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What follows is my best attempt to represent some of what was said at the meeting. It's not 100% accurate word-for-word, but it's pretty darn close. (Whitney Tilson has covered some of the same ground in his recent Boring Portfolio report.)
Note that "WEB" stands for Warren E. Buffett and "CM" stands for Charlie Munger.
Imagine the setting: a large civic center full of roughly 10,000 people. A modest dais up front, on which is a simple table and two chairs. On the table are two microphones, a box of See's candies, some water, and some cans of Coke. The meeting was interrupted briefly when a seven-foot-tall ice cream cone walked onto the dais and handed each of the gentlemen a Dairy Queen Dilly Bar. There was soon much crinkling and rustling as they unwrapped the bars and proceeded to tuck in with gusto. The shareholder asking a question at that point asked, "Are you guys listening [to me]?" (Buffett assured him that yes, he was.)
WEB: We're enormously risk-averse. If we're thinking of writing a $1 billion insurance policy, it doesn't bother us as long as the math is in our favor. We do so many transactions that we're almost sure to come out ahead.
We don't intentionally go into a business that we think will change in a big way. We look for a moat. A business is like a castle. What kind of protective moat do you have? See's has widened its moat every year. Other businesses are trying to take your castle. We think our businesses have solid moats and they're widening them.
On Role Models:
WEB: It does pay to have the right role models/heroes. It takes you through a lot. Mine haven't let me down. You'll want to be a little or a lot more.
I tell students to pick out the qualities they admire in people they admire and ask why they can't develop those qualities themselves. It's very simple. The person you'd really like to admire is yourself.
CM: There's no reason to just look for living role models. Don't limit yourself to the living.
On Public Office:
[They were asked if Alan Greenspan retired and they were offered his job, would they take it.]
CM: I'd say no more quickly.
WEB: Notice we gave you unequivocal answers -- that would disqualify us. I don't think we would ever be tempted by a public job. We're just having too much fun with what we're doing.
CM: I never wanted to have a job where lying was the required activity.
On the Problem with General Re and Why It Wasn't Foreseen:
WEB: Well, it looks like a $275 million mistake. It's a big one. But we've had worse. We made a $4 million mistake in the 1970s that cost us probably $8 billion today. You could say that we're 10% smaller today due to it.
General Re has had a terrific record. Insurance is the best business I know where we can grow with scale. Nine out of ten surprises in insurance are negative.
On Whether He Sees American Express as "Inevitable":
WEB: Let me clarify that Coca-Cola (NYSE: KO) and Gillette (NYSE: G) aren't inevitable -- but the Coke and razor businesses are. There's always a risk that an inevitable company goes into a non-inevitable business. In the early years, American Express (NYSE: AXP) had a 60% to 70% market share, while still charging 1% to 2% more than its competitors. AmEx backed into the charge card business when Diner's Club was catching on. They saw traveler's checks shrinking. This shows the power of the brand name -- the cachet --it was a dominant name. That's why I bought 5% of the company in 1964.
There are probably $300 billion in annual charges on American Express. We own 11% of the company, so we benefit from $33 billion of charges. AmEx's fee is about 2.7%, vs. about 1.7% for Mastercard and Visa. That difference gives you a lot of money with which to offer your customers more.
Nourished properly, the AmEx name has huge value and is very likely to get stronger over the years.
WEB: We look for how a company deals with adversity. A good example is America Online (NYSE: AOL) a few years ago. I had the impression that many customers were mad at AOL. But it was growing anyway. That's great -- it shows underlying strength. It helps when you're evaluating the depth and impenetrability of a moat.
On Competitive Advantage:
CM: Harvard is like a self-fulfilling prophecy. It would be hard to mess up Harvard. It's a great business -- the more they raise their prices, the more people want to get in.
On Whether He Has Any Cutoff Levels for Price-to-Earnings (P/E) Ratios or Earnings Amounts:
WEB: No, we don't. One of our best purchases was 50% of GEICO when it was losing a lot of money and was destined to lose more. We thought we saw a very different future. We look at all of these companies as businesses. We're losing money in Europe with Executive Jet now, but we expect that at first.
You do want to have in mind a stream of cash you expect for the next 20 or so years. And once you're that far out, the terminal value becomes less important.
On Investing in "Technology" Companies:
A shareholder suggested that Buffett and Munger should receive "lashes with a wet noodle" not for their 1999 performance, but for spoiling investors so that they expect 20% returns. He queried: "Are we asking too much to ask you to put your brains to work and invest only 10% of our money into the only game in town? Isn't there enough left in your brainpower to look into technology? I made over 100% in technology mutual funds�"
WEB replied: The only way we know how to make money is to evaluate businesses. Did you bring business cards? It's a free world. Lots of people say they know how to invest in technology. Why would you have *us* invest in technology for you? [He went on to suggest that anyone interested in investing in technology should see this questioner.]
CM: There are worse things in life than being left behind by a pile of money.
WEB: [to Munger] Would you care to name a few?
WEB: We understand technology products and what they do for people. But we don't understand the economics ten years out -- the predictability of it. Is it comprehensible? We do think about it, but we don't get anyplace. We would be skeptical of anyone who says they can. Even my friend Bill Gates would agree.
On Stock Prices:
WEB: We don't even look at stock prices that much. We look at companies and private businesses. We had a bad year this year, but our stock price didn't correlate closely to that.
On the Economy:
A 15-year-old female shareholder from New York said, "It was very nice meeting you yesterday. I really appreciated the Internet stock tips. [laughter] Coca-Cola, Gillette and other companies seem to do well in certain interest rate/economic environments. How is Berkshire positioning itself for coming economic climates?"
WEB: If we thought we knew what the dollar and interest rates were going to do, we'd know what to do. But we don't. In the end, we're really more interested in predicting whether more people will buy Coke around the world than dollar or interest rate changes. Currency does make a difference on earnings reports. But we focus on what's knowable and important. Currency may be important, but it's not knowable. With Coca-Cola, what's important is that more and more people will be drinking it. The best time to buy stocks in recent years was when interest rates were sky high.
CM: We have a willful agnosticism on some things.
WEB: I don't make guesses [regarding the economy] and when I do, I don't pay attention to myself. Charlie and I never talk about macroeconomics. It's fashionable for banks to have economists making forecasts. So they say that GDP will grow by 4.3% instead of 4.6%. So what?
On Expectations for the Stock Market:
CM: I urge everyone to read the Fortune Magazine article. We're in for a time of reduced expectations. If you have unreasonable expectations, it makes life miserable.
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