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Here is a selection of questions and answers from Charlie Munger at the Wesco Meeting on May 3

What are the risks of serious loss for Wesco from supercat policies? In contrast to PC underwriters, our supercat policies have an upper limit on loss. It is utterly inconceivable to lose as much as 6 to 7% of our capital. Most of these policies have premiums that now are earned on a prorata basis because of changes in GAAP accounting. For example our 4 year California earthquake policy will not provide a big earnings lump when it matures next year. Also this year Wesco took on a more substantial reinsurance policy. Our tolerance for lumpy results is a competitive advantage.

What can we expect in returns from Berkshire in future years? There is no way that Berkshire and Wesco can provide the high historical rates of return. We have two big disadvantages. First, we have too much capital. (This is not the worst problem to have.) This means we have to find a few big things to do. Small investments just won't do. Second, high securities prices and efficient markets leave few opportunities for Berkshire and Wesco in the public markets. Fortunately, we have one big advantage that will partially offset these disadvantages. Our enormous cash flow can be deployed to buy 100% of some great companies and we are the buyer of choice for many of these. Examples are Jordan Furniture and Executive Jet.

Charlie refused to answer any questions about expected returns and risks from our large position in Freddie Mac. My guess is that he did not want to be misquoted by politicians with an ax to grind.

Executive Jet is losing money in Europe but is building for the future. Europe is a tough place to operate but once we are established it will be that much tougher for anyone else to break in there. The future is bright.

See's is selling the equivalent of 3 or 4 stores through the Internet. Of course the margins are much higher on the net.

How will the Internet affect investors? High profits on invested capital depend on inefficiencies. To the extent that the Internet eliminates inefficiencies, ROC goes down and investors will suffer. investors can still do well by focusing on companies with a wide and deep moat full of alligators, because they will continue to earn high ROC.

How much risk do we face from derivatives? Derivatives are not the problem so much as poor disclosure. GAAP accounting for derivatives is terrible.

Book suggestions. The Selfish Gene by Dawkins. I also think he gave a mild endorsement of New, New Thing by Michael Lewis.

Feel free to add to these recollections.
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