Berkshire Hathaway Annual Meeting 2014 May 3, 2014

Thesenotesarerecollectionsonly,withouttheaidofarecordingdevice.Theyshouldnotbereliedupon.PB

(PaulAnkaandWarrenBuffettsingaduetintheopeningmovie:Warrensingsastanzaortwoto
DebbieBosanek,hislongtimeassistant,andthenPaulsings,butbutshedoesntdoDallas[Ednote:
DebbiedoesntdoDallasnowthatissubtle!KudostoDebbie,WarrenandPaul]

WB:Goodmorning.Beforewestart,twoveryspecialguestshavetostandup.Eventhoughhewason
tour,hetookquickdetour.MyfriendPaulAnkapleasestandup.[clapping]Withallthetalkaboutmy
successionIwantedtohookupwithsomeonefamousforapossiblesecondcareer.Wereavailablefor
weddings,barmitzvahsandfunerals.Wegotoffered$1000forPaulandI,whichseemedridiculous.I
wasinsulted,theysaidOK,andoffered$10,000forjustPaul.Wehaveoneotherveryspecialguest.
Thisaffairdoesnthappenbyitself.SheevenhadababyboynamedBradyinSeptember.Sheorganized
everythingheretoday,pleasethankCarrieSova.[clapping]

OknowwegettotheminorplayersandwillintroducetheBoardofDirectors.Wellhavethe
shareholdersmeetingafter,thenrecessfor15min,thenat3:45begintheshareholdermeeting.Ill
introducetheBoard,butpleaseholdyourapplauseuntilImfinishedintroducingthenyoucangocrazy.
Inalphabeticalorder:HowardBuffett,SteveBurke,SusanDecker,BillGates,DavidGottesman,
CharlotteGuyman,DonKeogh,CharlieMunger,TomMurphy,RonOlson,WalterScott,MerylWitmer.
ThatisBoardofDirectorsofBerkshire.[clapping]

Wehaveacoupleslidesthenwellmoveintoquestionsuntilnoon,backat1pm,continueuntil3:30pm.
Wereleasedourearningsyesterday.WetrytodothatonaFridaysoyouhavefullweekendtodigest
the10qwhichwemakeavailable.Dontjustlookatthesummary,itmakesgreatreading.Thisisour
summaryslideforQ1,operatingearningsweredownabityearonyear,mainlyaccountablefromour
insuranceunderwritingbusiness.Onaquarterlybasis,thissegmentisnotverymeaningful,oftenitis
foreignexchangerelated.Wehave$77biloffloatinourinsurancebusinessnowthatisourstoinvest.
Itisunderwritingprofitifitdoesntcostustohold.SatisfactoryinQ1butdownfromQ1lastyear.Itisa
liabilityonthebalancesheet,butifcostfree,itdoesasmuchgoodasnetworthdoesonthebalance
sheet.IfweaveragenounderwritingprofitoverthelifeofthebusinessIllbeveryhappyandyou
shouldbetoo.Weadviseyoutopaynoattentiontoquarterlyorannualrealizedgainsinsecurities.We
makenoattempttotimesalesinanyquarter.Wefocusongainsoverthelongerterm.Butignoreitin
shortertermearnings.

WiththatIdliketogiveyouapreviewofavotethatwastaken,itisremarkable.Wehadashareholder
resolutiontopayadividend,implyingwewerentpayingadividendbecausewewerelivinginthisgrand
styletowhichweareaccustomed,andshareholderswerelivingbereftofmillions.Wehavenoproxy
voteservicecompanies,andwejustcountedthevotesastheycomein.AmongclassA,itwas90:1
againstadividend,butyoumaythinkthatIstuffedballotbox,whichIdid.[laughter]SoItookoutmy
votesanditwas40:1amonguntaintedshareholders.ButmaybeitisWarrenandhisrichfriendsandall
theplutocratsintheclassAshareswhovotedagainstit?ButamongBshareholders,andwemayhave
onemillionshareholdersofclassB,andremarkably,theyvotedagainstbyaratioof45:1,andwewere
notmakinganycallstogettheirvote.Imnotsureanycompanyinworldwouldgetquitethatvote.
Andonemoreslide,whichisthedisturbingpartofthatvote,amongBshareholders,97%votedforme.
Itsaclosevoteforeithergettingridofmeorpayingadividend.Thenumberofpeoplethatwantedto
haveadividendandwantedmetogetoutoftheplacewereneckandneck.SoyoucanseewhyIm
adversetoproposingthedividendtotheBoardofDirectors.
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Withthatwelldoquestioningaswealwaysdo.Reporters,analysts,andshareholderswewill
alternate.

Q1.CarolLoomis.Wegethundredsifnotthousandsofquestions.Ifwedontgettoyourquestion,
pleaseexcuseus.WehaventsharedwithWarrenorCharlie,buttheyreadthenewssosomeofthe
questionsmaybefamiliar.ThefirstoneisfromWillEldridgeinNYC:CocaColarecentlyapproveda
magnanimouscompensationplan.Youdidnottellshareholdersbeforeyouvoted.Afterthevoteyou
saiditwasexcessive,butyoudidntsaythatbefore.Andyoudidnotvoteagainst,youonlyabstained.I
cannotseehowtheycanstandupunderexamination.ThisappearsverystrangeunBuffetlikebehavior.
Whydidyouabstain?

WB:StrangebehaviorisfrequentlyBuffettlike[laughter].Theproposalwasmadebyashareholder
whohadheldalongtime.Hiscalculationsondilutionwerewildlyoff.IdidtalktoMuktharKent,and
toldhimwewouldabstain,butthatweadmiredmanagement,butwhilesimilartootherplans,we
wouldabstainbecausewethoughttheplanwasexcessive.Weannouncedthatshortlyafterthevote.It
ishavinganeffectoncompensationplans.ThatwasthemosteffectivewayofbehavingforBerkshire.
Wemadeaclearstatementaboutexcess,andwedidnotgotowarwithCocaCola,andwedidnot
endorsesomecalculationswhichwereinaccurate.Idontthinkgoingtowarisaverygoodideaandif
youallywithsomeoneyouhavetobeverysureofwhomyougowith.Ireceivedsomelettersonit,
aftertheyhadbeenreleasedtopress.Ithinkbesttobecarefulofallianceswithsomeoneyoudont
know.IthinkwegotthebestresultforCocaCola.Charlie?
CM:IthinkwedideverythingrightIthinkyouhandledthewholesituationverywell.[laughter]
WB:Wellthen,CharlieremainsViceChairman.[laughter]ItalkedtoCharliebeforethevote.Ishould
pointout,infairnesstoDavidWinters,hetookfiguresfromtheproxystatement,soIcantfaulthimfor
that.Butforthoseofyouwholiketothinkaboutdilution,CocaColahasregularlyrepurchasedshares
issued,sosharecounthascomedownabit.Itinvolves500mshares,issuedoverfouryears.Illmakeit
simpler,andleaveoutoptionsversusperformanceshares.Thatisalotofshares.Assumingalloptions
areissuedat40,andwhenexercised,thestockis60,thenthisisa$10biltransferofvalue($20x500m
shares).However,thecompanygetsataxdeductionfor$10bilexpense.Atpresenttaxrate,thisis
worthabout$3.5bilinlesstax.Itgets$20bilofproceeds,add$3.5biloftaxsavings,andCocaCola
receives$23.5bil.Companywilllikelybuyin391,666,666sharesat$60,soineffect,theCocaCola
companywouldbeout108mshares,on44.4biltotal.Dilution,assumingtheyarebuyingshares,is
about2.5%dilution.Youcanchangepurchasepricebutdoesntchangethingsverymuch.Idontlike
dilution,andIdontlike2.5%,butitsmuchlessthanthenumbersquoted.
Q2:JonathanBrandt:Berkshiressuccesshistoricallyhasbeenhandsoff.3Gismorehandson.Isthere
awaytousezerobasedbudgetingonBRKsubsidiaries?Isitconsistenttohirea3Galumnustorun
subsidiaryofBerkshire?
WB:Idontthinktwostylesblendverywell.3Gdoesmagnificentjobrunningbusinesses,andthereis
noquestionthatitisadifferentstyle.Idontthinkitwouldpaytotrytoblendthetwo.Ithinkwewill
seemoreopportunitiestopartnerwith3G.TheyareasableasanyoneIhaveseeninmanagementof
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businesses.Theyaremarvelouspartners,morethanfair.Weareverylikelytopartnerwiththem.
Somethingswecoulddowouldbeverylarge.Idontthinkblendingoftwostyleswouldworkwell.
ManagerswhentheyjoinBerkshirearejoiningalargebusinessunlikeanythingelse.Itisahuge
corporateassetwehaveanditwillcontinuetogrow.Wewanttosendaclearmessagetoour
managers.Butwewelcomechancetojoinwith3Ginfuturedeals.
CM:Idontthinkweveeverhadapolicyofrewardingoverstaffing.
WB:Atleastnotatheadoffice,whereweonlyfeelhappywhenpeoplearesittingineachotherslaps.
[laughter]Wedontwishtoenforceastrongdisciplineonwhethersubsidiaryhasafewtoomany
people.Itwontalwaysbetrue.Weencouragebyexamplebutnotbyedict.
CM:Ithinkalotofgreatbusinessesspillalittle,becausetheydontwanttobefanaticsandthatsOK.I
dontthinkyouneedtohavethelastnickeloutofthestaffingcosts.
Q3:Station1:Doug,Colorado.WynnsaidObamaisthebiggestwetblankettotheeconomy.Other
countriesareloweringtaxesandreducingdebt.CanyouconvinceObamatochangethetrains
direction?
WB:DougIthinkIllletyoucommunicatewithhimdirectly.Idontagreewithanumberofthingsyou
say.Americanbusinessisdoingexceptionallywell.Wewillhaveadifferenceofopiniononpolitics,and
youwontconvincemeandIwontconvinceyou.Justlookatcorporateprofits,andachartof
corporatetaxesasapercentageofGDP.Corporatetaxesaredownfrom4%to2%ofGDP,whenother
taxeshaveincreased.Americanearningsonnettangibleassets,themeasureofprofitabilityoverall,is
theenvyoftheworld.Wehaveextraordinaryreturns.Ourtaxrateforcorporatesislowernowthan
whenCharlieandIwereoperating.Wellcallatruce.IllletCharliecomment.
CM:Imgoingtoavoidthisone.
WB:Andpeoplecomplainaboutmeabstaining![laughter]
Q4.BeckyQuick(BQ):Muchadmiration,butifmanagementwasntcapableofreturningbetterreturn
thanindex,areyouchangingyardstick?MissedfiveyearaveragereturnversusS&P?
WB:Wearenotchangingtheyardstick.Wesaidinthe2012annualreportthatwewoulddoworsein
goodyears,andwesaidthatifthemarketwasstrongin2013,Ipredictedourstreakwillend.Ithink
therewere2yearsinlast40wheremarketdidbetterthanlastyear.Wewillunderperforminstrong
years,wewillmatchinmediumyears,andwewilldobetterindownyears.Overanycyclewewill
outperform,butthereisnoguaranteeonthat.
CM:WBtalksaboutincreasingbookvalueafterpayingfullcorporatetaxesof35%.Indicesdonthave
topaytaxes.Inlast10years,Berkshirespretaxprofitsincreasedby$90billion.IfthisisfailureIwant
moreofit.
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Q5:JayGelb(JG):Intrinsicvalue,yousignalundervaluedversusintrinsicvalue.Whatcanyoudoabout
it?WouldyouconsideranIPOoftheoperatingunits?
WB:Noonthesecondpartofthat.Wetrytoexplainintrinsicvalue(andIveneverseenanannual
whichusesthatterm)wherethereisadifferencebetweencarryingvalueandrealvalue.GEICOis
carriedat$1bilovertangible,butitisreallyworth$20bilover.Weareeagertobuystockat120%of
bookvalue.Bookis$230bil.AndobviouslyIthinkthat$45biloverthatfigurewearegettingabargain
overintrinsic.Itchangesfromdaytoday,butnotalot,butchangesoverthequartersandyears.Ifyou
askCharlieandmetowritedownafigureastointrinsicvalue,Ithinkwedbewithin5%ofeachother,
butnot1%.Wewillcontinuetotrytogiveinformationtoshareholdersontheimportantunitsat
Berkshire.Someofoursmallbusinessesmaybeworth$1biloreven$2bil,butthesmallonesdont
haveabigimpact.Railroad,utilityandinsurancearebig,andwetrytousethewordsandnumbersthat
weusewhenthinkingaboutthosebusinessesourselves.Weonlybelieveinrepurchasingshareswhen
wecanbuyatadiscounttointrinsicvalue.The120%isaloudshoutoutastoafigurethatwethinkis
significantlybelowintrinsic.Somecompaniesbuyinsharestocoveroptions.Youshouldntbuyitinif
sharesareovervalued.Negatingdilutionisntrightwhensharesareexpensive.Ifmanagementcanbuy
adollarbillfor90cents,theyaredoingshareholdersagoodjob.Ifspend$1.10,nothelping.
CM:Weveneverwantedtoget[BRKshareprice]wayoverintrinsicvaluetobeabletoissueshares.We
dontwantanadvantageforourselvesanddisadvantageforthem.Thepeoplewhowantthepriceup
wanteggintheirbeer.Itsokifitsalittlebelow.Ithinkstockwilleventuallygoabovewhetherwelike
itornot.
WB:Wehavewatchedthisinpast,conglomeratesissuingstockathighpricestoissueandtakeover
companies.Itworks,butifyoucheatonearningsandwheredoyoustop.Thatisagamewedontwant
toplay,itisverydistasteful.Anditcomesinwaves.Wedontwanttocomeclosetoplayingit.Unless
ImcarefulCharliewillnamenamessowebettermoveon.[laughter]
Q6:Station2:LosAngeles.Berkshireisknowntobuywholecompanies.Acquisitionsofothercompanies
isdisruptive.Whatdoyoudotogaintrust?
WB:Wevekeptourwordtothem.Wehavetobecarefulaboutwhatwepromise.Wecantpromise
nolayoffs.Wecanpromisethatwewontselltheirbusiness,evenifdisappointing,aslongasnothaving
continuinglossesorlaborproblems.Youwouldnotgetapassinggradeinbusinessschoolifyouput
downourprinciplesforwhywekeepsomebusinesses,butwemadeapromise.Ifwedontkeepour
promise,wordwouldgetaround.Welisttheeconomicprinciples,somanagerswhoselltousknowthey
cancountonit.Wecantmakesomepromises,andwedontpromisenevertosell.Butweveonlyhad
togetridofafewbusinesses,includingtheoriginaltextilebusiness.Wealsoletmanagerscontinueto
runtheirbusiness.Wearenowinclassthatishardtocompetewith.Aprivateequityfirmwontbe
impressedbywhatweputinthebackofourannualreport.Peoplewhoarerichandrunacompany
theirgrandfatherstartedtheydontwanttohanditovertoacoupleMBAswhowanttoshowtheir
stuff.Aslongaswebehaveproperly,wewillmaintainthatasset,andmanywillhavetroublecompeting
withit.Itishowwewanttooperate.Ithinkitwillcontinuetoworkwell.
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CM:Obviouslywebehavethewaywedobecauseweenjoydoingit.Numbertwo,ithasdonepretty
wellsoweareunlikelytostop.
WB:Youcantellhedoesntgetpaidbytheword.[laughter]
Q7:ARS:GivenyoursonHowardvotedfortheCokepayplanasadirector,howwillhebeaProtectorof
cultureatBerkshire?
WB:Ivoted,asadirectorofvariouscompanies,Ihavevotedforacquisitionandcompplansthatdidnt
makesense.Thenature,andthisisworthexploring,ofBoardsisthattheyarepartbusiness
organizationsandpartsocialorganizations.Theybehavewithbothabusinessbrainandasocialbrain.
In55yearsofbeingoncorporateboards,19companiesotherthanBerkshire,Iveneverseenacomp
plancomeinandgetadissentingvote.Boarddelegatesdecisiontoacompensationcommittee.The
compensationcommitteereportsonactivities.Youdelegatedtothiscommittee.Thatiswayitworks.
Imnotsayingthatisthewayitshouldwork.Bearinmindthatindependentdirectorsreceiving$200k
or$300k,theyarenotindependent.Forgoingtowork46timesayear,thereispleasantcompany
whengetthereitsgoodwork.Iwasoncompensationcommitteeonce,andtheresultwasnotgood,
theydontlookforDobermans,theywantCockerSpanielswiththeirtailswagging.MysonHowards
(andmytwootherchildrens)jobisnottoselecttheCEOortosetcompensation.Howardisthereto
facilitateachangeifBoardofDirectorsdecideitisneeded.Howieisperfectguytocarrythatout.I
votedforcompensationplansinvariousplacesthatwerefarfromperfect.Iwasmadechairmanof
Salomons
CM:WarrenwasvoteddownatSalomonInc.Ithinkgeneralideathatpeopleshouldshoutdown
everythingtheydisapproveofisntright.Inlifeyouhavetopickyourspots.Ifwealldidthat,we
wouldntbeabletoheareachother.
WB:Ifyoukeepbelchingatthedinnertable,youwillsoonbeeatinginkitchen.[laughter]Peopleneed
topicktheirspotsortheywillnotonlybeignored,butnotheardonotherissues.Charliegivesthe
maritaladvicearoundhere.Attemptingtochangethebehaviorofothers...
CM:Ioffendmorepeoplethanyoudo,andIamsatisfiedwiththelevelofdisapproval.
Q8:GregoryWarren,Morningstar(GW):Themeasureofagoodmanagementisabilitytogenerate
outsizedreturns,butsheersizemakesithard.Whatiscostofcapitalnow,withnewcapexheavyfirms?
WB:Thereisnoquestionthatsizeisananchortoperformance.Weintendtoprovethatuptothe
pointitstartsreallybiting.Wecanthavesamereturnsoncapitalbase,marketcapof$300bil.
Archimedes,didnthesayhecouldmovetheworldifhehadalongenoughlever,andwishIhadthat
lever.Wellanswertwoquestions.Costofcapitaliswhatcanbeproducedbyoursecondbestidea.Our
bestideahastoexceedthat.Weveheardsomanydiscussionsonhowtofigureoutthecostofcapital
CM:Iveneverheardanintelligentone.
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WB:Wedontknow,IprobablyvoteifIdontlikeitbutsomeexceptionstothat.Therealtestovertime
isthatthecapitalweretainproducesmorethanadollarofmarketvalueovertime.Ifwekeepputting
billionsin,andaddingmorethantheircost,wellkeepdoingit.Wearespendingcloseto$3bilona
Canadiancompany,andwewillbebetteroffandthatwasbestthingtodothatdaywiththat$3bil.Ive
neverseenaCEOwantingtodoadealandaCFOsayitdidntexceedcostofcapital.Wethinkwecan
evaluatebusinesses,weknowourcapital.Weareconstantlymeasuringthatopportunitycost,itisan
importantsubject.
CM:Aphraselikecostofcapitalwejustdontuseit.Warrensdefinitionofaddingmoreinmarket
valuethanweputinwillneverbetaughtinbusinessschoolthephrasetoretaintocreatemorevalue,
isthebestdescription.Itssimple:wereright,andtheyarewrong.
WB:Ilookgoodcomparedtohim,dontI?[laughter]
Q9:Station9,Omaha.DidyoubuytheNebraskaFurnitureMartat85%ofbookvalue,or2xearnings?
WB:Iwishwehadboughtitthatcheap.Wepaid11or12xp/efor80%ofcompany,anditwasnota
discounttobook,$60mwastheequivalentfullpurchaseprice,andtherewasasecondtransaction
involved.$60mfor100%,wasnotabargainpurchase,itwasmorethanbookatthetime.Itwouldhave
beenamultiple11xor12xpretax.Ithad$100msales,pretax7%margin,orabout4.5%aftertax.That
isballpark.Itwasgreatbusiness,butitwasnotabargain.Itwasgreatopportunitytojoinwiththis
greatfamily.TherewasanothercompanyfromGermanytryingtobuyitattime.ErskineBowleswas
representingthemactually.Onmybirthdayin1983,inAugust,IgavealettertoMrs.B,andLouisher
sontoldherwhatwasinit.Iasked,didsheoweanymoney,didsheownbuilding?No,andyesshedid.
Ifyouwanttotalkbargainpurchases,weshouldtalkaboutgoingouttoNFMforshopping.Wehada
record$40minsalesfortheweeklastyear.Weareup7%nowvs.lastyear.OnTuesdaywedid$7.8m.
WeownlargestfurniturestoreinReno,LasVegas,etc.OursalesonTuesdaywerelargerthanthe
monthlysalesatanyofthoseplaces.Andgoodnewsthatthereisstilltime![laughter]Ihavetogivea
plugforthenewDallasstore.Itisstoreyouwouldntbelieveithas1.8msquarefeet.Itwilldomore
volumethananyotherhomefurnishingsstoreinworldbyafactorof2.Weareevenputtingin
streets.Michelleshowedmearoundlastweek.MichellestartedworkatNFMasacashier,andnowshe
isinchargeofahundredofmillionsdollarproject.ItisthegoodthingaboutAmerica.Andhernumber
twopersonwhocamewithus,thatwasMichelleshusband.Interestingpillowtalk,howmanycubic
yardsdidyoumovetoday?[laughter]
Q10:CL:Mostpopularquestionasked.Youaretrusteeforwifesbenefit,10%inshorttermbonds,and
90%inS&Plowcostfund.Whyanindexfund,notBerkshireshares?IsitbecausetheIndexfundwill
outperformwhenthecompanyisrunbyanewCEO?
WB:ThatletterdidntcomefromVanguardbyanychance,didit?[laughter]WhenIdie,everysingle
sharewillgoto5foundations.Theywillbedistributedover10yearsaftermyestateisclosed.My
instructionsaretonotsellanyBerkshiresharesuntiltheyhavetobesold.MyviewsonBerkshireareso
solidIcantthinkofanythingbettertodowithit.Formywife,itisnotaquestionofmaximizing
capital,itisaboutmaximizingsafetyandnotdoingworse.Itisapeaceofmindquestion.OnthepartI
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careaboutmaximizing,Ihaveinstructedthethreetrusteesnottosellasingleshareuntiltheyhaveto,
thatisgoodfor[5]yrs.
CM:Warrenispeculiarabouthowhedistributesmoneytohisfamily.Ithinkheshoulddoashedamn
wellpleases.[lightapplause]
WB:DoIhearanyofmychildrenapplauding?
CM:Youaredowntoafewtrifles,Warren,andSusiewasthesame,reallyisameritocrat.Hewants
moneytogobacktocivilizationinwhichitwasearned.Ilikebeingassociatedwithit.
Q11:JonathanBrandt:BNSFdoingwell,butUnionPacifichasgrownearningsmore?
WB:Wevehandledmorevolumethaninpast.In2006,wedid219kpeakcarloads.Wevehadalotof
serviceproblemsonthenorthernroute.WevebeenspendingmoremoneythanUnionPacific,and
theyspendalot,totrytoanticipateproblems.Andwhenyougetabigincreaseinvolumeonthatone
route,fromBakkenshaleoil,therearealotoftrainsrunningnowthatwerentrunningfiveyearsago.
MattRosemightaddressproblemsofcoldweather.Sendingpeopleouttoworkonproblematthat
temperaturecanbelifethreatening.
MattRose:Industrygrewat[+100k]units,andwehandled53%ofunits.Oilcamealotfasterthanwe
expected,andwevebeenspendingtobuildintoit.IvebeenCEO13years,andIhaveneverseen
weatherlikeitthispastwinter.Wehad83inchesofsnowinChicago.Multipledayswerenotoverzero
degreesinMinnesota.Weknowitisanoutdoorsport.Wehandled206kunitslastweek.Norailroad
hashandled205kunits.Wearemakinginvestments.
WB:Wewillspend$5bilontherailroadthisyear.Norailroadhasspentclosetothat.Igotaletterfrom
guywhowashavingproblemsgettingfertilizer.Wedid52[cars],andtheywillgetthereintimeforthe
planting.Wetakeitseriously.Nowitcanfloodinthesummer.Wearefunctioningbetterandearnings
arelikelytobebetter.Butincrediblefloodscanhurttoo.Wearedealingwith23,000milesoftrack.
OneweaklinkisChicagoforallfourrailroads.ButyouarerightJon,incomparativefinancials,andMatt
andIarepayingalotofattentionandIthinkwillgetbetterovertherestofthisyear.
Q12:Station4,Omaha.Berkshireusesnaturalgastogenerateelectricity.Howcanwegetanadequate
supplyofnaturalgas,andifpricegoesup,howcancompanysellelectricitywithsatisfactoryreturn?
WB:Wearethelargestalternativeenergysourceinthecountry.By2015,40%ofourelectricityinIowa
willcomethroughwind.Itisunlikeanyothercompanyyoucanfindinthecountry.Gregwillanswer
specificsonnaturalgasdependentunits.Imnotworriedabouttheissueyouraised,wehave
opportunitytoshifttocoal.
GregAbel:MatttouchedontheverycoldwinterwehadintheMidwest.Wewerechallenged.Natural
gaswasavailabletoheathomesandkeeplightson.Butclearlywehavetolookatuniquesituation,as
wemovetousingmoregasinUS.Thispastyearwewere,inrenewables,39%windinIowain2013.
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Thereisawaytomeetneedsofcustomersincosteffectiveway.Wehaveuniquewaysinourutilities,
whenwepaymoreforgasforinstance,wehaveclearpassthroughsbacktoourcustomers.
WB:Ourgaspipelinesmoveabout8%ofnaturalgasinUSA.Gasintothisareacomesthrougha
pipelineweown.WerenamedtoBerkshireHathawayEnergy.WhenweboughtitfromEnron(and
Dynergyinbetween),theyhadskimpedonmaintenance.Itwasranked#42outof42.Lastyearitwas
ranked#1.WentfromlasttofirstunderGregsmanagement,andsoItipmyhattohim.#2wasour
otherpipeline,sowearerunning1and2atthemoment.
Q13:BQ:Successorquestioniscommon,butanydiscussionaboutareplacementforCharlie?Dynamic
duostill?
WB:Charlieismycanaryinthecoalmine.Charlierecentlyturned90,andIfinditencouraginghowhe
ishandlingmiddleage.[laughter]ButnowImgettingsensitiveyouraisedapointtheynevertalk
aboutreplacingCharlie.IthinklikelythatwhoeverreplacesmeasCEOwillhavesomeonetheywork
withveryclosely,itisagreatwaytooperate.Berkshireisbetteroffbecauseweworkedtogether,there
isnoquestion.[clapping]IdothinkGoizueta&Keogh,CapCitiesTomMurphy&DanBurke,and
companyaccomplishedfarmorebecauseoftwoincrediblepeoplewithcomplimentarytalents.Itis
greatwaytooperate.Youcantwillittosomebody.Ifafewyearsaftersuccessortakesover,Idbe
verysurprisediftherewasntsomerelationshiporpartnership,itcanenhanceachievementsandthe
funtheyhave.ButnoonehasbroughtupsuccessortoCharlie.
CM:Idontthinktheworldhasmuchtoworryabout.Most90yearoldmenaregonesoonenough.
WB:Thecanaryhasspoken.[laughter]
Q14:JG:ChairmanpositionatBNSFforMattRose?Ajit?
WB:OnlysuccessionforAjitisreincarnation.Butwedonthavetoworryforalongtime.MattRoses
decisionhasnoimpactonsuccessionatBerkshire.MattsplanwasdesignedtofitforissuesatBNSF.I
havelettersfromeveryoneofmymanagerstellingmewhatIshoulddoifsomethinghappenstothem
tonight.Insometheytalkaboutmorethanoneperson,andstrengthsandweaknesses.Iwouldnt
makeassumptionsaboutsubsidiaries.
CM:Iamnottheleastbitworriedaboutit.IwishmybiggestproblemwassuccessionatBerkshire.We
areinverygoodshape.
Q15:Station5,Minnesota.Ifyouwererequiredtoinvesttotalnetworthincompany,in2009,itwas
WellsFargo.Andtoday?
WB:DidyouexcludeBerkshire?Itsagreatquestion,butitisnotgoingtogetananswer.
CM:Youanswereditperfectly...
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Q16:ARS:Proxystatements,highestpaidexecutives.Warren,CharlieandMarcOnly.Itwouldbe
instructivetoincludeothers,likeAjitorMatt.Wouldyouinspiritoftransparencyadd?Howmuch
shouldnextCEObepaid?
WB:ThenextCEOisentitledtoalot,howmuchtheyacceptisinterestingquestion.Iintendtowrite
aboutitinthenextannualreport.WearefollowingtheSECrulesonofficersrequiredtobeinproxy
statement.Inmysportingmood,Comcasthaspeoplewhomakealotmoremoneythanthoselistedin
proxystatement.Isittobenefitofshareholderstolisteveryone,likethenewscasters?Ithink
shareholdersofComcastwouldbehurtbylistingtopfivesalaries,atasubsidiarylikeCNBC.Ithink
thereisagoodreasonforusnotpublishingsalariesofourtoptenmanagers.AtSalomon,we
mentionedearlier,virtuallyeveryonewasdissatisfiedwithwhattheymade.Theabsoluteamountdidnt
matter,itwasrelativetoothers.Whenmanagementmadesecretdealwiththearbitragegroup,
wherebyMeriweathergotpaidalotofmoney,andIwouldarguetheyearnedit,butthejealousythat
brokeoutwasaproblem.Itisveryseldomthatpublishingcompensationaccomplishesmuchfor
shareholders.CorporateCEOswouldbebeingpaidalotlessmoneyifproxystatementshadntrevealed
howmuchotherswerebeingpaid.Americanshareholdersarepayingasignificantpricetolookatproxy
statementseveryyear.
CM:Inaspiritoftransparency,youareaskingforsomethingthatwouldntbegoodforshareholders.So
wearentgoingtodoit.WedontwanttoaddtothecultureofenvyinAmerica.Ourpracticesareenvy
dampeners.
WB:NoCEOlooksatproxiesandsomecompetitorssalaryandthinksImworthless.
CM:Envyisdoingthiscountryalotofharm.
Q17:GW:Retainedearningsandcapitalspending?
WB:BNSFisnotgoingtobuyanotherbusiness.BHEnergywillhavemultipleopportunitiestobuyother
businesses.WespentasubstantialamountonNVEnergy,andwejustboughttransmissionlinesin
Alberta.Wevecomeupwithreallylargebusinessestobuy.AtBNSF,wewillspendalotofmoneyto
havethebestrailroadpossible,butwewontbuyotherbusinessesatBNSF.Wewilldistribute
substantialmoneyfromBNSF,andhaveagoodlevelofdebt.AtMidAmericanweneedmoneyfrom
shareholders,90%isownedbyBerkshireandGregandWalterScotthavebalance.Ifweneedmore
equitywewillhaveaproratasubscription,mayoptoutbutpurchaseswillimprovethevalueoftheir
shares.Wemayinvestbillionsthere.ButatBNSFwewillspendtoimproverailroad.Wevespent$5bil
onacquisitionsroughly,and$2.8bilonpropertyplant&equipment,butwearefindingthingstodothat
tendtosopupthecash.Wewillalwayskeep$20bilaround.Wewillneverbedependentonthe
kindnessofstrangers(AlthoughthatdidntworkouttowellforMarge[meantBlanche]DuBois.)We
cannotdependonanyoneelse,wehavetokeepourownstrength,wevespenttoomuchtimetohave
thatonemomentdestroyus.WelenttoHarleyDavidsonat15%.Finecompany,buttheyneededthey
cash.Whenyouneedcash,itistheonlythingyouneed.Cashislikeoxygen,youdontnoticeit99.9%
ofthetime,butwhenabsentitistheonlythingyounotice.Above$20bil,welltrytofindwaystoinvest
itintelligently.Butwellneverfeeltheneedtospendit.
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CM:Ithinkweareveryluckytohavethesebusinessesthatcanemploynewcapitalatrespectablerates.
Earlierwedidnthavesuchopportunities.Nowitisablessing.Nooneinhisrightmindwouldwantto
getridofBNSFandMidAmerican.Ilovetheopportunitytospendmoneywhenshorttermratesare
0.5%orless
WB:Compoundinterestwillcatchupwithus.Ithasdampenedthings,butnotdelivereditsfinalblow
yet.
Q18:Station6:PleasedontmoveannualmeetingtoDallas,Ivegotmysystemworkedout.Operating
companies,andcashtotheMothership.Doyoufightorarguewhenmanagingpartnership?
WB:CMandIhaveneverhadanargument.WemetwhenIwas29andhewas35.Inthose55years,
wevedisagreedonalotofthings.Butitneverhasandneverwillleadtoanargument.Wearguewith
others.IcalledCharlieontheCocaColavote.
CM:Mostofthetimewethinkalike.Thatisproblem,ifoneofusmissesit,theotherislikelytotoo.
WB:Thereallybadmistakeswevemade,Ivemadethem.Imalittlemoreinclinedtoactionthan
Charlie.Wouldyousaythatsright,Charlie?
CM:Youoncecalledmetheabominablenoman.
WB:Backtothefirstpartofthequestion,thecashfromthesubsidiaries.Wedontcountthemoneyin
theenergybusinessorrailroad.Iknowwhereitisandwherewecanmakeaphonecallandgetit.With
interestrateshere,mostofcompanieshavemorecashthantheyusedto.Setupsweepaccounts
maybe?Notsomethingwethinkaboutdaytoday.Iknowwhenwewillneedcash.IknowwhatImay
dowiththecash,and50/50probabilities.Iknowwherecashiscomingfrom.Maybeasweepaccount
wouldmakesense.Wearenotbigdisciplinarians.ABerkshirecompanythathasalotofcasharound
everyonceinawhilesendsmesome.Idontwanttoencouragemanagersaboutanewwayof
behaving,Isortofadapttothecompanies,unlessIreallyneeditthenIgrabit.
CM:Andthatsjustfine.
Q19:CL:IninterviewinApril,yousaidIhopewegetquestionsonourweakpoints.Whataretheyand
whatcanwedoaboutthem?
WB:Thatwouldjustmakeiteasierforthejournalists.Wehavealotofweakpoints.Wepointthem
outwhenwecan.Ifweexecutedsweepaccountforsubsidiaries,wewouldhaveafewmoredollars
thanwehavenow.Weareverydisciplinedinsomeways,andbyordinarybusinessstandards
undisciplinedinotherways.AclearweakpointisthatIamslowtomakepersonnelchanges.CMandI
hadwonderfulfriend,andwewereslowtomakeachange,anditwasntkillingusinthebusiness.How
longdidwego?
CM:Idontknowexactly.Sweepaccountsystem,itslikeafriendwhowenttogivebloodanditwasnt
flowingveryeasilyandtheystartedsqueezinghisarm.
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WB:Ourmanagersarelistening,dontgivethemthatmetaphor.
CM:Idontlikeideaofeverydollarthatcomesinthatitgetssweptaway.TeledyneandLitton,they
swepteverydimeeveryday,anditcreatedatoneinthecompanythatislessdesirable.Wetooka
managerdirectlyfromtheexecutivechairdirectlytotheAlzheimershome.
WB:ThatissensitivesubjectCharlie[laughter]
CM:Iwanttobecareful.
WB:Wewillbeslow.Therewillbetimeswhenourlackofsupervisionoversubsidiarieswillmakeus
misssomething.Givingourmanagersthefreedomtheyenjoyallowsthemtoaccomplishalot.
Somethingwillhappen,andpeoplewillpointouttheleewaywegaveallowedaproblemtohappen.
Theywillsaythatifwehadmoreoversight,itwouldnthavehappened.Theywillberight,butthey
wontbeabletomeasurethegainswehaveachievedbecausewegavethemsomuchleeway.Wehave
noHRandnogeneralcounseloffice.Thatisunthinkableformostcompanies.Nota100%benefit,but
onbalanceitisbenefit.Youshouldhavebeenrestrictingtheactivities.Whenithappenswewillbe
criticized,andourreactionwillbethatthattheyarewrong,butwewilllookbadinthatindividualcase.
CM:Bythestandardsoftherestoftheworld,weovertrust,butareresultsarebetterbecauseofit.We
haveselectedpeoplethatwecantrust.Placesworkbetterwhentheycreatecultureofdeservedtrust.
Modernaccountingstandardswhichmeasuresinternalcontrolsitwilldomoreharmthangood.
Q20:JB:Seescandiesgrewprofitsin80s,90s,butnotlastdecade.Why?
WB:BoxedchocolatenotgrowingintheUS.Ifyouback100years,eachcityofanysizewas
characterizedbyshopsofchocolateshops.PredecessortoPepsicolawascandyshopcompany,most
shopswereinNYC.
CM:[Charles]Guth.
WB:LoftswasthenameofthecandystoresinNewYorkCity.Boxedchocolateshavelostpositionto
othersnacks.Seeshasdoneremarkablywellversusotherchocolatecompanies.Wecantdomuch
aboutincreasingthesizeofthemarket.Wevetriedmovingoutofastronggeographymultipletimes.
WhatwewereearninginCAin1970swasgreat,butwetriedtomovenationalandwedidntgetrich.It
doesnttravelthatwell.
CM:Sometimesitdoesandsometimesitdoesnt.Youfindoutwhatworksbytryingit.
WB:InEasttheypreferdarkchocolate,inWestitismilkchocolate.WevedoneverywellinSees,it
hasprovideduswithearningstobuyotherbusinesses,butreallyitopenedmyeyestothepowerof
brands.WeprobablymadethemoneyinCocaColabecauseweboughtSees.Weownedoneandsaw
possibilitiesandwhatyoucando.IfwehadnotownedSees,wemayhavenothaveownedCoke.
CM:MaincontributiontoBerkshirewasignoranceremoval.Ifitwerentforfactthatwewerentso
goodatremovingignorance,wedbenothingtoday.Wewereprettydamnstupidwhenwebought
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Seesjustalittlelessstupidenoughtobuyit.ThebestthingaboutBerkshireisthatwehaveremoved
alotofignorance.Thenicethingiswestillhavealotmoreignoranceleft.
WB:ThatswhathappenswhenIcallonhim.[laughter]
Q21:Station7:BAMLinvestmentandTier1capital.AnybenefittoBerkshire?
WB:Itcameaboutagoodmanymonthsago,BrianMoynihancalledmeandaskedmeifwewould
changeourpreferredfromcumulativetononcumulativepreferred.Therearecertaindefectstoit.
Theyareaterriblyweakformofsecurity,buttheycountdifferentlyincapitalcosttobanks.Butifyou
doit,Briansaidwewouldbewillingtomakeyourpreferrednoncallablefor5years.Inworldof5basis
pointmoney,Iwasverywillingtomakethattradeoff.Igetfiveyearnoncallable6%preferreds,which
Icanuseaspaymentforthewarrantswehave.BofAgetstouseittotheirbenefitincalculationof
capital.TheerrorwasdonebeforemiscalculationonsomestructurednotesatMerrillLynch.That
errordoesntbotherme.Wehavea20kpagetaxreturn,youdobestyoucan.ErrordidntaffectGAAP
income.Theywillpaypenalty,butdoesntchangemyfeelingaboutBAMLortheirmanagementteam.
Noncumulativeriskisverylowforus,and5yearnoncallableisverygoodforus.Charlie?
CM:Well,Iagreewithyou.
Q22:BQ:NetJets,growth10yearsago,howisitnow?
WB:Itisaperfectlygoodbusiness.NetJetsthenumberofnewunitvolumewascorrelatedwiththe
stockmarketin2007/2008.Wehadfairnumberofpeoplewhoseincomewasdependentonstock
marketbehavior,particularlyhedgefundmanagers.Whencontractsranout,mostlyin2011and2012,
theydidntrenew.Untilthelastsixor8months,netownershipwasdecliningjustslightly.Thathas
turnedaroundslightly.Butitisnotahugegrowthbusiness.Weare60%oftheindustry,andnooneis
remotelycloseassecond.ButIdontseemarketdoublingortripling.WearegoingtoChinasoon.But
thatisaverylongrangeplay.WeareinEU,butthatstillisdeclininginunitvolume.Flighthourshave
pickedupinlastsixmonthstoayear.Thatfelloffpreviously.Iwouldnotcharacterizeitasgrowth
business,butitissatisfactory.
CM:Idemonstratedmyoptimismbybuying25morehours.
WB:Itwasatoughsell.[laughter]
Q23:JG:Acquisitions,howbig?SourcesoffundsfromIBMandotherstockholdings?
WB:Theycouldbeasourceoffundsbutunlikelytosellthem.Ourgoalistobuybigbusinesses.Weare
aboutbuildingearningpower.WearelookingtoaddearningpowertoBerkshire.Wedontget
opportunitiesthatoften.Ifopportunityislargeenough,wecandipintohugereservoirofsecurities.
Wehave$40bilandImwillingtotakeitto$20bil.Thatcouldhappen,thisyear,ortenyearsfromnow,
youneverknow.
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CM:Ithinkouracquisitionshavebeenirregularinpast,andwillbeirregularinfuture.Wewillgetmore
automaticreinvestmentofcapitalinBNSFandenergy.
WB:Whatreallyturnsusonisfindingabusinessthatwillbeearningmoney2030yearsfromnow.
Profitsfrommarketablesecuritieshavehelped.WehaveToddandTedthinkingaboutmarketable
securities.Butwhatwearereallyspendingourtimeonisbuyingbusinesses.Ifwewantedtoraise
$10bil,thestockswewouldsellwouldnotbethenamesyoumentioned.
Q24:Station8,GenoaItaly.IncreasingleverageforBerkshire?FollowingacquisitionofBNSF,afew
yearsago,partiallyfinancedbyBerkshirestock,wehadcasharound.Increaseleveragetoday?Whynot
gooutforseveralbillionsinbondswithlongmaturityandmakegooduseofit?
WB:Whatyousaymakesgreatsense.ButifyouaskedCharlieandme40yearsagoifwewerelooking
atpresentsetofinterestrates,andwouldweborrowmoneyforlongterm,wewouldhavesaidyes.
CM:Itwouldnthavebeenaharddecision.
WB:Wehavewaytogeneratecashthroughourinsurancefloatof$77bil.Wedontliketooperate
conservativeleveragedcompanyandthenchangepath.Wedontwanttoimpactthevaluetopeople
whohaveboughtAAdebtatparinthepast.WehavenoproblemleveragingtheutilityorBNSF.Butif
youanalyticallylookatthem,bothcouldwithstandmoredebt.WhenweboughtBNSF,usingequity
helpedthemmakethedeal.Itwasnotasmartdeal.Icouldhaverepurchasedstockafterandshould
have.Another$3040bilofdebtwouldbenothing,wouldcostverylittle.Wedonthavegreatplaces
toputithowever,evidencedby$25bilofexcesscash.Wearesellingstructuredsettlementsthathave
verylongduration,andinterestcostsarelessthansellingbonds.Ifseeareallygood$50bildeal,wed
findwaystoborrowthemoneyafterwedidit.
CM:Ithinkwedwelcomeit.Butwewouldnotdoitinadvance.
Q25:ARS.GalenaILBYDislikeTesla.Coalhaulingbusiness.Howaboutrisksandopportunitiesin
climatechange?
WB:Statedfactsonalotofbusinesses.Itcanhaveanimpactoninsurance.BNSFwillcarrylesscoalat
somepointtoo.Butthechangesdontoperateinthetimeperiodofourbusinesses.WhenAjitandI
talkaboutcatastropheinsurance,itaboutearthquakesinNZ,etc.Theimpactofclimatechangeonyear
toyearcatastropheprobabilitiesisverylow.Wellcontinuetodevelopalternativeformsofenergy.
Werehappytocarrythecoal.Weareacommoncarrier.Wemightwantnottocarryammonia,butwe
areacommoncarrier,sobylawwehavetocarryfreightofferedtous.Inmakinginvestmentdecisionin
BHormostcountries,Idontthinkclimatechangeshouldbefactorindecisionprocess.
CM:Ithinkthatmostwhoclaimclimatechangewillchangetornadosandstorms,aremostly
overclaiming.Mostaretalkingthroughtheirhats.Weareagnostic.Thereclearlyisglobalwarming.But
thereisaclassofpeoplewholikehavingcatastrophestoworryabout.Weareverywelllocatedlong
termnomatterwhatweather.Wellhavetoproducemoreelectricityfromwindandsun.GEICOmade
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alotofmoneyfrominternetwhichtheydidntplanon.Weareingoodshapebutdontdeservecredit
forit,wejuststumbledintoit.
Q26:GW:$7bileachnowforToddandTed.Howmuchnowrunning,andwhatgrowinginto?Howwill
rolesexpand?
WB:Igotthroughcollegeansweringfewerquestionsthanthat.[laughter]Itis$7bilnow.Wewill
changethatupwards,butnotmonthbymonth.Theywillbehandlingmoremoneyinfuturethanthey
arenow.Theyareseeingitgetsalittlemoredifficultassumsgetlarger.Itisbettertomovemoneyto
themandawayfrommeastimepasses.TheyarebothterrificforBerkshire,theyeachknowawholelot
aboutbusinessandawholelotaboutmanagement,andalotcomesacrossmydesk,andIgetanidea
onit,buttheycangetinvolved.Itisacinchthatthatthiswillcontinue.Theydontaskforextra
compensation.Theyare100%attunedtoBerkshire.TheyknowhowIthink.Itsbeenabigbigplusfor
Berkshire.Theywillbemoreimportantasyearsgoby.
CM:Ivenothingtoadd.
Q27:Station9.Toronto.Lowrateshaveledtohousingbubble,andpotentiallyabondbubble,doyou
seeneedforhikeinrates?
WB:Whowouldhaveguessedratesthislowforthislong?IwouldsayIamsurprisedathowwellthings
aregoing.Itisworkingwell.IwouldliketosayIwouldhavedonesamethingandtakecredit.Iwas
surprised.Itisveryinterestingmovie,wehaventseenbefore,andwedontknowhowitends.Ithink
Bernankewasaheroattimeofcrashandsubsequently.Verysmartman,hehandledthingsverywell.
WhenminutesofFedbecameavailablefor2007and2008,wesawthatmembersofFedwerenot
gettingit.Itwasfascinating.Theydidntseemtounderstandhowseriousthingswere.Hewasnot
gettingunanimousviewfromthosearoundhim.Buthewentaheadwiththem,anddidmasterfuljob.
Wewillseehowthismovieplaysoutifwekeepratesclosetozeroforlongtime,andtaperingbutstill
buying.
CM:NooneinJapanwouldhaveanticipatedthatratescouldstaydownfor20yearsandcommonstocks
woulddeclinefor20years.Strangethingshavehappened,anditisconfusingtoeconomists.At
Berkshirenotmanylongtermbondsarebeingbought.
WB:Cashwasking,butonlyifyouusedit.Peopleclingtocashatwrongtimes.Zerointerestrateshas
hadhugeeffectoneconomyandassetprices.Thisisnotabubblesituationwearelivingin,butitis
unusual.
CM:No,Imasconfusedasyouare.[laughter]
WB:Thatswhywegetalongsowell.[laughter]
Q28:CL:Youhavebeenlookingforbear,butthatissilly.ImnotabearonBerkshire.Butconglomerates
havenotworkedparticularlywell.Butprobabilitiesnotfavorablethatsuccessorswillhaveitworkwell.
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WB:ModelhasworkedwellforAmericaactually,asdisparatebusinesseshavedonewellovertime.
DowJonesasoneentity,asachanginggroupofcompaniesovera100yearperiod.Seeingtheindexrise
from66to11,000suggestsitisgoodmodel,althoughagreethatitisnotallunderonemanagement
team.Owninggoodbusinessgroupisgoodidea.LittonIndustries,andGulf&Western,theywereput
togetheronideaofserialacquiring:issuingstockat20xtobuybusinessesat10x.Itisanideaoffooling
peopletorideonachainletterscheme.Ithinkourbusinessplanmakessense.Groupofdiversified
businessesandconservativelycapitalized.Capitalismisaboutallocationofcapital.Wehavesystem
wherewecanallocatecapitalwithouttaxconsequences.Wecanmovethecapitaltowhereitcanbe
usefullyemployed.Nooneelsebettersituated,anditmakesgoodsense,butmustbeappliedwith
businessprinciplesinsteadofstockpromotionprinciples.Andsomeconglomerateswerestock
promotiontechniques,andwereserialacquirersandissuersofstock.Ifissuingstockcontinuously,
chainlettergamegoeson,thatdoescometoanend.
CM:Thereareacoupledifferencesbetweenusandthefailuresintheconglomeratemodel.Wehave
analternativewhentherearenocompaniestobuy,aswehavetheinsuranceportfoliotoinvest.And
wefeelnocompulsiontobuy.MellonBrothersdidvery,verywellfor5060years,theywerealotlike
us.WearenotastandardconglomeratelikeGulf&Western.ItisasifMellonbrothershadgoneon
forever.
WB:Nowyouretalking.[laughter]
Q29:JB:ForestRiver,whyisitdoingsowell?IsForestRivertakinglowermarginstobeatThor.With
threecompanieswith85%ofthemarketitishardertohavenewcompetitorenter.
WB:WeboughtForestRivertenyearsago.Peterunsit,andhesnotanMBAtype,buthesaterrific
guy.[laughter]Thatwasnotastatementbutanobservation.Petebuiltaverysuccessfulbutmuch
smallerbusiness.Hesoldittoprivateequity,theyhaddifferentideasaboutthingsandhetoldthemto
gotohell,andnotlongafteritwentbankrupt.Heboughtitoutofbankruptcyandonedaycametosee
me.Wewenttodinnerthatnight,andhebroughthiswifeanddaughter,madeafewpromises,and
wevelivedhappilyeverafter.IveneverevenbeentothefactoryinElkhart,Indiana,andIhopeitis
there![laughter]Wemadeadealonincentivecompandbasecomp.Anditwilldoover$4bilof
revenuethisyear.Ihavehadthreeorfourphonecallswithhimthewholetime.Idontknowabout
ThorversusForestRiver,butIthinktoughtocompetewithPeteunderanycircumstances.TheIT
departmentconsistsof6people,heknowswhatisgoingonintheplace.Theimportantthingisthatitis
hiscompany,andyouworkonnarrowmargins.IknowIcantrunanRVcompany.Probably1112%
grossmargins,56%SG&A,somarginsin6%orsorange.Weworkedoutanincentivecompthat
afternoon.Ithasworkedforhim,andforus,therecouldntbebetterarrangement.Wecoulduse20
morelikeit,itisleaderinitsindustry.
Q30:Station10.Toronto,Canada.YourviewonoilsandsandtheimpactonBerkshire?
WB:Intermsofoilsands,itisnotahugeimpactonBerkshire.WehaveacranebusinessatMarmon
thatdoesalotofbusinessinoildevelopmentgenerally.Itisactiveinoilsands.Wewillhavethe
transmissioncompanycovering85%ofAlberta,8kmilesorsooftransmissionlines.Oilsandsarehuge.
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WeownsomeExxonMobil,theyhaveoilsands.Wearemoving700kbarrelsofdayofcrudeoilonour
railroad.Wehave9unittrainsthatcarry100cars,andeachcarhas650barrels.Thereissignificant
advantagetotakeittodifferentplaces,spreadsaredifferent.Mentallyyouthinkofoilgushingthrough
pipelines,butthepipelineistwiceasfast.WerecentlyboughtacompanyfromPhillips66whosemain
productisachemicaladditivethatmovesoil10%fasterthannormal,takeadayoffthetrip.Ithinkthe
oilsandsareanimportantassetformankindoverthecenturiestocome,butIdontthinkitwill
dramaticallychangeanythingatBerkshire.
CM:Alotoftheoilsandproductionusesnaturalgastoproducetheheavyoil.Itiseconomiconlyifoil
staysatahighprice,butitneedsnaturalgaspricestostaylowtoo.
MattRose:Nothingtoadd.
WB:[Putsupslideofperformancefrom20082013ofhedgefundperformance(+12.5%)vsS&PIndex
(+43.8%)]SixyearsagoImadeabetforcharity.ItwasanS&P500Indexfundversusagroupofhedge
funds.Withthosenumbers,thecomparisonisgettingmorefuneveryyear.Thepeoplewhoselected
thesefundsaresmartpeople.Theyhaveeveryeconomicincentivetopickthebest.Theychoosefrom
atleast200hedgefundswhosemanagersarealsoincentivizedtoenhancetheirownincome.Thefirst
yeartheydidconsiderablybetter,butinfiveyearssubsequentlytheS&Phasbeenrunningaway.We
putin$350keachinto10yeartreasuries.Thewayinterestrateschangedwesoldthebondsat96and
putitallinBerkshirestock,andIguaranteeditfor$1mil.Itwillbesignificantlymorethan$1milwhen
10yearscomesalong.Wellcomebackat1pmandmoveonfromthere.

AFTERNOONSESSION

WB:Ifyoucanfindyourseats,wellgetstarted.Illgiveyouanotherminuteortwotosettledown.
WB:Wesentoutabout11,000moreticketsthisyear,andclearlythisyearwehavesubstantiallymore
attendantsthaninyearspastandIhopespendingpatternsreflectthat!
Q31:BQ:MichaelLacheq(sp?).EnergyFutureHoldingsbankruptcy.Whatotherbusinessesmaybe
subjecttotechnologychange?IBM,Cokeregulation,etc.
WB:IwouldbeunwillingtosharecreditformydecisiononEnergyFutureHoldings.Thatwasmy
mistake,anditwasabigone.Thebasicerrorwastheassumptionthatgaspriceswouldstayatthat
levelorgohigher.Insteaditwentwaylower.Allbusinessesshouldthinkaboutwhatcanmessuptheir
position.Welookatallofourbusinessesassubjecttochange.GEICOsetoutin1936tooperatewith
lowcostsandpassonthosepricestothecustomer,onanecessitybeingautoinsurance.Theyoriginally
diditwithmailofferingstogovernmentemployees.Theyveadaptedovertheyears,towidening
classifications,toUSmail,totelephone,tointernetandsocialmedia.Andintheretheystumbled,when
theyleftgovernmentemployeesandgottooaggressiveaboutexpanding,andtheyreallydidgobroke.
Wewantmanagerswhoarethinkingaboutchange,andwhatisneededforthebusinessmodelinthe
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future.Weknowitwontlookthesame.BNSFislookingatLNGforlocomotives.Ourbusinessesare
strongandaregenerallynotsubjecttorapidchange,butsometimesslowchangecanbehardertosee
andlullyoutosleepeasierversusrapidchangewhichyoucansee.Iwillmakemistakesinfuture,that
isguaranteed.Wenevermakebetthecompanydecisionsthatcauserealanguish.Occasionallythey
workoutverywell.In1966,weboughtadepartmentstoreinBaltimore.Therewasnothingdumber.
The$6milinthatstorebecame$45bilovertimeinBerkshire.Youhavetobeveryalert,andCharlieand
Iandourdirectorsthinkaboutit.
CM:Ispokeearlieraboutthedesirabilityofremovingignorancepiecebypiece.Anothertrickis
scramblingoutofyourmistakes,itisenormouslyuseful.Wehadasuretofaildepartmentstore,a
tradingstampbusinesssuretofoldandatextilemill.OutofthatcomesBerkshire.Thinkabouthowwe
wouldhavedoneifwehadbetterstart![laughter]
WB:Myunclewrotealetterin1942thatthedayofthechainstorewasover.Ourgrocerystorewent
outofbusinessin1969.Thewishbeingfathertothethought.
Q32:JG:Heinzwhatwillitearnthisyearafterthecostsavings?
WB:Heinzyouwillgeta10qfromHeinz.Itwasareasonablyrunfoodcompanywith15%pretax
marginsformanyyears,notanunusualoperatingmargininfoodbusiness.Ithinkthemarginswill
significantlyimprovedfromhistoricalfigures,havetowatchquartertoquarter.WhatBernardohas
doneisrestructurethebusinessmodelandthebrandsareasstrongasever,andtheywillhave
structurallylowercosts.Idontwanttonameanumber,youwillfinditoutsoonenough.
Q33:Station11.Philadelphia.Fundmanager.Canyouexpandonhowyoucompareinvestment
opportunity?Whenyoucanbuymoreofafavoritein2008/2009,howdidcaseofmoreofcompanylike
CokeorMoodys,comparewithotherthingswhichyoudid.CouldBerkshirehaveachievedmorewith
moreconcentratedportfolio?
WB:Dependsonwhichfavoritenamewehadwashitharderin2008/2009.Ispentaconsiderable
amounttooearlyin2008,andbottomwasquiteabitlowerthanSeptandOctof2008whenwespent
$16bil.Wewerealsocommittedto$6bilofMarsfunding,whichwehadcommittedearlier.Wedidnt
doasremotelyaswellifwehadkeptpowderdryandspentitallatonceatbottom.Timingcouldhave
beenimproveddramatically,butwewillneverbeabletofigureouthowtodoit.ButweboughtBNSF
inOct2009whichwillbeenormouspartofourfuture.WhenweboughtHDbondsat15weshould
haveboughtthestock,butthatwillalwaysbethecase.Whatwewanttodoatourpresentsizeand
scope,wewanttobuygoodbusinesseswithgreatmanagementatareasonablepriceandtrytobuild
themovertime.Wewanttobeabletoaddthemwithoutissuingshares.Lookingbackwecandoit
betterthanwevedoneit.Ifeelthegameisstillaviableone,butitcantbeforever.Butstillhasjuice
leftinit.
CM:Privatebusinesseshavegottentobeabiggerportion.Weusedtobeworthmoreinstock,not
privates,butnowbiggerinprivates.
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WB:Whenrightonstocks,showsupinnetworth,andwhenrightonbusinessesitshowsupinfuture
earnings.Itdoesntrequireusgoingfromflowertoflower.Wevemovedintophase2.
CM:Whenwewerejustinvestingmodestamountofcapitalwecouldgetalittlebitatthebottom,but
thereisnosignificantvolumeofsharesatthatprice.Whenwebuybusinesseswegetlargepositions.
Weareforcedintothisbypastsuccess.IlovebuyingtransmissionlinesinAlberta.Nothinghorriblewill
happen.
WB:Ifitdoeswewontknowit.
CM:Wehaveadaptedandthechangeshavebeenverymuchinourinterest.Theremaybefuture
changesjustasdesirable.Sincechangeisinevitable,howyouadapttoitisthekey.
WB:WeveboughtafairamountofWellsFargooverlastfewyears.Butthemostmoneywasmadeby
buyingbanksoflesserquality.Theyneededbettereconomytorecover.Butwefelt100%comfortable
buyingWellsFargo,and50%comfortablesomewhereelse,sowewentwhereweweremost
comfortable.
Q34:ARS:Usagebasedpricing,autoinsuranceindustry,tracking.MoatatGEICO?Googlesays5years
awayforselfdrivingcars.WouldyousellGEICO?
WB:No.Noquestionthatknowinghowcustomersdriveisvaluableinputtoassessproperpremium.
Progressivehasdonealotofworkonit,itscalledSnapshot.Insuranceisallaboutevaluatingthe
propensityoflosstoestablishproperpremium.Ifsomeoneis90,besidesCharlieofcourse[laughter],
theyaremorelikelytodie.Therearevariablesininsurance,andasetprice.Ifyouliveinstateof1
ratherthan100mil,alotlesschanceofaccident,lackofdensity.Throughstudyingusagebyvarious
methods,Progressiveistryingtogetbetterinformationaboutthatparticulardrivertobeinanaccident.
Wethinkwehaveaprettygoodsystem,andthathasbeenprovencorrectbutwellcontinuetolookat
metrics.IfeelverygoodaboutGEICOandtheirabilitytoevaluaterisk.Idontthinkanyoneisbetter
thanGEICOspeople.Wewillkeepasking.Selfdrivingcarwillberealthreattoautoinsurance
althoughitwouldbegreatforsociety.Idontknowhowtoevaluateit,oroverwhatperiod.Itcertainly
couldhappen.ItwouldnotcauseustothinkaboutsellingGEICO.
CM:Someofthesethingshappenmuchslowerthanyouthink.Iwenttoaspeechabout30yearsago,
aboutcolormoviescomingintoahouseondemand,thatitwasjustaroundcorner.Ithinkselfdriving
carshavinghugeimpactonmarketwilltakesometime.Thatwouldbemyguess,butcouldbewrong.
WB:Butwellbewrongtogether![laughter]
WB:GEICOwillbedoingmorebusinessin5yearsand10yearsfromnow,in30yearsIllgoaway
peacefullyandyoullknowandIwont.[laughter]
Q35:GW:BerkshirehasdeployedverylittlecapitaloutsideUS.Why?
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WB:WeveneverturneddownachancetomakeasignificantacquisitionoutsideUSbecausewe
preferredtobehome.Wehavenothadasmuchluckgettingonradarscreenofownersaroundworld
versustheUnitedStates.Ourstrongsuitisbuyingfromfounders,andinUSeveryonewithsizethinksof
us.Afairnumberwouldpreferus.ThatisnotsameoutsideUSA.Wertheimerwroteusaletter,and
saidiftheydidntselltoustheywouldntsell.Ihavebeenalittledisappointedwehaventhadmore
luck.JacobHarpazrunsIscar,whichsetanewrecordinApril.Mayhavesomeslightmeaning,theysell
tinylittlecuttingtoolsthatgointobasicindustryallovertheworld.Theybuythembecausetheyare
usingthemup.InMarchandApriltheyareseeingstrengthinbusiness,soitishardtoseethatthis
meansweaknessinindustrialworld.Iscarhasbeenwonderful,wishIcouldfindafewmorelikeit.This
yearwehavenotbeencontactedbyanysignificantonesthatmadesense.Wehaveheardfrompeople
butnothingthatmakessense.
Q36:Station1.SanFrancisco.Circleofcompetencehowdoyoufigureitout?
WB:Itisaquestionofbeingselfrealistic,thatappliesoutsideofbusinessaswell.Wehavebeen
reasonablygoodidentifyingperimeterofthatcircle.Ivegoneoutinretailmorethaninanyother
arena,Ithinkeasytothinkyouunderstandretail.IboughtBerkshirewhichwasprobablyadumb
decision,butitworkedout.Beingrealisticinappraisingowntalentsandshortcomings,somearea
wholelotbetteratitthanothers.ThereareanumberofCEOswhohavenoideawheretheircircleof
competencebeginsandends.Wehavemanagerswhoreallyknowit,andtheydontgooutsideofthat
game.Mrs.Bdidnotwantstockforthedeal.Sheknewwhattodowithrealestateandcash,andit
tookheralong,longwayinbusiness.Thatabilitytoknowwhenyouroddsaregoodvs.playingoutside
thatgameisahugeasset.Friendswhoknowyouwell,maysay,whatthehelldoyouknowaboutthat?
CM:Idontthinkitisadifficulttofigureoutcompetence.Ifyouare52saynotoprofessional
basketball.92yearsold,youarenotgoingtobetheromanticleadinHollywood.350lbssodontdance
leadinBolshoiballet,ifyoucantcountcards,dontcompeteinpoker.
WB:YouarerulingouteverythingIwanttodo!
CM:Competencyisarelativeconcept.IrealizedthatwhatIneededtodoiscompeteagainstidiots,and
luckilythereisalargesupply.
Q37:CL:Rationalcompany,butdontseerationalitycomparingindextooperatingcompanybookvalue.
Whyannuallymakethiscomparison?
CM:Illanswerthisone.Theanswerisyouaretotallyright,itisaridiculous.Itmakesithardfor
Warrentolookgood,buthelikestoclimbmountainsthataredifficult.Itsinsane.Ifyouliketoweara
hairshirt
WB:NormallyIliketoclarifywhenhegoesallwishywashybutIwontthistime.
Q38:JB:MarmonandIscarwhypaysomuchforlaterstakes?
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WB:ThemultipleonIscarwasagreedaspartoftheoriginaltransactionmultiplesofearningsand
allowedforcash.Stuckformulainforputandcalloption,theyhadputandwehadcall,togovern
betweennowandjudgmentday.Therewasnovariation.Putandcallatsameprice,followingsame
formula.Theyputittousatexactlyonsamebasis.ButMarmonwasaninstallmentsale.Weintended
60%butdid64%.Welookedatconsequencesofformulainfuture.Theywouldnthavesoldthe1
st

pieceiftheydidnthavethesecondandthird.Weknewwewouldbepayingmoremoneylateron,but
itwasallbuiltintooriginaldeal.
CM:Thepricewentupbecausethevaluewentup.Weagreedwedpayvalue.
WB:PrtizkerfamilyandWertheimer,theycouldnthavebehavedbetter.Feelingsaregoodonboth
sides.
CM:Wehaveenormousrespectforintelligenceinthosefamilies.Amazingwhateachfamilyhaddone.
WB:Thoseweretwoimportantacquisitions,partlyduetoaccountingpeculiarities.Carryvalueismuch
lowerthanintrinsic.
CM:ThetankerbusinessinMarmonisJohnDRockefellersoriginalbusiness.Amazinghowbusinesses
cankeeptheirvalue
WB:Lifecirclesbackaround,youmaymeetpeopleyouthinkareonestopshopsbuttheyarent.
Q39:Station2,NewJersey.Techandentrepreneurship,ifyouwere23yearold,inwhatnontech
industrywouldyoustartabusinessandwhy?
WB:IdprobablydowhatIdidwhenIwas23.Iwouldlookatlotsofcompanies,andtalktolotsof
people,andlearnaboutlotsofindustries.IwouldseeCEOsof8or10coalcompanies.Ioftendidnt
makeappointments,buttheyalmostalwayswouldseeme.Iwouldaskthem,iftheyhadtoputallof
theirmoneyintoanycoalcompanyexcepttheirown,andgoawayfor10years,whichonewoulditbe?
Andwhichwouldtheysellshortover10yearsandwhy?IfIdidthat,Iwouldknowmoreaboutthecoal
companiesthananymanagerwould.ButyouwouldntlearnabouthowtostartGoogleorFacebook
thatway.Youneedrealcuriosityaboutit,ithastoturnyouon.Askingquestionsaboutcoal
companies?Imeanreally,youhavetobealittleoddtoo.Imightfindanindustrythatparticularly
interestedyou,andyoumightbecomeverywellequipped,andcanstartorgotoworkforsomeone
good.Ifyouareopentothingsandkeeplearningthingsyoullfindsomething.
CM:TherewasatrickLarryBirdused,heaskedeveryagentwhyheshouldbeselectedtorepresent
him,andwhichtouseifLarrydidntpickhimasagent.Everyonelistedsameguyas#2,sohewentwith
everyones#2andhenegotiatedbestdealinhistory.
WB:IdidthesamethingatSalomon:ontheweekendwhenTokyowasopeningSundayat6pm,Icalled
ineightpeople,andIaskedthemwhobesidesyouwouldbebestpersontorunthis,andwhy?Oneguy
saidnoonebuthim.Butitisnotabadsystemtouse.Youreallylearnalotbyasking.Isoundlikea
YogiBerraquoteperhaps.Butifyoutalktoenoughpeopleaboutsomethingtheyknowalotabout,
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peopleliketotalk.Herewearetalkingourselves.Youwillfindyourspot.Iwasverylucky,Ifoundwhat
fascinatedmewhenIwas7or8yearsold.Ifyouareluckyyouwillfinditearly.
CM:Ifitisaverycompetitivebusiness,andrequirescompetitiveabilitiesyoulack,youshouldlook
elsewhere.IimmediatelydecidedIwasntgoingtobethermodynamicsprofessoratCaltech.Ididthat
overandoverandsoontherewereonlyoneortwochoicesleft![laughter]
WB:Ihadsimilarexperienceinathletics.[laughter]
Q40:BQ:OmahahotelpricesareupandyoumadenegativecommentsIsntthissupplyanddemand
andcapitalism?
WB:Yes,thatiswhyweencouragedAirbnbtocometoOmaha.Industriessizethemselveswith
conferences.AbigindustryhastogotoLasVegasoraplacewithlotsofrooms.Ifyouhaveevent
whichcantbesizedbypeopleschedulingit,youcanoutstriptherationalsupplyofrooms.TheMasters
GolftournamentinAugustahasthisproblemasthetournamentwontmoveanyplaceelse.Omaha
cantsizetotheBerkshiremeeting,ourattendancehasgrownabovewhatweanticipated.Thethree
dayminimumswereirritatingtome.Pricesweregettinghigh.TheOmahaHiltonhasbeenmagnificent
formanyyears.Afewhoweverwerereallypushingthings.Wedidntwanttocutbackondemand.We
didntwanttomovetoDallas.Omahapeoplelovethisevent,peoplegetagoodimpressionofOmaha,
andsotherearegoodthingsaboutmeetinginOmaha.Andwewanthotelstobeabletomakemoney.
Airbnbisaflexiblesupplyarrangement,andseemstomakealotofsense.Itwillbemoredeveloped
nextyear.Buttheycantpushittotheextremeofscarcityproduct.
CM:Ivenothingtoadd.
Q41:JG:GEICO.Largestadvertisingbudgetwhilemaintainlowcost.WillGEICO(now10%share)
overtakeStateFarmat19%marketshare?
WB:Nooneknowsanswer.WepassedAllstatethisyear.StateFarmhasoneofgreatcompany
historiesinAmerica.FarmerfromMernaIllinoisstartedit,startedaround1920,thereisabookaboutit.
Itwasabetterbusinessmodel,GEICOthoughhadanevenbettermodel.StateFarmwashuge,and
nowGEICOhastakenussince1926togetto10%.Oncurrentprojectionsarethatwewillbe#1the
sameyearIam100.ItellGEICOthatIwilldomypart.Wewillgainshareaslongaswetakeextremely
goodcareofcustomer,andwecanproperlyraterisk.TonyNicelyhasdoneajobthatbelongsinthe
worldhalloffame.15yearspriortoTonytakingover,marketsharehadhoveredat2%.Sincehetook
overin1993,wehavegainedandnowstandat+10%.Itwillkeepgoing.StateFarmhasnetworthof
$6070bil,andastronghomeownersbusiness,strongagencyforceandalotofsatisfiedcustomers.It
wontcomefast,butitwillcome.
CM:GEICOislikeCostco.Theyfeelaholydutytohavewonderfulproductandawonderfulprice.
Companieslikethatgetaheadovertime.
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WB:WhatistrueaboutCostcoisalsotrueaboutGEICO:ourpeopledontcomeandgo.Peoplecome
tousandtheydontleaveus.Wehaveveryfewmanagersfromotherinsurancecompanies.Theyhave
theirownideaabouthowtodoitanddoitright.Itisreinforcedbysuccesstoo.
CM:Costcoisunbelievable.Itisagainsthumannatureofmanyentrepreneurialpeopletogetprice
downandgetserviceup,likewearingtheultimatehairshirt.Butitworks.
Q42:Station3,NealPatel,Chicago.Frugality?
WB:Whoismorefrugal?
CM:Inpersonalconsumption,Warrenismorefrugal.
WB:Wouldyoucaretogiveexample?[laughter]
CM:Samehousesince1950s.
WB:Imovedinin1958.
CM:Imovedinayearlaterandpaidarchitect$1900dollars,30%oftheregularprice.
WB:IhaveeverythinginlifeIwanted.Standardoflivingdoesnotequatewithcostofliving.Thereis
pointwhereyougetinversecorrelation.MylifewouldbeworseifIhad6or8houses.Itdoesnt
correlate.Youcanthavemorethanthat.Itmakesadifferenceuptoapoint.Youcanstartthinking
differentlyatxdollars.Butitdoesntmakeadifferenceat10xor1000x.
CM:FrugalityhashelpedBerkshire.Ilookoutataudience,andIseefrugalunderstatedpeople.We
collectthesepeople
WB:Butforgetthatthisweekendthemoreyoubuythemoreyousavethisweekendpeople!
[laughter]
Q43:ARS:NYC.Pfizertaxefficiency?
WB:No.Charlie?
CM:Itwouldbecrazytobethisprosperousandtrytotakeourtaxestozero.
WB:WecouldnothavedoneBerkshireinanyothercountry.Americahasreallyhelpedusbecomevery
veryrich.
CM:Ivegotnocomplaints.Iseeothersatbreakfast,andIdontthinkpeoplearegnashingtheirteeth.
WB:Wedontaddatipof15%onourtaxreturn.Butwearenotholierthanthou:wedotaketax
credits,windenergyandsolardeals,theywontmakeeconomicsenseotherwise.Wefollowtherules.
Butwedontbegrudgethetaxeswepay.Weveearnedalotofmoney.
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Q44:GW:UnionPacificgenerates10%ofrevenuefromfreighttoMexico.HowattractiveisMexican
freightmarket?KansasCitySouthernhalfoftheirrevenueisfromMexicanfreight?
WB:UnionPacifichasabigedgebecauseitsroutestructureismuchbetterthanours,itcrossesborder
insixplaces.KansasSouthernhasverysignificantpresenceinMexico.Intermsofwhatwecandowith
ourmoneytherearegoodprospectsthere.MathdoesnotworkforMexico.Wellcontinuetothink
aboutMexico,butwearethinkingaboutothermarketstoo.Therearelotsofwaystomovemore
freightatBNSF.
CM:Itisawfullyeasytoimaginecombinationswithaslightofhand,easytomakemoneybybuying
competitors.Butatoursize,wewouldntget[government]approval.ImafraidBNSFwillhavetoget
aheadonitsown.
WB:Anditwill!
Q45:Station4,LosAngeles.Howdoesmanagementfactorintovaluinginstrinsicvalue.Whichcompany
doyoufearthemost,asevenCocaColahastheirPepsi?
WB:ActuallyBenGrahamdidntgettoospecificaboutintrinsicvalueintermsofcalculations.Nowitis
equatedrightlywithprivatebusinessvalue.Aesopwasthefirstwhocameupwithit.Itisintrinsicvalue
ifyoucanforeseethefuture,thepresentvalueofallcashthatwillbedistributedbetweennowand
JudgmentDay.Youputmoneyinandyoutakemoneyout.Oneinhandisworthtwoinbush.The
questionishowsureareyouthattwoareinthebush,howfarawayisbush,whataretheinterestrates
Aesopwantedtoleaveussomethingtoplaywithovernexttwothousandyearssohedidntspellitall
out.Incalculatingit,Benwouldsayhewantedtwodollarsofcashinthebushandpayadollar.Fischer
wouldusequalitativefactorstoestimatethenumberofbirdsinthebush.Istartedoutveryinfluenced
byGraham,somorequantitative,butCharliecamealongandsaidlookmoreatqualitative.Ifyoubuy
McDonaldsfranchise,youthinkaboutthecashin,thecashout,when,andatwhatdiscount.Silver
bulletquestionarethereanythreats?IdontseebigcompetitortoBerkshire.Privateequityisbuying
businessesandleverageischeapsotheyarecompetingwithus.Thatismainoccupationformeand
Charlie.Idontseeanyonewhohasamodeloristryingtobuildmodelwhichisgoingafterwhatweare
tryingtoachieve.
CM:AsIsaidearlier,theBerkshiremodelasitisnowconstructed,astheysayinshowbusiness,haslegs
andwillgoalongtime.Itiscredible.Ithasenoughadvantageitwillgoalongtime,andmostbig
businessesdonthaveit.Ofthosewhohavegottenbig,fewhavestayedbig.Weareinterritorywhere
manystopgoingwell,butIthinkwellbelikeStandardOil.Thepeopleupherearenolongerthat
important.Youyoungpeopleintheaudiencedontbetooquicktosellthestock.
WB:Whynotmorecopycats?
CM:ItslikeourfriendEdDavis,thesurgeon,hefiguredouthowtodoanoperationwithinstrumentsof
hisowncreation,anddeathratewas2%versusotherswhowere20%.Surgeonscametowatchand
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theysaidwellthatlookstoohardtodoanditwasslow.Thereisnothinginbusinessschoolthatteaches
peopletodowhatwedoatBerkshire.
WB:Slownessdetersmorepeople.
CM:Thedifficultywithbeingslowisyouredeadbeforeitsfinished.[laughter]
WB:Whysocheerful?[laughter]
Q46:CL:Ihavemoreonthecheerfulside,thisquestionisaboutinflation.Returnsonequityandinflation
itishardtofunctionunderinflationarycondition.Noweveryonewantsinflation.Goodfordebtorsnot
creditors.Shouldwethinkabouthigherinflation?Howwouldyoubehavedifferently?
WB:Inflationwouldhurtus,butotherbusinessesmore.Someassetswoulddobetterunderinflation.
Ifdronessetoffanddrop$1milineveryhousehold,wouldeveryonebebetteroff?Berkshirewouldbe
worseoff.Trickistofindoutyouhave$1mbeforeanyoneelsedoes.Youdontcreatewealthwith
inflation,butyoucanmoveitaround.YoudontwithafirmlikeBerkshire,ourearningspershareup,
intrinsicvaluepersharewouldbeupbut,unlessweleveragedthebusinesses,thevaluepershareinreal
termswouldgodown.
CM:InWeimarGermanypeoplewhoownedcompanieslikeBerkshiresurvivedthough..Banksandlife
insurancewereallwipedout.Butitisnotagoodthingtoletthingsgothatfar.Idontlikethehuge
confidencethatitwillallkeepworking.Wecanhandlesubpargrowth,butitwouldbecrazytolet
politiciansprinttoomuchmoney.
WB:Butifyouhaveahome,mortgagegoesdowninvalueandyoustillhavethehome.
CM:InWeimar,theygaveyouthemortgageback.Theygotthatright.
Q47:JB:Leverageandacquisitions?
CM:SumtotalofallacquisitionsinAmericahasbeenlousy.Itisthenatureofsuccessfulcompanies
thattheywillbetalkedintodumbdeals.Ithasbeenpathtowealthforus,butluckilymanydontwant
tobepeculiarinourway.
WB:Whenwereadthatacompanyweownbutdontcontrolisgoingtomakeanacquisition,Immore
likelytocrythansmile.Butwelovethemourselves.Ihavesatinonhundredsofacquisition
discussionsconductedbypeopleIdidntcontrol.Mosthavebeendisasters
CM:Somearemediocre.
WB:LookatGEICOithadbeenanincrediblebusinessuntilthe1970s.Theymadeacquisitionsafter
gettingbackontrackandthentooktheireyesofftheball.Accountingcostofthosetwoacquisitions
waspoorbutnotdisastrous.Butsecondaryeffectswerehuge.Itwasadozenyearstherethatthey
couldntgetback.Weboughthalfthecompany,soitwaswonderfulforBerkshire.Itishumannature,
CEOshaveanimalspiritsandsupportingstaffsensesthattheyliketodothings.Theykeepcomingin
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withdeals.Investmentbankersarecallingthemdaily.Alltheseforcespushtowardsdeals.Wevetried
veryhardtonotbeeagertododeals,justtobeeagertododealsthatmakesense.Thatwouldbe
harderifwehadstrategydepartmentspushingus.Thesettinginwhichyouoperatecanbevery
important.
CM:Notehowheismuchmoretactfulthanme.
WB:Thecomparisonisnotdifficult.[laughter]
Q48:Station5,Wisconsin.Iamhopingthatyouwillmakeusmoney.Neverwouldyoucheatusoutof
ourmoney.Ininvestmentbankingbusinessconfidencehasfallen.DistressingreportsinNYTabout
privatemeetingsintheJusticeDepartmentandFedaboutneedordesiretobringcriminalcharges
againstlargestbanks,launderingbillionsofIraniandollars.Doyoubelieveafinancialcrisiswilloccuras
aresultofcriminalactivityorisitbeinginstitutionalized?
CM:IthinkbehavioronWallStreetisenormouslyimprovedduetotrauma.Youwillneverhaveperfect
behaviorwhenhumansliveinmiasmaofeasymoney.
WB:Whataboutprosecutingindividualsversuscorporations?
CM:Hardlyanythingchangespeoplefasterthanprosecutingindividuals.Ithinkafewcriminal
prosecutionschangesbehavioralot,andwellgetafew.Ifyouputeaglescoutsinjailafterfixingsteel
pricesyoureallygetbehaviorchange.
WB:Ileantowardsprosecutionofindividuals.AtSalomon,Isawbadactsbyonlyafewpeople,and
negligencebyacouplemore,comeclosetodestroying1000sofotherlives.Itiswayeasiertoprosecute
acorporation,aprosecutorwillgetawinagainstacompany.Theywillcaveandwriteacheck.Itisa
tougherjobagainstindividuals:theyaretryingtostayoutofjail.Cangetheadlinegrabberswhengoing
againstcorporation.Ileantowardsgoingagainstindividuals.
CM:ThatiswhatImeant.Whenantitrustisconsideredvenalsin,itchangedbehavior.Wechanged
individualbehaviorinpricefixing.Weprobablyneedsomemoreinfinancetochangebehavior.
WB:Wehavethreehundredthousandemployees,sosomeoneisdoingsomethingwrong.Tooa
degreeitisoutofourhands.Icantellmanagersthatreputationmeansmorethananythingelse.Butit
doesntcureeverything.Wewanttofinditoutearlyanditisuptoustodosomethingaboutit.Wewill
haveaproblem.Threehundredthousandpeoplewillnotbehaveproperlyeveryday.Individual
prosecutionhelps.Thewaytochangebehavioristohavethefearthatitwillcomehometothemand
hitthemhard.Ifonlyfeariscompanywillwritebigcheck,therewillbemuchlesschangethanifyou
targetindividual.
Q49:BQ:Insurancefundtoprotectrailroadindustryincaseofworstcaseaccidentscenario?Isindustry
lackinginsurance?
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WB:WeareonbothsidesofthatsinceAjithasofferedtherailindustrysomeveryhighlimits,toallthe
majorrailroads,buttheydontlikehisprice.Thefourmajorrailroadshavefinancialcapacitytopay
hugeawardifthereisdamage,andascommoncarrier,weallhavetocarryhazmatmaterial,butthey
wouldrathernotcarryit.Probablycantgetpaidenoughpercarloadtogetpaidforrisk.ButIthinkbig
fourhavefinancialcapabilitytohandlethattypeofaward.TheycanbuyinsurancefromAjit,butnoone
hasyet.Notadvisabletodiscussinsurancelimitspublicly.Nuclearriskgovernmentdecidedwastoobig
tobebornebyprivateindustry.Idontthinkanymajoraccidentbyprivateindustrycouldbelargerthan
theycouldpay,butcouldbevery,verylarge.
CM:BigsurprisewasBritishPetroleum.Noonethoughtlossfromonewellwouldbemanybillionsof
dollars.AfterthatIwouldhavelessenthusiasmfordrillinginGulf.Suchabiglosscanoffsetany
possiblegain.Thebiggestrailaccidentcost$200m.
WB:NorfolkSouthernneverannouncedwhatitcost.Wedonotgetpaidenoughtocarrychlorineand
theywillmovesomehow.Butthatdoesnotkeepmeawakeatnights.
WB:Biggestriskisroguestateorterroristact.Butwaractsareexcludedfrominsurance.Butyou
couldhavesomekindofterroristactthatwouldcreatedamageslikewehaveneverseen.Thereisa
reasonableprobabilityofthishappeninginthenext50years.WhatitisIdontknow,butitisnot
insignificant.
CM:Wesawwhatonepilotcandointhisairline[Malaysia].Weareluckytohavebigcorporationsthat
canhandlethelosswhenitoccurs.Betterthanabunchofflippers.
Q50:JG:WhyisBerkshireexpandingintocommercialcasualtyinsurance,andinLloyds,whenpricingis
peaking?
WB:Weenteredcommercialinsurancefieldmiddleoflastyear.Wehadsomewonderfultalentthat
wantedtojoinus.Wehavegreatamountofcapital,andgoodreputation.Wethinkwehaveabilityto
underwritemoreintelligentlythanmost,withbiggerrisks,andcostsbelowaverage,andthenthrowin
AjitJainoverseeingtheoperation.Weentereditbecausewehadterrificpeople.Wewerentlookingat
thetiming.WeveaddedtogroupPeterEastwoodrunsit.Wewillbuildasignificantcommercial
insurancebusinessovertimeandarelikelytooperatewithbetterresultsthanthecompetitors.
CM:Itislogicalthingforustodo.Whenlogicalwedontholdbackbecauseoftheplaceinthecycle.It
islongtermplay,wearentgoingawaybasedonshorttermtroubles.
WB:Whenweseechancetoenterabusinesswithstrongpeopleandcompetitiveposition,wellplay
gameandplayithard.
Q51:Station6,EdBoyle,Chicago.Buyingsportsteam,orsportsmanufacturingcompany?
CM:Warrenhasalreadydoneit.
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WB:Iown25%ofthelocalminorleagueteambutitisnotresponsibleformypositionontheForbes
400.Ifyoureadthatwearetalkingaboutbuyingasportsteam,itistimetotalkaboutsuccessors.
Sportsequipmentisnotagreatbusiness.WeownSpaldingandRussell.Generallyspeaking,ifyoulook
atpeoplewhohavemadegolfequipment,baseballgloves,etc.itisnotaparticularlyprofitable
business,andcertainaspectsofit,likeahelmetcompany,shouldbeownedbysomeonewithanet
worthofnegative1milandnotadollartohisname.WegotanoffertobuyPinkerton,whichmainly
managesguardsatairports,whichisasuperrichtarget.Youwontseemuchofusinsportsarena.
CharlieareyoulookingattheClippers?
CM:Shakinghishead.
WB:NowImthinkingheis.[laughter]
CM:WhateverWarrenlikesaboutsportsteams,Ilikeitless.
Q52:ARS.AckmanbuyingAllerganinopenmarketgotpermissiontodelayreporting.JustlikeBerkshire
withCoke?
WB:IdontseethecomparisontoCoke.Wehaveneverusedderivativestogetaroundrulesof
reporting.Activism?Itwontgoawayandscaresthehelloutofalotofmanagers.Therearecases
wherecorporatemanagersshouldbechanged.Generallyspeakingtheactivistiftheygetpriceofstock
upthatwillendtheirinterestinbusinesstheynotlookingforpermanentchangesinthebusiness.Itis
attractingmoreandmoremoney.Fundsareflowingtotheseactivists,sotheycanplayonbiggerscale.
Ifsuccessfulwillcreatefundflowuntilnolongersuccessful.
CM:Creatingmoreofstirinmanagements,and2030%ofstockcanchangehandsquickly.Entrenched
managementissuddenlythreatened.Byandlargetheyaremakingmoneyandmostpeopledontcare
howthatmoneyisearned.Sothatmakesitgrow,likeJacksbeanstalk.Youllfindanactivistwhoyou
dontwanttomarryintoyourfamily;itislikefoxhuntingthepursuitoftheuneatablebythe
unspeakable(OscarWilde).IdontthinkgoodforAmericawhenaveragedout.
WB:Biggerinthreeyears?
CM:Bigger.
WB:Wowthanitwillbereallyserious,esp.ifyouthinkaboutthecompounding.
Q53.GW:Whichisbetter,largercollectionofsmallercompaniesthataregrowingorbigelephants
nearingmaturity?Payhigherpriceforgrowth.Opportunitycosttokeepcashonhand.
WB:Wedbedelightedtobuysomethingfor$23bilthatwillgrowovertime.Asubsidiarycouldbuy
somethingforacouplehundredmillion.Wearenotpassinganythingofanyrealsizethatwillhave
impact.Wehadtwentyfivetuckinacquisitionslastyear.One$30bilis10$3bildeals.Realityisthat
weareworkingtobuildearningpowerintoBerkshire,andsoourmainemphasisonbiggerdeals.
CM:Iagreewiththathundredsofsmallbusinesses?Itwouldbeanathema.
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WB:Thereislotsofcompetitionforthesmalldealsfromprivateequity.Someareevensellingtoeach
other.Wearenotenvious.Butwewillfindsomesmalldeals.Butonedoesnotprecludetheother.
Q54:Station7,SanFrancisco.Whatismostintelligentquestiononinvestingandwhatisanswer?
CM:IalreadydidthatwhenIspokeaboutBerkshirescomparisontoindexperformance.Therearea
lotofinterestingquestionsthatdontgetmuchattentionandthereisalotofirrationality.
WB:Bestquestioninpast?
CM:Idontlikequestion,doyou?Idontthinkitisfair.
WB:ThatiswhyIletyougofirst.[laughter]
WB:Weareat54questions,soIllmovetoStation8?
Q55:Station8,NewHampshire.Lookingatpage64segmentdatafortheenergybusiness,whenItake
ebitdalesscapex,theresultisnegativeoperatingcashflow.WhenIrepeatexerciseineachoflastfive
years,inbestyears,$300mofoperatingcashflow.Dividebytangibleassets,0.8%return,why
allocatingcapitaltoabusinesswithsuchlowreturns?
WB:Youweredoinggreatuntilreturnontangibleassets.Welovethemathyoudescribe,aslongaswe
getreturnoncapitalinvestment.Wearelookingforwardtoputtingmorecapitalin,aslongitistreated
fairly,andwewillgetappropriatereturnsonthat.Itisnotcashminusincreasedcapex,itisoperating
earningslessdepreciation.Therearetimeswhennonetinvestmentisrequired,butwepreferwhere
netinvestmentmustbehigherbecausewegetmorecapitalinandourbetisthatregulatorswilltreatus
fairlyinfuture.Onereasonwebelievethisistrueisthatwehavedonesomuchbetterthanmanyat
deliveringelectricityatlowerratesthanchargedbymost.InIowathereisapublicutility,andourrates
aresignificantlybelowcompetitors.Afriendwithafarmwhoisservedbytwoutilitiestellsmethatrate
fromusisdramaticallylowerthanthecompetitors.Wehaveadeservedgoodreputationwith
regulators,includingsafety.Theywelcomeuswhenwecometonewstates.Ifwecanputnewmoney
intothoseprojects,wewillgetgoodreturn.Butyouwillgetnegativereturnsifyouincludeaddingto
capitalspending.Thisissomewhatsimilarattherailroad.
CM:ifnumbersyourecitedcomefromadecliningdepartmentstore,wewouldhateit.Butwehave
confidencethatthereinvestedcapitalwillgiveusagoodreturnfromagrowingenergybusiness.Itis
thatsimple.
WB:Greg,canyouquotesomerates?
GregAbel:Wearegenerallylowestquartile,ifnotcheapest.Werecentlytookthefirstrateincreasein
Iowain16years,andwedontseeoneinnearfuture.Thereisa1000megawattprojectaddingupto
$1.9billion,anddeployingover2yearsandweareearningan11.6%returnonit.Wetrytokeepour
capitalclosetodepreciation.Butthelionshareofourcapexisgrowthcapital.
WB:Techcompanies?
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GregAbel:WeserviceGoogleinCouncilBluffswitharelativelysmalldatacenter.Theyaretakingitto
4050MW,butarelookingtobuilditto1000MW.Wegivethemexceptionallylowrates,anda
significantportioncomesfromrenewableenergy,andtheywanttobeassociatedwithautility
producinggreenpower.
Q56:Station9,Shanghai.EducationinvestmentwhatisdifferentnowandinthefutureinUSand
China?
CM:Wecertainlyaregettingtheeasyquestions![laughter]
WB:WhateverhesaysIagreewith.[laughter]
CM:IthinkAmericamadehugemistakewhentheyletpublicschoolsgotohell.IthinkAsiancultures
arelesslikelytodothat.Iwishweweremorelikethem.
WB:Itremindsme,thatwheneverIgetalittleworriedaboutCharlie,maybeIshouldnttalkaboutit.
Thereisajokeaboutnothearingwellthatgoeslikethis:Ihavethiswonderfulpartner,butIthinkhis
hearingisgoing.WhatshouldIdo?Doctortoldmetostandacrossroom.SoIstoodacrossroomand
said,IthinkweoughttobuyGMat35.Noresponse.Igohalfwayacrossroom,sayitagain,andno
response.SoIwalkrightovertohimandsay,CharlieIthinkweoughttobuyGMat35.Andhesays,
forthethirdtime,YES!Sospeakup...
Q57:Station10,Chicago.ShouldtheUSchangethewayitfinanceshomepurchasesandistheirarole
forBerkshire?
WB:The30yearfixedloanisterrificboontohomeowners.Notgreattoownasinvestmenthowever.
Butitletspeoplegetintohomesearlier.Itkeptcostsdowntoquiteadegree.Governmentguaranteed
parttokeepcostdown.Noprivateorganizationcandoit.Itisan$11trillionmarket.Privateindustry
cantdoit,rateswouldbehigher.Theproblemishowdoyoukeepgovernmentinpicturebutdoit
withoutkeepingpoliticsinit?FannieandFreddiedidsomedumbthingontheirown,butalsoprodded
intodumbthingsbypoliticians.Iwroteanarticlewhensavingsandloanwerefallingapart,and
suggestedFDICtogetprivatesectorintopricingandevaluatingwithgovtasmaininsurer.Theremight
beawaythatmodelworksintermsofhomemortgageinsurance.Welikelywouldntbeaplayer,
otherswouldbemoreoptimisticinsettingrates.Privateindustrymightprice5%,andgovttook95%,
andmaybeguaranteedtheprivatesiftheywentbroke.Importanttogetthecorrectnationalpolicy,I
knowitisbeingworkedon,anditisveryunlikelythatBerkshirewouldplayanypart.
CM:Whenprivateindustrywasallowedtotakeoverthesystem,wegotbiggestthievesscrewingitup.
AsmuchasIhategovernment,Imnottrustfulofprivateindustryinthisfield.Existingsystemis
probablyprettysound.AtmomentFannieandFreddiearebeingprettyconservative,andIthinkthatis
ok.Imnotanxioustogobacktotheracetothebottomwithinvestmentbankscreatingphony
securities.Letthemkeepdoingwhattheyaredoing.
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WB:TheonethingthatledFannieandFreddieastraywasservingtwomasters:tryingtodeliverdouble
digitearningsincreases.Likeiftheyjustinsured,ratherthanbuyingportfoliosandturningthemselves
intobighedgefunds,andjustborrowedcheapandlentlongitwouldhavebeenok.
CM:Ithinktheyarebeingconservativenow.
WB:Andportfolioactivity?
CM:Ithinkitisamistaketohaveprivatecompaniestakingoverthewholemortgagemarket.Thereis
noneedtohaveprivateportfolios.Ithinkthatparticularexperimentinprivatizationwasatotalfailure.
Andwemadeabilliondollarsoutofit.
WB:Iwasntgoingtomentionit.
Q57:Station10,WhitneyTilsonthereisanewbookavailable,wasinPortuguese,on3G.
CM:WhywouldyouassumeshareholdersdontreadPortuguese?
Whitney:TheonlyEnglishprintcopiesintheworldarehereonAmazonitisaKindlebook.
WB:Wewillraisetheprice.
Whitney:IsthereaBerkshirestampofapprovalontheirdeals?Whatwillhappentothevalueofthe
Buffettbrandtobuycompanies?
WB:ItwillbecometheBerkshirebrandthatcontinueswithoutme.Thepersonthatfollowsmewill
bringsamequalities,includingabilitytowriteverylargecheck.Brazilianfriendstheyareverysmart,
veryfocused,hardworking,determined,neversatisfied.AsIsaidearlier,whenyoumakeadeal,they
dontoverreach,theydontoverpromise.Ifyoureadthebook,youlllearnalotmore.Wewanttobea
goodpartnerasitattractsgoodpartners.Takesalotofotherpeoplebehavinginwaytomakepeople
wanttojoinandtrustus.
CM:Thewaytogetagoodspouseistodeserveone.Itissameonpartners.Stillworksinmodern
times.Behavecorrectly,amazinghowwellitworks.
WB:Whatcanwelearnfrom3G?CM:Cantskirtthefactthattheyareverygoodatremoving
unnecessarycosts.Idontconsiderthatimmoral,itisaservicetocivilization.Itshouldbedonewith
somemercy
WB:andsensitivity.
CM:Butoursystemshouldnothavemakework.
WB:Wearelearningfromthem
CM:Somereluctantly.
Q58:Station11,Taiwan.InamedmysonWarrenafteryou.
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WB:Howishedoing?
Q58:Hesonly4.HecallsyouWarrenBuffaloes.
WB:Ivebeencalledworse.
Q59:Station1.Marketcap$1.2trilifdoublesthendoublesagain.WhatwillBerkshirebein20years?
WB:Idoplanonwritingaboutthatnextyearnoquestionwewillhavemorecashthanwecan
intelligentlydeployinbusiness.Thatwilldependoncircumstancesattime.Ifstockcanbeboughtin
thatmakessenseforcontinuingshareholders,thatvaluebetterforthem,Iwouldbeaggressive.Wewill
havemorecashthanwecanintelligentlyinvestinthefuture.Ihopeitisntrealsoonbutdontthinkitis
onthedistanthorizon.Thenumbersaregettingtothatpointbutmaybecanrepurchaseshares.But
whatisdonewillbedoneininterestofshareholders.Wedontknowwhattaxeswillbe,butevery
decisionwillbedoneinprincipaloftheshareholder.
CM:Itisnotatragedytosucceedsomuchthatfuturereturnsgodown.
Q60:Station2,WashingtonDC.Sharingeconomy?
WB:Wheneveranexistingbusinessisthreatened,thatbusinesseswillfightback.WhenStateFarm
startedinthe1920s,theagencysystemwassacrosanct:allagenciesworkedthatway.Theyfought
overhaving#1agencyintown.Yourobjectivewastogettheagent.Policyholderwasntbeingthought
about.ThenStateFarmcamewithbettermousetrap,thenGEICO.Insuranceagenciesstartedtoinsist
onstatelawsaboutwhatcanbedonewithagentsandwithout.2
nd
and3
rd
bestmousetrapswillfight
back.Butintheendthebettermousetrapwillusuallywin.Westayawayfromthatsortofthingwe
knowwillchangeandwedontknowwhothewinnerswillbe.Energycompanyandtherailroadboth
verylikelytobewinnersovertime.Wherechangeisinvolvedinotherfields,wesitandwatchbutdont
gettempted.
CM:Newtechnologywillbequitedisruptivetoalotofpeople.Retailinginparticularlyisfacing
particularthreats.WehaveapowerplantservingoneGoogleserverfarm.Itischangingtheworld.It
willhurtalotofpeople.Berkshireisbyandlargeinprettygoodshape.
WB:Wherearewemostvulnerable?
CM:Idontwanttonamethem.
WB:Nowyouhavethemwondering.[laughter]
Q61:Station3,Florida.Publiceducation:canwedomoretoprepareourchildrentobefinancially
literate?
WB:Certainlytheearlierthebetter.Habitsaresuchapowerfulforceineveryoneslife.Igetletters
frompeoplewhomadeterriblemistakesfinanciallunacybuttheydidntknowit.Veryharddigging
yourselfoutofholesthatilliteracycancause.Forchildren,wehavetheSecretMillionairesClubthere
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isanexhibitinthehall.Wewanttotalktopeopleatveryyoungage.Happensinalotoffamilies,
wherethereisabigproblemwithadultfinancialliteracy.AlotcanbedoneonTVortheinternet,butit
isimportanttohavegoodfinancialhabits.Anythingyoucandoveryearlythroughschoolsystemwill
havemyvote.
CM:Notsureschoolsatfault.Thebehaviorofparentsisthemostpowerfulexample.
WB:Noteveryonegetsrightparents.Howwouldyoufixthem?
CM:Itisveryhardtofixpeoplewhohadwrongparents.Itgetssoimpractical.IdontthinkImgoodat
that.OnlythingImgoodatisraisingthetophigher.IdontthinkIamanygoodatit.Idontthinkyou
aresohoteither.Maintroublesineducationareprobablynotinthegradeschools.Thereisalotof
asininityatuniversities,evenintheeconomicsdepartments.Whenitgetshighfalutindoesntmeanit
getsalotbetter.
WB:Periodfor20yearswhenthenetutilityoffinancemajorsknowledgewasnetnegative.
CM:Itwasasinine.WeshouldusenormalEnglish.[laughter]
WB:Towatchextraordinaryuniversitiesteachpeopleverydumbthingsandeventoobtainpositions
indepartmentsinthoseschoolsyouhadtosubscribetotheorthodoxy.Butthatmayhavesouredmy
feelingsonhighereducation,anditwasbad.Wasmylanguageok?
CM:Youwouldhavelikedacademicsbetterifyouhadtakenphysicsratherthanfinance.
Q62:Station4,Ontario.Dividendsnooneknowshowtoevaluateit.Breakupcompanyinto4groups
andunlockvalue.Allocatecapital?
WB:WewouldlosesignificantvalueifwebrokeBerkshireintofourcompanies,duetothetaxsituation
andcapitalallocation.Berkshireascurrentlyconceivedhasgreatestvalue.Wedidhavevoteandthere
isnotawaytodeliveradividendtoonlyafewshareholders.Thereisawayforinvestorstomaintain
theirinvestmentandstillcashoutannuallyjustlikeapartnershipandincurfairlylittletax.Butthereis
noadvantagetobreakBerkshireintopieces.Itwouldbeterriblemistake.
CM:Youarenotbeingdeprivedwhenstockgoesfrom100to200andyoudidntgetadividend.
WB:In45:1votepeoplepreferredpresentpolicy.Itsurprisedme.Itwouldbebigmistaketochange.


NotescourtesyofPeterBoodell,PortfolioManagerandManagingPartner,Boodell&CompanyCapitalManagementLLC,
locatedinNewYorkCity.EditscourtesyofRickSchmidt,PortfolioManager,HardingLoevner,locatedinBridgewater,NJ.
Pleaseaddressanycommentsorconcernsaboutthisdocumenttoinfo@boodellco.com.Ofnote,norecordingdeviceswere
usedtocreatethesenotes.Assuch,theyshouldnotbereliedupon.Petershighschooltypingteacher,Mr.Eagle(mayherest
inpeace),deserveswhatevercredit,ifany,isdue.

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