Part 1

1. “Doesn’t feel like an annual meeting”

WARREN BUFFETT: Well, it’s 3:45 in Omaha and this is the annual meeting of Berkshire Hathaway.

It doesn’t look like an annual meeting. It doesn’t feel exactly like an annual meeting.

It particularly doesn’t feel like an annual meeting because my partner of 60 years, Charlie Munger, is not sitting up here. And I think most of the people that come to our meeting really come to listen to Charlie.

But I want to assure you, Charlie at 96 is in fine shape. His mind is as good as ever, his voice is as strong as ever, but it just didn’t seem like a good idea to have him make the trip to Omaha for this meeting.

Charlie — Charlie is really taking to this new life.

He’s added Zoom to his repertoire. So, he has meetings every day with various people. And he’s just skipped right by me technologically, but that really isn’t such a huge achievement. It’s more like, you know, kind of like stepping over a peanut or something.

But nevertheless, I want to assure you, Charlie is in fine shape. And he’ll be back next year. And we’ll — we’ll try to have everything in the show that we normally have next year.

Ajit Jain, also, who is the vice chairman in charge of insurance, is safely in New York. And again, it just did not seem worthwhile for him to travel to Omaha for this meeting.

But on my left, we do have Greg Abel. And Greg is the vice chairman in charge of all operations, except insurance. Greg manages a business that has more than 150 billion in revenues and crosses across dozens of industries, and has more than 300,000 employees.

And he’s been at that job a couple of years. And frankly, I don’t know what I’d be doing today if I didn’t have Ajit and Greg handling the duties that I was doing only about a quarter as well, a couple of years ago.

So, I owe a whole lot of thanks to Greg and you’ll get exposed to him more as this meeting goes along.

2. Meeting will be in four parts

WARREN BUFFETT: The meeting will be divided into four parts. And in a moment or two, I will talk — sort of a monologue with slides.

I’ve never really used slides before. I’ve taught college classes intermittently, but pretty steadily, from age 21 to age 88. And I never recalled using a single slide.

You know, who says can’t teach an old dog a new trick. So — (Laughs)

We’ll see whether you can or not.

And I’ve got a number of slides and I would like to take you through those in the first section, which will start in just a minute.

And then we’ll move on to the — a brief recap of Berkshire’s first quarter results.

Now, we put those up in the 10-Q, which was posted on the internet, on berkshirehathaway.com, this morning. And there’s lots and lots of detail in there. So, I’m not going to go through. I’ll just have a point on one or two things that may be of interest to you. And actually, I’ll talk a little bit about what we did in April, which is something that is new to Berkshire, to be that current. But —

I’ll give you that. Then we’ll have the — the formal meeting, which will take maybe 15 or 20 minutes. And from there we’ll go to Becky Quick, who, for a couple of hours, will grill me and Greg on questions she’s selected from a huge batch that I’m told she’s received that went to Carol Loomis and Andrew Ross Sorkin, as well as to Becky. But to simplify things, we consolidated all those questions that Becky will ask.

And like I say, we’ll go for a couple of hours. And there’s no specified cut-off time at present. We’ll just see how things develop.

3. COVID-19 health uncertainty

WARREN BUFFETT: Now what’s, of course, on everybody’s mind the last two months or so, is, you know, what — what’s going to be the situation in terms of health in the United States and what’s going to be the situation in terms of the economy in the United States in the months, and perhaps, the years to come.

And I don’t really have anything to add to your knowledge on health. I — in school I did okay in accounting, but I was a disaster in biology.

I — I’m learning about these various matters the same way you are. And I think, personally, I feel extraordinarily good about being able to listen to Dr. (Anthony) Fauci, who I’d never heard of a year ago. But I think we’re very, very fortunate as a country to have somebody at 79 years of age who appears to be able to work 24 hours a day, and keep a good humor about him, and communicate in a very, very straightforward manner about fairly complex subjects and tell you when he knows something and when he doesn’t know something.

So, I — I’m not going to talk about any political figures at all or politics generally this afternoon, but I do feel that I owe a huge debt of gratitude to Dr. Fauci for educating and informing me — actually along with my friend Bill Gates — as to what’s going on. And I know I get — I get it from a straight shooter when I get that from either one of those. So, thank you, Dr. Fauci.

The — when this hit us — and as I sit here in this auditorium with 17 or 18-thousand empty seats — the last time I was here, it was absolutely packed. Creighton was playing Villanova. And there were 17- or 18-thousand, whatever it holds, it was full. And there wasn’t one person in that crowd — this was in January — there wasn’t one person in that crowd that didn’t think that March Madness wasn’t going to occur.

It’s been a flip of a switch in a huge way, in terms of national behavior, the national psyche. It’s dramatic.

And when we started on this journey, which we didn’t ask for, it seemed to me that it was an extraordinary wide variety of possibilities on both the health side and on the economic side.

I mean, it was — in other words — DEFCON 5 on one side and DEFCON 1 on the other side. And nobody really knows, of course, all the possibilities that there are, and they don’t know what probability factor to stick on them.

But in this particular situation, it did seem to me that there was an extraordinary range of things that could happen on the health side. And there was an extraordinary range in terms of the economy. And of course, they intersect and affect each other. So, they’re bouncing off each other as you go along.

And I would say again, I don’t — I don’t know anything you don’t know about health matters. But I do think the range of possibilities has narrowed down, somewhat, in that respect. We know we’re not getting a best case and we know we’re not getting the worst case.

The — the possibility, initially, of the virus was hard to evaluate and it’s still hard to evaluate. There’s a lot of things we’ve learned about it, and other things we know we don’t know. But at least we know what we don’t know. And some very smart people are working on it and we’re learning as we go along.

But the virus, obviously, has been very transmissible and it’s — but on the good side — it’s not — not that good — but it is not as lethal as it might have been.

We had a — we had a Spanish flu in 1918. And my dad and four siblings and his parents went through it. And they had a terrific story in the March 15th edition of the Omaha World-Herald, that you can go to omaha.com and look up. It’s also on the first page, I believe, of Google if you put in “Spanish flu Omaha.”

And during that particular time, in maybe four months or so, Omaha had 974, I believe, deaths. And that was a half of one percent of the population. And that figure wasn’t greatly different around the country.

So, if you think about half of 1 percent of the population now, you’re talking a million-7, or thereabouts, people who, unfortunately, in terms of the worst case, which does not appear to have impacted — I think you can almost rule it out it’s being as lethal as the Spanish flu was — but it’s very, very transmissible.

And of course, we have the problem we don’t know the denominator, in terms of exactly how many (inaudible) it is because we don’t know how many people have had it and didn’t know they had it.

But in any event, the range of probabilities on health have narrowed down somewhat.

4. COVID-19 economic uncertainty

WARREN BUFFETT: I would say the range of probabilities — or possibilities — on the economic side are still extraordinarily wide.

We do not know exactly what happens when you voluntarily shut down a substantial portion of your society.

In 2008 and ’09, our economic train went off the tracks. And there were some reasons why the roadbed was weak, in terms of the banks and all of that sort of thing, but —

This time we just pulled the train off the tracks and put it on a siding. And I don’t really know of any parallel of a — in terms of a very, very — well, the most important country in the world — the most productive — huge population — in effect, sidelining its economy and its workforce.

And obviously, and unavoidably, creating a huge amount of anxiety and changing people’s psyche, and causing them to somewhat lose their bearings — in many cases understandably.

This is quite an experiment. And we may know the answer to most of the questions reasonably soon, but we may not know the answers to some very important questions for many years.

So, it still has this enormous range of possibilities.

5. “Nothing can basically stop America”

WARREN BUFFETT: But even facing that, I would like to talk to you about the economic future of the country.

Because I remain convinced, as I have — I was convinced of this in World War II, I was convinced of it during the Cuban Missile Crisis, 9/11, the financial crisis — that nothing can basically stop America.

We faced great problems in the past. We haven’t faced this exact problem. In fact, we haven’t really faced anything that quite resembles this problem.

But we faced tougher problems and the American miracle — the American magic — has always prevailed and it will do so again.

6. America is an “extraordinarily young country”

WARREN BUFFETT: And I would — I would like to take you through a little history to essentially make my case that if you were to pick one time to be born and one place to be born, and you didn’t know what your sex was going to be, you didn’t know what your intelligence would be, you didn’t know what your special talents or special deficiencies would be, that — if you do that one time, you would not pick 1720, you would not pick 1820, you would not pick 1920, you’d pick to — you’d pick today. And you would pick America.

And of course, the interesting thing about it is that ever since America was organized in 1789 when George Washington took the oath of office, people have wanted to come here. Can you imagine that?

For 231 years, there’s always been people that have wanted to come here. Now — my friend, I think, has jumped the gun just a shade — I’m putting up slide one — but I’m going to call for some slides as we go along.

But the interesting thing about this country is what is on slide one. Let’s put it up.

This is an extraordinarily young country. Now I’m comparing it to a couple of guys that are pretty old. But when you think about the fact that my age, Charlie’s age, or our life experience — and then we’ll throw in this young guy over here, Greg Abel — and if our life experiences combined, exceed the life of the United States, we are a very, very young country.

But what we’ve accomplished is miraculous. Now just think of this — this little spot in history. And if we’ll go to slide two, I’ve tried to estimate —

Well, let’s go back. Stay with slide two, but the population in 1790, you know, we had 3.9 million people here.

Incidentally, when you look up census figures, you find out that the — they had a big fire in the Department of Commerce building in 1921, so they lost a lot of the census records. So, these are not quite as — there’s some things where there’s a few gaps, but there were 3.9 million people in the United States.

And actually — I’ve got point-six million — it’s closer to point-seven million — there were 700,000 of those people who were slaves at the time.

But those 3.9 million people were one half of 1 percent of the population of the planet. And if you’d asked any of those 3.9 million people — any of them — to imagine what life would be like 231 years later, even the most optimistic person — and they could have been drinking heavily and even had a little pot — and they still could not in their wildest dreams have thought that in three lifetimes — Charlie’s, mine, and Greg’s — that in that period, you would be looking at a country with 280 million vehicles shuffling around its roads, airplanes — maybe not today so much but they’ll be back again — flying people at 40,000 feet, coast to coast in five hours, that great universities would exist in one state after another, great hospital systems, and entertainment would be delivered to people in a way nobody could have dreamt of in 1790.

This — this country, in 231 years, has exceeded anybody’s dreams.

7. America’s wealth has grown 5000-for-1

WARREN BUFFETT: I went to the internet in trying to prepare for this, and I tried — if you’ll move to the next slide — I tried to find out what was the wealth of the country in 1790 — 1789 — our starting point. And I punched in “United States wealth.” I tried 1789. I tried 1790. I thought it might be a little easier in terms of a round year, and I think 4 million or so references came up. And I didn’t look at all 4 million.

But I can tell you the data collection in those early days on many, many fronts was not — and even not today — you really can’t — you can’t find what I would consider reliable figures. You can find out how many mules there were in the country, and a few things like that and add — try to add them up.

But in real estate, you know, when you find — when you’re looking at houses or apartment houses or office buildings, that, you know, they’re each slightly different than each other. But they look to comparable sales, so it’s hard to find a lot of countries that have been sold where the wealth has been estimated.

But it was interesting to go back and think about the fact that in 1803, we purchased for $15 million — we made the Louisiana Purchase. Now that’s a little later than 1789, but — but that’s the — that’s the best comp, as they say in real estate — that’s the best copy we could find for land mass anyway, and —

When we purchased — made that purchase — that was equal, incidentally, to about a quarter —800,000-plus square miles — but it was about a quarter of what the lower 48 states now contain.

So, we bought about a quarter of the lower 48 for those $15 million back in 1803.

And if you live in Texas, and your grandfather is close to dying, and he calls — he calls the grandchildren, children around him, and in his final words, he always says, “Don’t sell the mineral rights.”

Well, the French sold us the mineral rights on that $15 million deal as well. So, we — we got that whole strip there — we got all of Kansas, and essentially all of Oklahoma. They’ve produced 21 billion barrels of oil for us and a lot of natural gas since the purchase.

One of the sidelights is that we paid our 15 million for the Louisiana Purchase — we paid 3 million of it —20 percent of it — we paid with a — with 200,000 ounces of gold, valued at 15 bucks an ounce. And that 3 million to the French took — and we got South Dakota as part of the Louisiana Purchase, and the Homestake mine up there, before it closed, produced, well over 40 million ounces of gold. And 40 million ounces of gold comes to about $60 billion worth. And like I say we 20 — 200,000 ounces took care of 20 — 20 percent of our purchase price.

So, the Louisiana Purchase was a bargain, but it’s what the going price was for 800,000 square miles, I guess, at the time and — three cents an acre.

And so, I decided, by playing around with various numbers such as that, that it as a — as a reasonable estimate of the worth of the country, in 1789, a billion was not a crazy figure.

Now if I’d been an academician or something, I would have put $1,107,400,000 or something like that — or it’s a —I would have made it look respectable — but it’s a wild guess. But it’s not — it’s not a crazy figure.

So, what has happened — let’s move on to the next slide — to the wealth of that country since then? And here we have some figures that come out pretty regularly — well, they do come out regularly — where the Federal Reserve estimates the net household worth of people in the United States — all the households in the United States.

And you can look these up and you’ll — you’ll see that, you know, there’s 30 trillion of stocks. And I think maybe single-family homes — what are there — there’s 82 million or so owner-occupied single families and maybe 45 million rental apartments and so on. So, you start adding all these up.

And the Federal Reserve tells us — and I invite you to look at the — the data — it’s kind of interesting — that we now in the United States, 231 years later, we have 100 trillion— we have more than 100 trillion — of household wealth, even though the stock market’s gone down somewhat since the last quarterly report.

So, you say, well, you know, we’ve had a lot of inflation, everything. We actually, in the United States, for the first half of our existence roughly, we didn’t really have that much inflation. We had inflationary periods and deflationary periods, but the general price level did not change that dramatically.

But I will assume again for this calculation that — that there’s been 20-for-1 inflation that’s — it’s way less than that in many commodities, but — and it’s very hard to measure and to talk about equivalent benefits from different kinds of products and so on — and cost — but I think it’s reasonable to say that the United States, in real terms, has increased in wealth at something in the area of 5000-for-1.

Which is really — its mind blowing — 5000-for-1 — in real terms — in a country that had a half a percent of the — and a bunch of raw land — but a vision that — to accomplish that in 231 years. There’s just no denying that — that’s beyond what anybody could have dreamt earlier.

8. America’s bumps in the road: The Civil War

WARREN BUFFETT: But it was not done — and this is important — because we’ve now hit a bump in the road — it was not done without some very, very serious bumps in the road. It was not 231 years of steady progress. And matter of fact, we had been in the — in this birth of this country — we had been, what, into it 72 years — and if we go to the next slide —

In 1861, we now had about 31 million people — the 1960 [1860] census showed around 31 million people or thereabouts — in the country, and 4 million of them were slaves and we had never really resolved the very much unfinished business of what was involved in compromises in 1789, and we’ll have more to say about that later.

But we had something that not too many countries experienced — and if you’d told people in 1789, that in 17 — in 72 years, you were going to have a division that caused the president of the United States, at Gettysburg, to say that “testing whether that nation, or any nation so conceived and dedicated can long endure.”

Imagine the president of the United States wondering aloud whether the country that he was presiding over could long endure only 72 years — or 74 years at Gettysburg — had taken place.

So, while this marvelous dream was being played out, roughly a third of the way through it, we face this — this really moment of decision.

And we entered into a contest that — if we’ll go to the next slide — I made an estimate — that literally killed roughly 6 percent of the males in the country who were between 18 and 60 —I’m assuming that there were more than 600,000 deaths in the war.

I think it’s a reasonable estimate that — that — that 18 to 60 group of males were, by far, the great proportion.

So, imagine 6 percent of your working prime-age males in a country are wiped out in four years.

So, when we look at the progress of this country, and we think of our own problems — and now I just ask you to ponder — we’ll move to the next slide — that would be equivalent today to having 4 billion males in that same age group similarly wiped out.

So that was one incredible interruption, which this country nevertheless worked through, while compiling this American dream that is one of the wonders of the world, perhaps the wonder of the world in many senses.

9. America’s bumps in the road: The Great Depression

WARREN BUFFETT: Let’s move on to the — another crisis of a different sort that hit the country. And this, of course, is the 1929 crash which led to the Great Depression.

And here, the Dow Jones average, which we’ll use for this — at that time that’s the one everybody paid attention to — actually the second most important average at that time, if you look at the papers, was the New York Times average which has disappeared. And of course, the Standard and Poor’s has probably, regardless, is a superior yardstick, but the Dow Jones is a perfectly adequate yardstick.

And on September 3rd, 1929, the Dow Jones average closed at 381.17, and people were very happy buying stocks on margin. It worked wonderfully. And the roaring ’20s had a good feeling to it with the auto coming of age, and the day of air travel coming along, and all kinds of new appliances, and the telephone getting wider use. Believe it or not, that hadn’t really caught on that much prior thereto. But the movies were coming on. It was a happy place.

And then, of course, if we’ll move to the next slide, we’ll look at what happened in the couple of months after September 3rd. And the Dow Jones average almost got cut in half. And that was pretty impressive until we had this recent situation where in a shorter period of time, we lost about a third.

But the — the — the crash — and there’s a great book about it called “The Great Crash” by John Kenneth Galbraith.

I may interject one little plug here. There’s a small business in Omaha — and I hate what this —what truncating this meeting or changing it so dramatically has done to many of the businesses in Omaha because I think small business is beneficial — were the beneficiaries of — of a really — they got a lot of business with the Berkshire meeting and they’re going to get it in the future but — but they suffer during a period like this, and they just had a story about the Bookworm.

Well, the Bookworm — if you buy any books that come out of anything I recommend, think about just put in, “Bookworm” — “Bookworm in Omaha.” And “The Great Crash” is a wonderful book, and John Kenneth Galbraith describes it.

And I would like to get into a bit of a personal note which will have some relevance. Not too much, but some relevance, to the story of the Great Depression, because in 1929 my dad, who was 26 years of age then, was employed as a security salesman by a local, small bank.

And he sold stocks and bonds, but he mostly sold stocks. And when stocks fall 48 percent and you were selling them to people a few months ago, you really don’t feel like going out and facing those same people.

So, I think my dad probably elected to, as they say now, shelter-in-place, which means stay at home. And there really wasn’t that much in our house. We just had a small yard. It was wintertime anyway. My dad wouldn’t have been puttering around the yard anyway. And there really wasn’t — you know, television wasn’t there. And he and my mother got along very well.

So, under those conditions, if you’ll turn to the next slide, I was born about nine months later, so —

But at that time — I was actually born on August 30th, but the stock market was closed that day, and so I’m using the previous day’s figures — but the — it wasn’t — I didn’t notice at the time that the market was closed — but the stock market had actually recovered over 20 percent during that 9 1/2 month period or thereabouts.

People did not think in the fall of 1930 — they did not think they were in the great — a great depression. They thought it was a recession very much like had occurred at least a dozen times, although not always when stock markets were important. But we’d have many recessions in the — in the United States over the time, and this did not look like it was something dramatically out of the ordinary.

But — and for a while — actually for about ten days after my birth — that (inaudible), and the stock market actually managed to go up all of 1 or 2 percent there in those 10 days.

But that’s the last day — well, from that point — if you’ll turn to the next slide — the stock market went from a level of 240 to 41, which was a noticeable decline, because if somebody had given me a thousand dollars on the day I was born and I’d bought stock with it, and bought the Dow average, my thousand dollars would have become $170 in less than two years.

And that is something that none of us here have ever experienced that — we may have had it with one stock occasionally — but — but in terms of having a broad range of America marked down 83 percent in two years, and marked down 89 percent of the peak that was September 3rd, 1929, was extraordinary.

And in that intervening period less than one year after I was born — the slightly less than one year — my dad went to the bank where he worked and had his account. And of course, the bank had a sign on it, “Closed,” and so he had no job. And he had two kids at that point.

And his father had a grocery store but — Charlie and I both worked for my grandfather — Charlie worked there in 1940, I worked there in 1941, so we didn’t know each other — but — but my grandfather said to my father that don’t worry about your groceries, and Howard, he says I’ll just let your bill run. (Laughs)

That was — my grandfather was not exactly — he was — he cared about his family, but he wasn’t going to go crazy. And —

10. FDIC: “A very, very, very good thing”

WARREN BUFFETT: One of the things, as I look back on that period is — and I don’t think economists, generally, like to give it that much of a point of importance, but — but if we’d had the FDIC 10 years earlier, we’d — the FDIC started on January 1st, 1934 — it was part of the sweeping legislation that took place when (President Franklin) Roosevelt came in — but if we’d had the FDIC, we would have had a much, much different experience, I believe, in the — in the Great Depression.

People blame it on smooth — Smoot-Hawley. I mean, they — there’s all kinds of things — and the margin requirements in ’29 — and all of those things entered into creating a recession.

But if you have over 4000 banks fail, that’s 4000 local experiences where people save and save and save, put their money away and then someday, they reach for it and it’s gone.

And that happens, you know, in all 48 states. And it happens to your neighbors and it happens to your relatives. It — it has to have an effect on the psyche that’s incredible.

So, one very, very, very good thing that came out of the depression, in my view, is the FDIC. And it would have been a somewhat different world, I’m sure, if the bank failures hadn’t just rolled across this country and — and with people that thought that they were savers find out that they had nothing when they went there and there was a sign that said “Closed.”

Incidentally, the FDIC — I think very few people know this — but — or at least they don’t appreciate it — but the FDIC does not cost the American taxpayer a dime. I mean, its expenses have been paid, its losses have been paid, all through assessments on banks. It’s been a mutual insurance company of the banks, backed by the federal government, and associated with the federal government.

But now it holds a hundred billion dollars and that consists of premiums that were paid in, and investment income on the premiums, less the expenses and paying of all the losses. And think of the incredible amount of peace of mind that’s given to people that were not similarly situated in — when the Great Depression hit.

11. Depression’s long-term effect on stock prices

WARREN BUFFETT: So, the Great Depression went on. And it lasted a very long time, but it lasted a lot longer in the minds of people than it did actually in its effects.

World War II came along. And on sort of an involuntary manner, we adopted Keynesianism, we started running fiscal deficits, of course, that were absolutely huge and took our debt up to a percentage of GDP which we’d never reached — had never reached before — and have never reached since.

So, we had an enormous economic recovery. But the minds of people had been so scarred — the memories. Parents told their children. Nineteen-twenty-nine became a symbol in people’s minds. I mean, if you said 1929, it was like saying 1776 or 1492. I mean, everybody knew exactly what you were talking about.

And it affected stock prices in a rather remarkable way to the point — if you’ll change to the next slide — it was January 4th of 1951 — that the kid who was born on August 30th in 1930 had finished college — before the stock market got back to where it was at that earlier time.

So, take the years from 1920 — 1930 — or 1929 (inaudible) — to 1951 — or take the year from my birth — 20 years — and bear in mind that, you know, the country was only 140 years old when this started at.

That’s 20 years out of this amazing 231-year lifetime of our country that was flat out, you know, a time of — for a long time — of no economic growth and no feeling by people, in terms about the wealth of the country, about what American economy was worth, but all these corporations that were doing far, far, far better than they were (inaudible).

But it took all of that time to restore in the market a price level that was equal to what it was when I was born 20 years earlier.

So, if you think about the fact that we’re enduring a few months, and we’ll endure some many more months, but — and we don’t know how it comes out — and people in the ’30s didn’t know how it was going to come out — but they endured, persevered, prospered, and the American miracle continued.

But it’s interesting in that — I actually don’t have a slide for the next one because last night, I was thinking after all the slides have been prepared, I was actually thinking about this a little late, a little bit, and I remembered that in 19 — at the start of 1954, the stock market was — the Dow was only at about 280. And I remember 1954 because it was the best year I’ve ever had in the stock market.

And the Dow went from, essentially, what — 2 — 280 or thereabouts at the start of the year to a little over 400 at the end of the year.

And when it went to 400, as soon as it went across 381, that famous figure from 1929, when it went to 400 — and this will be hard for some of you to believe — but everybody wondered, is this 1929 all over again?

And that seems a little farfetched, because it was a different country in 1954. But that was the common question. And it actually achieved — it was, you know — it achieved such a level of worry about whether we were about to jump off another cliff, just because the 381 of 1929 have been succeeded — exceeded — that they held — Senator Fulbright — Bill Fulbright of Arkansas, who became very famous later, in terms of the Foreign Relations Committee — but he headed the Senate Banking Committee, and he called a special — for a special investigation and he called it the — what did he call it? — the stock market study, but it really is — if you read through it — he really was questioning whether we had built another house of cards again.

And on this committee — it’s interesting to see the Senate Finance Committee — one of the members was Prescott Bush, the father of George H.W. Bush, the grandfather of George W. Bush — and had some illustrious names.

And his committee, in March of 1955, with the Dow at 405, assembled 20 of the best minds in the United States, to testify as to whether we were going crazy again, because the market was at 400 — the Dow was at 400, and we’d gotten in this incredible trouble before. But that was the mindset of the country. (Inaudible) incredible.

We didn’t really believe America was what it was. And my boss — the reason I’m familiar with this thousand-page book that I have here — I found it last night in the library — I’d never — was that I was working in New York for one of the 20 people that was called down to testify before Senator Fulbright.

And he testified right before Bill Martin, who was running the Federal Reserve, testified and right after General (Robert) Wood, who was running Sears, testified. Sears was very, very important then.

And Bill Martin, of course, is the fellow that — the longest running chairman in the history of the Fed, and he’s the one that gave the famous quote about the function of the Fed was to take away the punchbowl just when the party started to get really warmed up.

But Ben Graham, my boss, sent me over to the public library in New York and — to gather some information for him — something you could do in five minutes with the computer now — and I dug out something, and he went to testify — and on page 545 of this book — I knew where to look, I didn’t have to go through it all — but he had the quote, which I remember.

And I remember because Ben Graham was the — one of the three — smartest people I’ve met in my life, and he was the dean of people in the securities business. He wrote the classic “Security Analysis” book in 1934. He wrote the book that changed my life, “The Intelligent Investor,” in 1949. He was unbelievably smart.

And when he testified, with the Dow at 404, he had one line in there right toward the start in his written testimony, and he said the stock market is high — looks high — it is high, but it’s not as high as it looks. But he said it is high.

12. “Nothing can stop America”

WARREN BUFFETT: And since that time — if we’ll turn to the next slide — of course, we felt the American tailwind at full force.

And the Dow — now let’s see the — yeah, the Dow was down Friday, but when we made the slide it was about 24,000.

So, you’re looking at a market today that has produced a hundred dollars for every dollar.

All you did was have the belief in America — just buy a cross section of America. You didn’t — you didn’t have to read The Wall Street Journal, you didn’t have to look up the price of your stock. You didn’t have to pay a lot of money and fees to anybody. You just had to believe that the American miracle was intact.

But you’d had this testing period between 1929 and — and well, really — certainly 1954, as indicated by what happened when it got back up to 380 — you had this testing period. And people really had lost faith to some degree. They just didn’t see the potential of what America could do.

And we’ve found that — that nothing can stop America when you get right down to it, and —

It’s been true all along. It may have been interrupted, with the scariest of scenarios, when you had a war with one group of states fighting another group of states. And it may have been tested again in the Great Depression, and it may be tested now to some degree. But in the end, the answer is, never bet against America.

And that, in my view, is as true today as it was in 1789. And even was true at the — during the Civil War and in the depths of the Depression. Now —

13. America is a better country than it was in 1789

WARREN BUFFETT: I’m now about to say something but that — don’t change the slide yet.

Now I’m about to say something that some of you will be tempted to argue with me about, but I would make the case that we are imperfect in a great, great, great many ways.

But I would say — and if you’ll put up the next slide — that we are now a better country, as well as an incredibly more wealthy country, than we were in 1789.

We’re far, far, far from what we should be — will be — but we have gone dramatically in the right direction.

It’s interesting, we said in 1776, we said, “We hold these truths to be self-evident, that all men are created equal, endowed by their — are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and pursuit of Happiness.”

And yet, 14 years later, a year after we — we really officially began the country in 1789, adopted a constitution — we found that more than 15 percent of the people in the country were slaves. And we wrestled with that.

But when you say the word “self-evident,” that sort of sounds like you’re saying any damn fool can recognize that, and you certainly say — you can argue maybe a little bit about “life” and “pursuit of happiness,” but I don’t see how in the world anybody can reconcile “liberty” with the idea that — that 15 percent of the population was enslaved. And it took us a long time to, at least partially, correct that.

(Inaudible) took a Civil War. It took losing 6 percent of those people that — males that were between 18 and 60 years of age.

But we’ve moved in the right direction. We’ve got a long ways to go, but we’ve moved in the right direction.

Now — in addition, going back again to that 1776 statement, that all men are created equal and endowed by their Creator, etc. — I think it was self-evident to the 50 percent of the population that they were getting a fair deal for over half the lifetime of the country.

It took 131 years of our country’s 231 years — it took 131 years until women were guaranteed the right to vote for our country’s leaders.

And then what’s even more remarkable is that after we adopted the 19th Amendment in 1920, it took 61 more years until a woman was allowed to join those eight males on the Supreme Court.

I grew up thinking that the Supreme Court, you know, it must have said it had to be nine men. But it, at 61 years, so, it took 192 years before Sandra Day O’Connor was appointed to the court.

And now you can say that — that there was a pipeline problem. Half the population may have been women in 1920 but they weren’t half the lawyers, or they weren’t 10 percent of the lawyers, probably.

So, you can understand some delay, but 61 years is a long time to go and to pick 33 males in between — if that was entirely by chance, the odds against that, if we were flipping coins, is about eight billion to one. Now like I said that was a pipeline problem. But it took us a long, long time. And it’s not done yet.

But I think it does give meaning to the fact that we are a better society with a lot of room to go.

We are a better society than existed in 1789. When you go to Colonial Williamsburg, you know, you have that — I’ve been there a couple of times — a matter of fact, I watched the debate between Jimmy Carter and Gerald Ford there, that’s in 1976.

And, you know, it was not a great time to be black. It was not a great time to be a woman. And both of those categories still have certainly got potential for significant improvement in terms of fulfilling that pledge made in 1776 about how we believe that it’s “self-evident all men are created equal.”

But we have made progress. We are a better society. And we will, as the years go by — if you’ll move to the next slide — and I believe that, and I think — let’s see if I can get these slides in the proper order.

I believe that when you get through evaluating all of the qualitative facts, what we have done toward meeting the aspirations of what we wrote in 1776 — what we wrote in 1776 wasn’t a fact — but it was an aspirational document. And we have worked toward those aspirations. And we have a long way to go.

But I’ll repeat — if you move to the next slide — that never, never bet against America.

14. Bet on America, but “be careful how you bet”

WARREN BUFFETT: Now — let’s move on now to a broad, much broader, subject: what I don’t know.

And I don’t know — and perhaps with a bias, I don’t believe anybody knows — what the market is going to do tomorrow, next week, next month, next year.

I know America is going to move forward over time. But I don’t know for sure — and we learned this on September 10th, 2001 — and we learned it a few months ago, in terms of the virus — anything can happen in terms of markets.

And if you — you can bet on America, but you got to have to be careful about how you bet, because — simply because markets can do anything.

On October, whatever it was, in 1987 — October 11th, I believe — Monday — markets went down 22 percent in one day.

In 1914, they closed the stock market for about four months. After 9/11 closed the market for four days, we hustled to get it going again. But nobody knows what’s going to happen tomorrow.

So, when you — when you bet — when I tell you to bet on America, and I tell you that that’s what’s really gotten me through ever since I was — I bought my first stock when I was 11 — I mean this —

I caught a huge, huge, huge tailwind in America. But it didn’t — wasn’t going to blow in my direction every single day and you don’t know what’s going to happen tomorrow.

15. Sam Nunn’s pandemic warning

WARREN BUFFETT: I would like to, in the context of the present news, point out something you may find kind of interesting.

If you go to You Tube, you’ll find on June 17th of 2015— four-plus years ago — you’ll find Sam Nunn, who is one of the people I admire the most in the United States — in the world — enormous patriot, tremendous senator.

And he’s carried on thankless work since leaving the Senate of the United States and heading something called the Nuclear Threat Initiative, which most of you haven’t heard of, but I’ve been slightly involved in it. Sam Nunn founded that.

And the Nuclear Threat Initiative is simply organizations devoted to trying to reduce the chances of something of a nuclear, chemical, biological, and now cyber, nature from either malevolent or accidental or whatever it may be, from causing deaths to millions of Americans.

Among the things in — Sam co-founded it, and — but he’s been the heart and soul of the organization subsequently — and he’s talked about — worried about — pandemics among — along with the nuclear threat — for decades. And he’s participated in wargames where they play out various scenarios, including malevolent pandemics that could be started by the same kind of nut that sent the anthrax letters around 9/11 and a little after.

And Sam appeared on this You Tube presentation — and I’m sure he’s been on many others, I just happened to look this one up — and talked about the dangers of a pandemic. And anybody should listen to Sam Nunn anytime he talks.

So, I — he said at that time, “Germs don’t have borders,” which we certainly learned in the last couple of months.

And I — when I clicked on YouTube — if you’ll go to the next — I found out that recently it had 831 views and this was only two days ago I looked it up — and maybe — I don’t know whether most of those views have just been the last few days because of — the last few months I should say — because of the interest in pandemics.

But it is hard to think about things that haven’t happened yet. So, we can experience when something like the current pandemic happens — it’s just — it’s hard to factor that in.

And that’s why you never want to use borrowed money, at least in my view, buy on margin to buy into investments.

And we run Berkshire that way. We’ve run it so that we literally try to think of the worst case of not only just one thing going wrong, but other things going wrong at the same time, maybe partly caused by the first, but maybe independent even of the first.

And you know, you learned in — I don’t know what grade now — probably earlier than when I went to school — in fifth or sixth grade that anything — you can have any series of numbers times zero, and just need one zero in there, and the answer is zero.

There’s no reason to use borrowed money to participate in the American tailwind, but there’s every other reason to participate.

Now, I can’t resist pointing out that in October of 2019, a large 300-page — I got it right here — book was brought out, and Johns Hopkins, one of the most respected institutions in the country, the Nuclear Threat Initiative, NTI, and the intelligence group at The Economist — collaborated to evaluate the problems of the worldwide preparedness for pandemics, essentially.

And I think in November, Sam came out to see me with Ernie Moniz, former secretary of energy, who now is the CEO of the — of NTI. He and Sam are co-chairman. And Beth Cameron, who did a lot of work on this report — came out to see me. And they gave me — in November, I believe, of last year — they gave me this appraisal.

And the opening line — if you’ll turn the page — this is the opening line of this 300-page tome. “Biological threats — natural, intentional or accidental — in any country can pose risks to global health, international security, and the worldwide economy.”

And this book was prepared in order to evaluate the preparedness of the various countries and rank them. We ranked pretty well, but all of us got a failing — all of the countries — got a failing grade, basically.

Now, you would think that the prestige of Johns Hopkins and The Economist, along with people like Sam and Ernie, etc., that this would have gotten some attention.

And again, Sam — turn to the next page — to Sam and the others went on YouTube on October 24th, 2019, and they have racked up, as of a couple days ago, 1498 views.

Now my friend Bill Gates was delivering the same warning at a TED talk some years back, and he’s gotten a lot more views, but it just says something about the fact that you’re going to get bolts from the blue, and you can read papers about them, and you can talk about what will happen if some, as they used — the fellows at Salomon used to tell me some 25 sigma event comes along and they’d say this — that that’ll happen once in the life of the universe, you know, and at happens to them a couple of times in a month and they go broke.

You just don’t know what’s going to happen. You know, at least in my view, you know, that America’s tailwind is not exhausted. You’re going to get a fine result if you own equities over a long period of time.

16. Stocks do better than bonds

WARREN BUFFETT: And the idea that equities will not produce better results than the 30-year Treasury bond, which yields 1 1/4 percent now — it’s taxable income. It’s the aim of the Federal Reserve to have 2 percent a year inflation.

Equities are going to outperform that bond. They’re going to outperform Treasury bills. They’re out — they’re going to outperform that money you’ve stuck under your mattress. I mean, there’s — they are a enormously sound investment, as long as they’re an investment, and they’re not a gambling device or something that you think you can safely, you know, buy on margin or whatever it may be.

It’s interesting that stocks offer which — and stocks are a —we always look at stocks as just being a part of a business — I mean, stocks are a small part of a business.

If in 1789, you’d saved a small amount of money — and it wasn’t easy to save — you might have bought with those savings — you might have bought a tiny, tiny plot of property. Maybe you bought a house that could be rented to somebody.

You didn’t really have the chance to buy in with ten different people who were developing businesses and who were putting — presumably putting — their own money in and that would have the American tailwind behind. And — and of the ten, a reasonably high percentage would succeed in a way and earn decent returns. But what — those are the choices you might have had to do with savings.

And they started offering bonds originally — and there again you’ve got a limited return — but the return may have been in those days, may have been 5 or 6 percent, or something of the sort. But you can’t buy risk-free bonds.

I mean, the yardstick for me is always the U.S. Treasury. And when somebody offers you quite a bit more than the U.S. Treasury, there’s usually a reason — there’s much more risk.

17. Why buying a stock should be like buying a farm

WARREN BUFFETT: But going back to stocks, people bring the attitude to them too often that because they are liquid and quoted minute-by-minute, that it’s important that you develop an opinion on them, minute-by-minute.

Now that’s really foolish when you think about it. And that’s something Benjamin Graham taught me in 1949. I mean, that single thought, that stocks were parts of businesses and not just little things that moved around on charts or — charts were very popular in those days — whatever it may be.

Imagine for a moment that you decided to invest money now. And you bought a farm, and the farmland around here — let’s say you bought 160 acres and you bought it at x per share — or per acre. And the farmer next to you had 160 identical acres, same contour, same quality — soil quality. So, it was — it was identical.

And that farmer next door to you was a very peculiar character. Because every day that farmer with the identical farm said, “I’ll sell you my farm” — or “I’ll buy your farm” — at a certain price which he would name. Now, that’s a very obliging neighbor. I mean, that’s got to be a plus to have a fellow like that with the next farm.

You don’t get that with farms. You get it with stocks. You want a hundred shares of General Motors. On Monday morning, somebody will buy your hundred shares or sell you another hundred shares at exactly the same price, and that goes on five days a week.

But just imagine if you had a farmer doing that. When you bought the farm, you looked to what the farm would produce. That was what went through your mind. You’re saying to yourself, I’m paying x dollars per acre, I think I’ll get so many bushels of corn or soybeans on average, some years good, some years bad, some years the price will be good, some years the price will be bad, etc.

But you think about the potential of the farm. And now you get this idiot that buys a farm next to you and — and on top of that he’s sort of a manic depressive and drinks, maybe smokes a little pot, so his numbers just go all over the place.

Now, the only thing you have to do is to remember that this guy next door is there to serve you and not to instruct you. You bought the farm because you thought the farm was — had the potential. You don’t really need a quote on it.

You know, if you bought in with John D. Rockefeller, or Andrew Carnegie, there were never any quotes — well, there were quotes later on, but — but basically, you bought into the business, and that’s what you’re doing when you buy stocks.

But you get this added advantage that you do have this neighbor, who you’re not obliged to listen to at all, who is going to give you a price every day. And he’s going to have his ups and downs. And maybe he’ll name a silly price that he’ll buy at, in which case you sell, if you want to. Or maybe he’ll name a very low price and you’ll buy his farm from him. But you don’t have to. And you don’t want to put yourself in a position where you have to sell.

Stocks have this enormous inherent advantage of people yelling out prices all the time to you. And many people turn that into a disadvantage. And of course, many people can profit in one way or another from telling — telling you that they can tell you what this farmer is going to yell out tomorrow or next — your neighboring farmer — is going to yell out tomorrow or next week or next month. There’s huge money in it.

So, people tell you that it’s important and they know and that you should pay a lot of attention to their thoughts about what price changes should be, or you tell yourself that there should be this great difference.

But the truth is, if you owned the businesses you liked prior to the virus arriving — it changes prices and it changes — but nobody’s forcing you to sell. And if you really like the business, and you like the management you’re in with, and the business hasn’t fundamentally changed — and I’ll get to that a little when I report on Berkshire, which I will soon, I promise.

Stocks have an enormous advantage. And you still can bet on America. But you can’t bet unless you’re willing, and have an outlook, to independently decide that you want to own a cross section of America, because I don’t think most people are in a position to pick single stocks. A few may be, but — but on balance, I think people are much better off buying a cross section of America and just forgetting about it.

If you’d done that — if I’d done that when I got out of college, it’s all I had to do to make 100-for-1 and collect dividends on top of it, which increased — would increase substantially over time.

The American tailwind is marvelous. American business represents — and it’s going to have interruptions and you’re not going to foresee the interruptions, and you do not want to get yourself in a position where those interruptions can — can affect you, either because you’re leveraged or because you’re psychologically unable to handle looking at a bunch of numbers.

If you really had a farm, and you had this neighbor and one day he offered you $2,000 an acre, and the next day he offers you $1200 an acre, and maybe the day after that he offers you $800 an acre, are you really going to feel that at $2,000 an acre, when you had evaluated what the farm would produce, are you going to let this guy drive you into thinking I better sell because this number keeps coming in lower all the time?

It’s a very, very, very important matter to bring the right psychological approach to owning common stocks.

But I will tell you if you bet on America and sustain that position for decades, you’re going to do better than — than — in my view — far better than owning Treasury securities. Or far better than following people who tell you what the farmer is going to yell out next.

There’s huge amounts of money that people pay for advice they really don’t need and for advice where the person giving it can be very well meaning and believe their own line. But the truth is that — that you can’t have — you can’t deliver superior results to everybody by just having them trade around a business.

A business is going to deliver what the business produces. And the idea that you can outsmart the person next to you, or that the person advising you can outsmart the next — the person sitting next to you — is — well, it’s really the wrong approach.

So, find businesses — get a cross section. In my view, for most people, the best thing to do is to own the S&P 500 index fund. People will try and sell you other things because there’s more money in it for them if they do. And I’m not saying that that’s a conscious act on their part. Most — most good salespeople believe their own baloney. I mean, that’s part of being a good salesperson. And I’m sure I’ve done plenty of that in my life, too. But it’s very human.

If you keep repeating something — often that’s why lawyers get — have the witnesses keep saying things over and over again that by the time they get on the witness stand, they’ll — they’ll believe it whether it was true in the first place or not. The—

18. “I hope I’ve convinced you to bet on America”

WARREN BUFFETT: You are dealing with something fundamentally advantageous, in my view, in owning common stocks. I will bet on America the rest of my life. And I hope my successors at Berkshire do it.

Now we do it in two different ways. We do it by buying entire businesses, and we buy parts of businesses. And I would like to emphasize that — well, I’d like to give you a few figures that will tie in from our activities in the first quarter. And also, what we’ve done in April.

We are not right about — we do try to pick the businesses that we think we understand. We don’t buy the S&P 500. And we like to buy the entire businesses when we buy them. But we don’t get a chance to do that very often. Most of the best businesses are not available for sale in their entirety.

But we don’t mind in the least buying partial interests in businesses, and we would rather own 6 or 7 or 8 percent of a wonderful company and regard it as a partnership interest, essentially, in that company.

And we get an opportunity to do that through marketable securities and sometimes we get more opportunities than others. And with that, I hope I’ve convinced you to — to bet on America.

I’m not saying that this is the right time to buy stocks, if you mean by “right,” that they’re going to go up instead of down. I don’t know where they’re going to go in the next day or week or month or year.

But I hope I know enough to know — well, I think I can buy a cross section and do fine over 20 or 30 years. And I think that’s kind of, for a guy of 89, taking an optimistic viewpoint.

But I hope that, really, everybody would buy stocks with the idea that they’re buying partnerships in businesses and they wouldn’t look at them as chips to move around, up or down.

19. Virus will affect Berkshire’s operating earnings

WARREN BUFFETT: We will just now take a quick look — and I see we’ve got the — Becky’s email address — so if you have questions on what I’ve said or other things, you can email these questions and she is back there, probably, sort of a madhouse trying to handle questions coming in and pick out the ones she’s going to prioritize. But feel free to — anything I’ve talked about so far — to send along to her. And we’ll keep her address up when I later hold the formal part of the meeting, too.

Very briefly, in terms of Berkshire in the first quarter. If you’ll put up — we have the slides on that? There we are.

We — our operating earnings were — and there’s much more about this in the 10-Q, and it’s really not worth spending any real time on — but the operating earnings for the first quarter have no meaning whatsoever in terms of forecasting what’s going to happen the next year.

And I don’t know the consequences of shutting down the American economy. I know eventually it will work, whatever we do.

We may make mistakes — we will make mistakes — and I’m not — during this talk and later on — I’m not going to be second guessing people on this because nobody knows for sure what any alternative action would produce or anything of the sort.

But what we do know is that for some period, certainly during the balance of the year, but it could go on a considerable period of time, who knows. But our operating earnings will be less — considerably less — than if the virus hadn’t come along. I mean, that’s just — it — it hurts some of our businesses a lot.

I mean, you shut down — some of our businesses effectively have been shut down. It affects others much less.

Our three major businesses of insurance and the BNSF railroad — railroad and our energy business, those are our three largest by some margin — they’re in a reasonably decent position. They will — they’ll spend more than their depreciation.

So, some of the earnings will go — along with depreciation — will go toward increasing fixed assets — but basically these businesses will produce cash even though their earnings decline somewhat and —

20. Why Berkshire will always have “plenty of cash”

WARREN BUFFETT: And if we’ll go to part two — we at Berkshire, we keep ourselves in an extraordinarily strong position. We’ll always do that. That’s just — that’s fundamental.

We insure people — we’re a specialist to some extent, and the leader — it’s not our main business — but we sell structured settlements. That means somebody gets in a terrible accident, usually an auto accident, and they’re going to require care for 10, 30, 50 years.

And their family or their lawyer is wise enough, in our view, that rather than take some big cash settlement, to essentially arrange to have money paid over the lifetime of the individual to take care of their medical wills — bills — or whatever it may be.

And we’re — we’re a large — we’ve got many, many, many people that, in effect, have staked their wellbeing on the promises of Berkshire to take care of them for, like I say, 50 years or longer into the future.

Now, I would be — I would never take real chances with money under — of other people’s money — under any circumstances. Both Charlie and I come from a background where we ran partnerships. I started mine in 1956 for, really, seven, either actual family members or the equivalent. And Charlie did the same thing six years later.

And we never — neither one of us, I think — I know I didn’t — I’m virtually certainly the same is true of Charlie — neither one of us ever had a single institution investment with us. I mean, every single bit of money we managed for other people was from individuals, people with faces attached to them — or entities — or money with faces attached to them.

And so, we’ve always felt that our job is basically that of a trustee and, hopefully a reasonably smart trustee, in terms of what we’re trying to accomplish. But the trustee aspect has been very important. It’s true for the people with the structured settlements. It’s true for — up and down the line. But it’s true for the owners very much, too. So we always operate from a position of strength.

Now, I show on — on the slide that’s up, I show our — well, let’s go back one. Yeah. I show our net — our cash and Treasury bill position on March 31st. And you might look at that and say, well, you’ve got 125 billion or so in cash — in Treasury bills. And you’ve got, at least at that point, we had about 180 billion or so in equities.

And you can say, well, that’s a huge position, having Treasury bills versus just 180 billion in equities.

But we really have far more than that in equities because we own a lot of businesses. We own a hundred percent of the stock of a great many businesses, which to us are very similar to the marketable stocks we own. We just own them all. They don’t have a quote on them.

But we have hundreds of billions of wholly-owned businesses, and so they are — 124 billion, that’s not a — not some, you know, 40 percent or so. The cash position is far less than that. And we will always keep plenty of cash on hand and for any circumstances.

If a 9/11 comes along, if the stock market is closed as it was in World War I —it’s not going to be, but you know, I didn’t think we were going to be having a pandemic when I watched that Creighton-Villanova game in January either, so —

We want to be in a position at Berkshire where — well you remember Blanche DuBois in “A Streetcar Named Desire” — that’s goes back before many of you — but she said she didn’t want to — she, in Blanche’s case, she said that she depended on the kindness of strangers. And we don’t want to be dependent on the kindness of friends, even, because there are times when money almost stops.

21. Fed’s Jerome Powell praised for unfreezing credit

WARREN BUFFETT: But we — money was — investment grade companies were essentially going to be frozen out of the market. CFOs all over the country have been taught to sort of maximize returns on equity capital. So, they finance themselves to some extent through commercial paper because that was very cheap. And it was backed up by bank lines and all of that. And they — and they — they let the debt create — creep up quite a bit at many companies.

And then of course, they had the hell scared out of them by what was happening in markets, particularly the equity markets, and so they rushed to draw down lines of credit. That surprised the people who had extended those lines of credit, and they got very nervous.

And the capacity of Wall Street to absorb a rush to liquidity that was taking place in mid-March was strained to the limit, to the point where the Federal Reserve, observing these markets, decided they had to move in a very big way.

We got to the point where the U.S. Treasury market, the deepest of all markets, got somewhat disorganized. And when that happens, believe me, every bank and CFO in the country knows it, and they react with fear, and fear is the most contagious disease you can imagine. It makes the virus look like a piker. And we came very close to having a total freeze of credit to the largest companies in the world who were depending on it.

And to the great credit of (Federal Reserve Chair) Jay Powell — I’ve always had (former Fed chair) Paul Volcker up on a special place — a special pedestal — in terms of Federal Reserve chairmen over the years — we’ve had a lot of very good Fed chairmen, but Paul Volcker, I had him at the top of the list. And I’ll recommend another book.

Paul Volcker died about — here — I don’t know, less than maybe a year ago or a little less. But not much before he died, he wrote a book called “Keeping At It.” If you call my friends at the Bookworm, I think you’ll enjoy reading that book. Paul Volcker was a giant in many ways. He was a big guy, too.

He and Jay Powell couldn’t see more in temperament or anything. But Jay Powell, in my view, and the Fed board, belong up there on that pedestal, because — with him — because they acted in the middle of March — probably somewhat instructed by what they’d seen in 2008 and ’09 — they reacted in a huge way and essentially allowed what’s happened since that time to play out the way it has.

March, when the market had essentially frozen — could— a little after mid-month — ended up — because the Fed took these actions on March 23rd — it ended up being the largest month for corporate debt issuance, I believe, in history.

And then April followed through and was even — was even — with even a larger month, and you saw all kinds of companies grabbing everything coming to market and spreads actually narrowed and — and every one of those people that issued bonds in late March and April ought to send a thank you letter to the Fed, because it would not have happened if they hadn’t operated with really unprecedented speed and determination.

And we’ll know the consequences of swelling the Fed’s balance sheet — you can look at the Fed’s balance sheet, they put it out every Thursday — it’s kind of interesting reading if you sort of a nut like me — but it’s up there on the internet every Thursday, and you’ll see some extraordinary changes there in the last six or seven weeks.

And like I say, we don’t know the consequences of that. And nobody does, exactly. And we don’t know the consequences of what, undoubtedly, we’ll have to do.

But we do know the consequences of doing nothing. And that’s — would have been the tendency of the Fed in many years past — not doing nothing — but doing something inadequate. But (former European Central Bank President) Mario Draghi, you know, brought the “whatever it takes” to Europe. And the Fed, in mid-March sort of did whatever it takes squared. And we owe them a huge thank you.

But we’re prepared at Berkshire. We always prepare on the add — on the basis that maybe the Fed will not have a chairman that acts like that. And we really want to be prepared for anything. So that explains some of the 124 billion in cash and bills. We don’t need it all. But we do never want to be dependent on, not only the kindness of strangers, but the kindness of friends.

22. Berkshire did “very, very little” on stocks in Q1

WARREN BUFFETT: Now, in the next slide we have the — what we did in — in equities. And these numbers are tiny when you get right down to it. I mean, for having 500 billion or so in net worth — I mean, not net worth — but in market value at the start of the year, or something close to that.

You know, our — we bought in 1.7 billion of stock and our purchases were a couple of billion more than our sales of equities.

But as you saw in the previous slide, we had operating earnings of 5, almost 6 billion. And so, we did very, very little in the first quarter.

23. Buffett: Buying airline stocks was a mistake

WARREN BUFFETT: And then I’ve added another figure, which I wouldn’t normally present to you. But I want to be sure that if I’m talking to you about investments and stocks — more than I usually have — I want you to know what Berkshire is actually doing now.

You’ll see in the month of April that we net sold 6 billion or so of securities. And that’s basically — that isn’t because we thought the stock market was going to go down or anything of the sort, or because some — somebody changes their target price, or they change this year’s earnings forecast.

I just decided that I’d made a mistake in evaluating — it was an understandable mistake. It was a probability-weighted decision when we bought that we were getting an attractive amount for our money when investing across the airlines business.

So, we bought roughly 10 percent of the four largest airlines. And we probably — this doesn’t — is not a hundred percent of what we did in April — but we probably paid 7 or 8 billion — somewhere between 7 and 8 billion — to own 10 percent of the four large companies in the airline business.

And we felt for that, we were getting a billion dollars, roughly, of earnings. Now, it wasn’t — we weren’t getting a billion dollars of dividends. But we felt our share of the underlying earnings was a billion dollars and we felt that that number was more likely to go up than down over a period of time, that it would be cyclical, obviously.

But — but it was — it was as if we’d bought the whole company, but we bought it through the New York Stock Exchange and we can only effectively buy 10 percent, roughly, of the four. And we didn’t — we treat it mentally exactly as if we were buying a business.

And — and it turned out I was wrong about that business because of something that was not in any way the fault of four excellent CEOs.

I mean, believe me, no joy being a CEO of a airline, but the companies we bought are well managed. They did a lot of things right. It’s a very, very, very difficult business because you’re dealing with millions of people every day and if something goes wrong, for 1 percent of them, they are very unhappy.

So, I don’t envy anybody the job of being CEO of an airline, but I particularly don’t enjoy him — being in a period like this where essentially nobody in — people have been told, basically, not to fly.

I’ve been told not to fly for a while. I’m looking forward to flying. I may not fly commercial, but that’s another question.

But the — but the airline business — and I may be wrong, and I hope I’m wrong — but I think it changed in a very major way. And it’s obviously changed in the fact that there are four companies — are each going to borrow perhaps an average of at least 10 or 12 billion each.

Well, you have to pay that back out of earnings over some period of time. I mean, you’re 10 or $12 billion worse off if that happens, and of course, in some cases are having to sell stock or sell the right to buy a stock at these prices. And that takes away from the upside on —

And I don’t know, whether it’s two or three years from now, that as many people will fly as many passenger miles as they did last year. They may and they may not. But the future is much less clear to me about how the business will turn out through absolutely no fault of the airlines themselves.

It’s something that was a low-probability event. It happened and it happened to hurt particularly — you know, whether it’s the travel business, the hotel business, cruise business, theme park business — but the airline business in particular and of course, the airline business has the problem that if the business comes back 70 percent or 80 percent, the aircraft don’t disappear. So, you’ve got — you’ve got too many planes.

But it didn’t look that way when the orders were placed a few months ago and when the arrangements were made.

But the world changed for airlines. And I wish them well, but it’s one of the businesses we have — we have businesses we own directly that are going to be hurt significantly.

The virus will cost Berkshire money. It doesn’t cost money because our stock, and various other businesses, moves around. I mean, if XYZ, which is — say it’s one of our holdings, and we own it as a business, and we like the business — if the stock goes down 20 or 30 or 40 percent, we don’t feel we’re poor in that situation.

We felt we were poor, in terms of what had actually happened to those airline businesses, just as if we owned a hundred percent of them.

So that explains those sales, which are relatively minor. But I want to make sure that nobody thinks that that involves a market prediction.

And that pretty well wraps it up for Berkshire.

24. Formal corporate meeting begins

WARREN BUFFETT: So now we move into the formal part of the meeting, which will be followed by a fairly extended question and answer period, if there are a lot of questions with Becky. And while we’re doing this formal part of the meeting — it’s not too exciting — so feel free to leave your — whatever you’re viewing this through. And if you want to send questions to Becky, we’ll keep her contact information up on the screen.

Or if you want to fix yourself a sandwich or do anything else, we will now move — or you can pay attention to the formal part of the meeting. But we will do this and it won’t take too long, and then we will move on to the question and answer meeting.

So, with that, I will call the meeting to order.

And this follows the script, if you can’t tell by what I’m saying.

I’m Warren Buffett, chairman of the board of directors of the company and I welcome you to this 2020 annual meeting of shareholders.

Marc Hamburg is secretary of Berkshire Hathaway and he will make a written record of the proceedings.

Dan Jaksich has been appointed inspector of elections at this meeting. He will certify to the count of votes cast in the election for directors and the motions to be voted upon at this meeting.

The named proxy holders for this meeting are Walter Scott and Marc Hamburg.

Does the secretary have a report of the number of Berkshire shares outstanding, entitled to vote, and represented at the meeting?

MARC HAMBURG: Yes, I do. As indicated in the proxy statement that accompanied this note — the notice of this meeting — that was sent to all shareholders of record on March 4th, 2020, the record date for this meeting, there were 699,123 shares of Class A Berkshire Hathaway common stock outstanding, with each share entitled to one vote on motions considered at the meeting, and 1,382,352,370 shares of Class B Berkshire Hathaway common stock outstanding, with each share entitled to 1/10,000 of one vote, on motions considered at the meeting.

Of that number, 472,037 Class A shares and 834,802,274 Class B shares are represented at this meeting by proxies returned through Thursday evening, April 30th.

WARREN BUFFETT: Thank you. That number represents a quorum and we will therefore directly proceed with the meeting.

First order of business will be a reading of the minutes of the last meeting of shareholders. I recognize Miss Debbie Bosanek, who will place a motion before the meeting.

DEBBIE BOSANEK: I move that the reading of the minutes of the last meeting of shareholders be dispensed with and the minutes be approved.

WARREN BUFFETT: Do I hear a second?

UNIDENTIFIED VOICE: I second the motion.

WARREN BUFFETT: The motion is carried.

25. Berkshire directors elected

WARREN BUFFETT: The next item of business is to elect directors. I recognize Miss Debbie Bosanek to place a motion before the meeting with respect to election of directors.

DEBBIE BOSANEK: I move that Warren Buffett, Charles Munger, Gregory Abel, Howard Buffett, Stephen Burke, Kenneth Chenault, Susan Decker, David Gottesman, Charlotte Guyman, Ajit Jain, Thomas Murphy, Ronald Olson, Walter Scott, and Meryl Witmer be elected as directors.

UNIDENTIFIED VOICE: I second the motion.

WARREN BUFFETT: It has been moved and seconded that Warren Buffett, Charles Munger, Greg Abel, Howard Buffett, Steve Burke, Ken Chenault, Susan Decker, David Gottesman, Charlotte Guyman, Ajit Jain, Tom Murphy, Ron Olson, Walter Scott, and Meryl Witmer be elected as directors.

The nominations are ready to be acted upon. Mr. Jaksich, when you’re ready, you may give your report.

DAN JAKSICH: My report is ready. The ballot of the proxy holders in response to proxies that were received through last Thursday evening, cast not less than 543,203 votes for each nominee. That number exceeds a majority of the number of the total votes of all Class A and Class B shares outstanding.

The certification required by Delaware law of the precise count of the votes will be given to the secretary to be placed with the minutes of this meeting.

WARREN BUFFETT: Thank you, Mr. Jaksich.

WARREN BUFFETT: Warren Buffett, Charles Munger, Greg Abel, Howard Buffett, Steve Burke, Ken Chenault, Susan Decker, David Gottesman, Charlotte Guyman, Ajit Jain, Tom Murphy, Ron Olson, Walter Scott, and Meryl Witmer have been elected as directors.

And Ken, if you’re watching, or listening — Ken Chenault, our new director, actually got the highest vote of all the directors. Well ahead of me, I might add. So, congratulations, Ken.

26. Advisory compensation votes

WARREN BUFFETT: The next item on the agenda is an advisory vote on the compensation of Berkshire Hathaway’s executive officers. I recognize Miss Debbie Bosanek to place a motion before the meeting on this item.

DEBBIE BOSANEK: I move that the shareholders of the company approve, on an advisory basis, the compensation paid to the company’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the compensation discussion and analysis, the accompanying compensation tables, and the related narrative discussion, in the company’s 2020 annual meeting proxy statement.

UNIDENTIFIED VOICE: I second the motion.

WARREN BUFFETT: It has been moved and seconded that the shareholders of the company approve, on an advisory basis, the compensation paid to the company’s named executive officers.

Mr. Jaksich, when you are ready, you may give your report.

DAN JAKSICH: My report is ready. The ballot of the proxy holders, in response to proxies that were received through last Thursday evening, cast not less than 519,750 votes to approve, on an advisory basis, the compensation to the company’s named executive officers — the compensation paid to the companies named executive officers. That number exceeds a majority of the number of the total votes of all Class A and Class B shares outstanding.

The certification required by Delaware law of the precise count of the votes will be given to the secretary to be placed with the minutes of this meeting.

WARREN BUFFETT: Thank you. Mr. Jaksich.

The motion to approve, on an advisory basis, the compensation paid to the company’s named executive officers has passed.

The next item on the agenda is an advisory vote on the frequency of a shareholder advisory vote on compensation of Berkshire Hathaway’s executive officers.

I recognize Miss Debbie Bosanek to place a motion before the meeting on this item.

DEBBIE BOSANEK: I move that the shareholders of the company determine, on an advisory basis, the frequency — whether annual, biannual, or triennial — with which they shall have an advisory vote on the compensation paid to the company’s named executive officers, as set forth in the company’s 2020 annual meeting proxy statement.

UNIDENTIFIED VOICE: I second the motion.

WARREN BUFFETT: It’s been moved and seconded that the shareholders of the company determine the frequency with which they have — they shall have an advisory vote on compensation of named executive officers with the option being every one, two, or three years.

Mr. Jaksich, when you are ready, you may give your report.

DAN JAKSICH: My report is ready. The ballot of the proxy holders, in response to proxies that were received through last Thursday evening, cast 131,443 votes for a frequency of every year, 2228 votes for a frequency of every two years, and 419,984 votes for a frequency of every three years of an advisory vote on the compensation paid to the company’s named executive officers.

The certification required by Delaware law of the precise count of the votes will be given to the secretary to be placed with the minutes of this meeting.

WARREN BUFFETT: Thank you, Mr. Jackson. The shareholders of the company have determined on an advisory basis that they shall have an advisory vote on the compensation paid to the company’s named executive officers every three years.

27. Proposal for board and management diversity

WARREN BUFFETT: Now we’re through with sort of the boilerplate resolutions, and this next item is of more importance.

And we have put up on the berkshirehathaway.com site, some material relating to this motion, which I hope shareholders and others read, because it’s important and it’s — well, I’ll describe it as to —

The script says, the next item of business is a motion put forth by the boards of trustees of the New York City Employees’ Retirement System, the New York City Teachers’ Retirement System, the New York City Police Pension Fund, the New York City Fire Pension Fund, funds collectively called “the Systems.”

The motion is set forth in the proxy statement.

The motion requests that the company adopt a policy for improving board and top management diversity.

The directors have recommended the shareholders vote against the proposal.

I’d like to interrupt the script here just a second to point out that we — when we saw that it would be impossible to have shareholders attend this meeting and traveling to Omaha, and gathering in gatherings, which really neither the governor, the mayor, or the public safety people, thought would be advisable.

We were hoping to have somebody from the comptroller’s office come and present the motion and then have a good discussion at the meeting of the pros and cons, because it’s a very — it’s a serious, important subject and —

I can tell you on a personal basis, I think I’m in sync with the comptroller, in terms of how he wants the world to evolve.

But I’m not — I disagree on the specifics of this motion as applied to — more generally and to Berkshire’s board in particular.

And we’ve been very outspoken over the years. We’ve probably written more on qualifications for directors, than probably, any public company I can think of. And we’ve been consistent over the years and we’ve explained the reasons for our position. And we know a great many people disagree with that position.

So, I was — I welcome the idea of really presenting to our meeting and having our shareholders hear what they had to say, and evaluate what we had — what our thoughts were.

And when we had to, essentially, not allow shareholders at the meeting, we immediately got in touch with the comptroller’s office. And we said we’d make an exception, if anybody from the comptroller’s office wanted to come out and present the proposition — or the proposal — and engage in our discussion of pros and cons.

And as you might expect, they were not in a position to send somebody. And we — so we offered — we may have made it even in the first place — we’d be glad to have somebody introduce the motion on their behalf.

And that we would also, if they would send along a supporting statement, we would be glad to have the person that was their proxy, in effect, present the motion — we’d be happy to have them read the supporting statement. And we said we’d appreciate it if they keep it to five minutes or less.

And they wrote back immediately and — or emailed back immediately — and said that they’d be delighted to do it that way. And they’d even try and keep it down to three minutes.

So, they’ve — they have sent a supporting statement, which is going to be read to you in a minute, and I’m glad they did it. I do hope shareholders will, or have already, and others, will read — will listen to what the supporting statement says. And we’ll also read the original arguments that they made in the proxy for their proposal. And then we’ll read our reasons for voting against the — suggest voting against, because it’s an important topic. And I really hope that next year that if somebody from the comptroller’s office wishes to come out, we’d be glad to have even a more fulsome discussion of the subject.

So, with that, I will now recognize Mr. Hamburg to read a statement prepared by the comptroller of the City of New York in support of the motion.

MARC HAMBURG: Thank you. Mr. Chairman, members of the board, fellow shareholders.

I’m Marc Hamburg from Berkshire Hathaway and I’m here to present Proposal Four, on behalf of the New York City comptroller, Scott Stringer, and the New York City pension funds.

The funds have approximately $211 billion in assets as of February and are substantial long-term Berkshire Hathaway shareowners with 2.5 million shares.

Our proposal requests that Berkshire Hathaway’s board adopt a diversity search policy requiring that the initial candidates from which new director nominees and external CEOs are chosen include qualified female, and racially or ethnically diverse, candidates.

First of all, we would like to commend the directors for the addition of Mr. Kenneth Chenault, and the fact that 21 percent of the board is made up of women.

We would also like to recognize that the executive pipeline includes diverse candidates, including Mr. Ajit Jain, another board member.

Secondly, we applaud Mr. Buffett’s recognition that women in the boardroom have historically been rare. And even more importantly, that although women won the right to have their voices heard in a voting booth a century ago, attaining similar status in a board room, remains a work in progress.

With our shareowner proposal, what we are seeking is to nudge this particular process forward.

Thirdly, one of the things that Mr. Buffett mentions is that he only buys businesses that have three criteria, the second of which is able and honest managers, and that the most important duty for a board is to find and retain a talented CEO.

We would note that in reviewing Berkshire Hathaway’s largest stock market holdings of businesses, all 10 of these companies have boards that meet our board diversity requirement.

In essence, the companies that Berkshire Hathaway has found fit to invest in are those that have more diverse boards.

Fourthly, we would like to clarify that through this shareholder proposal, we are not asking for the Berkshire Hathaway board, our guardians, to have a quantifiable end result in terms of its composition, but that an initial pool of candidates for a board seat include a woman and another individual who is racially or ethnically diverse.

We believe these candidates, if qualified, would also have very high integrity, business savvy, shareholder orientation, and a genuine interest in the company.

According to a 2016 Harvard Business Review study, including more than one woman, or a member of a racial minority, in a finalist pool helps combat the unconscious biases amongst interviewers and increases the likelihood of a diverse hire.

What we are requesting is a small step in that direction, to include diverse candidates at the beginning of the search.

Finally, we would like to applaud Berkshire Hathaway’s robust internal CEO succession plans. Our proposal states that a CEO diversity policy should only apply in the case of an external search. The New York City comptroller’s office is disappointed that we never had the opportunity to discuss our proposal with directors or management but remain open to constructive engagement.

In the interim, we strongly urge Berkshire Hathaway shareholders to support Proposal Four. Thank you.

WARREN BUFFETT: OK. Thanks, Marc. And thank you to the comptroller for the — for presenting that supporting statement.

The motion is now ready to be acted upon. Mr. Jaksich, when you are ready, you may give your report.

DAN JAKSICH: My report is ready. The ballot of the proxy holders, in response to proxies that were received through last Thursday evening, cast 65,925 votes for the motion, and 485,824 votes against the motion.

As the number of votes against the motion exceeds a majority of the number of votes of all Class A and Class B shares properly cast on the matter, as well as all votes outstanding, the motion has failed.

The certification required by Delaware law of the precise count of the votes will be put — will be given to the secretary to be placed with the minutes of this meeting.

WARREN BUFFETT: Thank you, Mr. Jaksich.

The proposal fails.

DEBBIE BOSANEK: I move that this meeting be adjourned.

UNIDENTIFIED VOICE: I second the motion to adjourn.

WARREN BUFFETT: The motion to adjourn has been made and seconded. The meeting is adjourned. So, thank you.

Part 2: Q&A

1. Q&A begins

WARREN BUFFETT: So now we’re ready to have questions which Becky Quick has selected from those that’s been forwarded to her directly and from Carol Loomis and Andrew Ross Sorkin, and Greg and I are available to be — we’ll be answering them for some time.

So, Becky, you’re on and I hope all the tech — I hope everything works. (Laughs)

BECKY QUICK: Yeah, Warren, I should tell you that since you put that address up on the screen, I’ve gotten more than 2500 emails that have been coming in. So, there is a lot of demand from shareholders wanting to get in and ask questions. And I’ll ask some that we’ve compiled before and some that are coming in right now.

2. Buffett confirms all airline shares were sold

BECKY QUICK: The first question, though, comes from one that just came in based on the comments that you were actually saying. This is a question that comes from William Lewis. He said, “Please, did I understand correctly Mr. Buffett to say that Berkshire Hathaway sold its interest in four different airlines, and if so, can you name them? Can the names of those airlines be identified?”

WARREN BUFFETT: Yeah, I wouldn’t normally talk about it. But I think it requires an explanation. And it requires an explanation that means we were not disappointed at all in the businesses as they were being run, and the management, but we did come to a different opinion on it.

The four large — there’re the four largest U.S. airlines. It’s American Airlines and Delta Air Lines and Southwest Airlines and United Continental. And I think collectively they probably are at least 80 percent of the revenue passenger miles in the — that is flown in the United States. And they have significant international flying, too, excluding Southwest.

So, we like those airlines. We like them, but we do not like — the world was changed for the airlines. And I don’t know how it’s changed, and I hope it corrects itself in a reasonably prompt way.

I don’t know whether Americans will have now changed their habits, or will change their habits, because of an extended period, if it happens, that we’re semi-shut down in the economy.

I don’t know whether the trends toward, you know, what people have been doing by phone.

I mean I’ve been — it’s been seven weeks since I’ve had a haircut. It’s been seven weeks since— more than seven weeks — since I put on a tie or anything. It’s just a question of which sweatsuit I wear.

So, who knows how we come out of this, but I think that there are certain industries — and unfortunately, I think that the airline industry, among others — that are really hurt by a forced, in effect shutdown by events that are far beyond our control.

Greg, would you like to add anything to that?

GREG ABEL: Really nothing to add, Warren.

WARREN BUFFETT: OK. (Laughs)

We’ve got another Charlie here. (Laughs)

GREG ABEL: I didn’t — I didn’t intend to use that as a line. But you know, you’ve covered it well.

WARREN BUFFETT: We would have bought other airlines too, incidentally. But those were the four big ones. And those were the ones we could put some money into.

And we put, whatever it was, 7 or 8 billion into it, and we did not take out anything like 7 or 8 billion.

And that was my mistake. But it was — it’s always a problem if —

There are things on the lower levels of probabilities that happen sometimes. And it happened to the airlines. And I’m the one who made the decision.

BECKY QUICK: But Warren, just to clarify on his question, he asked, did you sell your whole stake in all four of those?

WARREN BUFFETT: Yeah, the answer is yes.

Yeah, when we — when we sell something — when we sell something, very often it’s going to be our entire stake. I mean, we don’t trim positions or — that just not the way we approach it, any more than if we buy a hundred percent of a business, we’re going to sell it down to 90 percent or 80 percent.

I mean, if we like a business, we’re going to buy as much of it as we can and keep it as long as we can.

But when we change our mind —

BECKY QUICK: All right. The next question —

WARREN BUFFETT: Go ahead, I’m sorry.

BECKY QUICK: No, go ahead. When you change your mind?

WARREN BUFFETT: Well, when we change our mind, we don’t take half measure or anything of the sort.

So, I was amazed at how, frankly — now we were selling them at far lower prices than we paid — but I was amazed at the volume.

The airlines always trade in large volume, relatively. But we have sold the entire positions.

BECKY QUICK: OK, thank you.

3. You need the right psychology to buy stocks

BECKY QUICK: The next question comes from Robert Tomas, from Toronto, Canada, and he says, “Warren, why are you recommending listeners to buy now, yet you’re not comfortable buying now, as evidenced by your huge cash position?”

WARREN BUFFETT: Well, A, as I’ve explained, the position isn’t that huge when I look at worst-case possibilities.

I would say that there are things that I think are quite impossible — improbable — and I hope they don’t happen, but that doesn’t mean they won’t happen.

I mean, for example, in our insurance business, we can have the world’s — or the country’s — number one hurricane that it’s ever had, but that doesn’t preclude the fact we could have the biggest earthquake a month later.

So, we — we are not — we don’t prepare ourselves for a single problem, we prepare ourselves for problems that sometimes create their own momentum.

I mean, in 2008 and ’09, you didn’t see all the problems the first day when really — what really kicked it off was when the Freddie and Fannie, the GSEs, went into conservatorship in early September.

And then when money market funds broke the buck, I mean — there are things that trip other things.

And we take a very much — a worst-case scenario into mind that probably is a considerably worse case than most people do.

So, I don’t look at it as huge. And I’m not — I’m not recommending that people buy stocks today or tomorrow or next week or next month. I think it all depends on your circumstances.

But you shouldn’t buy stocks unless you expect, in my view, you expect to hold them for a very extended period and you are prepared financially and psychologically to hold them the same way you would hold a farm, and never look at a quote, and never pay — you don’t need to pay attention to them.

I mean, the main thing to do — and you’re not going to pick the bottom and you’re not going — nobody else can pick it for you, or anything of the sort.

You’ve got to be prepared, when you buy a stock, to have it go down 50 percent — or more — and be comfortable with it, as long as you’re comfortable with the holding.

And I pointed out — I think a year, maybe two years ago in the annual report — almost just the one before this most recent one — I pointed out that there have been three times in Berkshire’s history when the price of Berkshire stock went down 50 percent — three different times.

Now, if you hold it on borrowed money, you know, you could have been cleaned out. There wasn’t anything wrong with Berkshire when those three times occurred.

But if you’re going to — if you’re going to look at the price of the stock, and think that you have to act because it’s doing this or that, or somebody else tells you a line, I mean, “How can you stay with that,” when something else is going up or anything.

Really, you’ve got to be in the right psychological position.

And frankly, some people are not really careful. Some people are more subject to fear than others. It’s like the virus — it strikes some people with much greater ferocity than others.

And fear is — fear is something I’ve really never felt financially, but — I don’t think Charlie’s felt it, either.

Some people can handle it psychologically. If you can’t handle it psychologically, then you really shouldn’t own stocks, because you’re going to buy and sell them at the wrong time.

And you should not count on somebody else telling you this. You should you should do something you understand yourself.

If you don’t understand it yourself, you’re going to be affected by the next person you talk to. And so, you should — you should be in a position to hold.

And I don’t know whether today is a great day to buy stocks. I know it will work out over 20 or 30 years. I don’t know whether it will work out over two years at all. I have no idea whether you’ll be ahead or behind on a stock you buy on Monday morning — or the market.

4. April’s $426M in stock buys was meaningless

BECKY QUICK: Warren, the next question comes from Scott Kelly. And he writes in based on the numbers you just put up. He said, “What did you spend the $426 million on equities in April? Was that adding to existing positions? Or was that initiating new positions?”

WARREN BUFFETT: Well, I don’t remember, to tell you the truth. But one thing you have to allow for — well, these are the figures for Berkshire Hathaway, and they include both Todd and — Todd Combs and Ted Weschler manage significant sums of money.

So, it could well be something they bought. It could be something I bought. But I — 462 million is not much money — (laughs) — at Berkshire. It’s more to Todd and Ted than it is to me, in terms of our positions. But I literally have no memory of —

We’re not doing anything big, obviously. We’re willing to do something very big. I mean, you could come to me on Monday morning with something that involved 30 or 40 billion or $50 billion. And if we really liked what we were seeing, we would do it. And that will happen someday.

If it happens in the market, we can’t put it all in in one day or one week or one month.

It took us months to build up our airline position — many months. We were able to sell them faster than we bought them, but we were selling them at lower prices.

So, the 462 is essentially meaningless, and it may not have even — probably was not mine.

5. We haven’t seen any attractive deals to provide capital

BECKY QUICK: All right, this next question comes from Lee Yan Dar, and his question is, “In the last financial crisis, Berkshire acted as a lender of support for eight different deals. Despite the injection of expensive capital through preferred stocks and securing warrants, these companies were, in fact, paying for the sign of confidence from Berkshire in the midst of a crisis. And that was invaluable.

“Today we have QE infinity, low interest rates, and hungry hedge funds, even though the economy has deteriorated rapidly over the last few months. Why have we not acted as a lender of support?”

WARREN BUFFETT: Well, we haven’t seen anything attractive.

And, frankly — it wasn’t predicated on this — but the Federal Reserve did the right thing. And they did it very promptly, which they should have. And I salute them for it.

But that means that a lot of companies that needed money, and probably should have done their financing a little earlier — but they’re perfectly decent companies — got the chance to finance in huge ways in the last five weeks or there abouts.

I mean, it’s set records. Some companies have come back twice — a number — very big companies that didn’t bother to extend out their borrowings — came a couple times.

Berkshire actually raised some more money. We don’t need it. But we’ll — I think it’s still a good idea over time.

And then there are some pretty marginal companies that have also had access to money.

So, there is no shortage of funds at rates which we would not invest at.

So, we have not — we have not done anything because we don’t see anything that attractive to do.

Now, that could change, you know, very quickly or it may not change.

But in 2008 and ’09, the truth is, we weren’t — we weren’t buying those things to make a statement to the world. They may have made a statement to the world to some extent, and I’m glad that they did, if they did.

But we made them because they seemed intelligent things to do. And markets were such that we didn’t really have much competition.

Now it turned out that we would have been a lot better off if we’d waited four or five months to do similar things. So, my timing was actually terrible in 2008 or ’09, but the — what was available was so attractive that even though my timing was terrible, we still — we still came out OK, or a little bit better than OK.

But it was not — it was not designed — what we did was not designed to make a statement. It was designed to take advantage of what we thought were very attractive terms. But they were terms that nobody else was willing to offer at that time because the market was in a state of panic.

And the market in equities was in a state of panic for a short period of time when the virus broke out — or spread to the United States — and it became apparent — and the debt market was frozen — or in the process of freezing. And that changed dramatically when the Fed acted.

But who knows what happens next week or next month or next year? The Fed doesn’t know. I don’t know. And nobody knows.

There’s various — there’s a lot of different scenarios that can play out. And under some scenarios, we’ll spend a lot of money. In other scenarios we won’t.

Greg, you’ve been watching what’s been happening around Berkshire.

GREG ABEL: Yeah. Yeah. Well, I think your comment on the Fed, Warren — because as you know, interestingly, when it was first occurring, there were calls coming in — not the size of transactions we’re interested in nor companies we were inclined to act upon.

But there were — there was that general interest out there as people were in a difficult point in time, i.e., looking at their balance sheet and deciding what they were going to do.

But the reality is those companies were not — not of interest. And post — basically, effectively — March 23rd, the companies have been able to act.

And Warren touched on it. At Berkshire Hathaway Energy, post the Fed action, we actually issued $4 billion of securities that was associated with debts or obligations we had maturing — some short-term obligations we wanted to clearly lengthen out.

And we pre-funded one of our capital programs at PacifiCorp, with the thought this was the time to get the funds in place such that we could proceed with what is really an excellent opportunity both for PacifiCorp, our customers, and ultimately for the Berkshire shareholders. So, we’ve taken action within Berkshire, as Warren noted.

WARREN BUFFETT: This is a very good time to borrow money, which means it may not be such a great time to lend money.

But the — it’s good for the country that it’s a good — it’s a good time to borrow money.

Not good for Berkshire, particularly, although we borrowed some money so we — we’ve put our money where our mouth is.

6. We won’t subsidize our companies with shareholder money

BECKY QUICK: That gets kind of to another question that came in from Mark McNicholas in Chicago, Illinois.

He says Berkshire itself has a Fort Knox-like balance sheet, but some of its operating companies may be tight on cash during the pandemic. Would Berkshire consider sending cash to its operating companies to, one, ensure that they can get through the pandemic and, two, allow them to increase market share while their competitors struggle?

WARREN BUFFETT: Well, we’ve sent money to a few and — we’re in a position to do that. We’re not going to send money indefinitely to anything where it looks like their future is not — it’s just changed dramatically from what it was a year ago or so, or even six months ago.

You know, we made that decision in terms of the airline business. We took money out of the business, basically, even at a substantial loss.

And we will not fund a company that — where we think that it’s going to chew up money in the future. We started out with a company like that in our textile business at Berkshire Hathaway in 1965. And we went for 20 years, trying to think we could solve something that wasn’t that solvable.

So, we are not in the business of subsidizing any companies with shareholders’ money. If people want to do that with their own money — but we’re not going to do it on their behalf.

But we have advanced money — we are perfectly ready to advance money.

Gaining market share and all that. That may happen but the companies that need money, probably, market share is not their number one problem. I’ll put it that way.

Greg, would you —?

GREG ABEL: Yeah, well, yeah. It’s interesting when we look at our different companies as we went into the pandemic, where we’re addressing the COVID-19 crisis. Obviously, the first focus by our management team — and appropriately — was our employees, and effectively making sure they’re safe in that the business environment we’re in that, that they could continue to operate.

Then we quickly moved to looking at where our customers were in the cycle, i.e., what was the underlying demand within the business. And to great credit to our managers, they very much have adjusted their businesses consistent with the underlying needs and demands of customers.

So effectively, they’re moving with the customer, meaning very few of our businesses have actually required funds. Some have, and as Warren said, we’ve advanced the funds to them. But the businesses have really reacted in a way where they’re managing consistent with the — with where the market’s at, i.e., their — the demand for their products.

WARREN BUFFETT: Yeah. Berkshire is almost certain to generate cash. I mean nothing’s 100 percent certain but — and we’re, as Greg mentioned, at Berkshire Hathaway Energy we had some short-term financing.

We don’t have short-term financing to any degree. We’ll never get ourselves in a position where we have a lot of money that can come due tomorrow.

And people that were financing heavily with commercial paper and then found their business stopped — well, you’ve seen what’s happened to the airlines. I mean, they need money. Cruise lines need money.

There’s some businesses that, you know, it’s just the nature of what they’re in.

Berkshire will never get in a position where it makes money.

And we factor in — like I say — we factor in some things that are not ridiculously unlikely. And I’m not going to spell out scenarios because I, to some extent, you start — spreading — spelling out scenarios, you may increase the chance of them happening. So, it’s not something that we really want to talk about a lot, but —

Our position will be to be — to stay a Fort Knox.

But we don’t need — we don’t need a hundred and — it’s a little higher now than it was at quarter end — we don’t need 130 or 35 billion, but we need a lot of money that’s always available.

And that means we own nothing but Treasury bills. I mean, we do not — we’ve never owned — we never buy commercial paper — we don’t buy — we don’t count on bank lines.

One or two of our subsidiaries — a few of our subsidiaries have them but the — we’ve — we basically want to be in a position to get through anything.

And we hope that doesn’t happen, but you can’t rule out the possibility any more than in 1929 you could rule out the possibility that, you know, you would be waiting until 1955 — or the end of 1954 — to get even.

Anything can happen, and we want to be prepared for anything, but we also want to do big things.

If the prices are attractive — as Greg said — there was a period right before the Fed acted — we were starting to get calls. They weren’t attractive calls. But we were getting calls. And the companies we were getting calls from — after the Fed acted — a number of them were able to get money in the public market, frankly, at terms we wouldn’t have given it to them.

7. Berkshire may have short-term layoffs but expects long-term job gains

BECKY QUICK: All right, this next question is one that Greg, you actually touched on the answer to this to some extent, but maybe the two of you could expand on it.

It comes from Richard Sercer from Tucson, Arizona. He says, “Berkshire’s annual report indicated that Berkshire had 391,539 employees at the end of 2019. Which areas of our operations have already been hardest hit, or will be, by the coronavirus pandemic? And what are the implications for the continued employment of those people?

WARREN BUFFETT: Those people are employed in dozens and dozens of different industries. And there’s — there are a few industries that there’s a fair likelihood that our employment could be reduced but they’re not large.

I’m just thinking as I’m talking. I mean, it’s not like — it’s not like we’re — you know — in the — some of the businesses that are — you know — we’re not in the hotel business, or various aspects of travel and entertainment and all of that that could really be changed in a very major way. So, I don’t see our employment —

I’ll put it this way. Five years from now, I think Berkshire will be employing considerably more people. And I don’t — I don’t see where we’ll have large dips. But the virus could take off in certain ways that in some of our manufacturing businesses, for example, the demand could be dramatically reduced. And in those cases, we would have — we would have layoffs at some point. Greg?

GREG ABEL: What I would add, Warren, is that as we are in the, you know, sort of crux of the pandemic, we’re still dealing with it, so our businesses have adjusted. Some have had to adjust more. We have — if you look at Berkshire Hathaway Energy, for example, you can see U.S. electricity consumption’s down 4 percent. That, realistically, doesn’t impact that business in a significant way, and longer term we’ll continue to grow that business. So even in — even during the crisis, a relatively small impact to the business.

But, as Warren knows, we do have retailers that — their doors are shut right now. Be it our See’s Candy, the — some of our jewelers. And at that point in time, we do adjust and adapt to the environment, i.e., we adjust our workforce.

But equally, we do see, for example, See’s — at a point, our stores will reopen. And at that point, we reemploy the folks. And overall, for Berkshire as a whole, as Warren said, five years from now, we see our employment numbers being far, far, far greater than they we are today, in that we see great prospects within the operating businesses as a whole.

WARREN BUFFETT: Yeah. See’s — See’s is an interesting example, because we’ve owned that since 1972. That’s a long time. And we love it. And we continue to love it. And I have a box here of our peanut brittle, and I’ve got another box of fudge right here, and I’ll probably take them all home and not share with Greg. (Laughs)

But, we were in the midst of our Easter season. And Easter is a big sales period for See’s. And I don’t know whether we were halfway through, but we weren’t halfway through in terms of the volume that was going to be delivered, because it comes toward the end.

And essentially, we were shut down and we remain shut down. The malls that — we’ve got 220 or so retail stores and we’ve got a lot of — you know, (Nebraska) Furniture Mart sells our candy, but the Furniture Mart’s closed down.

And so —

GREG ABEL: Yep.

WARREN BUFFETT: — See’s business stopped. And it’s a very seasonal business to start with. So, we have a lot of seasonal workers, too, that come in, particularly for the Christmas season.

But we have — we have a lot of Easter candy — (laughs) — and Easter candy is kind of specialized, too, so we won’t sell it, and we produced a good bit of it. We couldn’t ship it — we couldn’t— we couldn’t put it in stores and — and there’s — some of that’s going on.

And, of course, I — Greg does all the work on those sort of situations — and our managers are terrific, of course, and dealing with it — but this is a very, very unusual period.

And like I say, a few years from now, I think Berkshire will be employing more people than 395,000.

Over the years, we’ve — we started with 2000 at a textile business, and we still got the same playbook — is —

8. Only very small Berkshire subsidiaries may not reopen

BECKY QUICK: This next question comes from Drew Johnson, who says that he’s a longtime shareholder who has attended a couple of meetings. He says in an interview on April 17th, Charlie mentioned that some small businesses owned by Berkshire would not reopen after the pandemic eases. Can you elaborate on which businesses might be impacted?

WARREN BUFFETT: Well, even — we have businesses within businesses. At Marmon, don’t we have 97 different businesses, for example?

GREG ABEL: Exactly. Yeah.

WARREN BUFFETT: Yeah. And there are some that weren’t doing that well before — and I’m not talking about Marmon specifically — but they got a couple of them and there’s a couple of — and — and it may be that in effect, the — you know, what’s happened in the last couple months has accelerated the decline in — of those businesses, or their customers are developing different habits.

I mean, people are developing different habits in retail. There’s no question about that. Now, that doesn’t mean we haven’t got a bunch of good retail businesses.

But there are businesses that were — that were having problems before, and that have even greater problems.

Now, we don’t own our newspapers anymore, but we’re financing the enterprise which does have them. We’ve actually increased our investment in the newspaper business by selling the papers to Lee and then refinancing their debt.

And the newspaper business was having plenty of problems with both circulation and advertising before the virus came along. But advertising declines everyplace have accelerated, fairly dramatically.

You know, when the automobile industry stops, the auto dealers don’t advertise as much.

It’s — it’s made certain businesses that were tough before, even tougher now.

And there will be management of at least one of the subsidiaries that you suggested to us. And so, there’ll be — but there’ll be — there’ll be some changes in a few businesses, but they’re very small businesses.

Our major businesses, and our businesses of intermediate size, I can’t think of anything that’s of significance that won’t reopen.

But it won’t be any fun with the businesses where the world has really changed. You’re seeing a lot of change.

If you own a shopping center, you’ve got a bunch of tenants who don’t want to pay you right now — we don’t — and, you know, the supply and demand for retail space may change fairly significantly.

The supply and demand for office space may change significantly. A lot of people learned that they can work at home or that there’s other methods of conducting their business, and they might have thought that — from what they were doing a couple of years ago. When — when change happens in the world, you adjust to it.

GREG ABEL: Yeah, I think the — go ahead.

BECKY QUICK: The next question is —

WARREN BUFFETT: Becky, I think that Greg —

GREG ABEL: Well, I was just going to add on the Marmon example, there are 97 companies there.

For example, we have a food service group, which sells equipment to a variety of the restaurants. We have a few businesses that realistically were challenged when the industry was performing really well.

And as we come out of the, you know, crisis, their economic prospects aren’t going to be better. And in fairness to the teams and the employees in there, they understand that, and they’re working through it, and there’ll be other opportunities, potentially within the company, within Marmon, and things like that.

But you know, there’s a very specific answer — or example — relative to the question.

9. Selling or closing underperforming subsidiaries is not a new policy for Berkshire

BECKY QUICK: This next question is a follow up on that. It comes from Chris Fried of Philadelphia. And he says, “It’s been a long-term policy at Berkshire to not sell or close any ongoing subsidiaries as long as their business prospects weren’t a money hole.

“Over the last year,” he points out, “The sale of Berkshire Hathaway Media, and then Charlie’s comments from that interview, saying that several small Berkshire subsidiaries will not be opening when the coronavirus lockdown is lifted.

“So, should shareholders assume that Berkshire has now changed its long-term policy in regards to keeping underperforming subsidiaries?”

WARREN BUFFETT: No, I think that policy was spelled out for, maybe, 30 years or so in an addendum to the annual report, that we have said that if a company — or if an operation — we think its prospects are that it will continually lose money in the future, that we will certainly — we’ll try to sell it to somebody else — but one way or another, we will not continue to hold it.

That is not a new policy and it’s not been changed.

You can say, in effect, we did that with the airline industry, to some extent. If we owned all of an airline now, it would be a tough decision to decide whether to sustain billions of dollars in operating losses, when you know, A, you don’t know how long it’s going to happen — or occur — and secondly, you know that it’s very likely that there’ll be too many planes around, and we know what happens in airline pricing when load factors go down, and there’s an oversupply of airline seats.

So, you know, we didn’t have to make that decision in terms of our own operation on it. But we did make a decision that — that’s a very tough management decision to make.

And the government, of course, is willing that the first wave of financing for the airlines, but to the airlines’ credit, they have very aggressively raised money. I mean, it’s amazing to me how — what a good job they’ve done of that.

And, in the case of — I think, in the case of three of them — no, two of them — but there may be more coming — that they’ve raised equity money, too. I mean, they are saying to the debt holders and investors, you know, you got to put more money into this business if we’re going to be able to continue.

And the government’s done it, and private sources have done it, and it’s going to — it’s exactly the right thing for the managements to be doing.

But, you know, whether it’s — whether it makes sense, we’ll find out, for the investors.

10. Precision Castpart’s future is tied to uncertainty for Boeing

BECKY QUICK: This next question comes from Eric LeFante, and it’s directed to Greg.

He asks, “How is Precision Castparts handling the severe slowdown in the aerospace industry?”

GREG ABEL: So, very consistent with everything we’ve just discussed, which is, obviously, a large part of their businesses, is the aerospace industry.

And it can really be broken into three areas as we do in our (10-)Q, but two are being impacted.

The defense contract business remains very sound and strong within Precision Castparts. But if you look at the large-body aircraft, the aircraft that they use within the regional jets, that business will move directly with the demand there, and the jets that are ordered longer term.

So, Precision Castparts is, literally as we speak, continuing to adjust their business relative to the demand that would come out of Boeing. They would be having weekly calls with Boeing, recognizing what are their production orders there and adjusting the business accordingly.

WARREN BUFFETT: Boeing raised 25 billion just a day or two ago, and they raised 14 billion before that. And a year ago, they felt they were in a fine cash position, and I understand how all that happened.

Airbus has had the same situation. They’ve made some comments recently, within the last week, you know, the fact that they — they really don’t know what their future is. And I don’t know what their future is.

We’re going to — we’re going to have aircraft in this country. We’re going to be flying. But the real question is, whether you need a lot of new planes or not, and when you’ll — when you’re likely to need them.

And it affects a lot of people. And it certainly affects Precision Castparts. It affects General Electric. It, obviously, affects Boeing.

And it’s — it is a blow to, essentially, have your demand dry up. And it goes up in the chain. And, you know, the aircraft manufacturers didn’t — they didn’t bring it on themselves. The airlines didn’t bring it on themselves. Precision Castparts didn’t bring it on itself. General Electric didn’t —

It’s, basically, that we shut off air travel in this country. And what that does to people’s habits, how they behave in the future, it’s just hard to evaluate. I don’t know the answer.

But we do know that it will have an effect on Precision Castparts. And how severe it will be depends on the same sort of variables that are hitting Boeing.

You name the company in aircrafts — and aircraft’s a big business. And this country’s good at it, incidentally, too.

I mean, if you think about Boeing, you know, it is one hell of a company and it’s important. It’s a huge exporter and it affects a lot of jobs. And some of them are with us.

And, you know, we hope for the best and we wish everybody the best. Obviously, we wish ourselves the best in it.

But part of it is out of our — certainly out of our control.

11. COVID-19′s effect on GEICO

BECKY QUICK: This next question is for Warren. “Do you think GEICO will experience unusually high profitability in 2020 due to the reduced amount of driving, even after giving customers a 15 percent credit?”

WARREN BUFFETT: Well, we have promised to give our customers — at GEICO, we’re the second-largest auto insurance company and — and different auto insurers are handling a sharing of the better experience with their policyholders in different ways.

We — our plan — we’ll deliver back 2 1/2 billion, roughly or so, in recognizing the reduced frequency of accidents during this period.

What we don’t know is how long this will continue. I mean, people want to drive their cars still. But conditions have reduced that driving dramatically, obviously.

Now, we have instituted a program that runs — saving people money — for six months. And so far, other people have largely been two months, but some of them have given a little more for those two months than we give per month.

Our total is the greatest at 2 1/2 billion, and —

In addition to that, we and all the others in the industry — it’s not just GEICO — we’ve also — and insurance commissioners, in many cases, I believe have required it — but we have — we give people more time to pay, if they aren’t paying. And if they cancel their policy, or if they don’t end up paying us, we’ve, in effect, given them free insurance during that period.

And the delay in payments is, obviously — increased delay of payments — if you’ve got a shopping center getting rent, it — delay in payments is what happens during a period like this. And that will be a significant cost to us. We don’t know how significant it will be.

There will be more uninsured motorists driving, and they cause a disproportionate amount of accidents, and that — so there’s a lot of variables.

We made our best guess as to what we’re going to do to reflect the current reduced accidents in our — in our premiums that we receive, really, over the next year. It applies for six months on renewals, but that — we’ll be renewing policies in October that will extend it into next April.

And so, we’ve made a guess on it , and we’ll see how it works out.

12. Berkshire insurance subsidiaries don’t have big COVID-19 risk

BECKY QUICK: This next question comes from Stephen Tedder. He’s a shareholder in Atlanta, Georgia, and he says, “Would you please help us understand the effects of COVID-19 on our insurance businesses. Other insurance companies have reported losses from boosting reserves for future insurance claims that they expect to be paying as a result of coronavirus.

“Yet in Berkshire’s 10-Q released this morning, we do not appear to have reported much of these future expected losses. Can you tell us why this is the case? What kind of risks Berkshire is underwriting that allows us not to be affected by the pandemic? Or conversely, what we are writing that might be?”

WARREN BUFFETT: Well, the amount of litigation that is going to be generated out of what’s already happened, let alone what may happen, is going to be huge.

You know, just the cost of defending litigation is a huge, enormous expense, depending on how much there.

Now, in the auto insurance field, which is our number one field in terms of premium volume, by some margin, that’s more definable. But who knows what comes out of it in terms of litigation?

But in what they call “commercial multiple peril,” which involves property losses, and where some people elect to buy business interruption coverage, many policies, quite clearly in the contract language, would not have a claim for business interruption under a commercial multiple peril policy, where you’ve elected that.

But other policies do. I know of — I think I know of one company — I don’t know the details — that’s written a fair amount where they cover — or they — certainly there’s a good argument perhaps that they cover — business interruption that might arise from a pandemic.

Well, they’re in a very different position than the standard language, which says that you recover for business interruption only if there’s — involves physical damage to the property. And you can buy all kinds of different policies.

We are not big in the commercial multiple peril business. So, I mean, this is not like our auto business or anything of the sort.

But we will have — we will have claims. We’ll have litigation costs. But proportionally, it’s not the same with us as with some other companies, which have been much heavier in writing business interruption as part of a commercial multiple peril.

But you don’t automatically get coverage if you have business interruption. I mean, for example, I think it would be unusual if, say, General Motors had a strike, which they did, and that they have business interruption that covers a strike.

Now, we actually wrote about — probably the only annual report in the United States — we wrote about business interruption insurance — (laughs) — because we had it over in France, when one of our properties was adjacent to a property that’s — much smaller property — that had a fire, and then it spread to our plant, and it caused a lot of physical damage. And we had bought — we have business interruption that ties in with that.

But, if we had some company we were selling auto parts to, and they had a strike, our business would be interrupted, but it’s not covered by that. I mean, that is not part of the coverage, unless you specifically really buy it.

So, there’s some claims that are going to be very valid related to this, the present situation. There’ll be an awful lot that there’ll be litigation on that won’t be valid. There’s no question that some insurance companies — I know one in particular — that will pay a lot of money, relative to their size, in terms of policies that they’ve written.

And I think we have reserved — and our history shows we generally have reserved — on the conservative side, adequately, at least. And that’s certainly our intent.

And we tell no managers of any of our insurance operations what numbers we expect from them, or do any of that.

They evaluate their losses. And they build in something for social inflation. They build in things for — all kinds of things.

And generally speaking, Berkshire has been pretty accurate in its reserving, and I have no reason to think that we’re otherwise than that currently.

13. We would sell pandemic insurance “at the right price”

BECKY QUICK: Steven Stoller from Atlanta, who says he’s a 10-year Berkshire shareholder, writes in and he says, “Do you see Berkshire offering pandemic coverage in future insurance policies?”

WARREN BUFFETT: Well, the answer is, we insure a lot of things. Sure. I don’t —

We had somebody come to us the other day wanting insurance involving a $10 billion protection on something very unusual. We’re not going to make that deal, in all probability — in fact, I would say it’s dead — but we would have written — we would have written pandemic insurance if people had come to us and offered us what we thought was the right price.

We would have been wrong — (laughs) — probably, in doing it.

But we — we have no reluctance to quote on very unusual things and very big limits. We’re famous for it.

We haven’t done that much of it in certain periods because the prices aren’t right.

But if you want to come and insure almost anything — and we don’t want you to insure against fire if you happen to be a known arsonist or something — but if you come to us with any unusual coverages, either in the size or in the nature of what’s covered, Berkshire is a very good place to stop.

And so, if somebody wants to buy — they can dream up the coverage, and they can tell us the price they’ll pay, and — we will — we’ll consider writing it.

We wrote a lot of business after 9/11, for example, when there were really only a couple companies in the world that were willing to write the business. And Berkshire and AIG wrote a lot of business, and we thought we knew what we were doing. But we could have been surprised.

I mean, there could have been some follow-on incidents from 9/11 that we wouldn’t have known about, and, you know, you don’t know for sure the answer. That’s why people are buying insurance.

But we would — we would be willing to write pandemic coverage at the right price.

14. Berkshire will still do great deals after Buffett and Munger

BECKY QUICK: This next question is for Greg and it comes from a shareholder named Todd Flaska.

He says, “I don’t expect Berkshire to outperform the S&P 500 during good times. However, I remain a long-term investor because of the huge war chest that can be deployed during the downturns in the market like we’re seeing right now.

“Warren has been brilliant at negotiating mutually favorable deals with companies that have somewhat urgent capital needs during these downtimes. These opportunities may only come about once a decade. There’s a small window of time for these deals. They all come at once, and you don’t really know if you’re at the bottom of the market when the deals start coming.

“Will Berkshire be able to continue this approach when Warren and Charlie are no longer at the helm?”

GREG ABEL: I fundamentally, without Warren and Charlie at the helm, I don’t see the culture of Berkshire changing. I don’t see our billet, which a large part of that is having the business acumen to understand the transaction, the economic prospects, and then the ability — the ability to act quickly. I really don’t see that changing.

As we’ve all listened, you know, there’s no one better than Warren and Charlie, but equally, we’ve got a talented team in Berkshire, both at the Berkshire level and within our managers, that can, obviously, look at opportunities, too, very quickly.

But you know, the reality is, it’s a huge advantage we have right now, and we would clearly want to be in a position to maintain that — that position of strength. Warren?

WARREN BUFFETT: Yeah, we will maintain it. And we not only have it with the managers of the — in some cases — not all cases by a longshot — but in some cases, we have managers that will occasionally come up with something that can be quite attractive.

But between Greg and Todd (Combs), and Ted (Weschler), we’ve got three extraordinarily good (inaudible), in terms of allocating capital.

And — you know, I — Charlie may get — we may get an occasional call, because of someone we knew 20 years ago or something — but they know a lot more people, they’ve got a lot more energy. And their minds work the same way as ours have in the past.

So, I think it could very well be a significant improvement when the three of them are thinking about capital allocation than when Charlie and I are now — particularly now that he’s found Zoom. (Laughter)

15. No Berkshire businesses have received government “bailout” money

BECKY QUICK: All right, this next question comes from Max Rudolph in Omaha, Nebraska. And he asks if Berkshire or any of its fully-owned businesses have participated in any of the bailouts from the Fed or the Treasury?

WARREN BUFFETT: I certainly don’t know of any. I guess you could say while we owned the airlines — well, you know, the question is about fully-owned businesses. And there’s no way that I wouldn’t know about anybody that did any of that. Greg?

GREG ABEL: No. In fact, we’ve been very clear with the businesses. But we — our businesses understood our — how Berkshire operates. And equally, we’re very clear that we would not be participating in any of those programs or quote, “bailouts.”

16. With COVID-19, the future is a “huge unknown”

BECKY QUICK: This is a similarly related question. It comes From Seth Freiden, who says, “As a long-term shareholder of Berkshire B shares, I’d like to know Warren’s viewpoint around smaller holdings, specifically Oriental Trading Company and Nebraska Furniture Mart, that are based in your hometown of Omaha.”

He imagines that those smaller business units have been adversely impacted by COVID shelter-in-place mandates. So he would like to know if Oriental Trading, or other small business units, applied for PPP (Small Business Administration Paycheck Protection Program) loans or participated in those acts?

And if they didn’t qualify for a loan or didn’t participate, then how will Berkshire support those smaller businesses to make sure that they can continue to employ their employees?

WARREN BUFFETT: Well, to my knowledge, none of them have gone in for government money and —

The two that are mentioned — I don’t like to get into specific companies — but I can assure you that the Nebraska Furniture Mart and Oriental Trading, in my view, have a fine future.

But I — I don’t want to talk about — go down the list, obviously, of every single company, because some of them I don’t know the answer to.

You know, we actually decided some time ago that our newspapers would have a much better chance of surviving if they were run as part of Lee, than if we ran them independently. And, as I said earlier, we actually put considerably more money — we probably put more money in the newspaper business than virtually anybody in the country in the last six months, because we took over a loan that would have been a problem in the year — whatever it might have been, maybe, a year and a half — and we enable them to just deal with one lender rather than a group. And they are doing a better job with the newspapers then we would do.

And that’s always our preference. If we’ve got a business that’s — that does not have — looks like it is not going to sustain itself over time in our hands, if we can find somebody else that we think will do a better job, we’d love to have them run it.

So, if we have a problem business, we would prefer to find somebody that thinks they can do a better job, and probably can do a better job, of running it than we can.

But some businesses just disappear.

We — we started with a textile business. We started a company called Diversified Retailing, which merged into Berkshire — became part of Berkshire — and it started with a department store in Baltimore. And department stores looked good in 1966, but the world has gone against them.

And we had a trading stamp business at one time, and we stayed longer than anybody else, but the world left trading stamps behind.

And that’s going to happen with some businesses. That’s capitalism. And it will happen to some Berkshire businesses over the next 10 years, in the next 50 years.

We think we’ll find more of them that will grow and, net, that Berkshire will grow, but we do not think if you own a great many businesses, that everyone is destined for success.

That’s why I suggest to people they buy an index fund. I do not — with the exception of Berkshire — I would not want to put all my money in any one company, although there’s a few I wouldn’t mind being very close to that. But —

I don’t think — you know — you get surprises in this world. And there will be businesses that we think are very good that turn out not to be so good. And there will be other businesses that turn out better than we think. And It’s up to the world to judge our batting average over time. Greg?

GREG ABEL: Well, I would just add, and echo again, that when it comes to the PPP loans, we’re not aware of any of our businesses taking them. And, you know, as I said, we encouraged them, if they were ever thinking that there is going to be a dialog, and we’re not aware of any businesses pursuing them.

I would also just add that when you look at our businesses as we went into the crisis, they responded very well.

So, as we look at our businesses — and Warren touched on this — our large businesses, our mid-sized businesses, and even as you go down from there, they’re in very sound shape as we go through the pandemic, and are really preparing to emerge now.

So, they’re evaluating, they listen. They’re going to have a different customer. There’s going to be different consumer behaviors — how our employees work, i.e., a lot of them work at home now — does that make sense?

And the communities we’re operating in have all changed. But we’re literally moving from the point of — OK, we’re making it through the crisis, and really planning to reemerge now. And I would say our businesses are in an extremely sound place.

WARREN BUFFETT: We don’t know when the —

BECKY QUICK: This next question —

WARREN BUFFETT: Well, I just — what we don’t know — we don’t — we don’t know how long this period lasts. And nobody knows.

You know, we don’t know whether the — most people think — and they know more about it than I do — that the virus will, you know, to some extent, decline in its spread during summer months.

And I would say — but many think that it will come back at some later date. And how the American public reacts, if they get their hopes up through some reopening — some through — through some summer diminution — and how they would react to a second attack, in effect, by the virus — it’s like Dr. Fauci — you know, the virus is going to determine our behavior. You know, we — and we’re doing a lot of smart things, and we’ve got a lot of very smart people, but there are unknowns. And the unknowns that apply to the health aspect create unknowns in the economy.

And we will — we’ll have to keep evaluating things as we go along.

I hope, like crazy, obviously, that — that once suppressed, it doesn’t come back and that we readjust. But things don’t always work perfectly.

That doesn’t mean there was a better course of action that would not — I would not go around criticizing people at all for what they’ve done, or anything of the sort.

I just think you’re dealing with a huge unknown. And I think that the degree to which it’s disturbed the world, and changed habits, and endangered businesses, in the last couple of months, indicates that you’d better be — not be too sure of yourself about what will — what it’ll do in the next six months or year or whatever.

17. Index funds are still better than paying big fees to Wall Street

BECKY QUICK: Warren, a moment ago, you mentioned that you still are recommending that people invest in an S&P 500 index fund. Let me ask this question that came in from Kevin. He says, “The last few weeks, we’ve been hearing from active money managers that the day of passing — passive investing is over, the historical safety of investing in an index fund long-term is gone.

“Would you please provide your thoughts on this topic? Particularly in regards to an investment time span of 10 years?”

WARREN BUFFETT: Well, I can tell you, I haven’t changed by will. (Laughs)

It directs that my widow would have 90 percent of the funds in index funds. And it’s — I think it’s better advice than people are generally getting from people that are getting paid a lot to give other advice. You don’t make a lot of money advising an S&P 500 index fund, I mean and —

How you can say the day of index funds is over? I mean, you’re — if you say the day of investing in America is over, I would disagree quite violently. And then, is there something special about index funds being a terrible way to invest?

I just don’t think — it really — it’s very hard to have evidence of that. I mean, the index funds reflect the market.

And one side has high fees, that — they think they can pick out stocks. And the other side has low fees. I know which side is going to win over time, and —

It’s — you have to recognize that it’s in a great many people’s interest to convince you that they can do something that they may well even believe they can. And a certain percentage of them will do it from luck, and a few people will do it from skill. And that’s what makes it so enticing, that you can find the Jim Simons, or somebody, that is going to produce extraordinary returns.

And Jim and his group (Renaissance Technologies) have done it by brainpower, but it’s very unusual. And incidentally, they are going to charge you a lot of money, and they’re going to actually maybe close up their fund, if they do it, because they can’t do it with really huge amounts of money compared to what they’ve — how the record’s been established in the past, so —

It’s — you just have to recognize you’re dealing with an industry where it pays to be a great salesperson. And it pays even better if you’re a great salesperson, and you can actually produce something.

But the money is in selling. There’s a lot more money in selling than in managing, actually, if you look to the essence of investment management.

18. Berkshire won’t always beat the S&P, but it’s a strong company

BECKY QUICK: I got a number of variations on this next question, some more polite than others. This one’s right down the middle.

This is from Mark Blakely, who writes in from Tulsa, Oklahoma. And he says, “Like many, I’m a proud Berkshire Hathaway shareholder. However, in comparing the performance of Berkshire with the S&P 500 over the last five, 10, or 15 years, I’ve been disappointed in Berkshire’s underperformance.

“Even year-to-date, Berkshire is trailing the S&P 500 by 8 percent. To what would you attribute Berkshire’s underperformance? While I can’t imagine ever selling my Berkshire stock, at some point, money is money.”

WARREN BUFFETT: No, I agree with everything that — I forget his name, but — just said. I mean the truth is that — that’s — I recommend the S&P 500 to people. And I happen to believe that Berkshire is about a sound as any single investment can be in, in terms of earning reasonable returns over time. But I would not want to bet my life on whether we beat the S&P 500 over the next 10 years.

I think there’s, you know, I obviously think there’s a reasonable chance of doing it, but — and we’ve had periods — I don’t know how many out of the 50-55 years that we’ve been doing it or — I don’t know how many we’ve beaten or not.

I mentioned earlier that 1954 was my best year, but I was working with — absolutely with peanuts, unfortunately. And, I think if you work with small sums of money, I think there is some chances — some chance — of a few people that really do bring something to the game.

But I think it’s very, very hard for anybody to identify them. And I think that when they work with large funds, it gets tougher. And it’s certainly gotten tougher with — for us with larger funds. And I would make no promise to anybody that we will do better than the S&P 500.

But I will promise them is that I’ve got 99 percent of my money in Berkshire, and most members of my family are — may not be quite that extreme, but they’re close to it.

And I do care about what happens to Berkshire over the long period about as much as anybody could care about it.

But, you know, caring doesn’t guarantee results. It does guarantee attention. Greg?

GREG ABEL: Well, I would agree, Warren, that there’s never guarantees, but when I look at the assets we have in place, and the teams that are in place, i.e., you’re committed to Berkshire, but we have dedicated teams that equally are dedicated to Berkshire, and they’re sure going to give it their best effort every day.

And I — when I look at the assets and the people, I think we have, as you said, you can’t guarantee it, but we have a great chance of sure giving it a good effort to outperform it.

WARREN BUFFETT: It’s hard to imagine getting a terrible result with Berkshire, but, you know, anything can happen. And what I do know is it would be easier to be running 5 million than — our book net worth at Berkshire at the quarter-end, I think, was 370-some billion, which is down, but it’s still greater than the book net worth of any corporation in the United States. That’s right, I mean, maybe there’s some federal corporation that has more, but in terms of — and it may be the greatest in the world. I’m not sure.

GREG ABEL: Warren, I would —

WARREN BUFFETT: That makes that makes life difficult in some ways, too. (Laughs)

GREG ABEL: Right, and the potential of our operating businesses are substantial. When you think — we’ve talked about energy, you touched on it — that infrastructure is continuing to (inaudible), and we’re ready for a hundred billion dollars of investment opportunities there.

If we just look at the business over the next 10 years and the infrastructure that’s required and how it’s changing — substantial, substantial investments there — that just tell me we have very good prospects, and we’re well positioned to pursue them.

Which again, to me — when you look at our core businesses — you touched on them — Burlington, the insurance, and energy — our downside is very nicely protected. We have three really core great businesses.

WARREN BUFFETT: Yeah. And we’re better positioned than anybody in the energy business, just because we don’t have dividend requirements. We’ve retained 28 billion of earnings over 20 years that — you can’t do it if you run a normal public company. And we’ve got a huge appetite and the country needs it. The world needs it.

And we are a very, very logical, well structured, well managed —I would say because it doesn’t involve me — company to participate in just huge requirements around the world. Now, you know, they’re slow and they involve governments and, I mean, you know, state governments. And there’s a lot of — it’s not anything that happens dramatically. It will happen and Berkshire should participate in a huge way.

We can do things in insurance nobody else can do. That doesn’t mean much, many times, but occasionally, it may be important.

So, there are — there are some advantages to size and strength, but there are disadvantages to size, too. If we find some great opportunity that — for a billion dollars — to double our money, that’s a billion pre-tax, and that’s 790 million after tax, and on a market value of 450 billion or whatever it may be, it doesn’t amount to much, unfortunately. We’ll still try and do it if we can. (Laughs)

GREG ABEL: Yeah. (Laughter)

19. Ajit Jain is great at insurance, but doesn’t do capital allocation

BECKY QUICK: I want to ask this question that came in, because I think some people may have had a misinterpretation about something you said a few minutes ago. This is the benefit of being able to get these questions real-time.

But a few moments ago, you were talking about the people at the company who will be allocating capital after you and Charlie are no longer doing it. And you mentioned that you’ve got Todd (Combs), Ted (Weschler), and Greg all doing that.

But I’ve gotten a few questions that read similar to this. This one’s from Edward Popoola in New York City, who says, “Dear Warren, I noticed you didn’t mention Ajit Jain when you reeled off your list of future management. Is he out of the picture?”

WARREN BUFFETT: Well, Ajit is not in the capital allocation business. He is the best — well, he’s got one of the best minds in the world.

I mean, I wrote his father after he worked for us for a few years — I wrote him again the other day — but 20 years ago, I wrote him and I said, “If you’ve got another son like this, send him — send him over from India, because we’ll own the world.”

No, Ajit is one of a kind. Anybody will tell you, that’s had any contact with him, and particularly anybody in the insurance business where they know him well, he is absolutely one of a kind.

But his job is not capital allocation. It’s evaluating insurance risk. And that is a rare — he possesses a rare talent and he has a huge capital backing to do it. So, he’s an incredible asset.

But Greg, and Todd, and Ted have been in the asset allocation business in a big way, for a long time. That’s their game, and Ajit’s game is insurance. So that’s why I mentioned those three.

And incidentally, while Charlie and I are around, we kind of like capital allocation ourselves. (Laughs)

We’re not going anyplace voluntarily, but we probably will go someplace involuntarily before that long. (Laughter)

Charlie is in good health, incidentally. I’m in good health. (Laughs)

20. Depreciation of assets at Berkshire Hathaway Energy

BECKY QUICK: Greg, let me ask you one of these capital allocation questions. This one comes from Matt Libel, and he says, “Berkshire directed 46 percent of capital expenditure in 2019 to Berkshire Hathaway Energy. Can you walk us through, with round numbers, how you think differences in capex spending versus economic depreciation versus GAAP depreciation, and help explain the timeframe over which we should recognize the contract — the contractive return on equity from these large investments, as we are shareholders in — as we, as shareholders, are making in Berkshire Hathaway Energy.”

GREG ABEL: So, when we look at Berkshire Hathaway Energy and their capital programs, we try to really look at — look at it as it was highlighted, really, in a couple different packages.

One, what does it actually require to maintain the existing assets for the next 10-20-30 years? I.e., it’s not incremental, it’s effectively maintaining the asset, the reflection of depreciation. And our goal is always to clearly understand, across our businesses, do we have businesses that require more than our depreciation, or equal, or less.

And, happy to say, with the assets we have in place and how we’ve maintained the energy assets, we generally look at our depreciation as being more than adequate, if we deploy it back into capital to maintain the asset.

Now, the unique thing in the lion’s share of our energy businesses that are regulated — and that exceeds 85 percent of them — 83 percent of them — we still earn on that capital we deploy back into that business. So, it’s not a traditional model where you’re putting it in, but you’re effectively putting it in to maintain your existing earnings stream. So, it’s not drastically different, but we do earn on that capital.

But what we do spend a lot of time, and that’s what, when Warren and I think about the substantial amounts of opportunities, that’s incremental capital that is truly needed within new opportunities.

So, it’s built — it’s to build incremental wind, incremental transmission, that services the wind or other types of renewable solar. That’s all incremental to the business and drives incremental growth in the business. It does require capital, but it does drive growth within the energy business.

So, there’s really the two buckets. I think we would use a number a little bit lower than the depreciation we’re comfortable the business can be maintained at that level. And as we deploy amounts above that, we really do view that as, quote, incremental or growth capex.

WARREN BUFFETT: Yeah, we have what — what — 40 billion or something of — what do we have in, sort of, kind of, in the works?

GREG ABEL: Oh, yeah. So, we have basically, as Warren’s highlighting, 40 billion in the works of capital, that’s over the next, effectively, nine years, 10-year period. A little — approximately half of that, we would view as maintaining our assets. More — a little more than half of it is truly incremental, but — and that are known — those are known projects we’re going to move forward with.

And I would be happy to report, we probably have another 30 million — 30 billion — that aren’t far off of becoming real opportunities in that business.

Now, as Warren said, that takes a lot of time. It’s a lot of work. The transmission projects, for example, we’re finishing in 2020 were initiated in 2008 when we bought PacifiCorp. I remember working on that transmission plan, putting it together, thinking six to eight years from now, we’ll have them in operation.

Twelve years later, and over that period of time, we earned on that capital we have invested, and then when it comes into service, we earn on the whole amount.

So, we’re very pleased with the opportunity, but it — we plant a lot of seeds, put it that way.

WARREN BUFFETT: Yeah. And these are not — it’s not like they’re super-high return thing. But they’re decent returns over time. And we’re almost uniquely situated to deploy the capital, as opposed — I mean, you could have government entities do it too —but in terms of a private enterprise — and they take a long time. They earn decent returns.

I’ve always said about the energy business, it’s not a way to get real rich, but it’s a way to stay real rich, and —

We will deploy a lot — a lot of money at decent returns — not super returns, you shouldn’t earn super returns on that sort of thing, I mean — it does — you are getting rights to do certain things that governmental authorities are authorizing. And they should protect consumers and — but they also should protect people that put up the capital. And —

You know, it’s worked now for 20 years, and it’s got a long runway ahead.

21. Occidental deal hurt by unexpected oil price plunge

BECKY QUICK: All right, this next question comes from Jason (Plawner) in New Jersey. “As both a Berkshire and Occidental shareholder I was encouraged to see your investment in the company, but with passing weeks, it became evident that your investment facilitated Occidental management’s ability to avoid a shareholder vote on the Anadarko acquisition, a very shareholder unfriendly outcome.

“This deal proved to be irresponsible and expensive from an OXY perspective, and ultimately, very value destructive for OXY shareholders. In my view, it also permanently hurt Berkshire’s reputation in the marketplace.

“Please comment on this unfortunate outcome and tell me why OXY shareholders and other market observers shouldn’t feel this way.”

WARREN BUFFETT: Well, yeah. We said right from the beginning — although we didn’t certainly expect the degree of what’s happened — we said, essentially, when you buy into an oil — a huge oil production company — you know, how it works out is going to depend on the price of oil to a great extent.

It’s not going to be your geological home runs or super mistakes or anything like that. It is a — it is a investment that depends on the price of oil. And, you know, I — when oil goes to minus $37 — (laughs) — it happened the other day for, I guess, it was the May contract. You know, that’s off the chart, and —

If you own oil, you should only own oil, if you expect these prices to go up significantly. I don’t know whether they’ll go up significantly or not. We’re in the transaction.

Our commitment was made on a Sunday when the management of Anadarko favored Chevron. And Chevron had a breakup fee of a billion dollars and the Occidental people had been working on it for several years.

And it was attractive at oil prices that then prevailed. And it doesn’t work, obviously — it doesn’t work at $20 a barrel — it certainly doesn’t work at minus $37 a barrel — but it doesn’t work at $20 a barrel.

And everything the oil companies have been doing, whether it’s Exxon or Occidental or anybody else, it doesn’t work at these oil prices.

That’s why oil production is going to go down a lot in the next few years, because it does not pay to drill now.

That’s happened at other times in the past. But the situation is, you know, you don’t know where you’re going to store the incremental barrel of oil, and oil demand is down dramatically, and for a while the Russians and the Saudis were trying to outdo each other in how much oil they could produce.

And when you’ve got too much in storage, it doesn’t work its way off that very fast.

Now, you will have production of oil go down in the United States significantly. It does not pay to drill in all kinds of formations that paid before, and it doesn’t pay — it doesn’t pay to have paid the price that oil was trading at in the ground a year or two ago.

And to that extent, if you’re an OXY shareholder, you know you’ve — or any shareholder in any oil producing company — you’ll join me in having made a mistake, so far, in terms of where oil prices went. And who knows where they go in the future.

22. Low prices pose a risk to oil equity investments

BECKY QUICK: Let me follow up with this one, and this one comes in from Mohnish Bahl, who says, “Is there a risk of permanent loss of capital in the oil equity investments?”

WARREN BUFFETT: Well, there certainly is, you know — there’s no question if — if oil stays at these prices, there’s going to be a lot of money — a whole lot of money — in middle extended bank loans, and it’ll affect the banking industry, to some degree, not — it doesn’t destroy them or anything, but there’s a lot of money that’s been invested that was not invested based on a $17 or $20 or $25 price for WTI, West Texas Intermediate oil, and —

But you can do the same thing in copper. You can do the same thing in some of the things we manufacture — I mean it — but with commodities, it’s particularly dramatic.

And, you know, farmers have been getting lousy prices, but to some extent, the government subsidized them. I’m all for it, actually.

But if you’re an oil producer, you take your chances on future prices, unless you want to sell a lot of futures forward. OXY, actually, did sell 300,000 barrels a day of puts, in effect, that — or they bought puts — and sold calls, in effect, to match it. And they were protected on $10 — for a layer of $10 a barrel on 300,000 barrels a day.

But you’re really buying — when you buy oil, you’re betting on oil prices over time, and over a long time. And oil prices — there’s risk. And the risk is being realized by oil producers as we speak.

There will be— if these prices prevail — there will be a lot of bad loans in energy loans and or— bad debts in energy loans. And if there are bad debts in energy loans, you can imagine what happens to the equity holders. So yes, there’s a risk.

23. No “surprise” liabilities in Berkshire’s stock derivatives contracts

BECKY QUICK: All right, this question comes from Bob (Coleman). He says, “Warren, could you bring us up to date with the status of your equity put contracts? Sourcing the 2019 — ”

WARREN BUFFETT: Yeah.

BECKY QUICK: ” — annual report, found on page 60, it appears at 2019 year-end, the fair value liability was just under a billion dollars. And if the indexes decline 30 percent, the liability obligations balloon to $2.7 billion.

“So, if the indexes are down 60 percent, would Berkshire’s obligation be close to 5 1/2 billion dollars? Does that math seem reasonable? And are there any loose ends or open exposures associated with — ”

WARREN BUFFETT: No, they — we — between 2004, I think, and 2006, I think we wrote 48 — maybe 50 contracts — something like that.

The shortest was 15 years. The longest was 20 years. And we received, as I remember, roughly $4.8 billion, which we were free to do with what we wanted. And we agreed to pay based on where one or more of four indices were selling for, at the time of expiration. They were so-called European style puts, where they’re only payable based on one date. And we did not have — with a small exception — we did not have to put up collateral, which was part of the deal.

And we’ve had that $4.8 billion — we probably had an original nominal value of something over 30 billion, maybe 35 billion — that’s if everything went to zero. I mean, if the Dow Jones went to zero, the FTSE went to zero, and the Nikkei and so on.

A number of those have run off. So, we now have about 14 billion, nominal. We have something less than half left. We haven’t paid out anything significant. We bought back a few of them.

If everything went to zero, we would owe 14 billion. If everything were to sell at the same price it was selling for on March 31st, I think the number is some — I think it’s somewhat less than we carry as a liability on the balance sheet, which is two-and-a-fraction billion.

So far, so good. I mean, we’ve, had the use of a lot of money, and the outstanding potential of them is, if the market went up a lot, we wouldn’t have to pay anything, and if it goes down some more, we have to pay more than a couple of billion, but we’ve had the liability set up for that.

But so far, so good, on that. And it is not anything that causes us any problem. They come due — the final one — I think comes due sometime in 2023. I think there’s — I think maybe 20 or 25 percent of them come due late this year.

And so, it’s — there’s nothing — the questioner doesn’t really understand about them, I can tell by the question — and there’s no surprises there. There’s — there’s no way that some liability could double up on us, except based on — except relating to where those indices close at the expiration of a group of different puts, which, like I said, have been more than cut in half. And we’ve done very well on it.

Key to that —

BECKY QUICK: Warren, you mentioned a few minutes ago that you —

WARREN BUFFETT: Well, I was just going to say, key to that was — with just a couple of tiny exceptions — we did not — we did not agree to put up collateral. We never would have gotten ourselves in that position, and —

That was — when we made the deals, we would just would not get ourselves in that position. And we never, never, will, where on a given date, we could have some tremendous obligation that would come due that we weren’t counting on getting — having come due.

I’m done, then, Becky, yeah.

24. Berkshire will stay intact after Buffett

BECKY QUICK: OK, thanks. And you mentioned a few minutes ago that you’re very concerned about Berkshire’s long-term health, too. This question came in from Drew Estes in Atlanta, Georgia, who says, “There’s already speculation of a post-Buffett breakup of Berkshire, and given the sway carried by modern activists, the speculation should be taken seriously.

“Many long-term owners see the folly in this view. A $25 billion auxiliary earnings stream provides a lot of flexibility when investing insurance float.

“On our, and your estate’s, behalf, could you more forcefully make the case of maintaining Berkshire’s current architecture? If you don’t, that responsibility will fall on an unknown set of shoulders with far less credibility>′

WARREN BUFFETT: Well, if you were to — if you were to sell Berkshire’s various subsidiaries, you would incur a very significant amount of tax at the corporate level before anything was distributed to the shareholders.

You can spin off a given one, or something of the sort. But the ability to break up a diverse company without tax implications — there was there was something called the General Utilities Doctrine that prevailed in various ways up until 1986.

And a lot of people seem to comment based on the fact that that didn’t happen in 1986. (Laughs)

And there’s imaginative ways where people try to avoid taxes, and can do it in some cases, on certain types of transactions. If you were to break up Berkshire, that would be one factor.

But the interaction of being able to move capital around, in terms of being able to do things in insurance that we couldn’t do unless there were the backup earnings, and capital employed in the other entities — there’s enormous advantages in capital deployment within the place, so I —

There is not a big discount to breakup value embodied in Berkshire’s price. And the situation actually is that although all my Berkshire shares — every share — will be given to charities pursuant to a plan I developed back 14 years ago and followed ever since, and will continue following this July — I’ll be giving away 3 billion or so worth of the stock and — but it’s all — it still involves a big voting percentage that — including other people’s that still remain in the picture, aside even from the Buffett family — it isn’t going to happen.

Now, I will tell you everybody in the world will come around and propose something, and say it’s wonderful for shareholders, and by the way, it involves huge fees. I mean— (laughs) — you do not — you do not get impartial advice from Wall Street — (laughs) — when there’s (an) enormous amount of fees possible from one action, and no fees applicable from another action.

But you can be sure I’ve thought about it. And I would say that you can you can count on Berkshire’s present posture being continued for a long time.

I can’t tell you what’s going to happen a hundred years from now. And I can’t tell you exactly what would happen, for example, if certain ideas, in terms of wealth taxes, changed, or taxes on foundations change. I mean, they could —

But my plan has been thought out and in place for a long time. And it not only ensures that the money that’s been made off Berkshire — all of it ends up going to various philanthropies staggered over time — but it also — it will keep the wolves away.

Greg, do you have any thoughts on that? (Laughs)

GREG ABEL: Well, I think the comment on the capital allocation is critical, that we have the ability to move the capital amongst the — be it the operating businesses or up to the insurance or down — with really no consequences to our shareholders. That’s the value driver, the unique structure of Berkshire, and it creates immense value, so — That’s all I would add, or second, I guess.

25. Big question: Can U.S. keep issuing money without consequences?

BECKY QUICK: All right, this question comes from Robb Grandish in Washington, D.C. He says, “Interest rates are negative in much of Europe, also in Japan. Warren has written many times that the value of Berkshire’s insurance companies is derived from the fact that policyholders pay up front creating insurance float, on which Berkshire gets to earn interest.

“If interest rates are negative, then collecting money up front will be costly rather than profitable. If interest rates are negative, then the insurance float is no longer a benefit but a liability.

“Can you please discuss how Berkshire’s insurance companies would respond if interest rates became negative in the United States?”

WARREN BUFFETT: Well, if they were going to be negative for a long time, you better — you better own equities. Or you better own something other than — than debt.

I mean, it’s remarkable what’s happened in the last 10 years. I’ve been wrong in thinking that you could really have the developments you’ve had without inflation taking hold.

But we have 120-odd billion — well, we have some — almost — very high percentage in Treasury bills — some in other — and some just in cash, but we — but those Treasury bills are paying us virtually nothing.

Now, they’re a terrible investment over time. But they are the one thing that when opportunity arises — it will arise at a time — and maybe the only thing you can look to pay for those opportunities is the Treasury bills you have. I mean, the rest of the world may have stopped.

And we also need them to protect— be sure that we can pay the liabilities we have, in terms of policyholders over time, and we take that very seriously.

So, if the world turns into a world where you can issue more and more money and have negative interest rates over time, I’d have to see it to believe it, but I’ve seen a little bit of it. I’ve been surprised. So, I’ve been wrong so far.

I do not think that— I don’t see how you can create — I would say this, if you can have negative interest rates, and pour out money and incur more and more debt, relative to productive capacity, you think the world would have discovered it in the first couple thousand years rather than just coming on it now, but we will see.

It’s one of the most — it’s probably the most interesting question I’ve ever seen in economics — is can you keep doing what we’re doing now, and —

We’ve been able to do it — or the world’s been able to do it — for now, a dozen years or so and —

But we’re — we may be facing a — we may be facing a period where we’re testing that hypothesis that you can continue it with a lot more force than we’ve tested it before.

Greg, do you have any thoughts on that. I wish I knew the answer. Maybe, you do? (Laughter)

GREG ABEL: No, I think, as you articulated — I think it was in the annual report, too — I mean, we don’t know the answer.

But, as you said, some of the fundamentals right now are very interesting relative to having a negative interest rate. But I know — I hate to say it, but I don’t have anything to add. (Laughter)

WARREN BUFFETT: I’d love to be secretary of the Treasury, if I knew I could just keep raising money at negative interest rates, that makes life pretty simple.

We’re doing things that we really don’t know the ultimate outcome. I think — and I think, in general, they are the right things, but I don’t think they’re without consequences. And I think they could be, kind of, extreme consequences if pushed far enough.

But there would be, kind of, extreme consequences if we didn’t do it as well. So, somebody has to — you know, balance those — those questions.

26. Businesses that don’t need a lot of capital are better

BECKY QUICK: All right, this question comes from Adam Schwartz in Miami, Florida. And he says Berkshire is the largest holding in his partnership, which also houses most of their net worth.

He says, “Berkshire’s invested in many capital-intensive businesses through the years, railroads as an example. How do you think about the inflationary, or even deflationary, risks for all of the capital-intensive businesses? And could this prove to be an existential problem for businesses?”

“I’m kind of referencing what you were just talking about, that eventually the bill for the debts being issued comes due. Will it eventually come from all businesses through some combination of higher tax rates on corporations, increased wages for the lower-middle classes?”

WARREN BUFFETT: Well, I certainly think that increased corporate taxes are a much higher probability than having lower corporate taxes.

So, I — I think that we got handed, as a corporation, a big chunk of what used to be the government’s profits from our business a couple of years ago. And it would depend on, to some extent, which party is elected and — and whether they have control of both houses as well as the presidency, and who knows what else.

But we could very easily have higher corporate income taxes, and perhaps much higher corporate income taxes, at some point. And in terms of capital-intensive businesses, they’re just not as good, if you can find an equally good business — I mean, in terms of operations — that doesn’t require capital.

I mean — they’re — you know, the — See’s never — See’s (Candies) never really required. It didn’t grow, but it’s — it just doesn’t — it didn’t take money to expand it and it’s delivered enormous sums to us.

And because we own it within Berkshire, to redeploy it elsewhere didn’t require a lot of tax expense either at the corporate level or at the personal level.

So, you really want a business — and everybody wants a business — that doesn’t take any capital to speak off — and keeps growing — that doesn’t take more capital as it grows.

Now, our utility business (inaudible) the energy business requires more capital as it grows. Our railroad business, to some extent, requires more capital if it doesn’t grow, even.

So capital-intensive businesses, by their nature, you know, are not as good as something where people pay in advance and you don’t need the capital.

I mean, if you look at — if you look at where the top market value is in a $30 trillion market, you know — if you take the top four or five companies that account for, you know, maybe 3 — 4 trillion or so of that 30 trillion, basically, they don’t take much capital.

And that’s why they’re worth a lot of money, because they make a lot of money and they don’t require the money, to any great extent, in the business. We own some businesses like that.

But it’s certainly not the railroad. And it’s not — it’s not the energy business. They’re good businesses. We love them. But if they didn’t take any capital, they’d be unbelievable.

But that’s just — that’s what we’ve learned from 50 or 60 years of operating businesses, that if you can find a great business that doesn’t require capital when it grows, you’ve really got something.

And to a certain extent, because insurance uses the kind of assets we would like to own anyway, our insurance business doesn’t really take capital. It requires having capital available. But, we’re able to invest that money, largely, in things we’d like to own anyway.

So, we’re particularly well suited for the insurance business. And it’s really been the most important factor in our growth over the years, although a lot of other things contribute.

Greg, you’re in a capital — you were in a capital-intensive business. (Laughs)

Tell us about it. (Laughter)

GREG ABEL: Well, I think there’s no question, obviously, we’d prefer to be in a less capital-intensive business, but there are unique opportunities there.

The one I would touch on when I think of inflation — or even potentially, as we go through this crisis, and maybe a prolonged one — or depending on how long it takes to recover — I mean, we are in a unique — when we’re looking at energy or rail — we do have a certain amount of pricing power. And it’s through our regulatory formulas or how our arrangements are with our customers.

So, if we then were to move into a deflationary period, it’s not perfect protection, but those businesses, generally, can recover a significant portion of their costs, even in an inflationary environment, and still earn a reasonable return.

They’re not going to be great returns, as you highlight, Warren. But they’re still going to earn a —

WARREN BUFFETT: Oh yeah.

GREG ABEL: — reasonable return on their capital, even in an inflationary period. There may be some lag and some things like that, but they’re still going to be very sound investments.

WARREN BUFFETT: Oh, yeah. If there was 10- for-1 inflation — make it extreme — yeah, we’d be happy we own the railroad — very happy.

Well, we’d be investing a lot of capital in it, but that businesses, in my view, is a very, very solid business for many, many, many, many decades to come. I said originally, we bought it with a hundred-year time horizon, and I’ve extended that, so —

It will earn more dollars if there’s a lot of inflation. In real terms, who knows? But it would earn a lot more dollars. And a lot of the energy projects would in the —

But it’s better if we don’t have inflation. And it’s better if we don’t have capital — (laughs) — if we can find the same sort of businesses that aren’t as capital intensive.

We — we’ve got capital. I mean, we — we’re ideally positioned for capital-intensive businesses that other people have trouble raising capital for, but they’ve still got to promise decent returns.

27. U.S. can’t default on its debt, but inflation is a risk

BECKY QUICK: All right, this question comes from Charlie Wang. He’s a shareholder in San Francisco. He says, “Given the unprecedented time of the economy and the debt level, could there be any risks and consequences of the U.S. government defaulting on its bonds?”

WARREN BUFFETT: No. The — if you — if you print bonds in your own currency, what happens to the currency is — it can be a question, but you don’t default.

The United States has been smart enough, and people have trusted us enough, to issue its debt in its own currency.

And Argentina is now having a problem because the debt isn’t in their own currency. And lots of countries have had that problem, and lots of countries will have that problem in the future. It is very painful to owe money in somebody else’s currency.

But if you — listen, if I could issue a currency — Buffett Bucks — and I had a printing press, you know, I could borrow money — and I could borrow money on that — I would never default. (Laughs)

So, what you end up getting, in terms of purchasing power, can be in doubt. But in terms of the U.S. government — when Standard and Poor’s downgraded the United States government — I think it was Standard and Poor’s, some years back — that, to me, did not make sense.

I mean, in the end, how you can regard any corporation as stronger than a person who can print the money to pay you, I just don’t understand.

So, don’t worry about the government defaulting.

I think it’s kind of crazy, incidentally — this should be said — to have these limits on the debt and all of that sort of thing, and then stopped government arguing about whether it’s going to increase the limits. We’re going to increase the limits on the debt.

The debt isn’t going to be paid, it’s going to be refunded. And anybody that thinks they’re going to bring down the national debt, I mean — that — you know — there’s been brief periods — I think in the late ’90s or thereabouts — when the debt has come down a little bit.

The country is going to print more — incidentally, the country is going to grow, in terms of its debt paying capacity. And — but the trick is to keep borrowing in your own currency.

28. Stock buybacks aren’t immoral, but they can be stupid

BECKY QUICK: Emphasis on trick.

This question comes from David Kass. He is a clinical professor of finance at the University of Maryland. And he says, “Berkshire has invested in many companies with stock buyback programs. Recently there’s been a backlash against buybacks. What are your views on this subject?”

WARREN BUFFETT: Well, it’s very politically correct to be against buybacks now, you know, and they’re going to incorporate it in the loan program.

The — there’s a lot of crazy things said on buybacks. Buybacks are so simple. I mean, it’s a way of distributing cash to shareholders.

And let’s just say that you and I and Greg — the three of us — decide to buy an auto dealership, or a McDonald’s franchise, or something. We each put a million dollars in, you know, or whatever the number may be.

And we get along with each other and the business grows and all of that. And one of us really wants to spend our share of the earnings. And the other two want to leave the money in the business to grow.

Now if the three of us did that, and we’re the only shareholders, we would not establish a 100 percent dividend payout for everybody. And we wouldn’t freeze the one that wanted to get out, either.

The logical thing to do is to buy a portion — whatever that person wants to spend annually from the earnings — buy a portion of their stock, and the other two find their interest in the company goes up. And the third person still has a little more of an interest by what they leave in, but they also can take some money out of the business.

You’re taking money out of the business in either case. And one you call dividends and you send it to everybody whether they want it or not. And with buybacks, you give it to the ones who want the money.

And I have been following a policy of giving away stock, now, since 2006. And I’ll give away a lot of stock. But the people — the philanthropies — that that receive it — the gifts — have to spend the money very promptly, within, you know — on a current basis, more or less.

So, they are getting $3 billion worth of stock, or whatever it may be. And I’m, in effect, reducing my interest in Berkshire. But I’m still — Berkshire is still retaining more capital than I’m giving away, so I have more dollars invested, but my interest goes down, and the people that need the cash to carry out the philanthropic efforts, they cash out the stock.

And I don’t force — I don’t force my sister, or whoever it may be, to take a bunch of money she doesn’t want. She wants it reinvested — all of it — reinvested in the business. And people that don’t want to, can sell some of their stock.

And the company ends up in the same position. We’ve distributed some of the capital that we don’t need for growth.

Now, whether the company should buy it depends on a couple of things. One is they ought to retain the money they need for intelligent growth prospects, that’s fine.

And secondly — and this is a point that’s never mentioned — they should be buying it back below what they think it’s worth. Now, they’ll make mistakes in that, but you make mistakes in a lot of businesses. But over — that should be the guiding principle.

And to my knowledge — JPMorgan — (CEO) Jamie Dimon said it once, and we’ve said it various times, you know — we retained — we will repurchase shares when it’s to the advantage of the continuing shareholder to have us do so.

But you read about all these buyback problems that we’re going to spend 5 billion buying it back, or 10 billion. Well, that’s like saying, I’m going to go out and buy some business this year for 5 billion without knowing what you’re going to get for the money.

It should be price sensitive, obviously. It should be needs sensitive, obviously. But when the conditions are right, it should also be obvious to repurchase shares, and there shouldn’t be the slightest taint to it any more than there is to dividends.

And people that have now, sort of, taken up the cries about how terrible it was that companies bought back stock — I will say it was terrible for them to pay dividends, too — (laughs) — and they’d have more money now, but they were doing what was intelligent at the time, and I hope they continue to do what’s intelligent as they go forth.

Greg?

GREG ABEL: No, I — the only thing I know you’ve commented on in the past, Warren, is that — I think the one thing we are seeing, and obviously, we’re supportive of buybacks — but there are companies that used — probably their financial engineering was just a little —

WARREN BUFFETT: Extreme.

GREG ABEL: — extreme and too cute, that effectively you’re using every ounce of your balance sheet to buy back stock at a time where you’re really creating no cushion for your business for any type of event or bump in the road, and I — you know, we’re going to see that, and I think that’s a very unfortunate outcome of them, and hence you get some of the backlash.

But there’s still companies, as you highlighted, many that do it right.

WARREN BUFFETT: Yeah. No, if they’re buying it back because it’s fashionable, because they really do like the idea that —there’s nothing wrong with doing — taking an action that increases the value of the remaining shares, but if they’re doing it very — and incidentally, I’ve been witness to some programs, where it really is stupid.

But I don’t think it’s immoral. I just think it’s stupid — (laughs) — you know, basically.

And — on the other hand, I — we favor companies that take care of all their requirements for growth and, as Greg says, maintain sound balance sheets and all of that, leave a margin of error for things that you can get surprised with, and if they find their stock selling below the — what the business is intrinsically worth, I think that they’re making a big mistake if they don’t buy in their stock, and —

It’s going to be a political football, and like I say, that when it becomes politically correct to do something in this country — if you’re a politician, the best thing to do is get on board. But Berkshire is going to do what it thinks makes sense for shareholders.

And we — and we like investing in companies that think that way, too. And not all companies, obviously, do.

29. Convert A shares to B shares if you want a smaller tax liability when cashing out

BECKY QUICK: All right, here’s a question from Lou — Lou Bogart in Boca Raton, Florida.

He says, “I’m a longtime shareholder with a concern as I head into retirement. I understand the theory that splitting shares does nothing for the value of shares. However, with the extremely high price on A shares, when I wish to draw down some money on my portfolio in retirement, I’m facing a large tax hit.

“Say the average price has been about $300,000 this year, and I’m sitting on a $200,000 capital gains liability for each share. If I need $60,000 in additional cash during my retirement, I need to sell a full share and get hit with $200,000 tax liability.

“If you would split the stock 10-for-1, I could sell two $30,000 shares and keep my tax liability at a more manageable 40,000. I could also maintain more of my investment in Berkshire.”

He said, “Have you thought about this? In retrospect, I should have bought B shares but didn’t think about it the time.”

WARREN BUFFETT: Well, you can convert A to B shares, which is exactly what takes place when I give away the money in July to the five foundations. I actually convert it immediately before the gift, I mean, and so they get B shares.

And the truth is, the B shares are very useful to people that want to, either, give away a small portion of what they have, or spend it, or whatever it may be.

So, you can convert the A to B shares, which is exactly what I’ve been doing now for 14 years as I give it away, and — and solve that problem, and we —

We split the B shares, as I remember it, from one point, you know, just to make it even more manageable, so that people could deal with smaller denominations.

The B shares — the A shares have a different voting power — but, we passed some resolution some time ago, I think — and it certainly would be the case — in any event, we’re never going to give the A shares an advantage over the B.

They used to have an advantage in a shareholder-designated contribution program that we had, and we put that in there when we started but that’s in — that goes way back in time, and that doesn’t exist anymore, so that the B and the A are going to get treated exactly the same over time.

It’s true the A have more votes, but — and they sell — they sell very close to parity all the time.

So, I would say that if you want to do anything, in terms of raising cash, and you’ve got a lot of A shares, you know, you take one or two shares of A — and plenty of people I know have done this — and just cash in, and turn it into B, and give yourself whatever amount of cash you want to get.

30. No “special problems in the banking industry now”

BECKY QUICK: This is one that comes from Thomas Lin in Taiwan. He says, “Warren once said that banking is a good business if you don’t do dumb things on the asset side. Given that the pandemic might put a lot of pressure on the loans, dumb things that got done in the past few years are likely to explode.

“Through reading annual reports, 10-Qs, and other public information, what clues are you looking for to decide whether a bank is run by a true banker who avoids doing dumb things?”

WARREN BUFFETT: That’s a very good question. But I would say that the one thing that made (Federal Reserve) Chairman (Jerome) Powell’s job a little easier this time than it was in 2008 and ’09, is that the banks are in far better shape, so —

In terms of thinking about what was good for the economy, he wasn’t at the same time worrying about what he was going to do with bank A or bank B, to merge them with somebody else, or put strain — added strains on the system or anything.

The banks — the banks were very involved with the problem in 2008 and ’09. They had — they had done some things they shouldn’t have done in —some of them.

And they were certainly in far different financial condition than now, so that — the banking system is not the problem in this particular shutdown. The government — we decided, as a people, to shut down part of the economy in a big way.

And it was not the fault of anyone that it happened. Things do happen in this world. Earthquakes happen, you know. Huge hurricanes happen. This was something different, but —

The banks — banks need regulation. I mean, you know, they benefit from the FDIC, but part of having the government standing behind your deposits is to behave well, and I think that the banks have behaved very well, and I think they’re in very good shape.

I mean, that’s why the FDIC has built up a hundred billion dollars that I’ve talked about. I mean, they’ve assessed the banks, in recent years, at accelerated amounts in certain periods, and they even differentiated against the big banks.

So, they built up great reserves there. And they built their own balance sheets, and they are not, presently, part of Chairman Powell’s problem, whereas they were very much a part of Chairman Bernanke’s problem back in 2008 and ’09.

How you spot the people that are doing the dumb things is not easy because — well, sometimes it’s easy. But — (laughs) — I don’t see a lot that bothers me.

But banks are, in the end, institutions that operate with significant amounts of other people’s money, and if problems become severe enough in an economy, even strong banks can be under a lot of stress, and we’ll be very glad we’ve got the Federal Reserve System standing behind them.

I don’t see special problems in the banking industry now.

I could think of possibilities. And (CEO) Jamie Dimon referred to this a little bit in the Morgan — JPMorgan report. You can dream of scenarios that puts a lot of strain on banks, and they’re not totally impossible. And that’s why we have a (inaudible).

And I think that — I think overall, the banking system is not going to be the problem. But I’m not — I wouldn’t say that with a hundred percent certainty because there are certain possibilities that exist in this world where banks can have problems.

They’re going to have problems with energy loans. They’re going to have problems some — you know, they’re going to have extra problems with consumer credit. They’re going to have — you know, they’re in — but they know it. And they’re well reserved. Well, they’re well capitalized for it. They were reserve building in the first quarter, and they may need to build more reserves.

But they are not a primary worry of mine at all. We own a lot of banks. We own a lot of bank stocks.

Greg, do you have any thoughts on it?

GREG ABEL: No, I really — you touched on it earlier, too, just in general, which is we don’t know how long this pandemic will go, we don’t know if there’s going to be a second event, which are just risks that are really unknown at this time, and the banks will have to continue to manage through that, as businesses do. But you’ve already highlighted that, obviously.

WARREN BUFFETT: Yeah.

31. Despite its drop, Berkshire’s stock price hasn’t made buybacks compelling

WARREN BUFFETT: Becky?

BECKY QUICK: All right. So, this question — I was looking for one of these, because I got several questions that came in similar to this — I was looking for one of these a moment ago. This one’s from Andrew Wenke.

He says, “Can you ask Warren why he didn’t purchase — repurchase — Berkshire shares in March when they dropped to a price that was 30 percent lower than the price that he had repurchased shares for in January and February?”

WARREN BUFFETT: Yeah. It was very, very, very short period where they were 30 percent less, but —

We — I don’t think Berkshire shares, relative to present value, are at a significantly different discount than they were when we were paying somewhat higher prices.

You know, it’s like (economist John Maynard) Keynes said, or whoever it was, “If the facts change, I change my mind. What do you do, sir?”

So — it’s — we always think about it. But I don’t feel that it’s more — far more compelling to buy Berkshire shares now than I would have felt three months, or six months, or nine months ago.

It’s always — it’s always a possibility. And we’ll see what happens.

Greg, you’ve — you think about repurchasing shares. (Laughs)

GREG ABEL: No, I — I think our approach, Warren, is the right approach. I mean, you’re always — I can’t really add anything other than the approach is the right approach.

We approach it when we see it’s the right thing for our shareholders to be repurchasing. And that doesn’t mean we’re repurchasing all the time, or the view doesn’t change.

WARREN BUFFETT: There could be a price, relative to value at the time, not relative to what it was worth a year ago, I mean.

The value of certain things have decreased. Our airline position was a mistake. Berkshire is worth less today because I took that position than if I hadn’t.

And there are other decisions like that. And they’re not, you know — it is not more compelling to buy the shares now than it was when we were buying them. It’s not less compelling. I mean, it’s a wash. But we didn’t do any — we —

It’s not gotten — the price has not gotten to a level — or not been at a level — where it really feels way better to us than other things, including the option value of money, to step up in a big, big way.

32. Don’t owe money on your credit card

BECKY QUICK: This question comes from three investors in Israel, Lidor Zloof, Yossi Zloof, and Dan Gorfung.

They want to know about the credit card industry. It says, “How do you explain the rise in the average credit card interest rate in recent years compared to the federal funds rate? What are the forces that you think might keep it at or around current levels, and what are the forces that might drive it lower in the future?”

WARREN BUFFETT: Well, that is not a subject that I’m — you know — obviously, it affects American Express to some degree, it affects the banks we own.

But interest rates on credit cards respond to competition, obviously, to loss potential, which, obviously, has gone up significantly in the last few months — although it’s gone down, perhaps from some other periods you can pick in the past — but I don’t really have much I can bring to the party on that question.

We are not in the — well, that isn’t true. Our furniture companies, a couple of them, have their own credit card, although they do a lot of business on other people’s credit cards.

My general advice to people — I mean, you know — we have an interest in credit cards, but people — I don’t — I think people should avoid using credit cards as a piggy bank to be raided.

I had a woman come to see me here not long ago, and she’d (inaudible) some money — and not very much, but it was a lot to her — she’s a friend of mine — and she said, “What should I do with it?” And I said, “Well, what do you owe on your credit card?” And she’s, “Well, I owe X.” And I said, “Well, what you should do” — I don’t know what interest rate she was paying, but I think, you know — maybe — I think I asked her, and she knew, and something like 18 percent or something.

I said, “I don’t know how to make 18 percent.” You know, I mean — if I owed any money at 18 percent, the first thing I’d do with any money I had, would be to pay it off. It’s going to be way better than any investment idea I’ve got. And that wasn’t what you wanted to hear.

And then later on in the conversation, she talked about her daughter, and her daughter had a thousand dollars or two thousand dollars, or something. And she said, “Well, what should I do with …” — and she named the girls — ”… money?”

And I said, “Have her lend it to you.” (Laughs)

“I mean, if you’re willing to pay 18 percent —(laughter) — or whatever, I mean, she’s not going to find a better deal. I’ll lend you money.”

It just doesn’t — it doesn’t make sense. You can’t go through life, you know, borrowing money at those rates and be better off (inaudible).

So, I encourage everybody — it’s contrary to my own — or Berkshire’s interests in certain cases — but the world is in love with credit cards — but I would suggest to anybody that the first thing they do in life is not owe — I don’t think — you can get to something else later on — but don’t be paying — don’t be paying, even 12 percent, to anybody. I mean it’s —

Pay that off and then — and if they’re really a good credit and they don’t want to do it, come and see me personally, I’ll lend you the money — (laughs) — at that rate.

Greg, what do you tell your children? (Laughs)

GREG ABEL: The same advice — excellent advice. (Laughs)

No, I have three that carefully use their credit card, and more I would say for — not the — but, obviously, people use it a lot more as they go into the digital world and e-commerce world, but then the goal has to be to repay it.

It doesn’t mean you — because you have to use it for those type of transactions, you run up the balance, but there’s an incremental risk there now.

WARREN BUFFETT: It’s a matter of convenience for some people.

GREG ABEL: Yeah, yeah.

WARREN BUFFETT: But — I would have trouble — if I were paying 12 percent for money, or whatever it might be, it would not be a good thing. (Laughs)

You won’t see Berkshire paying that. (Laughter)

33. “I’m 100% for taking care of people” hurt economically by COVID-19 shutdowns

WARREN BUFFETT: Beck.

BECKY QUICK: Warren, this question is from Lindsay Schumacher.

WARREN BUFFETT: Well —

BECKY QUICK: Did you have something you were saying?

WARREN BUFFETT: We probably ought to wind this up, maybe, in 15 minutes. Can you select the best ones? (Laughs)

BECKY QUICK: OK. Absolutely. Yeah. Well, I’ve got a couple more questions for you.

This one’s from Lindsay Schumacher. She says, “Warren, what’s your opinion regarding the (COVID-19) Payroll Protection plan?”

WARREN BUFFETT: Well, I don’t want to get into politics generally. But I think that’s a very good idea to take care of the people who are having terrible trouble taking care of themselves in a period like this.

I mean, if the government — and surrounding conditions and whatever it may be — if you’re telling a lot of businesses, essentially, you know, quit doing business for a long time — and it’s one thing to tell me, but to tell somebody that is living from paycheck to paycheck that way — you know — I’m — I’m all for it.

It must be hell to administer. I mean it — you know — any huge program. I don’t want to — I’ll never get into criticizing on how people do this or that, because I’ve had problems myself in running a few big things.

It just isn’t that easy to inaugurate incredibly large problems (programs). There’s going to be a certain amount of fraud. There’s going to be — you know, everything doesn’t go perfectly.

But I am a hundred percent for taking care of the people that really get hurt by something that they’ve got nothing to do with, and where it’s — you know — who knows how long it lasts.

You’ve got millions and millions of people that are worrying about something that they weren’t worried about a few months ago. And they didn’t do anything. They showed up for work on time, and they pleased the people they dealt with, and whatever it may have been. And now they don’t have a job, or they’ve been furloughed, or whatever.

So, I — I’m totally for the basic idea. And I think it’s very difficult.

We can’t carry it out perfectly. You do your best and you do it promptly. And I give — I give real credit to both Congress for acting promptly on what the problem is. They’ve sort of caught on from what they learned in 2008 and ’09, I think. And I give credit to trying to do what I think is very much the right thing, and I don’t sit around and think about how I could do it better. Greg?

GREG ABEL: I agree with the comments.

34. As a prosperous nation, we need to take better care of people fighting COVID-19

BECKY QUICK: Warren, this question comes from Bill Murray, the actor, who’s also a shareholder in Berkshire. He says, “This pandemic will graduate a new class of war veterans, health care, food supply, deliveries, community services. So many owe so much to these few. How might this great country take our turn and care for all of them?”

WARREN BUFFETT: Well, we won’t be able to pay, actually — you know, it’s like people that landed in Normandy or something. I mean, the poor, the disadvantaged, they suffer. There’s an unimaginable suffering, and at the same time, they’re doing all these things that — you know, they’re working 24-hour days, and we don’t even know their names. So, we ought to a —

If we go overboard on something, we ought to do things that can help those people.

And this country — I’ve said it a lot of times before — but the history of it, I mean — we are a rich, rich, rich country. And the people that are doing the kind of work that Bill talks about, you know, they are they’re contributing a whole lot more than some of the people that came out of the right womb, you know, or got lucky and thinks they’re — know how to arbitrage bonds, or whatever it may be. And I’m, you know, in large part, I’m one of those guys.

So, you really try to create a society that under normal conditions, with more than $60,000 of GDP per capita, that anybody that worked 40 hours a week can have a decent life without a second job, and with a couple of kids, and have, you know —

They can’t live like kings. I don’t mean that. But that — nobody should be left behind. It’s like a rich family. You know, you find rich families, and if they have five heirs, or six heirs, they know they try and pick, maybe, the most able one to run the business.

But they don’t forget about — you know — the kid that actually may be a better citizen in some ways even than the one that does the best at business, but he just doesn’t happen to have that market value — skill.

So, I do not think that a very rich company ought to totally abide by — totally abide by what the market dishes out, you know, in 18th century style or something of the sort.

So, I welcome ideas that go in that direction I — we’ve gone in that direction — you know, we did come up with Social Security in the ’30s.

We — we’ve made some progress, but we ought to. We have become very, very, very rich as a country. And we’ve been — things have improved for the bottom 20 percent. I mean, you can see various statistics on that. But I’d rather be in the — I’d rather be in the bottom 20 percent now than be in the bottom 20 percent a hundred years ago, or 50 years ago.

But it’s — what’s really improved — (laughs) — is the top 1 percent. And I hope we, as a country, move in a direction where the people Bill’s talking about get treated better. And it isn’t going to hurt — it isn’t going to hurt the country’s growth, and —

It’s overdue, but a lot of things are overdue.

We are — I will still say we’re a better society than we were a hundred years ago. But you would think with our prosperity, we could — we would — hold ourselves to even higher standards of taking care of our fellow man, particularly when you see a situation like you’ve got today, where it’s the people that — whose names you don’t know, that are watching the people come in and watching the bodies go out.

Greg?

GREG ABEL: Yeah, I — the only other group that I would highlight, and I think it’s — it’ll be very interesting how it plays out — is with the number of homeschooling and the children that are home — I think there’s a — we’ve always had so much respect for teachers, but we all talk about how we don’t take care of them.

And, you know, it is remarkable to hear how many people comment that, clearly, we don’t recognize or — you know, I have a little 8-year-old — Beckett — at home and, you know, plenty of challenges for Mom. But all of a sudden, you respect the institution, the school, the teachers, and everything around it.

So, there’s — and then when I think of our companies and the delivery employees we have, it’s absolutely amazing what they’re doing, and they’re truly on the front line. You know, that’s where we have our challenges around keeping them health and safety.

And then you go all the way to the rail. The best videos you see out of our companies are when we have folks that are actively engaged in moving supplies, food, medical products, and they’re so proud of it, and they recognize they’re making a difference.

So, a lot of it is, we just owe them a great thanks. And, Warren, you touched on it. We can — some way — maybe, hopefully, longer term compensate them, but there’s a great deal of thanks, and I probably just think an immense amount — new appreciation for a variety of folks.

WARREN BUFFETT: We’re going the right direction (inaudible) the country, but it’s been awfully slow.

GREG ABEL: Yeah.

35. Capitalism needs government to make sure everyone participates in prosperity

BECKY QUICK: Gentlemen, I’ll make this the last question. It comes from Phil King. He says, “Many people in the press and politics are questioning the validity of capitalism. What can you say to them that might prompt them to take a look at capitalism more favorably?”

WARREN BUFFETT: Well, the market system works wonders. And it’s also brutal, if left entirely to itself.

And we wouldn’t be the country we are, if the market system hadn’t been allowed to function. And to some extent, you can say that other countries around the world that have improved their way of life dramatically, to some extent, have copied us.

So, the market system is marvelous in many respects, but it needs government and it — you know — it is creative destruction, but for the ones who are destroyed It can be a very brutal game, and for the people who work in the industries and all of that sort of thing, so I —

I do not want to come up with anything different than capitalism, but I certainly do not want unfettered capitalism. And it’s — I don’t think we’ll move away from it, but I think we capitalists — and I’m one of them — you know, I think there’s a lot of thought that should be given to what would happen if we all drew straws — again — for particular market-based skills. You know, it’s —

Somewhere way back, somebody invented television. I don’t know who it was. And then they invented cable. Then they invented pay systems and all of that. And so, the fellow that could bat .406 in 1941 was worth $20,000 a year, and now a marginal big leaguer, you know, will make vastly greater sums because, in effect, the stadium size was increased from 30 or 40 or 50,000 people to the country, and the market system — capitalism — took over.

And it’s very uneven. And incidentally, I think that Ted Williams — (laughs) — was worth a whole lot more money than I ever should make.

But the market system can work toward a winner takes all-type situation, and we don’t want to discourage people from working hard and thinking hard, but that alone doesn’t do it. There’s a lot of randomness in the capitalist system — including inherited wealth — and I think we can — I think we can keep the best parts of a market system and capitalism, and we can do a better job of making sure that everybody participates in the prosperity that that produces. Greg?

GREG ABEL: Yeah. No, I think it’s always keeping the best parts of it. And I even think if we look at the current environment we’re in, i.e., in the pandemic, and we have to do it only when we can do it properly and reemerge, but in some ways the best opportunity for people is when we’re back working, clearly, and that the systems function again, but that — that’s the obvious and then there’s, as Warren, you’ve highlighted, there’s, you know, there’s a lot of imperfections but it’s still — it’s definitely the best model out there, that just needs some fine tuning.

36. “Smartness does not necessarily equate to wisdom”

WARREN BUFFETT: And Becky, at the end, I would just —

BECKY QUICK: Hey Warren —

WARREN BUFFETT: I would just say that, you know — oh sure, go ahead.

BECKY QUICK: Can I? Can I just —

WARREN BUFFETT: Sure.

BECKY QUICK: — look at one more quick question. I forgot this one. Someone sent it in earlier. Thanks.

Anderson Haxton wrote in. He said, “Warren mentioned that Ben Graham is one of the three smartest he’s ever met.” (Buffett laughs)

“I’d like to ask him the names of the other two.”

WARREN BUFFETT: Well, I may not be one of the smartest, but I’m smart enough not to name the other two. I’d make two people happy. But — (Laughter)

But I would — it isn’t a — Ben Graham is one of the three smartest people, and I’ve known some really smart people. Smartness is not necessarily — does not necessarily equate to wisdom, either.

And Ben Graham, one of the things he said he liked to do, every day, was he wanted to do something creative, something generous, and something foolish.

And he said he was pretty good at the latter. (Laughs)

But he was pretty good — he was amazing, actually, creating. But it’s interesting that IQ does not always translate into rationality and behavioral success or wisdom, and so —

I know some people that are extraordinarily wise that would not be in the top three on an IQ test. But if I wanted their judgment on some matter, even if I want to put them in a position of responsibility someplace, I might prefer them to — we’ll say one of the three. That’ll leave the other two feeling fine — (laughs) — of the three. (Laughs)

Greg, you have any thoughts on that? (Laughter)

GREG ABEL: Nope. I agree with the person you named.

WARREN BUFFETT: Yeah.

37. Conclusion: Never bet against America

WARREN BUFFETT: And Becky, I would just — I would just say, again, that we may have — I hope we don’t — but we may get some unpleasant surprises, you know. We’re dealing with a virus that — that spreads its wings in a certain way, you know, in very unpredictable ways, and how the — how all Americans react to it, you know, there’s all kinds of possibilities.

But I definitely come to the conclusion, after weighing all that sort of stuff, never bet against America. So, thanks.

BECKY QUICK: Thank you.

WARREN BUFFETT: OK.

BECKY QUICK: I appreciate your time tonight.

WARREN BUFFETT: And we’ll see you next year. We’ll have — we’ll fill this place. OK. (Laughs)

BECKY QUICK: OK, good night, everybody.