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No. of Recommendations: 17
1. George Brumley (Co-Mgr. of Oakmark Fund, I believe); Durham, NC: How do you factor unexpected disasters into a cash flow analysis? Please explain the current economics of the Finovia deal.
Charlie: Tort system will not be fixed in the near future. Avoid investing where this could be a problem.
WEB: 20 yrs. ago we talked to Pinkerton about getting together to provide airport security but decided not to get into this high risk activity. There are many things that rich corporations should not do.
Finovia's $5.6B loan is down to $3.2B. There is still the 2% override but on this lower balance. There are lots of non-performing assets (aircraft and resort properties) as a result of 9/11, but the $3.2B is safe. The 13% residual bonds will be worth a lot less, but we have all our $ out. We'll make a good profit on this transaction (several hundred M, I believe he said) but not what we thought we would last summer b/4 9/11. This is a good example of how important margin of safety is in investments

2. Bob, Los Angeles: How do you value real estate? BRK is not in it. Why? What are the merits of real estate investing?
Real estate is not a commodity and is usually properly priced, but there are some exceptions. As it is not mispriced, it is difficult to find a big opportunity. Mispricing is caused by a cutoff of money for investing in RE.
Charlie: RE is a lousy investment for a Subchapter C (tax code section for corps.) corporation. Sub C is not a good structure for real estate investing. Can't compete with Sub S, REITs and the like (partnerships).
WEB: We missed an opportunity during RTC days circa 1977. (I need an explanation here. What were RTC days?)

3. Joe, Minneapolis: How do you price options?
I can figure a price for private and public companies and farm land. I'd be happy to take a 10 yr. option on Mars, Inc. Black-Scholes is not necessarily the right way to price options. BRK will receive $XXM on an option if the S&P closes below 1150 on 6/3/02. This is due to a mispricing under B-S.
(For an in depth analysis of this transaction, see Howardroark's excellent post:
http://boards.fool.com/Message.asp?mid=17177640)
Compensation options are the only options that do not have to be expensed under current accounting rules.
Charlie: B-S is no good for pricing long term options.

4. Gentleman from Kansas City: How much influence do investment banks have on the markets? Is this influence declining?
ENE will have a positive impact on investment banking. We don't criticise the market system in general, just individual events. Investment banks are paid obscenely high fees.
Charlie: Investment banking culture is deteriorating. The screening process is not as efficient and effective as it used to be. I hope it will swing back. The screening process is no good now.
(I don't have it in my notes, but, at this point, I believe WEB praised Solomon for their efforts in bringing the B shares to market.)

5. Michael, Millford, MA: Is this closing of Dexter (write-off) different from that of Berkshire Hathaway?
In both cases, competition went offshore, and we couldn't compete. The same thing is happening to furniture now. Dexter is now part of HH Brown, and product is being made overseas. (I believe he distinguished Dexter from BH here, as the latter was totally shut down.) The shoe business will be good over time but not with domestically produced goods. We paid too much for Dexter and with the wrong currency (stock). We haven't paid the price for the shutdowns. The workers have.

6. Gentleman from Philadelphia (Could this have been one of us?): Any chance of getting more financial data on the internet? I really miss look-through earnings, gray pages and operational detail.
I'll take this under advisement. Our printer limits us to 72 pages, and there is only so much information we can provide.
(At this point, there is a transition to what follows, but my notes fail to give a clue. Possibly, the questioner asked another Q which I missed)
There seems to be an inverse relationship with how much DJ30 companies spend on non-audit fees and growth. Companies that spend lavishly on non-audit items probably do not perform as well as frugal ones, but I have not data to back this up. Don't buy or sell stock based on this type of backtesting.
Charlie: Our audit fees are low because we try to keep things simple; thus, we are easy to audit.
WEB: Pre-ENE auditors were working too hard for management and not the shareholders. Hopefully, ENE will cause a reversal.

7. Leon; Capetown, South Africa: Who are the best investors? What characteristics are important?
Charlie and I could pick those in the upper quartile of a group of MBA students if we were around them for a while. It's difficult to make a list of characteristics and quantify them. Body language is important in making such an assessment. I really could not come up with a list in answering this question.

8. Catherine, Minneapolis: When can I look forward to having a See's store in the Mall of America? You probably have some influence with Costco. Why not have them sell See's? Why is there voting disparity between A&B shares (1/200 voting for B, but 1/30 in price)
You need to ask Chuck Huggins this question. He makes all the location decisions. There is only 1 lb. per capita per year of boxed chocolate sold, so you have to be very careful in picking location. Our experience has shown that there is more success out west than in other parts of the country. Others have failed on a national basis and have not done as well in major malls. Our kiosks did pretty well at Christmas. (I was glad to hear this, as hopefully, the kiosk will return to the mall 2 mi. from my home.)
Costco makes its own decisions. We don't want our candy discounted, so Costco, WMT, etc. not interested.
WEB then went through the reasons for coming out with the B shares (potential fractional share mess caused by a promoter) and stated that he didn't want to dilute A's voting power.
We will have a vote on where shareholders want to have the meeting in 2 years!!!!!!! There will be no disparity in voting power on this issue. (This was news to me.)

9. Gentleman from NYC: How does the leasing of silver affect its price?
It doesn't.
Lets have one more question which will complete this round. (Stations 9&10 were in the Music Hall adjoining the auditorium. There were only 8 stations last year and nothing set up in Music Hall, as far as I know. Proof that attendance was much higher this year.)

10. Jerry from Highland Park, IL: All corporate CEOs should be required to attend this meeting. I hate to end this meeting on a down note, but I have to ask this question. Kirby has tarnished BRK's name as a result of recent reports on unethical sales techniques used on seniors. Please comment.
The real culprits are salesmen working for our dealers and we have no control over them. Our policy is to refund the full amount to disatisfied seniors within one year of sale. In the situation reported by ABC, we did exactly that when the complaint was first received 9 months after sale. The report failed to mention this. I'm disappointed in ABC's reporting on this matter.
(During dinner with Ralph Schay, we discussed this. He and Luci had left early and were unaware that this question had been asked. He seemed glad the question had been asked, and WEB's reply (per my report) were right on point. I was pleased with this confirmation and, thus, feel the meeting ended on a positive note.)

ROUND 5

1. Steve from San Mateo, CA: Where did everyone go?

Couldn't resist the sick humor, RR.

Concluding note: My reason for including gender, age in some cases and location of questioners was to show diversity of the shareholder group. We do have a fine, intelligent and diverse shareholder group.




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