I mean, they are not happy — Wells is not happy — having 175 billion at the Fed, and they’re looking every place they can to get it out, with the proviso that they hope to get it back from whoever they get it out to, which can slow down a bank at times. But it— we really are in uncharted territory. I’ve got a lot of faith in Bernanke. I mean, he — if he’s running a risk, he’s running a risk he knows and understands. I don’t know whether he’s affected by the fact that his term expires pretty soon, so he just hands the baton off to the next guy and said, “Here. Here’s this wonderful balance sheet. And all you have to do is bring it down a few trillion dollars,” you know. (Laughs) And I gave a few lectures at George Washington University last year, if you care to read them, and maybe it’ll help you. The — this is something we haven’t seen. It certainly has the potential for being very inflationary. It hasn’t been so far.

In fact, my guess is that the Fed wishes it had been a little more inflationary. If you’re running up a lot of debt, it gets measured in relation to nominal GDP, and the best way to run up — easiest way to run up, not the best way — the easiest way to run up nominal GDP is to inflate, and my guess is that they never would admit it but that the — that at least some Fed members — are probably disappointed that they haven’t seen more inflation. It won’t be when they start selling. It’ll be — when the market gets a — any kind of a signal — that maybe just the buying ends, maybe that selling will take place, you know, it’s likely to be the shot heard around the world. Now, that doesn’t mean the world will come to an end, but it will certainly mean that everybody that owns securities and who’s felt that they’ve been driven into them by extremely low rates or that the assets have to go up in price because interest rates are so low, will start re-evaluating their hand, and people re-evaluate very fast in markets.

So, while I’ve been talking, Charlie, have you got any new insights?

CHARLIE MUNGER: Well, generally speaking, I think that what’s happened in the realm of macroeconomics has surprised all the people who thought they knew the answers, namely the economists. Who would have guessed that interest rates could go so low and stay so low for so long? Or that Japan, a mighty, powerful nation, could have 20 years of stasis after using all the tricks in the economist’s bag? So I think given this history, the economists ought to be a little more cautious in believing they know exactly how to stay out of trouble when they print money in massive amounts.

WARREN BUFFETT: It is a huge experiment.

CHARLIE MUNGER: Yeah. (Applause)

WARREN BUFFETT: What do you think the probabilities are that within ten years you see inflation at a rate of 5 percent or higher a year?

CHARLIE MUNGER: Well, I worry about even more than inflation. If we could get through the next century with the same results we had in the last century, which involved a lot of inflation over that long period, I think we’d all be quite satisfied. I suspect it’s going to be harder, not easier, in this next century. And it wouldn’t surprise me — I’m not going to be here to see it — but I would predict that we may have more trouble than we think — than we now think.

WARREN BUFFETT: Charlie says he won’t be here to see it, but I reject such defeatism. (Laughter)

21. Effects of low interest rates

WARREN BUFFETT: Becky?

BECKY QUICK: This is actually a follow-up to the shareholder from Overland Park, the question that was just asked. This comes from Anthony Starace (PH) who is in Lincoln, Nebraska, and he says, “How has the Fed’s zero-interest policy affected Berkshire Hathaway’s various business segments? For example, has it helped or hurt their operations and profitability?”

WARREN BUFFETT: Well, it’s helped. You know it— interest rates are to asset prices, you know, sort of like gravity is to the apple. And when there are very low interest rates, there’s a very small gravitational pull on asset prices. And we have seen that getting played out. I mean, people make different decisions when they can borrow money for practically nothing than they made back in 1981 and ‘2 when Volcker was trying to stem inflation and use — and the government bond rates got up to 15 percent. So, interest rates power everything in the economic universe, and they have some effect on the decisions we make. We borrowed the money on the Heinz purchase a lot cheaper than we could’ve borrowed it 10 or 15 years ago, so that does affect what people are willing to pay. So it’s a — it’s a huge factor and, of course, it will — presumably — it will change at some point, although, as Charlie was pointing out in Japan, it hasn’t changed for decades.

So, if you wanted to inflate asset prices, you know, bringing down interest rates and keeping them down — at first, nobody believed they’d stay down there very long, so it reflects the permanence that people feel will be attached to the lower rates. But when you get the 30-year bond down to 2.8 percent, you know, you are — you’re able to have transactions take place. It makes houses more attractive. I mean, it’s been a very smart policy, but the unwind of it, you know, has got to be more difficult, by far, than buying. I mean, it is very easy if you’re the Fed to buy 85 billion a month and — I don’t know what would happen if they started trying to sell 85 billion. Now, when you’ve got the banks with loads of reserves there, it might — it’d certainly — be a lot easier than if those reserves had already been deployed out into the real economy. Then you would really be tightening things up.

But I have — you know, this is like watching a good movie, as far as I’m concerned, because I do not know the end, and that’s what makes for a good movie. So, we will be back here next year and I will — or maybe in two or three years — and I will tell you I told you so and hope you have a bad memory. Charlie? (Laughter)

CHARLIE MUNGER: Well, I strongly suspect that interest rates aren’t going to stay this low for hugely extended periods. But as I pointed out, practically everybody has been very surprised by what’s happened, because what’s happened would’ve seemed impossible to practically all intelligent people not very long ago. At Berkshire, of course, we’ve got this enormous float in the insurance business, and our incremental float, when we’re carrying huge amounts of cash, is worth less than it was in the old days. And that, I suppose, should give some cheer to you people because if that changes, we may get an advantage.

WARREN BUFFETT: Yeah, we have 40 — at the end of the first quarter, we had, whatever it was, 48 or maybe 9 billion or something like that — in short-term securities. We’re earning basically nothing on that. We do not — we never stretch for yield in terms of commercial paper that brings ten basis points more than Treasury. Our money— we don’t count on anybody else, so we keep it in Treasurys, basically, and so we’re earning nothing on that. So if we get back to an environment where short-term rates are 5 percent, and we would still have the same amount, then that would be a couple billion dollars of annual earnings, pretax, that we don’t have now. But of course, it would have lots of other effects in our business. We have benefited significantly, and the country has benefited significantly, by what the Fed has done in the last few years. And if they can successfully pull off a reversal of this without getting a lot of surprises, you know, we will all have been a lot better off.

22. Building, not buying, commercial insurance growth

WARREN BUFFETT: Cliff?

CLIFF GALLANT: Thank you.

WARREN BUFFETT: Cliff, incidentally, you ran a 2:40 last year, didn’t you, in the marathon at Lincoln?

CLIFF GALLANT: I ran the Lincoln marathon after the shareholder meeting.

WARREN BUFFETT: OK. We’ve got incredible talent on this thing. (Laughter)

CLIFF GALLANT: I wanted to ask you more about the commercial insurance business and Berkshire’s interest.

WARREN BUFFETT: Right.

CLIFF GALLANT: If the business is attractive, why not make an acquisition? Do you think that public company valuations are too high today?

WARREN BUFFETT: Yeah. There aren’t too many commercial operations that we would want to acquire, big ones. It wouldn’t do much — I mean, we’re acquired — when we acquired GUARD Insurance, it’s workers’ compensation, but it’s just — it’s a small acquisition. It’s a good acquisition, but that is a commercial, in effect, underwriter that we acquired late last year. But, if you look at the big ones, some of them we wouldn’t want. There’s a couple that we would. But the prices would be probably far higher than what we think we might be able to develop a comparable operation for. I mean, we — in effect — I think we’re going to build a very large commercial operation, and essentially we’ve built it at book value. And we pick up no bad habits of other companies, at least we hope we don’t. And so, it’s really better to build than buy, if you can find the right people with the right mindset, and everything, in the business.

And you know, we’ve got a terrific manager, obviously, in Ajit, and these other people have sought him out, so I think — if there were certain commercial operations, and we could’ve bought them at the right price, we’d have done it. But we have not been able to do that so we will build our own. And I predict that we will have a good and significant commercial insurance operation in a relatively short time.

23. Munger: bitcoin won’t be “big universal currency”

WARREN BUFFETT: OK. Station 5?

AUDIENCE MEMBER: Good morning. My name is Benjamin. I’m from Appleton, Wisconsin, and I had a question for you regarding unregulated digital currency, such as bitcoin. I was wondering what you think the significance of something like that showing up in the last few years is, and what you think that might mean for the future? Thank you.

WARREN BUFFETT: Charlie, I hope you know something about this subject because I don’t know a thing. (Laughs)

CHARLIE MUNGER: I know what he’s talking about.

WARREN BUFFETT: I know what he’s talking about, but I just don’t —

CHARLIE MUNGER: I have no confidence whatsoever in bitcoin being any kind of a big universal currency.

WARREN BUFFETT: That would certainly be my gut reaction, but I don’t — I haven’t really looked into it. But I— I’ll put it this way: of our 49 billion, we haven’t moved any to bitcoin. (Laughter) My— well, the truth is I don’t know anything about it. That doesn’t always stop me from talking about things, but it will in this case.

24. Pampered Chef isn’t a pyramid scheme

WARREN BUFFETT: OK. Andrew? (Laughter)

ANDREW ROSS SORKIN: OK. Bill Ackman, the activist investor, who’s also a Berkshire investor as well, has raised questions in recent months about the legality of the multilevel marketing company Herbalife. He called it a pyramid scheme. Berkshire owns a multilevel marketing company, too: the Pampered Chef. Will Ackman’s attack on Herbalife have any impact on the Pampered Chef or Berkshire, and do you believe Ackman’s concerns are legitimate? How do you think about the debate over multilevel marketing companies and decipher which ones are legitimate and which ones are not?

WARREN BUFFETT: Yeah. I don’t know anything— I’ve never actually even looked at a 10-K of Herbalife, so I do not know about their operation. But, I think the key, obviously, is whether a direct marketing operation is really based on selling product to would-be distributors of one sort, and loading them up, instead of sell— in effect — selling it to end users. And Pampered Chef is a million miles away from anything where the money is made, in any way, by selling to level A, and then those people selling to level B, and all that sort of thing. It is true that certain people — lots of people — get paid on the results — the selling results — of other people that they recruit. But this business of loading up people with a couple-hundred dollar package of something that they never sell, and that being sort of the main business — and I don’t know anything about Herbalife on this, I do know about Pampered Chef — and that is not Pampered Chef’s business. Pampered Chef’s business is based on selling to the end user.

And we have thousands and thousands and thousands of parties every week where people who are actually going to use the product buy it from somebody, and we are not making it — we’re not making the money — by loading up people and then having them leave the sales force and our profit coming from that. Charlie? I think that should be the distinguishing characteristic. If I were regulating the industry, I would look very hard at operations where thousands of people got their hopes as to earning a living by selling the product, invested their savings, and buying a whole bunch of product that they didn’t need themselves, and then sort of being — abandoning the hope and being left with the product. And the parent company just— or the main company — just going out and selling millions and millions of people on a dream that was not fulfilled. Charlie?

CHARLIE MUNGER: Well, there’s likely to be more flimflam in selling magic potions than pots and pans. (Laughter)

WARREN BUFFETT: At our age, we’re in the market, though, for any magic potions, if any of you have them. (Laughter) That’s the extent of your comment, I assume, Charlie?

CHARLIE MUNGER: Yes.

25. “Lender of last resort” after Buffett?

WARREN BUFFETT: OK. Doug?

DOUG KASS: Warren —

WARREN BUFFETT: Doug. (Laughs)

DOUG KASS: Warren. (Laughter) Much of Berkshire’s returns over the last decade have been based on your reputation and your ability to extract remarkable deals from companies in duress, as compared to the past, when you conducted yourself more as a value investor digging and conducting extensive analysis. What gives you confidence that your successor’s imprimatur will be as valuable to Berkshire as yours has been?

WARREN BUFFETT: Well, the successor will probably have even more capital to work with, and they will have capital, presumably, from time to time, when markets are in distress. And at those times, very few people — few people have the capital, and a lot fewer people have the willingness, to commit. But I have no question that my successor will have unusual capital at times when — at turbulent times when — the ability to say “yes” very quickly with very large sums sets you apart from virtually anybody in the investing universe. And I would not worry about that successor being willing to deploy capital under those circumstances, and being called upon. I mean, Berkshire is the 800 number when there’s really, sort of, panic in markets, and for one reason or another, people need significant capital. Now, that’s not our main business. You know, it happened a couple times in 2008. It happened once in 2011. But that’s not been our main business, but it’s fine. And it will happen again.

And I would think if you come to a day when the Dow has fallen 1,000 points a day for a few days, and the tide had gone out and we’re finding out who’s been swimming naked, that those naked swimmers may call Berkshire — they will call Berkshire — if they need lots of money. I mean— and Berkshire’s reputation will become even more solidified, in terms of being willing to provide capital for sound deals at times when most people are frozen. And when that happens when I’m not around, it becomes even more the Berkshire brand and not anything attached to a single individual. Charlie?

CHARLIE MUNGER: Well, I would argue that in the early days, Warren had huge success as a value investor in little-owned companies because his competition was so small. If he stayed in that field, he would have to be in bigger companies, and his competition would be way more intense. He’s gotten into a field, being a good home for a big companies that don’t want to be controlled in meticulous detail by headquarters, where there isn’t much competition. So I would argue that he’s done exactly the right thing, and it’s ridiculous to think that the past is the thing he should have stayed in.

WARREN BUFFETT: Well, we will send— I think he’s probably referring to something like the Bank of America transaction or Goldman Sachs and GE — and there will come a time, in markets, where large sums — I’ve gotten calls on other things, too, but —

CHARLIE MUNGER: Yeah, but other people are not getting the calls.

WARREN BUFFETT: Well, they don’t have the money and they don’t have the willingness to act immediately. And Berkshire will — those qualities will remain with Berkshire after I’m gone. In fact, in a sense, the area we occupy becomes more and more our own as we get even bigger, I would say, Charlie.

CHARLIE MUNGER: That’s what I like about it. (Laughter)

26. We only buy from willing sellers

WARREN BUFFETT: OK. Station 6?

AUDIENCE MEMBER: Hi. My name is Andre from Beverly Hills, California. During very key events, like the Sanborn incident, when you were buying See’s, or when you were buying Berkshire stocks, you persuaded people to sell you their shares when they really didn’t want to. What were your three keys to influencing people in those specific situations?

WARREN BUFFETT: Yeah. I don’t think — you brought up Sanborn and you brought up See’s and— I don’t think —the See’s family, there had been a death in the See’s family— it was Larry See, wasn’t it, that died?

CHARLIE MUNGER: Yeah.

WARREN BUFFETT: And he had been the instrumental, I guess, grandson of Mary See, and the operator, and there was a— the rest of the family really didn’t want to run the business. So it was put up for sale, and I didn’t even hear about it until they’d had one other party— I don’t know even know who it was— but that they negotiated a deal with and that it didn’t go through. Charlie probably remembers this better than I do. We certainly — the See family— and Charlie persuaded me to buy it. We didn’t persuade them to sell it. Charlie?

CHARLIE MUNGER: Yeah. We didn’t buy anything from any unwilling sellers.

WARREN BUFFETT: No. And Berkshire, we started buying that in 1962 in the open market. It had quite a few shareholders. It was a — it traded fairly actively, and we bought a lot of stock, and we did buy a couple of key pieces. We bought one from Otis Stanton, who was Seabury Stanton’s brother, but Otis wanted to sell. It wasn’t the most attractive business in the world. I mean, here was a textile company that lost money in most of the previous years, and over a ten-year period, that had significant losses. And it was a northern textile company. So, we bought stock in the market, a lot of stock in the market. We had two big blocks from Otis Stanton and from some relatives of Malcolm Chace, but they were happy to sell. I never met — at the time I bought the stock from Otis Stanton — I had never met him, and so I delivered no personal sales talk to him. And the same thing is true of the Chase family, not Malcolm himself, but some relatives, they sold us a block of 100,000 shares. But we were not out convincing anybody to sell their stock.

So there’s been very little that I can remember where — we talked to Betty Peters about avoiding a transaction we thought was dumb, when Wesco was considering merging with Financial Corp of Santa Barbara. I flew out to see her in San Francisco. But she stayed with us. She did not sell her stock and remains a shareholder to this day, 30-plus years, almost 40 years later. Charlie?

CHARLIE MUNGER: Well, I’ve got nothing to add to that at all.

27. Berkshire’s edge for acquisitions

WARREN BUFFETT: OK. Then we’ll go to Carol.

CAROL LOOMIS: This question comes from Mark Trautman of Crested Butte, Colorado. And you’ve touched on this, Warren and Charlie, on little fringes today, but this is a direct question. “Warren, both you and Charlie have described over the years how you have built Berkshire Hathaway to be sustainable for the long term. “I am having difficulty explaining to my 13-year-old daughter, and frankly, to many adults, also, in easy to understand terms, Berkshire’s business model and long-term sustainable, competitive advantage. “Can you give all of us, and particularly my daughter, Katie, who is here today, the Peter Lynch two-minute monologue explaining the business of Berkshire Hathaway and its merits as a longtime investment for future decades?”

WARREN BUFFETT: OK, Charlie, you talk to Katie. (Laughter) I’m going to have some fudge. (Laughter)

CHARLIE MUNGER: All right. I’ll try that. We’ve always tried to stay sane, and other people, a lot of them, like to go crazy. That’s a competitive advantage. (Laughter and applause) Number two: as we’ve gotten bigger, we’ve used this sort of golden rule that we want to treat the subsidiaries the way we would want to be treated if we were in the subsidiaries. And that, again, is a very rare attitude in corporate America, and it causes people to come to us who don’t want to come to anybody else. That is a long-term competitive advantage. We’ve tried to be a good partner to people who come to us and need a partner with more money. That is a competitive advantage. And so, we are leaving behind a field that’s very competitive and getting into a place where we’re more unusual. This was a very good idea. I wish we had done it on purpose. (Laughter)

WARREN BUFFETT: A few years ago, a person who’s in this audience, I believe, came to me and he was in his 60s, and he said that for about a year, he’d been thinking about selling his business. And the reason he had been thinking about it was not because he wanted to retire. We’re not — we very seldom buy businesses from people who want to retire. He didn’t want to retire at all. He loved what he was doing. But he’d had an experience in buying a business a few years earlier from a family where he had known the fellow that built it, the fellow had died, and then just everything bad started happening in the family and the business and the employees, everything else. So he really wanted to put to bed the question of what happened with his business. It wasn’t that he really cared a lot about monetizing it or having the money. He just wanted — he wanted to put his mind at ease, that what he had spent lovingly building up over 30 or 40 years was not going to get destroyed — or that his family would get destroyed — if he — if he made a — if he died.

So he said he thought about it a year. And he thought about it and he thought, “Well, if I sell it to one of my competitors” — and they would be a logical buyer, they usually are. That’s why we have antitrust laws. If he sold it to a competitor, they would come in and basically they would put their people in charge. They would have all these ideas about synergy, and synergy would mean that the people that had helped him build the business over 30 years would all get sacked and that the acquiring company would come in like Attila the Hun and be the conquering people, and he just didn’t want to do that to the people that helped him over the years. And then he thought he could — he might — sell it to some private equity firm. And he figured that if he sold it to them, they’d load it up with debt, which he didn’t like, and then they’d resell it later on. And so he would, again, have lost control and they might do the same thing that he didn’t want to have happen in the first place, in terms of selling it to a competitor, or whatever it might be.

So when he came to me, he said — he described this — and he said, “It really isn’t because you’re so attractive.” But he said, “You’re the only guy left standing. You know, I mean, you’re not a competitor, you’re not a private equity firm, and I know I will get a permanent home with Berkshire and that the people that have stayed with me over the years will continue to get opportunities and they will continue to work for me. I’ll keep to get doing what I love doing, and I won’t have to worry about what will happen if something happens to me tonight.” Well, that company has turned out to be a wonderful acquisition for Berkshire, and our competitive advantage is we had no competitors. And I think — well, we will see more of that. We’ve seen a lot of that over the years. We’ll see more of it. Charlie, anything?

And I don’t think you mentioned the fact that developing a shareholder base, too, that’s different than —we do look at shareholders as partners, and, you know, it’s not something a public relations firm wrote for us, or anything of the sort. We want you to get the same result we get, and we try to demonstrate that in every way we can.

28. BNSF outlook for carrying coal and oil

WARREN BUFFETT: Jonathan?

JONATHAN BRANDT: I have a — (Applause) I have a couple questions about Burlington Northern’s two energy franchises, coal and crude.

WARREN BUFFETT: Uh-huh.

JONATHAN BRANDT: Given that coal-fired generation is in gradual structural decline, can you discuss whether the tracks, locomotives, and other assets used to deliver coal can be redeployed, equally profitable, serving other customers? Are those assets fungible? Can you also discuss whether crude by rail can continue to grow even as pipelines are built to serve the Bakken, and as the currently large geographic spreads in crude prices potentially narrow? You’ve talked about the flexibility of crude by rail on TV. Can you elaborate on that, please?

WARREN BUFFETT: Yeah. If there was no coal moving, we would not find a lot of use for some of the tracks we have, there’s no question about that. So, the — I think what you’re talking about would be very gradual over time. But, I mean, the outlook for coal is not the same as the outlook for oil. A lot of the coal, in terms of the year-by-year fluctuations, may depend on the price of natural gas because some of the generating capacity can go in either direction. In terms of oil, I think the view a few years ago was that there might just be a little blip in terms of rail transportation. But I’ve talked to some oil producers, the largest up there in the Bakken, and I think there will be a lot of rail usage for a long time, in fact, increased rail usage. Oil moves a whole lot faster, incidentally, by rail than it does by pipeline. Most people have sort of a visual conception that the oil is flowing at terrific speeds through pipelines and that the railcars are sitting on the sidelines someplace. But it’s just the opposite. You can move oil a lot faster.

And with change — with different market prices and different refinery situations and all that — there’s a lot of flexibility in the oil transportation by rail. Matt Rose is right up front here, and if somebody would give him a microphone, I think he can probably tell you a lot more about moving coal and oil than I can. Matt? We got a spotlight someplace that can focus right on here?

MATT ROSE: Yes. So, Warren, the two franchises are really different. That’s just the way the geographic is laid out. We expect the coal franchise to basically stay about where it is today, depending on natural gas prices as well as what happens with the EPA. Our crude by rail, right now we have about 10 loading stations in the Bakken with about 30 destination stations. We’re currently in negotiation, looking at about another 30 destination stations. So it’s really an exciting time right now. We’re handling about 650,000 barrels of crude a day. We think we’ll be at 750 by the end of this year, and we see a pathway to a million-two to a million-four.

WARREN BUFFETT: When you think of the whole country producing 5 million barrels a day not long ago, that is a lot of oil. And of course, it isn’t just the Bakken. You know, the shale developments, they can open up a lot of things over time.

29. Sorry to see Harley-Davidson notes expire

WARREN BUFFETT: OK. Station 7?

AUDIENCE MEMBER: Good morning, Warren and Charlie. My name is Bill Hennessy (PH) and I’m from Milwaukee, Wisconsin. I have a similar question. Back in 2009, you made a substantial investment in Harley-Davidson with the five-year term at 15 percent. I noticed that note comes due in 2014. What are your plans or thoughts once that investment comes due?

WARREN BUFFETT: Well, what we’d like to do is not answer the mail, and just let him keep paying his 15 percent, but that won’t happen. The — no, those were — we had a few private transactions during a period when the corporate bond market was basically frozen and received unusual terms, although the best terms those companies obviously could obtain at that time. And those deals are coming due, and I wish the five-year deals had been ten-year deals. But, now those — that was a special time. And in effect, that’s a depleting asset that we have that’s left over from five years ago. We won’t see anything like that for a while, but we’ll see similar things at some point in the future. I mean, the world is given to excesses, and they have consequences, and we are always willing to act. I mean, we did not think Harley-Davidson was going to go broke. I mean, it was that simple.

You know, any kind of company that gets its customers to tattoo ads on their chest can’t be all bad, you know, I mean— (Laughter) But it will be a sad day when the Harley-Davidson notes mature.

30. Todd Combs and Ted Weschler’s stock-picking independence

WARREN BUFFETT: OK. Becky?

BECKY QUICK: This question comes from Andishi Tuzush (PH) who asks, “If Todd Combs and Ted Weschler, if they purchase stock in a company that you have reviewed before and did not believe to be a good investment, would you share your thoughts with them?”

WARREN BUFFETT: I would probably not know they were even buying it until, maybe, a month after they started. I do not — they do not check with me before they buy something. I gave them each another billion dollars on March 31st, and I do not know whether they’ve spent the billion or whether — which stocks they bought or— Now, I will see it on portfolio sheets. I get them monthly, but they’re in charge of their investments. They’ve got one or two things that they’re restricted on, in terms of— things that — for example, if we own a chunk of American Express, and under the Bank Holding Company law we would not be able to buy another share. So there’s a couple things like that — restrictions they have. But otherwise, they have no restrictions on what they buy. They’ve bought things I wouldn’t buy. You know, I buy things they wouldn’t buy. That part of the investment process. I do not tell them how much to diversify. They can put it all in one stock if they want to.

They can put it in 50 stocks, although that’s not my style. They are managing money. And when I managed money, you know, I wanted to be a free agent. If he wanted to give me — they could make the decision on whether they wanted to give me the money, but once they gave me the money, and I had the responsibility for managing it, I wanted free reign to do what I wanted. And I did not want to be held responsible for things with my hands tied. And that’s exactly the position we have with Todd and Ted now. It takes a lot of — it’s an unusual person that we will give that kind of responsibility to. That’s not something that Charlie and I would do lightly at all. But we thought they deserved the trust when we hired them, and we believe that more than ever after watching them in action for a time. Charlie?

CHARLIE MUNGER: What can I say in addition to that?

31. Why GEICO isn’t copying Progressive’s Snapshot

WARREN BUFFETT: OK. Cliff?

CLIFF GALLANT: Thank you. I wanted to ask a follow-up question about Snapshot at Progressive. Now, I realize that GEICO’s first quarter numbers are very good, things are going very well at the company. But Progressive is claiming that the data is profound, that they’re getting from Snapshot. That they can give their best drivers 30 percent rate cuts, and those customers are still their most profitable customers. We have a lot of GEICO policyholders here today. I’m sure they’re very good drivers. Why shouldn’t they go try Snapshot and try to save 30 percent or more? Why isn’t GEICO investing in what I think appears to be a credible underwriting tool and potential threat?

WARREN BUFFETT: Yeah. They — I don’t think — but obviously Progressive disagrees with us — but I don’t think their selection method is better than ours. And I would say that I might even feel that ours is a little bit better than theirs. But every company has a different approach to it. Peter Lewis, who runs Progressive, when he started the company— he told me this story himself. I mean, it was a tiny, tiny little company. It came out of a mutual company, as you know. And he went in the motorcycle business. And the first guy that he insured— or the first loss, I think, that was reported— came from some guy that was redheaded, and he just decided not to insure any redheads for a while. (Laughter) That — you know—when you don’t have very much money, you can’t afford to experiment too long. Well, Peter learned that that was not a criteria, and he knew that, but he had fun telling the story.

But all we’re trying to do— if I’m looking at all these people here and I’m going to issue them insurance policies for the next year, I’m going to charge different rates to different people. And, if I’m going to sell them life insurance, I’m going to charge different rates to them. If I’m going to sell them health insurance, I’m going to charge different rates. There’s a different — there’s a different probability attached to each individual, based on a whole lot of variables. And Progressive — before Snapshot, they had a different selection approach than GEICO. And like I say, ours has worked very well and we think it will continue to work well. And we are obtaining, under our selection system, we are obtaining a hugely disproportionate number of new policyholders compared to the growth in the market, so our rates are attractive and our underwriting results are attractive. And we continue, always, to look for further ways, obviously, to refine the selection technique. But we don’t do any of it lightly because what we’re doing now is working very well.

And I just invite you to compare the Progressive results with the GEICO results in the next two or three years, and I will — if we’re wrong — I will be here to freely admit that we were wrong, but I don’t think we will be. OK, station 8? Oh, Charlie, you want to add something?

CHARLIE MUNGER: Well now, obviously, we’re not going to immediately copy the oddball thing that every single competitor does in the world, particularly when we’ve got an operation that’s working so well.

WARREN BUFFETT: If I were starting in the direct auto insurance business, I think I would attempt to copy GEICO. It wouldn’t work, but it would offer you the best chance, I think. It’s a remarkable system. And Tony Nicely, you can’t give him enough credit. I mean — you know, we will — I hope we will — gain a million policies this year. The entire industry, I don’t think, will gain more than a million-and-a-half. So we will probably get two-thirds — in my view — we’ll get two-thirds of all the growth and we’ll do it profitably, and we’ll save people a lot of money. So I think that’s quite a company.

32. We rely on sugar and caffeine, not to-do lists

WARREN BUFFETT: OK. Station 8?

AUDIENCE MEMBER: Hi. My name is Alex, and I’m from Los Angeles. Mr. Buffett, I’ve heard that one of your ways of focusing your energy is that you write down the 25 things you want to achieve, choose the top 5, and then avoid the bottom 20. I’m really curious how you came up with this, and what other methods you have to prioritizing your desires?

WARREN BUFFETT: Well, I’m actually more curious about how you came up with it, because — (laughter) — it really isn’t the case. It sounds like a very good method of operating, but it’s much more disciplined than I actually am. (Laughter) If they stick fudge down in front of me, I eat it, you know, I’m not thinking about 25 other choices. (Applause) So I don’t mean to —you know, Charlie and I live very simple lives. We know what we do enjoy, and we now have the option of doing it, pretty much. Charlie likes to design buildings. I mean, he’s not—he’s no longer a frustrated architect — he’s a full-fledged architect now. And, you know — and we both like to read a lot. But we — I’ve never made lists. I can’t recall making a list in my life, but maybe I’ll start. You’ve given me an idea. Thank you. Charlie?

CHARLIE MUNGER: Well, what’s really interesting on the subject of Warren’s operating methods, you can see happening here. We didn’t know, when we started out, this modern psychological evidence to the effect that you shouldn’t make a lot of important decisions when you’re tired and that making a lot of difficult decisions is tiring. And we didn’t also know, as well as we now do, how helpful it is to be consuming caffeine and sugar when you’re making important decisions. (Laughter) And what happens, of course, is that both Warren and I live entirely on autopilot, in terms of the ordinary decisions in life, which is totally habitual, so we don’t work — waste — any decision making industry — I mean energy — on that stuff, and we’re ingesting caffeine and sugar. And, it turns out, under the modern evidence, this is an ideal way to sit where Warren sits. And he didn’t know that, he just stumbled into it. (Laughter)

WARREN BUFFETT: When we write our book on nutrition, it promises to be a huge seller. (Laughter)

CHARLIE MUNGER: I cannot remember an important decision that Warren has made when he was tired. He’s never tired. (Laughter) He sleeps soundly, and he doesn’t waste time thinking about what he’s going to eat. As you say, he just eats what he’s always eaten. You know, his style turns out to be absolutely ideal for human cognition. (Laughter) It looks peculiar, but he stumbled into something very good.

WARREN BUFFETT: You can write the forward to my next book. OK. (Laughter)

WARREN BUFFETT: Yeah. I don’t know the answer to that. The— I’m virtually certain that — you know, we’ve got 70-plus subsidiaries, some of which — one of which — has over 100 itself. So, very hard to speak totally categorically. But to my knowledge, I don’t know of any units that don’t have health care benefits. But like I say, I mean, we just bought 27 or 28 daily newspapers, some of them are very small, so I can’t really speak to every single unit. But health care costs are a huge cost for us. We’re actually going to do — we do very few things with, as you know, on a centralized basis — but that is something where all of our companies will try to learn what’s in store for them and try to figure out some answers. But we have not yet — we have not assessed in any way — put together — the kind of figures that that question calls for. We spent a lot of money, obviously, I mean, to get up to the kind of numbers that are coming through on health care costs.

I see them at some of our — a few of our — individual units, as I look at their monthly reports. I will see costs rising 10 or 12 percent. And what happens in 2014, I don’t know. But the same thing will be happening to our competitors, and we will try to figure out what makes the most sense at that time. And our individual managers are already working, particularly the larger units, are spending a lot of time on that. But it’s not something we try to control out of headquarters. Charlie?

CHARLIE MUNGER: Yeah, it’s a — we really don’t want to try and control it out of headquarters. We like that kind of decision being made near the firing line.

37. Future of rooftop solar power

WARREN BUFFETT: Jonathan?

JONATHAN BRANDT: Here’s a question for Charlie on a subject which I consider him an expert on, and I hope I don’t prove my ignorance by asking the question. The question is about capital spending plans at your regulated utilities and a potential longterm risk to realizing returns on current and future capacity. With the ongoing reduction in the cost of solar panels causing more utility customers to, at least, consider generating electricity from their own rooftops, some worry about a vicious circle of customers reducing their dependence on the grid, forcing utilities to raise rates, to maintain returns on the remaining customers who, in turn, are then incentivized to reduce their dependence on the grid, or even exit it. I understand the risks are greatest to regulated utilities in sunny places like Arizona and California, but given how much solar power is generated in cloudy places like Germany, are regulated utilities in Iowa, the Pacific Northwest, the Rocky Mountains, and the UK really immune?

CHARLIE MUNGER: Well, my answer would be I don’t think anybody really knows exactly how this is going to play out. I confidently predict there will be more solar generation in deserts than there is going to be on rooftops in cloudy places — (laughter) — and there’s a good reason for that. And Berkshire’s big operations, as you — in solar — are in what amounts to desert. And we get very favorable terms and incentives, and I think Berkshire’s going to do fine in solar. I am skeptical, myself, about trying to run the utilities of the world from a bunch of little, tiny rooftops. I suspect there’s some twaddle in that — and some fancy salesmanship in that arena. And of course, the people that did it early were foolish because the price came down rapidly thereafter. So put me down as not totally charmed by rooftops in cloudy areas.

WARREN BUFFETT: We have Greg Abel here from MidAmerican Energy. If we can direct a spotlight down there, Greg can probably speak to this with a lot more intelligence than Charlie and I. I noticed that —

CHARLIE MUNGER: Yeah.

WARREN BUFFETT: I noticed that—I noticed that Jonathan left me out of the thing entirely when he wanted to get an intelligent answer, but I’m not taking any offense at that. Greg?

GREG ABEL: Sure. Happy to touch on it. Jonathan, I would touch on the fact you’re absolutely right. We’re seeing, when it comes to rooftop solar, a decline in the total cost of installing them. At the same time, when you compare it to a regional tariff, or a specific tariff in most of those states, the utility is extremely still competitive. And I would highlight that as you see more rooftops coming on, you’ll see a restructuring of the tariffs, but at the same time, there’s a lot of protection for the utilities. So in the regions we’re supplying power, we will see some introduction of solar, but we’re absolutely comfortable our systems for the long-term are valuable both to our customers and to our shareholders — Berkshire shareholders — for the long term. Thanks.

38. Luck, timing, and success

WARREN BUFFETT: OK. Station 10.

AUDIENCE MEMBER: Thank you. Marc Marzotto, Toronto, Canada. Bill Gross made recent comments that his generation of investors, yourselves included, owed a deal of their success to timing. Do you agree with Bill’s comment, and do you think a similar opportunity will provide itself to today’s investors? Thank you.

WARREN BUFFETT: Yeah, there’s no question that being born in the United States was a huge, huge, huge advantage to me, and as I’ve pointed out in a recent article, being born male was a big advantage. I would not have had the same opportunities in the investment, or in the business world, remotely, that I’ve had if I’d been a female born in 1930. And the timing could have been a little better. Actually, my dad was a security salesman and, you know, I was conceived in November, 1929. And if you remember, the stocks had gone down dramatically at that time. There really wasn’t anybody to call on, for my dad, and there wasn’t any television at home or anything. So here I am, you know. (Laughter) So I feel myself very lucky that the crash of 1929 came along. And that also provided a decade, more than a decade, of people who were very turned off.

Well, it was a decade of terrible business for quite a while, and then a decade of — more of people that were turned off on stocks, just as we sort of had a decade like that in the past decade going up to 2010 or so, people that — a lot of people — that had gotten turned off by stocks. So that was a favorable environment. But the United States itself was an incredibly favorable environment. If I’d been born five years earlier, I probably would have made more money. But if I’d been born 10 or 15 years later, I would’ve made, probably, less money. But, it— I envy the baby that’s being born today in the United States. I mean, I think, on a probability basis, that’s the luckiest individual that’s ever been born. And I think that they will do very well in life in all kinds of ways, on a probability basis, better than existed when I was born. And I think they’ll have opportunities to do very well in the investment field.

It may not be as good a field as it was for me starting in 19-, say, ‘50, ‘51 or thereabouts, but it will be a very good field to operate in. The person that has a passion for investing, born today, coming of age 20 years from now, is likely, in my view, to do very well, and to live far better than we live today, just as we live far better than John D. Rockefeller lived many years ago. Charlie?

CHARLIE MUNGER: Well, the competition was very weak in your early days, and I don’t think the competition is as weak now. So I think, sure, we got advantages from timing. And I don’t think that means there’s nothing to be done ahead.

WARREN BUFFETT: But Charlie, in 2008 and ‘9, there were all kinds of high IQ —

CHARLIE MUNGER: Yeah.

WARREN BUFFETT: — highly experienced, investment professionals, I mean, thousands and thousands and thousands of them. And you invested at the Daily Journal Company in some equities at X that are worth, what, three X or four X now, or something like that?

CHARLIE MUNGER: That’s right.

WARREN BUFFETT: Yeah. Well, I call that opportunity, but it may be routine to him. (Laughs)

CHARLIE MUNGER: But I sat for a lot of years before I did it.

WARREN BUFFETT: But it still became available.

CHARLIE MUNGER: Oh, yes. But you were drowning in opportunities when I first knew you. (Laughter) You were waiting for —

WARREN BUFFETT: I wasn’t drowning in money, unfortunately. (Laughs)

CHARLIE MUNGER: No, what you lacked was money.

WARREN BUFFETT: Yeah. Well, now we’ve got money and no ideas.

39. You have to like what you’re doing

WARREN BUFFETT: OK. Station—(Laughter) Station 10? Station 10? Do we have a Station 10? Let’s take a look. It should be right over there.

AUDIENCE MEMBER: Hi.

WARREN BUFFETT: Hi.

AUDIENCE MEMBER: My name is Dexter Ang (PH). I’m from Stafford, Virginia. I’m 30 years old, and I’m wondering what my life will be like in a few years, let alone 50 years from now. My question for both Mr. Buffett and Mr. Munger is: how do you think you’ve changed over the last 50 years? And if you could communicate to yourself 50 years ago, what would you tell them, one piece of advice, business or personal, and how would you do it in a way where your former self would actually heed it? (Laughter)

WARREN BUFFETT: Charlie, I’ll let you answer that. (Laughter) Incidentally, I’ll trade you places, so don’t worry about your future.

CHARLIE MUNGER: Yeah, we’re basically so old-fashioned that we’re boringly trite. We think you ought to keep plugging along and stay rational and stay energetic and just all the old virtues still work, and—

WARREN BUFFETT: But find what turns you on.

CHARLIE MUNGER: You’ve got to work where you’re turned on. I don’t know about Warren, but I have never succeeded to any great extent in something I didn’t like doing.

WARREN BUFFETT: Charlie and I both started in the same grocery store, and neither one of us are in the grocery business. (Laughs)

CHARLIE MUNGER: We were not going to be promoted, either, and even though you had the family name.

WARREN BUFFETT: My grandfather was right, too. (Laughs) It’s really — I mean, if you’re lucky, and Charlie and I were lucky in this respect. We — well, we were lucky to be in this country to start with — but we found things we like to do very early in life, and then we, you know, we pushed very hard in doing those things, but we were enjoying it while we did it. We have had so much fun running Berkshire, I mean, it’s almost sinful. But, we were lucky to — you know, my dad happened to be in a business that he didn’t find very interesting but I found very interesting. And so when I would go down on Saturday, there were a lot of books to read, and, you know, it just flowed from a very early age. And Charlie found — he found —

CHARLIE MUNGER: We found a way to atone by your — for your — sins in having so much fun. You’re giving all the money back.

WARREN BUFFETT: Yeah, but you give it all back whether you want to or not, in the end.

CHARLIE MUNGER: That’s true, too. (Laughter)

40. Rational insurance pricing

WARREN BUFFETT: OK. Becky?

BECKY QUICK: This question comes from Laurence Endersen in Dublin, Ireland. And he asks, “What factors have enabled Berkshire’s insurance pricing policy to stay so rational while also being a very sizable market participant?”

WARREN BUFFETT: In insurance, was that the —

BECKY QUICK: In insurance, yeah.

WARREN BUFFETT: Yeah. Well, I would say this: I really do think that Berkshire is an unusually rational place. I mean, we know what we want to accomplish. We’ve had the benefit of a very, very long run, and we’ve had the benefit of a — you can argue whether it was a benefit or not — but of controlling shareholders, so we did not have outside influences that pushed us in directions that we didn’t want to go. So, you know, insurance should be conducted as a rational activity. And one of the problems that some insurers have had is that they would have a pressure for increasing premium volume every year, brought upon by Wall Street, you know— very few— We actually contracted the business written by National Indemnity, formerly our main business, its traditional business, I think we contracted it, probably, by 80 percent or something of the sort when the business became less attractive. I’m not sure any manager of a public company that was answering to quarterly earnings calls and that sort of thing, I’m not sure whether they could’ve really stood up to the kind of pressure that they would receive if they followed a similar policy.

We have no — if we do something stupid, it’s because we did something stupid. It’s not — no external factors are pressing on us. And that’s a great way to operate, and it’ll continue to be the way we operate. Most people, if you own a half of 1 percent of the company or less, you know, and other people are doing things that Wall Street is applauding and you’re not doing them, it could be very hard to resist. And you know, you respond to media criticism and all kinds of things that— We don’t have — we don’t have to do it. And there’s no reason for us to do anything stupid in insurance. You get offered a lot of opportunities to do things that are stupid. We were major writers of catastrophe — natural catastrophe — insurance in the United States some years ago when the prices were right. We don’t think the prices are right now, so we don’t write it.

We haven’t left the market, the market left us, and — but we are not about to do something where we get paid 90 cents for running the — running a probabilistic loss of a dollar. It just doesn’t make any sense and we won’t do it. And we don’t put any pressure on anybody to do it, and their incomes are not dependent on doing it. So it’s not hard to be rational at Berkshire. Charlie?

CHARLIE MUNGER: Yeah. There are pressures on other people that we don’t want and therefore don’t have. It is very hard to shrink an insurance operation by 80 percent when the people who come in every day don’t have enough to do, and it’s just — it’s a counter-intuitive thing to do. But it’s absolutely required that you do it in a place where people go as crazy as they do in insurance.

WARREN BUFFETT: Well, it’s like buying Internet stocks, you know, in the late 1990s. I mean, the — all around you, you have these people that have high IQs and they’re doing it and they’re being successful in it. So, you know, everybody from your, you know, your spouse to your employer to the press says, you know, “How come all these other — how come you think you’re so smart, you know, avoiding this when everybody else is doing it and they’re making a lot of money?” And, of course, it creates this social proof where it works for a while. That’s the great danger period in all of these bubbles, is that what starts out with skepticism ends up with your neighbor getting richer than you are because he went along and you didn’t. And that sort of thing — the bandwagon effect and everything — those things are very hard to resist. But we don’t have any pressures to do that sort of thing.

I mean, we just don’t give a damn, you know, and if — We don’t necessarily think we’re smarter than the other person on that. We just think we don’t understand what it’s all about. And if they can make a lot of money, you know, day trading or whatever it may be, you know, good luck to them. But we’re not envious of them, but we certainly are not going to do it just because they’re doing it. Charlie, any more on that?

CHARLIE MUNGER: Oh, I always say there’s a reason why all that stuff is in the Bible. You can’t covet your neighbor’s ass or — (Laughter) I mean, they were having trouble with envy a long time ago. And it’s a perfectly terrible thing to do, and how much fun can you have being envious? We always say it’s the one sin there’s no fun in.

WARREN BUFFETT: Yeah. (Laughter) Gluttony is a lot of fun. (Laughs) Lust has its place, too, but we won’t get into that.

41. “Dumb” competition from hedge funds in reinsurance

WARREN BUFFETT: Cliff? (Laughter)

CLIFF GALLANT: We can follow that up. (Laughter) Reinsurance pricing is expected to be down at midyear renewals this year, despite the fact that we’ve had a lot catastrophes in recent years. The finger is being pointed towards alternative capital entering the market, new capacity entering the market. How concerned are you about this new capacity, and, you know, what is the likelihood that cheap reinsurance pricing soon leads to cheaper primary commercial pricing?

WARREN BUFFETT: Yeah. We hate dumb competition, and hedge fund — managed money, but particularly hedge funds — have entered the insurance, and more particularly, probably, the reinsurance business, quite aggressively in the last few years. For one thing, it gives them a chance to have a beard, in effect, to operate in Bermuda or someplace where the tax rates are low and where they defer their own income from U.S. income taxes for a long time, and it’s a perfectly respectable beard. And it can be sold to investors. And people talk about it, you know, being an uncorrelated type of operation and all of that. Anything Wall Street can sell, it will sell. I mean, you can count on that. And —

CHARLIE MUNGER: They like big words, too.

WARREN BUFFETT: Yeah. And it’s very salable now, and the money will flow in and the money will — may — bring down prices, it may do stupid things in reinsurance, but that’s happened before. And in the end, you know, we know what we’re willing to do, we know what we think the prices should be, and we will do insurance business where we think that the odds favor us earning an underwriting profit. And if we can’t do it, we’ll watch for a while. You can’t afford, you know, to go along with the crowd in investment, insurance, or a whole lot of other things. And it can be irritating to have a dumb competitor. I mean, if you’ve got a service station on the corner and you’ve got a guy across the street that is willing to sell gas below cost, you know, you’ve got a terrible problem. That’s why I got out of the gas station business a long time ago.

But insurance, it’s — nice thing about it is— the standby costs are not huge, so it’s not like idling steel plants or something. So we were perfectly willing in the 1980s to have our expense ratio go up significantly because our volume went down so dramatically. And, you know, it was a standby cost that was real, but it wasn’t back breaking, and we just waited for better days, and they came along. Charlie?

CHARLIE MUNGER: With our cranky, wait-it-out methods, we probably have ended up with the best large-scale causality insurance operation in the world.

WARREN BUFFETT: Yeah, I think that’s true, but —

CHARLIE MUNGER: So why would we change?

WARREN BUFFETT: We never really anticipated it would happen, though, when we started in.

CHARLIE MUNGER: That’s true.

WARREN BUFFETT: Yeah. It just sort of evolved. But the principles were useful, and then we were very lucky in getting some sensational people. You know, we’ve got Tad Montross at Gen Re, we’ve got Ajit Jain, we’ve got Don Wurster, we’ve got Tony Nicely at GEICO. I mean, we have just hit the jackpot, in terms of the people. And they like the environment of Berkshire in which to operate, because they do not get pressures to do dumb things, which they would get at many other places.

42. Buffett calls for more women in corporate leadership roles

WARREN BUFFETT: OK. Station 11.

AUDIENCE MEMBER: Hi. My name is Susan Tilson, and I’m from New York City. I am a long-term shareholder, but this is my first time to Omaha. This is quite the little gathering you’ve got going on here. You, just a few minutes ago, Mr. Buffett, mentioned that you enjoyed a lot of advantages as a male. I have three daughters, and I would like them to be able to go as far as their aspirations and hard work take them. I’ve noticed and applaud the fact that you’ve added women to Berkshire’s board, but both the board and senior management at Berkshire still reflect the reality that in 2013, there are very few women holding the top jobs in corporate America. Do you see this as a problem? And if so, what should be done about it?

WARREN BUFFETT: Well, I do see it as a problem, and I — (Scattered applause) I’ve written an article in Fortune Magazine, which if you go to Fortune.com, I guess it’s in front of the paywall. You can click on it. It’s only 1150 words or so. And you’ll see my views on that. But there’s no question that women throughout my lifetime and, you know, for a millennia before that, have not had the same shot at many things in the world that males have. I mean, I have two sisters, as I pointed out in this article — both here today, I believe — and, you know, a couple years on each side of me, and absolutely as smart as I am. They’re more personable than I am. They got along with people much better than I did when we were young. Got — their grades were the same, but they did not have the same opportunities at all. I mean, nobody really wanted to limit them.

Certainly the— you know, my parents love them the same way as they felt about me, and they never would’ve dreamt of saying to them that, you know, Warren gets all these opportunities and you don’t. But it just existed. And, you know, all my teachers in grade school, every one of them was a female. And the reason they were females is because they only had a few occupations open to them. So, as a result, I had way better teachers than I sort of deserved for the pay level that existed in it because all this talent was being compressed into a few areas. Well, a lot of improvement has been made, but there’s still a ways to go. And there is a pipeline effect, so I mean, you couldn’t change it all in one day if you wanted to. But on the other hand, that should not be an excuse for not changing at all. And then I also wrote about the fact that there’s — that when people are placed in that position, they start believing it about themselves, so they do not set their own objectives as high as their potential would indicate.

And that’s — I use the example of Katharine Graham, who I knew quite well, and she was, you know, she was very, very intelligent. She was very high-grade. She had all kinds of good qualities. But she had been told by a mother, and she had been told by a husband, and she had been told by society that women couldn’t run businesses as well as men. And she knew it wasn’t true, but she couldn’t get rid of it. And she saw herself in this funhouse mirror, and it — no matter how hard you tried, you couldn’t really get rid of the funhouse mirror. It had just been there too long. And I kept saying, you know, “Look at yourself in a regular mirror, and you’ll see somebody who’s very smart and very high-grade and just as good as any male you’ll find.” Her stock went up 40-for-1 when she was CEO. She wrote a Pulitzer Prize-winning autobiography.

And to her dying day, you know, she — at one level she knew she was the equal of the males around her, and at another level, she couldn’t get rid of that little voice inside of her that came from her mother and came from all of society that said, you know, “You should take care of the garden and let the males do all the important work.” So, both the exterior obstacles— they’re crumbling to a very significant degree and they should. I mean, it only took thousands of years. I mean, as I point out in the article, we said in the Declaration of Independence, “We hold these truths to be self-evident, that all men are created equal,” but they weren’t so self-evident when they got around to writing the Constitution and they used a bunch of male pronouns in describing the presidency in Article II, or when they didn’t get around to putting a Supreme Court—a female Supreme Court — justice on until 1981. So, the country has come a long way on it. It continues to move. It’s moving in the right direction.

But you know, I hope it keeps moving and moving faster, and I hope that the females that are laboring under these beliefs that were told to them about themselves that aren’t true, get rid of the funhouse mirrors and get regular mirrors. And I say all this in this article if you want to read it in Fortune.com. Thank you. (Applause)

43. Berkshire is not “too big to fail”

WARREN BUFFETT: OK. Andrew?

ANDREW ROSS SORKIN: You’ll know why I’m asking this question in a second, and why I picked it. This question is the following: “Is Berkshire too big to fail? On the same topic — ”

WARREN BUFFETT: I think I heard of a book by that name. Who wrote it? (Laughs)

ANDREW ROSS SORKIN: “On the same topic, how do you feel about Dodd-Frank? And now that it’s being implemented, how is it impacting Berkshire’s insurance businesses and our investments in banks like Wells Fargo and Goldman Sachs?”

WARREN BUFFETT: Yeah. I don’t think it’s affecting Berkshire’s insurance businesses, to my knowledge. I mean — we’re — we’ve had — to my knowledge, you know, we’ve never had anything that impinges on our activity arising from a too-big-to-fail doctrine. The capital ratios for large banks are being established at somewhat higher levels than smaller banks, and that obviously affects return on equity. The ratios, as I understand it, for Wells are not as high as they would be for Citi or J.P. Morgan, but they’re higher than they would be for a local bank in Omaha. And the higher the capital ratio, the lower the return on equity will be. I consider the banking system in the United States to be stronger than, certainly, any time in the last 25 years. Capital is dramatically higher. A lot of the — well, a very significant part — of the loans that were troublesome are gone. The loans that have been put on the last four or five years are far better.

It’s a — I think we’ve got — the Canadian banking system is very strong, but compared to Europe, I think our banks — or compared to our banks of 20 years ago — I think they’re dramatically stronger than they were then. I do not worry about the banking system being the cause of the next bubble. I mean, it will be something else. I mean, we will have bubbles in capitalism. Capitalism goes to excess, and it’s because of the humans that operate it. And we will have that again, but usually you don’t get it the same way as you got it before. I don’t think it will be a housing boom next time. But, I am — you know, I feel very good about our investment in Wells Fargo. I feel very good about our investment in U.S. Bank. I feel very good about our investment in M&T. All of those are very strong banks pursuing, in my view, sound practices, and they should result — they should be decent investments, over time.

They won’t earn as high a return on tangible equity, nearly as high a return as they would have seven or eight years ago, because the rules have been changed. And they have been changed to provide thicker equities, and that pulls down return on equity. Charlie has been known to express himself on this subject, and I’ll give him the floor.

CHARLIE MUNGER: Well, I’m a little less optimistic about the banking system, long-term, than you are. I would like to see something more extreme, in terms of limiting bank activities. I do not see why massive derivative books should be mixed up with insured — deposits that are insured — by the country.

WARREN BUFFETT: I’m with Charlie on that. (Applause)

CHARLIE MUNGER: The more bankers want to be like investment bankers instead of bankers, the worse I like it. (Applause) I don’t want to say more.

WARREN BUFFETT: Yeah. (Laughter)

CHARLIE MUNGER: I get in enough trouble on the subject already.

WARREN BUFFETT: (Laughs) I can—I can see the journalists just licking their chops over there waiting for Charlie to throw a thunderbolt, but he’s unusually restrained.

44. Buffett updates his bet against hedge funds

WARREN BUFFETT: We’re now very close to noon. I promised — five years ago — I wrote about five or six years ago about the inordinate costs that investors bear in — many investors bear in—getting sold various types of products. And I talked about hedge funds and private equity and all kinds — and a whole variety of things. The investment world has been very good at extracting a very significant percentage of the returns that investors get for themselves. So I offered to bet anyone that wanted to step up to the plate that a group of hedge funds would not beat an unmanaged no-load index over a ten-year period. And I promised — and then I got a taker, a very nice group of people. I like them. Ted Seides is in the group. So they took me up on this. So we each put about $350,000 or so into something where in ten years — well, we put it in zero-coupon Treasurys, which would mature and be worth a million dollars in ten years. And I promised to report on the bet every year.

And what we did this year, interest rates fell so far that our original 700,000 or so investment got to be worth like 950,000 just because the five-year Treasury got so low. So there was very little appreciation left into it between now and five years from now when it matures. So, we sold the zero-coupon Treasurys and we bought Berkshire with the proceeds, and I guaranteed that it would be worth a million dollars. Currently it’s worth about a million-two, so that the charities are benefiting to some extent. Now, Ted has one charity, which is a very worthwhile charity. I have Girls Inc. of Omaha, which is a charity I selected. And we’ll put the — we can put the figures up on the — there as to where we stand at the moment. The hedge funds got off to a fast start, and were 13 points ahead of the index fund at the end of the first year. But the last four years — and these are funds of funds, so they really represent probably 2 or 300, maybe, hedge funds underneath. But there’s two levels of fees involved.

There’s the standard fees of the hedge funds, which probably many times are “2 and 20,” but can be other things, and then there’s the fee of the fund of funds on top of it. So, we now are at the halfway point, and I’ll keep reporting to you every year how we do. And if Berkshire does well, we’ll have well over a million dollars to distribute to one of two charities. You might enjoy going to a website called longbets.org. That’s where — they’re the people that hold the money. And you will see that there are a number of propositions that people have wagered on, and the proponents and the opponent of every proposition give a short little description. Ted gave a description of why he thought he’d win. I gave a description of why I thought I’d win. But some of these are — I just can’t resist a couple of — pointing out a couple of them. You can see these on the web. But one of it is that a large collider will destroy the Earth in 10 years.

Now there’s a $1,000 bet on that, but I’m not sure who will collect. (Laughter) I thought that was an interesting one. And there was one other, and then we’ll go to lunch. But there are a number of these that are quite interesting. At least one human alive in the year 2000 will still be alive in 2150. Now, that’s 148 years from when the bet was entered, there’s a $2,000 bet on that. And I hope Charlie is in contention for the — being the winner of that one.

Afternoon Session

1. Buffett’s hot dog lunch

WARREN BUFFETT: I had a hot dog with a lot of ketchup for lunch. I hope you did the same.

2. Buffett: I haven’t lost any intensity

WARREN BUFFETT: And we’ll go to Doug.

DOUG KASS: Thank you, Warren. Mae West once said, “The score never interested me, only the game.” Are you at the point now where the game interests you more than the score? But before you answer the question, let me explain to you why I asked it. In the past, your research has been all-encompassing, whether measured in time devoted to selecting investments and acquisitions, or the intensity of analysis, your interest in the old days of knowing the slightest minutia about a company. You once said, in characterizing Ben Rosner, quote, “Intensity is the price of excellence,” closed quotes. Your research style has seemed to morph over time from a sleuth-like analysis — American Express comes into mind when you hired Jonathan’s dad, Henry Brandt. You and he conducted weeks of analysis and sight visits and channel checks. Not so much in the later investments. As an example, you famously thought of making the Bank of America investment in your bathtub. There is an investment message of this transformation from being intense to less intense. Would you please explain the degree it has to do with the market, Berkshire’s size, or some other factors?

WARREN BUFFETT: Yeah. I think, actually, you have to love something to do well at it. There may be exceptions on that, but it is an enormous, enormous advantage if you absolutely love what you’re doing, every minute of it. And the nature of it is that that intensity adds to your productivity. And I have every bit of the intensity — not manifested exactly the same way — but it’s there every minute. I mean, I love thinking about Berkshire. I love thinking about its investments. I love thinking about its businesses. I love thinking about its managers. It’s part of me. And it is true, you can’t separate the game from the scorecard. I mean, you — so your score card is part of playing the game and loving the game. The proceeds are — you know, to me — are unimportant, but the proceeds are part of the score card, so they come with a score card.

But it’s much more important — I mean, I would — no question about it, I wouldn’t be — feel — the same way about Berkshire at this point if I didn’t own a share of it, if I didn’t get paid. I mean, it’s what I like doing in life, and that’s why I do it. So, I don’t think you’ll — I don’t think it’s actually a correct observation — and Charlie can comment on this — to say that because we’re doing things in a somewhat different way, that any of the intensity or the passion has been lost. There’s nothing more fun for me than finding something new to add to Berkshire, and that was true 40 years ago. It’s true now. And it’ll be true 10 years from now, I hope. Charlie, how would you answer that?

CHARLIE MUNGER: Well, I think when you bought American Express for the first time, you didn’t know that much about it, so, naturally, you were digging in rather deeply. The second time you bought it, I remember you got on the golf course with Olson —

WARREN BUFFETT: Frank Olson, yep.

CHARLIE MUNGER: — and you just saw how he couldn’t get rid of American Express if he wanted to, and then you bought it the second time. The research is still — the first one was hard, and the second was easy.

WARREN BUFFETT: It’s all cumulative.

CHARLIE MUNGER: Yeah, it’s cumulative, eventually.

And it’s not a business that you can coast on. It’s not Coca-Cola, but it’s not an unbranded product, either. And I think Fruit will do reasonably well, but it will not get anything like, you know, the kind of profit margins that you can get in certain branded products. Charlie?

CHARLIE MUNGER: Yeah. And then, too, as many products as we have, we may average out pretty well, in terms of market shares, but we’re not going to win every skirmish or every battle.

WARREN BUFFETT: OK. Station 2.

AUDIENCE MEMBER: Yeah. Hi, Warren. Hi, Charlie. I’m Fritz Hauser (PH) from Offenburg, Germany. I’d like to know what 10 books influenced you the most and that weren’t written by Graham and Fisher, and I’d also like to tell you that I think it would be great if you would publish the portfolio statements of the Buffett Partnership years. I think there are a lot of small investors that would get a kick out of knowing, you know, what you invested and how you went ahead and analyzed the companies. Thank you.

WARREN BUFFETT: Yeah. Well, Charlie ran something called Wheeler,Munger and his portfolio was even more interesting, so we’ll start with you, Charlie. (Laughs) He ran a more concentrated portfolio than I did in those days.

CHARLIE MUNGER: Yeah. I don’t think people would be greatly helped. You wouldn’t recognize the names, most of them, clearly, by the partnership. You’d recognize American Express. Rattle off some of the names.

WARREN BUFFETT: Yeah. Well, we can start with Mosaic Tile and —

CHARLIE MUNGER: The map company.

WARREN BUFFETT: — Meadow River Coal & Land. There’s hundreds of them. Flagg-Utica, Philadelphia Reading Coal & Iron, you name it. I’ve literally owned — I bet I’ve owned 4- or 500 names at one time or another, but most of the money’s been made in about 10 of them.

CHARLIE MUNGER: And I couldn’t name 10 books either that have — that I regard as that much better than the next 10. My mind is a blend of so many books I can’t even sort it out anymore. (Laughter)

WARREN BUFFETT: Yeah. “The Intelligent Investor” changed my life, in terms of — I literally had read every book in the Omaha Public Library by the time I was 11 on the subject of investing, and there were a lot of books. And there were a lot — there were technical books, Edwards & Magee, I mean, that was a classic in those days, and a whole bunch of them, Garfield Drew. But — and I love — I enjoyed reading them a lot. Some of them I read more than once. But I never developed a philosophy about it. I enjoyed it. I charted stocks. I did all that sort of thing. Graham’s book gave me a philosophy, a bedrock philosophy, on investing that made sense. I mean, he taught me how to think about a stock, he taught me how to think about the stock market, and he taught me that the market was there not to instruct me but to serve me. And he used that famous “Mr. Market” example. He taught me to think about stocks as pieces of businesses, rather than ticker symbols or things that, you know, you could chart, or something of the sort.

And so it was that philosophy — and in some way, further influenced by Phil Fisher’s book — and Phil Fisher was just telling me the same thing that Charlie was telling me, which was that it’s very important to get into a business with fundamentally good economics, and one that you could ride with for decades, rather than one where you had to go from flower to flower every day. And those — that philosophy has carried me along. Now, I’ve learned different ways of applying it over the years, but it’s the way I think about businesses now. I have not found any aspect of that bedrock philosophy that has flaws in it. You have to learn how to apply it in different ways. So those are the books that influenced me. And, of course, in other arenas, Charlie’s probably read more biography than anybody that I know of. And I like to read a lot of it. We’re just about through reading the Joe Kennedy biography. You’ve read that, haven’t you, now, Charlie?

CHARLIE MUNGER: Yeah.

WARREN BUFFETT: You know, I’m not sure you want to emulate everything he did, but it’s still interesting reading. (Laughs) We read for the enjoyment of it. I mean, it’s been enormously beneficial to us, but the reason we read is that it’s fun. And, you know, it’s still fun. And on top of it, we have gotten very substantial benefits from it. My life would have been different if Ben Graham hadn’t gone to the trouble of writing a book, which he had no financial need to do at all. You know, I would have a very different life.

WARREN BUFFETT: OK. Becky.

BECKY QUICK: This question comes from Bill Miller of Legg Mason. He writes, “The U.S. airline industry has been plagued with terrible economics for over 100 years. With the pending merger of USAir and American, the industry will have consolidated to the point where the top four carriers will control almost 90 percent of the traffic. “As a result, the industry has been consistently profitable this past several years, with many of the airlines now earning double-digit returns on invested capital and generating substantial free cash flow. Do you think the industry’s much improved economics are likely to persist? And would there be any economic benefits if Berkshire were to own a domestic airline and pair it with NetJets?”

WARREN BUFFETT: Yeah. Well, the answer to the second is no. But the question about the industry is really interesting, because it is true that it has consolidated very significantly. And in some businesses, you can have only two competitors and they’re still terrible businesses, they beat each other’s brains out. And sometimes they end up competing to do very stupid things. You can argue that that’s what happened with Freddie Mac and Fannie Mae. I mean, enormous companies that had a huge advantage over everybody else, but they still, in their battle to both report higher earnings every quarter and to beat the other guy out, you know, drove prices for insuring loans down to the improper levels, and did a lot of other stupid things, too. So you see — you do see certain industries where once they get down to very — a very few companies, do extremely well. And you see other industries where, even when they get to be two of them, they don’t do that that well. I mean, you can take Coke and Pepsi in the United States.

I mean, they’re the only two colas that people can name, and 50 percent or so of the soft drinks are colas. But if you go into a supermarket on the weekend, you will see them pricing their product at ridiculously low prices and competing very vigorously. So it’s very industry specific. The airline industry, you know, has this situation where they have very, very, very low incremental costs per seat, you know, with enormous fixed costs, and the temptation to sell that last seat at a very low price is very high and it’s very — and sometimes it can be very difficult to distinguish between the last seat and other seats. So it’s a labor-intensive, capital-intensive, largely commodity-type business, and it’s been — as Bill Miller points out in that question, it’s been, you know, a death trap for investors ever since Orville [Wright] took off. I mean, as I’ve said, if there had been a capitalist at Kitty Hawk he should have shot down Orville and done us all a favor.

(Laughter) But the — but having neglected to do that, investors have poured money into airline companies, and aircraft manufacturing companies, now for 100 years-plus, with terrible results. And if it ever gets down to where there’s one airline and there’s no regulation, it will be a wonderful business. And then the question is whether, having gotten down, now, through a lot of bankruptcies, to a relatively few that are doing a high percentage of the seat miles, whether it’s a good business yet. I don’t know the answer, but I’m skeptical. Charlie?

CHARLIE MUNGER: Well, the last time we were presented with a similar opportunity was when the railroads did exactly what Bill Miller suggests. The railroads got down and consolidated and got better control of their labor costs and it turned into a wonderful business. And what did we do? We missed it. We stumbled in very late to the party, right?

WARREN BUFFETT: Right.

CHARLIE MUNGER: So we’ve proven ourselves to be slow learners in this field, and it’s conceivable, isn’t it, that Bill Miller is right in what he suggests?

WARREN BUFFETT: Which way do you bet?

CHARLIE MUNGER: It goes into my too hard pile. (Scattered laughter)

WARREN BUFFETT: Mine, too.

CHARLIE MUNGER: But he could be right.

WARREN BUFFETT: Yeah, sure he could. And it will be fun to watch. But we like things we have stronger feelings about. We do not think that things will change dramatically in — well, with See’s Candy, you know, it’s — we’ve got — even there, you know, the real profitability is limited to the West Coast, but we do not see some competitor coming along and taking away business.

CHARLIE MUNGER: You really couldn’t create another railroad and —

WARREN BUFFETT: I hope not.

CHARLIE MUNGER: — and you — and you can create another airline.

WARREN BUFFETT: Very easily, and you have people that like to do it.

CHARLIE MUNGER: That’s what we don’t like about it.

WARREN BUFFETT: And people love doing it. It’s exciting to people. And you can sell the idea. I’ve had, probably, a dozen proposals over the last 25 or 30 years from people that want to get into the airline business one way or the — and a number of them have. It’s sexy, for some reason. I mean, it — you know, if you go to the office of some Mr. Big CEO and say, “I want to talk to you about this new airplane,” you get in the door. You know, I mean, if you want to talk to him about hauling coal or something, it’s a little different. So it is a business that attracts people. And you can go out and raise money for a new airline, and the record is — it’s really been something. I don’t know how many bankruptcies there have been in the airline field, but it’s an enormous number. And, of course, some have done it more than once. We bought USAir. I bought that.

I was at Gorat’s with [CEO] Ed Colodny, and he explained to me how wonderful the airline was — he’s a good guy, incidentally — and I wrote a check. And by the time the check was cashed, they were having troubles. I mean, it did not take long.

CHARLIE MUNGER: No.

WARREN BUFFETT: And then they went bankrupt twice. We were very lucky on — we actually made quite a bit of money on it, as it turned out, because there was a little blip at one point. But I think it went bankrupt twice after we bought it. And Charlie and I were on the board, and we would look at these projections, you know, and they were just ridiculous. I mean, they never came true, did they, Charlie?

CHARLIE MUNGER: No, no, no. It was —

WARREN BUFFETT: We were very popular because we actually pointed that out a few times. (Laughter)

WARREN BUFFETT: OK. Cliff.

CLIFF GALLANT: I want to ask you about share repurchases. How hard a floor should shareholders think about the 1.2 times book value buyback multiple? Are there circumstances under which you would not be buying back at 1.2?

WARREN BUFFETT: Yeah. Well, generally speaking, book value has got nothing to do with the price at which you should purchase your shares; intrinsic business value does. And the correlation between intrinsic business value and book value throughout the investment universe is — you know, there’s virtually no correlation. So book value is unimportant to most companies. It actually has — it has a reasonable tracking utility at Berkshire. Our intrinsic business value is very considerably above book value, and we have signaled that — we’ll say it right here, we’ve said it before — but in addition, we’ve signaled that by saying that we would repurchase our shares as long as we had a substantial cash balance, met all the needs of our operating companies, at 120 percent of book value, and if we got the opportunity to buy it there, we would probably buy a whole lot of it. The calculus is very much what I put in the report. You know, you take care of your business with money first, and if you can buy additional businesses at something where you add to the per-share value of the business, you do that.

If you can repurchase your shares at a significant discount from intrinsic value, it like buying dollar bills at 90 cents or 80 cents or whatever it may be, and it’s a very sure way of improving per-share value. It’s been very difficult for us to do it because every time we announce it, people say, “Well, if it’s — if he thinks it’s worth more than 120 percent of book,” you know —

CHARLIE MUNGER: Yeah. Those cheapskates are willing to pay that.

WARREN BUFFETT: But if it, in our opinion, the directors’ opinion, the stock is selling at a significant discount and we’ve got the money around and we’ve got the stock offered to us in a reasonable quantity, we will buy it, and then — and there could be circumstances — it’s unlikely — but there could be circumstances where we’d buy a whole lot at a price that would be attractive for the stockholders who stayed in. Charlie?

CHARLIE MUNGER: Nothing to add.

WARREN BUFFETT: Station 3.

AUDIENCE MEMBER: Hi there. Sean Cawley. I’m a real estate agent in Los Angeles, California. Question for Charlie. It’s kind of a real estate question, and it’s also a company culture question. Have you ever considered moving to Omaha to be closer to corporate headquarters?

CHARLIE MUNGER: (Laughs) Oh, I think the answer to that is no. (Laughter)

WARREN BUFFETT: I’m sure the answer to that is no. Our partnership works extremely well. And even though we’re somewhat technophobic, we have gotten to the point where we can handle using the phone — (laughter) — don’t push us beyond that.

CHARLIE MUNGER: No, we’ve never learned anything beyond the phone.

WARREN BUFFETT: But we — I mean, as a practical matter, we each know exactly how the other guy thinks, so that we don’t really even need the phone, exactly. (Laughter) We used to do a lot of phoning back when it cost a lot of money to phone. Now it doesn’t cost anything to phone, and we don’t talk to each other, hardly. (Laughter) Charlie — but Charlie has a lot of fond thoughts about Omaha, incidentally, as do I.

CHARLIE MUNGER: Yes. Although, I — as I said earlier on this weekend, they’re rebuilding it so rapidly now that I felt like Rip Van Winkle. They’ve torn down so many of the buildings I remember. It’s amazing how much Omaha has changed the last five years.

WARREN BUFFETT: Well, you have to remember that a third of the lifetime of the country has passed during our lifetime, so you have to expect a little change occasionally, Charlie. (Laughter)

WARREN BUFFETT: OK. Andrew.

ANDREW ROSS SORKIN: OK, Warren. We got a couple of questions related, this year, to climate change and its impact on the company. So let me ask this question from Clem Dinsmore, who asks: “If asked, what would the underwriting experts at your casualty insurance and reinsurance companies advise you and your fellow board members are the emerging risks to Berkshire’s many enterprises from the changes in extreme weather associated with climate change?” And I would add that Jed McDonald asked a separate question, but related, saying, “What are your thoughts on the price on carbon debate?”

WARREN BUFFETT: Yeah. Well, as you’ve noticed if you’ve been here the last few years, the climate really is getting a lot warmer. (Laughter) Obviously — well, Charlie knows far more about science than I do, which is not saying a whole lot, but the — my general feeling is that there is a — certainly a reasonable chance — that people that are worried about warming and the effect of CO2, et cetera, are right. But I don’t know enough so that I can say that, you know, that I can speak as any kind of an expert on it. I don’t know the answer on it, but I certainly am willing to assume that — there are a lot of very smart people who think that, and I think that it’s a reasonable assumption. I don’t think that it makes any real difference in assessing insurance rates from year to year. We have a general tendency to be pessimistic in our assumptions about the likelihood of natural catastrophes, but we would have that general bias, which I think is useful, regardless, if there were no carbon emissions of any kind going on.

We would still assume that whatever the past history had been of natural disasters, we would assume that they were going to be somewhat worse. And the global warming, in terms of resetting prices of insurance from year to year, is not a real factor. Our general pessimistic bias is something of a factor. The second part about pricing of carbon emissions, do you want to repeat that again?

ANDREW ROSS SORKIN: The full question — and I abbreviated it — was, “What are your thoughts on the carbon — the price of carbon — debate? “Do you think it’s a feasible way, for example, to incentivize efficiency improvements and capture the externalities of carbon’s damaging effects, or is it a lofty, idealized concept too tricky to figure out in practice?”

WARREN BUFFETT: I would say that the question calls for having Charlie give the answer. (Laughter)

CHARLIE MUNGER: Well, you’ve got to realize that I’m a Caltech-trained meteorologist, but that was before they’d invented most of modern meteorology. (Laughter) I think that I think that carbon trading is pretty impractical, a whole bunch of nations with different ideas, and so on. And I think if you’re going to change habits, the correct answer is carbon taxes. I think Europe, because they’re socialists and wanted to tax the thing the people needed the most, they put these big high taxes on motor fuel. So they did it by accident, and not because it was a good idea, vis-a-vis global warming and a lot of other issues, but because they really needed the money. But I think they stumbled into the right policy. I think the United States should have way higher taxes on motor fuel, and that’s efficient. (Applause) Some group of shareholders, though. They like clapping for high taxes. (Laughter)

WARREN BUFFETT: They weren’t all clapping. (Laughter and applause)

WARREN BUFFETT: OK. Doug.

DOUG KASS: Warren, my next question is both a question and an unusual challenge. I’m asking this next question because in the past, you’ve been open to inviting your audience to apply for jobs. In 2002, you suggested that shareholders who thought they were eligible to send in their qualifications if they were interested in seeking a seat on your board of directors. And, again, in your 2006 letter, when you advertised for a successor to Lou Simpson at GEICO, you said at the time “Send me your resume.” In the past, you have discussed your views on short selling. You have cited that stocks tend to rise over time, and you’ve talked about the asymmetry between reward and risk. By contrast, the last 15 years has demonstrated that short selling can be a value additive tool to total return when done by professionals. In fact, I believe Todd Combs had success as a short seller when you hired him.

CHARLIE MUNGER: He had so much success he stopped doing it. (Laughter and applause)

DOUG KASS: Yes, Charlie, but he got the job from that success. My question is —

WARREN BUFFETT: No, no, he didn’t. (Laughs) Can’t slide that one in there, Doug. (Laughter)

DOUG KASS: My question is: would you ever consider committing capital to a short-selling strategy? Would you or Berkshire consider being my Homer Dodge, who invested in your partnership after the original seven investors? Would you or Berkshire Hathaway be willing to give my firm at least $100 million in a managed account? If Seabreeze failed to outperform the increase, during the two-year period, of the book value increase in Berkshire, all the earned fees earned would be contributed half to the Sherwood Foundation, and half to two charities of my choice, including the Jewish Federation of Palm Beach County? And even if Seabreeze outperformed Berkshire’s change in book value, 25 percent of the earned fees would be contributed to the charities. And I want to add something else. You talked about being technophobic. Technology may be very hard for Berkshire to invest in, but it is also disruptive to many industries whose business models are scathed by it, and this produces very fertile ground for short-selling opportunities.

WARREN BUFFETT: Well, we got to —

CHARLIE MUNGER: Let me add to that.

WARREN BUFFETT: OK — 1:55 without an ad, but — (laughs)

CHARLIE MUNGER: The answer to your question is no. (Laughter and applause)

WARREN BUFFETT: Charlie and I are no strangers to short selling. I mean, we both —

CHARLIE MUNGER: Failed at it.

WARREN BUFFETT: Yeah. (Laughter) So we’ll — just think about how lucky you are. You don’t have the competition from all kinds of people that listen to us or — ourselves. No, we — I may even propose a little wager at some point, but we’ll let that ride for the time being. I’ve known — well, if you go back far enough, you know, we did a reasonable amount of short selling, and I’ve certainly identified lots of companies that I thought were far overpriced, and I’ve identified a fair number of companies that I not only thought, but was virtually certain, were frauds. And so, Charlie — we’ve been seeing them ever since we got in the business. But making a lot of money short selling, still, is not a game that appeals to us over a long period of time. It’s one of those things that —

CHARLIE MUNGER: We don’t like trading agony for money. (Applause)

WARREN BUFFETT: But we wish you well. (Laughter)

WARREN BUFFETT: Station 4.

AUDIENCE MEMBER: Ben Sauer (PH) from Shreveport, Louisiana. Could you be more specific about what factors you considered when determining what a fair price was for an acquisition such as Heinz? And also, what sources do you use to make judgments about major changes that will affect an industry?

WARREN BUFFETT: Well, we usually — we usually feel we’re paying too much. Isn’t that right, Charlie? (Laughs) But we find the business so compelling, the management, our associates, so compelling, that we gag and we get there on the price. But we — there is no mathematical — perfect mathematical — formula. Looking back, when we’ve bought wonderful businesses that turned out to continue to be wonderful, we could’ve paid significantly more money, and they still would have been great business decisions. But you never know 100 percent for sure. And so it isn’t as precise as you might think. Generally speaking, if you get a chance to buy a wonderful business — and by that, I would mean one that has economic characteristics that lead you to believe, with a high degree of certainty, that they will be earning unusual returns on capital over time — unusually high — and, better yet, if they get the chance to employ more capital at — again, at high rates of return — that’s the best of all businesses. And you probably should stretch a little.

Charlie and I have had several conversations where we were looking at a building — a business — which we liked, and were sort of gagging at the price, and Charlie or I will say, you know, “Let’s do it,” even though it kind of kills us to pay that last 5 percent. We did that with See’s Candy. Charlie was the one that said, “For God’s sakes, Warren, write the check.” I was the one that was suffering. But it’s happened quite a few times, hasn’t it, Charlie?

CHARLIE MUNGER: It almost always happens. (Laughter) Modern prices are not cheap.

WARREN BUFFETT: No, no. And great businesses, you know, you’re not going to find lots of them, and you’re not going to get the opportunity to buy them and — although you do in the market. The stock market will offer you opportunities for profit, percentage-wise, that you’ll never see, in terms of negotiated purchase of business. In negotiated purchase of a business, you’re almost always dealing with someone that has the option of either selling or not selling, and can sort of pick the time when they decide to sell, and all of that sort of thing. In stock markets, it’s an auction market. Crazy things can happen. You can have, you know, some technological blip that will cause a flash crash or something. And the world really hasn’t changed at all, but all kinds of selling mechanisms are tripped off, and that sort of thing. So you will see opportunities in the stock market that you’ll never really get in the business market. But what we really like, we really like buying businesses to hold and keep. We like buying cheap marketable securities, too.

But particularly when you’ve got lots of cash coming in and you’re going to continue to have lots of cash coming in, you really want to deploy it in great businesses that you can own forever. Charlie, anything?

CHARLIE MUNGER: No. It — we’re sort of in a different mode now, and that has a great lesson, in that if we’d kept our earlier modes, if we’d never learned, we wouldn’t have done very well. The game of life is a game of everlasting learning. At least it is if you want to win.

WARREN BUFFETT: We want to win.

CHARLIE MUNGER: Yeah.

WARREN BUFFETT: Carol.

CAROL LOOMIS: This question is from Logan Reed (PH) of Pawling, New York, and has both a question and a postscript, and I’m going to do the postscript first. It’s friendly. “I’m an 86-year-old World War II vet, which puts me about halfway between you and Mr. Munger. I would respectfully and urgently request that you quit eating so many hamburgers. (Laughter) “Those things plug up your arteries, and I want to keep you around for a while, in spite of the fact” — the unfriendliness comes in here — “that you voted for President Obama.” (Laughter) Now, here is the question.

WARREN BUFFETT: This guy is trying to kill me, and he’s doing it — (Laughter)

CAROL LOOMIS: “Over the years, you’ve frequently alluded to your legendary reputation for thriftiness, and you’ve extolled the virtues of the managers of Berkshire companies who have invariably been extremely cost conscious. “If these are hallmarks of the philosophy which has enabled you to achieve your astounding success, how can you possibly support an administration which has plunged our country into $16 trillion worth of debt, and has not indicated the slightest concern — (applause) — over the efficiency — inefficiency — over the inefficiency of big government?”

WARREN BUFFETT: Yeah. Well, the 16 trillion, we’ll have to give Bush a certain amount of credit for that, too. (Applause) They certainly didn’t — certainly wasn’t — the Obama administration that, at least, allowed policy that created the greatest financial crisis and required an appropriate stimulus on the part of the government. (Applause) But, in the end, I find it totally unproductive — and that fellow at 86 probably is — should have found it out by now — to discuss politics with people. I mean, you’re to have roughly half agree with you and half disagree. So if you — if you look at this — the trouble is, Charlie and I, even though he’s a Republican, I’m a Democrat, we really don’t disagree as much as you might think based on that. Otherwise, I could say you could just take your pick here and vote for one of us and ignore the other one, and we would offer a little something for everyone.

The amount of deficit spending in the last four years, the amount of stimulus provided — fiscal stimulus provided — I think, has been quite appropriate in relation to the threat to the economy that was posed by the greatest panic in my lifetime. I mean, you literally had a situation where Berkshire Hathaway was getting a phone call because General Electric needed money, and we were the last stop. That is quite a situation. It’s quite a situation when Freddie and Fannie go into conservatorship and WaMu and Wachovia fail, and where money market funds have 5 percent drained out of them in three days, and with a panic underway. So I — we needed fiscal stimulus in this country. Now, the real question is: how do you get off of that? And that is a problem, but it’s a lesser problem than we would’ve had if we’d decided to follow some austerity program, in my view, at least, starting in 2008. How do you feel about that, Charlie?

CHARLIE MUNGER: I agree with you completely. (Applause) And, by the way, so did George W. Bush.

WARREN BUFFETT: Yeah.

CHARLIE MUNGER: That was bipartisan. We were in so much trouble, that on both sides of the aisle, we finally got together and supported these extreme interventions.

WARREN BUFFETT: George Bush issued, probably, the ten greatest words of economic thought in history. Most people don’t give him credit for that. They think of Adam Smith and comparative advantage and Keynes and animal spirits and all those guys. But George Bush went out there in September of 2008 and said, “If money doesn’t loosen up, this sucker could go down.” (Laughter) I mean, that is a man that knew how to get to the point. (Laughter) And I give him great credit for it, enormous credit. And plenty of members of his party did not agree with what he was doing, but we owe him a lot, in that respect. And, you know, we — our leaders, generally speaking, in both parties, once they were in the terrible trouble, I think they behaved, or came up with policies that, in general, were very useful in avoiding something far worse than what we experienced. And they weren’t easy to do. I mean, it took some guts. So, I am disturbed by a national debt that grows in respect to GDP.

In fact, I wrote an article in The New York Times, an op-ed piece, in — I think maybe 2009 or 2010 — talking about this very problem. But, you know, we came out of World War II with a debt higher — a gross or net debt — higher in relation to GDP than we have now, and people were predicting terrible things at that time because of that situation, and the country has done sensationally. The real danger is that it just continues to grow, and it gets easier to print money than exercise some discipline. But we’ve encountered far worse problems than we face now. I mean, this is not our country’s toughest hour, by a huge margin. And I think we will do fine, but with a lot of bickering, and kind of nonsense that will bother you when you read about it day to day. But when you look at it from a viewpoint of history 10 or 20 years from now, you will not be that disturbed. Charlie?

CHARLIE MUNGER: Well, I agree with you about George W. Bush, and I like these nonpartisan episodes when we get together and do things right. And I also think that our current problems are quite confusing. In fact, if you aren’t confused, I don’t think you understand it very well. (Laughter)

WARREN BUFFETT: That sort of immunizes you from everything. (Laughs) How bothered are you by the level of debt in relation to GDP?

CHARLIE MUNGER: Well, I don’t think there’s any one fixed ratio that is written in the stars. As a matter of fact, most of the debt, as I conceive it, is not even counted in what you call “debt.” The off-the-books debt of the United States is bigger than the on-the-books debt, all the present value of future promises that are unfunded.

WARREN BUFFETT: That can be changed, however.

CHARLIE MUNGER: Yes. But, if they can be changed, but are we really going to take Social Security away from somebody who’s worked a lifetime?

WARREN BUFFETT: Well, we shouldn’t.

CHARLIE MUNGER: I don’t think it’s very likely.

WARREN BUFFETT: No, no. But Social Security is not a killer, actually, in terms — if you have a GDP that rises a couple percent in real terms —

CHARLIE MUNGER: Of course — that’s the great problem. All of our problems are trivial, if GDP will just rise at 2 percent per annum, per capita. All these problems that the Republicans are screaming about fade into insignificance if we can do that. But you’ve got to have policies that enable you to do it, and I’m not sure we always do that very well. (Applause)

WARREN BUFFETT: OK. Stay tuned.

WARREN BUFFETT: Jonathan.

JONATHAN BRANDT: I have a question about the competitive landscape in the paint business. I personally always use Benjamin Moore, but some say that Benjamin Moore is disadvantaged because it doesn’t control its own distribution, as does Sherwin-Williams, and they note that it has lost market share to Behr, which is sold in the home centers at lower prices. You recently replaced management there. What changes in strategy and/or pricing, if any, are being undertaken at that unit, and what is the outlook for that franchise?

WARREN BUFFETT: Yeah. Benjamin Moore, it’s a relatively small percentage of the total paint industry, but it — at the high end, it is the best regarded paint, and we have not lost position in that respect. But the — when we purchased Benjamin Moore, I made a promise. I even made a video. It had a dealer system, and people that invested their savings and passed on from generation to generation dealerships from Benjamin Moore, and counted on the company adhering to a dealer system, even though you could always get a huge jump in volume, particularly in the first year, if you went with the big boxes. So we were always approached by the big boxes, and they said, you know, “Let us take Benjamin Moore into our stores,” whether it be Home Depot or whomever. And we would’ve gotten a big jump in volume when that happened and they would’ve loved us — to have us — as a brand with that kind of identity in their stores, but it would’ve represented a total change in the distribution arrangement.

I don’t think it would’ve worked out as well over time, and I know it would have been essentially — particularly after my pledge, which the other — which the management pledged too, they would’ve been double-crossing a network of dealers that trusted us, and trusted us when we bought it to continue with the policy. A dealer policy will work with a first-class brand like Benjamin Moore. It will never get the kind of market share as will take a Behr, which is distributed through Home Depot. We were actually offered Behr at one time. Charlie, do you remember that one?

CHARLIE MUNGER: Yes, I do.

WARREN BUFFETT: Yeah, yeah. But the company was actually investigating, and went on its way to implementing, some moves that would’ve, in effect, gutted, or we felt would drastically hurt the dealers and violate the pledge that I’d made to them back when we bought it. So we did have a change there. And

标题：2013 年股东大会

第 5/5 部分

安德鲁·罗斯·索金：好的。在伯克希尔，您对阿吉特特殊才能的认可与阿吉特本身的特殊才能之间存在着一种独特的动态关系。您经常评论阿吉特的才能有多么独特。那么请告诉我们，阿吉特是您的继任者吗？（巴菲特笑）如果不是，没有阿吉特的阿吉特业务会怎样？

沃伦·巴菲特：嗯，很长一段时间内都不会没有阿吉特。他在很多方面都很卓越，但其中一个特别卓越之处在于，当人们开始模仿他做的事情，将原本可能利润丰厚的业务变成张三李四王五都在做的普通业务时，他能想出新的做生意方式。我注意到你从姓氏以‘A’开头的阿吉特开始谈论可能的继任者，但当你谈到姓氏以‘B’开头的人时，你也不会更走运。（笑）查理？

查理·芒格：嗯，我认为基本的答案是，如果阿吉特有一天不在了——

沃伦·巴菲特：我们的表现就没那么亮眼了。

查理·芒格：是的，我们的表现就没那么亮眼了，没错。

沃伦·巴菲特：其他很多经理人也是如此。我们拥有一群杰出的人，在大多数情况下，他们并不需要为我们工作所赚的钱。他们可能会赚很多钱。他们为你我这样的股东，以及我和查理工作，这种贡献几乎可以说是不应得的。但他们正享受着——我想他们正享受着——经营自己业务的乐趣。我们做的一件事就是努力营造一种氛围，让他们能够享受经营业务，而不是把所有时间花在往返总部、进行展示和汇报之类的活动上。不过，这也花了很长时间。我的意思是，伯克希尔在没有阿吉特的情况下运营了20年。如果他是在1965年而不是1985年来到办公室，我们可能已经拥有整个世界了。（笑声）想想就觉得挺有意思的，不是吗？查理？

20. 霍华德·巴菲特在父亲之后的角色不是经营伯克希尔

沃伦·巴菲特：道格？

道格·卡斯：霍华德，和您一样，我有两个我非常爱的儿子。和您一样，今天我的一个儿子也在观众席中。这个问题并非不敬之意——

沃伦·巴菲特：听起来像是要那样了，不过请继续。（笑声）

道格·卡斯：——但我必须问这个问题。

沃伦·巴菲特：好的。

道格·卡斯：总有一天，您的儿子霍华德将成为伯克希尔公司的非执行主席。伯克希尔是一家非常复杂的公司，并且随着时间的流逝日益复杂。霍华德从未经营过多元化业务，也不是企业风险管理专家。就我们所知，他没有进行过大宗股票投资，也从未参与过大型公司的收购。抛开出生偶然性不谈，霍华德凭什么最有资格担任这一角色？

沃伦·巴菲特：嗯，他并非担任你所描述的那个角色。他所担任的角色是，万一CEO人选出现问题，由他担任非执行主席。我不认为选错人的概率超过1%，但也不是零。我在其他企业看到过这种错误。所以，他的职责不是经营公司、分配资本或做其他任何事情。如果CEO选错了，有一个非常关心维护文化、照顾伯克希尔股东、完全不参与公司运营的非执行主席，那么再次做出改变就会容易得多。他就是文化的守护者，对此有强烈的责任感，而且他对自己经营公司这一点毫无幻想。他对经营公司毫无兴趣。他不会因经营公司而获得报酬。他不需要考虑经营公司的事。

他只需要考虑董事会和他自己——作为董事会成员——是否需要更换CEO。我见过很多次，真的很多次，在60多年，或者可能是55年的董事生涯中，当一个表现平庸、讨人喜欢、不诚实但不应继续担任CEO的人需要被换掉时。当那个人同时担任主席时，要换掉他非常非常困难。现在有了一种程序，董事会每年至少召开一次没有主席在场的会议，事情就变得稍微容易一些了。在我看来，这是美国企业界一个非常大的进步。因为董事会是一个社会机构，让人们每三个月来芝加哥、纽约或洛杉矶开一次会，开几次委员会会议，然后可能对自己是否真的选对了CEO产生怀疑，这并不是件容易的事。他们可能有一个非常不错的CEO，但他们可以做得更好。

但谁会做出改变呢？这就是非执行主席，在这个例子中是霍华德，将要处的位置。据我所知，没有人会比我的儿子霍华德更强烈地感受到那种以正确方式履行职责的责任感。

查理·芒格：是的。我认为有了霍华德，芒格家族安全多了——（掌声）你要记住，董事会持有大量股票。我们是在为股东考虑。我们不是想把事情搞砸，损害股东利益。

沃伦·巴菲特：是的。我死后，无论价值如何，价值500亿美元的股票将在一段时间内用于帮助世界各地的人们。而这家股票背后的公司表现好坏，会产生巨大的影响。我和查理都见过不止一个例子，一个CEO可能只能打6分（满分10分），但非常讨人喜欢，也许还帮助挑选了某些董事，年复一年地经营着公司，而别人可以做得更好得多。如果这个人控制着议程，让大家一进城就忙得团团转，那么要做出改变可能非常困难。

查理·芒格：你可能会有一个CEO，在所有方面都是九分（满分十分），但也有深刻缺陷。

沃伦·巴菲特：是的。

查理·芒格：有一个客观的、有真正激励机制的人坐在霍华德将要占据的位置上，这会很有帮助。

沃伦·巴菲特：我过去用过的例子是，你知道，温柔的人有福了，因为他们必承受地土，但承受地土之后，他们还会保持温柔吗？嗯，这就是问题所在。如果有人被任命为伯克希尔的CEO，这个职位可能会让人想以各种方式摆架子。你可能会注意到，在年度报告中，关于我们的报纸，我说过，我不会告诉他们该支持谁当总统。他们中有十家支持罗姆尼，两家支持奥巴马。我投了奥巴马一票，但我不会改变这一点。但当我写这类东西时，我也在某种程度上试图约束我的继任者。我们不希望将来有人把伯克希尔·哈撒韦当作权力基础。我们希望他们为股东着想。就这么简单。

查理·芒格：有时候，成为CEO的人具有某个曾经著名的加州CEO的特点。关于他，人们常说他是唯一一个能坐着迈方步的人。（笑声）

21. 接近零利率对债券“残酷”

沃伦·巴菲特：好的，7号站。

观众：您好。我是来自明尼苏达州明尼阿波利斯的布拉德·约翰斯顿。我的问题是，在可能持续一段时间的极低利率环境下，保险公司在管理资本以及管理未来负债和潜在流动性需求所带来的风险和不确定性方面面临挑战。也许您可以把这个问题引申到个人层面，那些同样面临低利率环境、试图管理不确定性同时又希望从投资中获得一些现金回报的人。我理解您提出的定期出售部分股票比获取股息更好的理念，但很多人正面临着现金流挑战。

沃伦·巴菲特：是的。

观众：最后再补充一个问题。最后，您能解释一下美联储主席本·伯南克认为他工具箱里的“定期信贷便利”是什么吗？

沃伦·巴菲特：不。答案是我不懂。你能吗，查理？

查理·芒格：不能。

沃伦·巴菲特：对于那些持有现金、现金等价物或短期国债等资产的人来说，他们面临的问题是残酷的。如果他们的生活依靠这些收入，那么在这些低利率环境下，购买力的损失是惊人的。他们是低利率政策，尤其是极端低利率政策的巨大受害者。基本上，我在2008年就写过要持有股票。当时股票很便宜。你几乎肯定会遭受损失，至少在短期内是这样。我们有承诺说美联储将保持低利率，所以这是一个持有股票的好时机。我同情那些在这个时期 clinging 到固定美元投资，尤其是短期投资的人。我不知道如果我处于那个位置会怎么做。

想象一下，你有一笔过去看起来非常大，但现在在百万美元上只有0.25%的年收益，也就是每年2500美元。这可不是人们多年来储蓄时所预期的。所以，在我建议过的任何人中，我一直认为，在大多数情况下，拥有企业肯定比持有固定美元更有意义。在我一生中，并非总是如此，但可能90%的时间里，拥有企业比持有固定美元投资更有意义。而在几年前，当股票价格低得惊人，是绝佳的买入机会，同时你能预见到固定美元投资在相当长一段时间内收益极低时，这无疑是极具意义的。我没有预料到我们会经历如此长时间的低利率，也不知道这种情况会持续多久。但这对人们来说是一个真正的困境。

我收到很多信，人们说，“我有30万美元，”然后问，“我该怎么办？”所以，低利率的后果以非常严酷的方式影响了数百万人。你读到的相关报道不多，他们也没什么发言权，但这是一个很好的论据，说明在这个时期应该持有生产性资产而不是美元。查理？

查理·芒格：嗯，他们总得伤害一些人，而储蓄者正好是方便的目标。

沃伦·巴菲特：你会怎么做？

查理·芒格：我大概会做他们做过的事。

沃伦·巴菲特：是的，我也会。

查理·芒格：我会对此感到难过，但我会这么做的。

22. IBM的竞争护城河

沃伦·巴菲特：好的，8号站。我们现在转向股东提问。我们已经完成了小组讨论，还剩大约45分钟，所以从现在开始，我们让股东有机会提问——回答——提问所有问题。8号站。

观众：您好。我是来自日本东京的Chris Hu（音译）。您能再谈谈IBM的投资吗？您认为该业务的护城河在哪里？本着完全透明的精神，我声明我在微软工作。

沃伦·巴菲特：好的。你的——你说的是哪个业务的护城河？

观众：IBM。

沃伦·巴菲特：哦，IBM。嗯，我得说，我对IBM护城河的理解不如对可口可乐护城河的理解深。我想我有一些理解，但我觉得对可口可乐、箭牌或亨氏的护城河，我更有信心。不过，我对IBM的信心足够强，所以我们投入了相当多的资金。没有什么能阻止微软（你提到的）和IBM都取得成功。事实上，我希望它们都能成功。我们有足够的信心，认为IBM的地位可能会在很长一段时间内保持稳固，所以我们持有很大仓位。我喜欢他们的财务政策。我认为他们的地位有很大可能长期保持强劲，但我的信心程度不如对BNSF铁路公司那样。我的意思是，我很难想象BNSF能出什么问题。而IBM可能会出一些问题。

顺便提一下，他们有非常庞大的养老金义务。现在，他们也有一个庞大的养老基金，但你谈论的是大约750亿或800亿美元的资产和负债，这本身就是一个巨大的年金公司。在这个领域，球可能会以奇怪的方式弹跳。我宁愿他们没有这个，但这是我买入时考虑的一个因素。他们显示资产和负债大致相等，但随着时间的推移，负债比资产要确定得多。查理？

查理·芒格：是的。至少IBM的养老金计划有IBM的资源作为后盾。假设你现在是一家大型人寿保险公司。在全球范围内，人寿保险公司已经开始遭受地狱般的折磨。在日本，他们同意支付3%的利息，当然，一旦这些日本保单存在很长时间，就没有办法赚到3%的利息。很多曾经备受尊敬、安全的地方现在看起来不安全了。在伯克希尔，你会注意到我们的寿险业务——即我们自有保单业务，与再保险业务不同——规模相当小，对吧？

沃伦·巴菲特：是的。我们不喜欢在这个世界上给予期权，而人们往往会——特别是他们有销售团队推动，就像寿险行业那样。他们倾向于给人们提供期权，在某些情况下，这些期权让他们损失了巨额资金。你知道，你总是希望接受期权，永远不想给予期权。但寿险业务恰恰相反。实际上，抵押贷款业务——你知道，查理和我在储蓄和贷款行业待过。给人一个30年期的抵押贷款，如果这对你有利，他们明天就可以取消；如果对他们有利，他们就持有30年。这些是可怕的工具。如果你要买房，这对你有好处，我建议你——我建议在座的每个人立即尽可能多地获得30年期抵押贷款。如果利率降到1%，这是个坏交易，你可以再融资。

如果利率上升到6%或7%，也许你可以用70美分买一美元之类的价格买回来。所以，寿险公司在过去几十年里大规模地参与了这类业务，很多公司正在为此付出代价，有些甚至还没有意识到问题所在。他们有点像弹簧刀斗殴中的那个家伙，另一个人用弹簧刀狠狠地划了他一下，这个家伙说：“你没碰到我。”另一个人说：“好吧，等你试着摇头的时候你就知道了。”这有点像现在一些寿险公司的处境。查理？还有要补充的吗，查理？

查理·芒格：没有了，这已经够悲观了。

23. 用少得多的资金进行投资

沃伦·巴菲特：好的，9号站。（笑声）

观众：您好。我叫Masato Muso，来自加利福尼亚州洛杉矶，是波士顿大学的MBA学生。您提到过自己是85%的本杰明·格雷厄姆和15%的菲利普·费雪，您还说过如果今天你只有100万美元，你能够实现50%的回报率。作为一名年轻投资者，我问您二位的问题是：当你们还在积累资金时，与如今管理数十亿美元相比，你们的投资策略有何不同？你们是否专注于特定行业、小盘股、大盘股等？谢谢。

沃伦·巴菲特：嗯，管理100万美元与经营伯克希尔·哈撒韦，或者管理某个200亿或500亿美元的基金完全是不同的游戏。如果查理和我现在管理100万美元或10万美元，我们会寻找一些非常小的机会。我们会寻找某些情况下的微小定价差异。这些机会是存在的，而且偶尔会非常出色。但这已经不再是我们要考虑的事情了，因为我们的问题是每年要处理120亿或140亿美元（或别的什么数字）的流入资金，这意味着我们必须寻找非常大的交易，而忘记我们年轻时做过的那些事情。查理？

查理·芒格：是的。我很高兴我不用再处理那个问题了。（笑声）

沃伦·巴菲特：他当时非常努力地做那个——

查理·芒格：是的。

沃伦·巴菲特：我们俩都是。

查理·芒格：确实如此。

沃伦·巴菲特：是的，是的。我们翻遍了无数石头，而且——

查理·芒格：我曾经靠我的个人所得税浮存金赚取高额回报。在我收到钱和把它交给政府之间，我经常赚到足够支付税款的收益。这是为小额资金工作，并在大多数事情上这样做。

沃伦·巴菲特：但他没告诉我该怎么做。（笑）

24. 不要投资于国家或类别

沃伦·巴菲特：好的，10号站。

观众：您好，沃伦和查理。我是来自中国上海的Andy Ling（音译）。非常感谢你们的言论和行动。全球很多人都从你们的理念中受益，所以你们有很多粉丝——甚至在中国也有很多粉丝。我的问题是：您如何看待在新兴市场的投资，伯克希尔是否会在中国等地方进行投资？如果是，您对哪些行业和公司感兴趣？谢谢。

沃伦·巴菲特：是的。我们通常不会一开始就着眼于新兴市场或特定国家或类似的东西。我们可能会在过程中发现一些东西，但这并不是说查理和我在早上讨论，然后说现在投资巴西、印度或中国等是个特别好的主意。我们从来没有过这样的对话，对吧，查理？

查理·芒格：没有。

沃伦·巴菲特：这根本不会发生。我们不认为那是我们的强项。我们知道我们的强项不在这里。而且我们认为，可能大多数人的强项也不在那里。我的意思是，这听起来不错，但我真的不认为这是看待投资的最佳方式。如果你告诉我我们只能投资——我们完全愿意这样做。我们曾一度持有大量中石油股票。我们现在持有一些比亚迪。我们持有美国以外的证券，并将继续这样做。但如果你告诉我们，我们余生只能在美国投资，我们不会认为这是一个巨大的困难，对吧，查理？

查理·芒格：是的。推销投资建议的一个好方法就是设立一大堆不同的类别，产生大量的佣金、建议和操作。很多事情我们只是觉得自己没有足够的优势去参与。

沃伦·巴菲特：是的。当我们听到有人谈论任何概念，包括逐个国家概念或其他什么，我们倾向于认为他们可能在销售方面比在投资方面做得更好。这是一种非常容易的方式——我是说，这是人们期望听到的东西，当有人来说，今天我们认为你应该关注世界的这个或那个。要做的事情就是找到一个好生意，以有吸引力的价格买入它。

查理·芒格：我们的专家真的很喜欢玻利维亚。然后你说：“嗯，去年你喜欢斯里兰卡。”我们就是对此感到不舒服。

沃伦·巴菲特：是的。我们通常认为那大多是胡扯，但是——

查理·芒格：这就是我们不舒服的原因。

沃伦·巴菲特：是的。（笑声）

25. 华盛顿并非房价泡沫的唯一责任方

沃伦·巴菲特：好的，11号站。

观众：您好，巴菲特先生和芒格先生。我叫布兰特·胡克，来自洛杉矶。首先，我要感谢你们多年来的建议、金融慈善事业，以及你们给予全球众多投资者的教育和知识慈善。我的问题是：美国政府在诱使美国公众不惜一切代价购房和申请抵押贷款方面似乎难辞其咎。您认为我们的立法者现在是否在做同样的事情，我们是否正在制造一个泡沫？

沃伦·巴菲特：不。我认为我们现在远未接近房地产泡沫。而且，我确实认为你的说法是准确的，但对于之前发生的事情来说并不全面。我的意思是，整个国家，几乎每个人，在房地产方面都确实有点疯狂。政府在这方面扮演了非常重要的角色，因为它们是融资中非常重要的一部分。当然，很多立法者确实在鼓励房地美和房利美做它们本不该做的事情，这不仅仅是事后的看法。我的意思是，如果你当时看，也可以得出这个结论。但有非常多的人在做同样的事情。这股浪潮来自各个方向。这就是泡沫的特征，在连续三、四、五年里，怀疑论者看起来像傻瓜，而那些跳上这辆花车的人则是以越来越高的价格为自己的房子再融资，以及投机其他房子的人。所以，一切看起来都那么美妙。

人们非常容易受到这种跟风效应的影响，当他们看到邻居轻松赚钱，每个人都在轻松赚钱，唯独自己没有，最终他们也会屈服。这就是事物的本质。这并不意味着房地美或房利美的人一定是邪恶的——其中一些是——或者立法者一定是邪恶的，尽管，再次强调，其中一些可能也是。但绝大多数情况下，我认为大多数人只是陷入了一个巨大的幻觉。你知道，这在历史上发生过很多次，还会再次发生，你可以从中大获其利。我们现在并非处于那样的房地产时期。现在的利率非常非常低，在许多情况下，这支持了房屋的购买，因为它显然降低了还款额。但我个人在大约一年前曾建议人们买房，而且我当然建议人们现在为买房贷款。

在大多数地方，我会建议，如果你打算在一个社区住一段时间，并且找到了一个符合你需求的房子，我认为现在可能是一个非常合适的购买时机，部分原因是融资条件好得令人难以置信。查理？

查理·芒格：嗯，主要问题在于，随着情况变得越来越疯狂，政府本可以在所有人都完全醉倒之前拿走潘趣酒碗，但相反，政府提高了酒的度数。这不是一个好主意。但在一个民主国家中，要让政府从想喝醉的选民手中拿走潘趣酒碗是非常困难的。

沃伦·巴菲特：嗯，这几乎是不可能的。

查理·芒格：是的。

沃伦·巴菲特：是的。我的意思是，这并不是——

查理·芒格：所以你在抱怨生活中某种不可避免的事情。这不是一个好主意。

沃伦·巴菲特：是的。你会再次看到它，不一定是房地产，但你会看到。人类将继续犯过去犯过的同样错误。我的意思是，当别人害怕时，他们也会害怕。你看到了那些货币市场基金，1750亿美元在三天内流出。当人们害怕时，这种现象非常非常普遍。我经常想，如果我在一个只有两家银行的小镇上拥有一家银行，如果我愿意，我可能会雇一大批好莱坞临时演员，在另一家银行门口排起长队。（笑声）糟糕的是，一旦他们在那里排起队，他们也会开始在我的银行门口排队，因为人们真的会群体恐惧。信心会一个一个地回来，但当他们贪婪时，他们也会群体贪婪。

我的意思是，这就是人类的构造方式。这就是查理和我有优势的地方。我们在其他很多方面并没有特别的优势。但我们能够，我认为也许比大多数人做得更好，不真正被他人的行为所影响。我不知道我们是随着时间的推移学会了这一点，还是什么。但当我们看到价格下跌时，我们认为这是买入的机会，这并不会困扰我们。我们不会用保证金持有东西，也不会让自己陷入别人可以釜底抽薪的境地。这在生活中极其重要。你永远不想让自己处于危险的境地。当然，当事情上涨时，杠杆变得非常诱人。而杠杆正是被大规模引入房地产市场的东西。

我感觉，人们只是觉得如果你不继续从你的房子上借更多的钱，用来买更多的房子，或者用来生活，或者别的什么，你就是个傻瓜，然后最终屋顶塌了。查理？

26. 即使存在债务问题，也准备投资欧洲

沃伦·巴菲特：好的，1号站。

观众：您好，沃伦。您好，查理。我叫George Islets（音译），来自科隆。您认为欧元区有投资机会吗？例如，增持你在慕尼黑再保险的股份？您信任欧洲央行将事情整合在一起的政策吗？谢谢。

沃伦·巴菲特：是的。嗯，我们完全愿意考虑欧元区的商业机会，我们做了一些补强收购，比如在农机领域花了大约2亿美元。如果我们能在与欧元挂钩的17个国家中的任何一个找到业务，我们会很乐意。可能有几个国家我们会稍微不那么倾向。（笑）但是，你知道，这可能会为我们创造购买业务的机会。我们很乐意。欧洲不会消失。但欧洲货币联盟有一个重大缺陷，他们正在努力寻找纠正这个缺陷的方法。面对17个政治实体和许多不同的文化，他们这样做真的很难。在我看来，他们最终会做到的。但基本上，他们同步了一种货币，却没有同步其他很多东西。大自然总会发现致命的缺陷，经济学也是如此，他们很快就发现了欧元的致命缺陷。现有的结构行不通，他们必须找到可行的方案。

他们最终会的，但在这个过程中可能会经历相当多的痛苦。查理？

查理·芒格：是的。以欧洲这样的结构，让希腊加入欧盟就像用老鼠药当奶油一样。（笑声）这是一个极其愚蠢的想法。（笑声）希腊不是一个负责任的资本主义国家，那里的人不纳税等等，而且——

沃伦·巴菲特：多年来我一直试图让他用‘A国’和‘B国’，但他——（笑声）

查理·芒格：——并且在加入联盟的过程中实施了相当极端的欺诈。他们谎报了债务。所以欧洲犯了可怕的错误。他们也有政客。（笑声和掌声）

沃伦·巴菲特：你认为十年后这些问题会过去吗？

查理·芒格：我认为欧洲会勉强挺过去。

沃伦·巴菲特：当然。

查理·芒格：想想欧洲已经勉强挺过了多少事情。

沃伦·巴菲特：但即使有那样悲观的预测，我们不会过于担心——我们明天会很乐意在欧洲买下一家我们喜欢的大企业，并用现金支付。

查理·芒格：如果是希腊的，我希望你会打电话给我。（笑声）

沃伦·巴菲特：我提这些小小的建议，但你可以看到没什么帮助。（笑）

27. 社交媒体将有助于一些伯克希尔业务

沃伦·巴菲特：好的，2号站。

观众：您好。我是来自佛罗里达州迈阿密海滩的David Yarus（音译）。我代表互联网，欢迎您加入推特。我的问题是：社交媒体对您的业务和任何伯克希尔公司有何影响，您认为它在短期和长期内对世界有何影响？

沃伦·巴菲特：可能在座的至少一半人比我回答得更好。它——比如在GEICO，它是有影响的，随着时间的推移，它将在营销方面产生巨大影响，就像互联网带来的变化一样。我的意思是，GEICO成立于1936年，它有直接销售的好主意，但最初完全是通过邮件进行的，效果很好。然后随着世界的变化，它转向了电视广告和电话号码之类的东西，然后转向互联网，现在又转向了社交媒体。所以，我们必须在所有业务中倾听客户的声音。有些业务的影响会比其他的更显著。我惊讶于世界变化之快。例如，就GEICO而言，我认为互联网会很快影响年轻人的购买习惯。但事实是，它非常迅速地跨越了整个年龄段，这是一个巨大的变化。你必须对此做出回应。

我不是做这件事的最佳人选，差得远，但我们有在这方面非常出色的人在我们的业务中，他们对此思考很多，并将继续思考。但如果让我负责伯克希尔·哈撒韦的社交媒体，那将是一个可怕的错误。（笑声）查理也不是一个特别合适的选择。（笑声）查理，你想为自己辩护一下吗，还是——

查理·芒格：嗯，我不太懂。出于很好的理由，我像躲避瘟疫一样避开它。我讨厌我家里那些青少年永久性地记录下他们13岁时说的三件最蠢的事的想法。（笑声）

沃伦·巴菲特：如果那是那个系统，我们俩当年都会有麻烦，查理。（笑）

查理·芒格：如果那是那个系统，我们俩都会有麻烦。所以我认为，你的无知和愚蠢有时候应该被隐藏起来。（笑声和掌声）

沃伦·巴菲特：是的。

查理·芒格：我还认为，当你像年轻人那样疯狂地多任务处理时，很可能任何一项任务都做不好。（掌声）

沃伦·巴菲特：我们是不是忘了得罪谁了？（笑声）

28. 欺诈、骗子和会计

沃伦·巴菲特：好的，3号站。

观众：您好。我叫Stuart Kaye（音译），在康涅狄格州斯坦福德工作。会议早些时候，您说在阅读财务报表时，您几乎可以确信某些公司是欺诈。您在那些财务报表中看到了什么，让您如此确信它们是欺诈？

沃伦·巴菲特：嗯，多年来这差别很大，但有些会跳到你眼前，人们经常自己露出马脚。在扑克牌中，他们谈论“马脚”。查理和我买了很多企业，当我们购买这些企业时，非常重要的是要相当准确地评估我们正在向其购买的个人。因为，他们在交割股票时，我们支付大量现金，然后我们指望他们在拿到钱后，还能像之前一样充满热情地经营企业。所以我们在评估人。我们不认为我们能准确评估每一个人。我们只需要在我们做出最终决定的那些问题上正确。这些决定并非总是完美的，但一直相当不错。而且我想说，随着时间推移，他们甚至可能变得更好一点了。

同样地，在查看财务报表时——例如，在保险领域，我们看到过一些欺诈行为，你可以看到在损失准备金方面做的一些手脚。我们过去看到过——我不指名道姓。不像查理，我不会——我们称它们为A公司和B公司，而不是点名。但你会看到一些公司，在它们向公众发行股票的一两年之前，准备金可疑地下降了，然后——你知道——甚至当它们向其他保险公司出售业务时，如果它们在回购股票，它们可能会增加准备金。但方法有无数种。我显然不声称我知道所有方法，但我多年来见过足够多的情形，也见过推销员是如何运作的。你能识别出某些人，他们无论如何都在玩弄数字。他们自己会露出马脚。

但我不能给你一个包含40个项目之类的清单，让你在资产负债表、损益表或脚注中去查找。查理，你能帮忙吗？

查理·芒格：有时候非常明显。有一次，沃伦意外地介绍我认识了一个人，他想卖给我们一家火灾保险公司。他说的第一句话，带着浓重的口音，可能是东欧的，我想——

沃伦·巴菲特：别点名国家。（笑声）

查理·芒格：我不记得是哪个国家了。

沃伦·巴菲特：很好。（笑声）

查理·芒格：但他告诉我的是——“这就像从婴儿手里抢糖，”他说。“我们只承保水下混凝土结构的火灾保险。”我立刻意识到这很可能是欺诈。

沃伦·巴菲特：那家伙是个骗子。

查理·芒格：我是个非常敏锐的人。

沃伦·巴菲特：是的，那家伙是个骗子。嗯，你实际上——你有一些经验——你知道，他曾经是电影行业的律师。（笑）