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Here are Neuroberk's notes from the Wesco meeting, posted on AOL . . . Iko


I attended the Wesco meeting for the first time today.It was well attended and Charlie shared his wisdom with us for two hours.Lou Simpson,Alice Schroeder were there as well.I didn't make a comprehensive notes of the meeting,and will share only the parts that interested me.

---Question on BRK's maximum supercat exposure in worst scenario,such as a major California earthquake. Charlie said every supercat contract is written with concurrence of WEB and Ajit,and it would be "inconceivable for BRK to lose more than 6 to 7% of its net worth even in a worst case scenario."

---Long discussion on interest rates.Charlie saw interest rates of 1 to 20% range in his life time,but basically agnostic in intermediate range.He thought credit expansion has been substantial and Greenspan was right in worrying about asset bubble. The difference in Japan and Hong Kong in their response after the burst of bubble,Japan not being able to recover in 'catatonic' state even with 0% interest rate in contrast to Hong Kong which recovered
fast.Economics alone cannot explain these phenomena.
Psychology and national characteristics play roles here.

---On a question on KO's reduced growth prospect and high valuation. Charlie says,over the next 20 to 30 years,KO will sell materially more soft drinks than others and can raise the price moderately with possibly increased margin.Because of higher "certainty" of these factors to happen over a very long period of time,KO valuation deserves to be high since simple mathmatics tells us that even a moderate certain advantage can make a large difference
over a "very long period of time."

---BRK's investment in Mortgage backed securities. Charlie says these are picked for short to intermediate term fixed maturities for their higher yields than government bonds.He said these are quite liquid and "desirable".

---Newspaper business. "way less certain to be wonderful."

---MidAmerican. "I think it's a perfectly decent investment and gives a window to a lot of crazy things going on."

---NetJet. "I bought 1/16th share." Net Jet is losing money in Europe to build the business but it's worthwhile expenditure.

---"If you are comfortably rich,the fact that someone else is doing better or getting rich quicker shouldn't be a tragedy to you."

---"A lot of success in life is knowing what you really want to avoid."(such as dying early or being ruined in speculation)

---The most important books in his lifetime. Charlie said the ideas on modern Darwinism was very important to him.He had an enormous pleasure in reading Dawkins' "Selfish Gene".Biological reasoning can help in investment by predicting the outcome of evolutionary process in business.Business and biological evolution have a lot of similarities.

---Charlie thinks Internet removes informational inefficiecies and can decrease profitability because inefficiencies in information often allows high profit on capital.It's like new textile machines reducing textile co. profit by compressing margin.Bad news for common stocks on average.There would be exceptions,of course,with increased productivity,etc.,but on average the profit will decrease.

---The strategy of preferring lumpy over smooth results is not a small advantage.

---About derivative business,as in GRFP. Charlie basically doesn't like the accounting of fronting the profits in derivative business.However,he never minded the derivative business run by Meriwhether group when he was at Salomon.He understands GRFP is scaling down its derivative business.

More discussions on EVA,cultures of BRK,etc.








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