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Hey, folks --

I finally had a chance to compare my notes from the annual meeting with the extensive ones that Whitney shared. I had assumed that he covered pretty much everything I would, but it looks like he got some details and nuances and topics that I missed, and I got some details and nuances and topics that he missed. Some, anyway. So I thought I'd offer my additional tidbits.

Note that there will likely be at least a little duplication of some comments below (because on some topics he covered I'm adding a little more). And my notes are not word-for-word, although many phrases are indeed word for word. I was scribbling as fast as I could, missing some sentences, but getting others. The content should at least give you a flavor of the commentary. It's not 100% correct, but is my best stab at it.

(Note also -- Whitney's compilation is here: and his best selections are here: Also, I offered you the press conference notes in three posts: part 1 (, part 2 (, and part 3 (

Below "W" refers to WEB and "C" to Charlie Munger. I've added some transitionary/explanatory words in brackets.




Q -- What's the most recent business mistake you made and why did it occur?

C -- The mistakes that been most extreme in BRK's history have been of omission. They don't show up [in the record books]. [It's all about] opportunity cost. Warren, we have blown…

W -- billions and billions…

C -- and we keep doing it.

W -- Some may say we're even getting better at it.

C -- What really costs are the blown opportunities… we never get over it.

W -- I might add -- when we speak of errors of omission, we don't mean stock we didn't buy… it's when it's in our circle of competence and we miss it… or sometimes we just don't go in big enough. Charlie says that's when I'm sucking my thumb. [With] huge mistakes -- conventional accounting doesn't pick them up, but they're on our scorecard.

Q. Tobacco companies… does the potential for similar liabilities apply to other companies which sell items of questionable healthfulness? See's, Coca-Cola, Dairy Queen, etc.

W -- The products you describe I've been living on for 70 years. [If there are lawsuits] they'll probably bring me in as a witness. I would not be worried at all about product liability in these companies. There's a lot of sugar in all we eat, not just in See's and Cokes. We do look at that issue, though, when we consider buying companies.

[Didn't catch this question, but caught most of the answer.]

W -- We have a lot of money in capital and people in some businesses. Like Flight Safety -- lots of simulators and trainers. Net Jets -- very people intensive. In the carpet business, maybe only 15% of revenues are people-based, but lots of money is in fibers and raw materials. It's hard to generalize across companies.

We're really looking for an enduring competitive advantage. We don't really care if we're buying a people-intensive or materials-intensive company -- we just want to be sure we're buying a company with an edge.

[The following notes come next, but I'm not sure whether they're for the above question or whether I took a break and resumed here or what.]

C -- Hedgehog analogy.

W -- We're the largest insurer against California earthquakes. I have a sister in California -- she used to call me when the dogs and cats started running around in circles.

With rising labor costs, how is Executive Jets able to keep labor costs in line, vs. airlines?

W -- The airlines' problem is when wage rates are out of line with competition… you look at cost per seat mile… As long as you're more efficient than the competition, and keep costs lower than the competition, you'll be alright…

Net Jets is not designed to be competitive with major airlines. With our pilots, it's very important for them to live where they want, etc. There are factors other than money.

C -- The airline unions are really tough. It's interesting to see a group of people who are paid as well as pilots yet they're in really tough unions. It makes things tough for the airlines. We hope our services are preferred by customers.

W -- Fractional ownership is not a commodity business. I don't think, if you were buying a parachute, you wouldn't necessarily want to take the lowest bid. If you can't afford to have a union on strike, both parties are playing chicken. If you're a weaker airline, you can be in a stronger [negotiating] position. There's game theory at play.

With the Buffalo News, which Charlie bought when he was stranded there in a snowstorm and got bored… we told employees there that if you strike us, we'll _________ [sorry, I couldn't keep up here. I think the gist was that they conveyed to employees that there were kind of in it together and if struck, the paper might have trouble surviving.] There was a strike once and they were out for 3 days… it was out of our hands. They could have [by staying on strike longer] made the business noncompetitive.

On growth vs. value

W -- They're indistinguishable. Growth is usually a positive for value but only when it means… we calculate the cash that goes into and out of any business we buy. If you tell me you own a business that's going to grow to the sky, I don't know how attractive that is until I know the economics.

Look at airlines. Terrific growth, but meager returns. Growth is part of the equation, but anyone who tells you about growth vs. value [suggesting they're different?] doesn't know investing.

C -- We're partial to laying out money where we'll not have to be smart again. [In other words, companies where you don't have to keep thinking about them and making smart decisions about them.] In a sense, that's growth stock.

W -- The point is we're trying to put cash in now and get more cash out later. I just cringe when I hear that it's time to move from value to growth stocks. That's nonsense.

A 10-year-old asked how they propose to educate kids about money, investing.

W -- Unfortunately, I didn't get started until I was 11. It takes good teachers -- or parents, who can do even more than teachers sometimes. I tell students what a valuable asset they [already] have in themselves. I'd pay a good student [good money] for 10% of what they produce for the rest of their life.

I don't have a sweeping suggestion for schools.

C -- If all you succeed in doing in life is to get rich, it's a failed life. Life is more than being shrewd at wealth accumulation.

An 11-year old asked if their view of the Internet has changed now that so many Internet companies are out of business.

W -- I think the Internet looks like less of a threat. Several years ago online jewelry companies had high valuations which meant people were betting on them, but that vanished. Furniture, too. With GEICO, the Internet is important for it. See's web business is growing, too.

Many were turned into wealth by promoting them to the public, but not by producing things.

C -- Warren, you and I were once in the grocery business, which barely supported the family [that owned the business] for 100 years.

W -- I'd go on delivery runs and it was inefficient. We ran into the same costs that Webvan is running into today.

It was a choice to monetize the hopes of others and turn dreams into instant cash. It's been a huge trap for the country.

On his health.

W -- I have a wonderful doctor. I was lucky last year. I hadn't been to the doctor in five years -- [a gasp of shock from the audience] -- hey, it's expensive…. My doctor would say that my life expectancy is much higher than others my age. I don't have any stress, I love what I do. I'm surrounded by great people, I don't smoke, drink,… well, I'll leave it at that. When she was 80, I got my mom an exercise bike and she put 40,000 miles on it -- she made it to 92.

On pension funds…

W -- I expect stocks to deliver 6-7% over the next years. Companies with big pension funds expecting c. 9% growth -- I don't know how they're expecting to get that.

Inventory write-offs -- that's the category of big bath… tendency of management to lump all bad news and even possible future bad news into one charge. Managements are more conscious of what they want the numbers to be than of what they are.

C -- Pension fund accounting is approaching scandalous. It's interesting how few managements say this is a scummy way to keep the books… aided by consultants. It's like living on an earthquake fault and thinking that the longer you're there without an earthquake, the lower the likelihood is of an earthquake occurring. That's not a good way to write an insurance policy.

How do you control claims costs? And United Ariline's entry into fractional ownership.

W -- I don't worry about the dumbest competitor in a service business. The customer will figure that out. No one is going to catch us in fractional ownership. We've got more blood than they have. [suggesting others will bleed to death before BRK]

The trick is to figure out the variables, which questions to ask to properly assess riskiness. People with a good credit history are better risks -- it's a correlation. You look for those, but not false correlations. When we enter a new state we start with fewer policies and learn as we go. Fast settlement is important, too, as people feel more and more hurt the longer they talk to lawyers.

C -- I find it fascinating that United Airlines is going into fractional ownership. Their pilots make c. $300,000 a year and enjoy and easy life… I don't know that they'll like the fractional ownership business…

W -- I'd like to see the ad campaigns… "Why fly first class? There's a better way."

How to learn to run a hedge fund.

W -- It's just a name. But some things become very promoteable due to some recent successes.

C -- It's amazing how big the hedge fund industry has become -- they have conventions now. Waves of fashion in extremes…

[the following may be answering another question.]

W -- If I were working with a small amount of money, the universe of possible investments would be huge. As the money increased, the universe shrank. When you get to things available for billions, there are few and others are looking at them, too. It was easier in the old days. But you can find things today where you can do much better than we could.

C -- Search out unusual mispriced opportunities among obscure stocks.

On stock options, FASB's rules, and what they're doing about them.

C -- We don't like the accounting, which I've called corrupt and I don't think that's too strong a word. We can't be expected to cure all the ills of the world.

W -- We've written and spoken about it.

There was once legislation proposed in Indiana to change the value of Pi to 3 even, as it would be easier for children to understand. That's rational, compared to accounting that says it's hard for start-ups to report such expenses. Institutional investors [are not getting involved?] focus on matters of form and not substance.

11 year-old girl: How to start learning, and "My dad wants to know if you have any grandsons my age."

W -- How many shares do you have?

Read financial publications, be curious about how businesses in your town work. See which are doing well and why. Ask questions. People like to talk. Everything is cumulative. You're building a database in your mind that will pay off later.

Stay away from credit cards.

C -- There's nothing wrong with getting ahead. [regarding marrying:] Before your feelings take over completely, take a good look at both parents and grandparents.

On which business schools and professors are good…

W -- Bruce Greenwald's class at Columbia that has practitioners come to speak. The University of Florida and U. Miss. [no longer sure if he meant Mississippi or Missouri or what] -- they've got endowed chairs for teaching value investing.

C -- The huge majority of b-school teaching on investment is not what we believe or what Warren was taught years ago by Ben Graham. There's Jack McDonald at Stanford Business School -- he said he feels lonely. Mostly, if you go to business school you'll learn a lot of things we don't believe.

W -- What you really want an investing course to be is how to value a business -- as that's how you evaluate a stock. You determine the value and compare the price. It's just not taught because they don't know it themselves. It's fascinating to me how the really great universities operate. Investment/finance teaching in this country is really pathetic.

C -- There are other subjects they do well -- personnel management, accounting, etc.

W -- Charlie and I meet lots of CEOs who don't know how to value a business -- so they hire consultants who tell them what to do.

On consumer debt and trade deficit.

W -- I get letters every day from people who have problems in life and it's been very easy for them to borrow money and they're in over their head. Don't start behind the eight-ball. The idea of trying to borrow money at 18% and thinking you'll get ahead in life… Charlie and I are looking around for float because we don't want to borrow at 5%.

With the trade deficit, you're selling off a tiny part of the farm to live a little bit better than if you just lived off the produce. You can't get away with that if you're a weak country.

Regarding bidding to purchase a company.

W -- We'd love to buy a $10-$15 billion company, but there aren't many possibilities, and of those that are… If a company wants to auction itself off to the highest bidder, we're not interested in it.

On growing internationally…

[Warren said that they're interested in international opportunities.]

C -- When I was a lawyer, I'd say that the best business-getter is the work already on your desk.

On modern accounting.

C -- The whole system of accounting is too optimistic. It'd be like going into the taxi business with a 30-year depreciation rate.

On succession. [Actually, it was an inelegantly worded question, about when Buffett kicks the bucket, and also mentioning that "Charlie's no spring chicken either."]

W -- We want to be sure the culture of the company is preserved. We won't tell you names, because it all depends on when the need arises. 20 years ago, it would have been Charlie. In 20 years, there'll be a third party.

C -- The main defense is to have assets that will do well regardless, and we have a lot of those.

What should you do if you own a chunk of a company and it's erring? Speak up or shut up?

W -- Our record of telling decent intelligent people that they're doing dumb things is poor.

C -- Very poor.

W -- We don't get very far, despite our current stature. Executives don't want to hear from a shareholder who thinks they're wrong.

On campaign finance reform.

W -- You have to admire what McCain and Feingold have done. The present situation is out of control -- it's not what was ever intended. I've literally been asked for $100 million donations that would never be recorded… access is sold to the highest bidder…
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