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Hartmanbirge was sitting with me and his notes are far superior, but perhaps there is a quote or comment in my post that doesn't overlap and readers may find some value. Cheers!


The meeting started out as usual, with the film showing at 8:30am. The crowd was just enormous this year - 19,500! The new Qwest Center is excellent, and there were plenty of seats, but they were all full by the start of the actual meeting.

The film had a spoof on The Terminator, with Warren as the Warrenator and Charlie as The Charlinator. Both were sent back in time to stop Bill Gates from merging Microsoft, Walmart and Starbucks! There was a segment with Warren and Arnold, where Arnold is forcing Warren to do 500 situps and pushups because he talked about Prop 13 again. Bill Gates and Warren were on Judge Judy where Warren was trying to recover a two wager he won playing bridge against Bill. They should splice all the films over the years together and sell it to shareholders!

As for the meeting, it started with the regular formalities of hellos, thanks, meeting to order, introduction and votes for directors and shareholder proposals. This part of the meeting took five times as long as usual, because of some ridiculous proposals by a couple of people. The anti-pro-choice people also made their usual proposal, which was soundly defeated.

Questions

Views on Coca-cola board conflict of interest:

Warren: "I would suggest that anyone who says that should do 500 situps! Shareholders far often behave like sheep and they're often shorn. The question is can they behave like intelligent shareholders. A checklist (in reference to CalPERS and others reasons) is no substitute for thinking." Quotes Bertrand Russell: "Most people would rather die than think - many do!"

He then gave a very good example: "The idea that a welfare recipient picked out of a lineup, and earns $100,000 to participate on a board of directors is acceptable, and another individual who has $10B in Coca-cola shares and earns a $100,000 fee but is conflict of interest is preposterous."

What advice to preserve purchasing power in an inflationary environment:

Warren: "Own the businesses that will be able to adjust prices in inflationary times, and maintain investment in their businesses. TIPS aren't a bad idea, and incidentally we are starting to see inflation heat up."

Charlie: "One of the great defenses is to not have alot of silly needs in your life."

Warren: "Charlie we are selling goods in the other room. You might as well speak in the other room."

Charlie: "Then it doesn't do any good!"

On meeting with analysts:

Charlie: "It's a very time consuming process and it does give an advantage over some shareholders."

Warren: "One thing we promise managers is that they don't have to speak to investment managers or institutions. They can focus on what they have to do within their business."

Why not create compensation guidelines for others to follow:

Warren: "I don't think Charlie and I have ever discussed compensation for more than five minutes. It's not needed. We have an arrangement with Chuck Huggins at See's that has been in place over 20 years. It works fine. And we have different arrangements with other managers. It's not a one size fits all scenario."

Warren on compensation committees: "On compensation committees, they don't put Dobermans, they put sedated Chihuahua's!"

Charlie: "I would rather throw a viper down my shirt than have a compensation consultant."

In order of preference, which investment vehicles do you prefer right now:

Warren: "Things can change. We have an open-mind and don't have a checklist in priority, categories or ideas."

Charlie: "Prices do amazing things in securities markets, and when they do we act."

On specialist system:

General view of both: Specialist system has worked pretty well over the years.

On Derivatives:

Warren: "In any given year, the probabilities aren't very high. But we think it is there. Freddie Mac had numerous analysts covering it, an oversight committee, government committees, two very smart people in charge and six auditors. Yet, they mis-stated over $6B in earnings. It could have easily been $12B. A large part of that is due to derivatives. Alot of mischief can happen with derivatives. Many times, things correlate that people don't expect to correlate."

Charlie: "Somebody should have the common sense to say, "We're just not going there!"

Would you ever have Bill Gates as CEO:

Warren: "Did Bill put you up to this? We have at least four people who could do my job as well and we've watched them work for many years."

Which publications are best and how many hours did you spend reading?

Warren: "Read everything in sight. The world hasn't changed that much. There's more people doing it, but there are more companies."

Charlie: "I don't know anyone whose wise and doesn't read alot. That alone doesn't do it, you have to have the necessary temperment."

Warren: "The temperment is all important. It's not a business that requires extraordinary intellect, but does require discipline. What we learn from history is that people don't learn from history."

Charlie then recommended a book called, "Deep Simplicity" by John Griffith, which unfortunately only published in London.

Why is math the language of God?

Charlie: "It's just the way it is. You cannot understand science without math. The good thing about business is you don't need to use high math."

Warren: "It's actually a hinderance if you know high math."

On the recent mutual fund company trading scandals:

Charlie: "It's akin to somebody proposing to you to kill your mother and split the insurance proceeds!"

Worker Compensation Fraud:

Warren: "We have lost more money in worker's compensation than in any other line of business in aggregate losses. The rates have not covered the costs and I would suspect that a large part of that is fraud."

Charlie: "I think the main fraud isn't by insurance carriers, but the claimants, doctors and lawyers."

On PUHCA:

Warren: "There's nothing been presented that we couldn't get done. It may require a more complicated structure, but we could get it done."

On Home Services of America:

Warren: "Home Services will grow. We have no national identity, whereas Cendant works under one name. We will buy a few or a whole bunch of companies in the future."

When the time comes to go to the "great stockmarket in the sky," what assurance do shareholders have that the company will be run ethically?

Warren: "The foundation vote would have to go down to 20% after five years. A similiar amount of stock was left to the Wal-mart family and they have done a wonderful job maintaining the business."

Charlie: "I would have just as much reason to worry about this subject, but don't worry, you should be so lucky!"

How do you incorporate the impact of regulatory change?

Warren: We don't have any one size fits all arrangement. We just approach things intelligently."

Charlie: "In our early days, we used to overestimate regulation. We ignored television stocks because we thought it strange that the FCC could revoke a license at a whim."

On Petrochina:

Warren: "Petrochina itself is not complicated or opaque. Very similiar to big oil companies in the world. Produces as much crude as Exxon. One thing that I find in their report that I don't find elsewhere in the oil industry, is that they tell you they will pay out "x" amount, I think 45%, but don't quote me, of earnings. It was not bought because it was in China, but because it was cheap."

On Torte Reform:

Charlie: "A huge percentage of the money doesn't go to those who have cancer or a spot on their lung. A huge portion of the money goes to lawyers, doctors, experts and only about 20% goes to victims. Congress is the only one who can fix the problem."

On dividends and stock repurchases:

Warren: "When a stock can be bought well below its business value, you should. With dividends, you get an expectional component."

On Progressive:

Warren: "Very good system, we're the two that will be slugging it out in the next few years."

On Google:

Warren: "We're pleased that other's think it is appropriate that they speak to their owners in a clear manner. I like their prose, but I don't necessarily agree with every idea."

Charlie: "Those two guys are two of the smartest people in the country. It's nice when people that smart emulate something you do."

Another book recommendation by Charlie: "Les Schwab" autobiography which gives a very good idea on small business compensation plans.

On IPO's:

Warren: "IPO's approximate more of a negotiated deal and the timing is usually not beneficial to you."

I missed the final 40 minutes, but there was a brilliant comment by Charlie on Whole Foods before I left:

"My idea of a good place to shop is Costco. The idea of eating some whole-grained thing and washing it down with carrot juice never appealed to me!"

Cheers!
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