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Berkshire 2000 Meeting Notes

I didn't take a massive amount of notes during the meeting, so most of what I write is coming from memory. Nevertheless…….

1. I thought the cost of float falling from around 6% (or 4.5% adjusting for retro contracts) to around 3% was significant. I remember Alice Schroder estimating that for each 1% drop in the cost of float she added around $9000 to her intrinsic value estimate. If you used any kind of a float-based valuation, this information was pretty exciting.

2. Warren's comments about the cost of float falling over time to less that 3% was also quite comforting. I suppose this could be due to GenRE getting their act together and the slowing of GEICO's growth (less advertising expense?). I'm not sure if that 3% number was adjusted down to reflect retrosessionals or not.

3. The discussion of the leverage effect float has was interesting. A shareholder asked if the effect was 5%? 10? or greater, if memory serves. I remember Warren saying he had never calculated the leverage effect (which I found interesting as well), but if he had to guess it would be around 5% or less. I remember reading much discussion on this board on this supposed leverage effect of float and what the effect actually was, and I think we got a pretty good answer.

4. Did anyone notice the lack of a mention of Sealed Air Corp during the asbestos discussion? USG came up but not SEE. Maybe they sold it already, or maybe it was Lou's purchase, or maybe it was such a small % that it was not worth mentioning.

5. The excitement Warren exhibited when talking about Executive Jet was pretty cool. He estimated that the business would not mature for another 20 years, and I thought he sounded very confident that none of the current competition would catch them or affect growth/profits in a material way. I'm not sure how big of a contribution this business will prove to be to Berkshire's overall profits, but I now think it will be substantial (especially after I learned my flight from Omaha had been canceled and I had to be re-routed halfway across the country to get back home to the Houston area). I learned that the entry level price to get a share of a jet is an initial $400,000 investment ($320,000 of which is guaranteed to be bought back at the end of your 5 year term) plus about $125,000 per year in operating expenses for 50 hours a year. Although that sounds high for me, for a group of high-level folks (the entry level jet seats 7) it may make sense, and it certainly beats sitting around in Omaha (or wherever) for half a day.

6. Charlie's repeated comments about how it takes more than just a lot of money to have a balanced life were right on target, I thought.

7. I always thought the questions from shareholders "concerned" about Warren's health come across as more than a little shallow. I'm pretty sure they're mostly concerned about their investment, and they think they need a healthy Warren chained to the chair to get a good return. Warren or Charlie (can't remember which) made some comments about how stress is a huge factor in one's overall health, and Warren commented that he has absolutely no stress whatsoever. I believe him.

8. I continue to think Warren and Charlie's method of "waiting for the phone to ring" is a fairly inefficient way to be on the prowl for new operating companies to buy. I realize he uses previously purchased company's management as "bird dogs", and I'm sure that works pretty well. But I also think he could set up a small team of point men/women to make calls to select prospective candidates, simply making known to the companies Berkshire's interest in a possible purchase. If management is interested then they can call Warren. That couldn't cost much, and it may break him into the overseas market if these callers speak the language. Food for thought…..

9. I cringed when the guy asked the "kick the bucket" question, but Warren took it pretty well I thought. The discussion that followed was enlightening for me as Warren discussed the "if you were to die tomorrow" letters he issues to management of his operating companies every year or two. I know Warren's successor and the succession issues at the many operating companies is of paramount importance to shareholders, but I continue to believe he has this issue under control.

10. How cool was it when the guy asked the question about GEICO's policies in force and the lag issue thing. I really didn't understand the question (obviously), but it was cool the way Warren acknowledged how that may look kind of confusing the way it was written in the annual report, and how he would provide more detail in the future. And I bet next year the detailed information will be there.

11. I also thought Warren and Charlie showed a ton of humility when they admitted they had trouble getting their heads around some of the financial products division's stuff, specifically derivatives. I don't think any other CEO would admit something like that due to the huge ego problems most probably have. I think it's important when someone admits they don't understand something totally—says a lot about their character. And anyway, they said they have a man they trust totally on the derivative deal, and you can bet the overall risk has been calculated and if it were to blow up it would not hurt the company.

12. Was it just me, or does it look like both Warren and Charlie are having a ton of fun piling up money for us? I wonder if they like being treated like rock stars for a couple of days—probably.

Overall I thought it was a productive meeting. If you have never been, you need to go. It always helps me get back on track every year and focus on the most important things, both in life and investing.

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