Berkshire Hathaway Annual Meeting
May 3, 2008
(Notes taken by Professor David Kass and Professor Susan White, Finance Department,
University of Maryland)
A one hour humorous film was shown which featured a Charlie Munger (CM) cartoon
character running for President on the “Financial Independence” Party ticket. Walter
Cronkite (cartoon character) reported that CM was far ahead of the other three major
candidates (cartoon characters of Barack Obama, Hillary Clinton, and John McCain) in
the latest polls. Near the end of the film, Becky Quick of CNBC announced that Warren
Buffett (WB) was leaving Berkshire Hathaway to switch jobs with Susan Lucci, the TV
star of “All My Children”. Warren Buffett then appeared in an episode of “All My
Children” along with Susan Lucci. (This episode was subsequently broadcast on ABC the
following week.)
After the film, CM came on stage and sat in one of the two chairs. Then Susan Lucci
appeared and sat in the other chair. She announced that she was the new CEO of
Berkshire Hathaway. CM then remarked “I must admit you possess certain attributes that
your predecessor lacked”. Susan Lucci then took her first action as CEO by declaring an
initial dividend on Berkshire stock. The shareholders enthusiastically applauded. She
also announced that she was raising the pay of the Board of Directors from the current
level of $900 per year. The directors then stood up and cheered. At this point, WB
appeared on stage, tore up a piece of paper, and said he was still CEO of Berkshire, and
the company will not be paying any dividends. WB then announced that there were
31,000 in attendance, setting a new record. Last year 27,000 attended. WB then started
accepting questions from the shareholders.
Questions were asked on a first come, first served basis at 13 microphones. Questions
and answers are paraphrased.
(1) How can investors become less like lemmings and avoid the crowd mind set.
CM: Become less like a lemon.
WB: Read everything in sight. He said he began reading at 6 or 7 and read Ben
Graham’s Intelligent Investor at age 19 and it changed his life, particularly Chapters 8
and 20. He said you can’t get a bad result if you follow Ben Graham. When you own
shares of stock, you own part of a business. You should let the market serve you. WB
has a “margin of safety” when he purchases shares.
He and Charlie worked for their grandfather’s store (Cousin Bill Buffett has written a
book about the grocery store.) He said his grandfather was negative on stocks and big on
working hard, which is why they quit working for the grocery store.
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(2) What are the expectations for BRK’s purchase of the Cologne Re-insurance
company?
WB: To grow the company and better integrate its operations into Berkshire Hathaway.
(3) Where is the market going?
WB: Charlie and I don’t know where the market is going. If we knew, we’d play S&P
futures. It’s not what we do.
(4) How do you select good managers?
WB: We buy companies with good managers in place. We don’t select good managers;
our job is to retain them. There are 250,000 employees working for Berkshire Hathaway,
with only 19 at corporate headquarters. Our managers love their businesses. You can see
passion in their eyes. Mrs. B (Blumkin) of Nebraska Furniture Mart worked until the age
of 102. She then died the following year – this is a lesson to our managers!
CM: We always keep a few million dollars around in case a good opportunity comes up.
(5) How do you use options?
WB: If we want the stock, we buy that, not options.
CM: WB was against the formation of option exchanges. They’re turning stock markets
into gambling markets so the croupiers can make more money.
WB: Teaching option pricing is nonsense. You need to know how to value businesses
and assess the stock market. The professors know formulas and need to teach them to fill
the class time– like someone in the priesthood in finance, and has nothing to do with
eventual success. For investment success, you should buy the right businesses at the right
prices. The market should not influence you, but serve you.
(6) You are both very generous. What are the joys of giving or the pitfalls of
donating?
WB: I never gave anything that made a difference to my standard of living. Many people
go to church and their donations mean they can’t do something else. WB said he gave
from excess, not necessity and that those who gave from necessity were truly charitable.
He said his sister Doris gave from necessity and also gave of her time.
CM: Those who are at the extreme, left or right, ideology, are most likely to make dumb
charitable gifts.
(7) What is your level of involvement when the company has an ethical dilemma, for
example, Fruit of the Loom’s competitors have sweatshops.
WB: We rely on our managers to be ethical.
CM: Berkshire does not operate sweatshops. Shoe production was in Maine – a bunch of
Imelda Marcuses in the U.S., but was moved to China for cost reasons.
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(8) Mike of California, with a web site, financial fogorn.com, asked about Chinese
tungsten prices going up – will this have an impact on Iscar’s machine tool
production?
WB: We built the Iscar China plant to serve the Chinese market, not because of the price
of tungsten. In the carpet business, the costs of inputs are hard to pass along. But Iscar
has succeeded and was a terrific acquisition.
CM: I don’t like inflation. It’s bad for civilization, but we’ll make more money over
time.
(9) What will BRK’s return on investment be in the future?
WB: Berkshire’s return will be lower than what we achieved in the past. I’ll be happy
with a 10% return. We’ll get decent results, but not indecent.
CM: You can take Warren’s words to the bank. We need to lower expectations.
WB: We’ll continue to buy large, first class businesses, but they won’t produce the
returns that they have in the past. Berkshire is limited to investing in large companies.
We can purchase 5% of a $10 billion company for $500 million. Shareholders with small
amounts of money and lots of time can find better opportunities.
(10) First of three questions about the Klamath River dams in Oregon, owned by
PacifiCorp. Those asking the questions said they have been treated better this year
than the previous year. Will you make PacifiCorp accountable? (Problem of
green/blue algae, polluting the waterways and killing the salmon.) Second question
about toxicity of fish. By the third question, the audience was getting very restless,
and WB said he would take no more questions on this subject.
WB: We can’t make decisions. We follow the public utility commission rules. He called
on Dave Sokol to address these questions. PacifiCorp., was a 2005 acquisition of
Berkshire Hathaway. At the time of the purchase, BRK made an agreement not to
interfere with the four dams, built over 100 years ago. Dave said many other lakes in the
area also have algae problems. (WB looked very bored during Dave’s answering of this
question.
(11) How do you maintain your mental and physical health?
WB: (as he put a piece of candy in his mouth): I eat a balanced diet -- See’s, Mars, and
Coke . For his mental health: “I do what I love every day with people who love their
jobs.” WB works with a trainer three times a week for 45 minutes each time. WB is 77
and CM is 84.
CM: Has no health or dietary rules and does not plan to change. This is the best country
in the world. There are some jobs that he would pay to get. CEO’s are not being paid a
market price. They would stay in their jobs at ¼ or ½ their pay since they would not be
able to get better jobs elsewhere.
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(12) German high school student: What should I do with the rest of my life?
WB: I would choose the same life over again. His advice to the young man was to find
his passion. He said he was lucky that he found his passion early. He read his father’s
investment books. If his father had been a minister, he wouldn’t have been as enthused.
Go to work for an individual you admire – for many people, that’s themselves. WB
worked for Ben Graham for two years. Get the right spouse. He told the story of the
man who spent most of his life looking for the perfect woman. He finally found her, but
unfortunately, she was looking for the perfect man.
CM: You can do better if you develop a passion for something, and having an aptitude
for that something is better. If Warren had had a passion for ballet, his life would have
been very different.
(13) What is your advice to the quieter, introverted part of the population?
WB: I was terrified of public speaking. I signed up for a Dale Carnegie course, then went
home and stopped payment on the check. Then I signed up a second time, and paid with
cash. It is helpful to teach and get up in front of people. It is important to communicate
well both in writing and speaking.
CM: It’s good to have an education. It’s better to do something simple and important
than something foolish and unimportant.
(14) Question about the strategy of buying long and short in the same industry (pair
trading).
WB: Ben Graham did this in the 20s. He made money 4 out of 5 times, but the fifth time
killed him. WB has bought long in attractive companies and shorted the market in
general.
CM: We made our money by being long in wonderful businesses.
(15) Question about the subprime crisis and how to take advantage of it.
WB: Will leave you the joy of searching for those opportunities. There are some
inefficiencies (“market dislocations”) that they have taken advantage of. WB specifically
mentioned mispriced municipal bonds. He mentioned a particular bond, at a yield of
3.15% one week, 4% the next, 3.5% the next, then 8%, then 10%, and then 4.2%. He
said the mispricing occurred when billions of dollars of municipal bonds were sold as a
result of margin calls, and that it was a great time to make money.
CM: The dislocations are extreme but the opportunities are brief. It’s like waiting at a
stream to spear fish, when a fish comes by once a week, once a year, or once every 10
years.
(16) How to grow a small business?
WB: it takes time.
CM: Most small businesses never get big, most big companies fade. The reinsurance
company is the only one they created from scratch and became a big business.
WB: BRK entered the municipal bond reinsurance business in the first quarter of 2008.
Their insurance is being purchased by a lot of munis that already had insurance, and
they’re buying BRK’s secondary insurance at a higher cost than their primary insurance.
His best business decision was the fee paid to the executive recruiter who brought them
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Ajit (Jain), who started and runs this business. The municipal reinsurance business
collected $400 million in premiums in the first quarter, more than all other firms in this
industry (MBIA, AMBAC, etc.)
(17) You have said that sometimes you make investment decisions solely on the basis
of reading financial statements. What do you look at?
WB: Will financial statements tell me enough? Most of the time, no. But if I understand
the business and I can buy at 40% of what I consider to be a good price, then I have a
margin of safety. I can just look at the financial statements of Wrigley, since I know the
business.
CM: He prefers companies drowning in cash.
(18) From a 12 year old from Philadelphia: What should I be reading? There are a
lot of things they don’t teach in school that I should know.
WB: Read the daily newspaper. Through reading, you will find out what is most
interesting to you. The more you learn, the more you’ll want to learn.
CM: This young person has already figured out how to succeed in life.
(19) Do you want companies with lower profits but high growth or those with higher
profits and lower growth?
WB: We want companies with a durable competitive advantage. BRK will be looking in
Europe later this month for private companies that may want to buy. If it’s a good private
business and it wants to stay that way, fine. But if they want to sell, sell to Berkshire
Hathaway, the most logical choice.
CM: Sell what you have created to a good steward.
(20) How should you hedge U.S. dollars?
WB: I’m happy to invest in businesses that earn money in Euros. The U.S. will continue
to follow its current policies that will weaken the dollar. BRK does not hedge its foreign
businesses – we’re not in the business of hedging. BRK owns 200 million shares of
Coca-Cola, which earns $3 per share, or $600 million (for BRK). Of that amount, $500
million is earned internationally.
(21) Eric from New York had a follow up to a question he had the previous year.
What should you do with small sums. Should you invest in non-stock investments
vs. buying and holding stocks.
WB: There are some very mispriced bonds. This doesn’t make a big difference to BRK
but would to small investors.
(22) Doctor from an infertility center – he’s in the business of helping make babies
to help social security’s solvency problem. What do you think of social security?
What would be your position if you were a presidential candidate?
WB: All three candidates pander to the voters and don’t understand economics. Some
propose taxing ExxonMobil because the price of oil has gone up, but no one proposes
taxing farmers because the price of food has gone up. Quoted Bill Buckley: if elected,
I’d demand a recount. We have three good candidates. People only listen to ideas in
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short form. What company should you buy stock in – one that will do well even if idiots
run it. This is true for the country as well.
CM: After Enron, Congress passed Sarbanes Oxley. This was like shooting an elephant
with a pea shooter. He predicted changes in regulations that won’t work perfectly.
WB: I have a job I love, and enough stock so I will keep the job. I might have a different
answer if I were making a pitch. The process is corrupting.
(23) What is the plan for CEO succession.
WB: We have three CEO candidates all of whom will do better than me. When the time
comes, we’ll pick someone reasonably young. For Chief Investment Officer, we have
four candidates, all of whom have good jobs now. There will be no gap after my death.
There will be someone more energetic.
CM: (age 84) We still have this rising young man, Warren Buffett (only 77), and we want
to encourage him to reach his full potential.
WB: At an average age of 80, we only age 1 ¼% per year, while companies with
executives at age 50, age faster – at 2% per year.
(24) Question about diversification
WB: Investing 75% of your net worth is not a problem if this is something you believe in.
Investing 500% of your net worth is a problem. LTCM invested 25 times its net worth.
Their investments had to converge and would have worked out if they could have played
out their hand. Many people have 100% of their net worth in BRK and have had it there
for 40 years. BRK could have put 100% of its net worth in Capital Cities Broadcasting in
early 1974 when the stock was selling for 1/3 or ¼ of what its properties were worth.
BRK could also have put 100% of its net worth into Coca-Cola in 1988, or before.
CM: Students go to elite schools where they learn the whole secret is diversification. Our
secret is to find places where it’s okay not to diversify.
WB: The secret of investing is not to diversify. Diversification (across time and equities)
is for the know nothing investor.
(25) Boys Town head, representing Parents Television Council, asked about keeping
toxicity off TV. He’s read that BRK is a troublesome advertiser.
WB: BRK’s highest spender on advertising is Geico. They do not have offensive ads.
(26) Deborah from New Jersey spends full time managing her and her husband’s
money. Should their assets be separated?
WB: Better to look at it altogether, other than having, as required, separate IRA accounts.
If you’re just starting out, you might want to keep assets separate. I don’t get into marital
counseling often, so I’ll turn it over to Charlie (who had no comment.)
(27) Oil resources will run out by the end of the century. How will it all play out?
World War III? Alternate energy sources?
WB: Oil will not run out suddenly. Capacity will level off and decline gradually. We
have less surplus capacity than ever. The world will adjust. Demand will taper down as
the supply goes down. There is nothing we can do to wean the world off oil.
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CM: Eventually, we’ll use sun power, and there will be some pain in the process. It’s
stupid to use up our reserves as fast as we are doing. In the 30s, we should have bought
all of the Middle East’s oil and put it in the ground here. And we’re still not doing this.
WB: China is selling 10 million cars. Demand is not going to go down.
CM: Turning corn into fuel is a dumb idea.
(28) Name three difficult policy decisions and three perfect solutions.
WB: Massive retirement program. Tax the middle class less and the super rich more.
(29) If you are a small investor, say 30 years old, a million in the bank but not a full
time investor, what should you do, what asset classes and what percents?
WB: Put it all in a low cost index fund such as Vanguard, forget it and go back to work.
Stocks outperform bonds over time. Many financial advisors take croupiers profits by
pretending to be professionals.
CM: Don’t judge stock brokers by the ones that are at this meeting.
(30) Tim from Austin: How do you resist the temptation to keep up with the Joneses
– advice on work ethic, frugality and debt.
CM: Keep up with the Buffetts.
WB: Children will follow the example of their parents – if parents increase their cost of
living without improving the standard of living. It’s okay to spend on a great Disney
vacation when you’re young that everyone will remember. I don’t advocate extreme
frugality. Just don’t spend 105% of your income.
After the first question period there was an hour’s lunch break.
(31) Are investment banks so complex that the head is not aware of the risks?
WB: He is the chief risk officer at Berkshire. When BRK acquired General Re, it had
23,000 derivative contracts. How much risk would they represent under extreme
conditions? WB wants no risk, not even slim risk. The big IB’s are too big to manage
effectively. Fannie and Freddie had a lot of oversight by 200 people at OFHEO, but they
still didn’t catch the two worst accounting misrepresentations in the history of the world.
I don’t think more commercial bank regulation will help. You need the man at the top to
say we don’t do risky things, even if everyone else is. Being “too big to fail” has policy
implications.
CM: As an industry, there’s a crazy culture of greed and over-reaching. They have “good
until reached for” assets. The accounting profession failed us. In the drug business, you
have to prove that something works. Wall Street believes in the tooth fairy – it’s a crazy
culture and to some extent, evil. The accounting people failed us. They don’t even have
the right approach.
WB: At Salomon, when WB came in, he saw Salomon trading with Mark Rich, who had
fled the country. The traders said they were making money. Buffett had to send out a
directive forbidding the trading. Had Bear Stearns failed, the next day $14.5 billion
worth of contracts would have had to be undone to establish damages. There would have
been 4 or 5 hours to unwind contracts. There would have been a spectacle. Another
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investment bank or two would have gone down. When the world doesn’t want to lend
you money, 10, 20 or 40 basis points doesn’t matter.
(32) You invested $500 million in Petro China, and all you did was read an annual
report.
WB: I only read the report, didn’t talk to any brokerage houses, didn’t talk to
management. It wasn’t hard to understand the operation. $100 billion in value was
selling for $35 billion – what’s the sense of talking to management? If I thought it was
worth only $40 billion, then it would have been worthwhile to refine the analysis. More
analysis was a waste of time. You don’t have to carry out the analysis to three decimal
places. If I see someone weighing 300-350 pounds, I don’t know how much he weighs,
but I know he’s fat. I want companies that are fat.
CM: We have lower due diligence expenses but less trouble than others who pay more
for due diligence. We think like engineers – we want margins of reliability. It’s safer to
do it our way.
WB: He got a call on the Mars/Wrigley deal. WB’s due diligence was going out and
sampling the candy bars all day. There’s a lot of trivia that doesn’t need analysis. I’ve
made mistakes but none that would have been prevented by due diligence. The Mars
people wanted to deal only with Berkshire Hathaway. Buffett has the ability to say yes
to a deal with no contingencies like obtaining financing, or worrying that Ben Bernanke
will run off to South America with Paris Hilton.
(33) Do you believe in Jesus?
WB: I grew up in a religious household, but I am an agnostic.
CM: I don’t want to talk about my religion.
WB: Being agnostic means I don’t have to talk about my religion.
(34) When you are gone and BRK stock held in trust is sold, what is to prevent a
hedge fund from taking over and breaking up the company?
WB: This is not likely – Berkshire Hathaway is too big. It can’t happen for years after I
die. There is a ten year distribution period that begins only after the estate doesn’t last.
CM: What Warren wants people to say at his funeral is “that’s the oldest looking corpse
I’ve ever seen.”
(35) Why is Kraft a good business?
WB: Most food companies are – they have good profits. Branded products in general are
good assets. Coca-Cola was introduced in 1886 and is sold around the world. It is
impossible to take on Coke. Coke sells a billion 8 ounce servings a day. Branson
brought in Virgin Cola – a strange kind of promise. There are hundreds of colas – who is
going to buy an unknown product for a penny or two less? If you buy a good brand, and
don’t pay too much, you’ll do well.
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(36) How will you select the four investment professionals who will run the
Berkshire Hathaway portfolio?
WB: This is detailed in the 2006 annual report. We want people with good records, but
this is not sufficient. You need someone you can trust with reasonable analytic skills,
who can contemplate problems that have not yet occurred.
CM: BRK is very risk averse. No rational person will worry about our credit, but if they
didn’t like our credit, we wouldn’t know for months because we have so much liquidity.
For many companies, the chief risk officer is a guy who makes you feel good while you
do dumb things. You can have PhDs do dumb things, like torture some mathematical
model when the real world doesn’t fit into it. They think they’ve clobbered risk, but
they’ve just clobbered their own heads.
WB: We want to run BRK so it will run well even if the world changes. A lot of people
have most of their net worth in BRK. We earn a decent return on capital – what’s an
extra percentage point?
(37) Professional investors should act quickly and decisively. What companies act in
a day or two? Why invest in Korea or China?
WB: Some people think we’re rude – we’re just not wasting their time. In mid sentence,
we may say, forget it.
CM: we can make a lot of decisions about a lot of things very fast because there are a lot
of things we won’t allow us to think about, for example, we don’t do start ups.
(38) Should the U.S. withdraw sponsorship of the Beijing Olympics?
WB: Everyone should participate in the Olympics. On balance they contribute to a
better world.
CM: Warren understates my position. We’re stressed by imperfections in China. China
is moving in the right direction. It’s wrong to pick the worst thing about a country you
don’t like and obsess about it.
(39) What are future trends in coal? Does the cost advantage outweigh the
environmental impact?
WB: We will figure out better ways to do what coal does. It’s a tough problem to solve.
BRK companies use wind power, other alternative sources of energy, but are still
dependent on coal. Solving the problem will require cooperation and leadership. Per
capita, we have done as much to the planet as any other country. It’s hard for us to go
about preaching. We need a leader who can gain cooperation.
CM: With coal and oil, I’d rather use the coal first. I have an environmental reason for
this – oil is more important to feeding the world. Most people don’t think that way, but I
do.
(40) If you buy small banks, what do you need to know?
WB: You should know the culture of the institution and the DNA of the institution – so
they will be immune from institutional stupidity – like Wells Fargo, U.S. Bancorp., and
M&T Bank (BRK’s equity holdings in this area). I like a quote that’s not mine – “there
are more banks than bankers”.
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CM: That’s a territory that has some promise.
WB: That’s a wildly bullish statement from Charlie.
(41) How can further nuclear proliferation be prevented?
WB: The genie is out of the bottle. More people know how to do enormous damage. For
millennia, the ability to do widespread damage has been limited. We live in a very
dangerous world. We’ve been very lucky since 1945.
CM: The population of Mexico suffered a 95% decline when the Europeans came and a
civilization was destroyed, but it didn’t wipe out the species.
(42) Eliza from Florida teaches at a community college and endlessly recited what
she does in her class. The group applauded to get her to be quiet, but she took it as
a sign to continue. Finally, WB asked her what her question was – what else should
she be doing?
WB: The most important investment is in yourself. He tells high school students,
imagine that you’re 16 and I’ll give you any car you want, but the catch is that it is the
only car you will get for the rest of your life. How will you treat it? You’ll keep it
garaged, change the oil, all to make it last a lifetime. You get one body and one mind to
last a lifetime – treat it well. If you ask a class what person they’d like to own 10% of,
they won’t pick the person with the highest IQ. They’ll pick the one who will be the
most effective. Leaders are effective because people want to be around them.
CM: Teach them to avoid being manipulated to their disadvantage by vendors and
lenders. He recommended the books “Influence: The Power of Persuasion” and “Yes” by
Robert Cialdini
(43) Andrew, 9 years old from Chicago said he is a big baseball fan and would WB
like to buy the Chicago Cubs from Sam Zell?
WB: Cable TV has expanded baseball’s market. The Cubs would sell for $700 million.
WB would not be interested at that price. People buy baseball teams for psychic income
and instant celebrity and recognition.
CM: We already own one. (BRK owns the Omaha Royals, a minor league team.)
(44) Americans don’t save while Asians save 40%. Why don’t Americans save, and
how can this be corrected?
WB: The country’s net worth is up in real terms. If you own BRK stock, you are
automatically saving, since the company doesn’t pay a dividend. We are so rich, the
average American’s standard of living is going to increase in real terms. As a rich
country, we may not need to save as much.
(45) What are WB’s reasons for going to Germany?
WB: We want more family owners, who when they feel the need to monetize their
business, will think of Berkshire Hathaway. If they care about the business, we are their
best call. We want to be more prominent in Europe.
CM: Germany has a particularly advanced civilization.
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(46) Do the current economic stresses remind you of any prior period?
WB: This crisis has more of its origins in mortgages and the residential real estate field.
CM: The online grocery delivery business (which failed was a lot smarter than what the
mortgage companies did. Politicians are never so bad that you don’t live to want them
back.
(47) What can be done to improve the accuracy of financial statements of financial
institutions? What can be done to improve the integrity of financial statements?
WB: Often it’s hard to determine fair value. WB talked about the problems of packaging
mortgages in such a complicated way that no one could understand them or truly be
informed.
CM: People overdosed on Ayn Rand. Greenspan overdosed on Ayn Rand – if it happens
in the free market, it’s all right. If the phrase, “this is a financial innovation that will
diversify risk” were banned, the country would have worked better.
(48) Statement about property rights that was not understandable – when the
individual said he was making a statement and didn’t have a question, he left the
podium.
(49)What is the future of mass transit?
WB: The American public doesn’t like mass transit. One person to a car is too popular.
We’re unlikely to see a large movement to mass transit. People want to get in a car, pay
a lot to park and pay $4 a gallon for gas.
CM: You have a more optimistic view than I do.
(50) Question about Credit Default Swaps (CDS) and the credit risk market.
CM:: The credit default swap market is insurance against a company going bankrupt.
CDS are a zero sum game, if you are up, then the counterparty is down. Chances of
problems have been reduced by the Fed stepping in for Bear Stearns.
WB: Charlie 1, Invisible Hand 0
(51) 12 year old – why doesn’t Berkshire Hathaway pay dividends? Your mentor
believed in dividends.
WB: I do believe in dividends. If you can continue to create more than a $1 for every
dollar invested, then don’t pay a dividend. See’s distributes all of their earnings to BRK
– the company doesn’t have better uses for it. For many companies, they’re better off if
they retain their earnings. Costco paid no dividends when they were growing rapidly.
CM: Warren pays a dividend in the mode of St. Augustine: “God give me chastity, but
not yet.”
(52) 8th grader from Texas: Will you invest in any business in China and India in the
near future?
WB: Odds against, except in the U.S. It is difficult to buy companies in any country
outside of the U.S. We might buy one or 2 companies outside the U.S. in the next few
years. I wouldn’t rule it out.
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(53)What are 2 or 3 important influences on you?
WB: His father, Ben Graham, Dave Dodd. He devoured books. Charlie learned a lot
from Ben Franklin. Many people believe Ben Franklin learned a lot from him.
CM: People learn in different ways. I like to read – you learn what you want at a speed
that works. Conceptual stuff you learn from books.
WB: If you have the right parents, you’re very lucky. If you have the right spouse, you
double down.
(54) What can be done about outrageous executive salaries?
WB: We can’t do much on compensation. The institutional investors can do something
in a few cases – issue statements – the company doesn’t want bad press. Ben Graham
bemoaned the fact that investors were a bunch of sheep – I don’t see much difference
with institutional investors. An individual investor can’t do much – a well-written letter
is given to the corporate secretary, who’s told to get rid of this nuthead.
CM: The English had a high tax rate against the wealthy, which was counterproductive.
The politics of envy ruins the economic system. People taking compensation have a
moral duty not to take it. Envy makes you feel worse and the person you’re envious of
may even feel better. Now, gluttony, there’s something to that.
(55) You did a quick trade of PetroChina, not your usual buy and hold. Why?
WB: BRK bought PetroChina when it was selling for $35 billion, but worth $100 billion.
A few years later PetroChina had the largest market cap in the world (over $300 billion).
BRK sold PetroChina when oil was $75/barrel. Then both the price of oil and
PetroChina went up. If the price declines further from current levels (about ½ of its peak
price), BRK could buy it back.
CM: Approves of Confucius’ reverence for elderly males
WB: You need to dig yourself out by adding elderly females.
CM: It was Confucius’ idea.
(56) What is your fondest hope for Berkshire Hathaway?
WB: I want people who want to sell their businesses to think of Berkshire Hathaway.
CM: To see Berkshire Hathaway as more of an exemplar and to have more influence on
other companies. And, to have the oldest living managers.
Professor David Kass
Professor Susan White
Finance Department
Robert H. Smith School of Business
University of Maryland
College Park, Maryland 20742
dkass@rhsmith.umd.edu