It was a cold, rainy morning. Warren Buffett made a crack about it later while answering a question about climate change.The drive at 5:30 a.m. from Lincoln, which is where the cheapskates stay, was black and wet with visibility of about 200 feet. Thoughtfully, the executive suite at Berkshire got together and opened the doors early at the Century Link Center so the first in line wouldn't have to stand in the rain."If we had a company that made coats, I would have left you out there," Buffett said in response to a thank you from a member of the audience.Carrying only a notebook and The Essays of Warren Buffett to pass the time, I scooted past bag check and into the hall. I took a seat on an aisle facing the dais on metal risers behind the floor seating. On the video strip that runs all the way around the hall, logos of Berkshire companies alternated with this instruction:Strictly prohibited actions during movie and meeting: No photographs. No audio recording. No video recording. No cell phone use.This is one manifestation of Berkshire's octogenarian leaders being so proudly ignorant of technology. Almost everybody was carrying an electronic device of some kind -- a smartphone, a Kindle, an iPad, some stuff I didn't even know what it was. Most of these devices have a recording mode and there was no enforcement that I saw. It's really more of a request. In fact, Berkshire has two cameras set up with a sophisticated sound mixer to project the images onto the screens over the participants.On the sound system, at 6:50 a.m., they played "Everything is Beautiful." You might go so far as to call this the day's theme. Also in the pre-meeting rotation were "Reeling in the Years" by Steely Dan, "Living For the City" by Stevie Wonder, "Pretty Woman" by Roy Orbison and "Unforgettable" by Nat King Cole.At my seat I met Wendy, a charming grandma from Melbourne, Australia, with her son Jared the money manager, who has attended each of the past three. There were some people who looked and dressed like they were in finance and many people who didn't. The crowd was not as well-fed as those down the road at Cornhuskers games, but its lack of girth was more than made up for in arena congestion by all the crap -- er, Berkshire Hathaway retail products -- people had bought in the exhibition hall.The movie was goofy and tried hard to be funny -- Berkshire brands dancing with one another on "Dancing With the Stars," peanut brittle replacing meth in "Breaking Bad," that sort of thing. There was a skit featuring Jerry Stiller and Kevin James on the proper pronunciation of ketchup and one in which Buffett lobbies for the role of the villain in "Terminator 5," but Charlie Munger gets it instead. The finish was a big dance number to the tune of "YMCA" with BRKA and BRKB replacing YMCA in the lyrics and actual cheerleaders in the aisles on the floor.In celebration of Nebraska, there was a section following 7-year-old pediatric cancer patient Jack Hoffman's 69-yard touchdown run during the Cornhuskers' spring game.Then there was an extended clip from Jon Stewart's interview of Buffett and Carol Loomis. Asked about Congress, Buffett says: "We've got 312 million people. I don't think 535 can impede their progress over time."And, of course, the Salomon Bros. House testimony, on his instructions to employees as interim chairman: "Lose money for the firm and I will be understanding. Lose a shred of reputation for the firm and I will be ruthless."Buffett and Munger took their seats at 9:20. "Good morning. I'm a little worn out," Buffett said. He'd been leading the YMCA dance.He put up the quarterly numbers, talked about accounting, currency swings -- "I really never know when the dollar goes up or down whether it helps us or not." -- urged everybody to buy GEICO auto insurance, bragged on Burlington Northern."Fortunately, oil has been found very close to our railroad tracks. What better place to find oil?"He put up a list of companies with the biggest market caps (Apple, Exxon, Microsoft, Google, Berkshire): "We are now the fifth most valuable company in the world." He introduced the directors. "Please withhold your applause until they're all standing. You can withhold your applause then, too, if you want."He mentioned the various questioners, including short-seller Doug Kass, an innovation Buffett called "perhaps a first at any annual meeting."There were a lot of entertaining moments during the day, but the stoning Munger gave Kass near the end on the subject of a possible business relationship -- "The answer to the question is no." -- was right up there.Loomis reported the panel of journalists received thousands of questions through their public solicitations. The first had to do with Berkshire's recent stock performance. Buffett acknowledged if the market keeps going up, this will be the first five-year period in which the S&P has outperformed Berkshire."We're likely to do better, relatively, in down years than we do in up years," he said.Munger added: "Of course we won't do as well in the future because our past returns were unbelievable."There was a question about buying the 20 percent of Iscar they didn't already own. Buffett reiterated how much he thinks of the Israeili operators. Munger later referred to this as his favorite kind of acquisition -- in effect, a bolt-on that increases earnings without adding any duties at the corporate level.Buffet was asked what worries him most about a post-Buffett Berkshire."It's the No. 1 subject that our board considers at every meeting," he said.As to his successor as chief executive: "We're solidly in agreement as to whom that individual should be."Andrew Ross Sorkin later tried to get him to say it's Ajit Jain, but Buffett wouldn't bite, attributing Sorkin's first guess to the alphabet -- Ajit begins with "A" -- and promising he wouldn't do any better with the "B"s.Buffett claimed Berkshire's culture would "reject" the wrong CEO "like a foreign tissue," which sounded like the same doctor who advised Todd Akin. I would say Buffett is entitled to a little institutional bias, but he's the one always talking about rationality. In any case, he assured, yet again, that Berkshire's corporate culture will be maintained after he's gone.Munger: "I want to say to the many Mungers in the audience, don't be so stupid as to sell these shares."There was a question about the structure of the Heinz deal citing a report that said the terms implied low expectations for the equity portion. "It's totally inaccurate," Buffett said. "If anybody thinks the common is dead money, we think they're making a mistake, but we'll know more about that in the coming years. Anything to add, Charlie?""Well, as you said, the report was totally wrong."Buffett: "That'll teach 'em."There was a question about the hires from AIG and the venture into commercial insurance."These are people that reached out to Berkshire," Buffett said. "I think you'll see us become a very significant factor worldwide in the commercial insurance sector . . . . It could be a fair number of billions (of dollars) over time."There were two questions, several hours apart, about why GEICO doesn't offer driver-monitoring technology like Progressive's Snapshot, which rewards "good behavior" in drivers with discounts and is also reportedly very profitable.Buffett replied at considerable length both times that there are many criteria by which to measure the risk that any given driver will have an accident and that GEICO's particular blend is working pretty well. As an example, he explained why he's a better driver than a 16-year old. The adolescent not only drives many more miles, he's trying to impress the girl in the seat beside him, where Buffett has already given up trying."I don't feel their selection criteria are better than ours. In fact, I think ours are a little better than theirs . . . Our rates are attractive and our underwriting results are attractive . . . I just invite you to compare the Progressive results with the GEICO results over the next two or three years."We watch it with interest," he said of the technology, "but we're quite happy with the current situation."Munger had nothing to add the first time and this the second time:"Obviously, we're not going to copy the oddball thing every competitor tries, particularly when our system is working so well."There was a question about the decision to allow companies to disclose material information on Twitter and whether it threatened Berkshire's Business Wire."I think it's a mistake," Buffett said. "The key to disclosure is accuracy and simultaneity. If I'm buying Well-Fargo, for example, I do not want to have to keep hitting their web page and hoping I'm not ten seconds behind somebody else."This is not quite how Twitter works, but he gave a very spirited defense of Business Wire. "We will not be selling it," he said. "Anything important for Berkshire or any of our companies is going to come out on Business Wire."Munger: "It's very hard for me to know anything about Twitter when I'm avoiding it like the plague."Kass began with with a bang: "Warren, it's said that size matters.""It does," Buffett said.Kass asked an extended question about whether Berkshire's size is turning it into a glorified index fund. He said it is now paying up for mature businesses. "You used to hunt gazelles," Kass said. "Now you're hunting elephants." This is pretty much the same question Loomis started with."There's no question that we cannot do as well as we have done in the past," Buffett replied. "We have paid up for good businesses more than we would have 30 or 40 years ago, partly at Charlie's urging. We now realize that paying up for an extraordinary business is not a mistake."Munger: "I think I can make the short-seller's argument better than he did. If you look at companies that got really big, the record is not very good. We think we'll do a little better than the giants of the past. We think we've got a better system."Buffett to Kass: "You haven't convinced me yet to sell the stock, but keep working on it."There was a question about what would happen if the dollar were no longer the world's reserve currency.Buffett: "I think the dollar will be the world's reserve currency for some decades to come."Munger: "If that eventually happened to the U.S., I do not think it would be that significant . . . In the long run, as Keynes said, we're all dead."Buffett: "This is the cheery part of the meeting."There was a question about corporate profits, quoting Buffett once saying you'd have to be wildly optimistic to predict they would be greater than six percent of GDP. They're now ten. This prompted Buffett to criticize business leaders who complain about corporate tax rates when, he said, actual corporate tax payments are relatively low as a percentage of GDP. This was not a very political meeting, save for one question from an 86-year-old shareholder -- halfway between Buffett and Munger, as he said -- demanding that Buffett defend his support of the President, but Buffett did mention his concern about unequal benefits from the recovery a couple of times."Business has come back very, very strong from the precipice we were on. Employment has not come back the same way," he said.Buffett predicted corporate profits as a percentage of GDP are likely to trend down from ten percent, at which point Munger interjected that six percent was a little low."Just 'cause Warren thought something years ago doesn't mean it's a law of nature," Munger said."We'll talk about this over lunchtime," Buffett replied.There was a question about whether Berkshire is getting harder to manage with so many pieces, including some pretty small ones."I actually have delegated a few units to an assistant of mine," Buffett said. "I suspect my successor will organize things a little differently. My guess is it probably gets rearranged a little bit."He said he doesn't think that will make much difference to Berkshire's performance, which will continue to be driven by its biggest pieces.Munger: "If your system is decentralization almost to the point of abdication, what difference does it make how many subsidiaries you have? If it were all that difficult, what we're doing now would be impossible, and it isn't."There was a question about how the Fed's balance sheet expansion ends without negative consequences."My basic answer is I don't know," Buffett said. "There's all this liquidity that's been created. It hasn't really hit the market because the banks have let it sit there . . . We really are in uncharted territory."He expressed "a lot of faith" in Ben Bernanke, but wondered, half-jokingly, if Bernanke can afford to be less concerned about the long-term consequences because his term as Fed chairman is coming to an end."It certainly has the potential to be be inflationary," he said. "It hasn't been so far. My guess is some Fed members are probably disappointed they haven't seen more inflation."Munger: "Generally speaking, what's happened in macroeconomics has surprised the people who thought they knew the answers -- namely, economists." He suggested they should therefore be humble about further predictions on the effects of the money-printing.Low interest rates have had a major effect on lots of economic decisions, from the housing recovery to debt rates in the Heinz purchase, Buffett said."It's been a very smart policy, but the unwinding of it has got to be more difficult. This is like watching a good movie as far as I'm concerned because I don't know the end."He mentioned that for Berkshire, higher interest rates would have a variety of impacts across its businesses, but one would be to start earning returns on a $40 billion cash pile.There was a question asking why not acquire a major commercial insurer if the business is so attractive."If you look at the big ones, some of them we wouldn't want and the ones we would, the prices would be far higher," Buffett said. "It's really better to build than buy if you can find the right people. We've got a terrific manager, obviously, in Ajit. I predict we will have a good commercial insurance operation in a relatively short time."There was a question about Bitcoin."Of our $49 billion, we haven't moved any of it to Bitcoin," Buffett disclosed.Munger: "I have no confidence whatsoever in Bitcoin being a universal currency."There was a question about multi-leveling marketing companies, citing Bill Ackman's short attack on Herbalife and asking whether Pampered Chef has similar issues.The key to a multi-level marketing company is whether it's selling product to end users or to would-be distributors, Buffett said. "Pampered Chef's business is based on selling to the end user. I think that should be the distinguishing characteristic."Munger: "I think there's likely to be more film-flam in selling magic potions than in selling pots and pans."Kass redux. The modern Berkshire is all about Buffett's reputation and his ability to do the deals he did during the financial crisis. Why should anyone expect a successor will be able do that?Berkshire's biggest competitive advantage now, Buffett said, is not him but the capital he can deploy at a moment's notice. It has no competition at the level of capitalization where it is able to operate."The ability to say yes very quickly with very large sums sets you apart," he said. "Berkshire is the 800 number when there's panic in markets and people need capital . . . When that happens when I'm not around, it becomes Berkshire's reputation, not mine . . . The area we occupy becomes more and more our own the bigger we get."Munger: "That's what I like about it."Loomis said a reader wanted an explanation his 13-year old daughter could understand of Berkshire's sustainable competitive advantage.Munger: "We've always tried to stay sane when other people like to go crazy. That's a competitive advantage." He also mentioned being a good partner and having deep pockets as competitive advantages."This was a very good idea," Munger said of Berkshire's role as financial paramedic. "I wish we'd done it on purpose."Buffett told the tale of a business owner who wanted Berkshire to buy his business to safeguard both his business and his family. To sell to a competitor might endanger his employees, as might selling to private equity."When he came to me, he said, 'It really isn't because you're so attractive, but you're the only guy left standing.' Our competitive advantage is we had no competitors."There was a question about coal in decline and what effect it might have on Burlington Northern. "If there was no coal moving, there wouldn't be much use for some of the track we have, there's no question about that," Buffett said.He drafted BNSF's Matt Rose from the front row to assess: "We expect the coal franchise to stay basically where it is today."On the other hand, BNSF is moving 650,000 barrels of crude oil a day and expects that to grow to 750,000 by year-end. They "see a pathway" to 1.2 to 1.4 million barrels a day.There was a question about Harley-Davidson bonds paying 15 percent, bought in the crisis, coming due in 2014. "What we'd like to do is not answer the mail," Buffett said. Wishes they'd been ten-year bonds. "It will be a sad day when the Harley Davidson notes mature."He added this: "We'll see similar things at some point in the future. The world is given to excesses."Buffett was asked if he would tell Todd Combs or Ted Weschler if he disagreed with an investment idea."I would probably not know," Buffett said. "They've bought things I wouldn't buy."But, no, he said, he wouldn't want his hands tied if he were asked to manage a fund and he's not going to tie theirs.A member of the audience asked how Buffett came up with a system in which he lists 25 things he wants to do, takes the top five and avoids the bottom twenty."I'm more interested in how you came up with it," Buffett said. "I've never made lists. I don't think I've ever made a list in my life. But maybe I'll start."Trying to come up with something on the subject of Buffett habits, Munger mentioned that many bad decisions are made by people who are tired and Buffett never gets tired because of a diet dominated by sugar and caffeine."When we write our book on nutrition, I'm sure it will be a big seller," Buffett said.There was a question challenging the newspaper purchases, noting they're not big enough to move the needle at Berkshire and aren't a great business."We will get a decent rate of return," Buffett said. The return is enhanced by structural tax advantages since many of these properties are S corporations or partnerships. "I would say the after-tax return with declining earnings would be at least ten percent. Everything we have seen so far would indicate we would meet or beat the ten percent. Anything to add, Charlie?""I think what you're saying is it's an exception and you like doing it.""I wish I hadn't asked."More Kass: "When you're gone, and everyone hopes that's not for a very long time . . . "Buffett: "No one more than I . . . "It's a long-winded question about why they don't break up Berkshire before they die the way Henry Singleton broke up Teledyne."Breaking it up into several companies, I'm convinced, would produce a poorer result," Buffett said.Munger: "I like our system better. We're more avuncular than Teledyne was."There's a question on U.S. global competitiveness. Buffett says the high cost of health care relative to other countries will hurt American companies. "That will be a major problem in American competitiveness. It is now."Munger added that "grossly swollen" books of derivatives attracting smart engineers and scientists to Wall Street don't help. "I agree with you about the health care," he said to Buffett, "but I find the other more revolting."Buffett: "Charlie's very Old Testament."There was a question about whether Berkshire covers all its employees with health care. Buffett said he thought so, although it's possible a few of the papers could be small enough to be exempt from the federal mandate.There was a question about Bill Gross saying timing was a big advantage for investors in Buffett's generation. Buffett agreed but said being a man and being born in America were at least as significant aids. He disagreed that younger folks have less opportunity. He said the baby being born today in the U.S. is probably the luckiest person ever "on a probability basis."Munger: "Sure, we got advantages from timing. You were drowning in opportunities when I first knew you."Buffett: "Unfortunately, I wasn't drowning in money."Munger: "You didn't have any money. Now we have money and no ideas."There was a question about the advice they would give a younger version of themselves.Munger: "We're boringly trite. We think you ought to keep plugging along and stay rational."Buffett: "Charlie and I both started in the same grocery store and neither of us is in the grocery business."Munger: "And neither of us was going to be promoted, either. And you had the family name."They talked a minute about how much they like what they ended up doing.Munger: "You're having so much fun you're atoning by giving all the money back."Buffett: "You give it all back whether you want to or not."There was a question about how Berkshire keeps its insurance pricing rational. They discussed the absence of pressure from Wall Street to grow the business consistently. They can shrink a business as much as they think prudent based on pricing. Not a lot of competitors can do that."No external factors are pressing on us," Buffett said. "That's a great way to operate. There's no reason for us to do anything stupid in insurance."Munger: "There are pressures on other people that we don't want and we don't have."Can't remember how he got there, but Munger got to his line about how envy is the worst sin because it's no fun. "I always say there's a reason for all that stuff in the Bible about how you can't covet your neighbor's ass."There's a question about whether dumb pricing by competitors in the insurance business can hurt them."We hate dumb competition," Buffett said. Hedge funds, for example, have entered reinsurance aggressively because it allows them to operate in Bermuda and get the tax advantages. "The money will flow in, it may bring prices down, but that's happened before . . . You can't afford to go along with the crowd in investments or insurance or a whole lot of other things . . . In insurance, the stand-by costs are not huge."Munger: "With our cranky methods, we probably have ended up with the best large-scale casualty insurance operation in the world. So why would we change?"There's a question about women bumping up against the glass ceiling. Buffett talked about it as some length and recommended the piece he just wrote on the subject:http://money.cnn.com/2013/05/02/leadership/warren-buffett-wo...Andrew Ross Sorkin got in the name of his book in a tortuous compound question about whether Berkshire is too big to fail and whether Dodd-Frank has had a major effect. Buffett says there's been no effect of the capital requirements for banks on insurance operations that he knows of."I do not worry about the banking system being the cause of the next bubble," he said. "It will be something else."Munger: "I'm a little less optimistic about the banking system than you are." Again he cited "massive derivative books . . . The more bankers want to be more like investment bankers and less like bankers, the worse I like it."Just before the lunch break, Buffett offered an update on his bet that the S&P would beat a fund of hedge funds over ten years. He showed a slide indicating the S&P index fund is up 8.69 percent over the first five years of the bet, the fund of hedge funds 0.13 percent. He invited anyone who wants to see the details to go to:http://longbets.org/The box lunch ($13) was by Panera. Music in the hall for the lunch break included "Crazy" by Patsy Cline, "Gold Dust Woman" by Fleetwood Mac, "Money" by Pink Floyd and "Won't Get Fooled Again" by The Who.At lunch, everyone who did not already have a full See's shopping bag went downstairs and got one. I confess I lasted only about 30 seconds in the exhibition hall. I found the shopping spree wrapped in flinty frugality confusing. Also, I didn't happen to need any house paint.Kass led off the afternoon session. He wanted to know if Buffett cares more about the game now than the score. He thinks he's doing less intense research on purchases. His main example was Buffett's tale that Bank of America first occurred to him in the bathtub."The bathtub was not the key factor," Buffett said."I don't think it's actually a correct observation to say that because we're doing things in a different way, any of the intensity has been lost . . . The passion is not gone, I promise you."A member of the audience waned to know Buffett's favorite financial metrics when evaluating a stock."We aren't looking at the aspects of a stock," Buffett said. "We're looking at the aspects of a business.Munger: "We don't know how to buy stocks just by looking at financial figures . . . We need to know more about how the company actually functions. Do you use a computer to screen anything?"Buffett: "No, I don't know how to."They said they pick a business based on their qualitative ability to predict its future.Munger: "We have a high degree of confidence in Burlington-Northern 10 or 15 years from now. We would never have that degree of confidence about Apple no matter what its financial statements show."Buffett: "I don't know exactly how I would manage money if I was doing it purely by the numbers."Munger: "You'd do it poorly."There was a question about whether Bill Gross is correct that market returns going forward are likely to be lousy.Buffett: "Charlie and I don't pay any attention to macro forecasts. We don't know what things are going to look like in any precise way. Incidentally, we think if we don't' know, nobody else knows, either. That's a conceit of ours . . . I like Bill Gross. But it doesn't make any difference to me what he thinks about the future. Nobody knows . . . To ignore what you know because of predictions about something nobody knows is silly."Munger: "I kind of agree with Bill Gross."There was a question about competition for Fruit of the Loom from Gildan. Buffett said Gildan is doing well in non-branded aspects of the business but he doesn't think it will win in branded underwear.Munger: "As many products as we have, we're not going to win every skirmish or every battle."There was a question about books. Buffett mentioned Graham and Fisher. "My life would have been different if Graham hadn't taken the trouble of writing a book, which he had no financial need to do."There was a question about buying an airline, now that they've consolidated and are making money, and pairing it with NetJets. So they made fun of airlines as an investment for a few minutes.Buffett: "It's a labor intensive, capital intensive, largely commodity-type business. If there had been a capitalist at Kitty Hawk, he should have shot down that plane."There was a question about share repurchases. No new ground. "It's been very difficult for us to do it because every time we announce it, people say, 'Well, if he's willing to buy it for that . . . '"Munger: " . . . most cheapskates will buy it for that."There was a question for Munger about whether he would consider moving to Omaha."The answer to that is no."Buffett: "Our partnership works extremely well. Even though we're both somewhat technophobic, we are capable of using the phone."Munger said "they're rebuilding so much of (Omaha) I feel like Rip Van Winkle."Buffett: "You have to remember a third of the lifetime of the country has passed during our lifetimes. You have to expect a little change."There was a question about whether climate change has to be factored into the insurance business.Buffett said there is "certainly a reasonable chance" that those who diagnose global warming as a result of carbon concentrations in the atmosphere are right. "I don't think that it makes any real difference in assessing insurance risk from year to year," in part because humankind tends to be pessimistic about natural disasters anyway so it's hard to make those odds more pessimistic by citing any particular one.There was a question about fighting it with carbon trading and/or a carbon tax.Munger: "I think that carbon trading is pretty impractical. If you want to change behavior, the correct answer is carbon taxes. I think the United States should have way higher taxes on motor fuel, and that's sufficient."Kass, trying to goad Buffett with a wager into investing in his short-selling operation, said, "Todd Combs had success as a short-seller."Munger: "He had so much success he stopped doing it."When Kass suggested he did it well enough to land his current job at Berkshire, Buffett interrupted, just as Munger had, to say that was nonsense. Finally Kass spit out his request for a $100 million Berkshire investment and a bet for charity about how it does versus Berkshire shares.Munger: "The answer to your question is no."Buffett: "Charlie and I are no strangers to short selling. We both . . . "Munger: " . . . failed at it. We didn't like trading agony for money."Buffett (smiling): "But we wish you well."Can't remember what question generated this nugget:Munger: "The game of life is a game of everlasting learning. At least, it is if you want to win."Buffett: "We want to win."It was late when the question challenging Buffett's allegiance to Obama came up. It blamed Obama for a $16 trillion debt.Buffett: "Well, the $16 trillion, we'll have to give Bush a certain amount of credit for that too . . . I find it totally unproductive to discuss politics with people. About half the people are going to agree with you and about half the people are going to disagree."The stimulus spending that contributed to the debt "has been quite appropriate" considering where we were during the financial crisis, Buffett said. He pointed to a number of desperate circumstances, including Berkshire being General Electric's last resort. "We needed fiscal stimulus in this country."Munger: "I agree with you completely and, by the way, so did George W. Bush."Buffett: "George Bush said in 2008, 'If money doesn't loosen up, this sucker could go down.' George Bush knows how to get to the point."Buffett said the spending allowed the country to avoid "something far worse . . . We came out of World War II with a debt that was a higher percentage of GDP than it is now and people were predicting terrible things . . . I think we will do fine with a lot of bickering that will bother you if you read about it day by day."Munger: "I also think our current problems are quite confusing. In fact, I think if you aren't confused you don't understand it very well."There was a question about Benjamin Moore's competitive position and why Buffett recently sacked the company's CEO, Denis Abrams, after a widely-reported corporate bigwig getaway to Bermuda. Buffett said at the time it had nothing to do with that. If I understood his answer at the meeting, Abrams was looking at doing some things that would have hurt dealers and violated a pledge Buffett made when he bought it. "It's up to us to protect and really foster the dealer system," he said. Other brands may take big box store business, but that's the price of a business model focused on dealers and high-end customers.Munger: "I wish we could buy five more like it tomorrow." There was a question about Buffett's advice that individual investors buy market index funds. Buffett said that's because amateurs, without sufficient time to do thorough research, have a tendency to follow the crowd. "You just have to avoid getting excited when other people are getting excited," he said.Munger: "I do think that knowing the edge of your competency is important. If you think you know a lot more than you do, you can get in trouble."Buffett: "That's true outside of investing."Charlie: "It works particularly well in matrimony."There was a question about whether Buffett's contributions of Berkshire stock to the Bill and Melinda Gates Foundation, and its sales of that stock, hurt the stock performance.Buffett: "I give away four and three-quarters percent every year, $2 billion, roughly. That's less than one percent of the market value of Berkshire. A one percent sale annually is peanuts. It's insignificant compared to the volume ($400 million - $500 million a day)."Munger: "There's nothing so insignificant as an extra $2 billion to an old man."Buffett: "It has a lot more utility in the hands of other people than it does in my safe deposit box."There was a macro question on the recovery.Buffett: "It's not come roaring back, (but) it's never faltered."Charlie: "It's not a field where I've been good."A young member of the audience asked Buffett how he could convince people to let him manage their money without a track record."Well, you haven't sold me," Buffett replied.Munger: "When you had his problem, didn't you scrape together about $100,000 from a loving family? I think most people start with friends and family or people whose trust you've earned in some other way."Kass's final shot was at Howard Buffett and whether he's qualified to be non-executive chairman after his father is gone since he's never run a big company.Buffett reiterated Howard won't be running a big company. He'll be insurance in case they make a mistake with the CEO because it's harder to replace a CEO if he's also chairman.Buffett: "I think the probability of a mistake being made in picking a CEO is less than one in 100, but it's not zero in 100. He is there as a protector of the culture. He has no illusions at all about running the business."Munger: "I think the Mungers are much safer with Howard there . . . You've got to remember the board holds a lot of stock. We're not trying to gum it up for shareholders."Buffett (on the dangers of a good CEO choice going awry): "The meek shall inherit the Earth, but who knows if after they inherit the Earth they'll stay meek."There was a question about the effect of low interest rates on savers.Buffett: "I wrote back in 2008 to own equities. I feel sorry for people that have clung to fixed dollar investments, particularly short-term ones, in a period like this. I've always thought owning businesses made more sense than owning fixed dollar investments."Munger: "Well, they had to hurt someone. The savers were convenient."Buffett: "What would you have done?"Munger: "I would have done about what they did. I would have felt bad about it, but I would have done it."There was a question about IBM. This prompted Buffett to tell a story about a knife fight. A fellow with a switch blade takes a swipe at another fellow. The intended target says, "You didn't touch me." The knife wielder says, "Just wait until you try to shake your head."Can't remember how that relates to IBM.There were questions about investing in emerging markets, China in particular, and the Eurozone. Buffett said they don't think about it that way, starting with regions. They look for good businesses."We know that our strength is not there," Buffett said. "It sounds good, but I don't really think it's a great way to look at investing. If you told us we could only invest in the United States for the rest of our lives, we would not regard that as a great hardship. When we hear people talking about concepts, we think they'll probably do better selling than investing."Buffett on the Eurozone: "They synchronized currency without synchronizing much else."Munger: "Letting in Greece to the EU was like using rat poison as whipping cream. It was just an exceptionally stupid idea . . . Europe made terrible mistakes. They have politicians, too."Buffett: "We would be delighted to buy a business in Europe if we liked it."Munger: "I hope you'll call me if it's in Greece."There was a question about housing bubbles and the government. Buffett said government contributed, but so did a familiar aspect of group psychology."People are really susceptible to that sort of bandwagon effect. Everybody's making easy money but them and they finally succumb. I think people just got caught up in a grand illusion. It's happened many times before and it'll happen again."Munger: "The main problem was as things got crazier and crazier, they government could have pulled away the punch bowl before anybody got drunk. Instead, they increased the proof . . . So you're complaining a little bit about what's inevitable in life. Not too good an idea . . . It's hard to get a government in a democracy to take away the punch bowl."There was a question about the impact of social media on investing.Buffett (who just joined Twitter: https://twitter.com/WarrenBuffett): "Probably half the people in this audience can answer that question better than I can . . . It would be a terrible mistake to put me in charge of social media at Berkshire Hathaway. And Charlie would not be a particularly good choice, either."Munger talked about all the silly things kids put out there. "I think there's a time when your ignorances probably ought to be hidden . . . I also think when you multi-task like crazy, none of the tasks is likely to be done well."There was a question about Buffett's oft-stated wish to leave his children enough money so they can do anything in life but not so much that they can do nothing. A questioner in the audience asked just how much that is.Buffett: "I think more kids are ruined by the behavior of their parents than by the amount of their inheritance."Then he advocated that wealthy people show their children their wills before they die.Munger begged to differ. "I'm absolutely sure you don't want to discuss your will with your children if you're going to treat them unequally. That's poison."Last question: Any thoughts of splitting the A shares which might otherwise one day be worth $1 million apiece? Buffett said with the Bs trading for around $100, it's not necessary. Any A holder can split his share by converting to Bs if he or she wants to.Munger: "I would not hold your breath until we change."Buffett: "That may apply to all the other parts of our lives, too."With that, he thanked the shareholders and declared a short break before conducting the scheduled business of the annual meeting. Outside, the rain had stopped.
Sorry, you can only recommend a post to the Best of once.Thank you, utimatespinach.Putka
That was a very good read. I have to ask you, how did you take such detailed notes? Did you record with your cellphone, or are you adept at shorthand?Thank you for the time you invested to put this together. I just got home from work and this was a real treat.
That was Outstanding! Felt like I was there... Thank you.Rick
Ultimatespinach,"With that, he thanked the shareholders and declared a short break before conducting the scheduled business of the annual meeting. Outside, the rain had stopped."Your report on the annual meeting is true poetry!Tim
Thanks very much for the notes. WEB and Munger have not lost anything in the brains department from what I see. Kass is a joke, just doing this for the publicity from what I see. The only way it would make sense to short BRKA would be if you could find the stocks that a young Warren would have bought with a few million. That would be a bet I would take, not because the WEB of today is less brilliant but because the real bargains in the market are in small, obscure companies.sw
This is really great! Made my morning to fine such a well written and detailed summary. Thanks
Thanks so much for the notes. Coverage like this is what makes it possible to not go to the meeting and to miss nothing of substance. And it leaves the media reports on the meeting in the dust when it comes to detail. Much appreciated!
Thanks so much for the notes. Coverage like this is what makes it possible to not go to the meeting and to miss nothing of substance. And it leaves the media reports on the meeting in the dust when it comes to detail. Much appreciated!Ultimatespinach's notes should be picked up by Fool and syndicated. This should be on businessindier.com, zerohedge, yahoo, bloomberg, etc.
Very well done, US.Thank you.
Bravo! Thank you for sharing!Tom
Truly outstanding, the best coverage of this event I've read here over the years.If I didn't know better, I'd swear you left the voice memo app running.8^)Joe
That was by far the best coverage of the meetings I read anywhere.
Thanks for the effort made to capture and share your notes. Excellent!
Made my morning to fine such a well written and detailed summary. Thanks"I have nothing to add".Jim
Wonderful notes. Thank you.
Agreed that these notes are great and I'd love to see get more eyeballs.ultimatespinach, email reply if you're game and I'll get the wheels turning.Cheers,Joe
ultimatespinach, Thanks for sharing a fantastic summary. Very much appreciated! Couldn't make the meeting this year, but hope to next year. And your commentary made missing this years' meeting a little less painful. Thanks again for your time, effort, and willingness to share!DER
I was so disappointed to miss the meeting this year. Your notes helped tremendously. Thank you
This was my first "pilgrimage" to Omaha, despite following Berkshire for a long long time (when I was delivering the local newspaper, the stock page gave daily quotations for BH - certainly the only paper in the world to do so back then!) This year, my new bride thought she should understand the company that our financial future is tied to, hence the flight to snowy Des Moines, and the drive to a seedy Motel in Council Bluffs.Beyond the charm and humor of the Warren and Charlie show (but one wonders if they ever talk anymore, except at the AM), two things struck me:First, Buffett showed a remarkable depth of knowledge of the details of some smaller subsidiaries. He is clearly 100% engaged, and while he wasn't asked about the competitive pressures facing a picture frame company or truck body outfit, I believe he would have been comfortable with that level of question. OSecond - and this is where the thousands of Gucci-shod eager young men missed the boat - was downstairs in the exhibit hall. We skipped out on an hour of the Q&A in the morning, and headed for Dilly Bars and a pair of turquoise-colored cowboy boots. The subsidiaries' booths were staffed not by trade-show flunkies, but by a cross section of brass from the various subsidiaries. Conversations with a CFO, or a Marketing VP, may not have provided substantive data, but offered a window into the culture, and balance between independence and light oversight from HQ. Remarkable.I doubt we'll be back again, but it was worth seeing the frenzy - once.
Many thanks for all the kind posts. I'm glad to have contributed something of value to the board.FWIW, I do not agree that the invite to Doug Kass was a mistake. The entire purpose of permitting five hours of questioning is to say "Bring it on! Whatever you've got, bring it!" Think of all the people you've known who get defensive or unhappy when they are challenged or criticized. Think of all the quarterly conference calls you've heard in which the CEO avoids or obfuscates or cuts off questioning at an arbitrary time limit. Then think of the people you've known who are always happy to take challenges and criticism, even seek it, because they are so confident they have more command of the subject than any critic. I once knew a basketball coach who liked to start arguments with journalists, always in the spirit of fun, because he knew he had forgotten more basketball than they had ever known. And yet, a vast majority of highly successful basketball coaches react defensively to criticism, no matter its source.Having taken the best that shareholders and journalists had, Buffett made a public offer to add a short seller, someone who presumably had a case to make that Berkshire is overpriced or fraudulent or something. Kass self-selected. And he had nothing, no case, other than the common argument that Berkshire has grown too big to provide market-beating returns. Buffett has acknowledged the point in up markets, and Kass made no attempt to dispute Buffett's contention that it is likely to outperform in down markets.Kass was not booed or treated inhospitably in any way. He simply didn't have much to offer, other than self-promotion. And that's fine. Begrudging Kass his fifteen minutes misses the point that among knowledgeable observers, his "exposure" worked both ways. All Buffett can do is actively seek out challenge and criticism. In my experience, that's a mark of greatness.
And he had nothing, no case, other than the common argument that Berkshire has grown too big to provide market-beating returns.I wasn't there, but that certainly seems so from what you and others have written.I bet I could have done better, even if I didn't believe what I was saying!http://boards.fool.com/oooh-oooh-pick-me-30571177.aspxBut I wasn't short Berkshire, nor in any way an "accredited" bear, so I certainly didn't qualify.Plus, it's a long hike from here to Omaha.I'm rather glad I haven't been short Berkshire this past year and a half.If Mr Kass has been short much of that time, he has my sympathies.Jim
I bet I could have done better, even if I didn't believe what I was saying!http://boards.fool.com/oooh-oooh-pick-me-30571177.aspxAt least I would have learned something if Buffett had to answer your ROE question. Since he didn't, what would your answer be?
Kass was not booed or treated inhospitably in any way. He simply didn't have much to offer, other than self-promotion. And that's fine. Begrudging Kass his fifteen minutes misses the point that among knowledgeable observers, his "exposure" worked both ways. All Buffett can do is actively seek out challenge and criticism. In my experience, that's a mark of greatness.First let me add my thanks for your fine notes.As for Buffett's openness to criticism, I think most people here would agree that it is to his credit. However, our objection is to the particular analyst whom Buffett selected to occupy what should have been a critical role. The fact that Kass had to establish his short position after being chosen, that he has never given any good reason to be short Berkshire in the past, and that he had so little real criticism to offer at the meeting, justifies our skepticism about the choice of Kass. Mungo Fitch has offered far better reasons to avoid Berkshire (despite owning a large block of shares) and his criticisms (wrt low ROE) and others' criticisms could certainly have contributed to our better understanding of this investment. In other words, no one is criticizing Buffett for inviting a bear. The trouble is, when he went to the circus to find a bear, he just found a clown.Regards, DTM
In other words, no one is criticizing Buffett for inviting a bear. The trouble is, when he went to the circus to find a bear, he just found a clown.I don't know that he had any other nominations. He opened the door to his critics, his skeptics, Berkshire bears of whatever stripe, and this is the dude who walked through. If Buffett has a shred of Machiavelli in him, maybe that was his point.
I don't know that he had any other nominations.How probable do you think it is that WEB had no options other than Kass to take up the challenge? I would suggest less than 1 chance in 1 million.
How probable do you think it is that WEB had no options other than Kass to take up the challenge? I would suggest less than 1 chance in 1 million.I'm happy to be proven wrong if you have evidence of other nominees. I hadn't heard of any others stepping forward. As I recall, it all happened pretty fast -- Buffett made the offer, Kass let it be known publicly and privately he'd like the job, and Buffett gave it to him in plenty of time for him to prepare.If the main criticism coming out of the annual meeting is that Buffett didn't do a thorough enough job vetting one of six panelists designated to ask questions, things must be going pretty well at Berkshire.
I don't know that he had any other nominations.Between the time the annual report was released and the CNBC interview the following Monday, I'm sure dozens if not a hundred of nominations came in to be the "credentialed bear". However you are correct that no other nominees were publicly identified. It just seems way too high profile of an opportunity for lots of people to be interested.
He opened the door to his critics, his skeptics, Berkshire bears of whatever stripe, and this is the dude who walked through.I don't know what the process was, but apparently after this guy expressed an interest and someone recommended him, Buffett said he would be the guy. To judge by Buffett's actions in the past, he is likely to gradually improve upon this process, in the same way that he has improved on the questions asked at the annual meeting. Of course this is not a very important point in the grand scheme of things, but people who knew Kass before the meeting were generally disappointed in the choice, and Kass seems to have proved that their misgivings were well founded.If Buffett has a shred of Machiavelli in him, maybe that was his point.I hope you are wrong about this and that Buffett's intention was not to choose a clown. The whole point was to get some valid criticism, not just the appearance of some valid criticism.Regards, DTM
I hope you are wrong about this and that Buffett's intention was not to choose a clown. The whole point was to get some valid criticism, not just the appearance of some valid criticism.My phrasing must not have been very artful because that's not what I meant to say. What I meant to suggest is that Buffett threw open the door to Berkshire critics, this is the quality of person/analyst that stepped through, and Buffett didn't mind having a blowhard Berkshire critic reveal himself to be an empty suit.There have been a number of presumptions voiced here that Buffett had superior candidates from which to choose, but no actual evidence that I've seen.
Kass was not booed or treated inhospitably in any way. He simply didn't have much to offer, other than self-promotion. And that's fine. Begrudging Kass his fifteen minutes misses the point that among knowledgeable observers, his "exposure" worked both ways. All Buffett can do is actively seek out challenge and criticism. In my experience, that's a mark of greatness.Charlie was also very kind to Doug and gave thoughtful answers *until* Doug asked for money. Doug showed his true colors and Charlie got a little upset.
Charlie was also very kind to Doug and gave thoughtful answers *until* Doug asked for money. Doug showed his true colors and Charlie got a little upset. I can't imagine a more ridiculous breach of etiquette than soliciting an investment in a public forum. Of course, Kass knew that he would be shot down. Maybe he was hoping that he would be shot down with even less mercy so he could be perceived as taking the high road. Who knows. I have never shorted a stock in my life but I know that a good short requires more than some vague sense that a company isn't what it used to be or the managers are elderly and won't be around forever. Even if you can demonstrate that a company is quantitatively overvalued, that is merely a necessary but insufficient condition to initiate a short. Even if a company is a fraud, that is probably also insufficient by itself to initiate a short. There has to be a catalyst other than the passage of time involved when you have a situation with unlimited loss but only limited upside. Munger is right about shorting being a fundamentally agonizing way to make a buck. However, in the 2&20 world where everyone is trying to demonstrate some unique "edge" it is more sexy to talk about long/short strategies involving complicated formulas than it is to talk about buying companies and passively doing nothing for years. No one will pay 2&20 for that.
Can you shed a little light on exactly how Kass asked for money? A quick google search didn't reveal much.
Munger: "He had so much success he stopped doing it."When Kass suggested he did it well enough to land his current job at Berkshire, Buffett interrupted, just as Munger had, to say that was nonsense. Finally Kass spit out his request for a $100 million Berkshire investment and a bet for charity about how it does versus Berkshire shares.Munger: "The answer to your question is no."Buffett: "Charlie and I are no strangers to short selling. We both . . . "Munger: " . . . failed at it. We didn't like trading agony for money."Buffett (smiling): "But we wish you well."@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@The answer to your question may lie in the original post of this thread.Joe
Then there was an extended clip from Jon Stewart's interview of Buffett and Carol Loomis. Asked about Congress, Buffett says: "We've got 312 million people. I don't think 535 can impede their progress over time."Buffett is a genius, no doubt.But this statement is simply idiotic. Governments have ruined economies and nations and peoples throughout human history. And the ratio of the ruled to the rulers has always been huge. He might as well have said that there were 50 million Germans in 1933. Surely one man couldn't impede their progress.
Then there was an extended clip from Jon Stewart's interview of Buffett and Carol Loomis. Asked about Congress, Buffett says: "We've got 312 million people. I don't think 535 can impede their progress over time."---------------Yeah, that was the main theme in Charles Krauthammer's novel, "Things that Matter". What matters most is politics. A society can have all the education, culture, art, compassion.and anything else you can think to add. But those 535 bozos can bring the whole sucker down.
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