WARREN BUFFETT: I hope you don’t get a chance to test that after death, Charlie. (Laughs)

CHARLIE MUNGER: It isn’t as though there’s a vast flood of people trying to move to North Dakota from southern California. And so you’re talking about dislocation. It’s not at all clear to me that, net, it would be worse for mankind in general to have the planet a little hotter. But the dislocations would cause agonies for a great many places, particularly those that would soon find themselves underwater.

WARREN BUFFETT: Yeah. I was going to ask you. How do you feel about the sea level being 15 or 20 feet higher? (Laughs)

CHARLIE MUNGER: Well, that’s very unfortunate, but — (Laughter) Holland lives with what, 25 percent of the nation below sea level? With enough time and enough capital, why, these things can be adjusted, too. I don’t think it’s an utter calamity for man that threatens the whole human race or anything like that. You know, you’d have to be a pot-smoking journalism student or something to — (Applause)

CHARLIE MUNGER: — believe that.

CHARLIE MUNGER: — believe that.

WARREN BUFFETT: We’re finally unleashing him, folks. (Laughter) Well, we’ll continue to have people in charge of insurance who are plenty worried about global warming, I promise you. But it — we don’t know — we do know that 2004 and 2005, there was a frequency, and more particularly, there was an intensity of hurricanes that would not be expected at all by looking at the previous century. And we were spared — even though we had Katrina — we were spared what could have been a far worse case by a couple of Category Fives that didn’t hit the mainland. So I do not regard Katrina as being anywhere near a worst-case scenario. And, like I say, I don’t know whether — how much of — I don’t know whether the water is a half a degree or 1 degree Fahrenheit warmer than 30 years ago, but I don’t know — and I don’t know all the factors that go into hurricanes. I mean, I know that, obviously, the water temperature, you know, contributes to energy and all that sort. But there could be 50 variables.

All I know is, on balance, I think they’re probably getting more negative for us and I know we ought to be very careful about it. And I know that it would be crazy to write insurance in 2007 at the same rates that it was being written a few years ago, in relation to catastrophes. And since we’re in the catastrophe business, that is something I think about, and the people that actually write the policies think about it as well. So it’s a factor with us.

23. Bank problems don’t mean China will collapse

WARREN BUFFETT: Five.

AUDIENCE MEMBER: Hi. I’m John Golob from Kansas City. I have a question about the Chinese economy. Some observers have suggested that the Chinese banking system looks a little like Japan back in the 1990s. Are you concerned that China could experience similar disruptions as Japan in ‘90 or is China possibly — with different institutions — possibly more resistant to economic disruptions?

WARREN BUFFETT: I would have to say I don’t know the answer to that. I mean, it’s a very interesting question. It’s a very important question. But, you know, I didn’t necessarily understand what was going to happen in Japan before it happened, and my insight into Chinese banks is about zero. We’ve been offered chances to buy into various Chinese banks and, again, because I don’t know anything about them, I pass. It’s no judgment that there’s anything bad. It just means that sitting in Omaha, Nebraska, not knowing what some item of loans and advances — what composes it or anything about the real operation of the place — that I can make a decision whether it’s worth X, half of X, 2X, a quarter of X, I just don’t know. And I really don’t know — I just have no notion as to the answer to your question, but maybe Charlie does.

CHARLIE MUNGER: Well, if you stop to think about it, all of the remarkable economic progress that we’ve seen in China in the last 15 years has been accompanied by practices in their government banks that would make you shutter if you compared them to normal banking standards. So everything you see in terms of progress has occurred despite — the banks were almost doling out money for aid as distinguished from doing normal banking. So I’d be very leery of predicting that that’s sure to cause a huge economic collapse in Japan — in China. They’ve been doing it for a long time, and they may actually be getting better now.

WARREN BUFFETT: Yeah. We’ve had our share of banking troubles in this country. I mean, it wasn’t that long ago in terms of the savings and loan crisis and all kinds of things. And strong economies come through those things. So, you know, if ahead of time you’d seen all the problems with foreign loans that the commercial banks got into and all the problems with real estate loans that the savings and loans got into, you could have said, you know, it’s going to be terrible for the American economy, and it did produce a lot of dislocations and all of that. But if you look at the regular American economy, it’s come through all kinds of financial crises with the real output per capita rising at a very substantial rate just decade after decade. I don’t know what will happen in China, but I think it’s pretty amazing in terms of the gains that have been made. And I think they’ll be — I think they’ll continue to be made, and I don’t know what will happen with the banking system, though.

24. Easy decision: stocks over bonds

WARREN BUFFETT: Number 6.

AUDIENCE MEMBER: Good morning, Warren and Charlie. My name is Frank Martin from Elkhart, Indiana. I’m a shareholder.

WARREN BUFFETT: Yeah. You’ve written a good book too, Frank. (Laughs)

AUDIENCE MEMBER: Thanks, Warren. I’ll do my best to be succinct with this question. As you know, my long suit is not brevity in the written word. Recently, I sequentially read everything that you and Charlie have written, or that has been written about you, since 1999, including your help wanted ad in the annual report, which sought not a Ted Williams, but the consummate defensive player in your forcefully worded quotations in last Monday’s Wall Street journal. When contemplating the chronology, I sensed a gradual but unmistakable sea change in your perspective on the investment environment for marketable securities. The intensification of your preoccupation with managing risk is conspicuous by its absence among the other biggest players at the margin — hedge funds, private equity, mutual funds — who are shamefully mute both about what are likely to be anemic prospective returns and the unconscionable risks assumed to achieve them, all the while charging a king’s ransom for such low value-added services. When I give free rein to my intuition, the post-1999 Warren Buffett reminds me of the Warren Buffett of post-1969.

Back then, when Berkshire was a small fraction of its current size, you spoke of the difficulty in playing a game you did not understand, that there was little margin of safety in the equity markets in general. You weren’t forecasting what in its own time became the bear market of ‘73-‘74, but you were surely intuitively aware of what [former Federal Reserve Chairman Alan] Greenspan years later has repeatedly warned: the inevitable day of reckoning that follows long periods of low equity risk premium. Imagine yourself, if you are willing, cast overnight into a new role with a clean slate as head of the investment committee of a $10 billion pension fund. Today, would your decisions reflect the same risk-averse mindset that dominated your behavior in the post-1969 period? And might you anticipate that following all of this might appear opportunities that were as mouthwatering as appeared in ‘73-‘74? Please explain, and I hope Charlie will weigh in on the subject as well. Thank you.

WARREN BUFFETT: Yeah Frank, when I closed up to the partnership, if I’d had an endowment fund to run then, the prospective return — and actually, I wrote this in a letter to my partners that I’d be glad to send you a copy of — the prospective return — and I was looking at them as individuals on an after-tax basis — was about the same, I felt, from equities and from municipal bonds over the next decade, and it turned out to be more or less the case. I would say that I do not regard that as being the same situation now. If I were managing a very large endowment fund, for one thing it would either be a hundred percent in stocks or a hundred percent in long bonds or a hundred percent in short-term bonds. I mean, I don’t believe in layering things and saying I’m going to have 60 percent of this and 30 percent of that. Why do I have the 30 percent if I think the 60 percent makes more sense?

So — and if you told me I had to invest a fund for 20 years and I had a choice between buying the index, the 500, or a 20-year bond, you know, I would buy stocks. You know, that doesn’t mean they won’t go down a lot. But if you — I would rather a have an equity investment — I wouldn’t rather have an equity investment where I paid a ton of money to somebody else that took my stock return down dramatically. But simply buying an index fund for 20 years of equities or buying a 20-year bond, I would — it would not be a close decision with me. I would buy the equities. I’d rather buy them cheaper, you know, but I’d rather buy the bond with a bigger yield, too. But in terms of what’s offered to me today, that’s the way I would come down. Charlie?

CHARLIE MUNGER: Yeah. I don’t think that was the answer that was expected, but that’s the answer. (Laughter)

WARREN BUFFETT: It doesn’t have a thing to do with what we think stocks — we don’t think at all — but where stocks could be or bonds could be. We don’t have the faintest idea where the S&P will be in three years, or where the long-term bond will be in three years, but we do know which we would rather own on a 20-year basis.

CHARLIE MUNGER: Warren, we’d also expect that the current scene will cause some real disruption, not too many years ahead.

WARREN BUFFETT: That’s true, but if you go back a hundred years, you could almost say that, you know, in almost any period, you will get disruptions from time to time, and it’s very nice if you have a lot of cash then and you have the guts to do something with it. But predicting them or waiting around for them, that sort of thing, is not our game. And I mean, we bought $5 billion worth of equities in the first quarter, something like that. And, you know, we don’t think they’re anything like — well, they aren’t — they’re not — it would be a joke to even compare them to 1974 or a whole bunch of other periods. But we decided we would rather have them than cash, or we would rather have them than sit around and hope that things get a lot cheaper. We don’t spend a lot of time doing that. It — you can freeze yourself out indefinitely. So any time we find something — what we think is intelligent to do, we just do it, and we hope we can do it big.

25. Buffett bought and sold silver early: “Other than that, a perfect trade”

WARREN BUFFETT: Number 7.

AUDIENCE MEMBER: My name is Nathan Narusis from Vancouver, Canada. Mr. Buffett, Mr. Munger, my question concerns your previous silver bullion investment. I’m curious to hear more about why you sold when you did. More specifically, whether you sold your bullion to the organizers of the silver exchange-traded fund in return for cash plus, perhaps, important noncash consideration in order to keep silver markets from either rising or falling sharply. Thank you very much for anything you would care to share with us.

WARREN BUFFETT: I’m not sure who we sold it to, but whoever we sold it to was a lot smarter than I was. (Laughs) I bought it too early. I sold it too early. Other than that, it was a perfect trade. (Laughter) Charlie, do you have anything to add? Charlie had nothing to do with the silver decision, so that one falls entirely on me.

CHARLIE MUNGER: I think we demonstrated how much we know about silver.

WARREN BUFFETT: Yeah. (Laughter) The very fact you asked us a question on silver flatters us because nobody asks us about silver anymore. (Laughs) But we’ll come up with something else at some point. You know, the last part of your question, there was a small implication, I think, of perhaps a silver conspiracy. We — as soon as we started — it got known that we bought silver, we started getting all these letters in the mail from people who had all these different theories about the fact that hedging was killing things or these kind of traders were doing something. In the end, silver responds as supply and demand just like oil responds to supply and demand. Oil is — the price of oil at 60 or $65 is not a product of a bunch of oil executives conspiring or anything of the sort. It’s supply and demand on a huge commodity. Silver is a small commodity, but on any kind of commodity like that, supply and demand is what determines prices over time. Although the Hunt brothers, I must admit, for a short period there, in a few years, managed to change the equation and they forever wished they hadn’t.

26. Why Buffett “outsourced” his philanthropy

WARREN BUFFETT: Number 8.

AUDIENCE MEMBER: Hello, Mr. Buffett. Eben Pagan, Santa Monica, California. You seem amazing at keeping your composure in tough situations. I would be very interested to know what your thought process was when you were in that incredibly stressful situation, you knew the world was watching, and you went head-to-head with LeBron James. (Laughter)

WARREN BUFFETT: The game was rigged. (Laughter) He was the one that had a problem. (Laughs)

AUDIENCE MEMBER: What I’d really like to know is, I’m a real big fan of you and Mr. Gates and your philosophy of channeling all the value you’ve created back into the world. And I have a successful business, and I’d like to do the same, but maybe in 20 or 30 or 40 years, and with a time horizon like that, I’d love to know what advice you’d give someone like me.

WARREN BUFFETT: Well, there’s nothing wrong with your time horizon, in my view, as long as you’re going — as long as you plan to give it back, I mean, A) the decision is yours entirely, anyway, whether you want to do it. But assuming you want to give it back, or give it to society in some way, if you’re compounding your money at a rate greater than people generally do, you are, in effect, an endowment fund for society. And, you know, all kinds of organizations in the nonprofit area have endowment funds, and they think it’s wise to have it, and they do that in order to get standard returns, usually. And if you can compound it more and you’re going to give it back later on, let someone else take care of current giving, and you can take care of giving in 20 or 30 years. But, you know, I regard that as a personal decision.

I always felt that I would compound money at a rate higher than average, and it would have been foolish to give away a significant portion of my capital to somebody who would spend it within, you know, months, when there could be a really much larger amount later on. And, on the other hand, the time had come, I’d really thought my wife would be doing that, and when that didn’t work out, the time had come to do something with it. And, fortunately, I had some great options available, and I get to keep on doing what I love doing and I let some — I farm out all the work. But, you know, when my wife had a baby, we hired an obstetrician. I didn’t try and do it myself. I mean, when a tooth hurts, you know, I don’t have Charlie fix it. I go to a dentist.

So when I have money to give away, I believe in turning it over to people who are — and I’ve got five different organizations, including my three kids — and I believe in turning it over to people who are energized, working hard at it, smart, you know, doing it with their own money, the whole thing. And I get to keep doing what I like doing. So as far as I’m concerned, I haven’t given away a penny. Charlie?

CHARLIE MUNGER: Well, I think it’s wonderful for the shareholders that somebody else is giving away the money. (Laughter) I tell you, if all Warren wanted to talk about was interfacing with applicants for donations, we would have a different life. And we wouldn’t be very well adapted to it, either.

WARREN BUFFETT: Yeah. You know, actually on the smaller ones I send them all to my sister Doris, and she does a great job with it, and enjoys it, spends lots of time on it, good at it, and I’m glad she does it and I don’t. You know, the truth is, I haven’t given away anything in a practical matter. I have everything in life I want. You know, there’s no way I can sleep better, I can eat better. Other people might think I could eat better. (Laughter) I haven’t given up anything. Now, if you think about it, you know, somebody that gives up having an evening out, somebody that, you know, gives up their time working on something, somebody that doesn’t take their kids to Disneyland this year because they’ve, you know, they’ve given the money instead to their church, I mean, those people are changing their lives in some way with what they give. I haven’t changed my life at all. I don’t want to change my life.

I’m having a lot of fun doing what I do. And, you know, it’s just a bunch of stock certificates that one way or another they’re going to go someplace. And what I really want to do is keep doing what I enjoy doing, and feel that the claim checks that I accumulate that comes about for this, are going to get used effectively for the same general purposes that I would want to use them for if I really had the energy and the interest in doing the job myself. But somebody else can keep doing the work.

27. You can always earn big returns with small amounts of money

WARREN BUFFETT: Number 9.

AUDIENCE MEMBER: Hi. I’m Eric Schline (PH) from Larchmont, New York. My question is directed at Mr. Buffett. Mr. Buffett, you claim you can do 50 percent a year. If you had to start over with a small portfolio, would you still be doing buy and hold, buying quality companies at a good price, or would you be doing arbitrage and really getting down to the nitty-gritty Benjamin Graham cigar butts that you did in the Buffett Partnership?

WARREN BUFFETT: Yeah. If I were working with a very small sum — and you should all hope I’m not — (laughs) — if I were working with a very small sum, I would be doing entirely — almost entirely — different things than I do. I mean, there’s — your universe expands. I mean, if you’re looking, there’s thousands and thousands and thousands of times as many options to think about if you’re investing $10,000 than if you’re investing a hundred billion. And, obviously, if you have that many — you’ve got all the options you got with a hundred billion, except buying entire businesses, and you’ve got all of these other options. So you can earn very high returns with very small amounts of money, and it will always be such. I don’t mean that everybody can do it, but if you know something about values and investments, you will find opportunities with small sums, and it will not be with a portfolio that Berkshire itself owns. We can’t earn phenomenal returns putting 3 billion, 4 billion, 5 billion in a stock.

It won’t work that way. It won’t even come close to working that way. But if Charlie or I were in a position of working with a million dollars or $500,000 or 2 million, we would find little things here and there — and it wouldn’t always be stocks — where we would earn very high returns on capital. Charlie?

CHARLIE MUNGER: Yeah. But it’s — there’s no point our thinking about that now. (Laughter)

WARREN BUFFETT: But he’s thinking about it, Charlie. (Laughter)

28. Subprime mortgage defaults won’t be “huge anchor”

WARREN BUFFETT: OK. We’ll take one more, and then we will go to lunch and then we’ll — after that we’ll come back. So we’ll go to number 10 now. Is the microphone open on 10?

AUDIENCE MEMBER: Hello? Hello?

WARREN BUFFETT: Do we have a problem here?

AUDIENCE MEMBER: Warren and Charlie, my question is, what’s your opinion regarding the subprime market relative to the foreign national market?

CHARLIE MUNGER: We can’t hear that.

WARREN BUFFETT: We can’t hear that.

AUDIENCE MEMBER: What’s your opinion regarding the subprime market relative to the foreign national market? Sorry. My name is Calvin Chong (PH). I’m from New York.

WARREN BUFFETT: Well, the subprime market, encouraged by both lenders, intermediaries, and borrowers themselves, resulted in a lot of people buying a lot of houses that they really didn’t want to own or that they can’t make payments on for once the normal payments were required. And the people, the institutions, in some cases the intermediaries, are going to suffer in various degrees. Now, the question is whether it spills over and starts affecting the general economy to a big degree, and I would — my guess would be — it’s quite severe some places. But my guess would be that if unemployment doesn’t rise significantly, and interest rates don’t move up dramatically, that it will be a — it will be a very big problem for those involved, and some people are very involved. Some institutions are very involved. But I don’t see it — I think it’s unlikely that that factor alone triggers anything of a massive nature in the general economy. I think it — you know, I’ve looked at several financial institutions.

I’ve looked at their 10-Qs and 10-Ks, and I’ve seen that a very high percentage of the loans they made in the last few years allowed people to make very tiny payments on the mortgages, but, of course, those subnormal payments increased principal so that they had to make above average payments later on at some point. And I think that’s dumb lending, and I think it’s dumb borrowing, because somebody that can only make 20 or 30 percent of their normal mortgage payments the first year is very unlikely to be able to make 110 percent of their normal mortgage payments a few years later. Those people and those institutions were largely betting on the fact that house prices would just keep going up, and it really didn’t make any difference whether they could make the payments. And that worked for a while until it didn’t work. And when it doesn’t work, you have an abnormal supply of housing coming on the market, similar to what happened in manufactured housing, the business we’re in, six or seven years ago, and that changes the whole equation.

From people on the demand side, you no longer have people thinking they’re buying something that’s bound to go up, and then you have the supply coming on from the people who were anticipating that before and really don’t want to hold the asset unless it’s going to go up. So you’ll see plenty of misery in that field. You’ve already seen some. And I don’t think — I don’t think it’s going to be any huge anchor to the economy. Charlie?

CHARLIE MUNGER: Yeah. A lot of what went on was a combination of sin and folly, and a lot of it happened because the accountants allowed the lending institutions to show profits on loans where nobody in his right mind would have showed any profit until the loan had matured into a better condition. And, once again, if the accountants lay down on their basic job, why, huge excess and folly is going to come inevitably, and that happened here. The national experience with low-interest starter home loans to what I would call the deserving poor, has been very good. But the minute you pay a bunch of people high commissions to make loans to the undeserving poor, or the overstretched rich, you can get loan losses that are staggering. And I don’t see how the people did it and still shaved in the morning, because looking back at them was a face that was evil and stupid.

WARREN BUFFETT: Yeah. (Applause)

WARREN BUFFETT: You’ve seen some very interesting figures in the last few months on the number — on the percentage — of loans where people didn’t even make the first or second payment. And there’s really — that shouldn’t happen. That happened, incidentally — you had a prelude to this in the manufactured housing industry. I mean, in the late 1990s — and securitization accentuated the problem, because once you had somebody in Grand Island, Nebraska, selling a mobile home — or a manufactured home — to someone and they needed a $3,000 down payment and the salesman was going to get a $6,000 commission, believe me, you start getting some very strange things going on. Now, if the person doing that had to borrow the money in Grand Island, the chances are the local banker would have seen what was happening and said, you know, we don’t want any of this where the salesman fakes the down payment and all that.

But once you just package those things and securitize them so they get sold through major investment banking houses and sliced up in various tranches and so on, you know, the old — the discipline leaves the system. And securitization really accentuates that, and we have had that in subprime loans, just as we had it in manufactured housing six or seven years ago. And, like I say, that has not all worked its way through the system, but I don’t think it’s going to cause huge troubles. Now, we do see certain areas of the country where it will be at least a couple of years before real estate recovers. I mean, the overhang is huge compared to normal monthly volume in certain sections. And the people that were counting on flipping things there are going to get flipped, but in a different way.

Afternoon Session

1. “Areas don’t make opportunities, brains make opportunities”

WARREN BUFFETT: OK. If you’re ready, we are. We’re going to keep going in the same order because there’s people in the other rooms that have been waiting. So we will go to number 11.

AUDIENCE MEMBER: Hi. My name is Christian Baha from Superfund. I have a question for you, Mr. Buffett. What do you think about managed futures funds?

WARREN BUFFETT: About which fund?

CHARLIE MUNGER: I didn’t quite get that. What kind of fund?

AUDIENCE MEMBER: Managed futures funds.

CHARLIE MUNGER: Oh, managed —

AUDIENCE MEMBER: Like a very diversified portfolio in stocks and bonds going long and short, all the different markets, based on the most natural human behavior, trying following a herd behavior?

CHARLIE MUNGER: Managed futures funds.

WARREN BUFFETT: Well, I would say that we think the most logical fund is the one we have at Berkshire where, essentially, we can do anything that makes sense and are not compelled to do anything that we don’t think makes sense. So any entity that is devoted to a limited segment of the financial market we would regard as being at a disadvantage to one that has total authority if you have the right person in charge. But you — that’s an assumption you’re going to make under any fund. So we would not want to devote our funds to something that was only going to buy bonds, something that was only going to buy futures, or anything of the sort. We would — we buy futures at Berkshire. We buy bonds at Berkshire. We’ve bought — we buy currencies. We buy businesses. So I think it’s a mistake to shrink the universe of possibilities. Ours is shrunk simply by size, but we don’t try to — we don’t set out to circumscribe our actions in any way. But in the end, there’s no form that produces investment results. Hedge funds don’t produce investment results.

Private equity doesn’t produce investment results. Mutual funds don’t produce it. If it was simply a matter of form, we’d all call ourselves, you know, whatever that form happened to be. What really makes the difference is whether the person that’s running it knows what their limitations are, knows where their strengths are, plays when they have the opportunity to play advantageously, and stays out when they don’t see any opportunities. Charlie?

CHARLIE MUNGER: Yeah. I’d go further. I’d say averaged out, I would expect that the return per dollar per year in managed futures funds would be somewhere between lousy and negative. (Laughter)

WARREN BUFFETT: And I would agree with that. Yeah. Usually those are sales tools. I mean, people find out something that will sell, and it can be — you know, it can be bond funds at some point, it could be — but when they find something to sell, it will get sold to the public. That will be — it will sell until it stops selling. And that means lots of money comes in and lots of competition for a limited number of opportunities. And I think it’s a mistake to get sold something on the basis that here is a great area of opportunity. Areas don’t make opportunities; brains make opportunities, basically.

2. Read a lot, look for opportunities, avoid catastrophes

WARREN BUFFETT: Number 12.

AUDIENCE MEMBER: Matthew Monahan (PH) from Palo Alto, California. Mr. Buffett, Mr. Munger, first of all, I want to thank both of you for so freely sharing your wisdom and knowledge over the years. Even though we’ve never met in person, I consider you both to be close personal mentors and attribute your teachings and philosophies to any success I’ve had in business so far. So thank you. Here’s my question: for a 23-year-old with high ambitions, some initial working capital, and a genetic wiring, as you call it, for disciplines like investments, mathematics, and technology, what do you foresee as the significant areas of opportunity over the next 50, even 100, years? And, if you were in my shoes, what would be your approach and methodology for really learning, tackling, and mastering these areas of opportunity for the purpose of massive value creation?

WARREN BUFFETT: Well, I remain very big on the idea of reading everything in sight. And, frankly, when you get the chance to talk to somebody like Lorimer Davidson, as I did when I was 20 years old — I probably learned more from Lorimer Davidson in those four or five hours than I learned in college, with the exception of learning some accounting and one or two subjects like that. So you just want to soak it up. If you have those qualities you talked about, you’ll see the areas as you go along. I mean, we have — Charlie and I probably — you know, we’ve made money in a lot of different ways, some of which we didn’t anticipate, you know, when we were — 30 or 40 years ago. But we did have the ability to recognize some; we didn’t have the ability to recognize others. But we did know when we knew what we were doing and when we didn’t, and we just kept looking. We had a curiosity about things. You would know at a time like the Long-Term Capital Management crisis, for example, that there were going to be ways to make money.

I mean, they were going to be out there, and all you had to do was just read and think eight or ten hours a day and you were going to cover a lot of possibilities, probably a very high percentage of them good, and some of them sensational. So you can’t really lay it out ahead of time. You can’t have a defined roadmap. But you can have a reservoir of thinking, looking at different kinds of businesses, looking at different kinds of securities, looking at markets in different places, and you will then spot a reasonable number of things that come along. You won’t spot every one of them. We’ve missed all kinds of things. But the biggest thing, too, is to have something in the way you’re programmed so that you don’t ever do anything where you can lose a lot. I mean, we — our best ideas have not been better than other people’s best ideas, but we’ve never had a lot of things that pulled us way back. So we never went two steps forward and one step back. We probably went two steps forward and a fraction of a step back.

But avoiding the catastrophes is a very important thing, and it will be important in the future. I mean, you will have your chance to participate in catastrophes. Charlie?

CHARLIE MUNGER: Yeah. And, of course, the place to look when you’re young is in the inefficient markets. You shouldn’t be trying to guess whether, you know, one drug company has a better drug pipeline than another. You want to go, when you’re young, someplace that’s very inefficient.

WARREN BUFFETT: And you shouldn’t be trying to guess whether the stock market is going to go up or whether long-term bonds are going to change in yield. I mean, you don’t have anything going in that kind of a game, but you can have a lot going in games that very few people are playing, and maybe where they’ve even got their heads screwed on wrong, in terms of how they’re thinking about the subject. The RTC was a great example of a chance to make a lot of money. I mean, here was a seller of hundreds of billions of dollars’ worth of real estate where the people that were selling it had no economic interest in it, were eager to wind up the thing, you know, and they were selling at a terrible time when the people who had been venturesome in lending were no longer lending, the people who had been venturesome in the equity end of real estate had gotten cleaned out.

So you had a great background of environment, and then you had an imbalance of intensity, in terms of analyzing situations between the seller, which was the government, with a bunch of people who had no economic interest in it and were probably eager to wind up the job, and buyers on the other side who were of the generally cautious type. Because the more venturesome type had taken themselves out of action. And there were huge amounts of property. So you get these opportunities, and you’ll get more. I mean, there won’t be any scarcity of opportunities in your life, although there will be days when you feel that way.

3. Politics and catastrophe insurance

WARREN BUFFETT: OK. Let’s go to the other rooms now. They’ve been waiting. Number 13.

AUDIENCE MEMBER: John Goss (PH), Key West, Florida. Katrina created litigation that resulted in some rulings that combined flood damage and wind damage where the insurance companies thought they covered wind only. As a result, some insurance companies are significantly reducing coverage in those states. Florida recently empowered their insurance company called Citizens to be more aggressive not only with wind storms, but also with homeowners, while at the same time not allowing requested rate increases of other insurance companies. The result is that some solid insurance companies have announced reducing their coverage or pulling out of Florida. Is this type of government interference a random fluctuation in insurance or a major cause of concern for the future?

WARREN BUFFETT: Well, that’s an easy one to understand both sides of the question on. I mean, the average homeowner is not going to sit there and read line-by-line what is in his insurance policy, and a lot of times the agent is not going to explain it carefully to them. So when something comes along and he thinks it’s insured and it turns out that he bought a policy where it wasn’t insured, he’s going to feel very unhappy about it. And when tens of thousands of people feel unhappy about it, you’re very likely to get some kind of governmental interference, and probably an inflation by judicial degree or by threats of the government to, in effect, extend the terms of the policy beyond what the insurance company thought it was insuring. Now, an insurance company that’s had that kind of experience is going to be very reluctant to write insurance policies in the future, if they don’t think that the words will be adhered to.

And, on the other hand, I can fully understand some guy who’s had his house blown away in a storm and a lot of it was water damage and a lot of it was wind damage, thinking that, you know, he’s been wiped out and the insurance company comes around waving a policy that’s got a lot of small print in it, you know, he’s going to be unhappy. So it’s a real tussle on that. And, you know, I guess I would — if I were writing policies, I would put the exclusions in very big type and very easy to understand. But I still would expect that if thousands of people suffered losses, that courts and legislators would probably seek to stretch the terms, or even abrogate the terms of the contract, in order to take care of their own constituents and figure that guys like me or institutional investors who own insurance companies can afford it better than the homeowner.

When you get into the question of whether you should, in effect, have all of the people in the country pay premiums for, we’ll say, hurricanes, in a way, subsidize it through policies in Nebraska or Minnesota or someplace, for hurricanes in Florida, that gets very tough. I mean, it can be very expensive to insure against hurricanes if hurricanes become more frequent and more intense. In fact, it can become so expensive that people really will not want to bear the cost of insurance, and they’ll want to socialize it some way. And, of course, the guy in Nebraska says, “Look it. You went down there to live on the ocean and you thought it was wonderful, and we’re back here with these terrible winters, but why should we pay a portion of your insurance?” So you’re going to have that tussle go on, and you’ll really have that tussle go on if you get a hundred billion dollar or $150 billion insured loss in Florida. Because that will mean a huge change in taxation if the State of Florida steps in to compensate people. There will be calls for Washington to pay for it.

But, you know, it’s how much people who are not exposed to a risk should pay for the people who have elected to be exposed to the risk is — you know, it becomes a political question. And my guess is that sometime in the next five or 10 years, you’ll see a struggle on that subject that exceeds — far exceeds — what we saw on Katrina. Charlie?

CHARLIE MUNGER: I’ve got nothing to add.

4. We’re still looking for a big acquisition

WARREN BUFFETT: Number 14?

AUDIENCE MEMBER: Hi. My name is Glenn Tongue, and I’m a shareholder from New York. I’d like to congratulate you on Berkshire’s newest director. Sue is a terrific addition. My question is —

WARREN BUFFETT: We agree with you.

So whatever you can figure out that other people will pay you to do that they don’t want to do themselves or that they’d like done for them — I advise you to look around the neighborhood and talk to your parents, talk to your friends, see what other people have done that have been 10 or 11 or 12 years old that’s worked for them and copy it. But if you can get a good paper route when you’re 12 or 13, that’s a sure way to save some money. I’ve often wondered about people that are having trouble being in debt, you know, that have a normal eight-hour job. If they added a route in the morning and just put that aside, you know, it could be the way out of being behind the game instead of being — and getting ahead of the game — and take another hour and a half out of their day, but not too many people seem to do it. Charlie used to sell — didn’t you used to sell yourself the best hour of the day or something, Charlie?

CHARLIE MUNGER: You bet.

WARREN BUFFETT: Yeah. Tell them what you did.

CHARLIE MUNGER: Well, when I was young, I read that savings bank thing, “The Richest Man in Babylon,” which taught the joys of underspending your income and investing the difference and how wonderfully it would work over time. And, lo and behold, I did exactly what this little pamphlet suggested, and it worked. And the other idea — and then so I got the idea that — I had a mental compound interest thing, too. And so I finally decided I was going to give the best hour of the day to improving my own mind, and then the world could buy the rest of the time. And that may have been a very selfish thing to do, but it worked.

WARREN BUFFETT: Yeah. Charlie was selling his time — I don’t know. What you were getting per hour as a lawyer?

CHARLIE MUNGER: Not much.

WARREN BUFFETT: Yeah. He just decided to sell himself the best hour, and not a crazy thing to do.

CHARLIE MUNGER: But I would tell that little girl if you make yourself a very reliable person and stay reliable all your life, faithfully doing whatever you engage to do, it will be very hard for you to fail at anything you want. (Applause)

25. Global competitors matter, not global trends

WARREN BUFFETT: Number 6.

AUDIENCE MEMBER: Good afternoon, everyone. My name is Dennis Batrowski (PH). My hometown is West Point, Nebraska, and I now live in Omaha with my family.

WARREN BUFFETT: As you may know, my mother came from West Point.

AUDIENCE MEMBER: Yes. Thank you, Warren and Charlie, for your incredible education, generosity in this great meeting. I’ve attended every meeting since 1994. Warren and Charlie, assuming a necessary margin of safety in the future cash flow estimates and proper adjustments in discount rates, would you discuss which trends of global economic growth that you think will be sustainable, given our holdings in railroads, steel, materials, and energy, with our modest expectations, enormous trade deficit, tight credit spreads, low risk premiums, and explosive growth in emerging economies? Thank you.

WARREN BUFFETT: Yeah. We think we’re — we think we’re in a pretty good group of businesses for the world we face. You know, we don’t know which ones will turn out to be the best. There’s a few that we think are real superwinners, and we think a significant number of them will do OK. And we don’t try to buy our businesses with thoughts much of world trends. We certainly think in terms of international — foreign competition. I mean, we do not want to buy into a business that has a very high labor content and that has a product that can be shipped in from abroad very easily. Because, sooner or later, that will probably be trouble, just like Charlie and I — really, I bought into an airline — he came along and tried to rescue me — some years ago that had very high seat mile costs and it had protected routes — US Airways — so it was able to operate with 12 cents a seat mile of cost because Southwest hadn’t gotten there yet with their 8 cent costs. But they get there. And you do not want to have something whose competitive position is going to erode over time.

But I think most of our businesses have got pretty strong competitive positions. And, really, the variables you name don’t bother us. You know, we will play the hand as well as we can, and we’re playing it with terrific people in very good businesses, and we’re dealing from strength all the time. You know, we’ve always got a loaded gun. And we think we’ve got the right values with our managers, the people. Think we’ve got a culture that’s owner-oriented. We’ve got a lot of things going for us, and they won’t produce huge returns, but they’re likely to work OK. Charlie?

CHARLIE MUNGER: Well, we learned about foreign labor competition in our shoe business. And in that, it reminds me of Will Rogers, who didn’t think man should have to learn these easy lessons in such a hard fashion. Will Rogers believed that you should learn not to pee on an electrified fence without actually trying it. (Laughter)

WARREN BUFFETT: Will told Charlie a lot of things he didn’t tell me. (Laughter)

26. It’s all relative with currencies

WARREN BUFFETT: Number 7.

AUDIENCE MEMBER: Hello, Mr. Buffett and Mr. Munger. I’m Shinydaz Guynadewa (PH) from Fort Lauderdale, Florida. First of all, I want to thank you for your efforts in making investors aware of the high transaction cost involved with several investments, and I got lot of personal benefit by reading your articles. My question today is in reference to the declining value of dollars compared to all other major currencies. In last three years, dollar declined as high as 25 to 30 percent. So I want to understand how it is going to impact individual investors and the how big is the threat? Thank you?

WARREN BUFFETT: The question is about the declining dollar but I didn’t get all the —

CHARLIE MUNGER: He asked you for — what do we think about it, what are we going to do about it.

WARREN BUFFETT: We think it — we think the dollar over time is — unless policies are changed in a major way — is likely to decline somewhat more against most major currencies. And we originally backed that opinion up with transactions that got as high as 21 or -2 billion in the ownership of foreign currencies. And then the carry on that, the difference between interest rates in the various countries, made that quite an expensive way to express that belief. So we have focused much more on buying into companies that earn lots of money in other currencies, on the thought that they will be somewhat favored over companies earning just U.S. But that’s not — as I mention in the report — that is not a huge determination of what we buy. It’s a factor, but it’s not — it’s not 50 percent of the decision or anything like that. We are following policies in this country that are likely to cause the dollar to decline in value against many major currencies. And who knows what speed, whether it happens this year or next year. We don’t have any idea on that sort of thing. But the fundamental forces are fairly strong.

We actually only own one currency now — trade — which would surprise you, actually. We’ll tell you about it next year. Charlie?

CHARLIE MUNGER: Yeah. So far, something peculiar has happened. During this exact period of maximum dollar decline in value versus other currencies, the dollar prices at Costco have showed an inflation factor of approximately zero. So what really matters, of course, is how things are working in your own country, and it’s been perfectly amazing how well we’ve gotten by so far with the decline of the dollar.

WARREN BUFFETT: Yeah. As Charlie says, you know, we reference everything in terms of our own country. If you look at oil, for example, which we’ll say has gone from roughly $30 a barrel to $60 a barrel over the last few years, you know, during that same time the euro has gone from, like, 83 cents to a $1.35. So the price of oil, if you’re a European, has gone up very little. I mean, we think oil has run wild. But in terms of anybody that’s using the euro, the price of oil has gone up about 25 percent, and we feel the price has gone up a hundred percent. So you do have this anchoring of thought to your own currency, which is understandable. I do think you’ll need to think about currency matters more than Americans traditionally have. I was struck 20, 30, 40 years ago, when I would travel elsewhere, how much more sophisticated most people in Europe and the UK, wherever, were about currency than the United States. We never really had to think about it.

Everything was dollar-based, and an American didn’t have to be smart about currency or even think too much about it in terms of their business. But that world has changed.

27. Corporate directors aren’t doing their job

WARREN BUFFETT: Number 8.

AUDIENCE MEMBER: John Norwood from Des Moines, Iowa. A quick question — a quick comment and then a question. The comment, following on Charlie’s comments on ethanol, I would ask him at least to look at the environmental benefits of ethanol as a fuel blend — octane boosters superior to other types of chemical additives, such as MTBE, which has been so damaging to groundwater. My question is for Mr. Buffett. And I’m hoping you might be able to tell us a little bit more about your interactions with the board of directors and the types of ideas and idea exchange and, perhaps, a model for how you believe a board of directors is supposed to function with management. Thank you.

WARREN BUFFETT: Yeah. I would say that most writers and most shareholders probably have a little bit of a distorted version, at least, how most corporations — large corporations — have operated over the years. Usually — for a long time I would say that directors, generally, were sort of potted plants. I mean, you sat there and the management had its agenda and didn’t really want input on major matters. And Charlie and I can certainly testify to the fact that we have had great lack of success, even when we were the largest shareholder of a company, in terms of talking about things that really count. I mean, if somebody spends their whole lifetime— 25, 30 years — rising to the position of CEO, you know, they want to be boss, and you can’t blame them, and the only thing in their way is the board of directors. So they look for people who are big names and they look for ways to keep them happy, but they don’t really want them getting into the business very much. There’s a lot more process now that’s been imposed by the recent rules.

But I would say still, in terms of the reality of the guts of business and the discussions that take place and all that, I think you might be surprised at the level overall of that throughout corporate America. As I’ve written in the report, overwhelmingly, the job of the board of directors is to have the right CEO. I mean, if you’ve got the right CEO, 90 percent of it takes care of itself. If you were the director of Cap Cities and you had Tom Murphy as the CEO, you know, case closed. It was all you needed. And if you have that CEO, I think you have an obligation on the board to make sure that there’s not overreaching by the CEO, because the CEO can have different interests. And I think the third thing that the board does — should do — is they really should bring some independent judgment in on major acquisitions. Because there is a natural tendency for people with, usually, big egos, big motors, who get to be CEOs that like to do big things and to become bigger spending other people’s money.

And normally, when big deals come along, you know, the management — by the time it gets there, they’ve made the deal anyway. They have investment bankers there who go through a little ritual. I’ve never seen one come in and make a presentation that says it’s a dumb idea. I mean, they know what the answer is supposed to be, and it just becomes kind of a little game. So I think in those three respects, a good director will first make an affirmative decision. You’ve got a very good CEO — not the best in the whole world, not everybody can do that — but a very good CEO. That that CEO is not overreaching. And when significant deals come along, that they get a chance to weigh in, and that you really get a balanced discussion about the real economics of what you’re doing. And I would say in that latter point, what I’ve seen over the years has really been pretty bad. But I can understand it because the CEO wouldn’t bring in the deal unless he wants it done.

And once he brings it in, he’s going to stack the deck and make the presentation in such a way that it’s almost impossible to exercise independent judgment. Charlie, do you have any thoughts on —

CHARLIE MUNGER: I think big, big deals, on average, in America, are contrary to the shareholders’ interest. That’s the way to bet. On the acquirer’s side, usually the shareholders are worse off.

WARREN BUFFETT: Most stock deals, they think about what they’re getting and they don’t think about what they’re giving. I mean, I have been involved time after time where people are giving a significant percentage of the business, which they wouldn’t sell at the current market price. If somebody came along with a tender offer 20 percent higher, they would say that’s inadequate. But they hand away a piece of the business because they want to own something else. And there’s nothing wrong with that, but you just have to be sure that you’re getting as much as you’re giving. I have very seldom heard a discussion — in fact, I don’t think I’ve virtually ever heard of a discussion — of weighing what you were actually giving away on a stock deal versus what you’re getting. I’ve heard a lot of discussion about dilution and when dilution will be overcome and all that sort of thing, but that is not the question. The real question is are you — if more value is being created, how is it being whacked up between the two companies?

And if not extra value is being created, are you getting more than you’re giving? When I gave away 2 percent of Berkshire Hathaway to acquire Dexter Shoe, that was one of the dumbest deals in the history of the world. And I did it all by myself. Charlie didn’t participate in that one. I wish he had. But, you know, it was dumb. I mean, here’s — it wasn’t 2 percent of what I had then at Berkshire, it’s 2 percent of the present Berkshire Hathaway company. You’d all be 2 percent richer — a little more than 2 percent richer — but you’d be a full 2 percent richer if I hadn’t done that.

CHARLIE MUNGER: Fortunately, you’ve made some better decisions.

WARREN BUFFETT: Yeah. Well, I have to, or we wouldn’t be here. (Laughs)

CHARLIE MUNGER: Yeah.

WARREN BUFFETT: But, you know, the point is that doesn’t show up under conventional accounting at all. You know, it gets brushed under the rug. At Gillette, literally, we had ten deals in a row that never met — came close to meeting — the case that was presented at the time they were presented to the board. Was that ever mentioned to shareholders? Did it show up in our financial report? Never. It never will. And that goes on all the time in corporate America. And, unfortunately, shareholders, to the extent they get unhappy with managements, are complaining about whether they’ve got diversity on the board or something like that. But when you’re blowing away the company, I mean, that, to me, is a whole lot more important. Charlie, you want to —

CHARLIE MUNGER: Yeah. The self-serving delusional nature of even some very good minds, in terms of IQ points, is amazing. I had a friend who sold a business to a government-controlled business in a socialized Scandinavian country. And my friend had a very nice business, and the people on the other side, after they had bought it for stock in their government corporations, said, “This was such a marvelous deal. We got your whole business, and we didn’t have to give anything.”

WARREN BUFFETT: Well, we owned stock in the Third National Bank one time down in Nashville. And they got the ability — and they’re wonderful people — really wonderful people — but they got the ability to acquire other banks where they formerly had been limited in that ability. And they went out to some very small bank, and the guy at the very small bank said, “I want stock.” And he says, “My stock is worth private market value, and your stock is worth market price.” Well, market price happened to be half of — but he says, “All I’m getting is whatever the market is, so I want you to value your stock at market and value mine at this huge premium.” And he said, “And there’s one other condition.” He said, “Since I’m going to be putting my whole net worth in your stock,” he says, “I want you to promise you’ll never do a deal this dumb in the future.” (Laughter) Do you remember that one, Charlie?

CHARLIE MUNGER: Yeah, I remember.

WARREN BUFFETT: Yeah. And that fellow was just being a little — was just getting a little more out in the open than is typically the case. I’ve been on some terrific boards. There was a local one here called Data Documents that really functioned with everybody on the board thinking about the business, understanding the business, making decisions as owners. Every one of them had a significant percentage of their net worth in the business, and probably the best board I’ve ever been on. I mean, every decision there was made for business reasons. The worst decisions — at least they have the potential for being the worst — but it’s standard procedure now when an acquisition comes up to trot in the, you know, investment bankers and the lawyers, and the momentum is just totally to get the deal done. And, like I say, there will be a lot of slides presented. And I can — I don’t need to look at the slides. I know what the answer is going to be. At the end they’re going to say it’s a great deal, you know, and there will be nobody arguing the other side.

They’re just — you know, it is not like something where you would make a decision and you’d have somebody give pro and con. It just doesn’t work that way. I don’t know how to improve that a lot. I think we’ve got a sensational group at Berkshire. You have a group with almost everybody on the board having a significant percentage of their net worth — Bill’s is so big we can’t get him to a significant percentage, but that’s — he’s got hundreds of millions of dollars in it. We’ve got a board that is in exactly the same position as the shareholders. They don’t have directors’ and officers’ insurance. They’ve got the downside as well as the upside. They bought their stock in the open market, so it hasn’t been given to them. It is a real owners’ board, and I like it that way. I think it’s a terrific group, and I’m glad I can get them to work cheap. (Applause)

28. Why Berkshire avoids deals with partners

WARREN BUFFETT: Number 9, please.

AUDIENCE MEMBER: My name is Eid (PH) and I’m from Kuwait. In response to earlier comment about borrowing from Kuwait, I can tell you that after 40 years we now lend in dollars, and you are always welcome in Kuwait. (Laughter) My question is, if you would pick your partners to invest with you in big deals, what would be your criteria for choosing partners?

WARREN BUFFETT: Yeah. We — is that — are you complete on that?

AUDIENCE MEMBER: I’m complete.

WARREN BUFFETT: Yeah. We normally don’t want to do deals with partners. If we like a deal, we want to own it all. And we usually have the money to do it all, so almost — in very few cases would there be a need for a money partner. And then there’s a question for a knowledge partner. And we really wouldn’t want to be going into something, in most cases, where we were relying on somebody else to be the brains of the deal. We’ve made exceptions on that, but very seldom. So we — by our nature, we would like to have a hundred percent of any deal for the benefit of our shareholders. If we’re going to spend our time on it, we just as soon get a hundred percent of the rewards. We don’t mind taking a hundred percent of the downside. And we ought to understand it well enough so we don’t need a partner. Charlie?

CHARLIE MUNGER: I’ve got nothing to add to that one, either.

WARREN BUFFETT: Number 10. Wait, I’m just trying to think. Have we done any big partnership deals?

CHARLIE MUNGER: Well, you made that partnership deal with Leucadia, but they brought you the deal.

WARREN BUFFETT: That is true. We made a very good partnership deal with Leucadia. They did way more than their share, but they brought us the deal. And so they asked us to participate in their deal. Now, in effect, we own less than a hundred percent of some of our businesses, and we’re in partnership with the management. But that’s perfect. I mean, we’ve had some great experiences with that, and we’ll continue to have great experiences. But, you know, they came — they’re in on the same terms we are, and they’re owners. All of our managers think like owners. But in certain cases, they are real owners directly in those businesses as well. But just some outside party as a partner, we really haven’t done, although I would do another deal with Leucadia if they came to me and I liked the deal. I mean, that was a very good experience.

29. No opinion on commodity prices

WARREN BUFFETT: Number 10.

AUDIENCE MEMBER: Good afternoon, ladies and gentlemen. My name is Ari Jahja. I’m a junior from Baruch College, New York City. And on behalf of the Portfolio Management Club, I would like to thank you, Mr. Buffett, for inviting us to this wonderful event. And my question is that, first of all, speaking about Berkshire’s portfolio, there’s an increasing exposure of your investments toward commodities, such as to oil through PetroChina, to steel through POSCO, and to coal and agriculture through the rail stocks that you recently purchased. So my question is that what is your long-term view on commodities, and how does it impact your view on the geopolitical state of the world in the future? Thank you.

WARREN BUFFETT: Yeah. I — and, to my knowledge, Charlie — we’ll hear from him — but we have no opinion on commodities. We — if we were in an oil stock, it’s because we think it offers a lot of value at this price, but it does not mean that we think the price of oil is going up. If we thought oil was going up, we could buy oil futures, which we actually did once. But very seldom — very, very seldom would we have any opinion on what any given commodity would do. Owning POSCO, we just think it’s one of the — well, it is probably the best steel company in the world and — remarkable record. When we bought that stock, we were buying it at four or five times earnings, with a debt-free balance sheet, one of the lowest-cost producers around. I mean, it’s a fabulous company. And in addition, it was a play on the Korean won, and we made 20 percent on the won by being invested through a won-denominated security. So we may occasionally be in those kind of businesses.

We, basically, like best the businesses that require very little capital, because they’re the only ones that have a chance of earning really high returns on capital. You can’t have a business that has huge capital expenditures year after year, and end up with a high- return business. It just doesn’t work in this world. But you can find some businesses that really require relatively minimal capital investment. Here’s the case. This is a small one. But See’s Candy is not going to require a huge capital investment. It requires some capital investment, but it’s a wonderful business. It’s a small business, but it’s a wonderful business. And it’s far better business, relative to size — adjusted for size — it’s a far better business than any steel business is going to be or any oil business is going to be. It’s just that it’s not very big. We’d love to have it bigger. And we’ll do our share in every way we can, as you may have noticed up here.

But we do not have any — we do not have a bias toward — at all — toward businesses involved in commodities. And if we had any bias, it would be against. Charlie?

CHARLIE MUNGER: Yeah. We’re going to be investors in businesses, not commodities, by and large. And that has to work better over time.

30. Dual class shares at the New York Times

WARREN BUFFETT: Number 11.

AUDIENCE MEMBER: Good afternoon. My name is Andy Peake from Weston, Connecticut. Recently the newspapers have been in the news: the [Rupert] Murdoch bid for Dow Jones, Morgan Stanley’s Hassan Elmasry’s push to eliminate the New York Times dual-class share. Given you are both experts in the dual-class share and newspapers, what advice would you give to the long-suffering New York Times shareholders, and what advice do you have for Arthur Sulzberger, the besieged CEO of the New York Times and head of the family that owns the newspaper?

WARREN BUFFETT: Well, I think the “long suffering,” as you put it, shareholder of the New York Times has probably made a mistake — I don’t think I’d necessarily blame the Sulzbergers for the woes of the newspaper business. I mean, we have said for a good many years that we thought — in effect, we thought newspapers were overpriced because they reflected a valuation based on looking in the rearview mirror rather than through the window. And we — it’s interesting. We have this dual-class structure at Berkshire. But because I converted a whole bunch of shares to B, I own about the same percentage of the B as the A, because I converted about six or seven times as much as I needed for present gifts. I only go down to my safe deposit box when I have to, and I didn’t want to go down every year to convert stocks, so I just converted a bunch of stock early on. And now I own about 30 percent of each. So it has no effect, in terms of voting power at Berkshire. But the woes of the newspaper business are not connected with the difference in voting structure at the Times or other places.

The newspaper business has just gotten a lot tougher. And if you think about it — I mean, let’s assume that Mr. [Johannes] Gutenberg, back there in the 15th century, instead of wasting his time developing movable type and all of those kinds of things, decided to become a day trader or hedge fund operator and really made something of himself, so that we never had print. But along came the internet, along came cable TV, all kinds of other things. And then now this year, you know, Johannes Gutenberg the 28th or something, came along and said, “I’ve got this wonderful idea. We’re going to chop trees down. We’re going to haul them great distances. “And then we’re going to put them through expensive newsprint machines. And then we’re going to send them down to someplace where they’ve got expensive presses. “And we’ll run these things all night. And then we’ll send delivery trucks out through the snow to get these little pieces of paper out to people where they can read about what happened yesterday.”

Well, I don’t think we would be backing him, you know. Now, it happened, you know. The other one came along first, and people’s habits don’t change immediately, and, you know, the world doesn’t turn over. But, in effect, you know, the position of newspapers today still reflects the fact that they have inertia and momentum on their side from the past. And I don’t care how smart you are. You know, there was a fellow that came into the LA Times a few years back. He was going to take the circulation up to a million- five, as I remember, Charlie. And the circulation is now 800-and-some thousand of the LA Times, and it’s gone down every week. And I don’t know that — you know, I don’t know that Joseph Pulitzer or William Randolph Hearst or E.W. Scripps or anybody who were geniuses in their day, maybe, at building circulation, could do much about that. The truth is that the world has changed in a significant way. We used to sell 300,000 World Books a year. It was a good value.

You know, and we sell 22,000 sets or something like that now. And it isn’t because the World Book isn’t worth what it sells for. It’s just not worth what it sells to for most people who can go on the internet and get an awful lot of that information free. So I don’t think I would blame the dual-class structure on anybody’s investment losses in the New York Times. The companies that have not had dual-class structures — I mean, we own the Buffalo News. And the Buffalo News earnings have been — they’re certainly down over 40 percent from the peak. We have terrific management. We’ve got a paper that has among the highest penetration in circulation of any large metropolitan paper in the country. But we are — our earnings are going down, and it’s a fact of life. Charlie?

CHARLIE MUNGER: Yeah. He was talking about that dual-class structure as being intrinsically wrong, but I would argue that the Sulzbergers set it up that way when they went public, and so that was in the basic contract. And once a contract has been made, the idea that you can just stamp your foot and take away the contract strikes me as a — kind of an immature idea.

WARREN BUFFETT: I would add, too, that the Sulzbergers from the start — anybody that bought the New York Times knew that they would not try to maximize earnings in a given quarter or try to minimize the downturn by slashing costs or something of the sort. They didn’t build the New York Times by doing that. It did not have a reputation which allows it, perhaps, to have a decent future on the internet. It did not get to where it is by a policy of, you know, Management 101 as taught as some business school. And, yet, following that differing course, you know, I don’t know how many papers in New York disappeared. But whether it’s The Herald Tribune or The Sun or The World-Telegram or you name it, the world — they had a different management approach, and they all fell by the wayside, and the Times is still around. So I — I’m not sure 10 years from now or 15 years from now that people will regard the Times’ playing of their hand as being, necessarily, an inferior one. They may have a better position going into the internet than almost any newspaper around.

Certainly a lot better than, you know, the Philadelphia Inquirer or the LA Times has. You know, the LA Times will have more trouble monetizing their reputation on the internet than the New York Times will, if there’s a national game to be played in that. So we’ll see how it plays out.

31. Annual meeting is running out of space

WARREN BUFFETT: Number 12.

AUDIENCE MEMBER: My name is Betty Stuart Rodgers Jeffreys, and I live in Barrington Hills, Illinois, 35 miles northwest of Chicago. This is the first time I’ve ever been to your annual meeting, and I want to thank you both for giving us so much time to answer our questions and give us such words of wisdom. I would also like to thank you for giving us a wonderful weekend of lunches, brunches, cocktail parties, time at Gorat’s and Borsheims. The problem is that when I told my two adult daughters that I was going to have such a wonderful weekend, they both made me promise to bring them next year. And if 25,000 people bring two people next year, where are we going to meet?

WARREN BUFFETT: Well, I would — if you get the answer to that, I’m really waiting to hear it. Because we — it’s about 27,000, and we are just about maxed out here. We’re just about maxed out in terms of hotel rooms. I think we’re going to have four new hotels in Omaha —

AUDIENCE MEMBER: Oh, good.

WARREN BUFFETT: — before next year. But, you know, that’s a couple thousand people. And, you know, based on the growth, at some point we sort of hit the wall, and I haven’t figured out how to handle that. If anybody has any suggestions, I’ll appreciate hearing about them. But I’m delighted you’re having a good time here. I hope you’ve all had a good time here.

AUDIENCE MEMBER: Thank you.

WARREN BUFFETT: We’re now going to take a ten-minute recess, and then we’ll reconvene. Thank you.

32. Formal business meeting begins

WARREN BUFFETT: OK. If you’ll please take your seats? We want to finish by 4, so we’d like to move quickly through the rest of the business, and we’ll get on to the PetroChina question. And let’s see. Here we are. The meeting will now come to order. I’m Warren Buffett, chairman of the board of directors of the company. I welcome you to this 2007 annual meeting of shareholders. I will first introduce the Berkshire directors — I’ve already done that. So, also today with us are partners in the firm of Deloitte & Touche, our auditors. They are available to respond to appropriate questions you might have concerning the firm’s audit of the accounts of Berkshire. Mr. Forrest Krutter is secretary of Berkshire. He will make a written record of the proceedings. Miss Becki Amick has been appointed inspector of elections at this meeting. She will certify to the count of votes cast in the election for directors. The named proxy holders for this meeting are Walter Scott and Marc Hamburg. Does the secretary have a report of the number of Berkshire shares outstanding, entitled to vote, and represented at this meeting? Forrest?

FORREST KRUTTER: Yes, I do. As indicated in the proxy statement that accompanied the notice of this meeting that was sent to all shareholders of record on March 6, 2007, being the record date of this meeting, there were 1,113,240 shares of Class A Berkshire stock outstanding, with each share entitled to one vote on motions considered at the meeting, and 12,888,424 shares of Class B Berkshire Hathaway common stock outstanding, with each share entitled to one twohundredth of one vote on motions considered at the meeting. Of that number, 955,276 Class A shares, and enough — 11,301,274 Class B shares are represented at this meeting by proxies returned through Thursday, May 3rd.

WARREN BUFFETT: Thank you. That number represents a quorum, and we will therefore directly proceed with the meeting. The first order of business will be a reading of the minutes of the last meeting of shareholders. I recognize Mr. Walter Scott, who will place a motion before the meeting.

WALTER SCOTT: I move that the reading of the minutes of the last meeting of the shareholders be dispensed with and the minutes be approved.

WARREN BUFFETT: Do I hear a second? I guess I heard a second. The motion has been moved and seconded. Are there any comments or questions? We will vote on this question by voice vote. All those in favor say “aye.”

VOICES: Aye.

WARREN BUFFETT: Opposed? The motion is carried.

33. Berkshire directors elected

WARREN BUFFETT: The first item of business is to elect directors. If a shareholder is present who wishes to withdraw a proxy previously sent in and vote in person on the election of directors, he or she may do so. Also, if any shareholder that is present has not turned in a proxy and desires a ballot in order to vote in person, you may do so. If you wish to do this, please identify yourself to meeting officials in the aisles, and we’ll furnish a ballot to you. Would those persons desiring ballots please identify themselves so that we may distribute them. I now recognize Mr. Walter Scott to place a motion before the meeting with respect to election of directors.

WARREN BUFFETT: I move that Warren Buffett, Charles Munger, Howard Buffett, Susan Decker, William Gates, David Gottesman, Charlotte Guyman, Don Keough, Tom Murphy, Ron Olson, and Walter Scott be elected as directors.

WARREN BUFFETT: Is there a second?

VOICE: Second.

WARREN BUFFETT: It’s been moved and seconded that Warren Buffett, Charles Munger, Howard Buffett, Susan Decker, William Gates, David Gottesman, Charlotte Guyman, Donald Keough, Thomas Murphy, Ronald Olson, and Walter Scott be elected as directors. Are there any other nominations? Is there any discussion? The nominations are ready to be acted upon. If there are any shareholders voting in person, they should now mark their ballots on the election of directors and allow the ballots to be delivered to the inspector of elections. Would the proxy holders please also submit to the inspector of elections a ballot on the election of directors voting the proxies in accordance with the instructions they have received. Miss Amick, when you are ready, you may give your report.

REBECCA AMICK: My report is ready. The ballot of the proxy holders in response to proxies that were received through last Thursday evening cast not less than 1,008,564 votes for each nominee. That number far exceeds a majority of the number of the total votes related to all Class A and Class B shares outstanding. The certification required by Delaware law of the precise count of the votes, including the additional votes to be cast by the proxy holders in response to proxies delivered at this meeting, as well as any cast in person at is this meeting, will be given to the secretary to be placed with the minutes of this meeting.

WARREN BUFFETT: I would — I would — Is he a shareholder or not? I want to be sure all the shareholders have a —

GERALD PORTER: He has the proxy of Etta and James Friend, who are the shareholders of three shares —

WARREN BUFFETT: I just want to make sure. Are there other shareholders at 7 that want to talk too or not? I want to make sure that all the time isn’t taken.

AUDIENCE MEMBER: We will not take all the time.

WARREN BUFFETT: OK. That’s fine. I just want to make sure that the shareholders aren’t shut up.

AUDIENCE MEMBER: Good afternoon, and thank you for inviting me to speak about Darfur. My name is Abdamide Jusef (PH), and I am speaking today as a proxy of Etta, Freta, and James Friend, who are the holder of four shares of Class B stocks. I am from western Darfur, and my parents still live in Darfur. I fled from Sudan to Egypt in September 2002 after being expelled from Sudan University in Khartoum for speaking out in (inaudible) of Darfur. We are detained for a few week and we suffered from abuse physically and psychologically every day until they released and told us we are not allowed to go to any university and we had to stay away from any activity for that student association. I get refugee status in the United States, and I move to Des Moines, Iowa, on March 2005. The Janjaweed attack my family — my family’s home — in Darfur in January 8, 2007. Four Arab men from the Janjaweed attack our home in the early morning. At that time, there was a guest in my family home.

The Janjaweed left him without attention; so he run away to get help from our neighbors. The Janjaweed started by taking all the money and jewelry from my family. When the Janjaweed found out that someone had run to get help, they left my family, but they promised them they were going to come back. Even that my family escaped injury, my neighbor (inaudible) and his entire family of five were murdered by the Janjaweed. The Janjaweed also took their horses, and these activities were ongoing in my town for a while. And everybody in my community or someone was murdered, have someone was murdered and raided by the Janjaweed. My mom told me everybody wake up every day, and the first thing they do is check their neighbor and their relative to see if they are alive or not, and so do I. The Janjaweed are stealing my town. Now they work as gangs who kill and rape. Every family is affected, and nobody can stop them. Even though I live in safety and peace there — here in United States, I still worry about my family back home in Darfur. Please try to do anything to help my family and all people in Darfur.

I need your help. If you do the simple thing like tell your friend about the genocide in Darfur or join an organization, or talk or send letters to your member of Congress, or don’t invest in any companies that’s helped genocide in Darfur. Please, Mr. Buffett and Berkshire Hathaway shareholders, get involved to bring the hope and peace to the children and women and all of us in Darfur. Whatever you do to stop the genocide in Darfur is saving life of human being. Thank you for listening, and now I would like to introduce Bob Edgar, the General Secretary of the National Council of the Church. Thank you.

BOB EDGAR: As we close, I’m Bob Edgar, General Secretary of the National Council of Churches and a former member of the United States Congress. I’m here in support of the resolution and a proxy for Doris Gluck, who holds ten shares in the company Class B stock. In February of 1968, I had the privilege of meeting Dr. Martin Luther King five weeks before he was assassinated. Later, as a member of Congress, I served on the Select Committee on Assassinations, looking into both the death of Dr. King and John F. Kennedy. I come here today in honor of the kind of dream that Dr. King had. He said this: “Our lives begin and end the day we have become silent about the things that matter. We will not be silent.” I am here today representing millions of faithful Americans — Christians, Jews, Muslims, and others — who have stood up and said no to this genocide. Just 11 or 12 or 13 years ago, 800,000 people were killed in Rwanda in 90 days, and we were silent. We will be silent no more. Mr.

Buffett, this morning you said a great thing, and I quote, “I find it reprehensible when a government preys on the weaknesses of its citizens rather than protecting them.” I wholeheartedly agree. You were talking about gambling. We urge you to think the same way about genocide. On the document in opposition to this resolution, you said this: “Proponents of the Chinese government’s divesting should ask the most important question in economics, ‘And then what?’” We are prepared to answer that question, “And then what? And then what?” Then the world will finally focus on the issue of genocide in Darfur. Then the international investors all over the world in many companies would follow the ethical actions of Berkshire Hathaway’s moral leadership, moral leadership, and call for all governments of the world to stop the genocide. “And then what?” Children would be saved, women would not be raped, fathers would not be killed, and we would find our way in this human family to care for one another. Jesus said, “We should love our neighbors as ourselves.”

I think he meant, “We should probably try every means available to stop those neighbors from being killed.” This is just one way we can follow those words of Jesus. And, finally, the former pope, John Paul, said, “I dream of a world where none will be so poor they have nothing to give and none will be so rich they have nothing to receive.” I urge support of this resolution. (Applause.)

WARREN BUFFETT: Are there other shareholders that would like to talk before we respond?

AUDIENCE MEMBER: Mr. Buffett, my name is Aaron Frank. Thank you for hearing us on this matter. I’m from Atlanta, Georgia. And along with being a — along with being a Berkshire shareholder, I also independently own shares of PetroChina. And this issue is something I’ve struggled with for years, in terms of whether to divest or not. What I’ve done personally is given the dividends that I receive from PetroChina to organizations that help in Darfur, but this is mostly symbolic. What is clear to me is if I had the opportunity to engage the management of PetroChina in a meaningful way as I do with you here today, that I would be compelled to do so ethically. As owners of Berkshire Hathaway, we have a unique opportunity to engage the management of PetroChina in a way that will be heard not only by the management of PetroChina but by CNPC, China, and the international community due to your standing. That’s a unique opportunity, and this is an incredibly — this is an incredibly important matter. I think we have an ethical obligation to do so. Thank you for listening.

WARREN BUFFETT: OK. Thank you. (Applause.)

WARREN BUFFETT: Is there anyone —

AUDIENCE MEMBER: Yes.

WARREN BUFFETT: Yeah.

AUDIENCE MEMBER: My name is Bill Rosenfeld from Lexington, Massachusetts. In your web posting you claim that a subsidiary can’t control the actions of its parent, so actions against PetroChina will have no impact on CNPC. Suppose that millions of Americans boycotted GEICO Insurance or other Berkshire companies because of a policy at Berkshire Hathaway. Wouldn’t that make you reconsider that policy even though your subsidiaries are voiceless in Berkshire Hathaway management? How does targeting PetroChina to influence CNPC differ from this situation? (Applause.)

WARREN BUFFETT: Well, I actually would say it’s quite different. If a shareholder of Wesco — you might — Marc, you might put up the chart that shows the flow of ownership both with China and with —

MARK HAMBURG: It’s up.

WARREN BUFFETT: OK. Wesco does not control Berkshire Hathaway. We can have all the — we can have lots of overlap in management and everything. Berkshire Hathaway controls Wesco. If a shareholder of Wesco were to complain to the management of Wesco, which is analogous to PetroChina, about the fact that, let’s say, that Berkshire bought ISCAR or any other activity or anything I was doing personally, they would have no ability to control me. If somebody controlled — complained to Berkshire about something that was going on at Wesco, we could certainly introduce action. So the — it flows downward. The overlap means nothing. I mean, obviously the Chinese government controls PetroChina. They own 88 percent of the stock. We control MiTek. We own 90 percent of the stock. We control Wesco. We own 80 percent of the stock. We can tell MiTek what to do. We can tell Wesco what to do. But MiTek and Wesco cannot tell Berkshire what to do. I think there’s a fundamental misunderstanding on that. The Chinese government controls 20 — 32 of the largest 33 publicly-owned companies in China.

WARREN BUFFETT: The Chinese government, in effect, is in charge of all of those companies. The Chinese government does business with the Sudan. PetroChina does not. PetroChina in no way tells the Chinese government what to do. And we’ve seen evidence of that in a lot of ways. So it seems to me it’s backwards. If it was PetroChina following a policy that the Chinese government disagreed with, believe me, there would be a change in a hurry. We have no disagreement at all about what’s going on in Darfur. There’s two questions. One is PetroChina influence the Chinese government. And, secondly, if we don’t agree with what the Chinese government is doing, should we sell our stock in PetroChina? The people here who are come, who own stock in Berkshire Hathaway, have obviously made the choice, even though they disagree with what our policy is, to continue as shareholders. And I agree with them — with that — a hundred percent. And we, in turn, elect to continue to hold our shares in PetroChina because we have no disagreement with what PetroChina is doing. If there’s a disagreement, it may be with what the Chinese government is doing.

WARREN BUFFETT: Now, in terms of what the Chinese government is doing, you know, we’ve heard talk about divesture by China. If the Chinese left the Sudan tomorrow, 400,000 barrels of oil would be being produced, a good bit with the money that China has invested in the Sudan. You can’t take the assets. You can’t the refinery. You can’t take pipelines. You can’t take the oil out of it. They can sell their interest. They can sell it to other people who are doing business in the Sudan. They can sell it to the Sudanese government. But, believe me, they would probably sell it very cheap. The Sudanese government would get a bargain, or the Sudanese government might very well renegotiate terms in their favor, if they allowed a third party to buy. Believe me, you know, they would be in a position if they — assuming they could affect the transfer — and I think there’s a lack of understanding of what really would happen if China said tomorrow, “We’re going to get — we’re going to take our interest away from our activities in Sudan.”

WARREN BUFFETT: They would have to sell them or they’d have to give them up one way or the other. And, like I say, I think the Sudanese government would probably end up better off financially if they had a half-decent adviser in the question than they are presently. I might mention one other thing which is kind of interesting in this. We buy about — currently about $250 billion worth more of goods from China than we sell to them, and we give them little pieces of paper in exchange. And we say to them, “We want your goods, and you should work hard and send us your goods, and we’ll send you these little piece of paper called American dollars.” Two years ago, China wanted to use some of those American dollar — we’d use their goods — to want to buy a company called Unocal. Unocal was a (inaudible) U.S. company. The majority of their production of oil and gas came from outside the United States — a substantial majority — came from places like Thailand, Indonesia. And the Chinese wanted to buy that company, and by a vote of 395 to 18, the U.S.

WARREN BUFFETT: House of Representatives sent their message to President Bush that it would be against the national interest to let this company be sold, which, as I say, produced very little oil and gas in the United States. Got most of it from the rest of the world. So, in effect, we snubbed the Chinese in a big way on something important to them: energy. And I might mention that we import perhaps four times as much energy from all the countries around the world as the Chinese do, even though they have four times the population. So we have, in a sense, told the Chinese a couple of years ago “Don’t even think about buying the small U.S. company with a lot of production — fair amount of production — abroad to satisfy your energy needs.” And I think it’s understandable to some extent that the Chinese are looking for energy around the world just as we have for the last century. They are buying significant amounts of oil from Sudan.

WARREN BUFFETT: They put money in there, and the — they are going to buy four or — they are going to buy that 400,000 — they’re not taking the whole 400,000 barrels a day from the Sudan, but they’re taking significant amounts. They’re going to buy that oil in the world market. That oil is going to get produced. Revenue is going to flow to the Sudan. The question is how much the Sudanese keep themselves and how much gets disbursed to the Chinese because of the investment they’ve made. So I see no effect whatsoever in Berkshire Hathaway trying to tell the Chinese government how to conduct their business. I agree a hundred percent with the fact that what is happening in the Sudan should not be happening, and I — there are other parts of the world where say some — that same situation may exist, although not to the same degree. But I don’t think you can — I don’t think it’s proper for us to divest our shares in PetroChina. They would be sold to somebody else. I think the proponents of the motion probably would like the idea that the price of the stock would go down.

WARREN BUFFETT: But we don’t sell stocks, you know, basically to try and drive them down in price. We might sell PetroChina if it went up enough, but we would not be selling it to try and drive down the price, because all that would be doing is giving a bargain to somebody else who is buying the stock of PetroChina. It doesn’t change the funds available to them at all. One of the speakers mentioned the amount of money that goes from PetroChina up to its parent. Well, money from Wesco comes up to Berkshire from our subsidiaries. You know, that’s the nature of having a major ownership in a subsidiary is that you get money from MiTek, you get money from Nebraska Furniture Mart, which we own 80 percent of. But that really has nothing to do — in my view, at least — it has nothing to do with the fact that it is China that has a policy in respect to being partners in Sudan, and it is not PetroChina at all. Selling our stock would not change one thing.

WARREN BUFFETT: If we would have any communications, as a practical matter, the communications should be with Chinese government — and actually people here have had a chance because we have a lot of media here — they’ve had a chance to express their views to the Chinese government. Believe me, unless the opinions get expressed to the Chinese government, expressing them to PetroChina means nothing. I mean, PetroChina is controlled by the Chinese government, and they are not — if you were an official of PetroChina, you are not going to tell the Chinese government what to do. They are going to tell you what to do. Charlie?

CHARLIE MUNGER: Well, the issue also is China is a rapidly rising nuclear power, and who should decide how the federal government — or how the Americans — should react to China? There’s a lot to be said for letting the policy flow through the U.S. government instead of sort of a vigilante effort of various citizens. Now, I would also point out that there’s a lot wrong all over the Earth, and there’s a lot of cruelty and there always has been, and there will always be a lot of oil produced in a lot of lands with a lot of cruelty. And nobody is in favor of cruelty, but there’s a limit to how much you can fix. And so I’m very skeptical of the idea that Berkshire should become an instrument of telling — of setting United States policies vis-a-vis China. (Applause)

WARREN BUFFETT: Yeah. Charlie and I have our own views, for example, on reproductive freedom, but we don’t have a Berkshire Hathaway policy on reproductive freedom nor do we finance from Berkshire Hathaway funds — the funds of our shareholders — we do not finance any activities that relate to our personal beliefs, although we may, obviously, fund them by ourselves or speak out on them by themselves, but we do not have a Berkshire Hathaway funding just because we believe that women should have the right to choose or questions of that sort.

CHARLIE MUNGER: I think reasonable minds can disagree on these subjects. At Berkshire, there’s all kinds of businesses we won’t buy and control individually, but we’re willing to own stock in the same businesses. Is that the correct moral line to draw? I don’t know. We do our best, and we make the decisions, and we make the calls.

WARREN BUFFETT: I would say — I wonder really whether when the Unocal question was being determined here, were the Chinese to whom we’d given lots of little tickets in exchange for taking their goods, and they came along with a perfectly decent offer to the shareholders of Unocal, 18 1/2 billion dollars. They wanted to buy a little more oil and gas production around the world. And the U.S. Congress overwhelmingly said this is a terrible thing and we want the United States to oppose it and we want it sold to Chevron for less money. And I really don’t recall a lot of people speaking up on behalf of the Chinese right to buy oil companies over here, just like we’ve bought oil companies around the world for many decades. So to the extent that they may feel themselves somewhat alienated from the rest of the world in this respect, I think we’ve actually contributed our share. Charlie?

CHARLIE MUNGER: Another thing in the complexity of life, the woman who lost her family to the Holocaust, we clobbered the people that committed that genocide by joining genocidal Joe Stalin. These issues are complicated.

WARREN BUFFETT: OK. If there are any shareholders that want to vote in person in this — on this — matter or to change their proxies, we have monitors. If you just raise your hand. And if there are none of those, Miss Amick, are you ready to give your report?

BECKI AMICK: My report is ready. The ballot of the proxy holders in response to proxies that were received through last Thursday evening cast 15,740 votes for the motion and 830,598 votes against the motion. As the number of votes against the motion exceeds a majority of the number of votes related to all Class A and Class B shares outstanding, the motion has failed. Certification required by Delaware law of the precise count of the votes will be given to the secretary to be placed with the minutes of this meeting.

WARREN BUFFETT: Thank you, Ms. Amick. The proposal fails.

35. Formal meeting adjourns

WARREN BUFFETT: Does anyone have any further business to come before this meeting before we adjourn? If not, I recognize Mr. Scott to place a motion before the meeting.

WALTER SCOTT: I move this meeting be adjourned.

WARREN BUFFETT: Is there a second?

VOICE: Second.

WARREN BUFFETT: All those in favor say “aye.”

VOICES: Aye.