2012 年股东大会 · 上午场

Welcome

WARREN BUFFETTGood morning. I'm Warren, and this hyperkinetic fellow is Charlie. And we're going to conduct this pretty much as we have in the past. We'll take your questions, alternating among the media and analysts in the audience until 3:30, with a break around noon for an hour. And then we'll have the regular meeting of the shareholders beginning at that time. Feel free to drift away and shop in the other room. We have a lot of things for you there.

See's Candy lollypop group photo

WARREN BUFFETTWe only have one scripted part of this meeting, and See's Candy has placed on all of the seats a little packet. And what we'd like you to do, we're going to like — we'd like to videotape everyone eating their pop at the same time for posting on Facebook and for use by the media in today's meeting. So, if each of you will open up the lollipop now. Now, first of all, you've got them open. We'd like you to hold them up above your head. We're going to get a shot of 18,000. Dennis, here we come. And we'll get a few shots of that. We got it all, Mele? OK. And now you can take off the cover and the good part comes, and Charlie and I have — we have fudge up here and we have peanut brittle. And I said the meeting would run until 3:30. If we've consumed 10,000 calories each, we sometimes have to stop a little early at that point. (Laughter)

Q1 earnings

WARREN BUFFETTThe only slide we have at this point is we did put out our earnings — first quarter earnings — yesterday. And in general, all of our companies are — with the exception of the ones in the residential construction business, which was the case last year and it's the case this year — that all of the companies, except those in that area, pretty much have shown good earnings. And in the case of the bigger ones, the five largest non-reinsurance companies earned — all had record earnings last year, aggregating of those five companies something over 9 billion pretax. And in the annual report I said I thought they would — if business didn't take a nosedive this year — that they would earn over $10 billion pretax this year. And certainly nothing we've seen so far would cause me to backtrack on that prediction. The insurance — if you read our 10-Q and turn to the insurance section, you will see that there was an accounting change mandated for all property-casualty insurance companies, which — rather technical and I won't get into the details of it — it changed something that's called the deferred policy acquisition cost, called DPAC. It has no effect on the operations at all, on the cash, but it did change the earnings downward by about $250 million pretax for GEICO in the first quarter. It's based on whether you defer some advertising. It has — GEICO had a terrific first quarter, had a real profit margin of almost 9 percentage points, and the float grew, and everything good happened at GEICO in the first quarter. We had good growth. But we did make that accounting change. That accounting change also affects, to a lesser degree, the second quarter, and it may even trail just a bit into the third. But the underlying figures are somewhat better than the figures that we've presented there. And so, overall, we feel good about the first quarter. We feel good about the year.

Berkshire directors introduced

SPEAKERMaybe we should — even though we'll do it again at the meeting — but we should probably introduce the directors. And I don't know whether the audience can see the people here but if you can turn up the lights or something so they can. We'll start off, of course, with Charlie, Charlie Munger. And then alphabetically — if the directors would just — (Applause) I was going to suggest that you withhold your applause until the end, but I know he's sort of irresistible, so we'll make an excuse for him. (Laughter) For the remainder of the directors, if they stand and remain standing, and then you can applaud them at the end, if you will. We've got Howard Buffett, Stephen Burke, Susan Decker, Bill Gates, David Gottesman, Charlotte Guyman, Don Keough, Tom Murphy, Ron Olson, and Walter Scott, Jr. Now you can go wild. (Applause)

Q&A begins

WARREN BUFFETTNow we'll start with the questions. And what we will do is we'll start over here with the media —with one of them — move to one of the analysts, and then move to one of the shareholders, and we'll go by stations with the shareholders. And if we get — sometimes we've had as many as 60 or 62 questions. If we get to 54, at which point each person on the panel here has had a shot at 6 questions, then from that point on we'll do nothing but the — but from the shareholders from 54 on. So we'll see how that goes.

Buffett: My successor will also be the "chief risk officer"

WARREN BUFFETTAnd with that, we'll start off with Carol Loomis of Fortune Magazine.

CAROL LOOMISGood morning. I'll make my mini speech, which the most important point is that neither Warren nor Charlie have an idea of what we're going to ask. The other thing is that we received hundreds, if not thousands, of questions. We don't know the exact count, so we certainly couldn't use every one. If we didn't use yours, we're sorry. So for the first question, Warren, two shareholders wrote me about the heavy responsibilities that will fall on your successor and his or her ability to deal with them. So I'll make this a two-part question. From Chris Inge (PH), “Mr. Buffett, you have stated that you believe the CEO of any large financial organization must be the chief risk officer as well. "So, at Berkshire, does the leading CEO candidate for successor, as well as the backup candidates, possess the necessary knowledge, experience, and temperament to be the Chief Risk Officer?” The related question is about the Goldman Sachs, GE, and Bank of America deals, all giving Berkshire warrants, that you have negotiated. Shareholder Jacques Cartier — Catere (PH), excuse me — asked whether these specific transactions could have been done with similar terms without your involvement. If not, what implications would that have for Berkshire's future returns?

WARREN BUFFETTYeah. The — I do believe that the CEO of any large, particularly financial-related, company should — it really should apply beyond that, but certainly with a financially-related company — should be the chief risk officer. It's not something to be delegated. In fact, Charlie and I have seen that function delegated at very major institutions, and the risk committee would come in and report every week, every month, and they'd report to the directors, and they'd have a lot of nice figures lined up, and be able to talk in terms of how many sigmas were involved and everything, and the place was just ripe for real trouble. So I do — I am the chief risk officer at Berkshire. It's up to me to understand anything that could really hit us in any catastrophic way. My successor will have the same responsibility, and we would not select anybody for that job that we did not think had that ability. It's a very important ability. It ranks right up there with allocation of capital and selection of managers for the operating units. It's not an impossible job. I mean, it — the basic risks could involve excessive leverage and they — and then the — they could involve excessive insurance risk. Now, we have people in charge of our insurance businesses that themselves worry very much about the risk of their own unit and, therefore, the person at the top really has to understand whether those three or four people running the big insurance units are correctly assessing their risks, and then also has to be able to aggregate and think how they accumulate over the units. That's where the real risk is, unless you're engaging in a lot of leverage in your financial structure, which isn't going to happen. Before I answer the second, Charlie, would you like to comment on that?

CHARLIE MUNGERWell, not only was it — this risk decision frequently delegated in America, but it was delegated to people who were using a very silly way of judging risk that they've been taught in some our leading business schools. (Laughter) So this is a very serious problem this man is raising. The so-called "Value at Risk" and the theories that outcomes in financial markets followed a Gaussian curve, invariably. It was one of the dumbest ideas ever put forward. (Laughter)

WARREN BUFFETTHe's not kidding, either. We've seen it in action. And the interesting thing is we've seen it in action with people that know better, that have very high IQs, that study lots of mathematics. But it's so much easier to work with that curve, because everybody knows the properties of that curve, and can make calculations to eight decimal places using that curve. But the only problem is that curve is not applicable to behavior in markets, and people find that out periodically. The second question: we're well equipped, Carol, to answer that question. We would not have anybody — we're not going to have an arts major in charge of Berkshire. (Laughter) The question about negotiated deal, there's no question that partly through age, partly through the fact we've accumulated a lot of capital, partly the fact that I know a lot more people than I used to know, and partly because Berkshire can act with speed and finality that is really quite rare among large American corporations, we do get a chance, occasionally, to make large transactions. But that takes a willing party on the other side. When we got in touch with Brian Moynihan at the Bank of America last year, I had dreamt up a deal which I thought made sense for us, and I thought it made sense for the Bank of America, under the circumstances that existed. But I'd never talked to Brian Moynihan before in my life. I had no real connection with the Bank of America. But when I talked to him, he knew that we meant what we said, so that if I said we would do 5 billion and — I laid out the terms of the warrants — and I said we'd do it. And he knew that that was good and that we had the money. And that ability to commit, and have the other person know your commitment is good for very large sums and, maybe, complicated instruments, is a big plus. Berkshire will possess that subsequent to my departure. I don't think that every deal that I made would necessarily be makeable by a successor, but they'll bring other talents as well. I mean, I can tell you the successor that the board has agreed on can do a lot of things much, much better that I can do. So, if you give up a little on negotiated financial deals, you may gain a great deal, just in terms of somebody that's more energetic about going out and making transactions. And those deals have not been key to Berkshire. If you look at what we did with General Electric and Goldman Sachs, for example in those two deals in 2008, I mean, they were OK, but they are not remotely as important as, you know, maybe buying Coca-Cola stock, which was done in the market over a period of six or eight months. We bought IBM over a period of six or eight months last year in the market. We bought all these businesses on a negotiated basis. So the values in Berkshire that have been accumulated by some special security transaction are really just peanuts compared to the values that have been created by buying businesses like GEICO or ISCAR or BNSF, and the sort. It's not a key to Berkshire's future, but the ingredients that allowed us to do that will still be available and, to some extent, peculiar to Berkshire, in terms of sizable deals. If somebody gets a call from most people and they say, you know, we'll give you $10 billion tomorrow morning, and we'll have the lawyers work on it overnight, and here are the terms and there won't be any surprises, they're inclined to believe it's a prank call or something of the sort. But with Berkshire, they believe it can get done. Charlie?

CHARLIE MUNGERYeah, and in addition, a lot of the Berkshire directors are terrific at risk analysis. Think of the Kiewit Company succeeding, as it has over decades, in bid construction work on oil well platforms and tunnels and remote places and so on. That's not easy to do. Most people fail at that eventually, and Walter Scott has presided over that bit of risk control all his life and very routinely. And Sandy Gottesman created one of my favorite risk control examples. One day he fired an associate, and the man said, “How can you be firing me when I'm such an important producer?” And Sandy said, “Yes,” he says. “But I'm a rich old man and you make me nervous.” (Laughter)

WARREN BUFFETTYeah. We do not have anybody around Berkshire that makes us nervous.

We "reserve conservatively" at insurance operations

WARREN BUFFETTOK. Now we go to our new panel. Cliff Gallant of KBW, we're getting the first question here from an analyst. I don't think that is on.

CLIFF GALLANTOh, can you hear me?

BUFFETTYeah.

CLIFF GALLANTOK, sorry. Thank you again for the opportunity. The subject, generally, still is mortality. In your 2011 annual report, Berkshire disclosed that Berkshire Hathaway Reinsurance Group made changes in its assumptions for mortality risk, which resulted in a charge, specifically saying that mortality rates had exceeded assumptions in the Swiss Re contract. Conversely in Gen Re's Life/Health segment, they reported lower than expected mortality, and I believe these trends continued into the first quarter that we saw in the report last night. What was the surprise in the Swiss Re contract? And is there a difference in basic assumptions and trends for things like mortality rates among Berkshire's different businesses? In the property-casualty businesses, for example, are the same assumptions and reserving philosophies applied companywide?

WARREN BUFFETTStarting off with the Swiss Re example, we wrote a very, very large contract of reinsurance with Swiss Re — I would say, I don't know, a year-and-a-half ago now, or thereabouts — and it applied to their business written, I think, in 2004 and earlier. And they had a lot of business. It was American business. And we started seeing — we got reports quarterly — and we started seeing mortality figures coming in quarterly that were considerably above our expectations and what looked like should be the case — should have been the case — looking at their earlier figures. So at the end of last year — we have a stop-loss arrangement on this — so we set up a reserve that really reserves it to the worst case, except we present-value that. But until we get — until we figure out what can be done about that contract — and we have some possibilities in that respect — we will keep that reserved at this worst case. And so we took a charge for that amount. We do — we are reinsuring Swiss Re, and then they are reinsuring a bunch of American life insurers, and there is ability to reprice that business as we go along, but the degree to which we and Swiss Re might want to reprice that may be a subject of controversy, we'll see, so we just decided to put it up on a worst-case basis. Getting to the question of how GEICO reserves, how Gen Re reserves, I would say that — it's described to some extent in our annual report — but I would say that the one overriding principle is that we hope, and our plan is, to reserve conservatively. I mean, it's a lot different reserving in the auto business, where on short-tail lines and physical damage and property damage, you know, you find out very quickly how you're doing. And if you look at GEICO's figures, you know, we've had redundancies year after year after year. Gen Re was under reserved at the time we bought it, and back in those 1999/1998 years, those developed very badly. Now they've been developing very favorably for some time. I think with Tad Montross, we've got a fellow that — where I feel very good about the way he reserves. But he is not — there's no coordination between him and Tony [Nicely] at GEICO, nor with Ajit [Jain] at Berkshire Hathaway Reinsurance. They all have, I think, the same mindset, but they don't — they're three very different, different businesses. Charlie?

CHARLIE MUNGERThere's always going to be some contract where the results are worse than we expected. Why would anybody buy our insurance if that weren't the case? (Scattered laughter)

WARREN BUFFETTIt's interesting how — I mean, just take 9/11. You know, it's very hard to reserve after something like 9/11, because to what extent is business interruption insurance — when you close the stock exchange for a few days, are you going to be able to collect on insurance? And, you know, when you close restaurants at airports, you know, 2,000 miles away, because the airport is closed for a few days, is that business interruption insurance? There's — a lot of questions come up. We turned out to be somewhat over-reserved for 9/11, as it turned out. You've got the same situation going on in both Thailand and Japan because, as you know, the supply chain for many American companies was interrupted by the tsunami in Japan and the floods in Thailand. And if you're a car manufacturer in the United States and you aren't getting the parts, you know, does your business interruption insurance cover the fact that there were floods for your supplier in Thailand or the tsunami hit in Japan? Sometimes that stuff takes years and years to work out. On balance, I think you will find that our reserves generally develop favorably.

"It's amazing how little influence we've had"

WARREN BUFFETTOK. We go to the audience now up at post number 1, and there he is.

AUDIENCE MEMBERThere he is. Good morning, Mr. Chairman, Mr. Vice Chairman. My name is Andy Peake (PH), and I'm from Weston, Connecticut. In the past, you've made a few investments in China: PetroChina and BYD, to name two. Given the growing importance of China in the world, what advice would you give the new Chinese leadership and corporate CEOs such that you would make more investments in China? Xièxiè.

WARREN BUFFETTWell, Charlie has made the most recent investment in China, so I'll let him handle that one.

CHARLIE MUNGERYeah, we're not spending much time giving advice to China. (Laughter)

WARREN BUFFETTThat's not because they're not hungry for our advice. (Laughs)

CHARLIE MUNGERIf you stop to think about it, China has been doing very, very well from a very tough start. To some extent, we ought to seek advice there instead of give it.

WARREN BUFFETTWe have — I would say that we've found it almost useless in 60 years of investing to give advice to anybody in business.

CHARLIE MUNGERWe have found that we have a lot of control — it's kind of like controlling affairs by pushing on a noodle. It's amazing how little influence we've had when we had 20 percent of the stock. And people have this illusion of mass control at headquarters. The beauty of Berkshire is that we created a system that doesn't require much control at headquarters.

WARREN BUFFETTBut we — if you look at our four largest investments, which are worth, we'll say — they're certainly worth $50 billion today. We've had some of them for 25 years — one of them — and another one for 20 years. The number of times that we have talked — unless we were on the board, which I was at Coca-Cola — but the number of times we've talked to the CEO of those companies, where we have $50 billion, I would say doesn't average more than twice a year, and we are not in the business of giving them advice. If we thought that the success of our investment depended upon them following our advice, we'd go onto something else. (Laughter)

No warnings when Berkshire shares are overvalued

WARREN BUFFETTBecky?

BECKY QUICKThis question comes from a shareholder named Ben Noll (PH), and I've got several different emails that were very similar to this one but I'm choosing Ben's question. He writes that while pleased by your announcement to buy back stock at 110 percent of book value, he feels like a bit of a chump for sometimes having paid nearly 200 percent of book in the past few years. Since you've stated repeatedly that it's as bad to be overvalued as to be undervalued, why didn't you warn us previously when the price-book relationship was very different, or have you not felt that Berkshire was trading above intrinsic value over the last decade?

WARREN BUFFETTYeah, we've written in the back of the report how we prefer to — not to see our shares sell at the highest possible price. I mean, we've got a whole different view on that than many managers. If we could have our way, we would have the stock trade once a year, and Charlie and I would try to come up with a fair value for intrinsic business value, and it would trade at that. That's incidentally what some private companies do, but you're not allowed that luxury in the public market, and public markets do very strange things. If Charlie and I think Berkshire is overvalued, then it would be a very interesting proposition to have us announce, you know, a half an hour before the market opens someday, and have us both saying, gee, we think your stock is overpriced. I mean, we would have to do that with every shareholder simultaneously, and they would — who knows how they would react. We have never — I don't think — certainly never consciously done anything to encourage people to buy our stock at a price we thought was above intrinsic value. The one time we sold stock, under some pressure back in the mid-1990s when somebody was going to do something with the stock that we thought would be injurious to people, we created a stock and we thought the stock was a little on the high side then and we put on the cover of the prospectus something that I don't think has ever been seen, which we said that neither Charlie nor I would buy the stock at the price, nor would we recommend that our family did it. (Scattered laughter) And if you want a collector's item for a proxy material — offering material — get that because I don't think you'll see that one again. We think that if we are going to repurchase shares from people, that we ought to let them know what — that we think we're buying it too cheap. I mean, we wouldn't buy out — if we had two or three partners and somebody wanted to sell out — but we'd probably try to arrive at a fair price — but if it was established by a market and they were going to sell too cheap, we'd tell them we thought they were selling it too cheap. We are not selling it. We are not saying that 111 percent — we're using 110 percent of book — 111 percent or 112 percent is intrinsic business value — we know it's significantly above 110. And I don't think we will ever announce — because I don't see how we would do it — I don't think we'll ever announce that we think the stock is selling considerably above intrinsic business value, but we will certainly do nothing to indicate that we think the stock is attractively priced, if that comes about. Charlie?

CHARLIE MUNGERI've got nothing to add. (Laughter)

We'll buy "significantly" undervalued Berkshire shares

WARREN BUFFETTJay Gelb from Barclays.

JAY GELBThank you. My question is also on share buybacks. Warren, in last year's annual letter, you said not a dime of cash has left Berkshire for dividends or share repurchases during the past 40 years. In 2011, Berkshire changed course and announced a share repurchase authorization. What I'd like to focus in on is, what is Berkshire's capacity for share buybacks, based on continued strong earnings power? How attractive is deploying excess capital and share buybacks compared to acquisitions, even above 1.1 times book value? And what are your latest thoughts on instituting a shareholder dividend?

WARREN BUFFETTThe 1.1 is a figure that we feel very comfortable with. So, we would probably feel comfortable with a figure somewhat higher than that, but we wanted to be dramatically — or very significantly — undervalued to do buybacks, and we want to be very sure that every shareholder that sells to us knows that we think that it's dramatically — or significantly — undervalued when we do it. But we have a terrific group of businesses. The marketable securities that we own, we think, are going to be worth more in the future, but we carry them at what they're selling for today. So they're not — that's not an undervalued item, you know, in the balance sheet. But some of the businesses we own are worth far more money than we carry them, and we have no significant business that's worth any significant discount from the carrying value. So we would — from strictly a money-making viewpoint — we would love to buy billions and billions and billions of dollars’ worth of stock at — we'll move that up to tens of billions — at 110 percent of book. You know, I don't think it will happen, but it could happen. You never know what kind of a market you'll run into. And if we get the chance to do it, as long as we don't take our cash position below 20 billion, we will — we would buy very aggressively at that price. We know we're making significant money for remaining shareholders. The value per share goes up when we buy at 110 percent of book, and therefore — and it's so obvious to us that we would do it on a big scale if given the chance to, and if it did not take our cash position down below a level that leaves us comfortable. Charlie?

CHARLIE MUNGERWell, some people buy their own stock back regardless of price. That's not our system.

WARREN BUFFETTWell, we think it's — we think a lot of the share repurchases are idiotic.

CHARLIE MUNGERI was trying to say that more gently.

WARREN BUFFETTYou've never done it before. (Laughter) The — it's — I mean, it's for ego. I've been in a lot of board rooms where share repurchase authorizations have been voted, and I will guarantee you it's not because the CEO is thinking the way we think at all. They like buying their stock better at higher prices, and they like issuing options at lower prices. You know, it's just exactly the opposite than the way we would think. We will only do it for one reason, and that's to increase the per-share value the day after we've done it. And if we get a chance to do that, we both, you know, in a big way, we'll do it in a big way. I don't — strictly operating as a financial guy, I would hope we get a chance to do a lot of it. Operating as a fiduciary for hundreds of thousands of people, I don't want to see them sell —

CHARLIE MUNGERWe hope the opportunity never comes.

WARREN BUFFETTYeah. But if it does, we'll grab it.

U.S. banks are in better shape European banks

WARREN BUFFETTOK. Station two, shareholder?

AUDIENCE MEMBERHello, Mr — Hi, Mr. Buffett. My name is Bernard Fura (PH) from Austria, Vienna. My question is about banks. What's your view on the European banks? What's your view on the U.S. banks? And what must happen that you invest in European banks? Thank you.

WARREN BUFFETTWell, I have a decidedly different view on European banks than American banks. The American banks are in a far, far, far better position than they were three or four years ago. They've taken most of the abnormal losses that existed, or that were going to manifest themselves, in their portfolios from what's now 3 1/2 or four years ago. They've buttressed their capital in a very big way. They've got liquidity coming out their ears at the bigger banks. The American banking system is in fine shape. The European banking system was gasping for air a few months back, which is why Mr. Draghi opened up his wallet at the ECB and came up with roughly a trillion euros of liquidity for those banks. Now a trillion euros is about $1.3 trillion, and $1.3 trillion is about one-sixth of all the bank deposits in the United States. I mean, it was a huge act by the European Central Bank, and it was designed to replace funding that was running off from European banks. European banks had more wholesale funding than American banks, on average. If you look at the Bank of America or Wells Fargo, they get an enormous amount of money from a natural customer base. European banks tended to get much more of it on a wholesale basis, and that money can run pretty fast. So the European banks need more capital in many cases. They've done very little along that line. One Italian bank had a rights offering here three or four months ago, but basically they have not wanted to raise capital, probably because they didn't like the prices at which they would have had to do so, and they were losing their funding base. The problem on the funding base has been solved by the ECB because the ECB gave them this money for three years at 1 percent. I'd like to have a lot of money at three years at 1 percent, but I'm not in trouble, so I can't get it. (Laughter) But I just — if you look at our banking system, it's really remarkable what's been accomplished. I thought at the time that the Treasury and the Fed were maybe a little overdoing it when they brought those bankers to Washington and banged their heads together and said you're going to take this money whether you like it or not. But overall, I think that policy was very sound for this country's economy. And if some banks were forced to raise capital that they didn't need, you know, which I might not have liked as a shareholder at one of them, overall, I think that our society benefited enormously. And I think the Fed and the Treasury has handled things quite sensibly during a period when if they hadn't handled this sensibly, that our world today would be a lot different. Charlie?

CHARLIE MUNGERYeah. Europe has a lot of problems we don't. We've got this full federal union, and the country that runs the central bank can print its own money and pay off its own debt and so on. And in Europe, they don't have a full federal union and that makes it very, very difficult to handle these stresses. So we're more comfortable with the risk profile in the United States.

WARREN BUFFETTIt's night and day. I mean, it — in the fall of 2008, when essentially Bernanke and Paulson, and implicitly, the President of the United States, said we'll do whatever it takes, you knew that they had the power, and the will, to do whatever it took. But when you get 17 countries that have surrendered their sovereignty, as far as their currency is concerned, you know, you have this problem. Henry Kissinger said it a long time ago. He said, "If I want to call Europe, what number do I dial?" You know, and when you have 17 countries and — just imagine if we'd had 17 states in 2008, and we had to have the governors of those states all go to Washington and agree on a course of action when money market funds were — there was a panic in there, the panic in commercial paper, you name it — we would have had a different outcome. So I would put European banks and American banks in two very different categories.

Munger: "Idiotic" to use natural gas instead of coal

WARREN BUFFETTAndrew?

ANDREW ROSS SORKINThank you Warren. This question comes from a shareholder who works at a coal mining company and he asked the following: "Burlington Northern and MidAmerican are two key links in a critical supply chain. Can you describe your views on coal and natural gas investments, and can you discuss how the current low-price environments impact the prospect for each of these businesses? "You seem to have created an elegant hedge. As Burlington Northern suffers from the decline in coal, MidAmerican may benefit from the fire sale in its fuel sources."

WARREN BUFFETTYeah. Well, MidAmerican will never really benefit or be penalized too much by the price of coal, because if coal is cheap, the benefit is going to be passed on to customers, and if it's expensive, the costs are going to be passed on. You know, MidAmerican really is a — it's a regulated public utility. It has several — we have two MidAmericans. We have a MidAmerican Holding and a MidAmerican that operates in Iowa, then we have utilities on the West Coast. But those utilities are pass-through organizations. They need to be operated efficiently in order to achieve their rate of return, but if they are operated efficiently and in the public interest, whether coal or labor, whatever it is, may go up or down, really doesn't affect them, although it affects their customers. Coal traffic is important to all railroads in the United States, and coal traffic is down this year. This may interest you. This year, in the first quarter, kilowatt hours used in the United States went down 4 percent — 4.7 percent. That is a remarkable decrease in electricity usage, 4.7 percent, and that affected, of course, the demand for coal. But the other thing that's happening, as you mentioned, natural gas got down under $2 — it's a little higher now — but it got down under $2 at the same time oil was $100. And if you told Charlie or me five years ago that you'd have a 50-to-1 ratio between oil and natural gas, I think we would have asked you what you were drinking. Did you ever think that was possible, Charlie?

CHARLIE MUNGERNo. And I think what's happening now is, to use your word, it's idiotic. We are using up a precious resource, which we need to create fertilizer and so forth, and sparing a resource which is precious but not as precious, which is thermal coal. If I were running the United States, I would use up every ounce of thermal coal before I'd touch a drop of natural gas. But that's — conventional view is exactly the opposite. I think those natural gas reserves we just found are the most precious things we could leave our descendants. I'm in no hurry to use it up, and the gas is worth more than the coal.

WARREN BUFFETTDespite the wild things we've seen in pricing, particularly this ratio of natural gas prices to oil, you can't change — I mean the installed base is so huge when you get into electricity generation — that you can't really change the percentages too much, although there has been a shift in recent months. Where gas generation is feasible, it has supplanted some coal generation. And certainly in the future, you're going to see a diminution in the percentage of electricity generated from coal in this country. But it won't be dramatic because it can't be dramatic. You just can't — the megawatts involved are just too huge to have some wholesale change. It's going to be very interesting to see how this whole gas-oil ratio plays out, because it has changed everyone's thinking, and it's changed in a very short period of time. I mean, three years ago, people wouldn't have said this was possible.

CHARLIE MUNGERYeah. The conventional wisdom of the economics professors is if it happens in a free market it must be OK. It will work out best in the end. That is not my view with 100 percent accuracy. I think there are exceptions to that idea. And I think it's crazy to use up natural gas at these prices.

GEICO has no plans to use driver tracking technology

WARREN BUFFETTOK. Gary Ransom of Dowling.

GARY RANSOMTelematics is the latest pricing technology in the auto insurance business whereby you put a little device in your car and you can either get a discount or some other determination of your pricing based on actual driving behavior. What is GEICO doing to keep pace with that change, and are there any other initiatives that GEICO has in place to maintain its competitive advantages in pricing?

WARREN BUFFETTYeah. Progressive, as you know, has probably been the leader in what you just described. And we have not done that at GEICO, but it — if we think there becomes a superior way to evaluate the likelihood of anybody having an accident, you know, I think we have 50 — I think you have to answer 51 questions — which is more than I would like, if you go to our website to get a quote. And every one of those is designed to evaluate your propensity to get in an accident. Obviously, if you could you could ride around in a car with somebody for six months, you might learn quite a bit about the propensity, particularly if they didn't know you were there, you know, like with your 16-year-old son. But I do not see that as being a major change, but if it becomes something that gives you better predictive value about the propensity of any given individual to have an accident, we will take it on, you know, and we will try to get rid of the things that don't really tell us that much all the time. But we're always looking for more things that will tell us if we look around at these — the people in this room, one by one, you know — what tells us their likelihood of having an accident in the next year. We know that youth is, for example. I mean, there is no question that a 16-year-old male is much more likely to have an accident than some guy like me that drives 3500 miles a year and is not trying to impress a girl when he does it, you know. (Laughter) So, you know, that one is pretty obvious. Some of these others — some things are very good predictors that you wouldn't necessarily expect to be. Credit scores are, but — and they're not allowed in all places — but they will tell you a lot about driving habits. We'll keep looking at anything, but I do not see any — I don't see in this new experiment — anything that threatens GEICO in any way. GEICO, in the first quarter of the year — now the first quarter is our best quarter — but we added a very significant number of policies. I forget what the exact number was, but February turns out to be the best month for some reason. We were up there getting pretty close to 300,000 policies. So our marketing is working extremely well, and our risk selection is working extremely well, and our retention is working well. So GEICO is quite a machine. That's one of the — that's the business that we carry, as I've mentioned in the past — I think we carry it at a billion dollars — roughly a billion dollars over its tangible book value. You know, it's worth a whole lot more than that. I mean, based on the price we paid, that figure would come up these days to, you know, certainly something more like $15 billion more than carrying value. And we wouldn't sell it there. We wouldn't sell it at all, but that would not tempt us in the least. Charlie?

CHARLIE MUNGERNothing to add.

Business schools are improving but still teach "nonsense"

WARREN BUFFETTOK. Station 3.

AUDIENCE MEMBERHi, Charlie and Warren. My name is Chris Reese. I'm here with a group of MBA students from the University of Virginia in Charlottesville. In recent years, business schools have taken a lot of blame for some of the recent state of the economy. What would you suggest to change the way that business leaders are trained in our country?

WARREN BUFFETTWell, I wouldn't — I don't know. Charlie, I wouldn't blame business schools particularly for most of the ills — would you? I think they've taught to students a lot of nonsense about investments, but I don't think that's been the cause of great societal problems. What do you think?

CHARLIE MUNGERNo, but it was a considerable sin. (Laughter)

WARREN BUFFETTWell, you want to elaborate on what was the more sin —

CHARLIE MUNGERNo, no. I think business school education is improving. (Laughter)

WARREN BUFFETTIs the implication from a low base or —

CHARLIE MUNGERYes. (Laughter)

WARREN BUFFETTI'd agree with that. (Laughter) No, in investing, I would say that probably the silliest stuff that we've seen taught at major business schools probably has been — maybe it's because it's the area that we operate in — but has been in the investment area. I mean, it is astounding to me how the schools have focused on sort of one fad after another in finance theory, and it's usually been very mathematically based. When it's become very popular, it's almost impossible to resist if you're — if you hope to make progress in faculty advancement. Going against the revealed wisdom of your elders can be very dangerous to your career path at major business schools. And you know, really, investing is not that complicated. I would have — you know, a couple of the courses. I would have a course on how to value a business, and I would have a course on how to think about markets. And I think if people grasped the basic principles in those two courses that they would be far better off than if they were exposed to a lot of things like modern portfolio theory or option pricing. Who needs option pricing to be in an investment business? You know, when people — you know, when Ray Kroc started McDonald's, I mean, he was not thinking about the option value of what the McDonald's stock might be or something. He was thinking about whether people would buy hamburgers, you know, and what would cause them to come in, and how to make those fries different than other people's, and that sort of thing. It's totally drifted away — the teaching of investments. I look at the books that are used, sometimes, and there's really nothing in there about valuing businesses, and that's what investing is all about. If you buy businesses for less than they're worth, you're going to make money. And if you know the difference between the businesses that you can value and the ones that you can't value, you know, which is key, you're going to make money. But they've tried to make it a lot more difficult and, of course, that's what the high priests in any particular arena do. They have to convince the laity that the priests have to be listened to. Charlie?

CHARLIE MUNGERThe folly creeps into the accounting, too. A very long-term option on a big business you understand — the stock of a big business that you understand — or even a stock market index — should not be — the optimal way to price it is not by using Black Scholes, and yet the accounting profession does that. They want some kind of a standardized solution that requires them not to think too hard, and they have one. (Laughter)

WARREN BUFFETTIs there anybody we've forgotten to offend? (Laughter) If you'll send a note up. (Laughs)

Buffett Rule: minimum tax for "very, very high earners"

WARREN BUFFETTCarol?

CAROL LOOMISWell, talking about not offending, "The talk of the "Buffett Rule" is all over newspapers and TV. "But I believe your concept of what should happen to taxation of very high earners is different from what is now promulgated as the 'Buffett Rule.' "Could you clear us up on this?" This is a question from Leo Slazeman (PH) from the Kansas City metropolitan area.

WARREN BUFFETTYeah. I would say this: it has gotten used in different ways. I think, intentionally, in some cases, because it was more fun to attack something that I hadn't said than try to attack what I had said. Basically the proposal is that people that make very large incomes pay a rate that is commensurate with what people think is paid by people of those incomes. I mean, I think most people believe, when they look at the tax rates and all that, that if you're making 30 or 40 or $50 million a year, that you're probably paying tax rates in the 30 percent area, at least. And many people are. But the figures are such that if you look at the most recent year, and you aggregate both payroll and income taxes, because they both go to the federal government on your behalf, if you take the 400 largest incomes in the United States, they average $270 million each. That's per person, 270 million each. 131 of those 400 paid tax rates that were below 15 percent. Now — counting payroll taxes, too. In other words, they were paying at less than what the standard payroll tax was — up till we've had this giveback here recently — but payroll tax was 15.3 percent for most of the last decade. So, under the "Buffett Rule," we would have a minimum tax — only for these very, very high earners — that, essentially, would restore their rate to what it used to be back in 1992. When the average income of the top 400 was only 45 million, there were only 16 of the 400 that were at 15 percent or below. But now there's 131. There's still plenty of them that are paying in the 30s. I wouldn't touch them. But I would say when we're asking for shared sacrifice from the American public, when we're telling people that we formally told — were given promises on Social Security and Medicare and various things — and we're telling them we're sorry but we kind of overpromised so we're going to have to cut back a little, I would at least make sure that the people with these huge incomes get taxed at a rate that is commensurate with the way they used to be taxed not that long ago and probably — and is commensurate also with the way that two-thirds of the people in that area get taxed at higher rates. So it's gotten butchered a little bit, but it would affect very, very, very few people. It would raise a lot of money. (Applause)

CHARLIE MUNGERWarren, isn't the suggestion that you can give about half of a 30 percent to charity instead of the government?

WARREN BUFFETTWell, but the tax rates, still, after the charitable deduction, after the charitable deduction, you have to give — if you're going to give 50 percent and get a deduction — it has to be all cash. If you start giving appreciated securities — And then if you give to a private foundation, you're down to 20 percent. Yeah. But —

CHARLIE MUNGERBut there is some exception in this proposal now isn't it — Obama's proposal — that charitable contributions help you?

WARREN BUFFETTWell, there is a — there's a bill, actually, by Senator [Sheldon] Whitehouse of Rhode Island. I mean, that is the only actual bill. That was voted on, and it did not get the vote. It got 51 votes in the Senate and needed 60. I can't tell you the exact precision on what it included there. I don't have any — you know, there can be all kinds of other ways of getting at the same proposition. I just think that people like me that have huge incomes — and I have no tax planning, I don't have any gimmicks, I don't have Swiss bank accounts, I don't have any of that kind of stuff. But when I get all through, you know, I've made the calculation four different — three different times — 2004, 2006, and 2010 — and in all three of those years, when my income was anywhere from 25 to 65 or so million, I came in with the lowest tax rate in our office. And we had maybe 15 to 22 or so people in the office at different times, and everybody in the office was surprised. They were all in the 30s. And I was, several times, you know, in this area of 17 percent, and that's because the tax law has gotten moved over the years in a way to favor people that make huge amounts of money. Imagine having 270 million of income and there were — I believe there were — 31 of the 400 that were below 10 percent on tax rates, and that counts payroll taxes as well. And like I say, you know, my cleaning lady — incidentally, I've been asked to explain — I keep talking about my cleaning lady. Well, my wife wants it very clear, she doesn't have a cleaning lady. This is the cleaning lady at the office, Mary that I — (laughter) — my wife has gotten very — she does not have a cook, she does not have a cleaning lady, and she got a little tired of me implying that she had one. So it's my cleaning lady at the office has been paying 15.3 percent on Social Security taxes, at the same time that an appreciable number of people making hundreds of millions of dollars a year are paying less than 10 percent. I think it's time to take a look at that. OK — (applause)

Catastrophe insurance: "nobody knows for sure what the right rate is"

WARREN BUFFETTCliff.

CLIFF GALLANTOver the past two years, the world has witnessed a number of surprisingly large financial losses from major catastrophes, including earthquakes in Chile, and Japan, New Zealand, as well as floods in Thailand. Near term, what do you expect the impact on reinsurance pricing will be for catastrophe risk? And longer term, does this trend of increased frequency of major catastrophes affect Berkshire's view on the global reinsurance business?

WARREN BUFFETTIt's very hard, because of the random nature of quakes and hurricanes and that sort of thing, very hard to know when you really have had a trend. We've had that situation with global warming. I mean, it has been ungodly warm here in the last few months. A few years ago, it was extremely cold. Anything that moves as slowly as the things affecting our globe, separating out the random from new trends is really — is not easy to do. We tend to sort of assume the worst. I mean, if we see more earthquakes in New Zealand than have existed, you know, in the last few years than existed over the last 100 years, we don't say that we'll extrapolate the last couple of years and say that's going to be the case, this huge explosion of quakes. But we also don't take the 100-year figure anymore. We have written — in the last few months — we have written far more business in Asia, and by that I mean New Zealand, Australia, Japan, and Thailand. We've written quite a bit more — a lot more business — than we wrote a year ago, or two years ago, or three years ago, because they've had some huge losses, and they have found that the rates they had been using were really inadequate. And they are looking for large amounts of capacity in some cases, and we are there to do that if we think the rate is right. But nobody knows for sure what the right rate is. I mean, we can tell you how many 6.0 or greater quakes have happened in California in the last hundred years and how many Category 3 hurricanes have hit, you know, both sides of Florida, whatever. There's all kinds of data available on that, but the question is, how much does it tell you about the next 50 years? And so we — if we think we're getting a rate that — if a fairly negative hypothesis would indicate — then we move ahead, and we've done that in the Pacific. I don't know whether you know it, but if you — last year, we had two or three quakes in Christchurch, New Zealand, but I believe it was — the second one caused, like, $12 billion of insured damage. And if you think of that in relationship of a country of 4 or 5 million and you compare that to the kind of cats we've had in the United States, that's ten Katrinas. You know, there's been some really severe — And Thailand was the same way with the floods. It was — the losses were just huge in respect to the entire premium volume in the country. So when that happens, everybody reevaluates the situation, and we are perfectly willing to take on very big limits if we think we're getting the right price. We have propositions out for as much as 10 billion of coverage, you know. Now, we don't want that 10 billion to correlate with anything else, and we want to be sure we get the right price. But — and we may write some at some point. It's certainly — the market for cat business in some parts of the world is significantly better from our standpoint than it was a year or two ago, but that's not true every place.

Wind power wouldn't "make sense" without subsidies

WARREN BUFFETTOK. Station 4.

AUDIENCE MEMBERGood morning, Mr. Buffett, Mr. Munger. My name is Verne Fishenberry (PH), and I ask this question on behalf of a group of investors that made the trip up from Overland Park, Kansas. MidAmerican has a large investment in wind and solar power. What effect do subsidies and incentives have on that business, and could you share your thoughts on a sustainable energy policy? I gather we should be conserving our natural gas. What is the most appropriate use of that resource?

WARREN BUFFETTYeah. Well, I believe the — on wind — and we're much bigger in wind than solar, although we've entered solar in the last six months or so. We've got two solar projects that we own about a half of each one of them. But we've been doing wind for quite a while, and I think the subsidy is 2.2 cents for ten years per kilowatt hour, and that's a federal subsidy. And there's no question that that makes wind projects — in areas where the wind blows fairly often — that makes wind projects work, whereas they wouldn't work without that subsidy. The math just wouldn't work out. So the government, by putting in that 2.2 cents subsidy, has encouraged a lot of wind development. And I think if there had been none, my guess is there would have been no wind development. I don't think any of our projects would make sense without that subsidy. In the case of solar, the projects we have have got a commitment from Pacific Gas and Electric to a very long-term purchase commitment. How that ties in with their particular obligations or anything, I mean, there may be some subsidy involved in why they wish to buy it at the price they do from us. I'm sure there is; I don't know the specifics of it. But neither one of those projects, neither solar nor wind — if Greg Abel is here and wants to go over to a microphone and correct me on this, it would be fine — but I don't think any solar or wind would be working without subsidy. And, of course, you can't count on wind for your base load. I mean, it works and it's clean, but if the wind isn't blowing, you know, it does not mean that everybody wants to have their lights off. So it's a supplementary type of generation, but it can't be part of your base generation. Charlie, do you have any thoughts on that? And Greg, do we have Greg up here? Go ahead, Charlie.

CHARLIE MUNGERWell, I think, of course, it — eventually we're going to have to take a lot of power from these renewable sources and, of course, we're going to have to help the process along with subsidies. You know, I think it's very wise that that's what the various governments are doing.

WARREN BUFFETTYeah, you could say the future is subsidizing, you know, oil and natural gas now, in a sense. Is Greg up there?

CHARLIE MUNGERHe needs a mic.

WARREN BUFFETTHe needs a mic.

GREG ABELZone 7. Yeah.

WARREN BUFFETTYeah.

GREG ABELJust to touch on the — both the wind projects and the solar, Warren, you were exactly right. Obviously the subsidy associated with the wind has allowed us to build, now, 3,000 megawatts across our two utilities. And you are absolutely correct, we would have not moved forward without that type of subsidy. On the solar, there's actually a couple other incentives that are in place. You get a very large incentive associated with constructing the assets. We get — we recover 30 percent of the construction costs as we build it. Significant advantage there, relative to Berkshire being a full taxpayer, where a lot of other entities in the U.S. are not — or the corporate entities that are competing for those projects relative to ourselves often don't have the tax appetite for those type of assets. So we do benefit from the ongoing tax structure, there's no question, both in wind and in solar.

WARREN BUFFETTGreg has hit on a point that people don't — often don't — understand about Berkshire. We have a distinct competitive advantage. It's not unique, but it's a distinct competitive advantage in that Berkshire pays lots of federal income tax. So when there are programs in the energy field, for example, that involve tax credits, we can use them because we have a lot of taxes that we're going to pay, and therefore, we get a dollar-for-dollar benefit. I don't have the figures, but I would guess that perhaps 80 percent of the utilities in the United States cannot reap the full tax benefits, or maybe any tax benefits, from doing the things that we just talked about because they don't pay any federal income taxes. They've used bonus depreciation, which was enacted last year and where you get 100 percent write-off in the first year. They wipe out their taxable income. And if they've wiped out their taxable income through such things as bonus depreciation, they do not — they cannot — have any appetite for wind projects where they get a tax credit or — in the solar arrangement. So, by being part of Berkshire Hathaway, which is a huge taxpayer, MidAmerican has extra abilities to go out and do a lot of projects without worrying about whether they sort of exhausted their tax capacity. It's an advantage we have.

Political views shouldn't affect investing decisions

WARREN BUFFETTBecky?

BECKY QUICKThis question comes from John in Brunswick, Georgia. He says, “You are clearly entitled to speak your mind on any and all subjects as an individual, but the recent publicity around the Buffett tax has become quite loud. "And as a shareholder, I fear it is limiting, to some degree, the interest in the Berkshire stock, on principal, for some people. "For instance my 84-year-old father is not interested in investing in Berkshire because of his opposition to this tax position, and otherwise, he likely would. "While being a public company CEO, should some of the political dialogue be somewhat muted for the betterment of the company and its share price?”

WARREN BUFFETTYeah. That's a question that's raised frequently. (Applause) But I really — in the end, I don't think that any employee of Berkshire, I don't think that the CEOs of any of the companies that we own stock in, should in any way have their citizenship restricted. We did not — (Applause) When Charlie and I took this job, we did not decide to put our citizenship in a blind trust. People are perfectly willing — it's fine if they disagree with us. I think it's kind of silly. I don't know the politics of — necessarily — of [American Express CEO] Ken Chenault or [Coca-Cola CEO] Muhtar Kent or [Wells Fargo CEO] John Stumpf. I got a pretty good idea with [banker Richard] Kovacevich at one time. (Laughs) But they run these businesses in which we have ten — [IBM CEO] Ginni Rometty, I mean, we've got 11 or $12 billion with her. I don't know what her politics are, and, you know, I don't know what her religion is. She's got all kinds of personal views, I'm sure, that probably are better than mine, but it doesn't make any difference. I just want to know how she runs the business. And I really think that that 84-year-old man making a decision on what he invests in based on who he agrees with politically, sounds to me like you ought to own FOX. (Laughter and applause) Charlie?

CHARLIE MUNGERWell, I want to report that Warren's view on taxes for the rich has reduced my popularity around one of my country clubs. (Laughter)

WARREN BUFFETTIf it keeps him from hanging around the country club, I'm all for it.

CHARLIE MUNGERAnd it's a disadvantage I am willing to bear in order to participate in this enterprise. (Laughter)

WARREN BUFFETTCharlie and I, we don't disagree on as many things as you might think, but we've certainly disagreed on some things over 53 years. It's never — we've never had an argument in 53 years. Maybe you can get one started here if you work on it. (Laughter) But it — it's just — it's irrelevant. I mean, you know, roughly half of the country is going to feel one way this November and the other half is going to feel a different way. And if you start selecting your investments, or your friends, or your neighbors, based on trying to get people that agree with you totally, you're going to live a pretty peculiar life, I think.

Size of potential deals limited by commitment to not use stock

WARREN BUFFETTOK. Jay.

JAY GELBWarren, this question is on acquisitions. Would you consider an acquisition in excess of $20 billion? And if so, would it be funded in terms of existing cash, as well as issuing debt and equity, or perhaps even selling existing investments?

WARREN BUFFETTYeah. We considered one here just a month or two ago which we would have liked — I wish we could have made it. There was probably about 22 billion. I mean, it gets — above 20 billion it gets to be more and more of a stretch, particularly because we won't use our stock at all. We used stock in the Burlington Northern acquisition, and we felt that it was a mistake, but we were using it for what, in effect, turned out to be about 30 percent of the deal, and we felt that we were doing well enough with the cash that overall that the mix was OK. But we would not use our stock now, and we wouldn't even use it for 30 or 40 percent of some deal. It's hard to imagine. So we really —

CHARLIE MUNGERIt's hard to imagine, but it could be conceivably happen.

WARREN BUFFETTIt could happen, it could happen. But I don't think it will happen. (Laughs)

CHARLIE MUNGERI don't either.

WARREN BUFFETTSo, we looked at this 22 or $23 billion-dollar deal, and we would have done it if we could have made the deal. But it would have stretched us, but we would not have pushed it to the point where it would have taken our cash below 20 billion. We would have sold securities, we would have done whatever was necessary to have a $20 billion cash balance when we got done with the deal. But I would have had to sell some securities I didn't want to sell. I liked the deal well enough so I would have done it. Now, if that had been 40 billion, I don't think we, you know, no matter how well I liked it, I don't think I would have wanted to peel off 25 billion or so of marketable securities trying to get it done, and I certainly wouldn't want to be in limbo not knowing exactly where the money was going to come from, and therefore, be subject to some terrible shock in the world, in the market. If you have a $20 billion-dollar deal, though, I've got an 800 number, so — (Laughter) But you've actually sort of hit the point where we start squirming a little bit as to where we would come up with the money. On the other hand, the money is building up month by month so I — we will — if we can make the right $20 billion deal, we'll do it. And next year, if we haven't made a deal, I'll probably say if we can find the right $30 billion deal, we would do it.

We can't bring jobs back to the U.S. because they never left

WARREN BUFFETTOK. Station 5.

AUDIENCE MEMBERGlenn Mollenhour (PH), Westlake, Ohio. First of all, I want to thank you for having us here today. Very nice. Now Warren, I'd like to have dinner with you tomorrow night at Gorat's.

WARREN BUFFETTThey'll have a bidding at Glide here in June. It went for two million-six last year. (Laughter)

AUDIENCE MEMBERMy question is about jobs coming back to the U.S. I notice a number of companies have started to bring jobs back here. Is Berkshire Hathaway looking at doing that for any job they've shipped out of the United States?

WARREN BUFFETTWell, I have to finish my fudge here — the — I would say that of the 200 — the number of jobs we have is listed in the back of the report — I think it's about 270,000 — 270,858 at year-end. I'm just trying to think. We probably — I don't think we have more than 15,000 on the outside — of those 270 — outside the United States. So as I put in the annual report, we invested in plant equipment — not in stocks, but in plant equipment, and not in acquisitions — over $8 billion last year, and 95 percent or so of that was in the United States. So we don't really have a lot around the world. (Applause) I'm not opposed to it. I mean, our ISCAR operation, which is based in Israel, operates throughout the world. I mean, they — I've been to their plants in Japan, I've been to their plants in Korea, I've been to their plants in India. The product they sell is going to be sold throughout the world. The U.S. is an important market for them, but it's not a majority of their business or anything like it. So that company has about 11,000 employees or so, and relatively few of theirs are going to be in the United States. We'd like to do more business in the United States, but we'd like to do more business in Korea and Japan and India and you name it. We have utility operations in the UK, but other than — we have — we just bought a business in Australia at Marmon here, recently. Well we bought — just the last day or so it's been announced — we're buying a — for CTB, which we've had a terrific history with. Vic Mancinelli has been a great man to manage businesses. And just in the last day or two, we bought an operation based in The Netherlands [poultry-processing device maker Meyn Holding], although they have employment here. But I would say that it's extremely likely that 10 years from now, when you look at the breakdown of our employees, that we have many, many more employees, you know, maybe hundreds of thousands more employees. And some of those will be outside this country, but most of them will be in this country. We find — there's lots of opportunity in the United States. There is no shortage of opportunity. In that 8.2 billion, or whatever it was last year, we loved putting that money out, and we'll put out more this year. And this is — I mean it's a real land of opportunity. That's not to knock opportunities elsewhere. But we find lots of things to do that make a — we think — make a lot of sense in this country. Charlie?

CHARLIE MUNGERYou can't bring a lot back if it never left. (Laughter)

WARREN BUFFETTThat's the long version of my answer. (Laughter)

Buffett: prostate cancer treatment is "nonevent"

WARREN BUFFETTAndrew?

ANDREW ROSS SORKINWell, Warren, I should say I was not planning to ask you this question, but in the past hour, I've received probably two dozen emails from shareholders in this room who want the question asked, so I will ask it, and it's a very simple question. How are you feeling?

WARREN BUFFETTI feel terrific. And — I always feel terrific, incidentally. That's not news. (Applause) I love what I do. I work with people I love. It's more fun every day. And it — basically, I seem to have a good immune system. You know, I mean, my diet is such that, you know, as any fool can plainly see, I'm eating properly. (Laughter) All I can say is it works. And I have four doctors, at least a few of them, I think, own Berkshire Hathaway. Not a screen I put everybody through, but — And my wife and my daughter and I listened to the four of them for an hour and a half about two weeks ago. And they described various alternatives, and none of them — well, not that — the ones that they recommend, you know, do not involve a day of hospitalization. They don't require me to take a day off from work. The survival numbers are way up. I read one where it's 99 1/2 percent for 10 years. So, you know, maybe I'll get shot by a jealous husband, but — (laughter) — this is not — this is a really minor event, and Charlie will tell you how minor it is.

CHARLIE MUNGERWell, as a matter of fact, I rather resent all this attention and sympathy Warren is getting. (Laughter) I probably have more prostate cancer than he does. (Laughter)

WARREN BUFFETTHe's bragging.

CHARLIE MUNGERI don't know because I don't let them test for it. (Laughter and applause)

WARREN BUFFETTHe's not kidding. (Laughs)

CHARLIE MUNGERAt any rate, I want the sympathy. (Laughter)

WARREN BUFFETTMy secretary was getting too much attention, so I decided I had to throw the spotlight back on myself. (Laughter) In all seriousness, it is a nonevent, yeah. The Med Center is about two minutes from the office, and for two months, I'll have to drop over there every afternoon and it will take a few minutes. And I may have a little less energy, but that may mean I do fewer dumb things, who knows? (Laughter)

We'll take on runoff annuity liabilities at the right price

WARREN BUFFETTOK. Gary?

GARY RANSOMYes. Your insurance operations have taken on a good chunk of some runoff property-casualty businesses. There's another business that has an increasing amount of runoff, and that's the annuity business, Hartford, ING, Cigna, et cetera. Is there a time, or are there conditions, under which you might consider taking on some of those liabilities?

WARREN BUFFETTSure. In effect, in some of our businesses, we're taking on some annuity, but not like — I mean, it's generally classified as property-casualty. But we would take on annuity books. The problem is there, we're not going to assume anything much better than the risk-free rate in making a bid for that sort of thing. I mean, we do not like the idea of taking on long-term liabilities and paying 150 basis points, you know, above Treasuries or something, to do that. And there are people that will do that. They may not be quite as likely to fulfill those promises in the years to come as we would. But we want to get money on the liability side at attractive rates. Now, the most attractive is if we can write property-casualty business at an underwriting profit and get it for nothing. But we're willing to pay for annuity-type liabilities, and I don't think it's impossible you'll see us do a little of that. We've done some in the UK. We've actually taken on a little bit, but it's not huge. But we're beginning to take on more.

What Buffett would have done differently

WARREN BUFFETTOK. Station 6.

AUDIENCE MEMBERGood morning, Warren and Charlie. Glad you're feeling well. My name is Ryan Boyle, and I'm 26 and working for a private equity firm in Chicago. If you were me and had the chance to start over, what areas would you look to get into? And do you think that my generation will have the same number of opportunities as yours? And if not, would you look to focus on emerging markets?

WARREN BUFFETTOh, I think you have all kinds of opportunities. I would probably do very much what I have done in life, except I'd do it — I'd try and do it a little earlier, and I would have tried to be a little bit better when I was running a partnership, in terms of aggregating the money faster. I used to work with $5,000 contributions from partners and, you know, I would try to develop an audited record of performance as early as I could. I would try to attract some money, and then when I'd build up a fair amount of money out of investing, I would try to get into something much more interesting, which would be buying businesses to keep. You mentioned private equity, which very often is buying businesses to sell. I don't want to be buying and selling businesses. I mean, if I establish relationships with people that come to me with their business, and they want to join Berkshire, I want it to be for keeps. And that's been enormously satisfying. But it takes some capital to get into that business, and I didn't have any capital when I started out, so I built it through managing money for myself and other people, combined. And like I say, I would get us through that process as fast as I could and then into a game where I could buy businesses of significance and interest to me. And I'd spend the rest of my life doing it, just as I've done. Charlie?

CHARLIE MUNGERWell, I've got nothing to add to that, either.

WARREN BUFFETTAnd I'd do it with Charlie, incidentally. (Laughs)

Take advantage when "Mr. Market" acts like a "psychotic drunk"

WARREN BUFFETTCarol.

CAROL LOOMISThis comes — this question comes from a man who believes the stock — that Berkshire stock — is being held down some by your talking about the Buffett Rule. I know you said you doubt that, but he suspects that at least 95 percent of the people in this arena believe that Berkshire Hathaway stock is undervalued. If you don't think it's the Buffett Rule, could each of you give us your opinions about why the stock stays stuck at these levels?

WARREN BUFFETTYeah. We've run Berkshire now for 47 years. There have been several times — oh, four or five times — when we've thought it was significantly undervalued. We saw the price get cut in half at least four times — or roughly in half — in fairly short periods of time. And I would say this: if you run any business for a long period of time, there are going to be times when it's overvalued and sometimes when it's undervalued. Tom Murphy ran one of the most successful companies [Capital Cities] the world has ever seen, and in the early 1970s, his stock was selling for about a third of what you could have sold the properties for. And, you know, Berkshire, back in 2000/2001, whenever it was that I wrote in the annual report that we were also going to repurchase shares, was selling at what I thought was a very low price, and we didn't get any repurchase. But that — stocks — the beauty of stocks is they do sell at silly prices from time to time. That's how Charlie and I have gotten rich. You know, Ben Graham writes about it in Chapter 8 of the Intelligent Investor. You know, next to — well, Chapters 8 and Chapters 20 are really all you need to do to get rich in this world. And Chapter 8 says that in the market you're going to have a partner named "Mr. Market," and the beauty of him as your partner is that he's kind of a psychotic drunk — (laughter) — and he will do very weird things over time and your job is to remember that he's there to serve you and not to advise you. And if you can keep that mental state, then all those thousands of prices that Mr. Market is offering you every day on every major business in the world, practically, that he is making lots of mistakes, and he makes them for all kinds of weird reasons. And all you have to do is occasionally oblige him when he offers to either buy or sell from you at the same price on any given day, any given security. So it's built into the system that stocks get mispriced, and Berkshire has been no exception to that. I think Berkshire, generally speaking, has come closer to selling around its intrinsic value, over a 47-year period or so, than most large companies. If you look at the range from our high to low in a given year and compare that to the range high and low on a hundred other stocks, I think you'll find that our stock fluctuates somewhat less than most, which is a good sign. But I will tell you, in the next 20 years, Berkshire will someday be significantly overvalued, and at some points significantly undervalued. And that will be true for Coca-Cola and Wells Fargo and IBM and all of the other securities that — I don't — I just don't know in which order and at which times. But the important thing is that you make your decisions based on what you think the business is worth. And if you make your buy and sell decisions based on what you think a business is worth, and you stick with businesses that you think — you've got good reason to think — you can value, you simply have to do well in stocks. The stock market is the most obliging, money-making place in the world because you don't have to do anything. You know, you sit there with thousands of businesses being priced at the same price for the buyer and the seller, and you don't — and it changes every day, and you've got lots of information about most of those businesses, and you don't have to do anything. Compare that to any other investment alternative you've got. I mean, you can't do that with farms. If you own a farm and the guy has the farm next to you and you'd kind of like to buy him out or something, he's not going to name a price every day at which he'll buy your farm or sell you his farm, but you can do that with Berkshire Hathaway or IBM. It's a marvelous game. The rules are stacked in your favor, if you don't turn those rules upside down and start behaving like the drunken psychotic instead of the guy that's there to take advantage of it. Charlie?

CHARLIE MUNGERWell, what's interesting about this place is I think we've had a lot more fun and we got rich enough so we bought businesses and stocks to hold instead of to resell. It's an enormously more constructive life. So as fast as you can work yourself into our position, the better off you'll be. (Laughter)

WARREN BUFFETTAnd you should be very encouraged by the fact he's only 88 and I'm only 81. Just think, it may take you a little while. (Laughs)

We ignore headlines and macro factors

WARREN BUFFETTCliff?

CLIFF GALLANTI guess along those lines, you talk about the drunken market, have systemic fear — systemic risk fears — ever caused you to pause in your eagerness to buy equities? You know, back in 2008/2009, you know, why weren't you more aggressive back then?

WARREN BUFFETTYou'll probably find this interesting. Charlie and I, to my memory, in 53 years, I don't think we've ever had a discussion about buying a stock or a business, or selling a stock or a business, that has been — where we've talked about macro affairs. I mean, if we find a business that we think we understand and we like the price at which it's being offered, we buy it. And it doesn't make any difference what the headlines are, it doesn't make any difference what the Federal Reserve is doing, it doesn't make any difference what's going on in Europe. We buy it. You know, there's always going to be good and bad news out there, and which gets emphasized the most, you know, depends on the moods of people or newspaper editors or whomever. And there's — you know, there's a ton of bad — I bought my first stock, you know, in June of — in June of '42, and what had happened? You know, we were losing the war, until the Battle of Midway. I mean, so here was a country that — you know, all my older friends had gone, you know, disappeared. We weren't going to make any kinds of goods that were — people wanted. We were going to build battleships and things to drop in the sea, and we were losing. But stocks were cheap. And I wrote that article in October of 2008 in the Times. I should have written it a few months later, but in the end, I said we've just had a financial panic and it's going to flow over into the economy, you know, you're going to read all kinds of bad news, but so what, you know? America is not going to go away. Stocks are cheap. You've got to — we look to value, and we don't look to headlines at all. And we really don't — everybody thinks we sit around and talk about macro factors. We don't have any discussions about macro factors. Charlie?

CHARLIE MUNGERYeah, but we did keep liquid reserves at the bottom of the panic that, if we'd known it was not going to get any worse, we would have spent, but we didn't know that.

WARREN BUFFETTYeah. We know what we don't know. We all — we know we don't want to go broke. I mean, we start with that. And we know you can't go broke if you've got a fair amount of liquid reserves around and you don't have any near-term debts and so on. So our first rule is always to play it tomorrow, no matter what happens. But if we've got that covered, and we can find things that are attractive, we buy it. Well Charlie has a little company called the Daily Journal Company and he sat there with a whole lot of cash. And when 2008 came along, he went out and bought a few stocks. He won't tell me the names of them, but — You know, that was the time to use the money, not to sit on it. Was that the name of the stock, Charlie? (Laughter) You don't get anything out of him. (Laughter)

Big Berkshire subsidiaries have "done well" over past 5 years

WARREN BUFFETTStation 7.

AUDIENCE MEMBERMr. Buffett, Mr. Munger, thank you for your inspiration and insight. When you look at the stable of businesses that Berkshire owns, which business has greatly improved its competitive position over the last five years, and why? And then conversely, perhaps you might name a business that was not so lucky.

WARREN BUFFETTYeah. We don't like to dump on the ones that aren't — that haven't done as well. But there's no question — and fortunately, the big ones have done well. There's no question, even though we didn’t — well, we didn't own all of it, but we actually have owned a significant piece of Burlington Northern over the last five. But the railroad business for very fundamental reasons, which I should have figured out earlier, has improved its position dramatically over the last, really, 15 or 20 years, but it continues to this day. I mean, it is an extremely efficient and environmentally-friendly way of moving a whole lot of things that have to be moved. And it's an asset that couldn't be duplicated for, you name it, three, four, five, six times, you know, what it's selling for. So that it's a whole lot better business than it was five or 10 years ago. Now, GEICO is a whole lot better business than it was five or 10 years ago, although I think you could have predicted that the chances were good that that was going to happen. But, you know, we have — we're approaching 10 percent of the market now. And you go back to 1995, we had 2 percent of the market. We had the ingredients in place to become much larger, and then fortunately, we had [CEO] Tony Nicely who absolutely maximized what was there to be done. And GEICO's worth billions and billions and billions of dollars more than when we bought it. And the Burlington is worth considerable billions more than when we bought it, even though it was recently. MidAmerican has done a great job. We bought that stock at 34 or so dollars a share in 1999, and I think we appraise it now at around $250 a share, and that's in the utility business. So ISCAR has been wonderful since we bought it. We bought that six years ago. And they just don't stop. You know, they do everything well. And I would not want to compete with them. So we've — there are a number of them. And —

CHARLIE MUNGERWe have 80 percent or so of our businesses, by value, at least, increased their market strength.

WARREN BUFFETTYeah. By value, I would say more than 80 percent.

CHARLIE MUNGERMore than, yeah.

WARREN BUFFETTBut not by number, but by value.

CHARLIE MUNGERBy value. We are not suffering at all. We're never going to get the rate to 100 percent.

WARREN BUFFETTAnd the mistakes have been made in the purchasing. I mean, it's where I misgauged the competitive position of the business. It isn't because of the faults of management. It's because I just — either because I had too much money around or because I was — been drinking too much Cherry Coke or whatever it was — I assessed the future competitive position in a way that was really inappropriate. But it wasn't because it really changed on me so much. And, you know, we've done some of that. But the big ones — the big ones have worked out very well. Gen Re, which took, like, real problems for some years. I mean, Tad [Montross] is running a fabulous operation there. Ajit [Jain] has created something from nothing that's worth tens of billions of dollars. You know, he created that out of walking into the office in 1985 and entering the insurance business for the first time, but he just brought brains and energy and character to something, and we backed him with some money, and he's created a business like nobody I've ever seen. Charlie?

CHARLIE MUNGERWell, we've been very fortunate. And what's interesting is the good fortune is not going to go away merely because Warren happens to die. (Laughter) It won't help him but — (Laughter)

WARREN BUFFETTYou'll have an explanation of that in the second half of this. (Laughter)

Derivatives are "not going to be a huge factor at Berkshire"

WARREN BUFFETTBecky?

BECKY QUICKThis question comes from Joel Bannister (PH) in Dallas, Texas, who says, “Warren, you personally run the derivative book. "Who will manage these weapons of mass destruction after your tenure? We don't want to end up like AIG under someone else's watch." He also adds, "P.S. I am wearing the wedding ring you sold my wife last year at the annual meeting at Borsheims.”

WARREN BUFFETTWell, obviously a man of intelligence. (Laughter) Yeah, I don't think there will be much of a derivatives book after I'm around. In fact, there won't be much of a derivatives book when I am around. I mean, it's not that big of a deal. But there will be — there could well be — well, I'll go back to will be, because it's almost required in certain of our utility operations that they engage in certain types of derivative activities. The utility boards that they respond to want them to hedge out certain types of activities. And then they engage in swaps of generation. And there's a number of activities that there's some derivatives that fit into doing that, but it's not of a huge scope. The railroad formerly hedged diesel fuel, for example. They may do that in the future; they may not. I mean — so there's a few operating businesses that will have minor positions. I don't think that — I think it's unlikely that whoever follows me — well, they'll be in — there will be several investment guys that follow me, at least two, and they're on board now, Todd Combs and Ted Weschler. We hit a home run with both of them. We got better than we deserved, but Charlie and I like that. And they — it's unlikely they do anything — very unlikely they do anything — in derivatives, although I wouldn't restrict them from doing it because they're smart people and sometimes derivatives get mispriced. But it's not going to be a huge factor at Berkshire. I think we're going to do really, probably, quite well with the derivative positions that we have. We've done fine with the ones that have expired so far, and I like the positions. But the rules have changed in relation to collateralizing, and I don't like ever exposing us to anything that would cause me to worry about Berkshire's financial condition if the Federal Reserve were hit by a nuclear bomb tomorrow, or anything of the sort, or Europe, you know, something terrible happened. We just — we think about worst cases all of the time around Berkshire. Charlie and I probably think about worst cases more than any two managers you'll ever find, and we are never going to expose ourselves to a worst case. And a requirement to collateralize things means that you are putting yourself in a position where you may have to come up with some cash tomorrow morning, and we're never going to do that on any significant scale, because we don't know what tomorrow morning will bring. Charlie?

CHARLIE MUNGERWe wouldn't — the derivatives have bothered some people. We never would have entered if we'd had to sign normal contracts. We had better credit than anybody else, and we got better terms. And I think by the time that has all run off, we will have made at least $10 billion, maybe a lot more. In other words, we're going to be very lucky we did those contracts.

Different valuation methods for different companies

WARREN BUFFETTJay?

JAY GELBWarren, when you discuss Berkshire's intrinsic value, why do you value the insurance business at only cash plus investments per share? And what's a reasonable multiple to apply to the pretax earnings of the noninsurance businesses?

WARREN BUFFETTI would — I don't value the insurance business quite the way you say it. I would value GEICO, for example, differently than I would value Gen Re, and I would value even some of our minor companies differently. But basically, I would say that GEICO is worth — has an intrinsic value — that's greater — significantly greater — than the sum of its net worth and its float. Now, I wouldn't say that about some of our other insurance businesses. But that's for two reasons. One is, I think it's quite rational to assume a significant underwriting profit at GEICO over the next decade or two decades, and I think it's likely that it will have significant growth. And both of those are value — items of enormous value. So that adds to the present float value, but I can't say that about some other businesses. But in any event, once you come up with your own valuation on that, in terms of the operating business, obviously different ones have different characteristics. But I would love to buy a new bunch of operating businesses that had similar competitive positions in everything. Under today's conditions, I would love to buy those at certainly nine times pretax earnings, maybe 10 times pretax earnings. I'm not talking about EBITDA or anything like that, which is nonsense. I'm talking about regular pretax earnings. If they have similar characteristics, we'd probably pay a little more than that, because we know so much more about them than we might know about some other businesses. What would you say, Charlie?

CHARLIE MUNGERWhen you used the word EBITDA, I thought to myself, I don't even like hearing the word. (Laughter) There's so much nutcase thinking involving EBITDA. Earnings before what really counts in costs. (Laughter)

WARREN BUFFETTYeah. We prefer EBE, which is earnings before everything. (Laughter)

CHARLIE MUNGERRight.

WARREN BUFFETTIt's nonsense. I mean, if you compare a business that, you know, leases pencils or something like that where they all get depreciated in a two-year period and then compare that to some business that uses virtually no capital, you know, like See's Candies, it's just nonsense. But it works for the people that sell businesses. It's like Charlie's friend that used to sell fishing flies, Charlie, right?

CHARLIE MUNGERRight. They don't sell these lures to fish. (Buffett laughs)

Buffett's negativity on gold "arouses passions"

WARREN BUFFETTStation 8.

AUDIENCE MEMBEROh, hi, thanks. Neil Steinhoff (PH) from Phoenix. Thanks for holding the meeting today. You mentioned a while ago that you were concerned about you and Charlie exposing yourself. Well, I for one am glad that you're not doing that. (Laughter) Since 1999, the Berkshire Hathaway stock has — we have not gone up appreciably, whereas gold has gone up multiple times. I don't own your stock for the glamour. I own it to earn money. What happened?

WARREN BUFFETTWell, I would say this: when we took over Berkshire, gold was at $20 and Berkshire was at $15 so — gold is now at $1600 and Berkshire is at $120,000. So you can pick different starting periods. (Applause) Obviously, you can pick anything that's gone up a lot in the last, you know, month or year. I mean, it will beat 90 percent of — or 95 percent — of other investments. But the one thing I would bet my life on, essentially, is over a 50-year period, not only will Berkshire do considerably better than gold, but common stocks as a group will do better than gold, and probably farmland will do better than gold. I mean, if you own an ounce of gold now and, you know, you caress it for the next hundred years, you'll have an ounce of gold a hundred years from now. If you own a hundred acres of farmland, you'll also have a hundred acres of farmland a hundred years from now and you'll have taken the crops for a hundred years and sold them and presumably bought more farmland in the process. It's very hard for an unproductive investment to beat productive investments over any long period of time, and I recognize that — It's very interesting. I can say bonds are no good and [Federal Reserve Chairman Ben] Bernanke still smiles at me. You know, and I can say some stock is no good, and people — But if you say anything negative about gold, I mean, it arouses passions with people, which is kind of fascinating, because usually if you thought through something intellectually, it shouldn't really make much difference what people say. It should be that, well, you know, the question is whether your facts are right and your reasoning is right. But when you run into people that are really excited about gold — and I came from a family where my dad loved gold. And he was tolerant. He could take a discussion of it. I find many people have trouble with it. Charlie?

CHARLIE MUNGERWell, I have never had the slightest interest in owning gold. It's a much better life to work with businesses and people engaged in business. I can't imagine a worse crowd to deal with than a bunch of gold bugs. (Laughter)

Buffett: "my best ideas are all in Berkshire"

WARREN BUFFETTAndrew?

ANDREW ROSS SORKINWe got a couple of questions on this topic. "You said in an interview on CNBC that you had bought shares in J.P. Morgan for your personal account. "Can you explain how you decide to make a personal investment versus one in your role as a fiduciary for us as shareholders of Berkshire? "And while you're at it, could you please share some names of stocks you've recently bought for your own account?" (Applause)

WARREN BUFFETTThe truth is I like Wells Fargo better than I like J.P. Morgan but I — but I also — we bought, and we're buying, Wells Fargo stock, and that takes me out of the business of buying Wells Fargo. So therefore, I go into something that I don't like quite as well but that I still like very much. And that's one of the problems I have, is that I can't be buying what Berkshire is buying, and I've got some money around, and therefore, I go into my second choices, or into tiny little companies like I did with Korean companies and that sort of thing. But my best ideas are all in Berkshire. That I can promise you. Charlie? Charlie's bought real estate, too, and different things to avoid that problem.

CHARLIE MUNGERYeah. But basically the Munger family is in two or three things only. Diversification is my idea of — not something I have practically no interest in, except as it happens automatically in a big place like Berkshire. I rejoiced the day I got rid of a quote — you know, a stock quoting machine. And I like this buy and hold investing. It's a lovely way to live a life and you deal with a better class of people, and it's worked pretty well for all of us. And I don't think you need to worry about Warren's side investments. His investments in Berkshire are so huge and those are so small, relevantly, that if that's your main problem in life, you have a very favored life.

WARREN BUFFETTWell, if you have 98 1/2 percent of your money in Berkshire and you really are trying to do your thinking about what's best for the 1 1/2 percent, you're a little bit crazy. (Laughs) You should be thinking about Berkshire, which I can assure you I do. But, there could be —

CHARLIE MUNGERAnd he does like Wells Fargo better than J.P. Morgan.

WARREN BUFFETTYeah, I do, yeah. And we have 400 and some million shares of Wells Fargo in Berkshire. I like J.P. Morgan fine, obviously, but I know Wells better. It's easier to understand. So, you know, we — well, we bought Wells Fargo in the first quarter. We bought Wells Fargo last year. We've bought it an awful lot of years. And if I wasn't managing Berkshire, you know, but instead was sitting with my own money, I'd have a lot of money in Wells Fargo and I'd probably have some money in J.P. Morgan, too.

Why is BNSF a subsidiary of National Indemnity?

WARREN BUFFETTGary?

GARY RANSOMWhen Berkshire bought BNSF, it raised the surplus of the property-casualty industry by about 4 percent. It's unusual to have a property-casualty company own such a large non-operating company. I'd also characterize your whole organization chart as challenging, a lot of different pieces to it, which gives rise to the issue of capital efficiency. And I'm just wondering, are there any parts of your organization structure that have any hindrance, whether it's regulatory or otherwise, to making use of the capital in the best way, generally, and in particular for BNSF?

WARREN BUFFETTYeah. Well, I would say that money in our life companies has less utility to us — I'd rather have $100 million in our property-casualty companies than 100 million in our life companies, because we're more restricted as to what we can do with the money in the life companies. So — and we've got a fair amount of money in life companies, and that money cannot be used as effectively over a period of years, in my view, as money we have in the property-casualty business. It's a disadvantage to being in the life business versus the PC business. And the best place — obviously, the number one place where we like to have money is in the holding company. And we've got about 10 billion in the holding company right now. That, you have the ultimate flexibility with. Most of our operating businesses keep more cash around than they need, but it's there. And I'm — as long as I have 20 billion someplace, I feel comfortable. We'll never have anything that can come up, remotely, that would cause me to lose any sleep as long as I start with the 20 billion. That's probably considerably more than we need, but it just leaves us comfortable, and it makes us feel we can do other things aggressively, as long as we know the downside is protected. The — having the railroad in National Indemnity was just something we thought was nice to have a huge asset like that there that should make the rating agencies and everyone feel comfortable, and there's no disadvantage to us. Very interesting, the rating agencies — at least one rating agency — said they didn't want to give us any credit for that asset in there, although if we had 20 percent, like we had had earlier, they would have given us full credit for the market value. I didn't push them too hard on that. But there's a fair amount of logic, I think, to where things are placed. If we were to make a big acquisition, it might require shifting some funds from one place to another, but we'll always leave every place more than adequately capitalized. And if you can figure out a way that I could use the life funds more like I can use the property-casualty funds, call me. I've got an 800 number. (Laughs)

CHARLIE MUNGERWell, two things are peculiar about that casualty operation. One is that it has so much more capital, in relation to insurance premiums, than anybody else. And the other is that it has, among the assets in that great surplus of capital, is something like the Burlington Northern Railroad, which makes it immensely stronger from the viewpoint of the policyholder. It's a huge advantage you're talking about, not a disadvantage.

WARREN BUFFETTYeah. Here's a property-casualty company that has an asset in it that, unrelated to insurance, will probably make $5 billion pretax or more. So if we're writing — well, in that entity, we're writing less than that — but let's say we're writing 25 billion of premiums. That means we can write at 120, and just our railroad operation will bring us an underwriting neutrality. I mean, it's a terrific — it's like having a royalty or something.

CHARLIE MUNGERIt's a wonderful position we have.

WARREN BUFFETTAnd nobody else has it.

CHARLIE MUNGERAnd nobody else has it. And they wouldn't let us do it if we weren't so strong.

We don't want Berkshire's stock to be too high or too low

WARREN BUFFETTStation 9.

AUDIENCE MEMBERYes. John Horton, Water Street Capital, Jacksonville, Florida. Since Berkshire will likely need to offer a stock component for very large acquisitions like Burlington Northern, wouldn't Berkshire lower its cash outlay by increasing the price of its stock to near fair value, perhaps by offering a 2 to 3 percent dividend or a promised percentage of cash earnings? Might this have the effect of actually lowering the cash outlay needed for such acquisitions? As 30-year shareholders with almost $1 billion of exposure, we like this approach. Thank you.

WARREN BUFFETTYeah. We would obviously prefer to have our stock sell at exactly intrinsic business value, even though we don't know that precise figure, but Charlie and I would have a range that would not differ too widely. And if it's over intrinsic business value, and we could use it as part of a consideration for buying something else at intrinsic business value, and then use cash for the balance, you know, we would like that situation. And that — that's very likely to occur in the future. It's occurred in the past. Berkshire, without paying a dividend, has sold, probably, at or above intrinsic value as much of the time in the last 35 or so years as it has below. I mean, it will bob around. And I do not think a dividend would be a plus, in terms of having it sell at intrinsic value most of the time. I think it might be just the opposite. I mean, here we are, we're willing to pay, you know, 110 cents on the dollar for what's in there. So the idea of paying out money, which we think is worth at least 110 cents on the dollar within the place, and have it turn into 100 cents on the dollar when paid out, just is not very attractive to us, unless we find we can't do things in the future that make sense. But our goal — and we put it in the annual report. Our goal is to have the stock sell at as close to intrinsic business value as it can. But with markets — you know, the way markets operate, most of the time it will be bobbing up or down from that level. And we've seen that now for 40-plus years, and we've tried to, at least in a way, point out what we think is going on. And if it ever — if it — and it will. I mean, when it trades at intrinsic business value or higher, there may be times when we will use it. We'd still prefer using cash, though. Cash is our favorite medium of purchase just because we're going to generate a lot of it. And we hate giving out shares. We do not like the idea of trading away part of See's Candies or GEICO or ISCAR or BNSF. The idea of leaving you with a lower percentage interest in those companies because of any acquisition ambitions of ours is anathema to us. Charlie?

CHARLIE MUNGERWell, what he suggested is a very conventional approach, and we think it's better for the shareholders to do it the way we're doing it. (Applause)

WARREN BUFFETTI should point out, I'm in the position — giving away all of my stock between now and 10 years after my death when my estate is settled — but I'm giving it away every year. You know, it will do more good, in terms of its philanthropic consequences, if it's at a higher price than lower price. I mean, there's nobody here that has more of an interest in the stock selling at what I'll call a fair value, as opposed to a discount value, than I do. I know I'm not a seller, but I'm disposing of the stock, and I would rather have it buy, you know, X quantity of vaccines than 80 percent of X. So it isn't like we've got some great desire to have the stock sell cheap. If it does sell cheap, we'll, you know, we'll buy it in, but our interest is really in having it sell at, more or less, the fair value. And we think if we perform reasonably well, in terms of running the business, and if we tell the truth about the business, and explain to a selected group of shareholders who are interested in that aspect of investing, that over time, it will average that. And that's happened over the years, but it doesn't happen every year. If people get excited enough about internet stocks, they're going to forget about Berkshire. When they get disillusioned with internet stocks then — I'm going back 10 or 12 years on that. But there have been times when people have gotten very excited about Berkshire, and there have been times when they've gotten very depressed. Charlie, anything?

Buffett sees value in local newspapers

WARREN BUFFETTOK. Carol.

CAROL LOOMISThis question comes from Kevin Getnowski (PH) of Yutan, Nebraska. And to it, I've added one question at the end, which came from another shareholder writing about the same subject. “You've described the newspaper business in the past as chopping down trees, buying expensive printing presses, and having a fleet of delivery trucks, all to get pieces of paper to people to read about what happened yesterday. "You constantly mention the importance of future intrinsic value in evaluating a business or company. With all of the new options available in today's social media and the speculation of the demise of the newspaper media, why buy the Omaha World-Herald?" "Was there some" — this is a question from the other one — "Was there some self-indulgence in this?”

WARREN BUFFETTNo, I would say this about newspapers. It's really fascinating, because everything she read is true, and it's even worse than that. (Laughter) The newspapers have three problems, two of which are very difficult to overcome, and one, if they don't — the third — if they don't overcome it, they're going to have even worse problems, but maybe can be overcome. Newspapers — you know, news is what you don't know that you want to know. I mean, everybody in this room has a whole bunch of things that they want to keep informed on. And if you go back 50 years, the newspaper contained dozens and dozens and dozens of areas of interest to people where it was the primary source. If you wanted to rent an apartment, you could learn more about renting apartments by looking at a newspaper than going anyplace else. If you wanted a job, you could learn more about that job. If you wanted to know where bananas were selling the cheapest this weekend, you could find it out. If you wanted to know how — whether Stan Musial, you know, went two for four, or three for four, last night, you went to the newspapers. If you wanted to look at what your stocks were selling at, you went to the newspapers. Now, all of those things, which are of interest to many, many people, have now found other means — they've found other venues — where that information is available on a more timely, often cost-free, basis. So newspapers have to be primary about something of interest to a significant percentage of the people that live within their distribution area. And the — there were so many areas where they were primary 30 or 40 years ago that you could buy a newspaper and only use a small portion of it and it still was valuable to you. But now you don't use a newspaper to look for stock prices. You get them instantly off the computer. You don't look for the newspapers for apartments to rent, in many cases, or jobs to find, or the price of bananas, or what happened in the NFL yesterday. So they've lost primacy in all of these areas that were important. They still are primary in a great many areas. The World-Herald tells me, every day, a lot of things that I want to know that I can't find someplace else. They don't tell me as many things as they did 20 or 30 or 40 years ago that I want to know, but they still tell me some things that I can't find out elsewhere. Most of those items — overwhelmingly — those items are going to be local. You know, they're not going to tell me a lot about Afghanistan or something of the sort that I want to know but I don't know. I'm going to get that through other medium. But they do tell me a lot of things about my city, about local sports, about my neighbors, about a lot of things that I want to know. And as long as they stay primary in that arena, they've got an item of interest to me. Now, the problem they have, they are expensive to distribute, as the questioner mentioned. And then the second problem is that, throughout this country, we had 1700 daily newspapers. We have about 1400 now. The — in a great many cases, they are going up on the web and giving free the same thing that they're charging for in delivery. Now, I don't know of any business plan that has sustained itself for a long time, maybe you can think of — maybe Charlie can think of one — but that has charged significantly in one version and offers the same version free to people, that had a business model that would work over time. And lately, in the last year even, many newspapers have experimented with, and to some extent succeeded, in those experiments, in getting paid for what they were giving away on the net that otherwise they were trying to charge for in terms of delivery. I think there is a future for newspapers that exist in an area where there's a sense of community, where people actually care about their schools, and they care about what's going on in the given geographic area. I think there's a market for that. It's not as bullet proof, at all, as the old method when you had 50 different reasons to subscribe to the newspaper. But I think if you're in a community where most people have a sense of community, and you don't give away the product, and you cover that local area in telling people about things that are of concern to them, and doing that better than other people, whether it be high school sports, you know. I've always used the example of obituaries. I mean, people still get their obituaries from the newspaper. It's very hard to go to the internet and get obituaries. But I'm interested in Omaha and knowing who's getting married, or dying, or having children, or getting divorced, or whatever it may be. When I lived in White Plains, New York, I really wasn't that interested in it. I did not feel a sense of community there. So we have bought — and we own a paper in Buffalo where there's a strong sense of community, and we make reasonable money in Buffalo. It's declined, and we have to have a internet presence there where people have to pay to come on. We have to develop that. But I think that the economics, based on the prices we paid — and we may buy more newspapers — I think the economics will work out OK. It's nothing like the old days, but it still fulfills an important function. It's not going to come back and tell you what your — and tell you on Wednesday what stock prices closed at on Tuesday and have you rush to the paper to find out. It's not going to tell you what happened in basketball last night when you've gone to ESPN.com and found out about it. But it will tell you a whole lot about what's going on, if you're interested in your local institutions. And we own papers in towns where people have strong local interest. Charlie?

CHARLIE MUNGERWell, we had a similar situation years ago when World Book’s encyclopedia business was about 80 percent destroyed by Bill Gates. (Laughter) He gave away a free computer with every bit of software.

WARREN BUFFETTHe charged $5, I think, Charlie —

CHARLIE MUNGERAnd well, whatever it was. But we are still selling encyclopedias and we still make a reasonable profit but not nearly as much as we used to.

WARREN BUFFETTRight.

CHARLIE MUNGERSome of these newspapers, we hope, will be the same kind of investments. They're not going to be our great lollapaloozas.

WARREN BUFFETTThe prices were — well, we actually may be doing more in newspapers, and we will be going where there's a strong sense of community. But if you live in Grand Island, Nebraska, where we have a paper, or North Platte, and your children live there and your parents probably live there, your church is there, you are going to be quite interested in a lot of things that are going on in North Platte, and in the state of Nebraska, that you won't find readily on television or the internet. And you'll be willing to pay something for it, and advertisers will find it a good way to talk to you, but it won't be like the old days.

Buffett: Amazon won't affect Nebraska Furniture Mart

WARREN BUFFETTCliff?

CLIFF GALLANTThank you. Just on that general topic, it is true that in the past some of your investments have been fairly affected by technology, in newspapers or World Book. Are there other businesses where you're concerned about technology affecting them, for example, you know, Amazon or online grocery stores? Could they affect a business indirectly, like McLane?

WARREN BUFFETTAmazon is a tough one to figure. I mean, Amazon — it could affect a lot of businesses that don't think they're going to be affected today in the retailing area. It's huge. It's a powerhouse. I don't think it's going to affect a Nebraska Furniture Mart, but I think it could affect some of the other retailing operations THAT we have. It won't affect the Nebraska Furniture Mart. I should report to you that in the first four days: Tuesday, Wednesday, Thursday, and Friday of this week, our business at the Furniture Mart is up about 11 percent over last year, so you people are doing your part there. We had — on Tuesday we did over $6 million of business. Now, those of you who are in the retailing business, thinking about a Tuesday and 6 million-plus of volume, we'll do more probably today, but those are huge, huge volumes. And we're going to go to Dallas here in a couple of years. We've got a 433-acre plot of ground down there, and I think we're going to have a store that will make any records we've set in the past look like nothing. Going back to Amazon, though, in terms — GEICO was very affected by the internet, and at first, we missed that. I mean, we — GEICO’s got an interesting history. It was mail originally, if you go back into the late '30s and early '40s, and it was very successful. And then it moved — not leaving mail totally behind — but it moved to television big time. And then the internet came along, and I thought, originally, that only young people would look for quotes on the internet and that — you know, I mean, I never would have done it. I would have been calling on a rotary dial phone, you know, and saying — when they said number, please, first, I have to get my quote on GEICO — forever. But it just changed dramatically, you know, to the internet. So, things do change very significantly, and if the consumer finds something they like to do better in some new way — and Amazon has been an incredible success. It's very hard to find people who have done business with Amazon that are unhappy about the transaction. They have happy customers. And a business that has millions and millions of happy customers can introduce them to new items and then, you know, and it will be a powerhouse, and I think it could affect a lot of businesses. It's hard for me to figure out.

CHARLIE MUNGERI think it's almost sure to hurt a lot of businesses a lot.

WARREN BUFFETTWhich ones do you think it will hurt the most, Charlie?

CHARLIE MUNGERWell, anything that can be easily bought by using a home computer, or an iPad, for that matter.

WARREN BUFFETTWhich of our businesses do you think it can hurt?

CHARLIE MUNGERI won't be buying the stuff because I'm habit bound. Besides, I almost never buy anything. (Laughter) But I think it will hugely affect a lot of people. I think it's terrible for most retailers. Not slightly terrible, really terrible.

WARREN BUFFETTWell, with that cheerful assessment, we'll go to station 10. (Laughter)

"Almost impossible" to copy Berkshire

AUDIENCE MEMBERHi. This is Hector from (inaudible) Industry Fund Management Company in China. My question is, you mentioned acquiring insurance float with zero, or even negative cost, is one of the key competitive advantages of Berkshire Hathaway. And we also found that an average leverage of Berkshire always about 100 percent. I guess the net asset growth will significantly decline without using that leverage. Therefore, to own an insurance company acquiring insurance float would be an important strategy if (inaudible) want to copy Berkshire business model. Would you please give me a comment?

WARREN BUFFETTCharlie, I didn't get all that so you —

CHARLIE MUNGERI didn't get it all, either. (Laughter) But, we have a very peculiar model, and it works very well for us. I think it's very hard for other people to get the same result.

WARREN BUFFETTYeah, I think it's almost impossible. Besides, I mean, it's taken a long, long time to get here. It's taken a great amount of consistency, and that consistency has been allowed because, basically, we've had a controlling shareholder during that time. So we've not had to bow to any of the urgings of Wall Street or, you know, whatever may be the fad of the day. But we have had a culture that — where we could write out 13 or 14 principles more than 30 years ago, and we've been able to stick with them. And that's very hard to do for most American corporations, and I think it's very hard to do when managers come and go and they have small shareholdings. I think it takes a very unusual structure to be able to do it. And, you know, it took a long time to get to the point where people with large private businesses in this country really cared about where those businesses were lodged after they gave up their stewardship. Took a long time to have it get so that a great many of those people would think of Berkshire first. And the nice thing about it is, if they think of Berkshire first they don't think of anybody second, so we get the call. We don't do well buying businesses at auction. I mean, if somebody's only interest is to get the top price for their business, you know, seldom we'll get one. We did buy one at auction, I mean, but it was an add-on. The Dutch company we bought yesterday, we bought at auction. But that sometimes happens with our smaller acquisitions. But the big private acquisitions are going to come to Berkshire because they want to come to Berkshire. And that's a significant competitive edge, and I don't see how anybody really challenges us on that.

CHARLIE MUNGERWell, not only do I think other people will have a hard time copying it effectively, I think if Warren went back to being 30 years of age with a modest amount of capital and not much else, he'd have a hell of a time doing it again, too.

WARREN BUFFETTI'd like to try. (Laughter) OK. Becky?

Rarely try to change companies in our stock portfolio

BECKY QUICKThis question comes from David Schermerhorn (PH) in Boulder, Colorado. And he writes that "Berkshire Hathaway has several substantial investments in other publicly traded companies. "As a shareholder, Berkshire is entitled to annually cast votes on matters such as election of directors, advisory vote on executive compensation, approval of stock option plans, and so forth. "So could you tell us what goes into your thinking and decisions with respect to how you vote our shares in these companies?"

WARREN BUFFETTYeah. We virtually never have voted against management, but we've done it a couple of times. There have been a —

CHARLIE MUNGERYeah, in 50 years.

WARREN BUFFETTYeah. There have been a couple of times when we thought — on the question of stock option expensing when that was put on a ballot. If we — there may have been a particularly egregious option grant or something, we might have voted against, but our general feeling is that when we're a large shareholder of a company that we certainly generally like the business, we generally like the management. We realize that they're not going to subscribe to our views 100 percent, in many cases 90 percent or 80 percent. Doesn't mean we think they're bad people or anything. They just — they have a different — they're sort of judging by behavior elsewhere. And they're perfectly decent people, but they don't think about things exactly the same way we do. But that doesn't rule out owning a big piece of the business. We are not in the business of trying to change people. We don't try and change people when we buy the entire business. We think it's like marrying somebody to change them. It just doesn't work very well.

CHARLIE MUNGERDoesn't work very well with children, either. (Laughter)

WARREN BUFFETTNo. And we know we don't want anybody to marry us to change us. So I mean, we're not going to do it — we accept people the way they come, pretty much. Doesn't mean we look — we decide we'll associate with anyone, but we don't expect everybody to be clones of us. And if we were to see a particularly dumb merger, a particularly egregious stock option plan, we might vote against it. It would pass anyway. We wouldn't conduct a campaign against it. But we have seen a few of our companies engage in some — what we thought were really dumb deals, and we've usually been right, but we couldn't stop them. But we have — I think we've voted against maybe one or two of them. Charlie?

CHARLIE MUNGERWell, I think you've said it all.

Good commercial insurance companies are hard to find

WARREN BUFFETTOK. Jay.

JAY GELBThis question is on Berkshire's commercial insurance operations. Berkshire has a smaller presence in primary commercial lines insurance compared to its much larger reinsurance and auto insurance businesses. Under what circumstances would Berkshire be open to increasing the scale of its primary commercial insurance operations, including acquisitions?

WARREN BUFFETTYeah, if we thought we can either expand internally, which would be tough, or buy a great company in the commercial field, which would — that would be the more likely way — you know, we'd do it. Now, we got a chance, I don't know, six or seven years ago to get in the medical malpractice field when GE wanted out and we bought that, and then we added to that with our Princeton Insurance acquisition last year. So we did get a chance to go into a first-class company with a first-class manager in Tim Kenesey about six or seven years ago, and we jumped at it. And GE was just getting out of the insurance business. So it's hard to think of very many commercial insurance companies that I would get excited about, a very few. There might be a couple, and we'd like the business. I mean, you know, there are very few personal lines companies we like, but love GEICO, obviously. There are very few reinsurance companies we like, but we love the ones we've got. And if we could find a quality company in commercial lines and we — presumably it would have quality management — we'd buy it in an instant. We've got nothing against that business.

More flexible buyback threshold?

WARREN BUFFETTStation 11.

AUDIENCE MEMBERMr. Munger and Mr. Buffett, this is Whitney Tilson. I'm a shareholder from New York. I have a question for Debbie. I'm just kidding. I applaud the fact that you've —

WARREN BUFFETTShe's in the president's box. (Laughs)

AUDIENCE MEMBERI applaud the fact that you've set a price above which you won't buy back your stock, but it seems, based on the trading of the stock since the announcement, the wall may have put a floor on the stock. It also may have put a ceiling on it slightly above 1.1 times book value. If so, this is obviously contrary to your desire to have the stock trade close to intrinsic value, which you've said is far higher than 1.1 times book. Have you considered being a little more flexible in the price at which you'd buy back your stock depending on how well your business is going and what other opportunities are available? For example, I would much prefer it if you bought back 3.4 billion of your own stock at 1.15 times book value last quarter, rather than the stocks you bought of other companies.

WARREN BUFFETTYeah, so would I. But the — I'm afraid — I don't think it puts a ceiling on, but I do think it certainly has an effect on a floor. It doesn't make a floor. I mean, you and I have seen enough of markets to know that if things get chaotic or anything like that, floors disappear. So, I think there could be circumstances under which we would buy a lot of stock, but I don't think they're, you know, highly likely at all. I think if we were at 115 — and believe me 115 would not be a crazy price — I don't think we'd probably buy a lot more stock. It might have the effect of the stock selling at, you know, a little above that or even a lot above it, just like 110 can do the same thing. I do think it signals to a lot of people that they don't have much to lose if they buy it just slightly above the price we've named and perhaps they've got a lot to gain. But I don't think it sets a ceiling, Whitney. When people feel differently in markets, it can sell it at a much different price. If I thought we would buy a whole lot more stock at a slightly higher price, I would probably adjust the price, but I don't think that's the case. I think it would just cause everybody to think, you know, I can buy it at this little higher price and have very little to lose, just like they may very well think now. But you get into any kind of a chaotic market — and we'll have chaotic markets in the future — and we might buy a lot of stock. Charlie?

CHARLIE MUNGEROh, I've got nothing to add to that, either.

No permanent damage to Walmart from Mexico bribery scandal

WARREN BUFFETTOK. We'll just have one or two more and then we'll break. Andrew?

ANDREW ROSS SORKINOK. This question comes from a shareholder named David Cass (PH) of Maryland. He says, "One of Berkshire's largest investments in recent years has been Walmart. Has your opinion of this company changed as a result of the Mexican bribery scandal?"

WARREN BUFFETTNo. I think — it looks — if you read the New York Times story, there's always another side to it. But it looks like they may well have made a mistake in how that was handled, but I do not think it — and it may well result in a significant fine, you know. But I don't think it changes the fundamental dynamic. I mean, Walmart does operate on low gross margins, which means it offers low prices. And that works in retailing, and a lot of other things they do work in retailing. So I do not see — I mean, it's a huge diversion of management time and it's costly and a whole bunch of things, but I don't think the earning power of Walmart five years from now will be materially affected by the outcome of this situation. Charlie?

CHARLIE MUNGERWell, these are interesting issues. I'm unaware of any place where Berkshire is slipping on this, but we have so many employees that it's not inconceivable we could have some slippage somewhere. And you get as big as Walmart, you're going to have an occasional glitch. I don't think there's something fundamentally dishonorable about Walmart.

WARREN BUFFETTWhen you have something as big as Berkshire, you're going to have an occasional glitch. I mean, we have 270,000 people today interacting with customers and government officials and vendors and all kinds of people. I will guarantee you somebody is doing something wrong. In fact, I would guarantee you at least, you know probably 20 people are doing something wrong. You can't have a city of 270,000 people and not have something going on. And we can talk until we're blue in the face about what people should do and not do, but people don't get messages sometimes the same way that you give them, and you know, we're layers removed from people operating and others. And a lot of people just do crazy things. So it is a — I mean, it is a real worry if you're running a business like this that — you don't worry about the fact somebody is doing something wrong, because there is going to be somebody doing something wrong. What you worry about is that it's material and nothing gets done about it, and that you act fast if you hear about something. And, you know, we've got hotlines and we've got all communications and everything, but that does not stop the fact that right now, somebody is doing something wrong at Berkshire. And if we get twice as large someday we'll have more people. And we try to convey to the managers that when they find out about something, you know, act on it, immediately let us know. We can handle bad news as long as we get it promptly. But I'm very sympathetic to anybody running hundreds of thousands of people to the problems of the ones that — sometimes, you know, they don't even think they're doing something wrong. I mean, if you get 270,000 people together, maybe even a crowd this size, you'll have some very peculiar people in it. (Laughter)

Update on Buffett's wager against hedge funds

WARREN BUFFETTOK, we're at noon, roughly. I made this bet four years ago with a group at Protege Partners about the S&P versus — or an index fund — versus five funds of funds. And I told them at the time I'd put up the results every year. And as you can see — I can't see it from here, but the first year they — it was a huge down year. And as you might expect, just like us, we beat the S&P a lot in a down year and the last three years, the S&P has beaten them, but we're still a tiny bit behind the hedge funds at the end of four years. There's six years to go. You might find it interesting, we each bought a zero-coupon 10-year bond so that there would be $1 million to go to the charity of — selected by either them or by me, depending on who won the bet — and that zero-coupon bond has performed magnificently, much better than Berkshire. (Laughter) We should have bought nothing but zero-coupon bonds. But the zero coupon bond, because interest rates are so low, you know, is practically selling at par, so we have petitioned the stakeholder in this case — and I don't think we've heard yet — but to let us sell the zero-coupon bond and put the money in Berkshire. And I'll guarantee them that it will be worth more than a million bucks at the end of 10 years. But so far, the best thing you could have done was ignored both of us and just looked at where we were putting the money. And I will keep you up to date on this bet as we go along and we're having a lot of fun. We'll come back in an hour, and then we'll go till 3:30, and then we'll have the business of the meeting.