Morning Session

1. Introductory Remarks

WARREN BUFFETT: Good morning. It’s 11:30 — or 10:30 here in Los Angeles, and we’re going to hold our second virtual annual meeting of Berkshire Hathaway. We did it in Omaha last year on short notice. We had more warning this time. And so, we came to Los Angeles. And the reason we’re doing it from here is because of the man on my left. Not because he asked for it, but because all of us wanted to do it with Charlie in — here in Los Angeles. So, I’ll introduce the three vice chairmen of Berkshire in a minute. I’ll show you the first quarter earnings. We won’t take much time on that. I’ll have one or two very short lessons for, perhaps, the new investors, who are — not necessarily in Berkshire Hathaway — but people who have entered the stock market in the last year. And there’s — I think there have been a record number that have entered the stock market. I’ll have a couple of little examples for them.

And then we’ll swing into a Q&A led by Becky Quick, who’s looked at thousands of questions that have been submitted to her. But more can be submitted during this meeting. And we will put up on camera, from time to time, the way you can communicate directly with her if you want to send questions in during the meeting. She got flooded with them last time. And she miraculously keeps sorting them out. And so, feel free to send in a question. And we will have a question period for about three and a half hours. And then we will finally have the annual meeting, which won’t take long, at the end.

2. Charlie Munger introduction: He’s lived in the same house for 62 years

WARREN BUFFETT: So, with that, I would like to first introduce the three vice chairmen of Berkshire Hathaway. I’ll tell you just a little bit about them. And then I’ll have a mild surprise for you at the end, perhaps. On my left is Charlie Munger. And I met Charlie 62 years ago. He was practicing law in Los Angeles. He was building a house at that time a few miles from here. And 62 years later, he’s still living in the same house. Now that’s kind of interesting, because I was buying a house just a few months before, 62 years ago. And I’m still living in the same house. So, you’ve got a couple of fairly peculiar guys, just to start with, in terms of their love affair with their homes. And Charlie and I hit it off immediately. And I would say he’s probably the vice chairman in charge of culture, among other things. But, if I ever want to get questions about where true north is, I talk to Charlie. And he has been an enormous help.

He’s done it with a lot fewer hours and a lot less talking and everything than I have. But he’s contributed in an incredible way to Berkshire. So, Charlie’s been out here in Los Angeles for 60-plus years.

3. Greg Abel introduction: He plays hockey

WARREN BUFFETT: On my right, your left, I have the vice chairman in charge of everything except insurance and investments, Greg Abel. Greg was born and raised in Edmonton, Alberta. He’s Canadian. Plays hockey. His eight-year-old plays hockey. And he came to the United States sometime after he graduated from college in Canada. And he is in charge of a business which has well over 150 billion in sales and employs 200 — more than 250,000 — probably 275,000 people. And does a much better job at doing that than I was doing previously.

4. Ajit Jain introduction: He’s learned a lot about insurance

WARREN BUFFETT: And on my far left, your right, we have Ajit Jain. And Ajit was born and raised in India, and graduated from college there. And I met Ajit on a Saturday in 1986. And I’d been in the insurance business — Berkshire had been in the insurance business — for quite a while. And I was kind of stumbling around in various ways. And Ajit came to the office. And Saturday, I was opening the mail. And I said, “How much do you know about insurance?” And he said, “Nothing.” And I said, “Well, nobody’s perfect. And let’s (laughs) talk about it some.” And by the end of the morning, I knew I had somebody that was going to build a great insurance business. And starting from that point, this improbable little company in Omaha became the largest property-casualty company in the world, in terms of net worth. It writes risks — it writes risks, occasionally, in a 24-hour period that other companies simply couldn’t take on themselves. They’d have to assemble other people.

It would take them a long time to come to a decision. That was very important at various times in the past. It’s not so important now. But he’s built an incredible — the world’s leading property-casualty insurance company.

5. We all lived in Omaha at one point

WARREN BUFFETT: So, here we have Charlie from LA, 60-some years. We’ve got Greg from Canada. We’ve got Ajit from India. And the one thing in common that these three fellows have, aside from working for Berkshire and doing a sensational job, the one thing in common is that at one time or another, for some extended period, they lived within a mile of me in Omaha, Nebraska. And Charlie, in 1934, moved about a hundred yards away from where I now live. And went through high school and eventually went in the service. And knows the neighborhood as well as I do. Went to the same grade school my kids went to and so on. Greg spent significant time in — living in Omaha. Lived about five or six blocks from me. And now lives in Des Moines. And Ajit was in Omaha about a mile away for a couple years. So, we started in very different places, and sort of came together, and now go our separate ways, but it’s all worked very well.

I would — and you’ll hear from them during this meeting — I urge you to send questions if you’re (unintelligble), then you can direct them to me, or you can direct them to anyone of the other three. And it will be a big relief to me if you direct a fair number to the other people.

6. Read the 10-Q, but don’t focus on the net earnings

WARREN BUFFETT: So, we this morning, as we always do — we always do it on Saturday — we published our 10-Q, which gave the quarterly earnings. It’s up on our website, BerkshireHathaway.com. And it’s very interesting. We put these out on Saturday morning. That’s not because the media likes us to do it that way. It’s not because the analysts like to do it that way. But we want to give you the maximum time to digest an awful lot of information that’s in that 10-Q. It can’t be summarized in a perfect way. We’ll give you some summary figures. But if you’re really a student of the place — and most of our investors buy because they simply have faith in these other three fellows to do a good job — and that’s not a misplaced faith. But if you really enjoy going into the details and you want to understand the nuts and bolts of Berkshire Hathaway’s various operations, you should read that 10-Q. And it’ll take you — it may take you a couple of hours.

I mean, it’s not a small investment of time. But it’s got a lot of information about all our various businesses. And for those of you who are business students of a sort, I recommend you go to it. The summary figures you see here, which are the ones we put in our press release, show kind of an interesting pair of numbers. I mean, down there at the bottom, you know, we have last year. When you see those brackets around numbers, you know, you’ve got to start worrying. (Laughs) And first quarter, we actually showed a loss of almost $50 billion. I never thought I’d ever see a figure like that. And was thinking back. I was trying to remember whether I’d gone on vacation during that quarter and turned things over to the other guys or what. But I checked the calendar, and that was me. (Laughs) And that figure this year is a positive figure of 11.7 billion. And neither figure is very meaningful in itself.

The (Financial) Accounting Standards Board, a few years ago — for many, many, many, many years, unrealized gains or losses of a company like Berkshire were made adjustments to the net worth of Berkshire, but they did not run through earnings. And a few years ago, the rule was changed so that every time stocks go up or down, it goes through our earnings account. So, in the first quarter of last year, when stocks went down a lot, we had a huge sum of unrealized — well, it was a reduction of unrealized gains, largely. (Laughs) And when you start saying things like that, you start losing people. But — That item is a mild plus this year. But if you — if we reported earnings daily, you would see earnings one day of 3 billion. Next year — day — of minus 2 billion. And it’s an accounting treatment that we don’t think is particularly appropriate, but it’s required. And we explain, very carefully, both in our press releases — there we got to explain — and I try to write in my letter and explain why I don’t think that’s the way to look at Berkshire.

We think, over time, that we will have investment gains for reasons I lay out in my letter. Over a period of time, the companies we own stock in retain earnings. And they use those reinvested earnings, usually, to our benefit. And that shows up in capital gains someday. But reported earnings for a company that has a lot of common stocks — marketable stocks — like ours, you don’t want to look at that final line, and you do want to look at the operating earnings line. Now, I would say that if you had taken the first two months of last year and compared to the first two months of this year, those figures would have been quite comparable. But, of course, in March of 2020, the economy was shut down, in effect. I mean, it was a selfinduced recession. And an abrupt one, very abrupt. And so, the economy went off a cliff in March. It was resurrected in an extraordinarily effective way by Federal Reserve action. And later, on the fiscal front, by Congress. And we’ll get into that later, but — The figure you see that — the difference was March, basically, of the two.

And our businesses have done — we’ll get into more specifics later — but our business has done really quite well. This has been a very, very, very unusual recession, in that it’s been localized, as to industry, to an extraordinary extent. And right now, business is really very good in a great many segments of the economy, which we’ll talk about later. But there’s still problems if you’re in a few types of business that really have been decimated. You know, such as international air travel or something of the sort. So, with that, we’ll go back to the figures later on, perhaps in some of the questions.

7. Lesson for new investors: Extraordinary things can happen

WARREN BUFFETT: I would like to just go over two items that I would like — particularly new entrants to the stock market — to ponder just a bit before they try and do 30 or 40 trades a day in order to profit what — from what looks like a very easy game. So, I would like to go to slide L-1. So, put that up. And these, on March 31st, I ran off a list of the 20 largest companies in the world, by stock market value. And those names — a good many of which will be familiar to you — but they were led by Apple at slightly over 2 trillion.

And it went down to the number 20th was worth 330-odd billion. But those are the 20 largest companies in the world, by market value, on March 31st. Now if I had a little — I was hoping I could get a little quiz machine so I could have everybody weigh on this answer, and we could flash it up a little later, but that proved technically impossible for — but what I would like you to do is look at that list. It starts off with Apple, and Saudi Aramco is a pretty kind of a specialized country — company.

I don’t know whether it’s 95% owned by the government or what, but it’s essentially a country that’s for sale there (laughs), in terms of that business. But the top — of the top six companies, five of them are American. So, when you hear people say that America hasn’t done — you know, it’s got all the — it’s not working very well or something of the sort — you know, in the whole world, of the six top companies in value, five of them are in the United States. And if you think about it — you know, we talked a little about this last year — but in 1790, we had one-half of one percent of the world’s population — a little less — we had four million people, 3.9 million people. Six-hundred thousand of them were slaves. Ireland had more people than the United States had. Russia had five times as many people as the U.S. did. Ukraine had twice as many people as the United States. So, here we were, well, what did we have?

We had a map for the future, an aspirational map, that somehow, now only 200 and — well, after the Constitution — 232 years later, leaves us with five of the top six companies in the world. You know, that’s not an accident. And it’s not because we were way smarter, way stronger, you know, anything of the sort. We had good soil, decent climate. But so do some of those other countries I named. And the system has worked unbelievably well. Just imagine thinking of five of the top six companies in the world ending up with a country that started with a half of one percent of the population just a few hundred years ago. But what I would like you to do is look at that list for a minute or two, if you want to. And then make an estimate, make your own guess. How many of those companies are going to be on the list 30 years from now? Here they are. These powerhouses. How many would you guess are going to be on the list? Well, you know, it’s not going to be all 20. It may not even be all 20 today or tomorrow. (Laughs) This was March 31st.

But what would you guess? And think about that yourself. Would you put down five? Eight? Well, whatever it would be, I would now invite you to look at slide two — or L-2 — which goes back a little more than 30 years. And look at the top 20 from 1989. And if you look at the top 20 from 1989, there’s two things that should grab your interest. At least two. None of the 20 from 30 years ago are on the present list. None. Zero. There were then six U.S. companies on the list. And their names are familiar to you. They have General Electric. We have Exxon. We have IBM Corp. And these are — they’re still around. Merck is down there at number — none made it to the list 30 years later. Zero. And I would guess that very few of you, when I asked you to play the quiz a little — a few minutes ago — would have put down zero. And I don’t think it will be zero. But it is a reminder of what extraordinary things can happen. Things that seem obvious to you. Japan had this wonderful bull market for a very long time.

So, you had a number of Japanese companies on the list. Today there are none. And the United States had the six. Now we have 13. But they aren’t the same six. I would invite you to think about one other thing as you look at this list. 1989 was not the dark ages. And we weren’t just discovering capitalism or anything else. And people thought they knew a lot about the stock market. And the efficient market theory was in.

And they were — it was not a backward time. And if you look, the top company at that time had a market value of 100 billion, 104 billion. So, the largest company in the world, of title, in just a shade over 30 years, has gone from 100 billion to 2 trillion. At the bottom, the number 20 has gone from 34 billion to something a little over ten times that. Well, that tells you something about what’s happened with equality, which is a hot subject in this country. It tells you a little bit about inflation. But this was not a highly inflationary period, as a whole. But it tells you that capitalism has worked incredibly well, especially for the capitalists. And it’s a pretty astounding number.

Do you think it could be repeated now that — 30 years from now — that you could take 2 trillion for Apple, and multiply any company, and come up with 30 times that for the leader? You know, it seems impossible. And maybe it is impossible. But that just — we were just as sure of ourselves as investors — and Wall Street was — in 1989 as we are today. But the world can change in very, very dramatic ways. And I’ll just give you one other example you might ponder. This is — when you start feeling too sure of yourself — One thing it shows, incidentally, is that — it’s a great argument for index funds — is that, you know, the main thing to do was to be aboard the ship — you know, a ship. You know, they were all going to a better promised land — you used to know which one was the one they’d necessarily get on — but you couldn’t help but do well if you just had a diversified group of equities — U.S. equities would be my preference — to hold over a 30-year period.

But if you thought you knew a lot about which ones to pick, or the person that you had hiring, you were paying a lot of money to, had all these ideas. And I could tell you their best ideas in 1989 did not necessarily do that well. Although, overall, equities were absolutely the place to be.

8. Lesson for new investors: Picking winners isn’t “as easy as it sounds”

WARREN BUFFETT: Secondly, people get enormously attracted to various industries. I mean, they think if — they think if you know — if a company says it’s in the XYZ industry and that’s a popular one, you can sell IPOs, you can sell SPACs, you can — people disregard sales numbers, earnings numbers — that just, you know, it’s the place to be. So, Berkshire Hathaway — where was the place to be in 1903 when — my dad was born in 1903, but that wasn’t really that big of news — but it was big news that actually Henry Ford was starting the Ford Motor Company. He’d failed a couple of times before. But he was about to change the world. I mean, the auto — when you think about everything — we’ve got a great auto insurance company. (Laughs) If there weren’t any autos, we wouldn’t have GEICO, the — But it’s transformed the country. And Henry Ford brought in the $5 daily wage, and that was a huge thing. Assembly lines — I mean, everything autos came along.

So, let’s just assume that you had seen a quick glance back in 1903 of all the interstate highways, 290 million vehicles on the road in the United States. You know, everything about it. And you said, “Well, this is pretty easy. It’s going to be cars. It’s going to be autos.” Well, Berkshire — let’s see what we’ve got up there. Yeah, no, stay where you were. Go back. (Laughs) I don’t want to change slides yet. The — go back to the L’s — the — Berkshire, by accident — well, we own a company called Marmon. We bought it from the Pritzker family some years ago. The Pritzkers had built this business from many, many, many companies that they’d acquired. And the name of their company was Marmon. And I don’t know exactly why Jay and Bob decided to name it Marmon. But they did own a company called Marmon.

And the Marmon Company had — getting slightly ahead of me on the slides again, but that’s OK — the — we called it — it was — they owned this company Marmon, which, in 1911 had been the company whose car won the first Indianapolis 500. And maybe that’s why they called it Marmon. They were proud of the fact that the company in 1911 named the — won the first Indianapolis 500. It also was the company that invented the rearview mirror. I’m not sure whether that was a big contribution to society. Certainly, around your household — (laughs) — a rearview mirror, you don’t want to emphasize too much. But they — the car that was entered in the Indianapolis 500, the guy who normally sat next to the driver and looked backwards to tell what the competitors were doing, he was sick, so they invented the rearview mirror. So, let’s just assume that you had decided that autos were this incredible thing. And someday, there’d be an Indianapolis 500. And someday, they’d have rearview mirrors on cars.

And someday, 290 million cars would be buzzing around the United States — or autos — they’re counting trucks there. And so, I decided to look at the history. And I thought I’d put up the list of auto companies from over the years. And I was originally going to put up just the ones that were the M’s, so I could get them on one slide. But when I went to the M’s, it went on and on and on. So, I just decided to put up the ones that started with M-A. And as you can see, there were almost 40 companies that went into the auto business — just starting with M-A — including our little — our Marmon there in the middle column, which lasted for a while, quite a while. It was selling cars in the 1930s (that) were really quite special. But in any event, there were at least 2,000 companies that entered the auto business, because they clearly had this incredible future. And, of course, you remember, that in 2009, there were three left. Two of which went bankrupt.

So, there’s a lot more to picking stocks than figuring out, you know, what’s going to be a wonderful industry in the future. The Maytag Company put out a car. Allstate put out a car. DuPont put out a car. I mean, there was a Nebraska Motor Company. Everybody started car companies, just like everybody’s starting something now that can be — where you can get money from people. But there were very, very, very few people that picked the winner, got the opportunity. At Ford Motor, Henry Ford had a few partners, and he didn’t like them, so he figured a way to buy them out. That was sort of the — that was one — is sort of the beginning of the auto finance. That’s a long story, but we won’t get into that. But you couldn’t buy into Ford Motor. And, of course, General Motors became the dominant company, finally, when Henry Ford did not really make the shift from the Model T to the Model A very — it did not work very well. So, I just want to tell you, it’s not as easy as it sounds.

9. Q&A begins

WARREN BUFFETT: And with that, we will go to Becky Quick. And she will ask any of the four of us questions she has selected, and which we don’t — she doesn’t share with us. And we will do this for a considerable period of time. So, you can be sending in questions to her. And then later on, after about three and a half hours, we will have the annual meeting, which won’t take long. So, Becky, over to you.

10. “I still wouldn’t want to buy the airline business”

BECKY QUICK: Thanks, Warren. And hello to everybody. This first question that came in, came in from Andy Cies. He says he’s the owner of not nearly enough B shares. He says, “Mr. Buffett, you’re well known for saying to be fearful when others are greedy and be greedy when others are fearful. But, by all appearances, Berkshire was fearful when others were most fearful in the early months of COVID, dumping airline stocks at or near the low, not taking advantage of the fear gripping the market to buy shares of public companies at exceptional discounts, and being hesitant to buy back significant amounts of Berkshire stock at very attractive prices. “I’d appreciate hearing your thoughts surrounding this time and how Berkshire approached its decision making, specifically after it was assured, through the CARES Act, that the government would provide a robust backstop to the financial markets.”

WARREN BUFFETT: Well, it wasn’t until late — until both monetary and fiscal policy kicked in — well, you knew we had an incredible problem. And I am, just as Charlie is the chief culture officer, I’m the chief risk officer of Berkshire. That’s my job. We hope we do well, but we want to be sure we don’t do terribly. But we didn’t sell a substantial amount. I mean we’re a company with six, probably $700 billion worth of businesses, some we own in their entirety, some we own a piece of. And I don’t know whether we were sellers of maybe 1% of the value of all the businesses we had at that period. But the airline — it’s kind of interesting with the airline businesses, in particular. And I’ll get to what was done in fiscal and monetary policy. But we had a few people at various subsidiaries of Berkshire that wanted to go in for help from the government.

And, in some cases, they had minority shareholders who owned a few percent, and they said, well, this — you know, we’re going to get killed by what’s happening with the regulations that are being put out and that were stopping the economy. And they said everybody’s going in for them, and why don’t we go in? I said, you know — (laughs) — Berkshire can handle it. This is for people that can’t handle what’s happening. And so, we’re not applying. But the airlines were the most prominent beneficiaries of what took place immediately. They got 25 billion, initially, most of which went to the big four airlines, and some of which went is as grants, not loans. And, you know, I think that was fine public policy. I think it — I wished it could go to every restaurant and dry cleaner and every small business that really was out of business and had no — I mean they were made toast of, you know, basically. But the airlines — clearly, what happened was not their fault in any way, shape, or form.

It wasn’t like 2008 and ’09 when people blamed the banks and hated to see them helped. So, it was — Now, airlines operate in bankruptcy. So, it isn’t like that — three of the four big ones, as we know, went through bankruptcy within the previous 10 or 15 — so the airlines that were kind of used to operating in bankruptcy, they would have kept operating. But it was perfectly proper for the airlines to be helped. The entire airline business, you know — you look at these figures of 2 trillion for Apple and so on — the entire big four airlines, they sold for about $100 billion, almost — I mean it’s a very, very small — combined, they wouldn’t come close to making the cut. I mean, they wouldn’t be in the top 50. So anyway, they went into the government. They needed the government help, or they needed — or they would go bankrupt, some of them. And really the Congress, but (Treasury Secretary) Steve Mnuchin, too, they decided they deserved the help, which I do not quarrel with at all.

But imagine if Berkshire was the 10% holder, which they had been, of everyone in the airlines, they said, “Take it up in Berkshire.” (Laughs) It’s — it would be like one of our — they would have had — they might have very well had a very, very, very different result if they’d had a very, very, very rich shareholder that owned 8 or 9%. And they didn’t have that. You know, when they went in. So, our — you might not have gotten the same result. In fact, I would think you probably wouldn’t. I mean, I can just see the headlines now. I mean, you know, because you’ve seen the headlines on some companies that took a hundred million or two, you know, and really didn’t need it. And some of them gave it back — most of them gave it back. But you were looking — you’re actually looking at probably a different result than if we’d kept our stock. But in any event, an industry that was really selling for less than a hundred billion dollars lost a significant amount of money. They lost prospective earning power.

I mean right now, they’re — you know, international travel’s not come back. But I would say, overall, to — the economic recovery has gone far better than you could say with any assurance. So, we didn’t like having as much money as we had in banks at that time. So I cut back some of the bank investment. But basically, our net sales were about 1% or one and a half percent. And looking back, you know, it would have been better to be buying. But what — I do not consider it a great moment in Berkshire’s history. But also, we’ve got more net worth than any company in the United States, under accounting principles. And we’ve got six or 700 billion of generally good businesses. And I think, as I think, I think the airline business has done better because we’ve sold, and I wish them well. But I still wouldn’t want to buy the airline business (laughs). International — people really want to — they want to travel for personal reasons, and business travel is another thing.

And we’ve got a big exposure to business travel, of course, through the fact that we own 19% of American Express and we own Precision Castparts, which services the air business. So, we’ve still got a big investment in air travel, a big commitment to it. But we wish the big four the best. And I think their managements have done a very good job during this period.

11. Why Berkshire didn’t buy stocks when the pandemic pushed prices lower

BECKY QUICK: More specifically, beyond the airlines, though, just the idea of — and this came from several questions, too, including one from Chris Blaine (PH). Just — “You spent years accumulating cash, insisting you had your elephant gun ready. The March 2020 listed equity selloff came with promises from the U.S. government that they would do what it takes. Yet, you sat on your hands. Please help me understand what I missed.”

WARREN BUFFETT: I didn’t get quite the last part. What was the final question?

BECKY QUICK: Just, “Please help me understand what I missed.” Why — why didn’t you use more of the cash at hand?

WARREN BUFFETT: Oh. Well, we have about — our cash on hand has been about 15% of our values — of our businesses — and that’s a healthy chunk. And I say it’ll never get below 20 billion, but we’re going to raise that number, because it’s just the size and importance of Berkshire is — But we could have deployed 50 or 75 billion, and right before the Fed acted. I mean, we hit a point where the calls were — two calls came in. But there was two or three days that nothing could happen. When (Federal reserve Chair) Jay Powell acted as he did, that was incredibly important — I mean, I should say the Fed acted as they did — but they moved with a speed and a decisiveness on March 23rd that changed the situation where the economy had stopped. The government bond market was even disrupted. Berkshire Hathaway probably could not have gone out with a debt offering the day before. It didn’t get a lot of publicity at the time, but there was a run on money market funds, a very substantial run.

And — if you look at the numbers — daily numbers on that — it was a repeat of September 2008. And this time — I give great credit to what (then-Federal Reserve Chair Ben) Bernanke and (then-Treasury Secretary Henry) Paulson did — but this time, the Fed knew that saying whatever it takes, and saying it and demonstrating it — which they did on March 23rd — they took a market where Berkshire couldn’t sell bonds on the day before and turned it into one where Carnival Cruise Lines or something (laughs) could sell it a day or two later. And there was, you know, this record issuance of corporate debt. And companies losing money, companies who were closed, whatever. It was the most dramatic move that you can imagine. And at the time, as I remember the chairman saying, you know, how about a little help on the fiscal front? And then Congress acted very, very big. Again, in 2008 and ’09, they argued about, you know, we don’t want to give any money to those dirty banks and all that sort of thing. But this time, there really wasn’t anybody to blame.

So, they saw what was necessary, and Congress responded. So, you had fiscal and monetary policy that responded in a way that was incredible. And it did the job. And it did, I think, it did a better job (laughs) than either the Fed or the Treasury or anybody expected. I mean this economy right now is — 85% of it is running in super-high gear. And people can’t — you know, and you’re seeing some inflation and all of that. It’s responded in an incredible way. And we learned something out of 2008 and ’09, and then we applied it. But I don’t think it was a sure thing that would happen. And the one thing about Berkshire is we never want — we don’t want to depend on anybody. We’re not a bank. We can’t go to the Federal Reserves if we need money.

And we’ve got to be sure that, under any circumstances — any circumstances — we can’t solve nuclear war, and maybe we can’t, you know — but, you know — Blanche DuBois, if you remember, in (Tennessee Williams’ 1947 play) A Streetcar Named Desire, said, “I depend on the kindness of strangers.” You can’t depend on the kindness of your friends if things have really stopped. I mean I’ve seen that in several different places. And we were start — we were seeing it on March — in the middle of March. Everybody was drawing down the credit lines. The banks did not expect that. They just weren’t sure they were going to be able to draw down their credit lines ten days later. And so, they just drew them down, and they took the money out of money market funds. We got very prompt — I give great credit, on both the monetary and fiscal side, to what was done. But I didn’t think it was a sure thing it would happen. And I didn’t know how it would be implemented.

And it’s worked — I think it’s worked better than just about anybody has expected. And I think — well, you’re seeing it now. You know, Charlie’s got some views on this, too. So, we shouldn’t leave him out of it. (Laughs)

CHARLIE MUNGER: Well, it’s crazy to think anybody’s going to be smart enough to husband money and then just come out on the bottom tick in some crazy crisis and spend it all. There always is some person that does that by accident. But that’s too tough a standard. Anybody expects that of Berkshire Hathaway is out of his mind.

WARREN BUFFETT: Yeah, Charlie and I never were very good at dancing. But we really can’t do that dance. (Laughs)

CHARLIE MUNGER: No, no, we can’t. And by the way, almost nobody else can, either.

WARREN BUFFETT: Not with tens of billions.

CHARLIE MUNGER: No.

WARREN BUFFETT: Or hundreds of billions. But it’s worked out. Well, we forgot to show one of the financial sides, actually, if you go back to the balance sheet. But we did buy in, in the first — you’ll see the shares outstanding if we go back to — what is it, E3?

BECKY QUICK: E2. They look —

WARREN BUFFETT: Slide.

BECKY QUICK: E2.

WARREN BUFFETT: Pardon me?

BECKY QUICK: I think it’s E2, isn’t it?

WARREN BUFFETT: Well — the balance sheet. Yeah, there it shows the shares outstanding at the bottom. And we have — we have — we spent about 25 billion in the first quarter, and more money since. And we’ve — it’s the best thing — we can’t buy companies as cheap as we can buy our own. And we can’t buy stocks as cheap as we can buy our own. So — and we’ve been able to do that with a fair amount of money. But looking back, I mean if you — you know, definitely, we could have done better things. (Laughs) We would have sold the — we would have sold airlines and cut back on banks regardless. Whether we should have bought something else at the same time is another question.

12. Why Buffett doesn’t recommend buying Berkshire stock

BECKY QUICK: This question comes from a long-term shareholder who’s been here for more than 25 years. His name’s Ben Knoll. He’s from Minneapolis, Minnesota. And he says, “Mr. Munger and Mr. Buffett, after a 15-year period of market underperformance, you’re cautious about predicting Berkshire being able to outperform the market in the future. “Given this, what do you see as the arguments for long-time shareholders to continue holding their stock versus diversifying their risk across an index?”

WARREN BUFFETT: Charlie, you want to answer that?

CHARLIE MUNGER: Well, sure. Well, I personally prefer holding Berkshire to holding the market, so —

BECKY QUICK: Because?

CHARLIE MUNGER: I’m quite comfortable holding Berkshire. I like — I think our businesses are better than the average in the market.

BECKY QUICK: Is it because you don’t think the market values it fairly?

CHARLIE MUNGER: Well, these are just accidents of history and things are fluctuating at all times. But on a composite basis, I’d bet on Berkshire over the market. And that’s assuming we’re all dead.

WARREN BUFFETT: B, I recommend — I recommend the S&P 500 index fund — and I have for a long, long time — to people. And I’ve never recommended Berkshire to anybody. Because I don’t want people to buy it because they think (laughs) I’m tipping them into some — never. I mean, no matter what it was selling for. And, you know — I’ve made it public, you know — on my death, there’s a fund for my thenwidow, and 90% will go into an S&P 500 index fund and 10% in Treasury bills. On the other hand, I’m very happy having my future contributions to a group of charities, that’ll be spread over 12 years or so after my death, to stay in Berkshire. I think the odds are — Berkshire is — you know, I like it, but I’m not — I do not think the average person can pick stocks. We happen to have a large group of people that didn’t pick stocks, but they picked Charlie and me to manage money for them 50 or 60 years ago.

And so we have a very unusual group of shareholders, I think, who look at Berkshire as a lifetime savings vehicle, and one they don’t have to think about, and one that, you know, if they don’t look at it again for 10 or 20 years, that will have taken care of their money reasonably well. But that — I wouldn’t argue that the S&P 500, over time — I would — I prefer — I like Berkshire. But I think that the — a person who doesn’t know anything about stocks at all and doesn’t have any special feelings about Berkshire, I think they ought to buy the S&P 500 index.

13. Why Buffett’s will calls for his wife’s inheritance to be invested in an index fund

BECKY QUICK: As a follow-up to that, Gerald Silver writes in. He says, “The trustees of your estate — I believe you’ve directed the trustees of your estate to invest substantial assets into the index fund. Isn’t that a vote of no confidence to your managers?”

WARREN BUFFETT: Well, no, because we’re talking about way less than one percent of my estate. (Laughs) And one thing I’m going to do, incidentally — I mean all rich people get advised by their lawyers to set up trusts so that nobody can see your will and all that sort of thing. My will’s going to be public record. And you can — you’ll be able to check at some point whether I’ve been telling you the truth (laughs) about what is going to get done. But 99.7%, roughly, of my estate will either go to philanthropies or to the federal government. And before it does it, I think Berkshire is a very good thing to hold. But for a given individual, particularly my wife, I just think that having a tiny fraction — which is all it takes for her to do very well for the rest of her life — I just think that the best thing to do is buy 90% in an S&P 500 index fund. Now, the index fund people, naturally, have started — over time — they market more and more products that go to other indices and everything.

So, they’re really starting to say to the American public, they’re saying, well, you can pick what continent to invest in, or you can pick what industry (laughs) and we’ll sell you something for that. And when they just have gotten through telling them, you know, you really don’t know anything about stocks, just buy the whole index. (Laughs) So, I name the 500 index as one. But it’s a tiny portion, but it will be her livelihood, and she’ll have all the money she needs, and way beyond it, and that’s that. But I don’t mind having the 99.7% — a large portion of it — assuming the laws are the same as now — that go to philanthropy, to be kept in Berkshire until they finally are disposed of.

14. “Chevron is not an evil company”

BECKY QUICK: This question comes from Andrew Dixon in the UK. He says, “My question is in relation to the oil and gas business and your purchase of Chevron stock. “When being asked a question on tobacco stocks in 1997, you mentioned that individuals and companies occasionally have to draw moral lines about what they’re willing to do. “You stated at the time that you were not comfortable in making a big commitment in tobacco stocks, and that you were uncomfortable about their prospects. Charlie has also referenced passing up on a private tobacco deal that you both knew was a cinch, yet you both have no regrets in saying no to the transaction. “I’m not suggesting that the oil and gas business has the same known negative externalities as cigarettes. They do not. With tobacco, the cause and effect relationship between the products and career is direct, obvious, and measurable. With hydrocarbons, the societal costs and benefits are far more complex to evaluate. “However, an increasing portion of society is drawing their lines in such a way that their painting does not include hydrocarbons, period.

“My question is: has the alarmism from the climate community now become pervasive across society to the extent it has become irrational? “Have we built our own unrealistic consensus on the pace of change achievable with regards to the transition to greener energy sources to the extent that this is becoming an overly expensive tax worn by the current younger generation?” “Can we gather from your purchase of Chevron stock that you do not believe the howling from society, regulators, and politicians will impair the prospects of hydrocarbons, and Chevron for that matter, in the next ten years? “Can investors still assume an oil and gas business that finds and produces oil at low cost per barrel can generate a sufficient return on capital for a long time to come?”

WARREN BUFFETT: Well, (laughs), I’ll give you a ten-word answer to that. (Laughs) I can’t remember all the questions there were there. But I would say that people that are on the extremes of both sides are a little nuts. (Laughs) I would hate to have all the hydrocarbons banned in three years. You know, you wouldn’t want a world that — it wouldn’t work. And on the other hand, you know, what’s happening will be adapted to over time, just as we’ve adapted to all kinds of things. I do not think — I’m interested in that quote from 1997, because, you know, we’ve talked about this before. We have no problem owning Costco or Walmart, you know, and a substantial number of their stores, you know, they sell cigarettes. It’s big item. You know, it’s something that brings people in. They know the price of cigarettes. And, you know, they put them up front. And so, we don’t — it’s a very tough situation.

We made that decision a long time ago when we went to Memphis. And we looked at a business that was a very, very good business. And it was much less harmful — at least from everything I could find out — it was much less harmful than smoking tobacco — chewing tobacco was. And these were decent people. And they were running a legal business. And they all chewed tobacco themselves. (Laughs) So, they — and they told me that their mother was 100 and chewing tobacco, and all these things. But Charlie and I did go down in the lobby of that hotel. And we just said to ourselves, “This is probably the best business we’ve ever seen.” And I called my then-son-in-law, Allen Greenberg. And he’d studied chewing tobacco and its effects when he was working for a Nader-related organization (Public Citizen). And we decided not to do it. But, you know, would we — you know, I see — I used to see ads in our paper from financial companies where I knew they were terrible, you know? And it’s a very tough thing to decide whether you get in or out of a business.

And it’s a very tough time to decide what — would companies benefit society more than others. I mean it’s — I don’t know whether — I think Chevron’s benefited society in all kinds of ways. And I think it continues to do so. And I think we’re going to need a lot of hydrocarbon for a long time, and we’ll be very glad we’ve got them. But I do think that the world’s moving away from them, too. And that could change. I don’t like making the moral judgments on stocks in terms of actually running the businesses. But there’s something about every business that, if you knew it, you wouldn’t like. And, you know, meatpackers — have you ever gone through a meatpacking plant? (Laughs) You know, there’s — if you expect perfection, you know, in your spouse or in your friends or in companies, you’re not going to find it. And what you elect to do yourself — if you own an index fund, you’re going the own Chevron.

And believe me, Chevron is not an evil company in the least. (Laughs) And I have no compunction about owning — in the least — about owning Chevron. And if we owned the entire business, I wouldn’t — I would not feel uncomfortable about being in that business. Charlie?

CHARLIE MUNGER: Well, I agree. You know, you can imagine two things. A young man marries into your family. He’s a English professor at, say, Swarthmore, or he works for Chevron. Which would you pick, sight unseen? I want to admit I’d take the guy from Chevron. (LAUGHTER)

WARREN BUFFETT: Hope your daughters agree with you. (LAUGHTER)

15. “Asinine” to make a climate report for every subsidiary

BECKY QUICK: On the other side of that argument, because there were lots of emails that came in, both — on both sides of these ESG questions. This one comes from Cristina Gallegos, who’s been a shareholder since 2018. And she says, “On items two and three of the proxy materials, the board recommended voting ‘Against’ on the shareholder proposal regarding the reporting of climate-related risks and opportunities, as well as on the shareholder proposal regarding diversity and inclusion reporting. “Berkshire is such a force for good when it comes to financial literacy and empowerment through wealth creation. Why not be a force for good and an example when it comes to these very two important — two very important issues? Please share with us more about the ‘Against’ recommendation.”

WARREN BUFFETT: Well, I think maybe Greg can talk a little bit about what Berkshire has done, as opposed to — in terms of the environmental. I would say this. It’s very interesting. With everything that’s being — I think we have over a million shareholders. I mean you can’t be 100% sure because of street name and duplicate accounts and all that sort. But it certainly seems very, very likely. I’ve had — and I get the letters that are written to me. I don’t think I’ve had — I don’t think I’ve had three letters in the last year or anything from shareholders. Now, I have them — and our vote on this, as you’ll see later, is that, overwhelmingly, the people that bought Berkshire with their own money voted against those propositions. Most of the votes for it were by — came from people who’ve never put a dime of their own money into Berkshire. (Laughs) And so, they — and I don’t think they’ve read our annual reports.

And I don’t think they’ve read the reports of Berkshire Hathaway Energy. And I don’t think they know. You know, if I talk about what we’re doing in high voltage transmission, we’re doing more than any company in the country. The president talked about what the government’s going to do, and how important it is, and, you know. We have a record in that’s, overall, is incredibly good. But we have a group of organizations, just generally, and they’re nice people. But they want us to answer a bunch of questionnaires their way, so they want us to go to Dairy Queen and Borsheims, and all those people, and have them fill out reports that show a bunch of figures. But the reports that count are the reports that Greg gets on Berkshire Hathaway Energy and the railroad (BNSF). You talk about three of our companies, and you’ve covered 95% of it. And it’s asinine, frankly, in my view. Now, we do some other asinine things, because we’re required to do them.

So, we’ll do whatever’s required. But to have the people at, you know, Business Wire, you know, Dairy Queen, all these places, filling out reports to make up some common report that comes in — we don’t do that stuff at Berkshire. We’ve got — during the pandemic, we probably have about 12 people who come into headquarters. And we’ve got, you know, 360,000 people working in a company that — all kinds of diverse activities. And it’s built — I don’t want to get in the whole thing of it. But it’s built on autonomy. And I am probably the only CEO of an S&P 500 company that does not get a consolidated income statement every month. I mean every other company, I’ll bet, in the S&P 500, prints out the earnings they had at the end, you know, from February and March, and CEO gets and a whole bunch of other people get it. I don’t get it. I don’t need it (laughs), you know. And I can put 60 or 70 companies to a whole lot of trouble and everything.

And they’d hand me something, and I know the answer to it already, and it doesn’t make any difference. I mean they’ve got the money they need. So, we don’t do things just because we’ve got a department of this or a department of that. And we don’t want to set up a lot of departments like that. And what’s important is what we’re doing in the — well, primarily at Berkshire Hathaway Energy and the railroad. I mean that’s — and I’ll let Greg tell you about that in just one second. But the —

CHARLIE MUNGER: Warren, I don’t think we think we know the answer to all these questions about global warming and so forth. And the people who ask the questions think they know the answers. We’re just more modest.

WARREN BUFFETT: Well, but even if we knew the answer, I mean, in terms of what we — the reports we would —

CHARLIE MUNGER: Yeah.

WARREN BUFFETT: —we would not collect a whole lot of things that don’t mean anything to us —

CHARLIE MUNGER: No.

WARREN BUFFETT: — to satisfy people who actually don’t own any stock themselves and, in many cases, I can tell they haven’t read our annual report, even. You know, we, as I point out in the annual report, and I never — nobody would have guessed this. People think we’re a bunch of guys that own stocks and all that sort of thing. Berkshire Hathaway owns, by GAAP accounting, more property plant equipment, business infrastructure — which the president just got through talking about Wednesday night — infrastructure, the importance of it — we have, measured by GAAP accounting, more than any other company in the United States. We have more than any of those companies that are on the list of the largest companies in the country, but we — and we’ve got it by a substantial margin. So, we have an investment in what makes this country move and work. Fifteen percent of the interstate goods move on our railroad. We’re building transmission.

And we started, in 2006 or ’07, planning how we would close coal plants, but — You can’t close coal plants until you get the electricity from where it’s generated to the customer. And if you’re going to generate it in Wyoming, and it’s going to go to Las Vegas or someplace, and previously they had a coal plant near the place, because that was the way it was done 50 years ago or 75 years ago, you’d better have the transmission. There’s no sense having the wind blow in Wyoming and people turn around and turn on the lights in Las Vegas. So, we went at the transmission plan question a lot earlier than people were talking about it. And we’ve done — we said 16 billion or whatever it was in the annual report that we — underway. And we just added 2 billion since the annual report came out. And there’s no utility in the country that’s coming anywhere close to that. Tell them a little bit about it.

16. Abel details Berkshire Hathaway Energy’s actions on climate change

GREG ABEL: Sure, Warren. Thank you. And, really, as Warren touched on, BHE and BNSF have our — have the significant carbon footprints when you think of Berkshire. And Warren, you touched on the disclosure that we’ve provided in the past going all the way back to 2007. I did pull those two investor presentations, one from 2007, and then our most recent one in 2021. So, if we could pull up BHE-1 as a slide, I think it would just highlight, going all the way back to 2007, we’ve been doing investor presentations for what we call our fixed-income investors, and we’ve done that through — every year through 2021. We’ve provided very similar disclosures to our board on an annual basis and had discussions around Berkshire Hathaway Energy’s plans to decarbonize. Now, it’s interesting. If you go back to the 2007 fixed-income conference — and we are having a conference at that point in time — we have third-party debt, capital debt, that our utilities raise. It’s a traditional capital structure used across our regulated entities to manage our total cost to the customer.

So, we have investors. We present to them, as we’re highlighting, on an annual basis. And if you go back to that 2007 investor conference, it’s interesting. In that presentation, we’re highlighting climate change, that it’s a fundamental risk. And we discussed what good policy would be. We discussed innovation. We discussed market transformation and the importance of — and the importance of setting targets, at that point in time. And we had recommendations for our industry. And then, since then, each year, we’ve presented, really, a plan and a strategy around how each of our businesses in BHE, but each of our regulated entities, how they’re going to transform. And the whole transformation has been around decarbonization, managing that risk on behalf of our stakeholders in our many states, our customers that we serve, and ultimately managing that risk for Berkshire Hathaway’s shareholders. Now, as you go through those presentations, there’s a common theme. And Warren touched on it already. You have to build the foundation first. And that foundation is around building the high-voltage — the transmission system.

Warren touched on it in his annual report this year and letter. He highlighted that at Berkshire Hathaway Energy, we’ll be spending, just in the West, $18 billion on transmission. Five billion of that’s already been spent as we sit here today. And that $13 billion will be spent over the next ten years. That’s the foundation that then allows us to build incremental renewable resources and move it to our many states that we serve at Berkshire Hathaway Energy, and well beyond that. I would highlight, well — we’ve been building the transmission infrastructure in place. We have been building renewables. If you look at our investment through the end of 2020, we’ve invested $30 billion — or in excess of $30 billion — into renewables and have really completely changed the way our businesses do business, i.e. our utility businesses. They’ve been decarbonizing and delivering a valued product to our stakeholders, to our customers. And I think the — and I think the results are really amazing when you look at them, and I’ll give you a couple of reference points. If you go back to 2015, when the U.S.

was discussing — excuse me — joining the Paris Agreement, very specific targets were set. Prior to those targets being set, Berkshire Hathaway Energy and 12 other companies, including the Apples of the world, Google, Walmart, committed to Paris, and that targets needed to be set. Berkshire Hathaway Energy was one of those companies in 2015.

WARREN BUFFETT: Yeah, how many other utilities were there?

GREG ABEL: Right. Warren, there were no other energy companies that made any type of commitment at that point in time. I’m happy to report we made a variety of pledges. Well, one of them was, at that point, we’d invested $15 billion in renewables, and that we would commit 30 billion in total. Well, we far exceeded that total now. So, there’s been a clear commitment to reduce — decarbonizing our businesses. We have focused on very identifiable, quantifiable outcomes. And I think that’s very important. If you look at the standards that were set with the — that were the original U.S. government’s commitments associated with the Paris Agreement, the target was 26% to 28% reductions in carbon footprints going back to 2005. So, that’s the reduction period through 2025. And they wanted the 26% to 28% reduction level. We committed to that at BHE. And I’m happy to report, Warren — and we’ve briefed our board — we achieved that in 2020. So, we met our pledge. And we met the commitment under the Paris Agreement.

And then, if you fast forward to the discussions that are occurring right now, or have occurred, around rejoining the Paris Agreement, the current administration has proposed that, again, using 2005 as a starting point, that the emission goals for reduction should be 50% to 52% by 2030. Again, I’m happy to brief to our shareholders, and in briefings we’ve provided to our board, but Berkshire Hathaway Energy will achieve that by 2030. Our reductions will hit the Paris Agreement target. Again, the reason we can do it is we’ve built the foundation through transmission, the substantial investment that Warren’s highlighted, and then followed that up with very specific investments on the renewable side. I’ve one incremental slide that, I hope, sort of pulls it all together, and that’s BHE-2. Because, as people discuss carbon, they often go to coal units, how many you own, how many have you closed. And there’s no important — there’s no question that can be an important metric. But it is a transition.

And we have very much focused across the three utilities we own and the ones we’ve highlighted on the slide, is to transition from our existing fleet to renewables, using transmission. We have not become overly dependent on transitioning to gas. That’s been a clear strategy. So, over a period of time, our coal units will retire. I’m happy to report — or pleased to report — to our shareholders that through 2020, we’ve closed 16 units to date. If you look at — from 2021 through 2030, there will be an incremental 16 units closed. And then if you go through to the end of 2049, our remaining 14 units will be closed. And at that point in time, all our coal units are closed. That slide is just an aggregation of all the activities each of our business units have been taking to help facilitate that transition, and really transitioning to decarbonizing those units. And I said, decarbonizing our businesses on behalf of, first and foremost, our customers, the many stakeholders they represent in the various states. And then equally important, decarbonizing those businesses on behalf of our Berkshire Hathaway shareholders.

The only other thing I would add, as it is the entity that has the second-largest carbon footprint in Berkshire — and when you combine BNSF and BHE, you’re talking the material set of emissions within Berkshire — BNSF has also been very active in managing their carbon profile. They’ve committed to have science-based targets established for 2030. So, again, those targets will, again, be consistent with the Paris Agreement. We have seen what the other participants, or some of them in the class — in the industry — that have committed to. And our commitment will be very similar, i.e. it’ll be consistent with the Paris Agreement. But it’ll be a 30% reduction in BNSF’s footprint by 2030. So, again, if you look at our — and that’s been publicly disclosed. That’s on the BNSF website. Everything I’ve discussed regarding BHE is on their website, filed in 8-Ks, completely accessible by our many shareholders.

So, when I look at it on — from the perspective of our Berkshire shareholders, I really believe this risk is being well-managed, and we are positioning ourselves for the long term. Thanks, Warren.

17. “We’ve spent far more than any utility” on renewable energy and transmission

WARREN BUFFETT: Yeah, incidentally, I mean, the president, the other night, talked about a hundred billion for infrastructure. We’d love to spend a hundred billion. But he was talking about, you know — Transmission is really the problem, I mean, a big problem. Because you got to get from where the sun is shining and where the wind is blowing, essentially, to concentrations of population. And it’ll be whether the — you know, you cross state lines and you go through people’s backyards (laughs) and everywhere. Whether the federal government has better luck in just saying this is the way it’s going to be done and ramming it down the throats of where they go and getting it done — I mean, they may have that power. And they’ll be able to do it faster than we are. On the other hand, we’d love to do it. We’ll spend the a hundred billion. But the speed at which we can do it is — we bought PacifiCorp in 2006, and we had a bunch of customers out in the far West, and they had coal plants serving them.

And to change that, you’ve got to be able to go to where wind blows and deliver it. So, it’s — But it is interesting that we have published this information. We’ve spent far more than any utility, in terms of renewables and transmission in the United States. And we started with a nothing — (laughs) you know, a little operation. But the people who bought the stock with their own money, the individuals, they seem to understand it. And they read the reports. And we get calls, and they say, well, we want to come out and talk to you about it. Well, we’re not talking to them and ignoring the million people (laughs) that have been with us over time and bought it with their own money. We will not give special treatment to — either to analysts or to the — to institutions over the individuals that, basically, trust us with their savings for their lifetime.

18. Insurance subsidiaries are prepared for “unpleasant surprises”

BECKY QUICK: This question is for Warren and Ajit. It comes from Fernando Lewis, a long-time Berkshire shareholder from Panama, who says, “As a shareholder that intends to remain so for many decades, my biggest concern is around possible losses arising from higher-than-expected insurance losses. “We’ve seen this in other great companies where underwriting mistakes end up crippling businesses previously considered exemplar. “While I understand that Berkshire’s culture is unique and the insurance division is full of talented individuals, this is a risk that concerns me. “Many of us shareholders feel comfortable now, given the privilege of having Mr. Buffett, Mr. Munger, and Mr. Jain looking at these deals. However, there will be a day when this is no longer the case. Is it reasonable to think that over the long term, Berkshire should focus on plain, vanilla short-tail insurance businesses like GEICO and reduce the size of some long-tail risk? “I want to clarify that I have the most respect and gratitude for all of Berkshire employees that have built the best insurance group in the world.

I’m confident we have this talent to remain leaders in this field for decades to come. This is focused on the inherent opaqueness and risk of some insurance lines.”

WARREN BUFFETT: Ajit, do you want to lead off, or —?

AJIT JAIN: I mean, clearly contract certainty is an issue for us in the insurance industry. It is an issue that cuts across not only the long-tail line that you mentioned, but even short-tail property focus lines. The most recent example is business interruption, which is an integral part of any property insurance policy that is bought and sold by corporations. It is a risk every time we issue a contract that, either because of sloppiness in terms of how that contract is written, or because of the regulatory environment we all have to live in, that the words in the contract may be tortured. And normally when they are tortured, they end up going against the insurance industry, not in their favor. So, it is a risk. It’s an unknown risk, in terms of how bad it can be. I hope we price for it when we price for the product. We throw something for the unknown unknowns, if you will. And we try and aggregate our exposures by major risk categories. Hopefully, that’ll give us some comfort, in terms of having some boundaries on what the exposure really can be.

But there’s no question the regulators play a very important role, in terms of the economics of the business, especially in the U.S., where the 50 state regulators who we have to deal with, in terms of pricing, in terms of contracts, in terms of —

WARREN BUFFETT: Most of those surprises in insurance, practically all of them, are unpleasant. I mean, (laughs), you get the premium up front. That’s pleasant. And then from there on, you get some very imaginative losses that come through. And you get some that you’ve taken on. We are willing to lose, in terms of, sort of, the outside limit, we think, well, we’re willing to lose $10 billion in a single event. And we want to get paid very appropriately for that. But we’ve got the resources to do it. And if — But we don’t want to lose 10 billion in something where we only thought we could (laughs) lose 50 million or something like that. And, you know, the current situation, for example, with The Boy Scouts of America, you know, they — I think there were 11-hundred claims, or something like that, that have been filed and now, there’s 17,000 just in —

AJIT JAIN: No, no. They’re close to a hundred thousand now.

WARREN BUFFETT: You know, and —

AJIT JAIN: Up by 50 times.

WARREN BUFFETT: And these go back to 1950 or 1960. And you’ve got people advertising for claims. And so, all of a sudden, you get a lot of claims. I’m sure a lot of the claims are valid. I’m sure a lot of them are invalid. And —

AJIT JAIN: Well —

WARREN BUFFETT: — and how in the world do you pick out the difference? (Laughs)

AJIT JAIN: Yeah, and it goes back to the issue that you just raised. The reason why this number of claims have skyrocketed from less than 2,000 to close to a hundred thousand is because the statute of limitations had expired, but in several states, if not in most states, they have unilaterally extended the deadline by when you can make claims, and expanded it by a few years. As a result of which, a lot more claims have appeared, funded by plaintiff lawyers who are now very well-funded. And that results in claims just skyrocketing.

WARREN BUFFETT: Yeah. You get a lot of unpleasant surprises in insurance. But we’ve got a very — I’m very biased on this. But I wouldn’t — (laughs) — I think we’ve got the best insurance operation in the world. And Ajit is the guy that created it. And the people at GEICO — we bought that — and they did wonderful things over time to contribute their part of it, too, and other people have. But Ajit is the symphony conductor of it. (Laughs)

19. “Warren and I don’t have to agree on every damn little thing we do”

BECKY QUICK: This question comes from Henry Zhou. And he says, “It looks like Charlie and Warren have some different opinions recently, like Costco and Wells Fargo. Where’s that taking Berkshire?”

WARREN BUFFETT: Charlie? (Laughs)

CHARLIE MUNGER: Well, we’re not all that different. And Costco is a company I very much admire, and I have enjoyed my long association with it, that company. And — but I love Berkshire, too, — so. And luckily, there’s no conflict. And Warren and I don’t have to agree on every damn little thing we do. We’ve gotten along pretty well.

WARREN BUFFETT: We have — (laughs) — better than pretty — we have never had an argument —

CHARLIE MUNGER: Yeah.

WARREN BUFFETT: — in 62 years. And it’s not that we agree on everything. But we’ve literally — in 62 years, we’ve never gotten mad at each other. (Laughs)

CHARLIE MUNGER: No, no, no —

WARREN BUFFETT: It just doesn’t happen. (Laughs)

20. They’re not as close as Buffett and Munger, but Abel and Jain have a good working relationship

BECKY QUICK: This question is from Jason Plawner. And he says, “Mr. Jain and Mr. Abel, this question is for you. “One of the successful features of Berkshire is the strong bond between Mr. Buffett and Mr. Munger, who manage the company better because they had each other. “As you two are clear leaders of the next generation at Berkshire Hathaway, can you please tell us about how you interact with each other, or some of the other incredibly competent Berkshire managers you seek for advice?”

WARREN BUFFETT: Who’s that directed at?

BECKY QUICK: Greg and Ajit —

CHARLIE MUNGER: Ajit.

WARREN BUFFETT: OK.

AJIT JAIN: Well, there’s no question that the relationship Warren has with Charlie is unique, and it’s not going to be duplicated, certainly not by me and Greg, no. I can’t think of very many other pairs that can duplicate it. Nevertheless, both Greg and I, at least certainly from my perspective, and I’m sure Greg will speak for himself, we’ve known each other for a very long time. I certainly have a lot of respect, both at a professional level and a personal level, in terms of what Greg’s abilities are. We do not interact with each other as often as Warren and Charlie do. But every quarter, we will talk to each other about our respective businesses and update each other on our respective businesses. And then, during the course of the quarter, while we may not have any formal sort of meetings, if you will, but every time a question comes up which is related to insurance, Greg will pick up the phone and call me.

By the same token, if there’s any question that comes up relating to any of the non-insurance operations that Greg is in charge of, like we had recently where a client of mine was looking for — trying to find a buyer. And I picked up the phone and talked to Greg, and we talked about, you know, how best to proceed. So, that happens. And during the course of the quarter, every quarter we exchange notes. And we have a perfectly well-functioning relationship between the two of us. And I hope it remains that way. Greg?

GREG ABEL: Yes. Ajit, well said. And as he touched on, Warren and Charlie have an exceptional relationship. But I’m very proud of the relationship Ajit and I’ve had. And as Ajit touched on, it’s developed over many years. We’ve had the opportunity — or I’ve had the opportunity — to see how Ajit’s run the insurance business. And as Warren highlight and Charlie highlights, there’s no one better at it. So, I’ve had the opportunity to observe that. And then, equally over the years, that relationship has just built and become greater and greater. And as Ajit touched on, couldn’t have more personal respect for Ajit, both personally and professionally. And even though the interaction may be different than, say, how Warren and Charlie do it, as Ajit touched on, there is a regular dialogue, both around opportunities within our two businesses and units, both if we see something unusual that the other individual should hear, we make sure we’re always following up with each other. But it goes beyond that. Ajit has a great understanding of the Berkshire culture.

I strongly believe I do, too. And any time we see anything unusual in one of our businesses, it’s Ajit who I’m going to call and say, are you comfortable that we’re taking this approach? Is it going to be consistent with how you think about it, how you think about it in insurance? So, it goes — it goes beyond just discussing the businesses, but that maintaining the exceptional culture we have at Berkshire and building upon that. So, very fortunate to have Ajit as a colleague, and immensely enjoy working with him every day. Thank you.

21. Buffett defends BNSF as competitive with Union Pacific

BECKY QUICK: This question comes from Glenn Greenberg. He says — it’s on the profitability of GEICO and BNSF. He said, “Why do these companies operate at meaningfully lower profit margins than their main competitors, Progressive and Union Pacific? Can we expect current managements to at least achieve parity?”

WARREN BUFFETT: Was it GEICO and — ?

BECKY QUICK: BNSF.

WARREN BUFFETT: Oh. Actually, if you look at the first quarter figures, you’ll see that the Berkshire Hathaway/Union Pacific comparison has gotten (laughs) quite better. Katie Farmer’s doing an incredible job at BNSF. And it’ll be an interesting question, whether five years from now or ten years from now, BNSF or Union Pacific has the higher earnings. We’ve had higher earnings in the past. Union Pacific passed us. The first quarter, you can look at, and, you know — they think they’ve got the — a slightly better franchise. We think we’ve got a slightly better franchise. We know we’re larger than Union Pacific. I mean, we will do more business than they do. And we should make a little more money than they do, but we haven’t in the last few years. But, it’s quite a railroad. I feel very good about that.

22. “We will have the slowest-aging management”

WARREN BUFFETT: I should — I should go back to that previous question. You know, people talk about the aging management at Berkshire. And I always assume they’re talking about Charlie (laughs) when they say that. But I would like to point out that in three more years, Charlie will be aging at 1% a year. (Laughter) And he is the — no one is aging (laughs) less than Charlie. If you could take (laughs) some of these new companies with 25-year-olds, they’re aging at 4% a year. (Laughs) So, we will have the slowest-aging management, percentage-wise, by far, than any corporate — any American company has.

23. Progressive has been better lately, but GEICO is catching up

BECKY QUICK: Did you want to talk about GEICO versus Progressive, too, because I got a lot of questions on that —

WARREN BUFFETT: Well, Progressive in recent — Progressive has had the best operation in the last — in recent years, in terms of matching rate to risk. I mean, that’s what insurance is all about, among other things. But, I mean, you have to have the right rate. If you think that 90-year-olds and 20-year-olds have an equal chance of dying, (laughs) I mean, you’re going to be out of business very quickly in the life insurance business. And you will get all the 90-year-old risks, and the other guy will get the 20-year-old risks. And the same thing applies in auto insurance. I mean, there is a huge difference between 16year-old males and how they drive, and 40-year-old married and, you know, employed people. So, the companies that do the best job of actually having the appropriate rate for every one of their policyholders is going to do well. And Progressive has done a very good job on that. And we’re doing a much better job on that already. But Todd Combs has gone there. And — It’s a very interesting business.

Both Progressive and GEICO were started in the ’30s — I believe I’m right about Progressive on that — and we were started in ’36. You know, we have had the better product for a long, long time, I mean, in terms of cost. And here we are, 85 years later, in our case, and we have about 13% or so of the market, whatever it may be. And Progressive has just a slight bit less. So, the two of us have 25% of the market roughly, in this huge market, after 80-something years of having a better product. So, it’s a very slow-changing competitive situation. But Progressive has done a very, very good job recently. And we’ve done a very, very good job over the years. And we’re doing a good job now. But we have made some very significant improvements. And if you looked at the — you don’t want to look at the quarters too much — but our profitability in the first quarter was good.

But we gave back more money, under our giveback arrangement when the virus broke out — we gave 2.8 billion on our giveback program — that was larger than any company as well. It was the largest, I think in the country. And GEICO and Progressive are both (laughs) going to do very well in the future. And actually, Union Pacific and BNSF are going to do well in the future. It’s just, in both cases, we want to do a little bit better than the other guy. (Laughs)

AJIT JAIN: Can I — can I just —

BECKY QUICK: Yeah.

AJIT JAIN: — add a little bit? Yeah, there’s no question Progressive is a machine. They are very good at what they do, whether it’s underwriting, which Warren talked about, in terms of matching rate to risk, whether it’s admin claims. Having said that, I think GEICO is catching up with Progressive. More than a year ago — about a year ago — Progressive had margins that were almost twice as much as GEICO’s, and growth rates that were almost twice as much as GEICO’s. If you look at the results as of now, Progressive is still crushing it, in terms of growth, relative to GEICO. But GEICO has certainly caught up with Progressive, in terms of margins. And hopefully, that gap will be nonexistent in the future. The second point I want to make on the issue of matching rate to risk: GEICO had clearly missed the bus and were late in terms of appreciating the value of telematics. They have woken up to the fact that telematics plays a big role in matching rate to risk. They have a number of initiatives.

And hopefully, they will see the light of day before not too long, and that’ll allow them to catch up with their competitors, in terms of the issue of matching rate to risk.

WARREN BUFFETT: I will predict that five years from now — State Farm is still the largest auto insurer — but I will predict that five years from now, it’s very likely that the top two will be GEICO and Progressive. And in which order, we’ll see. But both companies are going to do very well, in my opinion. Well, they — and they — GEICO’s done well — extremely well. But Progressive was better at setting the right rate, and we’re catching up, I think, fairly fast.

AJIT JAIN: Yeah. Excuse me. Progressive has certainly done better. But when it comes to branding, GEICO is, I think, miles — (coughs) excuse me — miles ahead of Progressive. And in terms of managing expenses, well, I think GEICO does a much better job than anyone else in the industry.

24. Buffett admits “probably a mistake” to sell some shares of “extraordinary” Apple

BECKY QUICK: This question comes from Vittorio Agueci, from Switzerland, who writes in, “Why, in the recent past, did Berkshire sell some of the common stocks owned on Apple? “If the company is considered Berkshire’s ‘Fourth Jewel,’ why didn’t Berkshire buy more of Apple’s stocks in 2020? This seems to be counterintuitive.”

WARREN BUFFETT: Well, we have 5.3%, or something like that, now. It’s gone up in the first quarter because we bought in our shares, which helps our own shareholders expand their interest in Apple indirectly without laying out a penny. And then Apple’s repurchased its shares and just announced another repurchase program. So, let’s say — we look at Apple as a business that we own at 5.3%. Now we’ve got — it’s a marketable security, so it shows up as way greater than any other marketable security we have. But, of course, if you look at our railroad, as we mentioned — well, the Union Pacific is selling for about 150 billion on the market, and we own one that’s a little larger than the Union Pacific and making a little less money, but not much less. So, it’s a — it’s an extraordinarily — Apple — it’s got a fantastic manager. (CEO) Tim Cook was underappreciated for a while. He’s one of the best managers in the world, and I’ve seen a lot of managers.

And he’s got a product that people absolutely love. And there’s an installed base of people and they get satisfaction rates of 99%. And I get the figures from the (Nebraska) Furniture Mart as to what’s being sold, and if people come in and they want an Android phone, they want an Android phone. If they want Apple — they want an Apple phone — you can’t sell them the other one. (Laughs) The brand — and the product is an incredible product. It’s a huge, huge bargain to people. I mean, the part it plays in their lives is huge. I use it as a phone, but I’m probably the only guy in the country. You know, maybe some descendant of Alexander Graham Bell’s doing the same thing. But it is indispensable to people. And, you know, it costs — you know, a car costs $35,000.

And I’m sure, with some people, if you asked them whether they want to give up — had to give up — their Apple or give up their car, you know, really make the choice for the next five years, you know, who knows what they’d do? And, it is — and you know, we got a chance to buy it, and I — I sold some stock last year, although our shareholders still had their percentage interest go up because we repurchased shares. But that was probably a mistake. In fact, Charlie, in his usual low-key way, let me know that — you thought it was a mistake, too, didn’t you, Charlie? (Laughs)

CHARLIE MUNGER: Yes.

WARREN BUFFETT: Yeah. (Laughs) Yeah, I can only do so many things that I can get away with, with Charlie. (Laughs) And I kind of used them up between Costco and Apple. (Laughter) So — and incidentally, he probably — he’s very likely was right in both circumstances. It’s an extraordinary business. But I do want to emphasize that, in his own way — it’s a different way — but Tim Cook is — we see a lot of managers of a lot of businesses, and you’re looking at two great ones on both ends here. He’s handled that business so well. He couldn’t do what Steve Jobs, obviously, could do in terms of creation. But, I don’t — but Steve Jobs couldn’t really, I don’t think, do what Tim Cook has done, in many respects.

CHARLIE MUNGER: Well, I also think it’s clear that that list you showed, of the leading American companies — it’s been very important for America that we’ve done so well in this new tech field. And I personally would not like to see our present giants brought down to some low level by some anti-competitive reasonings. I don’t think they’re doing a lot of harm, anti-competitively. I think they’re a credit to the Americans — credit to our civilization.

WARREN BUFFETT: Yeah, and they’re huge.

CHARLIE MUNGER: And they’re huge. And that’s good for us.

25. High-flying tech stocks are “very, very cheap” if interest rates stay so low

BECKY QUICK: Well, let me ask a follow-up question on that, then. This comes from Jack Tsang, who says, “What’s your mindset when you see so many of these high-fliers? Not the GME or meme stocks, but more like the Big Tech growth stocks, gaining 50%, 100%. 200%, et cetera, in a matter of a year or less?” “I know you eventually bought Apple in 2016 because of the quality of their businesses and their management. How do you assess if these high-fliers are worthy of your investment, given these crazy high valuations that muddy the waters?”

WARREN BUFFETT: Well, we don’t think they’re crazy. (Laughs) The — but we don’t — at least I — Charlie, you — I feel that that I understand Apple and its future with consumers around the world better than I understand some of the others. But I don’t regard prices — and that gets back — well, it gets back to something fundamental in investments. I mean, interest rates, you know, basically are to the value of assets what gravity is to matter, you know, essentially. And on the way out here, I tore out a little clipping from The Wall Street Journal yesterday — probably the only one that read it — so small I’m having trouble finding it. But, anyway, on Thursday, the U.S. Treasury sold some eight-week — some four-week notes — Treasury bills. And the price was — if you looked at your Wall Street Journal, down in a little corner, next-tothe-last page in my paper, in the very bottom corner, the — here it is — the results of the Treasury auction — little, tiny thing.

(Laughs) They sold four — they had applications on the four-week Treasury bill for a hundred-and-some billion. They accepted bids for 43 billion worth. And it says average — average price: one hundred point-zero-zero-zero-zero-zero-zero — six zeroes. And, essentially, people were giving $40-some billion to the Treasury — and they offered to give 130 billion or something, whatever the amount tendered — and the Treasury received the money at zero. And (Treasury Secretary) Janet Yellen has talked a couple of times about the reduced carrying cost of the debt. And I think in the last fiscal quarter, the U.S. Treasury, which — the U.S. Government — which owes a few billion — a few trillion dollars, I should say — a few trillion dollars more than a year ago, their interest expense was down 8%. So, you’ve had this incredible reduction in the so-called “super risk-free” group, the short-term Treasury bill. And that is the yardstick against which other values are measured.

I mean, if I could reduce gravity’s pull by about 80%, I mean, I’d be in the Tokyo Olympics, jumping. (Laughs) And, essentially, if interest rates were 10%, valuations (unintelligible) had this incredible change in the valuation of everything that produces money, because the risk-free rate produces, really, short enough, right now, nothing. It’s very interesting. I brought this book along because for 25 or more years, Paul Samuelson’s book was the definitive book on economics. It was taught in every school. And Paul was the — he was the first — he was the first Nobel Prize winner — it’s sort of a cousin to the Nobel Prize, they started giving it in economics, I think, in the late ’60s. He was the first winner from the United States, Paul Samuelson. Amazingly enough, the second winner was Ken Arrow, and both of them are the uncles of Larry Summers. (Laughs) Larry Summers had the first two winners as uncles.

But Paul — he was a wonderful guy, he was a wonderful writer, the definitive writer — and so I got out the ’73 economics books. And bear in mind, probably economics kind of started in — as kind of an interesting science, and respectable — with Adam Smith, we’ll say. You know, he wrote “The Wealth of Nations” in 1776, and he’d written some books earlier. But you sort of date it from kind of when our country started. And then you had all these famous economists subsequently. And Paul became the most famous of his time. So, I looked up in the back, under “interest rates,” I looked for “negative interest rates.” There’s nothing there. So, I finally found “zero interest rates,” and Paul Samuelson — brilliant man, after a couple of hundred years we’ve had of, kind of, studying economics, basically, he said that — he said you can conceivably, technically, he said, you can conceive perhaps of negative interest rates, but it can’t ever really happen. And that was, you know, in the 1970s.

This wasn’t back in the Dark Ages. And this was — and no economist rode up and said this is a terrible line to have in a book, or anything. You know, and here we are in this world where we had zero interest rates last year on a — I mean, last week on — or this week — on a four-week note. And Berkshire Hathaway, which had a — has more than this — but let’s say we had $100 billion in Treasury Bills. We have more than that. Before the epidemic — pandemic — we were getting about a billion and a half from that a year. At present rates, if it’s two basis points, we’d get 20 million. Imagine your wages going from $15 an hour to twenty cents an hour or something. (Laughs) It’s been a sea change. And it was designed to be that. I mean, it was — that’s why the Fed moved the way they did.

They wanted to give a massive push, just like (then-European Central Bank president) Mario Draghi did in Europe in, whenever it was, 2012, when he says, “whatever it takes,” and they went to negative rates. And we — the Fed has said it doesn’t want to go to negative rates, and I think the Treasury actually has got some small (unintelligible). But if present rates were destined to be appropriate, if the 10-year should really be at the price it is, those companies that the fellow mentioned in his question, they’re bargains. They have the ability to deliver cash at a rate that’s, if you discount it back — and you’re discounting at present interest rates — stocks are very, very cheap. Now, the question is what interest rates do over time. But there’s a view of what interest rates will be based in the yield curve out to 30 years, and, you know, so on. It’s a fascinating time.

We’ve never really seen what shoveling money in, on the basis that we’re doing it on a fiscal basis, while following a monetary policy of something close to zero interest rates, and it is enormously (unintelligible). But in economics, there’s one thing always to remember. You can — you can never do one thing. You always have to say, “And then what?” And we’re sending out huge sums. I mean, the president said it on Wednesday: 85% of the people were going to get a $1,400 check, you know: 85%. And a couple years ago we were saying 40% of the people never could come up with $400 in cash. So, we’ve got 85% of the people getting those sums. And so far, we’ve had no unpleasant consequences from it. I mean, people feel better. The people who get the money feel better, and — the people who are lending money don’t feel very good. But it causes stocks to go up, it causes business to flourish, it causes an electorate to be happy, and we’ll see if it causes anything else.

And if it doesn’t cause anything else, you can count on it continuing (laughs) in a very big way. But, you know, there are consequences to everything in economics. But that is why the Googles and the Apples — and we didn’t own Google, we don’t own Microsoft, we don’t — but they are incredible companies, in terms of what they earn on capital. They don’t require a lot of capital, and they gush out more money. And if you’re trying to find bonds that gush out (unintelligible) more money from the federal government, we got a hundred billion that’s gushing out. (Laughs) Like, you know, 30 or $40 million a year, or whatever it may be, depending on the short-term rates. So, that puts the pressure on, which is exactly, of course, what the monetary authorities want done. I mean, that’s — they’re pushing the economy in a — And they’re doing it in Europe, you know, even more extreme.

And they’re pushing and we’re aiding it with fiscal policy, and people feel good, and — And people have become numb to numbers. You know, trillions don’t mean anything to anybody, you know. And $1,400 does mean something to them. So, we’ll see where it all leads, but it’s — Charlie and I consider it the most interesting movie, by far, we’ve ever seen, in terms of economics, don’t we, Charlie?

CHARLIE MUNGER: Yes, and the professional economists, of course, have been very surprised by what’s happened. It reminds me of what (Conservative Party U.K. Prime Minister Winston) Churchill said about (his successor as PM from the Labour Party) Clement Atlee. He said he was a very modest man and had a great deal to be modest about. And that’s exactly what’s happened with the professional economists. They were so confident about everything. It turns out the world is more complicated than they thought.

26. Munger: Government spending with no limit will eventually “end in disaster”

BECKY QUICK: As a follow-up to that, Pat Cain writes in, “What’s your opinion about the economic theory MMT, especially the United States, because it’s the reserve currency for the world?”

CHARLIE MUNGER: Well, I think they’re more — I think the Modern Monetary Theorists are more confident than they ought to be, too. I don’t think we, any of us, know what’s going to happen to this stuff. I do think there’s a good chance that this extreme conduct is more feasible than everybody thought. But I do know, if you keep just doing it without any limit, it will end in disaster.

27. Negative interest rates would have unknown consequences

BECKY QUICK: On a related question, (Chi Shen Lai from Taiwan) wrote in on this, too, and said, “If you can borrow money at a guaranteed low, or even zero, interest rate, is it still worthy of borrowing money for not that guaranteed cost from the insurance operation?”

WARREN BUFFETT: It reduces the value of float by a substantial amount. And we have a flexibility with our float that virtually no one has. And I’ve written about this in the annual letter. But the value of float has gone down dramatically because everything is — everything is off of interest rates. And when you get to negative interest rates — the country can borrow at negative interest rates — you get into something that’s kind of akin to the St. Petersburg Paradox. And those of you who want to search, you can find some interesting things on it. But it becomes infinite then. It’s a crazy consequence of a bunch of abstract mathematics, where you get there. But you lose gravity entirely. And, you know, if you tell me that I’m going to have to lend money to the government at minus two percent a year, and I’m talking nominal figures, not — you know, you’re just telling me how I’ll go broke over time (laughs) if I do that. So, it pushes you to do other things. And, of course, we’ve seen it.

Well, we saw the rest of the world do it in even more extreme fashion. But nobody — Paul Samuelson, brilliant man — nobody thought you could do this. And we don’t really know what the consequences are. But we know there are consequences, obviously.

28. “It’s a killer” to compete with SPACs buying with other people’s money

BECKY QUICK: This question comes from Sam Butler. And it says he’s been a shareholder for many years, and asks, “What impact does the rise of so many new SPACs have on Berkshire’s ability to find and close new acquisitions?”

WARREN BUFFETT: Well, it’s a killer. The SPACs generally have to spend their money in two years, as I understand it, so they have to buy a business in two years. If you put a gun to my head and said, “You’ve got to buy a big business in two years,” you know, I’d buy one. But (laughs), it wouldn’t be much of one. You know, we look and look. And now there are, I don’t know how many, whether it’s hundreds —there’s always been the pressure from private equity funds. I mean, if you’re running money for somebody else, and you’re getting paid a fee, and you get the upside, and you don’t have a downside, you’re going to buy something. I could tell you about a — I had a very famous — I had a call from a very famous figure many years ago who was involved in it and wanted to learn about reinsurance. And I said, “Well, I don’t really think it’s a very good business.”

And he said, “Yeah.” (Laughs) “But,” he says, “if I don’t spend this money in six months, I’ve got to give it back to the investors.” So, you know, it’s a different equation that you have if you’re working with other people’s money, where you get the upside and you have to give it back to them if you don’t do something. (Laughs) And, frankly, we’re not competitive with that, you know? And that won’t go on forever. But it’s where the money is now, and Wall Street goes where the money is. And it does anything, you know, basically that works. And SPACs have been working for a while, and you stick your — a famous name on it and you can sell almost anything. It’s — but it’s an exaggerated version of what we’ve seen in kind of, well, gambling (unintelligible) type market.

In fact, I did have a quote from (economist John Maynard) Keynes that we might put up on the — let’s see if I’ve got — yeah, this is probably the most famous — one of the most famous quotes in history, because it really sums up the problem of the fact we’ve got the greatest markets the world could ever imagine. I mean, imagine being able to own parts of the biggest businesses in the world, and putting billions of dollars in them, then take it out of — you know, two days later. I mean, compared to farms or apartment houses or office buildings, where it takes months to close a deal, I mean, the markets offer a chance to participate and invest in earning assets on a basis that’s very, very low cost and instantaneous, huge, all kinds of good things. But it makes its real money if they can get the gamblers to come in, because they provide more action and they’re willing to pay sillier fees and all kinds of things. So, you have this incredible, huge asset to humanity, but it really makes its money when people are doing stupid things. I mean, that’s where the money really is.

And Keynes wrote this 1936 — it says 1939 on the slide, but he wrote it in 1936 in “The General Theory” — that, you know: “Speculators may do no harm as bubbles on the steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done.” Well, the stock market — we’ve had a lot of people in the casino in the last year. You have millions and millions of people have set up accounts where they day-trade, where they — where they’re selling puts and calls, where they — I would say that you had the greatest increase in the number of gamblers, essentially, that — and there’s — you know, there’s nothing wrong with gambling. They got better odds than they’ve got if play the state lottery. But they have cash in their pocket. They’ve had action. And they actually, you know, have a lot of good results.

And if they just bought stocks, they’d do fine, and held them. But the gambling impulse is very strong in people worldwide, and occasionally it gets an enormous shove. And conditions lead to this place where more people are entering the casino than are leaving every day, and it creates its own reality for a while. And nobody tells you when the clock’s going to strike twelve and it all turns to pumpkins and mice. The — when the competition is playing with other people’s money — or — whether — and if they’re playing foolishly with their own money — but the big stuff is done with other people’s money (laughs) — they’re going to beat us, I mean — We’re not — that’s a different game, and they’ve got more – they’ve got a lot of money. So, we’re not going to have much luck on acquisitions while this sort of a period continues. But it’s happened before. This is about as extreme as we’ve seen it, isn’t it, Charlie? Or —

CHARLIE MUNGER: Yes. Of course, I call it fee-driven buying. In other words, it’s not buying because it’s a good investment. They’re buying it because the advisor gets a fee. And, of course, the more of that you get, the sillier your civilization is getting. And to some extent, it’s a moral failing, too. Because the easy money made by things like SPACs and total return derivatives, and so on and so on — you push that to excess, it causes horrible problems for the civilization. And it reflects no credit on the people who are doing it, and no credit on the regulators and voters that allow it. So, I think we have a lot to be ashamed of in the current conditions.

WARREN BUFFETT: But it’s where the money is.

CHARLIE MUNGER: Yeah, but we still have — (laughter) — it’s shameful what’s going on, you know? It’s not just stupid, it’s shameful.

WARREN BUFFETT: It’s not — I don’t regard it as shameful on a lot of the people that gamble. I mean, gambling is a very human instinct, and they’ve got money in their pocket, and they know somebody else has made money who they don’t think’s any smarter than they are, and —

CHARLIE MUNGER: No, no, I don’t mind the poor fish that gamble. I don’t like the professionals that take the suckers.

29. We have $70 to $80 billion “we’d love to put to work,” but can’t with prices so high

BECKY QUICK: All right. Moshe Levine writes in — he’s an American living in Israel. He says, “If you deem stock prices to be overvalued or in a bubble, do you think it’s best to keep your money in cash while waiting for prices to come down to a fair price, or would it be a better idea to invest this money in some way while waiting until stock prices are fair again, and then sell the investment to buy the stocks?”

WARREN BUFFETT: Well, Charlie and I have had that discussion on a lot of things. We bought some stocks we really don’t know that much about, but I’m not really comfortable doing that.

CHARLIE MUNGER: We’re used to shooting fish in a barrel, but that’s gotten harder. (Laughter)

WARREN BUFFETT: We’ve got probably 10% to 15% of our total assets in cash beyond what I would like to have, just as a way of protecting the owners and the people who are our partners from ever having — having us ever get in a pickle, you know. We really run — Berkshire makes sure that — we don’t want to lose a lot of other people’s money who have — will stick with us for years. We can’t help what somebody does that buys it today and sells it tomorrow. But we’ve got a real gene that pushes us in that direction. But we’ve got more than we — we’ve got probably 70 or 80 billion, something like that, maybe, that we’d love to put to work. But that’s 10% of our assets, roughly. And we probably won’t get — well, we won’t get a chance to do it under these conditions. But conditions change very, very, very rapidly sometimes in markets. And we do have people that would like the join us, but the market option they have is just too great for them.

And if they’re publicly traded, I mean, they basically can’t — they would have great difficulty in making a deal with us because somebody else would come along with — using other people’s money. It’s — you know, we may be unhappy about the 70 billion, but we’re very happy about the other 700 billion (laughs). And so, it’s not like — not like we should complain.

30. Why we sometimes buy stocks we’re not wild about

BECKY QUICK: Warren, when we spoke before the annual meeting, you said that it was OK if I asked a follow-up or two, and I’d like to —

WARREN BUFFETT: Sure.

BECKY QUICK: — take one of those right now. You said you bought some stocks that you don’t know a lot about. What are they?

WARREN BUFFETT: Well — I will not get into naming (laughs) what we — stocks. And it may be that there’s some there that I think I know about that I don’t know about. But we have bought stocks where Charlie and I — I mean, we know the business, generally — but we don’t have any insights. And they are, as a group — if I had — if they told me I was going to be shot unless I got the best result, I would rather own those stocks than the Treasury bills we own. But, on the other hand, we work with quantities of money where if we put 50 billion into the things that I’m kind of so-so about, but that are better than Treasury bills, it doesn’t — I’m not wildly comfortable about that, even though it can be undone. Selling 50 billion to — when it’s really attractive to buy something else, there’s a lot of — there’s a lot of slippage that can happen in moving sums like that around. So, that’s something we talk about all the time. They’re good companies.

They’re fine companies. But do we know something about those companies, or have a way of evaluating that gives us an edge? The answer — I think — what do you feel about it, Charlie? We’ve talked about it a lot.

CHARLIE MUNGER: Well, of course, it’s a lot harder.

31. Munger: Bernie Sanders has accidentally won his fight against wealth inequality

CHARLIE MUNGER: And I think one consequence of the present situation is that (Senator) Bernie Sanders (I- Vermont) has basically won. And that’s because the — with the — everything boomed up so high and interest rates so low, what’s going to happen is the Millennial Generation is going to have a hell of a time getting rich, compared to our generation. And so, the difference between the rich and the poor in the generation that’s rising is going to be a lot less. So, Bernie has won.

Afternoon Session

1. Motivation determines the morality of share repurchases

BECKY QUICK: Right, this question comes from Denny Poland, a shareholder from Pittsburgh. “A prominent senator (Sen. Elizabeth Warren, D-Massachusetts) recently categorized share buybacks as a form of market manipulation. You’ve often said that repurchasing shares at prices below intrinsic value benefits continuing shareholders. “Could you and Charlie please elaborate on the higher order effect that these share repurchases have on society?”

WARREN BUFFETT: Yeah, they’re a way of — they’re a way of, essentially, of distributing cash to the people that want the cash when other co-owners mostly want you to reinvest. And it’s a savings vehicle. If the four of us sitting at this table decided we’d buy a few Dairy Queen franchises, we form a little company, and we all put in a million dollars or something like that, and we buy the Dairy Queen franchises, and they’re doing well. And three of the four of us want to keep buying more Dairy Queen franchises. And we’re not done building and saving for the future. And we’re in the wealth creation business. And the fourth one says, “Listen, I’ve gotten rich enough. I’d rather take some money out.” And, well, there’s only two ways to do it. We can pay dividends to all four of us, three of us — of whom don’t want it.

And we can repurchase the shares at a fair price — if it’s just the four of us — we pick out a fair price and the fourth one gets bought out of his interest. I find it almost impossible to believe some of the arguments that are made that it’s terrible to repurchase shares from a partner if they want to get out of something (laughs) and you’re able to do it at prices advantageous to the people who are staying. And it helps slightly the person that wants out. And a majority of the Berkshire shareholders — a great majority — we had a vote on dividends one time — we’ve got savers. Now, that’s partly because we’ve advertised ourselves as being that sort of a vehicle. We’ve created that something. We’ve stuck with it for 57 years. And people look — individuals — a huge number — look at Berkshire as something they’re going to own till they die. Now they may — their circumstances may change. Their needs may change. But the savers generally keep saving. We just recently had somebody that (unintelligible) 60 years ago, and billions of dollars.

And they just — they weren’t saving, exactly, for their old age, just was sort of built into them that they liked to do it. Now, philanthropies will get a lot of money and so on. It’s the most — what could be more logical than, if a very small minority of your holders want to get out, and most of them want to stay in, and the person that wants to get out wants the money, you don’t give the money to everybody. You give it to the one who wants it. And you do it at a price that is beneficial to most parties. On a private deal, you’d work out the fair value. The market tells you the value, in the case of a publicly traded company. Charlie, got anything?

CHARLIE MUNGER: Well, if you’re repurchasing stock, just a bull it higher, it’s deeply immoral. But if you’re repurchasing stock because it’s a fair thing to do in the interest of your existing shareholders, it’s a highly moral act. And the people who are criticizing it are bonkers.

2. Tax law change wouldn’t affect Berkshire’s no-dividend stance

BECKY QUICK: OK, this comes from Gary Gambino. He wants to know “if Berkshire would switch it’s capital return policy to dividends from buybacks if the capital gains rate goes up to 43.4%. Dividends would be far more taxed-advertised for shareholders under that scenario.”

WARREN BUFFETT: Yeah. We literally did have a vote by our shareholders. Now, we’ve got a different group of shareholders than a REIT would have or, you know, an MLP might have. I mean there’s different — people select what they go into. And people that go into SPACs are hoping the stock goes up next week, you know, I mean, basically, and — We’ve got a bunch of people that were assembled over 55 years, but they started with a base of people that — it was a lifetime investment. And if they wanted to cash out, they thought they’d get a fair price at that time. But they really didn’t — they bought it with no intentions like that. So, we had a vote, and I think it was something like 97% or something of the shares said they don’t want a dividend. And now, that wouldn’t be true at other companies.

And it would be crazy to be paying a regular dividend, like Coca-Cola has done for many years, and then, all of a sudden, change the policy on millions of people who had bought it with one expectation in mind, and try and change it into a different animal. But Coca-Cola isn’t going to change to Berkshire, and Berkshire isn’t going to change to CocaCola. We’ve got a different group of owners. And it will keep self-selecting, because people have a choice every day: which do you want — sort of thing do you want to be in? And Berkshire is a certain kind of animal in that respect. So, we will not — if they jig around the tax laws, I mean, that’s really got nothing to do with the decision. I mean we’ve got a very substantial majority of people that want us to reinvest the money. And what they’re more concerned about is whether we find something to do with the money, the hundred billion or something. And repurchasing shares is something that helps them in their — they own a larger percentage of Berkshire as they go along. And they’d love to see us buy another business.

But they don’t mind us intensifying their interest in the present business.

3. Buffett voted for Biden but doesn’t want to talk taxes at the meeting

BECKY QUICK: You had a lot of questions that came in on taxes. So, I’ll run through a few of them. We’ll see, kind of, how many of you answered them — how many you answer before we get to them. But this one came from Arthur Lewis in Denver: “What are your thoughts on the new administration’s capital gains, corporate tax, and stepped-up basis tax increases?”

WARREN BUFFETT: Well, if Charlie wants to answer that, I’ll be glad to have him do it. I, long ago, many times, have said that I don’t put my political opinions or anything in a blind trust when I take this job. But I also don’t speak for Berkshire Hathaway. I mean we’ve got people that have very different views on taxes. And, you know, I’ve expressed some things in the past. I don’t like to speak on behalf of — when I’m sitting in a Berkshire Hathaway annual meeting, presumably, speaking for Berkshire, I don’t really like to get into political questions, generally. I don’t really think I should. But I also think, if somebody asked me who I voted for the last election, on a personal basis, I voted for Biden. But I don’t — I’ve never asked a single employee of ours who they voted for, you know, anything of the sort — what religion — it just — it’s — and I am not authorized to go around signing my name as chairman of Berkshire Hathaway to proposals.

If I wrote op-ed pieces, I do it as an individual. I try and make it clear. So, I don’t think I’ll use — I don’t want to use the meeting to give a lot of views on taxes. Charlie?

CHARLIE MUNGER: No, but —

4. Munger on tax hikes: “Mistake to be basically anti-capitalist”

CHARLIE MUNGER: I think it’s probably a mistake to be basically anti-capitalist. I think capitalism is what raises GDP for everybody. And so — And I have also a feeling that Benjamin Franklin was right when he said that, “It’s hard for an empty sack to stand upright.” And to some extent, the prosperity of leading American institutions helps them behave better. Now, there are exceptions in promotional finance, and so on. But, by and large, Franklin was right. And so, I’m a little wary of just constantly being mad at people because they have a little more money.

5. Munger on taxes: “It is stupid for states to drive out their wealthiest citizens”

BECKY QUICK: Charlie, there was a question that came in specifically to you on the tax issue (from Tony G. Lee of El Monte, California). “Over the years, and with emphasis in 2020, we’ve heard people leaving California for various reasons, such as high cost of living, high taxes, etc. I understand that you believe it’s dumb for states to have policies and laws that provoke rich residents leaving. But are your thoughts — what are your thoughts on those people leaving? What keeps you in California?”

CHARLIE MUNGER: Well, that’s a very interesting question. I have frequently said I wouldn’t move across the street to save my children 500 million in taxes. And so, I have — that’s my personal view on the subject. But I do think it is stupid for states to drive out their wealthiest citizens. The old people, they don’t commit any crimes. They donate to the local charity. Who in the hell in their right mind would drive out the rich people? I mean Florida, and places like that, are very shrewd. And places like California are being very stupid. It’s contrary to the interests of the state.

6. It’s “fiction” that all corporate tax hikes are passed on to consumers

BECKY QUICK: One more question for you. Jack Robbins asks, “How will a 25 to 28% corporate tax rate affect Berkshire’s companies?”

CHARLIE MUNGER: Well, I don’t think it would be the end of the world. We’ve adapted to the tax rate, whatever it is.

WARREN BUFFETT: Yeah. I would say, if they raise the tax rate, they’re owning a — the federal government’s owning a larger percentage of the business. I’m not — but I’m not saying what the tax rate is. But we have a Class A stock and a Class B stock. The U.S. government owns what I call the Class AA stock. And it’s a very special stock. They get a percentage of the earnings, but they don’t own the assets. And they don’t vote on who gets to run the place or anything else. But if the government wants to take — when I was first starting, they used to take 52%, the federal government did, of corporate profits. And they’ve got — what would you pay to own the government’s Class A — double-A — stock? If there was a public issue by the U.S. Treasury and they said this vehicle — give it a name like SPAC or something even sexier, but — and all it will do is it owns the future tax payments of Berkshire Hathaway forever. And how much is that stock now worth?

And it gets — and it’ll pay a big cash dividend, and they’ll go up as we retain earnings and build the company and everything else. Well, it’s worth more if it’s — if the tax rate is 25% or 28% or 52%, than at 21%. They own a special stock. And when people talk about how it all gets passed through to the customer and everything — in the utility business, it actually does. That’s a special case. But it doesn’t — it doesn’t in most of our businesses. I mean it’s just — it’s a corporate fiction when they put out statements about the fact that this will be terrible for all of you people who have — (laughs) — if we pay more taxes. It hurts the Berkshire shareholders if rates are higher. And that may be quite appropriate. But to say otherwise is just — it doesn’t make any sense. I would love to see the government actually issue — they could have — I mean they could set up a company. Just call it the Berkshire Hathaway Tax Company. And it would take all the taxes we paid every year.

How much would they be able to sell that asset for? They talk about unfunded obligations of the government. That’s an unreported asset of the federal government. They own part of Berkshire, and they get to determine how much. I mean, it’s an interesting question.

7. Buffett: I’d like my money to go to philanthropy rather than reduce the national debt

BECKY QUICK: One last tax question. This one comes from William Barnard, who says, “In the Owner’s Manual, a portion of your annual report, Warren, you state, ‘On my death, none of my stock will have to be sold to take care of the cash bequests I’ve made or for taxes.’ “Would the recent Biden proposal to treat unrealized gains as sold and taxable at death at a 43.4% rate change the amount of stock required to be sold for payment of taxes upon your death?”

WARREN BUFFETT: Yeah. Well, the tax law can be changed tomorrow. And I don’t — you know, it can be done a lot of different ways. And it’s been done a lot of different ways in the past. I can tell you — I can actually make a promise to society, that 99.7% of what I have when I die will either go to philanthropy or to the federal government. And the federal government can actually determine the rules on that. And no, I would prefer that it would go to philanthropy. I think it actually will accomplish more utility if it goes to be used by some smart people in philanthropy than if it simply reduces the federal debt by a hundred billion dollars or something when I die. I don’t think it makes a damn bit of difference (laughs) you know, if the federal debt is 100 billion higher or lower. It won’t change anything in the world. And in present days, it doesn’t really save them anything, because they can borrow a hundred billion, and it doesn’t cost them anything anyway. But that debt condition won’t prevail.

But I don’t — I would not regard — I’m just talking personally, I’m not really advocating as this public policy. But I wouldn’t — if they took it all, you know, it would not bother me. I mean it —

CHARLIE MUNGER: I guarantee it won’t bother you.

WARREN BUFFETT: Yeah! (Laughter) Charlie says, “You won’t know.” (Laughter) You know, if you decide — if American democracy decides that it’s better to take it all — which I don’t think they will, and I don’t think they should — but nevertheless, you know, so what, you know? (Laughs) I would like to see it used to accomplish the most for humanity. I mean, and that means having smart people, properly motivated — and more importantly, not improperly motivated — distribute it in a way — and who knows what the hell it would be, 10, 20, 30, or 40 years from now? I do know, if it goes to government, it basically reduces the national debt by that amount. I don’t think it changes whether they change the minimum wage laws or does anything else. (Laughs) I just think that little figure changes. It’ll be — you know, it’ll show up in the budget one day, you know, received from Buffett, you know, X, and then (laughs) some huge figure appears down below.

I don’t think it really — so I would prefer it be used privately. But that’s really up to the people in the United States to decide through their representatives.

8. Pandemic risk was “totally underpriced” by insurance industry

BECKY QUICK: Now this next question’s for Ajit. It comes from Professor Don Wunsch at the Missouri University of Science and Technology, who says, “Mr. Jain, what has COVID-19 taught us about systemic and correlated risk? And is there anything that we will do differently from now on?”

AJIT JAIN: Yeah. In the insurance business, we often think about pandemic risk as one of the risk factors that we need to cope with in our business. Having said that, I think the big lesson for us, having gone through what we’ve gone through recently, is that, while we were aware of the fact that pandemic risk is a risk factor, it was totally, totally underpriced by all of us in the industry.

AJIT JAIN: Several of us thought it’s an event that’ll happen, at most, once in a hundred years. And even then, those odds are pretty high. So, I think the big lesson for us is to recalibrate and rethink about what the return time is for something like a pandemic risk. And separately, we haven’t yet done a good enough job as an industry, I’m saying, in terms of correlating the risk and aggregating the risk and making sure we can deal with the aggregate numbers. For example, pandemic risk has obviously taken the lives — taken people’s lives. But then separately, a bunch of us used to write something called “event cancellation,” or “contingency” policies. And, in terms of pricing for the contingency policies, like the Olympics being canceled, NBC would buy insurance for their rights, which might suddenly be not worth much. And when pricing something like that, we would think in terms of earthquake and risk and, more recently, terrorism. But we would never factor something like what portion of the price should come from the pandemic exposure.

So, I think the industry will become a lot more sophisticated, in terms of thinking through what is the impact of pandemic risk across the entire portfolio, as opposed to it just being localized to one or two areas.

BECKY QUICK: And I’m sorry, Don asked if anyone else on the stage wanted to comment after Ajit on that same topic.

WARREN BUFFETT: I missed that.

BECKY QUICK: Oh, he was just looking if anyone else on the stage wanted to comment on that.

WARREN BUFFETT: Well, as Ajit mentioned, people were throwing in — well, in event cancellation, you know, I mean lots of people buy insurance against the Olympics being canceled, or the United States not participating. I mean they try to think of all kinds of risk because they have ad campaigns based upon all — So, there’s a lot of event cancellation insurance. And it was probably underpriced — the implicit part of that premium that was attributable to a pandemic risk. I mean, you know, Bill Gates gave a terrific talk at Ted events five or six years ago, and people ignored it. And it’s very interesting, because this isn’t a worst case, what we’ve seen. And yet, it’s staggering, in terms of what has happened. And people that wrote insurance, that — they may have found out, sometimes, that they were covering things they didn’t want to — didn’t even intend to cover and maybe the insured didn’t think they were buying. But nevertheless, after the event occurs, that they get very inventive in coming after them. There are certain risks, too, that are just too big.

The nuclear risk, for example. I mean the federal government is, very early on, recognized it. The private insurance industry — they can’t handle the risk involved in — the financial risk — that would be involved in terms of a massive nuclear strike or something like that. So, it’s — Pandemics — the wording will be much more careful (laughs) in future policies on trying to define it very precisely. And incidentally, I mean, in the way the cases have come so far, in the United Kingdom — I mean, and I think there was one particular insurer — I mean, the cases are coming down much tougher on insurers than in the United States. I mean, the policies were just written differently. You don’t — you don’t get insurance against something you don’t buy (unintelligible) for. And generally, the court decisions have come down favorable to insurers. And at Berkshire, it just so happens, we are not a big player. But that’s — in commercial multiple peril — which might be where — it is not a huge factor for Berkshire.

9. Berkshire COVID-19 insurance payouts will be “a lot, lot higher” than current reserve of $1.6 billion

BECKY QUICK: This follow-up question is from Martin Devine. And he asks both Ajit and Warren, “What’s your best estimate of Berkshire’s insurance claim exposure from the COVID-19 pandemic?”

AJIT JAIN: Well, in terms of reserves, starting from last year to the end of the first quarter this year, we have put up a billion-six and change, in terms of reserves. Now, what that doesn’t take into account is some of the frequency benefit because of COVID19 that results because of fewer accidents. And GEICO has had a huge tailwind because of that. But in terms of what the insurance operations collectively are going to be writing checks for, that number, as of now, is about a billion-six. And my guess is that’ll probably grow. Because if you look upon it — the industry as a whole has reserved — we reserved 1.6, as I mentioned — the industry as a whole has reserved about 25 to $30 billion for COVID-19 as of now. If you believe the pundits in the industry, they will tell you that number is probably going to be closer to a hundred billion. So, there’s another, about 70-75 billion dollars of COVID-19 losses that need to flow through insurance industry’s balance sheet and income statement.

Our number, therefore, of 1.6 that we have as of now, is going to be a lot, lot higher. But it’s not something that we cannot manage completely.

WARREN BUFFETT: Yeah. We will not be in the top five payers of, my guess, of insurance claims, even though we’re — it’s — And we write a much smaller amount of both life insurance and annuities, actually. And, you know, in the end, we get — we had more life insurance claims. But the annuities are not going to last. More people will have died that would have otherwise got payments on their annuities. It cuts a lot of ways. It’s — it’s a — you know, one of the great human catastrophes of all time. But it is not that big in insurance. And I would say this, if the insurance industry thinks they’re going to lose a hundred billion dollars, the hundred billion ought to be up on their books now, I mean — (Laughs) The idea of feeding in losses — you’ve got a liability.

And our goal is not — our goal is to have — put up the liability when we think it’s happened, and — If — we should not be at a billion-six, I would say this, if we really think we’re going to have some proportional share of a hundred billion. But — But that’s enough said on that. (Laughs)

10. Kansas City Southern acquisition won’t have huge impact on BNSF

BECKY QUICK: This next question is for Greg, but also for Warren and Charlie. It’s from Blair Miller, who asks, “What does the combination of Kansas City Southern with either Canadian Pacific or Canadian National mean to BNSF, in terms of competition? “And do you think the synergies of the merger will justify the multiple paid?”

GREG ABEL: Sure. So, obviously, a transaction we followed very closely with both Canadian National and Canadian Pacific bidding to purchase Kansas City Southern. Either of those companies acquiring Kansas City Southern will have an impact on BNSF. We — what they’re basically proposing is to create a north/south railway that goes from Canada into Mexico. We do have a strong presence in Mexico — not as strong as some of our competition. But we would feel competition there. So, we’ll follow that transaction very closely. As it goes before the Surface Transportation Board, the standard that will be applied is that competition has to be protected or enhanced. So that’s our opportunity to protect our franchise on behalf of our customers. So, we move intermodal business both in and out of there on behalf of certain customers. We’ll want to protect the rights of our customers there. So, we’ll be active in the approval process. But there’s no question, in the end, it impacts our franchise. Warren?

WARREN BUFFETT: Yeah, it’s not huge. But it affects both the Union Pacific and BNSF to a small degree — a relatively small degree. But that’s— that’s not really the worry of the Surface Transportation Board. Their job is to do what’s best for the shippers. And in terms of the price that’s being paid, you know, like you say, if you can borrow all the money at nothing — for nothing — you know, (laughs), it doesn’t make much difference to people. And this would not be being paid under a different interest rate environment. I mean it’s very simple. But it would make — there’s no magic to the Kansas City Southern. It’s got a — I think their deal with Mexico ends in 2047. It’s — it’s — you know, it will — the number of carloads carried and everything, it’s not going to change that much. But it is kind of interesting. There’s only — there’s two major Canadian — what they call Class I railroads.

And there’s five in the United States. And this will result, you know, in essentially, three of the units being Canadian, four being U.S., which is not the way you normally think of (laughs) the way of the development of the railroad system would work in the United States. But it’s — you know, we’ve talked about it plenty. And CP — or either Canadian Pacific or Canadian National — is very likely to get it. I think the Surface Transportation Board will — voted four-to-one, didn’t they, the other day? Didn’t get —

GREG ABEL: They voted on an initial trust structure that they had to approve for Canadian Pacific. And that was a four-to-one vote, as you noted, Warren.

WARREN BUFFETT: Yeah.

GREG ABEL: So, they’re moving forward with the evaluation of it.

WARREN BUFFETT: Yeah. And normally, railroad deals are very long — take a long time for them to evaluate. But in this case, I think they have two opposing trust proposals. And in effect, by making a — if they make a quick decision on the — which trust proposal they allow — I don’t see how you allow two proposals, exactly. So, it may be a very accelerated decision, not — I don’t know. But it’s up to the Surface Transportation Board to do what’s best for what their obligation is to the country to do.

BECKY QUICK: There was a follow-up question on that —

WARREN BUFFETT: Sure.

BECKY QUICK: — do you think the valuation that they’re paying is worth it?

WARREN BUFFETT: Well, we — in a very, very mild way. I mean, everybody’s kind of played at making deals with different railroads, you know, ever since I’ve been in the railroad business. (Laughs) So, you know, we’ve talked about it. When CP — when Hunter Harrison or — you know, came after — was it Hunter that bid on CP that kind of led the way? And, you know, we looked at buying CP. I mean, everybody looks at everything, and — We would not pay this price. And it implies a price for BNSF that’s even higher than what the UP is selling for. But, you know, it’s kind of play money, to some degree. I mean when interest rates are this low, and I’m sure from the standpoint of both CP and CN, there’s only one KC Southern. And they’re not going to get a chance to expand — they’re not going to buy us, they’re not going to buy the UP. And the juices flow, and the prices go up, and —

CHARLIE MUNGER: They’re buying it with somebody else’s money.

WARREN BUFFETT: Yeah, it’s somebody else’s money. And you’re going to retire —

CHARLIE MUNGER: Yeah.

WARREN BUFFETT: — in five or 10 years. And people are not going to remember what you paid, but they’re going to remember whether you built a larger system. And the investment bankers are cheering you on at every move. You know, they’re saying you could pay more, and this is the — you know, and they’re moving the figures around, the spreadsheets are out, and the fees are flowing. (Laughs)

11. Successful acquisitions naturally become a bigger part of the business

BECKY QUICK: This question comes from Asher Haft in Brooklyn, who says — Asher’s been a shareholder since 2006. Says that he appreciates your honestly and candidness when it comes to explaining costly errors you made. “In this year’s chairman letter, you discussed that you made a mistake in 2016 when calculating Precision Castpart’s average amount of future earnings, which resulted in Berkshire overpaying to acquire it. “It appears that Precision’s earnings declined substantially in 2020 because of the pandemic and the effect of airline and travel industry. What calculations could you have made in 2016 that might have altered your decision to acquire it? And secondly, are the problems Precision is currently facing larger than the pandemic?

WARREN BUFFETT: Well, Berkshire didn’t make the mistake, I made the mistake, incidentally. (Laughs) No, any time we look at buying a business, we’re evaluating the competitive strengths of the business, the price we have to pay, the management we get and everything. And we didn’t make a mistake on the management. But in terms of the earning power, on average, and, you know — when Boeing has troubles with the Max, well, that’s a probability. I mean, any time, any customers of big — I mean, all kinds of things can happen. And we have seen some of those things happen. And therefore, I paid too much, in relation to average earnings. It’s a terrific company. And, you know, it’s — I’m happy with the management and everything, and — But GE doesn’t need as many engines as we thought they would need. (Laughs) And they get into the power business, and a variety of things. And we knew they were in the businesses.

But we did not think those businesses would necessarily be in something close to a depression when other businesses are — that we bought end up, sometimes, doing better than we think. But we’ll continue making mistakes. I mean — and I shouldn’t say we will — I will. But even these other —

CHARLIE MUNGER: The rest of us will help. (Laughter)

WARREN BUFFETT: And we’ll — you know, we’ve got some wonderful deals, and some terrible deals. And the nice thing about it is — as I pointed out, this doesn’t really apply in the case of Precision, precisely — but when we’re disappointed in a business, it usually becomes a smaller and smaller percentage of our business, just by the nature of things, because it isn’t going anyplace. And when we get a successful business, like a GEICO or something of the sort — GEICO’s doing — they’re doing 15 times as much business as when we bought control in 19 — they become a proportionally much more important part of our mix. So, you really get, through just natural forces, you get more of your money in the things that have developed more favorably than you thought. You actually end up getting a greater concentration in the ones that work out. It’s not like — as Charlie would say, it’s not like having children. I mean — (Laughs) The one that — the bad ones cause you more problems.

(Laughs) But the — in this — in the children of businesses, the small ones kind of — by the way, we started with three businesses, Charlie and I. And Berkshire was textiles, Diversified Retailing was a department store, and trading stamps were Blue Chip’s business. And those were the three companies we put together. And all three of the original businesses failed. Which sort of gets me, in terms of the people that are worried about, don’t we know that coal is going to be phased out over time? (Laughs) Of course, we know coal’s going to be — you know, but that doesn’t mean we’re going to be phased out over time. I mean that — Every business has some things to think about, about that way.

12. Top “risk factor” for any business is getting the wrong management

WARREN BUFFETT: The biggest danger — they have that section in the prospectus called, what do they call that? About — certain —

GREG ABEL: Risk factors.

AJIT JAIN: Risk factors.

WARREN BUFFETT: Risk factors, yeah. The number one risk factor — you never see it — the number one risk factor is that this business gets the wrong management. And you get a guy or a woman in charge of it that are — they’re personable, the directors like them. They don’t know what they’re doing, but they know how to put on an appearance. That’s the biggest single danger that a business — and that that person stays and runs it for 10 or 15 years, and either stays in the textile business or department store business and expands. (Laughs) And, you know, I’ve looked at a lot of businesses. And that’s what’s caused the number one problem. And it isn’t the kind of thing where they list them all because the lawyers tell them to list them.

13. Buffett follows politician’s lead and dodges Bitcoin question

BECKY QUICK: This question comes from Raghu Baichwal, and it’s for both Warren and Charlie. “Now that the crypto market overall is valued at $2 trillion, do you still consider cryptos as worthless artificial gold?”

WARREN BUFFETT: (Laughs) Well, I knew there’d be a question on Bitcoin or crypto. And I thought to myself, well, I’ve watched these politicians dodge questions all the time, you know. And I always find it kind of disgusting when they do it, but the truth is, I’m going to dodge that question, (laughs), because we’ve probably got hundreds of thousands of people watching this that own bitcoin, and we’ve probably got two people that are short. So, we got a choice of making 400,000 people mad at us and unhappy and — or making two people happy. And that’s just a dumb equation. So, I thought about it. We had a governor one time in Nebraska — a long time ago — but he would get a tough question, you know, what do you think about property taxes? Or, you know, what should we do about schools? And he’d look right at the person and he’d say, “I’m all right on that one!” (Laughter) And then he’d just walk off.

Well, I’m all right on that one, and maybe we’ll see how Charlie is. (Laughs)

14. Munger: “Of course, I hate the Bitcoin success”

CHARLIE MUNGER: Well, those who know me well are just waving the red flag at the bull. (Laughter) Of course, I hate the Bitcoin success. And I don’t welcome a currency that’s so useful to kidnappers and extortionists and so forth, nor do I like just shoveling out a few extra billions and billions and billions of dollars to somebody who just invented a new financial product out of thin air. So, I think I should say modestly that I think the whole damn development is disgusting and contrary to the interest of civilization. And I’ll leave the criticism to others. (Laughter)

WARREN BUFFETT: I’m all right on that one! (Laughter)

15. Our Texas energy proposal may not be the best, but it’s better than Musk’s

BECKY QUICK: The next question that comes in — or the next series of questions — are from James Hernandez. He has two questions, one for Ajit and one for Greg. They both concern Elon Musk. For Greg, this question is for you. “Elon Musk has stated that Berkshire Hathaway’s energy proposal for Texas, spending more than $9 billion for new generating capacity, is wrong. Instead, Mr. Musk argues that load balancing using battery storage is the appropriate course of action. “Can you explain why the BHE proposal is the better course of action for Governor (Greg) Abbott and the state of Texas? Specifically, what amount of savings can the citizens of Texas expect above and beyond what Mr. Musk is proposing?”

GREG ABEL: Sure. So the — obviously, there is the very unfortunate event in Texas in February. And it basically lasted four days. Many lives were lost. The economic damage was significant. Texas has highlighted that anywhere from 80 to $130 billion in incurred losses over that period of time. I think when you look at the power sector, it fundamentally let the citizens down. It didn’t perform as they expected. And then when it did perform, it was extremely expensive. They incurred billions and billions of dollars of energy costs versus a multiple of, basically, 10 times what they paid — they paid 10 times in energy costs over those four days what they paid in the past year. So, a very substantial event for Texas. We’ve gone to Texas with what we believe is a good solution. We spent a lot of time pulling it together, understanding the fundamental issues around it. And our proposal is really based upon the fact that the health and welfare of Texans were at risk.

And we needed to have, effectively, an insurance policy in place for them — that if they needed the power on very short notice, it would be able to be dispatched and it would be there for the four days — we’re actually proposing it could be there for seven days. And the fundamental concept of our proposal has always been, if there’s a better proposal that’s brought forward, we’ve accomplished our mission. We’ve just been really there to — it’s the best proposal or option we could come up with. And obviously if Texas or Elon or someone else comes up with a better proposition, we’ve always said, Texas, you should pursue it. We strongly believe right now we have — what remains is a very good proposal for Texas. And it will continue to be discussed and evaluated. The big difference between a battery proposal and our proposal is that we will have power that can be generated continuously for seven consistent days, where if you went to a battery solution, you may release that power that’s been stored for four hours. But we’re talking four days of a problem, not four hours. And it’s just a completely different cost equation and solution.

So, very proud that our teams brought forward what I thought was a very unique solution. We’ve worked hard with our suppliers and Peter Kiewit & Sons to put together what we believe is a firm cost that can also be delivered by November of ’23. So again, we put a firm date on — it won’t be ready next winter, unfortunately. It won’t be ready this summer. But it’s a valuable solution and one that we hope, at least, leads to the right discussion and the right long-term solution for the state.

WARREN BUFFETT: Yeah, and we’re also willing to put up $4 billion that if we don’t deliver when we say we’re going to deliver, we’ll pay it as a penalty, basically. You know, we went to Kiewit, we went to General Electric and said, you know, how long can we get turbines in the — you know. You know, if you’re going to be prepared for 2023, you have to start at a point fairly soon. And you have inflation going on. And Kiewit’s not going to change things on us in a month. We don’t try to get the contracts all written out. But they had a hundred people working on it or —

GREG ABEL: Yeah, they have hundreds working on it — (Laughs)

WARREN BUFFETT: Yeah. And, you know, and GE’s cooperative and everything — But it doesn’t mean we have the best solution. We just know what we can do. And if anybody can do it faster, they can do it cheaper, you know, whatever, that’s terrific. But they should have something to lose, though, if they don’t do it, I mean — And we will back our promise up by $4 billion, which — You know, and we won’t have any rinky-dink clauses in there that if this happens or that happens, we don’t pay. But we won’t be able to do that a year from now. I mean, we can do it a year from now with the cost then from what they are then, and then it will be a year further out. But we want Texas — Texas is a terrific place to do business. We do a lot of business there. It’s where BNSF has its headquarters. And it’s a great place.

And this was out of the blue, but one way or another — the nature of utility business is that you got to — you have to be prepared for something that probably isn’t going to happen. (Laughs) You know, you don’t want to say, well, it’s a one in 30-year event, you know, and people die. I mean, so — You want — you want a margin of safety in it. And we’ve got one solution and other people may have other solutions. And we will cheer when a solution is reached of any kind. And we will cheer a little louder if it’s ours. (Laughs)

16. Buffett jokes that decision to insure a Elon Musk mission to Mars would depend on the premium

BECKY QUICK: Ajit, your question from this gentleman. “Suppose the hypothetical situation arises where Warren Buffett calls you on the phone to tell you that Elon Musk has contacted him about writing an insurance policy on his proposed mission to, and subsequent colonization of, Mars. “Specifically, he wants insurance to insure his SpaceX heavy rocket capsule, payload, and human capital. Would you underwrite any portion of a venture like that?”

AJIT JAIN: This is an easy one. No, thank you. I’ll pass. (Laughter)

WARREN BUFFETT: Well, I would say it would depend on the premium. (Laughter) And I would say that I would probably have a somewhat different rate if Elon was on board or not on board. I mean, you know — (Laughter) No, it makes a difference. I mean, if somebody’s asking to insure something, you know. (Laughs) So, I would — that’s called getting skin in the game and — but if — you know. (Laughter)

AJIT JAIN: But in general, I would be very concerned about writing an insurance policy where Elon Musk is on the other side.

BECKY QUICK: OK.

WARREN BUFFETT: Tell Elon to call me instead of Ajit. (Laughter)

17. “Everybody’s looking” for businesses that don’t need much capital

BECKY QUICK: This question comes from Michael Liu from California. This is for both Warren and Charlie. “In your shareholder letter, you mention that the best investment results come from the companies that require minimum assets to conduct high-margin businesses. “In today’s world, many of these companies tend to be software-driven businesses. While Berkshire has avoided investing in high-growth technology companies in the past, this appears to be slowly changing with your investments in Apple and Snowflake. “As shareholders, should we expect that high-margin businesses will begin to constitute a larger proportion of Berkshire’s investment portfolio over time, particularly as (portfolio managers) Todd (Combs) and Ted (Weschler) take on larger roles in the investment decision process?”

WARREN BUFFETT: Well, we’ve always known that the dream business is the one that takes very little capital (laughs) and grows a lot. And — and Apple and Google and Microsoft and Facebook are terrific examples of that. I mean, Apple has $37 billion in property plant equipment, you know. Berkshire has 170 billion or something like that, and they’re going to make a lot more money than we do. They’re in better — it’s a much better business than we have. And so — and Microsoft’s business is a way better business than we have. Google’s business is a way better business, so — We’ve always looked — we’ve known that a long time. We found that out with See’s Candy in 1972. I mean, See’s Candy just doesn’t require that much capital. It doesn’t have — you know, it has, obviously, a couple of manufacturing plants — they call them kitchens, and — But it doesn’t have big inventories, except very seasonably for a short period. It doesn’t have a lot of receivables.

So, you know, those are the kinds of businesses — they’re the best businesses. But they command the best prices, too. And there aren’t that many of them. And they don’t always stay that way, so — We’re looking for them all the time. And we’ve got — we’ve got a few that are pretty darn good. But we don’t have anything as big (laughs) as the big guys. But that’s what everybody’s looking for. That’s what capitalism is about. People getting a return on capital. (Laughs) And the way you get it is having something that doesn’t take too much capital. I mean, if you have to really put out tons and tons of capital — utility business is that way. It’s not a superhigh return business. You just have to put out a lot of capital. You get a return on that capital, but you don’t get fabulous return. You don’t get Google-like returns, you know, or anything remotely close to it.

You know, we’re proposing a return in the transaction — the proposition with Texas — I think it’s 9.3%, isn’t it —

GREG ABEL: Yeah, 9.3 —

WARREN BUFFETT: Yeah, and you know, that — but if you look at the return on most American businesses on net tangible assets, it’s a lot higher than 9.3. But they aren’t utility businesses, either.

BECKY QUICK: Charlie, did you want to add anything to that?

CHARLIE MUNGER: No, thank you.

BECKY QUICK: OK.

18. Why portfolio managers Todd Combs and Ted Weschler don’t answer shareholder questions

BECKY QUICK: This question is from Ryan Fusaro in New York City, who says, ”(Portfolio managers) Todd (Combs) and Ted (Weschler) have taken on increased responsibility at Berkshire over the years, managing larger pools of capital, including the company’s sizable Apple holdings, participating in M&A strategy, and even overseeing the company’s now shuttered health care partnership with Amazon and JPMorgan. “We are grateful for their efforts. But Todd and Ted are still not made available to shareholders at the annual meeting each year. Given their growing importance to the firm, can you discuss this policy and whether we can expect to hear from them more in the coming years?”

WARREN BUFFETT: They’re both absolutely terrific. And that’s one reason I don’t want people quizzing them on stocks. (Laughter) They are assets to Berkshire. And just — There’s no reason for them to be out educating other people on how to compete with us. You wouldn’t — it always seems so silly that people expect — they don’t expect you to — they don’t expect Merck or Pfizer or something to tell them exactly what their scientists are working on, (laughs) you know, and where they stand and what the failures have been so they can eliminated those. And, you know — If you’ve got talent that knows how to evaluate businesses — and those two fellows have been — they’ve gone far beyond that — they’re terrific assets, and they love Berkshire, and they work extraordinary hours. But we don’t really want them going around with people asking them questions about why you like this industry better than that (laughs) industry or anything of the sort.

19. Munger: “The Chinese government will allow businesses to flourish”

BECKY QUICK: This question’s for Charlie. It comes from Stephen Tedder in Atlanta. He’s been a Berkshire shareholder for 10 years and says, “You and your friend Li Lu have been very optimistic with respect to investing opportunities in China. “BYD has performed spectacularly for Berkshire since its initial purchase in 2008 and it’s currently valued at $5.8 billion. “The Daily Journal recently bought a large position in Alibaba after founder Jack Ma had been reprimanded by the Chinese Communist Party and Ma’s other company, Ant, was not allowed to proceed with its IPO. “What are your current thoughts on China and whether the communist leaders will allow businesses with strong leadership to flourish in decades to come?”

CHARLIE MUNGER: Well, I think that the Chinese government will allow businesses to flourish. It was one of the most remarkable things that ever happened in the history of the world, when a bunch of committed communists just looked at the prosperity of places like Singapore and said the hell with this, we’re not going to stay here in poverty. We’re going to copy what works. And they changed communism. They just accepted Adam Smith and added it to their communism and said now we have communism with Chinese characteristics, which is China with a free market with a bunch of billionaires and so forth. And they made that shift. They deserve a lot of credit. Warren and I are not quite as good at that as changing our minds, in many cases. (Laughs)

WARREN BUFFETT: Yeah.

CHARLIE MUNGER: And that was a remarkable change coming from such a place. And, of course, it’s worked like gangbusters. That is enormous growth in the average income of the average Chinese. They’ve lifted 800 million people out of poverty. Fast. There was never anything like it in the history of the world. So, my hat is off to the Chinese. And I think they will continue to allow people to make money. They learned it works. The Chinese — I loved what the guy (Chinese leader Deng Xiaoping) said in the first place. “I don’t care whether the cat is black and white as long as it catches mice.” That’s my kind of talk.

WARREN BUFFETT: In that list of the 20 most valuable companies that just — three are Chinese. Now if you’re looking out 30 years, you know, how many do you think will be Chinese? My guess is more. But I don’t think it will top the United States. But who knows? It’s amazing what has been accomplished.

CHARLIE MUNGER: Yeah, it’s really amazing.

WARREN BUFFETT: And they found what works. I mean, there’s (laugh) nothing like finding something that works in order to, sort of, reinforce ideas over time. And we’ll see what happens. But I would bet there will be more than three. But I will bet the United States has more than China has, too.

20. “We don’t know” if Biden’s $1.9B stimulus plan would cause inflation

BECKY QUICK: This one comes from Tim Medley — (coughs) — Sorry — Tim Medley in Jackson, Mississippi, who’s been a Berkshire shareholder since 1987. He writes, “On March 19th, respected economist Larry Summers, the former president of Harvard University and the former secretary of the treasury under President Obama, was critical of President Joe Biden’s $1.9 trillion American Rescue stimulus plan. “In an interview with Bloomberg television he said, ‘I am much more worried that we will have more inflation or that we will have a pretty dramatic fiscal monetary collision. This goes way beyond what is necessary.’ He said also, ‘This is the least responsible macroeconomic policy we’ve had in the last 40 years.’ Your thoughts?”

WARREN BUFFETT: You’re asking me on that? (Laughs)

BECKY QUICK: He didn’t write to whom. So, I guess it’s anybody on the stage —

WARREN BUFFETT: Well, I would — I would say that Larry’s been reading his uncle’s book (laughs), which was Paul Samuelson. But no, I think — Larry is a very, very, very smart fellow. And he’s laying out possibilities, which actually now have probably been voiced a little more even since that March 19th — whatever date it was — that he made that — it’s — You can’t just do one thing in economics. And if we really could shovel out more and more debt, and the carrying cost turned out to be something very low — People thought Japan couldn’t do what they’ve done. But they — you know — they — it used to be called the widow-maker around Salomon (Brothers). And people were shorting Japanese bonds, but — The answer is, we don’t know, but Larry’s view is an important view. And it’s just as good as — in my — probably — the view on the other side might be. We don’t know what happens from the present policies.

We do know, as (Federal Reserve Chair) Jay Powell said the other day, the idea that a hundred percent of GDP was some terribly dangerous level for — in terms of debt — that doesn’t really make a whole lot of sense now, and that used to be, kind of, accepted wisdom. We’ve learned that a lot of things we thought before weren’t true. But what we haven’t learned yet (laughs) is whether what we’re doing now is true. And the best thing to do is recognize you don’t know and proceed in a way where you get a decent result no matter what happens. And that’s what we try and do at Berkshire Hathaway. We do not think we can make money by making macroeconomic predictions. We do think we can — we do think we can pretty darn — be pretty darn sure we’ll get a reasonable result under policies that will not maximize result, if we could do that sort of thing.

CHARLIE MUNGER: It’s not at all clear whether Larry is right or wrong.

WARREN BUFFETT: He’s a smart man, though.

CHARLIE MUNGER: He is a smart man. And it’s courageous of him to be raising it, too. He’s practically the only one talking that way, which I admire, by the way.

WARREN BUFFETT: Yeah. It guarantees he won’t get a position in the administration. (Laughs)

CHARLIE MUNGER: Yes. Well, that’s one of the reasons I admire him.

WARREN BUFFETT: Yeah.

CHARLIE MUNGER: Not that there’s anything wrong with having a position in the administration, but I think people who kind of tell it the way they think it is, I like it.

21. “I like banks generally” but we “didn’t want as much in banks as we had”

BECKY QUICK: This question comes — it circles back to banking, which you touched on earlier. But Jerome Bonnard from Switzerland writes, “Could you please explain why you decided to exit most of your bank stocks in 2020 except for Bank of America? And what’s your view on the future of the banking industry?”

WARREN BUFFETT: I like banks generally, I just didn’t like the proportion we had in it, compared to the possible risk if we got bad results that did not — so far, we haven’t gotten. So, I just — and I — We were over 10% of Bank of America. It’s a real pain in the neck, both to the bank —more to the banks than to us, if we go over 10%, there’s just a whole lot of — And, I like the Bank of America. I mean — and I like (CEO) Brian Moynihan very much. And I like the banking business fine, so we took that up, but we took the overall bank position down. We didn’t want to go above 10 in any of the others. And we didn’t want to increase the BofA position, but we, overall, didn’t want as much in banks as we had. We like — the banking business is way better than it was, in the United States, than 10 or 15 years ago. The banking business around the world, in various places, might worry me.

But we — our banks are in far, far better shape than 10 or 15 years ago. But when things froze for a short period of time, the biggest thing the banks had (laughs) going for them is that the Federal Reserve was behind them. And Federal Reserve is not — they’re not behind Berkshire. It’s up to us to take care of ourselves.

22. Buffett declines to explain his thinking on purchase of Verizon stock

BECKY QUICK: This question comes from Matt in Los Angeles. “You recently purchased a large stake in Verizon. For educational purposes, could you please explain your thinking behind this investment? In general, many people see telecoms as dumb pipes that have to spend heavily on CapEx, building out the 5G infrastructure, only for the other tech companies to take advantage and capture most of the value created from the infrastructure, like Facebook, Uber, Airbnb, and DoorDash.”

WARREN BUFFETT: Well, I think he’s analyzed the situation well. But we are not in a — in the business of explaining (laugh) why we own a stock, which we either might buy more of, or sell, or who knows what. So, he’s on his own. But he sounds like he’s very capable of thinking it through very well himself. (Laughs)

23. We don’t spend time thinking about what happens if laws change

BECKY QUICK: Slaven Vukobrat writes in, “Senator Josh Hawley (R-Missouri) recently unveiled a new antitrust proposal that would ban mergers and acquisitions by firms with a market capitalization over a hundred billion dollars. “While this legislation is unlikely to go through, increasing antitrust regulation could represent a material risk for Berkshire. “Has Berkshire’s board already discussed what would happen to the company over the long term if Berkshire was to be prevented from acquiring controlled businesses?”

WARREN BUFFETT: Well, we don’t discuss that as a specific. But the board is very, very, very familiar with what Berkshire does — why they do it — you know, how we think in deploying capital. Buy we could — you know — Everybody knows that if you change the antitrust laws, it can change things for Berkshire. If they change the tax laws, it can change things for Berkshire. You know, there’s a lot of things, and — we can spend hours discussing them. But in the end, you know, is it a 22.3% risk that, you know, something changes? (Laughs) It’s a good way to fill the time at board meetings, and if you’re getting three or four hundred thousand dollars a year as a board director, you might want to spend your time doing that. But we really don’t focus on that. The main thing about Berkshire is how they preserve the culture, how they make sure that if you get the wrong person as the CEO, you can do something about it. That’s the biggest risk a board has is if you pick the wrong CEO.

And I’ve been on 20 boards and it’s happened more than once. And sometimes it’s a terrible problem to get rid of them. You know, years go by and, you know — If a dissident comes in, it’s one thing, but if you just sit there and you collect your three or four hundred thousand a year and the chief executive keeps proposing you get increases (laughs) from time to time — And it’s worse yet if he’s a nice person, you know, doing his best. (Laughs) It’s — but — we’re not going to spend a lot of time — we may do it on a personal basis, but we’re not going to take a lot of people and — We want them to know more about what’s going on with BNSF and how (CEO) Katie’s (Farmer) doing and whether the KCS (Kansas City Southern railroad acquisition contest) thing can injure us in any material way and so on.

And we really don’t, except maybe on a private side, we don’t start talking about, you know, what the effects will be in 2050 if this projection or that projection is met. Charlie?

CHARLIE MUNGER: Nothing to add.

24. Less demand for Berkshire’s ability to quickly insure enormous risks

BECKY QUICK: This question was sent in by Don Graham during the meeting, based on something you said earlier today. And he says, “Why does Warren say Berkshire’s ability to insure enormous risk quickly is a less valuable asset than it used to be?”

WARREN BUFFETT: Well, because the demand is less, I mean, basically on that. If you take a period like happened after 9/11, I remember — I may be wrong on the details a little on this — but Cathay Pacific, for example, they couldn’t land in Hong Kong, as I remember, unless they had an insurance policy by Monday of the following week. Well, we can do it. I mean, Ajit (Jain) calls me up and he thinks of a price and I think of a price. (Laughs) And then — But we can do it. We can take the loss if it happens. They called us on the Sears Tower, I think, back — then after the, you know — nobody knew — They didn’t know whether, you know, bombs might be placed all over. And they wanted more insurance all of a sudden. And we gave them a price, and — So, that thing — that sort of an environment hasn’t really persisted. I mean, there were times, I think — perhaps AIG, when Hank Greenberg was there, he would do the same thing.

But there weren’t — 10 or 20 people — and they needed big limits, in some cases. And we were good for it. And they knew that if they bought insurance and it happened that we’d write a check and it would clear. (Laughs) Ajit, you might have some —

AJIT JAIN: Yeah. In addition to the demand side, the supply side has become a lot more competitive as well. There are a lot of people who can put up big limits — not as much as we do — but they can syndicate a program and put up a billion dollar very easily. So that competitive advantage we had, we still have, but it’s no longer as big a deal as it used to be.

25. Abel: “Pleased” with Kraft Heinz CEO

BECKY QUICK: This question comes from a shareholder in Scotland who wants to know Warren, Charlie, and Greg’s views on how Kraft Heinz has performed over the last 12 months compared to the disappointing performance pre-COVID. And what are your current and longer-term views on Kraft Heinz’ prospects?

WARREN BUFFETT: Well, I think that Greg’s on the board. So, he — (laughs) I don’t know that we’re in a position to give advice on Kraft Heinz. You know, we entered a, in effect, a semi-formal partnership with 3G many years ago when it was just the Heinz deal, and then went on to acquire Kraft with our partners. And they’ve done more than — they hold up their share of things, you know. And we do what we said we’d do going in, which is to be a financial partner. And they’re more of the operating partner, or we participate, to a degree, in any big decisions, and that they would listen to us. But we’re not making any — in terms of Kraft Heinz stock — that’s up to somebody else to evaluate.

GREG ABEL: Yeah. The only thing I would add, Warren, is I think we’re very comfortable with the fact that they put a strong manager in place in (CEO) Miguel (Patricio). And he’s put a very good team in place at Kraft Heinz. So, we’re pleased with the leadership and management team in place. They’re very focused on how they’re executing as they’ve gone forward and rationalizing their capital structure and managing down their debt structure. So, very pleased with the path forward with the existing team —

WARREN BUFFETT: Yeah, we feel better about the —

26. Danger of the “myths” CEOs create about their companies

WARREN BUFFETT: One of the — this is a more general subject, but — One of the subjects— I might even write about it in one of the future annual reports — is the problems caused by the myths that people have about their own organization. And I’ve seen that so many times in various forms. And to some extent, the problem has become accentuated in the last 20 or 30 years because the CEO often — and works with the investor relations (unintelligible) — and they say well, we have to have constant contact with the analyst community. And of course — so they go on every couple of months, and they repeat certain things about their company, and it becomes part of, sort of, the catechism. And nobody’s going to go on two months after the CEO has said one thing and say, well, actually that really isn’t the way. (Laughs) They’re not going to contradict themselves or change course. And so, if you get these myths — and they can occur in a lot of different ways. I could give a lot of examples, which I won’t do.

As I tell my friends in corporate America, I’m really not going to squeal on them. (Laughs) But there’s a lot of mythology that gets handed down from one CEO to the next. Can the succeeding CEO say the guy that picked him, you know, was on the wrong course, or, he’s been telling us something that isn’t really quite true. He can’t do it. You know, and then he starts repeating it. And it leads to enormous errors. But it’s hard to tell the story without giving examples, and I don’t like to give examples. (Laughs) So, we’ll see when I write about it sometime. Charlie, you’ve probably got some thoughts. We’ve — He’s been – he’s had a ringside seat at a lot of — he’s been on boards that I haven’t been on, I mean. And it doesn’t just extend to business. It goes beyond that into education, into — well, a lot of areas.

CHARLIE MUNGER: What’s really interesting, is the way you prattle out all the time, you’re pounding back in even if it’s wrong. And so, one of my favorite remarks in the history of human remarks was by Sir Cedrick Hardwicke who was a great British actor. And he said, “I have been a great actor for so long, that I no longer know what I truly think on any subject.” And I think that happens to a lot of people. And it happens to virtually every politician.

WARREN BUFFETT: And it gets embedded in corporate —

CHARLIE MUNGER: Gets embedded and so on —

WARREN BUFFETT: And the trouble is now, the CEOs speak out so often. So, if they’ve got some crazy thing that they’re saying about their company and they keep repeating it, the subordinates aren’t going to contradict it. The — and as Charlie just said, they just believe it after a while. And it’s dangerous.

CHARLIE MUNGER: Yeah. And of course, the young people get these ideas after their liberal educations and think that God has given them direct insights. And they’re just as crazy as the politicians.

WARREN BUFFETT: Yeah, there’s some old people that have them, too.

CHARLIE MUNGER: Yeah, well — (Laughter) But the old people are already crazy. But —

WARREN BUFFETT: They’re going to die sooner, so —

CHARLIE MUNGER: We have our old insanities. The new insanities, the young get. (Laughter)

27. Why Berkshire’s Haven joint venture lost against the “tapeworm” of health care costs

BECKY QUICK: All right, this question comes from Bill Begley, who said, “Could you tell us what happened to the (Haven) joint venture between Berkshire, JPMorgan, and Amazon to investigate what could be done about the current state of medical health care in the United States? The only item I read was that it was disbanded. Do you have any lessons to be learned from your effort?”

WARREN BUFFETT: Well, we learned a lot about the difficulty of changing around an industry (laughs) that’s 17% of GDP. And we’re — we leaned — We accomplished a lesser objective, which was probably more important to us, even, than either JPMorgan or to Amazon, because we knew less about our own system than they did. They knew — they’re a more centralized operation. So, we got some benefits in the sense that we looked at 60 or 70 different operations we had presently. And that’s one case where a certain amount of centralization, at least in certain aspects of it, can save real money. I mean, we found inefficiencies. And like I say, we probably saved more than the other two partners because they knew their situation better. We found some dumb things we were doing. So, we got our money’s worth. But in terms of the big picture of changing something that so many people have a vested interest in doing — and there’s one additional factor to it, which is really interesting.

There’s an ingenious aspect to it that goes back to a fellow named — which didn’t have any direct connection — but Beardsley Ruml. And nobody’s ever heard of Beardsley Ruml, but Beardsley Ruml, in 1941, came up with the idea of the withholding tax. So, people instead of April 15th having to write a check and thinking how much they hated their politicians, and hated the government and everything else, they actually looked at it as kind of a Christmas club, and there were overpayments involved, and they actually got a check when the final payment came due. So, when you aren’t writing the check yourself, you know — you may know that the health benefit from your company is worth $10,000 a year to you or 15,000, and may cost them that much, but — it may cost the company that much — but you don’t see it. So, the company pays it. And most of the people in that waiting room sitting next to me when — they are not sitting there thinking about whether I can afford to do this, you know, or what’s this going to do?

They’re generally under some kind of a plan — not always, obviously. But they don’t think that if the company wasn’t paying them that, they could pay them that in additional compensation. But of course, the weird system is the company gets a deduction if they pay it. But if you pay it yourself on a policy, I don’t believe you get a deduction. So, it’s something that most of the people are not seeing as a cost to them. And they like that pretty well.

CHARLIE MUNGER: No kidding. (Laughter)

WARREN BUFFETT: Yeah. Well, but that’s true of the federal income tax. I mean, it was an act of genius, from the standpoint of the government, to go to a withholding system. And if you didn’t, just think of how many people on April 15th would have to sit down and write a pretty good-sized check. And they’d be mad. (Laughs) They wouldn’t like it, and they don’t feel it now. So, we were up — you know, that’s an obvious point. But you also — people like their doctor, in general. And they don’t like the fact that it’s 17% of GDP. But one is just kind of a, you know, amorphous sort of thing. And the other is very, very real to them. And the most prestigious people in the community are on the hospital boards. And, you know, a lot of people that — are fairly happy with the system. So, we did not make inroads on that. And we are paying 17% of GDP for health care. And no major country is more than 11%.

And in the pandemic, you know, we’ve had a death rate — or a death total — as a percentage of population — that’s way higher than the rest of the world. Not every single country, but way higher, so it — You know, we’ve laid out more money and gotten a poorer result, in terms of this particular pandemic, in terms of deaths per capita. Now, that may not turn out to be the —

CHARLIE MUNGER: Oh, Warren, even though you shot at and missed, you were at least shooting at an elephant. The cost of health care in Singapore is 20% of what it is in the United States. And their medical system works better. So, you were shooting at a huge elephant. But as you found out, it’s very hard to — people get very enthusiastic about losing part of their income.

WARREN BUFFETT: Oh, yeah. No, I said we were fighting a tapeworm —

CHARLIE MUNGER: Yeah. You were —

WARREN BUFFETT: — in the American economy and the tapeworm won. (Laughs)

CHARLIE MUNGER: Yeah, the tapeworm — the tapeworm —

WARREN BUFFETT: Yeah.

CHARLIE MUNGER: That’s exact — good, wonderful phrase, the tapeworm — I’ll have to copy that.

WARREN BUFFETT: Well, it wasn’t a phrase we were looking — but — (Laughter)

28. Munger unintentionally reveals Greg Abel designated to eventually replace Buffett as CEO

BECKY QUICK: This question comes in from Mark Blakley in Tulsa. “This is for Warren and Charlie. When we discuss Berkshire, we often focus on the insurance operations and the largest non-insurance businesses, the “Redwoods,” as you mentioned in 2019. “However, Berkshire owns a large number of subsidiary businesses, most of which are never mentioned. Is there a point at which Berkshire becomes too large to manage? And should we have any concern over the lack of information for most of Berkshire’s companies? Is there a time that could come when Berkshire’s too large and complex?”

WARREN BUFFETT: Well, it’s too large to do certain things, that’s for sure. I mean, you know, it’s not — we can’t spend our time looking for a hundred million-dollar acquisitions, but — We have a couple — a wonderful company (TTI) in Fort Worth. And we had a marvelous man running it (Paul Andrews), and he died recently. But he ran it — he sold it to me 15 years ago, and he just basically ran it, you know. And I couldn’t find my way to the company. We’ve got this terrific company that makes recreational vehicles (Forest River), the Elkhart — based in Elkhart, Indiana. And we bought it 15 years ago. I’ve never been there, you know. Maybe there’s some guy in a closet just making up numbers to send to me every month. But I feel I understand the business pretty well. But I’ve never seen it. And the fellow that runs it (Peter Liegl) likes running it. And he likes me keeping my nose out of it.

And he’ll let Greg (Abel) in a little more than he’ll let me because — (laughs) But it’s — we’ve got a system that will work with wonderful businesses and wonderful managers. And it’s up to us to find them. But it’s also (up to) us to nurture them when we find them. And if you get somebody like Paul Andrews, who ran TTI, and who built it from nothing, absolutely nothing, and nobody ever heard of him, and the earnings have octupled during the period that he ran it for us. And he was happy. The employees were happy. He was a wonderful man. We were happy. And I would call him at the end of the year, and I’d say, Paul, you know, this place is — you’re shooting the lights out and everything, and you should take a raise — and he said — or bonus — he’s say, “Well, we’ll talk about that next year, Warren.” I mean, he just loved — he loved the business. I love Berkshire. He loved the business.

And I wasn’t going to add anything by having him fill out a bunch of reports about (laughs) how much he’s using in the way of carbon or anything. You know, it’s just — it’s ridiculous to think of a guy like Paul Andrews behaving in an antisocial manner (laughs) or anything of the sort. And we’d love to have more of those. And obviously, if we get bigger, they get harder to buy. But we’ve got a number in the place. And I don’t think we’ve bought our last one, over time. But I certainly don’t see anything in the near future at all. But we’re intensifying our interest a little bit in the ones we have by repurchasing shares. So, our shareholders own more of those companies every year while we’re — assuming we’re repurchasing shares, which is price-sensitive. Charlie?

CHARLIE MUNGER: Yeah. I don’t think we’re getting too big to manage, because we’re different from practically every other big corporation in the United States, in that we are so excessively decentralized. We have decentralized so much, and we have so much authority in the subsidiaries, that we can keep doing it for a long, long time, as long as it keeps working. And I would say, so far, that our decentralization has caused more benefits than defects. But nobody seems to copy us.

WARREN BUFFETT: Well, but that’s absolutely true. But I would say this. Decentralization won’t work (laughs) unless you have the right kind of culture accompanying it.

CHARLIE MUNGER: Yeah, but we do.

WARREN BUFFETT: Yeah, we do. But —

CHARLIE MUNGER: But Greg is —

WARREN BUFFETT: — and it’s dependent on it. I mean —

CHARLIE MUNGER: And Greg will — and Greg will keep the culture.

WARREN BUFFETT: If we’d had the — if we had a culture of people who were trying to make a lot of money for themselves in the next five years at the top, it would not have worked.

CHARLIE MUNGER: No, of course not. And the culture is part of it. But assuming we keep the culture, it can go on quite a ways.

WARREN BUFFETT: For a long, long time.

CHARLIE MUNGER: Long, long time. I think it may amaze everybody. And by the way —

WARREN BUFFETT: Charlie (unintelligible) —

CHARLIE MUNGER: —the Roman Empire worked as long as it did because it was so decentralized.

WARREN BUFFETT: As Charlie says to me, you won’t know. (Laughs)

29. “You really got to be in love with your business”

BECKY QUICK: This question comes from Kevin Young. It’s for Ajit and Greg. “Warren spends his days reading, and his literature of choice is annual reports. How do each of you spend your days? What do you read? And how do you review investment decisions?”

AJIT JAIN: Well, in my job, I spend a lot of my time reading deals that people — brokers and people — send us, reading what they’re proposing, trying to analyze them, and having a point of view, whether it is something that is of interest to us or not. I might add, I do not spend a lot of time reading annual reports because I’m not in the stock picking business per se. But in terms of keeping track of what’s going on in the insurance business, that’s what 90% of my reading is all about. Greg?

GREG ABEL: Yeah. So generally, in a day, what I’m going to focus on when I’m reading is really around our businesses, what industries they’re in. I’m trying to understand what our competitors are doing. What’s the fundamental risks around those businesses? How they’re going to get disrupted. And then it always comes back to, are we allocating our capital properly in those businesses, relative to the risks we’re seeing, both in our business and in the industry? So, a lot of time spent on that. And as that knowledge is built, it’s sharing it back and forth with our management teams of those relevant subsidiaries, and sort of fine-tuning it, is really the approach.

WARREN BUFFETT: Both of these fellows can absorb information to an extraordinary degree. I mean, they have — and for one thing, they’re terribly interested in it. I mean, you know, and it’s theirs. So, I’m amazed at both of them, the degree (to) which they just, sort of, know everything. (Laughs) And — but they enjoy it. I mean, they’re not thinking about whether they’ll get the next job that opens up at some huge place or anything like that. Nobody leaves us, you know, basically, the ones we want. But you really got to kind of be in love with your business. And that makes a huge difference. And that means that we’ve got to have the conditions that allow that love to flourish. And it wouldn’t flourish under many — under many — with many organizations.

30. Robinhood encourages financial market “gambling”

BECKY QUICK: This question comes from Robert Miles in Nebraska. “The trading apps. What do you think about Robinhood and other trading apps, or fintech companies, enabling all ages and experience to participate in the stock market?”

WARREN BUFFETT: (Laughs) Well, I’m looking forward to reading the S-1 on Robin — that’s the big thing you file with the SEC when you’re going to be offering securities., and — It’s — you know, it’s become a very significant part of the casino aspect — of the casino group — that has joined into the stock market in the last year or year and a half. And I do want to say I’m concerned of how they handle the source of income when they say they don’t charge the customer anything. I mean, you know, I’m — it’ll just be interesting to watch how they describe it. I mean, but — But they — they have attracted — maybe set out to attract — but they have attracted, I think I read where 12 or 13% of their casino participants were dealing in (option) puts and calls. I looked up on Apple, you know, the number of seven-day calls and 14-day calls outstanding. And I’m sure a lot of that is coming through Robinhood.

And that’s a bunch of people writing — they’re gambling on the price of Apple over the next seven days or 14. There’s nothing, you know — there’s nothing illegal about it. There’s nothing immoral. But — I don’t think you’d build a society around people doing it. I mean, if a group of — a group of us landed on a desert island, and we knew we would never be rescued, and I was one of the group, and I said, well, I’ll set up the exchange over here. (Laughs) And I’ll trade our corn futures and everything around — I think — I think the degree to which a very rich society can reward people who know how to take advantage, essentially, of the gambling instincts of the — not only the American public — worldwide public — it’s, you know, it’s not the most admirable part of the accomplishment. But I think what America’s accomplished is pretty admirable overall. (Laughs) And I think actually, you know, American corporations have turned out to be a wonderful place for people to put their money and save.

But they also make terrific gambling chips. And if you cater to those gambling chips when people have money in their pocket for the first time, and you tell them they can make 30 or 40 or 50 trades a day, and you’re not charging them any commission, but you’re selling your order flow or whatever, it — I hope we don’t have more of it, I’ll put it that way. And I will be interested in reading the prospectus. Charlie?

CHARLIE MUNGER: Well, that is really waving the red flag at the bull. (Laughter) I think it’s just God-awful that something like that would draw investment from civilized men and decent citizens. It’s deeply wrong. We don’t want to make our money selling things that are bad for people.

WARREN BUFFETT: But we’ve got the states doing it with the lottery, you know.

CHARLIE MUNGER: No, but that’s bad, too.

WARREN BUFFETT: Yeah, I know. I understand, but I’m saying —

CHARLIE MUNGER: That’s very bad. That’s very bad —

WARREN BUFFETT: Once you —

CHARLIE MUNGER: That’s one of the things that’s wrong with it. It’s getting respectable to do these things. The states are just as bad as Robinhood.

WARREN BUFFETT: Well, in a sense they’re worse. I mean, they’re really taxing the —

CHARLIE MUNGER: I know it’s — I know, I know.

WARREN BUFFETT: Yeah. They’re taxing hope.

CHARLIE MUNGER: Not only that —

WARREN BUFFETT: And they don’t get much in the way of taxes from me and Charlie than they do —

CHARLIE MUNGER: The states in America replaced the Mafia as the proprietor of the numbers game. That’s what happened.

WARREN BUFFETT: Yep.

CHARLIE MUNGER: They pushed the Mafia aside and said that’s our business, not yours. Doesn’t make me proud of my government.

WARREN BUFFETT: When I was a kid, my dad (Howard Buffett) was in Congress. They had a numbers runner in the House office building (laughs), actually.

31. Berkshire subsidiaries are seeing unexpectedly high inflation

BECKY QUICK: I will ask this question from Chris Fried from Philadelphia, and whoever wants to take this on stage — “From raw material purchases by Berkshire subsidiaries, are you seeing signs of inflation beginning to increase?”

WARREN BUFFETT: Let me answer that. Then, I think Greg can give more — We’re seeing very substantial infla — it’s very interesting. I mean, we’re raising prices. People are raising prices to us. And it’s being accepted. I mean, it’s not — if we get — well, you know, take home building. I mean, you know, the cost of — we’ve got nine home builders, in addition to our manufactured housing thing — and then — operation, which is the largest in the country. So, we really do a lot of housing. (Laughs) The costs are just up, up, up. Steel costs, you know, just every day, they’re going up. There hasn’t yet been — because the wage stuff follows. I mean, the UAW writes a three-year contract, we got a three-year contract. But if you’re buying steel at General Motors or someplace, you’re paying more every day. So, it’s — it’s an economy, really — it’s red-hot, I mean.

And we weren’t expecting it. I mean, all our companies, when they — they thought when they were allowed to go back to work, you know, at — for various operations — we closed the furniture stores, I mentioned. You know, they were closed for six weeks or so, on average. And they didn’t know what was going to happen when they opened them. And, you know, they can’t stop people from buying things. And we can’t deliver them if they say, well, that’s OK, (laughs) because nobody else can deliver them, either. And we’ll wait for three months or something of the sort. But the backlog grows. And then we thought it would end when the $600 payments ended in, I think, you know, around August of last year. It just kept going. And it keeps going, and it keeps going, and it keeps going. And I get the figures. Every week I call — or (Nebraska Furniture Mart Chairman) Irv Blumkin calls me — and we go over day-by-day what happened at the three different stores in Chicago, and Kansas City, and Dallas.

And it just won’t stop. People have money in their pocket. And they pay the higher prices. And when carpet prices go up in a month or two, you know — they announced a price increase for April — our costs are going up. Supply chains, all screwed up, you know, (laughs) for all kinds of people. But it’s a buying — it’s almost a buying frenzy, except certain areas you can’t buy yet. You know, you really can’t buy international air travel, and there’s — So, the money is being diverted from a little — some — a piece of the economy into the rest. And everybody’s got more cash in their pocket than — except for — meanwhile, you know, it’s a terrible situation for a percentage of the people. The — you know, this suit — I haven’t worn a suit, you know, for a year, practically. And that means that the dry cleaner near us just went out of business. I mean, nobody’s bringing in suits to get dry cleaned. And nobody’s bringing in white shirts to the place where my wife goes.

The small businessperson — if you didn’t have takeout and delivery services for restaurants — you got killed. On the other hand, if you’ve got takeout facilities, it doesn’t — you know, same-store sales at Dairy Queen are up a whole lot. And they adapted. But it’s — it is not a price-sensitive economy right now, in the least. And I don’t know exactly how one shows up in different price indices. But there’s more inflation going on than — quite a bit more inflation — going on than people would have anticipated just six months ago or thereabouts.

CHARLIE MUNGER: Yeah, and there’s one very intelligent man who thinks it’s dangerous. And that’s just the start.

32. Abel: Scarcity of some raw materials is driving up prices

WARREN BUFFETT: Greg, you probably are in a good position to comment —

GREG ABEL: Yeah. Well, Warren, I think you touched on it. When we look at steel prices, timber prices, any petroleum input, you know, fundamentally there’s pressure on those raw materials. I do think something you’ve touched on, Warren, and it goes really back to the raw materials. There’s a scarcity of product right now of certain raw materials. It’s impacting price and the ability to deliver the end product. But, you know, that scarcity factor is also real out there right now, as our businesses address that challenge. And it may that be some of that’s contributed — or arisen — from the storm we previously discussed in Texas. When you take down that many petrochemical plants in one state that the rest of the country is dependent upon it, we’re seeing it flow through, both on price, but overall, in scarcity of product, which obviously go together. But there’s challenges. That’s for sure.

33. Munger: Quant funds do better with short-term trading than long-term trading

BECKY QUICK: This question comes from Bijay Koirala. “What do you think of quants? Jim Simon’s Medallion Fund has done 39% net of fees for three decades, which proves that it works. Will you consider hiring a quant lieutenant in Berkshire to work alongside with Ted (Combs) or Todd (Weschler)?”

WARREN BUFFETT: Well, I’ll say no to the second part, and I’ll let Charlie handle the first part. (Laughter)

CHARLIE MUNGER: Well, that’s rather interesting. The (unintelligible) quant fund did fabulously on the short-term trading bit, they found little algorithms that worked to make them — they had predictive value. And as long as they kept working, they just kept doing it, as long as the money kept coming in. When they got to using the same system just to finding some little algorithm and trying to do it mechanically for long-term stock predictions, the record was not nearly as good. And in the short-term stuff, they found that if they tried to do it too much, they destroyed their own advantage. So, there was a limit on the amount they could make.

WARREN BUFFETT: But they were very, very smart.

CHARLIE MUNGER: Yes, they got very rich.

WARREN BUFFETT: Very, very smart.

CHARLIE MUNGER: Very smart, and very rich, yes.

WARREN BUFFETT: And —

CHARLIE MUNGER: And very high grade, by the way.

WARREN BUFFETT: Yeah.

CHARLIE MUNGER: Jim Simons.

WARREN BUFFETT: But we’re not trying to make money trading stocks. I mean — (Laughs)

CHARLIE MUNGER: No.

WARREN BUFFETT: The answer — we don’t think we know how to do it. I mean, it isn’t — if we knew how to make a lot more money trading stocks, we’d probably be trading stocks, too. But we don’t know how to do it. And we really don’t trust anybody else to do it for us. That simple.

34. Turnover in Berkshire’s stock portfolio hasn’t changed but “it’s still too much”

BECKY QUICK: This question comes from Richard Werner. “Mr. Buffett has espoused for decades the philosophy of buy and hold — or hold forever was too short of a time period. Is it a misperception on my part, or has his philosophy changed? It seems to be a much greater turnover in the equity portfolio lately.”

WARREN BUFFETT: I don’t think there’s that much turnover, I mean, with —

CHARLIE MUNGER: No, but there’s too much.

WARREN BUFFETT: What?

CHARLIE MUNGER: There’s way too much. (Laughter)

WARREN BUFFETT: Yeah, the —

CHARLIE MUNGER: It’s still too much. It’s the same amount.

WARREN BUFFETT: Yeah, I’d agree with that. (Laughs) And the truth is, we own — our businesses are equities, so we own 400 or 500 billion in — maybe more — in businesses. We don’t turn them over at all. We don’t resell businesses. We could probably — well, we won’t even get into that — what we could do. But we don’t do it. And we do relatively little, and as Charlie says we’d do better if we — not if we — if I’d done less. (Laughter)

35. States still have “big, big, big” pension problems

BECKY QUICK: This is from Daniel Gauthier. “Warren Buffett’s 2013 letter, in the middle of page 21, made a prediction that in the next decade you’ll see lots of really bad news about pensions. “Given recent events like COVID-19 and that 2023 is two years away, would Mr. Buffett like to comment or revise his 2013 prediction? Did COVID-19 delay, accelerate, eliminate or not change it?”

WARREN BUFFETT: Well (laughs), in a very limited — I mean, in a terrible way, COVID improves the pension position, because — if you — it’s, you know — you have less pensioners. But the pension situation is terrible in a great many states. It’s not so bad at the corporate level, and there are some multi-employer plans, obviously, that have got problems. But basically, it’s a terrible problem for the states — and, of course — some states — and states are going to go to Washington now and say, you know, we all want to get a lot of money because we had these terrible things happen to us during the pandemic, which they did. But, some of those states have enormous pension deficits, and they’ll come again if they get — (laughs) — if they get a check once. It may turn out to be a federal obligation de facto or something than a state situation. It has not gotten better — it has not gotten better at all, and — obviously. And to a certain extent, the pension managers get more and more desperate as interest rates go down.

So, they’ll listen to almost anybody that promises them — they’ve always had that tendency anyway — but they’ll listen to people that promise them that they’re going to, one way or another, solve their problem for them. And that isn’t going to work. So, it’s a big, big, big problem. And of course, the real problem is — let’s just take a hypothetical state that has a huge pension deficit and maybe even has a cost of living factor in it, which is going to really be a killer. And you can move, if you’re an individual. Charlie won’t move to save that 500 million — he’s not going to move to Nevada or someplace — but you can move, if you’re an individual, to some degree, particularly if you’re rich and old and retired. And you can actually take away an asset from that kind of an environment and give it to another state that doesn’t really need it as much. So, you’ll get adverse selection over time.

But if you’re a company and you put a plant there, you can’t move the plant in five or 10 or 20 years. So as the taxable base of individuals falls down, simply because people select out of being a part of the population, you can’t select out very well as a corporation, so you have to be very careful and think a long time before you go into some state with a huge pension deficit and a declining population. Because you’re going to be the last man left, and you’re — and the pensions won’t go away. And I don’t think — well, anybody with a short-term outlook doesn’t worry about that. I mean, just get me past the next election, and I’m all right on that one, you know.

But the — you know, we don’t want to be — we’re not going to say our plant’s going to be around for 50 years in someplace where the population gets halved and the richer part gets cut dramatically — even more dramatically — and we’ve still got a valuable plant there and we got to keep operating, and — We’re going — one way or another, we’re going — it’s not going to be a good place to be.

BECKY QUICK: And we’re almost out of time, so I’ll make this last question.

CHARLIE MUNGER: That’s a good answer, Warren. It reminds me of my old Harvard law professor who used to say, “Let me know what your problem is, and I’ll try and make it more difficult for you.” (Laughter)

36. “Strange things” have happened, but we always try not to disappoint the shareholders

BECKY QUICK: So, this one comes from Jan Michael Ottlinger. It’s for Warren and Charlie. “I have one question, which is inspired by Charlie’s mantra, ‘You have to be a continuous learning machine.’ So, here’s my question. What’s the biggest lesson both of you learned during the last year?”

WARREN BUFFETT: Well, my biggest lesson has been to listen more to Charlie. (Laughs) He’s been right on some things that I’ve been wrong on.

CHARLIE MUNGER: Well, I don’t know. If you’re not a little confused by what’s going on, you don’t understand it. (Laughter) It is — we’re in, sort of, uncharted territory.

WARREN BUFFETT: Yeah. We enjoy, in a crazy way, actually seeing what happens. I mean, and — This has — this has made us — halfway through the movie, much more interested (laughs) in watching even more of — This is an unusual movie, but — We — our basic principles of, you know — we start with the fact we don’t want to disappoint the people who left their money with us, and things flow out of that. And we may disappoint people that they don’t make quite as much money as they want, but we don’t — And we’ve seen it — some strange things happen in the world in the last year, and 15 months, and we’ve always recognized the fact that stranger things are going to happen in the future. And I would say, if anything, it’s reinforced, you know, our desire — well — to figure out everything possible we can do to make sure that Berkshire is, 50 or 100 years from now, you know, every bit the organization and then some that it is now. Charlie?

CHARLIE MUNGER: Well, of course that’s the idea. I think it’s pretty likely to work.

WARREN BUFFETT: Yeah, well, we wouldn’t have spent 55 years at it unless we did.

CHARLIE MUNGER: Yeah. (Laughter)

WARREN BUFFETT: Yeah. And Becky, is that — is that the last question?

BECKY QUICK: That’s the last question.

37. Formal meeting begins

WARREN BUFFETT: OK, well, in that case, we’ll move on to the meeting. The other three fellows here can leave. It’s not going to be that exciting, but we’ve got a script here, even, somewhat. I don’t like scripts, but they — (laughs) — not my nature. And one of the proposers for the two items on the proxy is here in the building to present his argument personally, and the other one has recorded it. So, we’ll get to that in just a minute, but — We offered both of — I mean, they either could record or come, and I’m happy one of them came. So here we go, and the meeting will now come to order. I am Warren Buffett — not that you didn’t know by this time (laughs) — chairman of the board of directors of the company. I welcome you to the 2021 Annual Meeting of Shareholders. Marc Hamburg is secretary of Berkshire Hathaway. He will make a written record of the proceedings. Rebecca Amick has been appointed inspector of elections at this meeting.

She will certify to the count of votes cast in the election of directors and the motions to be voted upon at this meeting. The named proxy holders for this meeting are Walter Scott and Marc Hamburg.

38. Quorum

WARREN BUFFETT: 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 the notice of this meeting that was sent to all shareholders of record on March 3rd, 2021, the record day for this meeting, there were 639,747 shares of Class A Berkshire Hathaway common stock outstanding, with each entitled to one vote on motions considered at the meeting, and 1,335,074,355 shares of Class B Berkshire Hathaway common stock outstanding, with each share entitled to 1/10,000th of one vote on motions considered at the meeting. Of that number, 456,040 Class A shares and 663,442,069 Class B shares are represented at this meeting by proxies returned through Thursday evening, April 29th.

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

39. Minutes of previous meeting approved

WARREN BUFFETT: The first order of business will 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?

FEMALE VOICE: I second the motion.

WARREN BUFFETT: The motion is carried.

40. Board of 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, Steven Burke, Kenneth Chenault, Susan Decker, David Gottesman, Charlotte Guyman, Ajit Jain, Thomas Murphy, Ronald Olson, Walter Scott, and Meryl Witmer be elected as directors.

FEMALE VOICE: I second the motion.

WARREN BUFFETT: It has been moved and seconded that the 14 individuals named in Miss Bosanek’s motion be elected as directors. The nominations are ready to be acted upon. Mr. Hamburg, when you are ready, you may provide the voting results from Miss Amick’s preliminary report.

MARC HAMBURG: Miss Amick has reported that the ballot of the proxy holders in response to proxies that were received through last Thursday evening cast not less than 473,474 votes for each nominee. Miss Amick’s report also states that this number exceeds a majority of the number of the total votes of all Class A and Class B shares outstanding. The report also states that the certification required by Delaware law of the precise count of the votes will be placed with the minutes of this meeting.

WARREN BUFFETT: Thank you Mr. Hamburg. The 14 nominees have been elected as directors.

41. Climate change shareholder proposal

WARREN BUFFETT: The next two items of business relate to two shareholder proposals that are each set forth in the proxy statement that can be accessed at BerkshireHathaway.com. If you haven’t read those proposals, just go to BerkshireHathaway.com, because they’re interesting proposals. And the proponents’ views are set forth well there, and I think our views are set forth. And I welcome you reading it. To get back to the script, the first proposal requests that the company publish an annual assessment addressing how the company manages physical and transitional climate-related risks and opportunities. The directors have recommended that the shareholders vote against the proposal. I will now recognize Tim Youmans, a representative of Federated Hermes to present the proposal. I think we’re connected up with Mr. Youmans.

TIM YOUMANS: I thank the chair — I thank the chair of the board and fellow shareholders. I’m Tim Youmans, Lead North America EOS at Federated Hermes, here today on behalf of item two cosponsors Federated Hermes, CalPERS, the California Public Employees’ Retirement System, and CDPQ, Caisse de Depot et Placement du Quebec, and our combined millions of ultimate beneficiaries. For well more than a year, the parent company has been unresponsive to the co-sponsors’ requests to discuss the parent company’s lack of climate-related financial disclosures. In order to have some kind of dialogue with the parent company, we have co-filed a proposal that Berkshire Hathaway’s board issue a report annually assessing how the company manages physical and transitional climate-related risks and opportunities, including climate-related financial reporting, where material, for subsidiaries and for the parent company, how the board oversees climate-related risks for the combined enterprise, and the feasibility of the parent company and its subsidiaries establishing science-based greenhouse gas reduction targets consistent with limiting climate change to well below 2 degrees.

We ask that the annual assessment follows the recommendations of the task force on climaterelated financial disclosures, TCFD. The board argues that since it manages its operating businesses on an unusually decentralized basis, and there are few centralized or integrated business functions, the board believes that the shareholder proposal is inconsistent with Berkshire’s culture. The co-sponsors note, despite Berkshire’s culture and decentralized management, shareholders can only purchase shares in the combined parent company entity. Shares cannot be purchased in the individual subsidiaries that may or may not have the climate disclosures that the board cites in its opposition statement. The company has more than a hundred billion dollars in cash equivalence. The co-sponsors, and many in the $54 trillion climate action 100-plus investor coalition, want the parent company to put more resources into sustainability and in mitigating the financial impact of climate change and the energy transition. The company’s sustainability website consists only of links to 15 subsidiaries. We note the parent company has 60 subsidiaries. This is insufficient disclosure to shareholders who think that sustainability risks, especially climate risks, may be material to the parent company’s long-term future prospects, of course, recognizing the company’s strong past financial performance.

No doubt, climate change and the energy transition to a low-carbon economy pose a systemic risk to the economy. The company’s auditor, Deloitte, says on its website, “Climate change is not a choice, it’s billions of them. We are all compelled to act.” Deloitte does not assess climate change-related financial impacts in the company’s audit. When asked by the co-sponsors why climate change impacts are excluded from audits like Berkshire’s, Deloitte failed to provide any meaningful reply. In his new book, former Berkshire director Bill Gates says, “Companies accepting more risk is needed to avoid climate disaster,” and “shareholders and board members will have to be more willing to share in this risk, making it clear to executives that they’ll back smart investments even if they don’t ultimately pan out.” This is the Gates position, and the chair is one of three Gates Foundation trustees. We ask the board to take the cultural risk for a modest degree of centralization needed to issue the annual climate-related financial assessment. We all need to take action now to limit climate change impact on our long-term sustainability.

We strongly urge Berkshire Hathaway shareholders to support item two, as climate risk may be material to the parent company. And we have a question for the chair. Will you please change your mind and vote your personal shares in support of item two? Thank you.

WARREN BUFFETT: Thank you, Mr. Youmans. The proposal is now ready to be acted upon. Mr. Hamburg, when you’re ready, you may provide the voting results disclosed in Miss Amick’s preliminary report.

MARC HAMBURG: Ms. Amick’s report states that the ballot of the proxy holders in response to proxies that were received through last Thursday evening cast 131,376 votes for the motion and 385,336 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, the motion has failed. The certification required by Delaware law of the precise count of the votes will be placed with the minutes of this meeting.

WARREN BUFFETT: Thank you, Mr. Hamburg. The proposal fails.

42. Employee diversity shareholder proposal

WARREN BUFFETT: The second shareholder proposal requests that Berkshire Hathaway companies annually publish reports assessing their diversity and inclusion efforts. The directors have recommended that the shareholders vote against the proposal. I will now ask that the audiotape provided by Meredith Benton, a representative of As You Sow, be played to present the proposal.

MEREDITH BENTON: Hello. I am Meredith Benton. I am speaking on behalf of the nonprofit advocacy organization, As You Sow, and I am also the CEO of the consultancy Whistle Stop Capital. I formally move proposal number three, asking for Berkshire Hathaway to report on how it assesses diversity, equity, and inclusion efforts, including the process that the board follows for determining the effectiveness of its diversity and inclusion programs, and how it assesses goals, metrics, and trends related to recruitment, promotion, and retention. What would it mean if the majority of Berkshire’s operating units weren’t managing their diversity programs? It would mean that Berkshire companies are missing out on the benefits that an inclusive workplace culture can provide, such as, according to the studies, access to top talent, to good people, better understanding of consumer preferences, a stronger mix of leadership skills, informed strategy discussions, and improved risk management. Best practices in diversity and inclusion reporting exist and are increasingly standardized across companies. Berkshire companies can publish their workforce composition through their consolidated EEO-1 form. This form is already submitted to the Equal Employment Opportunity Commission, so it requires no additional effort on behalf of the companies to collect or reconcile.

It is a universally disliked form, but it is standardized, and companies will often publish their EEO-1 along with an explanation of their own internal structures and ways. Seventy-two of the S&P 100 companies publicly share, or have committed to share, this form. To my knowledge, no Berkshire company currently does — not one. The release of workforce composition data is akin to a balance sheet detailing diversity at a single point in time. Just as a balance sheet would by itself be insufficient to identify the strength of a company’s financials, so, too, the EEO-1, by itself, is insufficient in assessing effectiveness of DEI programs. The company’s inclusion data, the hiring, retention, and promotion rates of diverse employees must also be shared. Investors need to have a full understanding of the actual experience of Berkshire employees. In theory, companies should want to share their retention data. If it’s a good company to work for, people want to stay, and they should want to share their promotion data, in theory. If it’s a company that hires good people and treats them well, those good people will ascend, with mentorship and time.

Seventy percent of the S&P 500 currently share diversity and inclusion data at some level — 70%. Only 22% of Berkshire companies do, at any level, and only four Berkshire companies speak to workplace equity with any meaningful depth. Berkshire is a serious outlier here. Berkshire’s famously decentralized. Its units operate independently. Yet, if an issue isn’t conveyed as important from headquarters, can we expect it to be prioritized by an operating unit? Here’s the thing. Mr. Buffett, Mr. Munger, board members, and the team headquarters, you may each individually truly and genuinely hire, mentor, and promote the best people for the job regardless of their gender, race, ethnicity, sexual orientation, or any immutable characteristic. But we can’t conclude that this is the mindset of each of your employees, managers, and hiring directors. Berkshire headquarters can’t sit passively and hope that their independent units are addressing bias and discrimination in their workplace. Active management, proactive attention, is needed. In its statement in opposition to the proposal, the board said, “Mr.

Buffett, Berkshire’s chairman and CEO, has set the tone at the top for Berkshire and its employees for over 50 years.” It also states, “Mr. Buffett has a record of opposing efforts seen or unseen to suppress diversity or religious inclusion.” Mr. Buffett holds extraordinary influence over his own companies and over the broader business community. He opposes efforts to suppress diversity. Given that, we ask for him to step forward decisively, in his own inimitable words, in his own inimitable way, to detail how important diversity and inclusion is to his companies, the expectations he has, and the efforts he expects to see, the metrics that will be used to judge success. Actions speak louder than words, but silence here speaks volumes. Thank you.

WARREN BUFFETT: Thank you. The proposal is now ready to be acted upon. Mr. Hamburg, when you are ready, you may provide the voting results disclosed in Miss Amick’s preliminary report.

MARC HAMBURG: Ms. Amick’s report states that the ballot of the proxy holders in response to proxies that were received through last Thursday evening cast 124,842 votes for the motion and 391,662 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, the motion has failed. The certification required by Delaware law of the precise count of the votes will be placed with the minutes of this meeting.

WARREN BUFFETT: Thank you, Mr. Hamburg. The proposal fails.

43. Meeting adjourns

DEBBIE BOSANEK: I move —

WARREN BUFFETT: Miss Bosanek? Yeah.

DEBBIE BOSANEK: I move that this meeting be adjourned.

FEMALE VOICE: I second the motion to adjourn.

WARREN BUFFETT: Motion to adjourn has been made and seconded. This meeting is adjourned, and I would just like to add one final comment that I really hope, and I think the odds are very, very good that we get to hold this next year in Omaha. And I hope that we get a record turnout of Berkshire shareholders, and we look forward to — we really look forward — to meeting you in Omaha — I guess it’ll be next April 30th, but we’ll be sure of that date a little later. So, thank you for watching and we will see you next year, and hopefully, in Omaha.