harper Collins a note the other day because they're bringing out another edition. And I asked them how many copies have been sold. And they said the records didn't go back far enough, but they had 7.3 million copies of this little book that changed my life and continues to outsell every investment book ever. Investment books come along and, you know, they're number 400, or 1000 or something for a while, and then all of a sudden, they're number 25,000, or (Laugh) 200,000. And this book — you know, in how many areas can you find any book that has had that sustained position? You go back and look at number one in 1950, or number two or number three, and you look at it in '51 and '52: They don't continue. I mean, they just don't continue. Cookbooks, maybe one or two of them, last for a while, but there is nothing. And this book lives on, and everybody keeps bringing out new books, and saying a lot of other things. But they aren't saying anything that's as important as what he said in 1949 in this relatively thin little book. So, you know, our vision for Berkshire is exactly what we said today: We want it to be a company that is owned by shareholders and behaves in a way that society is happy that it exists, and not unhappy. And we will have unlimited capital, we'll get lots of talent, and we've got a base that can't be beat. And there's no reason why it can't be perpetuated, just like Ben's book, and maybe be an example to other people. And, if so, we'll be very happy. Charlie?

CHARLIE MUNGERYeah. One of the really interesting things about Ben Graham: He was a really gifted teacher, a very honorable profession. And that is what has lasted. However, an interesting fact that he was sheepish about in his old age, was that more than half of all the investment return that Ben Graham made in his whole life came from one stock, one growth stock: GEICO, Berkshire subsidiary. And at the time he operated, there were a lot of sort of lousy companies that were too cheap, and you could make a little money floating from one to another. But the big money he made was one growth stock, buying one undervalued great company is a very good thing, as Berkshire has found out again and again and again.

WARREN BUFFETTAnd Ben wrote a postscript to the '49 edition pointing out exactly that fact, and acknowledging it, but also took some good lessons from it. "You know," he said, "that's the way life is: That you prepare, and you, you know, don't lose on everything along the way, and then something comes along." And GEICO came along because a banker in Fort Worth that had financed Leo Davidson, and I think the banker got three-quarters of it. I don't mean "Leo Davidson," Leo Goodwin, who founded GEICO then called Government Employees Insurance Company, and you can figure out the acronym. The deal almost fell apart. The deal was, as I remember, for maybe a million and a half or something like — a million and a quarter. And it almost fell apart because of a difference of $25,000 in the net worth delivered. This is a business that's, you know, worth tens of billions. But he pointed out the irony in that, too. I mean, he was honest, he was totally intellectually honest about the failings, and also the strengths, of his approach. And, to some extent, you know, Charlie and I have seen that in our lives. I mean, sort of the prepared mind, the willingness to act when you need to act, and the willing to ignore every salesman in the world — and it's imperative to ignore them, and it's one or two things that make the right decision. If you make the right decision on a spouse, I mean, you've won the game. You know, there's an enormously important decision, and you've got all the time in the world. I mean, you've got more time than you used to have when I was a kid to make that decision. And, you know, I don't know whether a third, or whatever percentage, blow that one. You know, it is really interesting. The thing to do is just keep trying to think things through and not do too many stupid things, "And, sooner or later, you have a lollapalooza," as Charlie would say.

GEICO is talking to carmakers about selling insurance in the showroom

WARREN BUFFETTOK. Becky?

BECKY QUICK"All right. This question comes from Terafta (PH), a shareholder in Sierra Vista, Arizona, who is asking a question of Ajit. He wants to know about electric vehicles getting insurance from the manufacturer instead of car insurance companies. A recent article in The Wall Street Journal shows that EVs are a small-but-growing percentage of sales. Tesla and GM are offering their own electric vehicle insurance: What will GEICO do to combat this?

AJIT JAINYeah. So, GEICO is talking to a number of original equipment manufacturers as well to try and see how best they can work with the auto manufacturers and offer insurance at the point of sale. There haven't been very many success stories (Laugh) as yet. So, we'll wait and see. You know, clearly, it is a very convenient way to sell auto insurance at the point of sale. But there's a fair amount of data that needs to be collected on the driver, not just the car. And that makes it a little more complicated. So, we are talking to some auto manufacturers ourselves, we are hopeful that we will strike a deal with some of them before too long. Tesla and GM both have talked a lot in the press in terms of getting into the insurance business. And, in fact, GM, I think, has projected they'll write $3 billion of premiums. Which, you know, it's hard to imagine where it'll come from. But there all hot to trot. I think somebody will find the secret sauce before too long, and we ourselves are in that race.

WARREN BUFFETTYeah. I would point out that — General Motors Insurance, for decades — and, I mean, this is not a new idea. And Uber wrote a lot of insurance for a while, they laid it off with somebody, and that company got killed by it. But — and I don't know the deal between Uber and — I forget the name of the company that took it on, Ajit would probably know.

AJIT JAINJames River.

WARREN BUFFETTJames — yeah. And, you know, it is not a new idea, it's not magic in the least. I mean, it is hard to come up with something that is better at matching risk to reward — I'm sorry, risk to price, than a bunch of very smart people are doing at Progressive, and a bunch of very smart people are doing, to a greater extent, at GEICO. And, I mean, it just was fascinating to me when Uber went into it, you know? And they were going to get their head handed to them. But they laid off a good bit of it — a very substantial percentage of it, with somebody else, who got their head handed to them. (Laugh) And, you know, but it was a story, you know, and Wall Street loves it. We've got 80 car dealerships that do a lot of business, and, you know, we've got the people buying the cars, and the place, and we form an insurance company around those dealer groups, for some reason, that writes insurance: You know, it's hard to improve on the present system. And — (Laugh)

AJIT JAINYeah.

WARREN BUFFETTI wouldn't pay a penny — oh, I'd pay to avoid it, actually. I mean — (laughs) and — go ahead, Ajit.

AJIT JAINYeah. The only point I'd like to add is the margins on writing auto insurance are 4%. Which is a very small number, and once there are more people that are trying to take a bite of the apple, it just becomes very, very difficult to keep all the mouths fed in a profitable manner.

WARREN BUFFETTYeah. You can say there was one big, new idea in property — in car insurance, back in 1920 or so when State Farm started, and State Farm still has it. Next to Berkshire, it's the leader in having net worth. It's a mutual company, but some guy just figured that there was a cartel running car insurance. "A Farmer from Merna" is the name of the book, I think, over in Illinois, and he created a system where he really took 20 points or so out of the cost. And surprise, surprise, here he is, you know? And nobody's owned stock in State Farm — it's an insult to capitalism, actually. Everything (Laughs) you learned at the business school says it shouldn't work, because nobody owns it, nobody's going public with it, no nothing. But it's got more net worth — it's almost probably double. Leaving Berkshire out of the picture, it's probably double the next guy, and nobody's really improved on their system that much. So, it's fascinating how people don't really look at the essence. You know, these are cases that should carry a message. But the truth is, in Wall Street anything can get sold. The test is whether you can sell it or not. If you can sell it, it'll get sold, and a bunch of insurance companies came along and got it sold. And this can be a story about this stock or that stock, and it sounded good when they talked about it at Uber for a while. And it is really interesting. The investing public does not learn much.

Index funds are 'backing off' from using voting power

WARREN BUFFETTOK. Station 11.

AUDIENCE MEMBERHi. My name's Jeff Merriam (PH). I'm from Edina, Minnesota. We've been coming for years. To make that professor from the earlier question really nervous, half our family's wealth is in Berkshire Hathaway. (Laugh)

WARREN BUFFETT(Laugh) But let's make Charlie nervous. (Laugh)

AUDIENCE MEMBERMy question has to do with voting control in the future. There was a question earlier about corporate raider. I was more wondering about who is actually going to own the voting control? Is it going to be institutions? CalPERS? BlackRock? Are they eventually going to get their way with the ESG checkboxes that we're going to have to check? And what should we be thinking about that?

WARREN BUFFETTWell, you're thinking very well. And the interesting thing is the big aggregations look like, of course, they'd be in index funds. But what index funds want is they want a world in which society doesn't get upset with them about the fact they've got all the voting power. And I would say in the last year or two it's looked like a better idea for them not quite to get as — what was the phrase that Charlie used?

CHARLIE MUNGERBut they've backed off a lot.

WARREN BUFFETTYeah, they backed off a lot. And it's in their interest to back off. And, interestingly enough, in looking at money management, you know, the game is not performance, it's assets under management. And index funds produce a tiny, tiny, tiny fee on assets under management. Because it was pioneered by Vanguard, and when it became successful it was very easy to replicate. Not so "easy," but, I mean, it was inevitable that it be copied. But it came with a management fee of two basis points. So, what people that have offered index funds would really like is you to buy their other funds, or let them manage money in some other way, so that they get higher fee on assets under management. Which, of course, is (Laugh) exactly why the index fund was invented in the first place. So, it's not a "loss leader," but it is a way to pull money in, and then you hope that people ignore what was said by —what's the name that — you know, that — John Bogel — Jack Bogel — ignore him. And, essentially, they give up the (UNINTEL) idea, "And that we'll offer you a fund that does this in India, and we'll offer you another fund that does that." And, of course, those management fees are higher. So, they're really counter-selling the idea that John Bogel came along with. But in the process, they have achieved a lot of votes, and that was fun for a while, but the last thing in the world they want to do is have Washington, or the American public, decide that they're throwing around their weight too much. So, they're tending to back off. Now, if you figure out where their self-interest is, you can judge where their behavior is going to go. Charlie? You want to defend them? (Laugh)

CHARLIE MUNGERNo, you can square what you just said. (Laugh) You're totally right on everything.

WARREN BUFFETTWell, in that case I won't ask anybody else.

Buffett: Greg Abel 'understands capital allocation as well as I do'

WARREN BUFFETTOK. Becky? (Laughter)

BECKY QUICKAll right. This question comes from Almu (PH) Grinnell (PH), and this is for Warren and Greg. "Since 2019 Berkshire repurchased huge amounts of stock, reducing approximately 10% of the share count, and increasing the intrinsic value per share for the continuing shareholders. Greg is expected to be the successor of Warren as CEO, so will he be in charge of the main capital allocation decisions, including future share buybacks? Greg has been key in the development of Berkshire Hathaway Energy, and I think a good capital allocator. Has he been involved in the share repurchases that have been executed over the past years? And do you, both Warren and Greg, work together in the estimation of Berkshire's intrinsic value, and the share buyback decisions?"

WARREN BUFFETTWell, the answer is that Greg — I'm going to turn it over to him, but the answer is Greg understands capital allocation as well as I do, and that's lucky for us. And he will make those decisions, I think, very much in the same framework as I would make them. And we've laid out that framework now for 30 years, (Laugh) or something like that. People make it way more complicated than — I mean, particularly if you're working on a doctorate or something, it's just a great subject to have lots of footnotes in, you know, 50 pages, or 100 pages. But it's no more complicated than if you and I and Charlie had a business, and you wanted to sell your interest, and we could buy it for less than we thought it was worth, and without misleading you in any way about what was going on. And we'd buy it then. But, Greg, you're on because you're going to be doing it in the future. (Laugh)

GREG ABELRight. Yeah, well, I think, Warren, you said it really well. I mean, the framework's been laid out, we know how you approach it, and how you and Charlie have approached it, and really don't see that framework changing. When the opportunity present itself, we'll want to be an active repurchaser of Berkshire shares. We think it's a great outcome for Berkshire shareholders to own a larger piece of each of our operating businesses and the portfolio of the equity companies when the opportunity presents itself.

WARREN BUFFETTIt can be the dumbest thing you can do, or it can be the smartest thing you can do. And (Laugh) you know, to make it more complicated than that, and start getting into all this (UNINTEL), you obviously do what the business needs to do first if the opportunities are there: Grow your present business, buy additional businesses, whatever it may be. And then you make a decision on dividends. But that decision becomes pretty irrevocable because you don't cut dividends without having major effects in your shareholder base and a lot of things. And then, if you've got ample capital, and you don't see that you're going to use it all, and your stock is attractive, and it enhances the intrinsic value for the remaining shareholders, it's a no-brainer. And if it's above the price of intrinsic value, it's a no-brainer that you don't even listen to anybody, no matter what investment banker comes in and tells you, "Here's how to do a repurchase program."

Munger has two words for COVID vaccine skeptic

WARREN BUFFETTOK: Station 1.

AUDIENCE MEMBERI'm Tom Nelson, a podcaster from North Oaks, Minnesota. Charlie, in 2022 you used phrases like, "really massively stupid," "massive kind of ignorance," and "crazy" to describe what you said was the 30% of Americans hesitant to submit themselves to untested mRNA COVID gene therapy. Do you stand behind those quotes today?

CHARLIE MUNGERYeah. Sure. (Laughter and applause)

WARREN BUFFETTWell, we got time for one more, then, before lunch.

'It's hard to judge successor management in a really good business' like Berkshire

WARREN BUFFETT(Laughter) Becky?

BECKY QUICKOK. (Laughter) Thought I was out, but let's see. How about — let's see here — (Laughter)

WARREN BUFFETTCould be, "How about lunch?" pretty soon. But —

BECKY QUICK(Laugh) No, no, OK. Let's take that one for you. This one comes from Drew Estes. This is a question for Warren: "In your 1969 Letter to Partners you said, 'In any company where the founder and chief driving force behind the enterprise is still active, it's still very difficult to evaluate second men.'" '"The only real way to see how someone is going to do when running a company is to let them run it.' This wise statement now applies to Berkshire. Once the 'second men' are running Berkshire, what would you advise owners of Berkshire to watch for? Specifically what actions, if taken, should give us concern?"

WARREN BUFFETTWell, I think I would have some comfort in the fact that 99% of my net worth is (Laugh) in the company — so I've probably got a stronger interest in it, and perhaps $100 billion or more of philanthropy will be affected by it. But I would say that I don't have a second choice. I mean, it is that tough to find, but I've also seen Greg in action, and I feel 100% comfortable. And, like I say, I don't know: If something happened to Greg I would tell the directors, you know, they have a problem, and I don't have anybody to name, and if they put somebody in Berkshire on automatic pilot, it can work extremely well for a long time. I mean, it isn't like the businesses go away or any other thing of the sort. And it's hard to judge successor management in a really good business. Because if they don't show up at the office, it'll keep working for a long time. And maybe that lack of useful input may show itself in five years. I mean, it may go a long, long, long time. And how are the shareholders, you know, advised by a bunch of people that are concerned about whether you're meeting earnings projections or something telling them whether the management's any good? It is very, very hard, it's very hard. I've been on the board of 20 companies: It's very hard. If you asked me to rank the management of each one, it's very difficult to do. Because some are just better businesses than others. Some would be better off not managed hardly at all. Others really need help, but they got a lousy business. And Tom Murphy told me a long, long, long time ago, he said, "The secret of business is to buy a good business. And it's OK to inherit one, too." (Laugh) And Greg is inheriting a good business, and I think he will make it better. But I don't think it's easy to put any one of the next ten nominees in and try and judge, three years later, whether they've done a good job or not. So, that'll be a very interesting job for the board. But it shouldn't listen to Wall Street on it. They've got the job. If they put somebody in — if there's a surprise, we both go down in a plane, they put somebody in, they've got a real job in assessing that person. I mean, it will depend on how good he or she is as a talker, it'll depend on, you know, them courting Wall Street to be supportive of them, all kinds of things. And we've got some very good people on the board, but they would be challenged in that position, as would I, where I have been in that position in other companies, where a very great leader has left, and on the way from the funeral, you know, nobody knows what to do exactly.