WARREN BUFFETT: OK. Everybody will settle down, we'll move right along.

I want to clear up one thing. My daughter told me that because we had all those — I had — all those slides that were in answer to Carol's first question, that Carol [Loomis] and I had discussed it ahead of time.

I will guarantee you that I've discussed no questions with anyone on the panel, and they will tell you the same thing.

But I knew I was going to be asked questions about Clayton, so I prepared the slides.

It was an accident that it turned out to be the first question, but it was certain to be in the first few.

So, Carol did not — Carol in 60 years has never tipped me off on anything, nor have the other panelists.

And everything — but we were — but I was — prepared for the fact that people would be asking questions about Clayton.

OK. Let's move right along, and we'll go to Becky.

BECKY QUICK: OK. This is a question — oops, that's not the question. Hold on.

Here it is. This is a question from John Wells, right here in Omaha, and he says, "You've described inflation as a gigantic corporate tapeworm. Which of Berkshire's businesses are best suited to thrive during a period of high inflation and why? Which will suffer the most and why?"

WARREN BUFFETT: Yeah. Well, the best businesses during inflation are usually the best — they're the businesses that you buy once and then you don't have to keep making capital investments subsequently.

So you get — you do not face the problem of continuous reinvestment involving greater and greater dollars because of inflation.

That's one reason real estate, in general, is good during inflation. If you built your own house 55 years ago like Charlie did, or bought one 55 years ago like I did, it's a one-time outlay, whereas if you're — and you get the — you get an inflationary expansion in replacement capital without having to replace yourself.

And if you've got something that's useful to someone else, it tends to be priced in terms of replacement value over time, so you really get the inflationary kick.

Now, if you're in a business such as the utility business or the railroad business, it just keeps eating up more and more money, and your depreciation charges are inadequate and you're kidding yourself as to your real economic profits.

So, any business with heavy capital investment tends to be a poor business to be in in inflation and often it's a poor business to be in generally.

And the business where you buy something once — a brand is a wonderful thing to own during inflation.

You know, See's Candy built their brand many years ago. Now, we've had to nourish it as we've gone along, but the value of that brand increases during inflation, just as the value of, really, any strongly branded goods.

Gillette bought the entire radio rights to the World Series in 1939. And as I remember, it cost them $100,000, and for that they got to broadcast the Yankees, I think, versus the Reds in 1939.

And think of the number of impressions they made on minds in 1939 dollars for $100,000, and they were getting in the minds of young guys like myself. I was eight or nine. And millions of people — and they did it in those dollars then.

And, of course, if you were going to go out and try out and do — have similar impressions on millions of minds now, it'd cost a fortune. And part of that is due to inflation. Part of it's due to other things.

But it was a great investment, which could be made in 1939 dollars that paid off, in terms of selling razors and blades in 1960 and 1970 and 1980 dollars.

So that's the kind of business you want to own.

Charlie?

CHARLIE MUNGER: Well, yeah, but if the inflation ever goes completely out of control, you have no idea how it's going to end up.

If it weren't for the Weimar inflation, we might never have had Adolf Hitler. It was the twosome of the great German inflation followed by the Great Depression that brought us Hitler. And think of the price that the world paid for that one.

We don't want inflation because it's good for See's Candy. (Laughter)

WARREN BUFFETT: I didn't quite realize I was —

CHARLIE MUNGER: No, I wasn't criticizing you.

WARREN BUFFETT: What's good for See's Candy is good for the United States. (Laughter)

WARREN BUFFETT: OK. Gary?

GARY RANSOM: Three years ago you noted that you had looked at a large commercial lines insurance company as a possible acquisition, and now you've started up Berkshire Specialty, which seems to be off to a good start.

What are your thoughts on whether that has replaced the idea of taking over — of buying or acquiring a large company, or is Berkshire Specialty doing well enough that you're content with that —

WARREN BUFFETT: Yeah.

GARY RANSOM: — organic growth?

WARREN BUFFETT: I would say that it's almost certain that we — I don't want to say 100 percent certain — but it's almost certain we will not take over a large commercial insurance company.

We've got the ideal operation, in my view, in Berkshire Hathaway Specialty.

We've got the right people running it. We've got Ajit overseeing it. We've got more capital than any commercial insurance company in the world so that our securities are — and, therefore, our policies — are really better than anyone else's.

So, we've got all these things going for us. And if we bought a big operation, we would have paid a very substantial nondeductible acquisition premium, and this way we've actually made money while we're in the building stage.

And I think it can be a very, very big operation five or 10 years from now. So it's almost zero probability that we'll buy somebody else.

Charlie?

CHARLIE MUNGER: Well, I certainly agree with you.

WARREN BUFFETT: OK. The — that's how he keeps his job. (Laughter)

We'll go to — incidentally, all the overflow rooms, including at the Hilton, got filled. I'm not sure where a couple — where station 11 is — but we always lose a fair number at lunchtime.

So I'm sure everybody can find a seat, but we do apologize to those who could not find a seat this morning.

WARREN BUFFETT: Station 11?

AUDIENCE MEMBER: Yes. Hey, Warren and Charlie. How are you guys? Congratulations on 50 years.

WARREN BUFFETT: Thank you.

AUDIENCE MEMBER: So, in this year's annual letter, Charlie wrote about the peculiar attributes that made the Berkshire system, and the leader of the system, a historically organizing entity — organizational entity.

So, my question to both of you is what practical mental model or mental models would you impress upon a young, enterprising individual at the infancy of their career to build an important enduring enterprise of that particular distinction and impact?

And if you could give, like, maybe some contrasting examples, like why is a Microsoft able to build itself into a dominating monolithic company, versus a See's Candy, which can be a great enterprise to spin off cash flow but not necessarily be an enduring — or not necessarily enduring — but an impactful enterprise to the level of a Berkshire or Microsoft?

CHARLIE MUNGER: Thank you, Warren. (Laughter)

WARREN BUFFETT: You're the guy that wrote it. (Laughter)

This is pineapple juice, incidentally. People were questioning that. (Laughter)

They say it's good for your throat if you're going to talk a long time.

CHARLIE MUNGER: Yes. Well, of course, reputation you get over a long period of time.

Very few people are like Charles Lindbergh where you just suddenly have a great reputation.

Most of us have to acquire one very slowly, and that was true in Berkshire's case.

And any individual you just have to get the best reputation you can in the years you're allotted and the time available.

And it may work out well, it may work out poorly. But it's a wise investment.

I see, all the time, opportunities come to people where it's the credibility they've gotten in the past that causes them to have the new opportunity.

So, I think hardly anything is more important than behaving well as you go through life.

And — I think we actually try to behave better as we got more prosperous, and I think you'd be crazy if you didn't.

So, I'd certainly recommend that you follow those old-fashioned principles.

And I don't think there's any way of guaranteeing a total powerhouse brand, nor can — if a result is a one in 50 million-type result, you're probably not going to get it.

WARREN BUFFETT: Gianni Agnelli of Fiat, back in — I think it was 1988 — I was at dinner with him one time, and he said something to me that stuck with me. He said, "When you get old," he says, "You'll have the reputation you deserve." He says, "For a while you can" —

CHARLIE MUNGER: Fool people.

WARREN BUFFETT: — "fool people," but he says, "When" — he was talking about himself at the time — but he said, "When you get to be my age," he said, "Whatever reputation you have, it's probably the one you deserve."

And I think the same is true of companies. And, frankly, you know, it has helped Berkshire a whole lot that it has gotten a reputation to be a somewhat different sort of company.

I mean, I don't think we set out to do that, exactly, but it has worked out that way.

WARREN BUFFETT: Andrew?

ANDREW ROSS SORKIN: Warren, you have said that global warming has not increased Berkshire's payouts for weather-related events. Yet, other insurers, including Travelers, have cited climate change as a risk factor that they use.

Are Berkshire's models different and, if so, how?

WARREN BUFFETT: Yeah. No. I've seen the — of course, the SEC requires you put in all these risk factors, and the lawyers will tell you to put in, you know, everything possibly you can think of, you know, that you'll develop Alzheimer's or whatever it may be.

They just want you to have a laundry list so that it's all been covered in case of later litigation or something of the sort.

So people do put in weather risk, and maybe they put it in because they've got some model that shows it. But, you know, we price our business — basically, we price it every year.

It's not like a life insurance company. A life insurance company you make a contract that — so much a thousand. And if you buy whole life insurance, you've set a price for — if you're 20, you may have set a price for 60 or 70 years in the future. But that is not the property casualty insurance business, which we're in.

We set it one year at a time. And I see nothing that tells me that on a yearly basis that global warming is something that should cause me to change my prices a lot, or even a small amount.

That doesn't mean that it isn't a threat to humanity or — you know, and terribly important. It just means that if I'm going to sell a one-year insurance policy, and I'm going to sell it on a $1 billion plant, I may care enormously about the fire protection, and other various other kinds of protection, within that plant.

I may care about what's going on adjacent to that plant, and all kinds of things, but I am not thinking about global warming. It does not change the situation, in a material way, in any one-year period of time, in my judgment.

And, you know, it — if I was writing a 50-year wind storm policy in Florida, I would think very hard about what global warming might do in that case to the incidence and the intensity of potential hurricanes.

But I do not think it has any material effect on the likelihood of — or the intensity — of a hurricane in Florida or Louisiana or Texas or — next year.

So, it is not a — it's not something I would put in the 10-K as a threat.

Charlie?

CHARLIE MUNGER: I don't think it's totally clear what the effects of global warming will be on extremes of weather. I think there's a lot of guesswork in that field, and a lot of people like howling about calamities that are by no means sure.

WARREN BUFFETT: Yeah. Do you think — would it change your one-year prediction as to what the rate should be?

CHARLIE MUNGER: No.

WARREN BUFFETT: No. It wouldn't change mine either, so I don't really understand why they put that in there.

CHARLIE MUNGER: A lot of people get very invested. It's like a crazy ideology.

It's not that global warming isn't happening. It's just that you can get so excited about it you make all kinds of crazy extrapolations that aren't necessarily correct.

WARREN BUFFETT: Yeah. Look at it this way. Would you change the rate for tomorrow on insurance because — from the rate today — for global warming? I doubt it very much.

Now, you know, would you change it for 50 years? Might very well.

But I think that one year is much closer to one day than it is to 50 years, in terms of focusing on that factor.

So, I do not want our underwriters to sit there thinking a lot about — in terms of writing a risk or the price at which to write that risk — I do not want them thinking about global warming. I want them thinking about whether there's a moral risk involved and who owns the property.

I mean, that can be very significant. There used to be one fellow called "Marvin the Torch," that if you insured "Marvin the Torch," global warming didn't really make much difference. His building was going to go. (Laughter)

Marvin had a marvelous way of looking at it, though. He said, "I don't burn buildings; I create vacant lots." (Laughter)

WARREN BUFFETT: OK. Gregg?

GREGG WARREN: When we look back at some of your bigger stock purchases during the past decade, two names actually stand out: ConocoPhillips and ExxonMobil.

In the first instance, you bought shares near the height of the spike in oil prices in 2008, later acknowledging that this was a mistake given how dramatically oil prices fell during the crisis.

While you've been able to swap some of those holdings, post a spinoff of Phillips 66 into operating assets, most of what you sold the last six years, by our estimates, has been at a loss.

Given that experience, it surprised some of us to see you take a meaningful position in ExxonMobil during the summer of 2013.

While it looks like you were able to eliminate that stake at cost as oil prices fell last year, these types of investments, which can be negatively impacted by the volatility in oil prices, don't really seem to fit well with the other types of investments in your stock portfolio, many of which are built on strong franchises with unique competitive advantages.

With that in mind, and given the track record that Greg Abel and his team at Berkshire Hathaway Energy have had acquiring and investing in energy assets, does it make more sense to leave future energy-related investments in their hands?

WARREN BUFFETT: Well, there's nothing we like better than to back up Greg in buying utility properties.

And — but they — we call it energy, but it's not oil and gas in Berkshire Hathaway Energy, and they're really in a dramatically different business than ConocoPhillips or ExxonMobil.

But we are looking, constantly, for opportunities for Berkshire Hathaway Energy to spend big money, and it will.

Berkshire Hathaway Energy, we paid $35.05 per share in 1999 to buy the stock.

I was at $35, and I don't change my prices and Berkshire — the company was then called MidAmerican — they hired some investment bankers to come out from New York, and investment bankers spent a week here doing nothing.

But they felt — before they went home, they said, you know, "You've got to give us something because we're going to send a big bill." And I said, "Well, in that case, we'll pay $35.05 and you can say you got the last nickel out of me." (Laughter)

So my ambition ever since has been to have Berkshire Hathaway Energy earn $35.05 per share. It's never paid a dividend.

It will probably earn about $30 a share this year, which is a great tribute to Greg and his management. But we will get the 35 or better because he will make some good deals.

It's not at all analogous to the ConocoPhillips or ExxonMobil investments. As it turned out, we wrote ConocoPhillips down because we were required by the auditors to do it.

We actually, by the time we got all through, we made some money in it, and we made a little money in ExxonMobil, too.

But we will not be buying, very often, oil and gas stocks, but we will — we probably haven't bought the last one.

In the end, we look at the cash, we look at available opportunities, both in investments and businesses, and we make decisions, occasionally, on buying something and sometimes we change our mind.

And that will continue that way. It's been going on that way for a lot of years.

And we have not distinguished ourselves, at all, in the oil and gas field, although we've made a little money, and we passed up one or two where we could have made a lot of money.

Charlie?

CHARLIE MUNGER: Yeah. And with interest rates being so low and the dividend on ExxonMobil being the size it was, it was not a bad cash substitute, if you think only in those terms.

WARREN BUFFETT: Yeah. It worked out OK. There were other things we could have done a lot better, but that's always been true and will continue to be true.

WARREN BUFFETT: Station 1.

AUDIENCE MEMBER: Mr. Chairman, Mr. Vice Chairman, my name is Andy Peake, and I'm from New York City.

First, congratulations to you on a remarkable 50 years, and second, thank you for hosting a one-of-a-kind annual meeting where you patiently answer questions from shareholders. I believe you are both — (Applause)

WARREN BUFFETT: Thank you.

AUDIENCE MEMBER: I believe you are two of the most knowledgeable and authoritative people on planet Earth on the U.S. tax code.

Our tax code is obviously broken at both the individual and the corporate levels.

Today, we have 2.1 trillion in offshore corporate cash sitting there not being brought home. We have the highest corporate tax rates in the world, and for high-income earners in the U.S., other than hedge fund managers, in states like New York and California, an all-in rate greater than 50 percent.

What can be done to effect real change to bring about a simpler, more rational tax code? Thank you.

WARREN BUFFETT: Well, it takes 218 members of the House of Representatives and 51 U.S. senators, and a president that will sign the bill.

The question is: how much you think the country should spend and then from whom do you get it?

And I would point out that despite the tax rates that all the corporate chieftains complain about, the share of earnings — share of GDP — accounted for by corporate profits is at a record.

Corporate taxes 40 years ago were 4 percent of GDP. They're now running about 2 percent. They've decreased significantly while payroll taxes have increased.

You know, it's a real question.

And once you get special provisions in the code, it is really hard to get rid of them, absent a major revision of the code.

I actually think — I may be an optimist on this, but I'm — I think both Ron Wyden and Orrin Hatch, the two ranking members, Senate Finance Committee, I think they're capable of working out something that they — neither one of them likes — but they both like it better than what exists now, and I think it can be made considerably more rational.

But in the end, if we're going to spend 21 or 2 percent of GDP, we should probably raise 19 percent of GDP.

We can take a gap of a couple percent without getting further into debt as a proportion of GDP than we are, so we've got that leeway.

But, you know, you take 19 percent of 17 1/2 trillion, or thereabouts, and you're talking, as Senator [Everett] Dirksen said one time, real money.

And how much you get from corporations, how much you get from individuals, how much you get from estate taxes, you know, it's a fight up and down the line.

So I — and in terms of the cash abroad, basically you can bring it back, you just have to pay tax at U.S. corporate rates. And our corporate rates are 35 percent.

Charlie and I, a good bit of our life, operated with corporate rates of 52 percent, later at 48 percent, and the country grew well. American business prospered during that period.

I don't shed any tears for American business, in terms of the tax rate overall. I think there could be a much more equitable code, in terms of the corporate tax, but I do not think that the 2 percent of GDP that's being raised from corporate taxes, which is far lower than was the percentage 30 or 40 years ago, I do not think that's an onerous number.

And for people who are getting 1/4 or 1/2 percent on their CDs, who have retired, and with American business earning, on tangible equity, which is the way they measure it, you know, probably averaging close to 15 percent, I think equity holders are getting treated extraordinarily well compared to debt holders in this economy. (Scattered applause)

Charlie?

CHARLIE MUNGER: Well, I agree with you, and I don't die over these little differences in the tax code, either.

I live in California, of course, where — there's, like, a 13 1/2 percent tax on long-term capital gains, nondeductible for federal purposes. That's a ridiculous kind of a tax to have in California because it drives rich people out.

Hawaii and Florida have enough sense to know that rich people don't commit a lot of crimes, they don't burden the schools, and they provide a whole lot of medical expenditures that are good for everybody else's income.

I think California has a really stupid tax policy. But I don't think the U.S. — but I don't think the U.S. policy is — (applause) — I don't think the U.S. policy is bad at all.

WARREN BUFFETT: And it's nondeductible because of the alternative income tax —

CHARLIE MUNGER: Yes, exactly.

WARREN BUFFETT: Yeah. That really wasn't the case before, but it —

CHARLIE MUNGER: No, it's always —

WARREN BUFFETT: — kind of slipped in.

CHARLIE MUNGER: No, they did it on purpose. (Laughter)

No, they did it on purpose.

WARREN BUFFETT: Early stages of paranoia. (Laughter)

CHARLIE MUNGER: Yeah. But it is — it's amazing. The idea of driving the rich people out, Florida is so much smarter than California on that subject. And it is really demented.

Who in the hell doesn't want rich people coming in and spending in their state?

WARREN BUFFETT: Yeah, yeah. Remember that as you come here to Nebraska for the meeting. (Laughter)

I would say I really do think there's some chance this year — and not a tiny chance.

I know both Ron Wyden and Orrin Hatch. They're patriotic, they're smart, they want to do the right thing. They've got different ideas about what the right thing is, there's no question about that, but they also know they can't get any place without cooperating.

But I think the real opportunity is if they work out of the public eye in doing — in working on something — and I wouldn't be surprised if they are. I think that's the way to get it done.

Charlie has always pointed out, what would have happened if the Constitutional Convention back there in Philadelphia had been held with every delegate running out immediately to tell the TV cameras how right he was and how wrong everybody else was.

It doesn't accomplish much to dig in on positions, and not be in a position to compromise, because it takes a lot of compromise to write something when you have two different — fundamentally different — views on some important aspects of the tax code.

But those are two good guys, and I would not — I don't think it's impossible that we have a new corporate tax code within a year.

WARREN BUFFETT: OK. Carol?

CAROL LOOMIS: This question, which is a little bit offbeat, comes from Jordan Shopof (PH) of Melbourne, Australia.

"Mr. Buffett, in the forward to the sixth edition of Benjamin Graham's 'Security Analysis,' you identified four books that you particularly cherish.

"Three of these books were authored by Graham himself, and their influence on you is well-known.

"The contributions of the fourth book to your thinking, however — that book was Adam Smith's 'The Wealth of Nations,' published in 1776 — what that book meant to you is seldom discussed.

"So my question is, what did you learn from "The Wealth of Nations" and how did it shape your investment and business philosophy?"

WARREN BUFFETT: Well, it doesn't shape my investment philosophy, but I certainly learned economics from it. And my friend Bill Gates gave me an original copy of it. I was able to study this.

Adam Smith wrote it in 1776. It's — you know, there's just — if you read Adam Smith and if you read Keynes, Ricardo, and then — and if you also read that little book we've got out there called "Where Are the Customers' Yachts?" you will have a lot of wisdom.

I forgot to mention, I was supposed to mention, too: we didn't want to put it on sale earlier because it would have given away the movie, but we do have "Berkshire Bomber" underwear out there, or sweatshirts, or whatever it may be, so Fruit of the Loom has those.

And we have Fred Schwed's "Where Are the Customers' Yachts?" book, which contains an incredible amount of wisdom and very few pages and very entertaining.

But if you want to go for — if you want to not only get a lot more wisdom but appear more erudite, you should read "The Wealth of Nations," also.

Charlie?

CHARLIE MUNGER: Adam Smith is one of those guys that has really worn well. I mean, he is rightly recognized as one of the wisest people that ever came along.

And, of course, the lessons that he taught way back then were taught again when communism failed so terribly, and places like Singapore and Taiwan and China, and so forth, came up so fast.

The productive power of the capitalist system is simply unbelievable, and he understood that fully and early, and he's done a lot of good.

WARREN BUFFETT: I took an idea of his on the specialization of labor, you know, and he talked about people making pins or something, but I applied that, actually, to philanthropy.

You know, I mean, the idea that you let other people do what they're best at and stick with what you're best at, I've carried from mowing my lawn to philanthropy, and it's a wonderful thing to just shove off everything and say somebody else is better than I am at that, and then work in the field that's most productive for you.

CHARLIE MUNGER: Yeah. You didn't do your own bowel surgery, either.

WARREN BUFFETT: No. (Laughter)

I'm not sure I have any reply to that. (Laughter)

WARREN BUFFETT: OK. Jonathan?

JONATHAN BRANDT: Warren, you have told the managers of your businesses to think of their businesses as something they will own forever and that their first priority should be to widen the moat and take care of their customers.

In more than one case, according to people I've spoken to, Berkshire's subsidiaries that were formally publicly traded have run into trouble by — now this is on the margin, mind you — trying to maximize calendar year earnings and dividends to the parent, as opposed to focusing on the long-term health of the business.

Do you find that managements of formally public companies, through force of habit, perhaps, have more trouble making decisions with only minimal concern for short-term results than would be the case for formally private companies?

If this dynamic is a real one, is there something more that can be done to combat it?

And I'm curious, are most of Berkshire's compensation structures based on 12-month results or are they already based over multiyear periods?

WARREN BUFFETT: Yeah. I don't think we've had any particular problem with public companies versus private companies that we've bought.

I mean, if you took the aggregate of the public companies we bought and matched them up against the private companies, I don't know which group I would rather own or which has delivered the greater returns.

CHARLIE MUNGER: I don't know where he gets the idea.

WARREN BUFFETT: Yeah.

CHARLIE MUNGER: It's not apparent to us.

WARREN BUFFETT: Yeah. Well, you've heard Charlie. And I can't think of it myself.

And, you know, if we tell them to think about 100 years, we mean think about 100 years, and I think they know we mean it. They certainly know we run Berkshire, you know, in terms of our own decisions that way.

So, I think we set the right example, and I think we use the words to convey that belief as strongly as we can, and we try to reinforce — we try to put it in the annual report, we try to talk about it in meetings like this.

We believe in sort of hammering the same message out there over and over again.

Now, we don't ignore yearly results at all, it's just we don't live by them. But I get figures every month on virtually every business, and I read them with great interest, and, you know, I'm thinking about them all the time.

I don't think they're unimportant, but we don't live by them. And I think what really counts, you know, is where we're going to be three years, five years, or 10 years from now.

But I also — I wouldn't — if we're subpar in some area, I wouldn't accept the fact that we're working to maximize things in 10 years mean that we should be throwing away money, or anything like that, in the short run, or not paying attention to the business.

But I'd have to say what Charlie has, I don't really agree with the premise.

WARREN BUFFETT: OK. Station 2.

AUDIENCE MEMBER: Dear Warren, dear Charlie. Thank you for 50 great years. I'm a happy shareholder and hope to have you continue long.

My name is Victoria Von Tropp (PH). I'm from Bonn in Germany.

And my question is, you own companies both here in the U.S. as well as in Germany. What differences in corporate culture and in performance do you see between German and U.S. starter companies?

WARREN BUFFETT: Charlie?

CHARLIE MUNGER: Differences between what —

WARREN BUFFETT: I know the question. I'm just looking to you for the answer, not the question. (Laughter)

CHARLIE MUNGER: Now that he can hear so much better, he —

WARREN BUFFETT: Yeah.

CHARLIE MUNGER: Well, we — we've had a hard time buying things in Europe. It's been quite rare.

And I think the traditions, and the family traditions, are different in Europe than they are in the United States, and in some other countries.

And Germany, of course, has a long tradition of being very good at technology and capitalism, and that's been a godsend to Germany. And we've always admired the way the Germans have performed.

The Germans actually work fewer hours than a lot of other people and produce a lot more and, of course, Warren and I are pretty good at that. (Laughter)

So we're — we admire the Germans, particularly the engineering side, and — but we've been thinking about owning good German companies for a long time and we finally bought one.

WARREN BUFFETT: Yeah. But I'll make a prediction. I will predict we buy at least one German company in the next five years.

I think that — I think we are far more on the radar screen than we were just a few years ago in Germany. I think we now have a woman over there who brought, through somebody else as well, but brought Louis to our attention.

I think she is going to hear about more things because of her association with us on the transaction and the fact that we tried to get the word out as to her help with us.

So, I would really be surprised if we don't make at least one deal in Germany in the next five years, and I would look forward to it. I mean, we'll be very, very happy with — you know, we have to get a business, we understand.

I've had, probably, four or five letters in the last couple months, ever since the Louis deal was announced, but they've been very small businesses in practically each case.

But we'll get one. We're eager, we've got the money, and we do fit the family situation, occasionally.

And prices may be a little more attractive there than in the United States, although I haven't seen anything yet that we've bought.

But I would say that there's a reasonable chance that the price of something we're offered over there might catch my attention more than U.S. prices, currently.

WARREN BUFFETT: OK. Becky.

BECKY QUICK: This question caught my attention not because I think it's a complaint, but I think it's an actual question about the actuarial models that you use at GEICO.

It comes from Stan Zion (PH). And he says, "My wife and I are stockholders of Berkshire Hathaway. I'm 78 and she's 74. We have a long-time accident-free driving record.

Yet, when we applied to GEICO with our stockholder discount, GEICO was unable to beat our rates for comparable coverage with other fine companies. Why?"

WARREN BUFFETT: Well, it's the reason that we probably can beat the rate maybe 40 percent of the time with people who contact us and 60 percent of the time we can't.

No company is going to be the lowest in all cases. And we have our own underwriting criteria that involves many variables, one of which is age, but it wouldn't be a dominant one at that age.

But we have many, many variables. And we make our calculations, and very good competitors like State Farm and Allstate, USAA, and so on, they have somewhat different underwriting weightings and sometimes they come in below us.

But I don't think any company, of size, will be the lowest more often than GEICO.

We give out quotes on the telephone to many, many thousands of people every week. I get the figures every week, and I get the number of quotes, and I get the number of policies sold.

And I can tell you the percentages are very substantial that we sell. And we're not selling them if we're charging them more than the people before them. So it — different people have different weightings for different variables.

And the couple you referred to sound like they should get a very good rate from somebody, but they apparently got a better rate from somebody else other than us. And that's going to happen, perhaps 60 percent of the time, and 40 percent of the time we're going to get the business.

And since we're only 11 percent of the whole market now, it means we've got a lot of policyholders yet to gather.

The — it's an interesting question when you're looking at how to evaluate drivers. You know, we know that 16-year-old boys are about as bad as they get; 16-year-old girls are a better class.

Does that mean they're better drivers? Not necessarily.

It may mean they don't have the same tendency to show off. It may mean they don't drive as many miles. It may mean a whole lot of things.

So we ask a lot of questions, and other people ask different questions, and we will come up with different rates. But it's definitely worth 15 minutes to call GEICO. (Laughter)

Charlie?

CHARLIE MUNGER: Well, I would say besides if — when you get into the older people's group and you find you're not deteriorating as fast as most of your contemporaries, you may be paying an unfair price for the insurance, but it's a good tradeoff. (Laughter)

WARREN BUFFETT: Gary.

I haven't thought of it that way before. (Laughter)

GARY RANSOM: The reinsurance market has changed dramatically over the last two or three years, a lot of alternative capital coming into the business, making it much harder to make the assumption that there would be a big opportunity after the next big catastrophic event.

What is it that you and Ajit are planning to change, or do, to take advantage of whatever opportunities might be there?

WARREN BUFFETT: Well, wouldn't our competitors like to know? (Laughs)

The reinsurance business is not as good as it was, and it's unlikely to be as good as it was.

There's a lot of money that's come into reinsurance, not because they want to reinsure people, but because it's become either a fashionable asset class for people that are looking for so-called noncorrelated investments and may not know what they're doing, but it's something you can sell people, you know, that's an attractive line to go to pension funds with.

And then, secondly, it's a beard for doing — for asset management. So, if you go to Bermuda and start a reinsurance company, you can actually run a hedge fund, and you need a little business to make it look like you're doing something other than running a hedge fund, and locating it offshore so you don't pay any tax, but that's the primary motivation.

So when you get a whole lot of people that are bringing money in and they sort of need your facade of reinsurance to cover up what their real motivations are, you're likely to get less attractive prices in reinsurance.

And that's been happening on a fairly large scale, and I would say that I would expect the reinsurance business in the next 10 years to not be as good as it has been — I'm talking about the whole industry — as it has been, you know, in the last 30 or something like that.

It's a business whose prospects have turned for the worse, and there's not much we can do about it.

We do find things to do. There are certain things that only Berkshire can do, and we've — I mentioned in the annual report that there have been eight—I think it was eight—contracts written with premiums of a billion dollars or more, and we've written all eight of them.

So, we do — there's a certain corner of the world that we've got a strong position in, and there's a few other things we will do, but it's not as good as it was.

Charlie?

CHARLIE MUNGER: Well, I think, generally speaking, of course, it's going to be harder and, of course, this competition from promotional finance is getting more and more intense and they're more optimistic.

They're searching for a robust narrative. We're not searching for a robust narrative so we can sell something. We're playing the game for the long pull and other people just pretend to be doing so.

WARREN BUFFETT: Yeah. We could — we've had the opportunity over — for a long period of time — to go out and promote reinsurance-type money, and really take advantage, you know, of people on it, because we would have the best reputation in the field, and we could attract a ton of money, and we could get a big overwrite on it.

But it's not our game.

CHARLIE MUNGER: And we don't particularly admire the way it's being played.

WARREN BUFFETT: Station 3.

AUDIENCE MEMBER: Mr. Buffett and Mr. Munger, my name is (inaudible) from South Florida, and I'm currently in seventh grade.

My question is how do you make lots of friends and get people to like you and work with you?

WARREN BUFFETT: That's not a bad question. (Applause)

Very good question.

CHARLIE MUNGER: Well, you know, I was pretty obnoxious when I was your age and asked a lot of impertinent questions, and not everybody liked me.

And so the only way I could get the people to like me a little bit was to get very rich and very generous. (Laughter)

That will work.

WARREN BUFFETT: People will see all kinds of virtues in you if they think you'll write a check. (Laughter)

Yeah. The two of us — both Charlie and I were on the obnoxious side early on, but you should get a little smarter about human behavior as you get older.

And I turned out to have some pretty good teachers as I went along, in terms of what worked.

I mean, I have looked at other people during my lifetime and at these wonderful teachers. They weren't teachers in the standard definition, but they were people I admired and I thought to myself, "Why do I admire these people?" And if I want to be admired myself, you know, why shouldn't I take on some of their qualities?

So, it's not a complicated proposition, you know. If you look around you at the people you like in your school, write down three or four things they do that make you like them, and then look around at the three or four people that turn you off, and write down those qualities, and decide that you're going to be a person you, yourself, would like, that you'd take on the qualities of the person on the left.

You're generous, you're friendly, you know, you accept things with good humor, you don't claim credit for things you don't do, all of these things. And they're all possible to do.

And if you like that in other people, people are going to like it in you. And if you find things that are kind of obnoxious, you're always late, you're always claiming credit for more than you do, and you're kind of negative on everything, and you don't like those in other people, get rid of them in yourself and you'll find out it works pretty well. (Applause)

CHARLIE MUNGER: And it really works in marriage. If you can change yourself instead of trying to change your spouse, that's a good idea. (Laughter)

WARREN BUFFETT: Charlie has said the most important thing in selecting a marriage partner is that you don't look for intelligence or humor or character. He says you look for someone with low expectations. (Laughter)

WARREN BUFFETT: OK. Andrew?

ANDREW ROSS SORKIN: OK. This is a question about NetJets. We received several related to NetJets. We've combined these two.

The first is, can you comment on the lengthy dispute with NetJets' pilots who are picketing outside, and Whitney Tillson asks, "What type of return on investment do you expect from the billions on order in aircraft for NetJets," and in a very pointed way, he writes, "Was buying NetJets a mistake?"

WARREN BUFFETT: No, I don't think buying NetJets was a mistake. We've had a few things where it looked like a mistake for quite a while and some of them turned out to be a mistake.

But NetJets is a very decent business. We have a good business; the pilots have a good job.

And the — it's not really the right way to look at it, I don't think, in terms of return on investment in the billions of dollars of orders we have because we resell those planes to owners.

And we do have a core fleet that represents an investment, but the investment is held, in very large part, by the owners themselves. I own — what do I own? Three-sixteenths, or something like that, of one type of plane that my children use. I own an eighth of another plane that I use. But that's my investment; it's not the NetJets investment.

The — labor relations — at Berkshire we've had hundreds of labor unions over the years, literally hundreds. In fact, we probably have hundreds at the present time.

And we've only had — in 50 years — we've had three strikes that I can remember. I don't think there have been any others. There could have been some one-day walkout, maybe.

But we had a four-day strike at a Berkshire Hathaway textile operation, we had a four-day or so strike at the Buffalo News 30 years ago, and we had another strike at See's Candy one time.

So, we have no anti-union agenda whatsoever, and we think we have sensational pilots.

I mean, I've flown NetJets, my family has flown NetJets, now for 20 years, and we've had nothing but professional pilots and friendly pilots.

And it's not — you know, it's in human nature to have differences, sometimes, about what people get paid.

Our pilots make an average of 145,000 a year. They worked — they work seven — they have options, but one of the options, and the main option, is seven days on and seven days off.

We pay for their time to get to where they're based. They can live anyplace in the country. And compared to our competitors at Flexjets or Flight Options or so on, or in charter, we pay well.

But it's perfectly understandable that employers and employees have some differences from time to time. And we'll get it worked out, but that doesn't necessarily come in a day or a week or a month.

And our volume is up, in terms of flying. Our volume is up, in terms of owners in the United States. Europe is flat. But the United States is the bigger end of it.

So it's a business I'm very glad we own. I'm proud we own it. It's a first-class operation. We give our pilots more training, I believe, than anybody else.

I'm flying on NetJets. My kids are all flying on NetJets. Our managers, in many cases, are flying on it, so nobody cares more about safety.

This is not a company where the CEO flies on his own jet and other people fly in other ways. So I — and I get the same — I get the same planes that the other people get and the same pilots. I mean, there's no special arrangements.

So we've got this intense interest in safety, and we've got very professional pilots. And at the moment, we've got a difference of opinion about a contract, but that will get settled, in my view.

Charlie?

CHARLIE MUNGER: I have never, in all the years, had a NetJets pilot who didn't affect me as a wonderful fellow and a very skilled, able, and dutiful, reliable person.

And I would say most — I can think of no NetJets pilot that has ever in any way indicated that he's dissatisfied with his life, and a lot of them say they just love it, because of the — I'm not at all sure the union is fairly representing the pilots.

WARREN BUFFETT: OK. (Applause)

He said fellows. Actually, we have a lot of women pilots, too.

WARREN BUFFETT: Gregg?

GREGG WARREN: Warren, looking at your acquisition of Duracell from Procter & Gamble, at the time of the deal, you noted that Duracell is a leading global brand with top quality products. You're obviously familiar with the business, which was initially acquired by Gillette in 1996.

While Duracell does provide fairly steady cash flows and has a strong brand in market position, its core business is in decline, with advances in technology making alkaline batteries far less relevant than they were 20 years ago.

Looking back historically, you've been willing to hang onto businesses operating in declining industries as long as they continue to generate some cash for Berkshire overall, so having Duracell in the portfolio is not necessarily out of the ordinary.

The question I have is, how much of a role did tax planning actually play in doing this deal, given the extremely low-cost basis on your P&G shares, some of which you've been selling the last several years?

And would you have done this deal without tax considerations? And, if so, at what price?

WARREN BUFFETT: Well, both Procter & Gamble and Berkshire Hathaway had tax advantages in doing the deal this way, so they probably wouldn't have sold it at the price at which the deal took place, and we wouldn't have bought it at the price, without the tax benefits that each enjoyed.

And this is something — we had to have held our stock for over five years in Procter & Gamble.

It's something that's been in the code a long time that we've had nothing to do with it being in the code, but it's part of the code.

And it's somewhat similar to the real estate exchange arrangement, where you can exchange real estate and defer any tax.

And we don't get a new tax basis on the Duracell; we keep the old lower tax base, just like on — what do they call it? Is it section 1231 or —

CHARLIE MUNGER: Yeah.

WARREN BUFFETT: — real estate exchanges. So it's analogous to that, and the answer is that there wouldn't have been a transaction from Procter & Gamble's standpoint and there wouldn't have been a transaction, probably, from Berkshire's standpoint, if it hadn't been for the fact that we could do an exchange arrangement.

As to the declining business part, the battery business will be a declining business, but it will be around for a very, very, very long time on a worldwide basis.

And Duracell has a very strong position. It's a very good business. And, like you say, I was familiar with it when I was on the Gillette board.

But the — you know, it will have unit declines over a period of time, but I think we'll do fine with the Duracell investment. I'm looking forward to getting the deal complete, which probably won't take place until the fourth quarter because we have to get it detached from a lot of other things like the IT and distribution centers and everything else that it's involved in with P&G.

But P&G has been great to work with. They're making the transition — you know, they couldn't be better to work with during that period, and I'll be very happy when we own it.

WARREN BUFFETT: Station 4.

AUDIENCE MEMBER: Hello, Warren and Charlie. I am Marvin Blum, an estate planning lawyer from Fort Worth, Texas, home to four of your companies.

And by the way, we're excited about the new Nebraska Furniture Mart and the Berkshire Hathaway Automotive Group in the Dallas/Fort Worth area.

Next to Omaha, we hope you think of Fort Worth as your second home.

WARREN BUFFETT: It's been good to us. And actually, we have five companies down there. MiTek just bought one.

AUDIENCE MEMBER: All right. Even better.

At the annual meeting a couple years ago, I asked about your estate plan and your idea of leaving kids enough so they can do anything, but not so much that they can do nothing.

Today, I'd like to ask you about your decision to sign the Giving Pledge, promising to give away at least one-half of your assets to charity.

Can you talk about your views on philanthropy, and how to balance leaving an inheritance to your family versus assets to charity?

WARREN BUFFETT: Well, it depends very much on the individual situation. And actually, I promised to give over 99 percent, in my case. But that still leave plenty left over. (Applause)

As you know, the estate tax exemption has been moved up substantially here in the last couple years, so you — I might have a very different feeling if I'd had a child that worked actively, helped me build the business, and all that sort of thing, and it was a small business, and I wanted to give it to them. But that can be really done without any estate tax these days, particularly if a little planning is used ahead of time.

It's a very individual thing. I — as Charlie — you know, when you get to the — figuring out what you do with your money, the options get very — fairly — limited. And as Charlie said the other day, you know, he said where he's going it won't do him much good anyway. (Laughter)

There's no Forbes 400, you know, in the graveyard.

So the question is, where does it do the most good? And I think it does limited amounts to do some real good for my children, so I'll be sure that they have that, or they already have it, to a degree.

And, on the other hand, when I look at a bunch of stock certificates in a safe deposit box that were put there 50 years ago or so, they have absolutely no utility to me, zero. They can't do anything for me in life.

I mean, they can't let me consume 7,000 calories a day instead of 3,000. They can't — there's nothing they can do.

I've got everything in the world I want, and I've had it for decades. If I wanted something additionally, I'd go buy it.

So, here these things are that have no utility to me and they have enormous utility to some people in other parts of the world. I mean, they can save lives. They can provide vaccines. They can provide education. There are all kinds of utility.

So why in the world should they sit there for me or for, you know, some fourth generation down of great-grandchildren or something, when they can do a lot of good now?

So that's my own philosophy on it, but I think everybody has to develop their own feelings about it and should follow where they go.

I do think — I do think they might ask themselves, what — you know, where will it do the most good?

And it can be pretty dramatic between what it can do for millions of people that don't really have remotely the same shot at having a decent life that I've had, or what it, you know, what it can do for me.

I mean, if it — I could have 10 houses, but, you know, I could buy a hotel to live in, you know. But would I be happier? It would be crazy.

Charlie and I both like fairly simple lives. But the one thing we do know is we know what we like and what we don't like, and we don't judge it by what other people like.

So I don't have too much advice for anybody, but I would say start thinking about it.

When I call people on the Giving Pledge, you know, some of them — I'll get some 70-year-old and he says, "You know, I don't want to think about it yet." And I always tell him. "Are you going to make a better decision when you're 95 with some blond on your lap?" (Laughter)

That actually was tried a few years ago, as you may know. (Laughter)

Charlie?

CHARLIE MUNGER: No, but it does occur to me that that fellow that was complaining about the tax system should remember that when — they recently changed the estate tax rules, so you can leave 5 million to your kids, and so forth. I think that's a very constructive change in the law.

So I don't think we should assume that our politicians are always going to be totally crazy. That was a very desirable change, I think.

WARREN BUFFETT: OK. Carol.

CAROL LOOMIS: The questioner's name is Andre Bartel (PH), and he's a Berkshire shareholder.

"Would it make sense" — and I'm going to add my own edit here to say, and would it be legally permissible — "for Berkshire to distribute, at some time in the future, any or some of the long-term equity investments, for example, Coca-Cola or American Express, to the shareholders in a tax-sufficient way, as Yahoo is planning to do with the Alibaba stake, for example?

"The idea would be to return capital to shareholders using assets that Berkshire is not actively managing, that is, has not bought or sold for some time, and has very low incentive to sell because of income tax implications, while not taking away resources—cash—that could be reinvested by the Berkshire management better than by its shareholders."

WARREN BUFFETT: Yeah, I don't think Yahoo solved it, actually. Charlie, you follow that, too.

CHARLIE MUNGER: I don't think that we can do that with American Express and so forth. It's a bad example. We've got no way of doing that.

WARREN BUFFETT: No. There used to be a way to do that many years ago, and it was done. I don't mean by us, but I saw other examples of it.

But, under the code, there's no way to use appreciated securities to redeem your own shares, to — you can do it for something like acquiring, where you're exchanging it for like asset type thing on the Duracell arrangement, but there's no way to distribute it to shareholders without paying the full capital gains tax. And —

CHARLIE MUNGER: Yeah, spinoffs of whole businesses to shareholders, if you held them a long time, but that's about the only thing you can do.

WARREN BUFFETT: Yeah, but even there, I mean, what Yahoo has done has not got rid of the tax.

CHARLIE MUNGER: I don't know anything about Yahoo.

WARREN BUFFETT: Yeah. No. The — or what they're planning to do.

It may give them some other option if Alibaba wants to eventually redeem it themselves.

I mean, there could be something where they could work out a deal with Alibaba. I do not see how that they've gotten rid of the tax, unless they do a subsequent transaction of some sort with Alibaba, but maybe they have different tax advice than I've seen.

I mean, I know all kinds of cases where people — where corporations — have unrealized — large unrealized — gains in marketable securities, and I have not seen, in recent years — although I did see it early in my career when the law was different, but I've not seen in recent years any way that people have gotten that money into the hands of the shareholders without paying a tax at the corporate level.

Charlie?

CHARLIE MUNGER: No. That's — that's what we say.

WARREN BUFFETT: Yeah. Jonathan?

JONATHAN BRANDT: Berkshire owns many companies that benefit from single-family home construction: ACME, Johns Manville, Benjamin Moore, MiTek, and Shaw among them, not to mention the railroad.

After the financial crisis, you said that young adults who are postponing household formation by living with parents or in-laws would eventually get sick of that arrangement and we would start to see normal rates of household formation once the job market improved or even if it didn't.

Jobs are now more plentiful. Yet, household formation still continues to be below rates thought to be normal, whether because of high student debt, a shift in attitudes about homeownership, or stricter mortgage terms for first-time buyers.

Could something more secular be going on where household formation rates, relative to the population, could continue to be lower than historical rates?

Could the U.S. become more like Europe where many adult children live with their parents or in-laws for quite some time, or do you think, still, that the subdued rate of household formation is a mostly cyclical phenomenon, and that the rate will eventually revert to the historical mean, boosting single-family home starts and earnings for this group of companies?

WARREN BUFFETT: Yeah. I don't know the answer, obviously, but I think the latter is more likely.

I may be wrong. When's the last set of figures you've looked at in that connection? I've heard that it's turned up a fair amount in the last six months, but — have you seen anything on that, Jonny?

JONATHAN BRANDT: Nothing really recently, no.

WARREN BUFFETT: Yeah. I should know the figures, but I don't, for the last six months or nine months. But my impression was they had turned up somewhat.

I did my best on selling that ring in the movie to that guy, and they're going to form a household here in another month or two to which I've been invited.

But the truth is I don't know, the — you know, what's going to happen on household formation.

I would expect — but I expected it earlier than this — I would expect it to turn up. It always turns down in a recession, and you could argue that we're not all the way back from the recession yet.

Your guess would be as good as mine.

Charlie?

CHARLIE MUNGER: I feel exactly the same way, but I think I speak for a lot of members of the audience when I say I have some grandchildren that I wish would marry somebody suitable promptly. (Laughter)

WARREN BUFFETT: What's the reason for your interest, Charlie?

CHARLIE MUNGER: I don't think it's healthy for these people to hang around looking for pie in the sky or whatever in hell they're doing. (Laughter)

WARREN BUFFETT: Are they in attendance today?

CHARLIE MUNGER: I don't know. Some of them may be. I don't want to name names. (Laughter)

WARREN BUFFETT: No. I think you've already been pointed enough.

WARREN BUFFETT: OK. Station 5.

AUDIENCE MEMBER: Gentlemen, thank you for a great day.

My name is Mark Roy (PH), and I am the executive director of the Immanuel Vision Foundation here in Omaha.

Earlier today, I sat up in the corner and spoke to my son who is working and living in Indonesia, among the poorest of the poor, funded, incidentally, by the Gates Foundation.

The contrast between where he is sitting today and where I am sitting could not be more dramatic.

You have been a model of philanthropic caring for the needs of others. You have demonstrated that it's not how many shares we have but how we share with others.

So following up on the last speaker, I want to ask, how can corporations be encouraged to make an even greater impact in the lives of those who are not shareholders?

WARREN BUFFETT: Yeah. I agree, you know, entirely with your motivation about increasing philanthropy.

I am much more of a believer, however, in individual philanthropy than corporate philanthropy.

I really feel that I've got everything I need, but I do also feel that I'm working for the shareholders and they should determine their own philanthropic activities, that it's their money. (Applause)

Now, we participate in — I mean, I encourage all our companies to continue the philanthropic behavior that they had before we've acquired them, and, you know, we want them to participate in their communities and to help the entities that help their employees and their customers.

But I don't really think it's my business, ever, to write a check to my alma mater or whatever it may be, and do it on company funds. I just — I don't feel it's my money.

I really look at this as a partnership. We've always looked at it as a partnership. And we had a system some years back where all the shareholders could designate contributions, and I felt that was quite a good system. And then we had to give it up for reasons that — I hated to give it up, but we had to do it.

The interesting thing about philanthropy — I mean, I have never given a penny to any organization that has cost me anything in my life. I mean, I've never given up a movie, I've never given up a trip, I've never given up a vacation, I've never given up a present to my kids.

You know, people give money this Sunday, you know, that really, actually, changes their lifestyle in a small way, and that hasn't happened with me. Everything I've given has been ungodly surplus, you know, and I'm glad I can do it.

But it's people like your son, you know, that I really admire.

Charlie? (Applause)

CHARLIE MUNGER: Well, my taste for giving away somebody else's money is also quite restrained. (Laughter)

WARREN BUFFETT: I was on the board one time of an organization that needed to raise a fair amount of money, and it wasn't church affiliated or anything like that.

And so they asked me to call on four or five corporate chieftains and they said, "Be sure not to ask them to give anything personally, just ask them to give corporate money."

And just — I said, "I'm not going to do it," basically. If they're not — if they won't put up their own money, why should they write checks on behalf of all their shareholders?

So I've got real reservations about corporate philanthropy for the personal reasons, to some extent, of the CEO, or the directors.

WARREN BUFFETT: OK. Becky?

BECKY QUICK: This question comes from Felipe, and he asks, "Do Charlie and you think that the euro currency has had a positive or negative effect overall on the eurozone economy, and do you think it would be a good decision for France to quit the euro currency and go back to the franc?

WARREN BUFFETT: Well, that's too easy for me to answer, so I'll give it to Charlie. (Laughter)

CHARLIE MUNGER: I haven't got the faintest idea. (Laughter)

I think the euro had a noble motivation and had promise of doing a lot of good and it undoubtedly has done a lot of good.

But it's a flawed system, in some ways, to put countries that are so different together, and it's straining at the moment. The big strains aren't in France.

WARREN BUFFETT: No.

CHARLIE MUNGER: The big strains are in Greece and Portugal and so on.

And I do think they created something that was probably unwise. They got countries in there that shouldn't have been there.

You can't form a business partnership with your frivolous, drunken brother-in-law, you know. (Laughter)

I mean, you have to make your partnerships with somebody else. And I think they lowered their standards a little and it's caused strains.

WARREN BUFFETT: I think — (laughs) — everything here is off the record, understand. (Laughter)

They — I think it's a good idea that needs a lot of work, still.

And I think it has been a good thing, net, to this point.

But it — you know, it is flawed and the flaws are appearing, but that doesn't mean it can't be corrected.

I mean, we wrote a Constitution in 1789 that, you know, still took a few amendments, you know, and some of them didn't happen for a long time in respect to some very important factors.

So, I don't think the fact that it wasn't perfectly designed initially should condemn it to being abandoned, but I think that if there are flaws, you have to face up to them. And I think that maybe the events that are happening currently will cause that.

We could have had — presumably — we could have had a common currency with Canada and probably have made it work, I mean, if we decided —

CHARLIE MUNGER: Sure, we could have made it work.

WARREN BUFFETT: Yeah. We could have had a North American currency with Canada and, you know, we'd have worked it out, and it might have even been useful.

But we couldn't have had a hemisphere-wide currency with Venezuela in it or —

CHARLIE MUNGER: With Argentina.

WARREN BUFFETT: Yeah. (Laughter)

And so — he loves to name names. (Laughter)

Praise by name; criticize by category. (Laughter)

And I actually think it's probably desirable to have a euro currency properly designed and enforced so that — you know, that the rules really apply. There were rules, originally, on the euro, which got broken very early on, by not the Greeks, but by the Germans and the French, as I remember. So —

CHARLIE MUNGER: The investment bankers let them — they helped them prepare phony financial statements.

WARREN BUFFETT: Yeah.

CHARLIE MUNGER: They — actually, it was investment banker-aided fraud.

WARREN BUFFETT: Yeah.

CHARLIE MUNGER: Not exactly novel. (Laughter)

WARREN BUFFETT: So, returning to our main point, I think the euro can and probably should survive and I think it's going to take some real changes and maybe some examples to enable it to do so.

I hope it really — I mean, it's going to go in the direction of more cohesion or less, and very soon, probably. And I think if it can figure out a way to do it with more cohesion, overall it will be a good thing for Europe.

But it certainly, you know, in its present form it's not going to work.

Charlie? I don't know why I'm giving you another shot, but — (Laughter)

CHARLIE MUNGER: I think I've offended enough people.

WARREN BUFFETT: Right. (Laughter)

There's two or three in the balcony. (Laughter)

WARREN BUFFETT: OK. Gary.

GARY RANSOM: With the Van Tuyl acquisition — or now Berkshire Hathaway Automotive — there may be some natural synergies with GEICO, if it's nothing more than just putting a gecko on the salesman's desk.

Would you expect to do anything in that regard to encourage getting more customers through that relationship?

WARREN BUFFETT: Yeah, I don't think so.

You always have these things that the investment banker will tell you will produce synergy and all that. Most times that doesn't work.

And historically, selling auto insurance through dealerships hasn't been particularly effective. And if we were to do that, we would probably have to compensate people who did the insurance work — or made the insurance sales — out of Van Tuyl. That would add to costs.

I mean, GEICO is a low-cost model, and it's a wonderful low-cost model. And [CEO] Tony Nicely has done an incredible job of keeping those costs down and our — and you can see it in our expense ratios.

We spend a lot of money on advertising. But its success depends on delivering first-class insurance at a better price than other people can get, and the more people we put in distribution system or anything —

So, I would doubt very much that we do anything along that line. I think that those two companies will do better if run as two independent businesses than if we try to push through something.

We — Charlie and I have seen a lot of things on paper that involve that sort of a proposition and very, very few succeed.

Charlie?

CHARLIE MUNGER: Well, I agree. It's a very dumb idea, and we're not going to do it. (Laughter)

WARREN BUFFETT: OK. Station 6.

AUDIENCE MEMBER: Mr. Buffett, in this environment of quantitative easing, low interest rates, and an overvalued stock market, what value in silver at these prices do you see, and do you still follow the silver market?

WARREN BUFFETT: I really don't follow it much anymore. But at one time, we owned over 100 million ounces of silver, and I knew a fair amount about the supply and demand for it, and the prospective supply and demand.

But I really don't — I haven't paid much attention to it for a long, long time.

CHARLIE MUNGER: That's a very good thing too. (Laughter)

We didn't do that well.

WARREN BUFFETT: Yeah. We made a little money.

CHARLIE MUNGER: Yes.

WARREN BUFFETT: The — you know, photography — the interesting thing about silver is that there are some pure silver mines, but overwhelmingly, silver is produced as a by-product, you know, in terms of copper mining and that.

So it — it doesn't respond as much to its own supply and demand characteristics — that's still a factor — as it does in terms of the supply and demand characteristics of the things of which it's a by-product, like copper.

So, it's a very small market, too. But we came out better than the Hunt brothers, but other than that, we don't think about silver anymore.

WARREN BUFFETT: OK. Andrew.

ANDREW ROSS SORKIN: Charlie, question about activism.

Activism continues to grow and, as Charlie stated at the 2014 annual meeting, he sees it getting worse instead of getting better.

So the question is, we hope that Charlie and Warren will both be around forever, but, unfortunately, there will be a time when they're no longer here to manage the store.

WARREN BUFFETT: I reject such defeatism. (Laughter)

ANDREW ROSS SORKIN: If Warren is giving away his shares to charity over a ten-year period through his estate plan, and activists become increasingly more powerful, how will Berkshire defend itself from activists in the near and far future?

And would you consider it a failure if Berkshire were broken up in the future and shareholders received a significant premium? And for you to consider it success, what would the premium need to be?

WARREN BUFFETT: Well, if it's run right, there won't be a premium in breaking it up.

It may look like it. I mean, people will say there's subsidiary A that would sell at 20 times earnings and the whole place would sell, like, at 15. But the whole place won't sell at 15 if you spin off the one at 20.

I mean, it — I laid out in the annual report — there are a lot of benefits to Berkshire, in terms of having the companies in the same corporate tax return.

So I think it's unlikely that, on any long-term basis or intermediate-term basis, that the value of the parts will be greater than the value of the whole.

The best defense against activism is performance. But lately, there's been so much money pouring into activist funds, because it's been easy to raise money for that — I mean, it's been a successful way of handling money for the last few years, and institutional money then starts flowing into it, and the consultants recommend it, and all of that sort of thing.

And so, I would say that much of what I see as activism now, people are really reaching, in terms of what they're — of the kind of companies that they're talking about and the claims of what they can do and that sort of thing.

I think the biggest — you know, if you're talking about my shares getting dispensed over 10 years after my estate is settled, and the voting power they have, and I think, by the time that gets to be a reality, I think the market value of Berkshire is likely to be so great that even if all the activists gathered together, they wouldn't be able to do very much about it.

Berkshire is likely to really be a very, very large organization 10 or 20 years from now.

CHARLIE MUNGER: Besides, the Buffett super-voting power is going to last a long time.

WARREN BUFFETT: Last a long time, yeah.

I always — I've got these friends that call me — other companies and they've got an activist, and they're worried about it. I just tell them to send them over to Berkshire. We'll welcome them.

We'd love to have them buy our stock because they're not going to get anyplace. And that's going to be the situation for a long, long time.

We should be a place where people can dump their activists. (Laughter)

Charlie?

CHARLIE MUNGER: Well, the thing that I find interesting is, in the old days when many — most — stocks sold for way less than they were worth, in terms of intrinsic value, it was very rare to find an American corporation buying the stock in.

WARREN BUFFETT: Oh, yeah.

CHARLIE MUNGER: Now, in many cases, the activists are urging corporations to buy the stock in heavily, even though it's selling for more than it's worth.

This is not a constructive activity, and it's not a desirable change, and it's not a very responsible activity for the activists.

WARREN BUFFETT: There's been more stupid stuff written on such a simple activity as stock repurchase. Both stupid stuff written and stupid stuff done.

I mean, it's a very simple decision, in my view, as to whether you repurchase your shares. You know, you repurchase them if you're taking care of the needs of the business and your stock is selling for less than it's intrinsically worth. That — I don't see how anything could be more simple.

If you had a partnership and the partner wanted to sell out to you at 120 percent of what the business is worth, you'd say forget it.

And if he'd want to sell out to you for 80 percent of what it's worth, you'd take it. It's not complicated.

But there's so many other motivations that entered into people's minds about deciding whether to repurchase shares or not. It's gotten to be a very contorted and kind of silly discussion in many cases.

And Charlie is right. The — if you look at the history of share repurchases, you know, it falls off like crazy when stocks are cheap and it tends to goes up dramatically when stocks get fully priced.

But it's not what we'll do at Berkshire. At Berkshire, you know, we will presently — you know, we would love to buy it by the bushel basket at 120 percent of book, because we know it's worth a lot more than that.

We don't know how much more, but we know it's worth a lot more.

And we don't get a chance to do that very often. But if we do get a chance, we'll do it, big time.

But we won't buy it in at 200 percent of book, because it isn't worth it.

You know, it's not a complicated question, but people that — I've been around a lot of managements that announce they're going to buy X worth and then they buy it regardless of price.

And a lot of times the price makes sense. But if it doesn't, they don't seem to stop, and nobody tries to — seems to want to stop them.

Charlie?

CHARLIE MUNGER: Well, I certainly agree with you.

WARREN BUFFETT: OK.

CHARLIE MUNGER: I don't think it's a great age, this age of activism.

WARREN BUFFETT: Want to expand on that? (Laughter)

CHARLIE MUNGER: Well, I — it's hard for me to think of any activists I want to marry into the family. (Applause)

WARREN BUFFETT: I better stop before he names names. (Laughter)

WARREN BUFFETT: OK. Gregg.

GREGG WARREN: Warren, American Express, which is Berkshire's third largest stock holding, has relied on powerful network effects and its valuable brand to generate economic profits over the years.

It has created a virtual cycle with its collection of cardholders being desirable to merchants, who have been willing to pay higher transaction fees with those fees ending up funding rewards programs and services for American Express's cardholders.

More recently, though, competitors have turned this model against the firm, targeting its cardholder base with ever-increasing levels of rewards and services, while charging merchants lower fees than American Express does.

The company also saw its image of exclusivity take a bit of a hit earlier this year when Costco ended a 16-year relationship with the firm, a move that affects one in 10 American Express cards in circulation and which will impact results this year and next.

With restrictions on interchange fees and the growth and acceptance of mobile payment technologies likely to impact future revenue streams, and moves by the firm to go down-market in pursuit of transaction volume potentially diminishing the brand, how does American Express defend its moat?

WARREN BUFFETT: Well, American Express has been pretty good at that, and particularly when Ken Chenault's been running it.

The — it will be — you know, it — all aspects of payments will be subject to lots of innovation and various modes of attack.

I think that American Express is still a very special company. And like I say, Ken has done a sensational job in anticipating a lot of these trends and guiding it into different markets. As you mentioned, it's going down in the — into debit cards, effectively, and things of that sort.

I think there's a lot of loyalty with American Express cardholders. I do think a proprietary card is worth more than a co-branded card, but I think that — I probably shouldn't get into the specifics of Costco. I've got a Costco director sitting next to me.

But we're very happy with American Express, but we'd be even happier if the stock goes down and the 4 or 5 billion they spend a year buying in stock buys even more shares.

Charlie?

CHARLIE MUNGER: Well, I like it a little better when they had a little less competition, but that's life. (Laughter)

WARREN BUFFETT: Incidentally, you'll find in this 50-year history of Berkshire, you know, American Express did wonders for us back in the 1960s. And there's a little history in there on the fact that it was an assessable stock until 1965, which nobody paid any attention to until 1963 on.

But the company has an incredible history of adapting. I mean, they started out as an express company, you know, move trunks around, and valuables around.

And then the railroad came around and started doing the same thing, so they went to traveler's checks as a way to — very handy way — of moving money around the world.

And then the credit card came along, Diners Club came along, in the 1950s, and that threatened the traveler's check and then they moved into the Travel and Entertainment card, as it was called then.

And the interesting thing is that Diners Club, who was first — Ralph Schneider and Al Bloomingdale priced their card at, as I remember, $3, and they looked like they were sewing up the market.

And American Express came along and did something very interesting. They priced their card, I think, at $5, and actually established a better image.

I mean, people that pulled out their American Express card at a dinner table, they looked like J.P. Morgan.

And the guy that pulled out a Diners Club card, they'd have a whole bunch of flashy things on it, he looked like a guy who was kiting his expense account or something of the sort. So you just automatically felt like a more important person with your American Express card.

They have been very nimble, and very smart, and particularly in recent years, under Ken, in terms of meeting all kinds of challenges. And I think they'll have plenty of challenges in the future, and I'm delighted we own 15 percent of the company.

WARREN BUFFETT: OK. Station 7.

AUDIENCE MEMBER: Hi. My name is Chang, originally from Seoul, South Korea, and working in Los Angeles, California.

I've been traveling more than 27 countries, and last year I taught financial literacy lesson in one of the local elementary school in (inaudible) city.

Today here, we're talking about investments in capital markets, but young students in developing countries, they don't know how to save money, or they don't know the concept of interest.

So, in order to overcome the educational challenges, I would like to provide volunteer opportunities to talented Americans to teach in South American schools to overcome the — while they are traveling.

So, what do you think about my plan or do you have any advice? Thank you.

WARREN BUFFETT: Charlie, do you have any advice?

CHARLIE MUNGER: Well, I failed in this activity with some of my relatives, so I don't think I can improve South America. (Laughter)

No, I think if you don't — if you don't know how to save, I can't help you. (Laughter)

WARREN BUFFETT: No, but the important thing is to get good habits early on.

CHARLIE MUNGER: Yeah.

WARREN BUFFETT: You really — you know someone said the chains of habit are too light to be felt until they're too heavy to be broken. And habits really make an enormous difference in your life.

So Andy and Amy Heyward have developed the "Secret Millionaires Club," which I've helped out with a little, and our goal is to, in an entertaining way, present good habits to young kids through a kind of a comedy series.

And I think that's — it's actually having a pretty good effect. And here in a few days, we're going to have a — here in Omaha — we're going to have eight finalists in young kids from around the country that have developed businesses of their own, and I'm always enormously impressed with these kids.

But the importance of developing good habits yourself, or encouraging good habits in your children very early on, in respect to money, can change their lives.

And, you know, I was 9 or $10,000 ahead when I got out of college, and I got married young and had kids very fast.

And if I hadn't had that start, my life would have been vastly different. So it — you can't start young enough on working on good money habits.

And I do think the "Secret Millionaires Club" is very good, but there could be lots of other good ways of teaching those lessons.

WARREN BUFFETT: OK. We now have moved solely to the audience, so we'll go to station 8.

AUDIENCE MEMBER: Hello, Warren, Charlie. My name is Stefano Grasso (PH), and I come from Genova, Italy. It's great to be here today for the 50th anniversary.

Last year, I asked you what was the right level for leverage at Berkshire Hathaway, and why not to increase it. I argued that increasing liability more at the cheap level would benefit Berkshire, thanks to the investment capabilities of the present management.

This year, I would like to get your view on the possibility of working on the other side of the balance sheet and using part of the cash sitting on bank chair — bank accounts — to reduce some of the liabilities currently on its balance sheet.

For example, the index puts at Berkshire sold between 2004 and 2008, generated a premium of almost 5 billion.

Few years down the line, Berkshire benefited from the float. The indexes are higher and the time to maturity of the put got shorter.

The question is, if the unwinding of the puts were acceptable by the counterparts which bought them, would you consider unwinding them at a reasonable price? Thank you.

WARREN BUFFETT: Are you speaking — you're speaking specifically of the equity put options we have?

AUDIENCE MEMBER: I'm speaking about them, but as just an example. I'm talking also of maybe reducing debts or doing other —

WARREN BUFFETT: Yeah. Well, what we hope, of course, is that what we call the excess cash, which is cash beyond 20 billion that we can put to work buying a business. But you can't do, you know, one a week or one a month. So it's opportunistic.

And I don't know whether the phone call that's going to result in the next deal will come in next week or it may come in a year from now.

We will get calls and we will put money to work. You know, we just — we can't do it at an even flow. And we have, you know, virtually no debt.

If someone had told the two of us 50 years ago that we'd be able to borrow money in euros with a long duration of 1 percent or something like that, we would have felt we would have ended up with a way different balance sheet than we have today.

But, I mean, money is so cheap that it causes people to do almost anything on the asset side, and we try to avoid doing that because we don't, you know, we don't want to drop our standards too fast just because the liability side is costing us so little.

But I don't think — obviously, if we can unwind a derivative trade on a basis where we thought we were mathematically ahead by a significant amount, we would do it.

But I think that's very unlikely with the contracts we have now, so we'll probably — I think it's very likely they just run out over time.

We carry a liability of well over — I think it's getting somewhere between 3 1/2 and 4 billion — for something that has a settlement value today of 400 million.

So it's very hard for us to — it's very hard for us on the other side of the contract to arrive at a price that we both would be happy with.

We're not going to deleverage Berkshire. There isn't that much leverage to start with.

I mean, the float really is, essentially, very close to permanent. I mean, it can decline a couple percent in a year, but it can also increase a few percent.

So, I see no drain on funds of any consequence from the float for as far as the eye can see, and we have very little debt out. So I would not want to pay down the debt we have now.

Logically, we probably should take on more debt at these prices, but that's just not something that appeals to us.

Maybe if we find a really big deal, we might take on a little more. I would like to at least have that as something I was thinking about.

Charlie?

CHARLIE MUNGER: We'd love to have something come along where we actually felt a little capital constrained. We haven't felt capital constrained for a long time.

It's a problem we'd love to have, something so attractive that we —

WARREN BUFFETT: We'd stretch a little.

CHARLIE MUNGER: We'd stretch a little. That would be glorious.

And it could happen, by the way.

WARREN BUFFETT: And it could happen.

WARREN BUFFETT: OK. Station 9.

AUDIENCE MEMBER: Hi, Mr. Buffett and Mr. Munger. My name is George. I'm translating for my father, (inaudible), from Shanghai, China.

Last year it was my father standing here asking his question, and this year it's me. I feel so lucky.

I know at the end of last year, you purchased a car sales dealer. This year, you said in your public letter that you are going to continue to buy. The ultimate purpose of investment is to seek the return.

So my question is, whether the rate of return can be necessarily higher with the scale of the dealers?

If so, why we cannot see that happen in China? How come the differences with the dealership business of the same nature in the United States and China? Thank you.

WARREN BUFFETT: Yeah. I don't know the dealership situation in China.

I would say — I think I mentioned this a little earlier — that I don't think we're going to get significant benefits of scale as we buy more units in the auto field. I just don't see where it would come from.

But we don't need it. What we really need is managers in those individual dealerships that have skin in the game of their own, and that run them, you know, as first-class businesses, independently.

And that's what we'll be looking for. We'll not be looking for scale. I don't know the situation in China. Maybe Charlie knows more about that. I think he does.

CHARLIE MUNGER: No. But I don't think we'd be very good at running dealerships in China. And I think the people who run Van Tuyl are very good at running the ones here, so —

WARREN BUFFETT: Yeah with 17,000 here and we've got 81 of them, there's a little room to expand.

The problem is going to be price. Our purchase probably caused people to move up their multiples by one or two — people that have them — and we paid a full, but fair, price for Van Tuyl and we'll be using that price, more or less, as a yardstick.

And we really thought we bought the best there, so, if anything, we would be hoping to buy others, maybe for a bit less.

So we will not — we may buy a lot of them, we may buy very few, just depending on price developments.

The — we're having a big car year and profits are good in the dealership field. But when profits are good, we want to pay a lower multiple.

I mean, because, if we're going to be in the car business forever, we're going to have some good years and we're going to have some bad years. And we would rather buy at a 10 or 12 times multiple of a bad year than buy at an eight times multiple of a good year.

And that's not necessarily the way that sellers think, although they probably understand it, but they don't want to think that way. So we'll see what happens.

WARREN BUFFETT: OK. Station 10.

AUDIENCE MEMBER: Hi. Mr. Buffett and Munger, very excited to be here.

My name is (inaudible), also from Shanghai, China. Because now (inaudible) a company providing wealth management to the high-net wealth individuals in China. The company name is North, from North Ark (PH), listed at (inaudible).

You two are my idols. What's your secrets of keeping so young, so energetic, and so quick?

Please don't say because of Coca-Cola. (Laughter)

And as someone says that old papa could not understand the internet, but I don't believe that.

What's your opinion? Will you pay more attention to internet? Could I invite both two gentlemen to answer my question? Thank you very much.

WARREN BUFFETT: Charlie, I didn't get all that, so you —

CHARLIE MUNGER: Well, he asked are we going to be using the internet.

Warren is a big internet user compared to me. And — but —

WARREN BUFFETT: I love it. (Laughs)

CHARLIE MUNGER: He plays bridge on it.

WARREN BUFFETT: I use a lot of — I use search. It's been a huge change in my life, and it costs me a hundred dollars a year, or something like that.

If I had to give up the plane or I had to give up the internet: the plane costs me a million-and-a-half a year, the internet costs me a hundred dollars a year. You know, I wouldn't want to give up either one of them, but I'd give up the plane.

CHARLIE MUNGER: Interesting. (Laughter)

WARREN BUFFETT: Charlie's given up both.

CHARLIE MUNGER: Are we going to be doing more — I think everybody's going to be doing more things on the internet. It is growing in importance. And so like it or not, we're dragged into modern reality.

WARREN BUFFETT: Doesn't sound like he likes it, does it? (Laughs)

CHARLIE MUNGER: No, I don't like it.

I don't like multitasking. I see these people doing three things at once, and I think, God, what a terrible way that is to think.

I am so stupid, though, I have to think hard about a thing for a long time. And the idea of multitasking my way to glory has never occurred to me. (Laughter)

But at any rate, the internet is here and it's going to be more and more important and everybody's going to think more about it and do more about it, like it or not. And, of course, the younger people are way more prone to use it than we are.

But Berkshire — you have what, how many Bloombergs now?

WARREN BUFFETT: In the office?

CHARLIE MUNGER: Yeah.

WARREN BUFFETT: Do we have two or three. Mark?

I don't know. They don't tell me about them. They sort of hide them when I come in the room.

CHARLIE MUNGER: We're into the modern world.

WARREN BUFFETT: We have — [CFO] Marc Hamburg tells me we have three — but we'll reevaluate that situation when I get back to the office. (Laughter)

What's that?

Oh, we're not paying for one. I like that. (Laughter)

Let's see if we can not pay for two. (Laughter)

No, the internet — and it's changed many of our businesses. I mean, it's changed GEICO's business very, very dramatically. And it's affecting — it affects them all, to one degree or another.

It's amazing to me — I mean, people get pessimistic about America. Just think in the last 20 or 25 years—well, just 20 years on the internet—how dramatically it's changed your life.

You know, the game is not over yet. There's all kinds of things that are going to happen to make life better.

And Charlie may not think the internet makes life better, but when I compare trying to round up three other guys on a snowy day to come over to my house to play bridge, versus snapping the thing on and having my partner in San Francisco there and two other friends, and so on, in 10 or 20 seconds, I think the world has improved.

CHARLIE MUNGER: Well, if I had your partner, I'd think it had improved, too. (Laughter)

WARREN BUFFETT: OK. Station 11.

AUDIENCE MEMBER: Hi. I'm Whitney Tillson, a shareholder from New York.

Mr. Buffett, I know many shareholders have felt irritation, to put it mildly, when you've weighed in on social issues such as tax policy, or endorsed and raised money for a particular candidate, but I, for one, applaud it.

I think everyone, but especially people who've achieved wealth and prominence and thus have real ability to effect change, have a duty to try and make the world a better place, not just through charitable donations, but also through political engagement, and I'd say that even to people whose political views are contrary to my own.

My question relates to one of the big issues today: rising income inequality, and related to that, the campaign to raise the minimum wage, which has had some recent successes with some of the largest businesses in the country like Walmart and McDonald's.

How concerned are you about income inequality? Do you think raising the minimum wage is a good idea? And do you think these efforts might meaningfully affect the profitability of corporate America?

WARREN BUFFETT: Yeah. I think income inequality is — I think it's extraordinary, in the United States, to see how far we've gone.

Well, just go back to my own case. Since I was born in 1930, the average GDP per capita in the United States has gone up six for one.

Now, my parents thought they were living in a reasonably decent economy in 1930, and here their son has lived to where the average is six times what it was then.

And if you'd asked them at that time, and they'd known that fact, that it would go from 8 or $9,000 in today's terms to $54,000, they would have said, "Well, everybody in America is going to be enjoying a terrific life," and clearly they're not.

So, I think it is a huge factor. There are a million causes for it, and I don't pretend to know all the answers, in terms of working towards solutions.

But I do think that everybody that is willing to work should have a reasonably decent livelihood in a country like the United States, and — (applause) — how that is best achieved — I'm actually going to write something on it pretty soon.

I have nothing against raising the minimum wage, but to raise it to a level sufficient to really change things very much, I think, would cost a whole lot of jobs.

I mean, there are such things as supply and demand curves. And if you were to move it up dramatically, I think you would — it's a form of price fixing. I think you would change the opportunities available to people very dramatically.

So I am much more of a believer in reforming and enlarging the earned income tax credit, which rewards people that work, but also takes care of those whose skills don't fit well into a market system. So I think you put your finger on a very big problem.

I don't think — I don't have anything against raising the minimum wage, but I don't think you can do it in a significant enough way without creating a lot of distortions.

Whereas, I do think the earned income tax credit makes a lot of sense and I think it can be improved. There's a lot of fraud in it. It pays out this lump sum, so you get into these payday type loans against — I mean, there's — a lot of improvements can be made in it.

But I think the answer lies more in that particular policy than the minimum wage. And, like I said, I think I'm going to write something on it pretty soon. And if there's anybody I haven't made mad yet, you know, I'll take care of it in the next one.

Charlie?

CHARLIE MUNGER: Well, you've just heard a Democrat speaking and here's a Republican who says I agree with him.

I think if you raise the minimum wage a lot, it would be massively stupid and hurt the poor, and I think it would help the poor to make the earned income credit bigger. (Applause)

WARREN BUFFETT: Let's go to station 1.

AUDIENCE MEMBER: Hi. I'm Michael Monahan (PH) from Long Island, New York.

Warren, Charlie, the higher education system has expanded, covering almost everyone who would like to receive a college education. This demand has translated into rising college costs.

As a high school junior, I'm looking at prestigious institutions such as UPenn, Villanova, NYU, Fordham, and Boston University.

On the other hand, my parents are experiencing sticker shock. All of these schools have a sticker price of over $60,000, with some students, as shown in a businessinsider.com article, can pay over $70,000, as the case at NYU.

How will the average American family be able to pay this in the future and, more importantly, how do you two feel about this?

WARREN BUFFETT: Charlie?

CHARLIE MUNGER: Well, the average American family does it by going to less expensive places and getting massive subsidies from the expensive places.

If we had to give our college education to only people who could write cash checks for 60 or $70,000 a year, we wouldn't have that many college students.

WARREN BUFFETT: No.

CHARLIE MUNGER: So most people are paying less or getting subsidies. And — but I think it is a big problem, that education has just kept raising the price, raising the price, raising the price.

And they say, but college educated people do better. It's a big bargain. But maybe they do better because they were better to start with before they ever went to college, and they never tell you that. (Applause)

WARREN BUFFETT: It's a ridiculous argument.

CHARLIE MUNGER: And so —

WARREN BUFFETT: I think that's one of the silliest statistics that they publish, I mean, to say that a college education is worth X because people that go to college earn this much more than the ones that don't. You're talking about two different universes.

And to attribute the entire difference to the one variable, that they went to college as opposed to the difference between the people who want to go to college and have the ability to get into college —

CHARLIE MUNGER: It's completely nutty —

WARREN BUFFETT: — it's a fraud

CHARLIE MUNGER: — and about 70 percent of the people believe in it. So it gives you a certain hesitation about relying on your fellow man. (Laughter)

So I think most people have to struggle through with the system the way it is.

There's a big tendency to have prices rise to what can be collected. And people just rationalize that the service is worth it. And I think a lot of that has happened in education, and, of course — (applause) — a lot is taught in higher education that isn't very useful to the people who are learning it and, of course, a lot of those people would never learn much from anything.

So it's really wasting your time, and that's just the way it works. So I think there's a lot wrong.

What I noticed that was very interesting is that when the Great Recession came, every successful university in America was horribly overstaffed and they all behaved just like 3G. They all, with a shortage of money, laid off a lot of people. And the net result was they all worked better when it was all over with the people gone.

And so this right-sizing is not all bad. I don't think there's a college in America that wants to go back to its old habits. And — but you put your finger on — it is a real problem to look as those sticker shocks.

It's like any other problem in life. You figure out your best option and just live with it.

We can't change Villanova or Fordham. They're going to do what they're going to do. And as long as it works, they'll keep raising the prices.

WARREN BUFFETT: And it will keep working.

CHARLIE MUNGER: Yes. And that's pretty much the way the system works.

When it really gets awful there's finally a rebellion. In my place in Los Angeles, the little traffic accident got so it cost too much to everybody because of so much fraud, and the chiropractors, and some of the plaintiffs' attorneys, and so on.

And finally, the little accidents were costing so much that they worried about the guy who lived in a tough neighborhood who couldn't afford to drive out to get a job. And the auto insurance companies thought, my God, with prices going up like this, they'll have legislation creating state auto insurance or something.

So the net result is they put the plaintiffs' attorneys to trial in every case, and that fixed it. And maybe something like that will happen in higher education. But without some big incentive, I think higher education will just keep raising the prices.

WARREN BUFFETT: On that cheerful note, we'll move to station 2.

AUDIENCE MEMBER: Thank you for taking my question.

My name is Brendan Chin (PH). I'm form Taipei, Taiwan.

My question is, China is undergoing a number of structural changes. What do you — when you take the pulse of the Chinese economy, what do you read and what advice would you give? Thank you.

WARREN BUFFETT: Charlie's the China expert. I think China's going to do very fine over a period of time.

CHARLIE MUNGER: Yeah. I'm a big fan for what's happening in China.

And as a matter of fact, I've just ordered — prepared — a bust of Lee Kuan Yew, the recently deceased ex-prime minister of Singapore, because I think he's contributed so much to fixing, first Singapore, and then China.

And one of the things Lee Kuan Yew did in China — in Singapore — was to stop the corruption, including cashiering some of his close friends.

And China is doing the same thing. And I consider it the smartest damn thing I've seen a big country do in a long, long time, and I think that to — it's hard to set the proper example if the leading political rulers are kleptocrats.

You know, you don't want to be run by a den of thieves. You want responsible people.

And what Lee Kuan Yew did is he paid the civil servants way better and recruited very good people. And he just created a better system and, of course, China is widely copying him. And it's a wonderful thing they're doing.

So I'm very high on what's going on in China, and I think it's — I think it's very likely to work. If you — they've actually shot a few people. That really gets people's attention. (Laughter)

WARREN BUFFETT: Now we're starting to get some practical advice here. (Laughter)

What has happened in China, you know, over the last 40 or so years, I mean, I — it just strikes me as totally miraculous. I don't think — I would not have believed that a country could move so far so — a country of that size, particularly — so far so fast. And it's —

CHARLIE MUNGER: It never happened before, in the history of the world, that a company so big had come so far. When I was a little boy, 80 percent of the population of China was illiterate and mired in subsistence poverty and agriculture.

Now just think — and they've been through horrible wars and look at them. It's one of the most remarkable achievements in the history of the Earth.

And a few people made an extreme contribution to it, including this Chinese politician in Singapore.

And I give the Communist Party a lot of credit for copying Lee Kuan Yew.

That's all Berkshire does is copy the right people.

WARREN BUFFETT: Yeah. In 1790, the United States had 4 million people. China had 290 million people.

They were just as smart as we were. They worked as hard, similar climate, similar soil. And for 200 — close to 200 — years, you know, the United States went with those 4 million people to close to 25 percent of the world's GDP and China really didn't go anyplace.

And then those same people, in 40 years — and they're not working harder now than they were 40 years ago — they're not smarter now than they were 40 years ago, in terms of the basic intelligence — and just look at what's been accomplished.

I mean, it does show you the human potential when you find a system that unleashes it, and we found a system that unleashed human potential a couple hundred years ago and they found a system that unleashed human potential 40 or 50 years ago.

And, you know, when you see that example, you know, it has to have a powerful effect on what happens in the future.

And it's just amazing that you can have people go nowhere, basically, in their lives for centuries and then just — it explodes. And it just blows me away to see it, and you make it — it's the same human beings, but they've — they found a way to unlock their potential and I congratulate them for it.

And as Charlie said earlier, China and the United States are going to be the superpowers for as far as the eye can see. And it is really good for us, in my view, that the Chinese have found the way to unlock their potential.

And I think its imperative for two countries with nuclear weapons that, in this kind of world, that they figure out ways to see the virtues in each other rather than the flaws.

We'll have plenty of disagreements with the Chinese, and they will with us, but remember that on balance, we're both better off if the other one is doing well. That's just my own view. OK. (Applause)

WARREN BUFFETT: Station 3, please.

AUDIENCE MEMBER: Hello, Mr. Buffett and Mr. Munger. My name is Chander Chawla and I'm from San Francisco. Thank you for the last 50 years of sharing your wisdom and being an exemplar of integrity.

Fifty years ago, when you were starting out or getting into new industries, how did you figure out the operational metrics for a new industry where you did not have previous experience?

WARREN BUFFETT: Well, we — A) we didn't have it thought out that well, in a sense, at that time.

But we basically looked for companies where we thought we could understand what the future would look like 5 or 10 or 15 years hence. And that didn't mean we had to do it to four decimal places or anything of the sort, but we had to have a feel for it, and we had to know our limitations. So we stayed away from a lot of things.

And at that time, prices were different, so we — in terms of knowing we were getting enough for our money, it was a much easier decision than it is currently.

But it wasn't — they weren't elaborate — well, there were no planning sessions or anything of the sort. We just kept reading and we kept thinking and we kept looking at things that came along, as Charlie described it in the movie, and you know, comparing Opportunity A with Opportunity B.

And in those days, we were capital constrained, so we usually had to sell something if we were going to buy something else. And that always makes for — you know, that's the — an interesting challenge, always, when you're measuring something you hold against something that has come along and to see which is more attractive.

And we probably leaned very much toward things where we felt we were certain to get a decent result than where we were hopeful of getting a brilliant result.

Went with our instincts, and kept putting one foot in front of the other.

Charlie, what would you say?

CHARLIE MUNGER: Well, that's exactly what we did, and it worked wonderfully well. And part of it is because we were such splendid people and worked so constructively, and part of it is we were a little lucky. We had some good fortune.

Now, Warren says he was lucky to go to GEICO, but not every 20-year-old was going down to Washington, D.C., and knocking on the doors of empty buildings to try and find something out that he was curious about.

So we made some of our luck by being curious and seeking wisdom, and we certainly recommend that to anybody else.

And there's nothing that produces wisdom more thoroughly than really getting your own nose whacked hard when you make a mistake, and we had a firm amount of that, didn't we?

WARREN BUFFETT: We had plenty of them. If you read this book, you'll see about a few of them.

We thought we knew the department store business in Baltimore and we thought we knew about the trading stamp business.

We've had a lot of experience with bad businesses, and that makes you appreciate a good one. And to some extent, it sharpens your ability to make distinctions between good and bad ones.

And we've had a lot of fun along the way. That helps too. If you're enjoying what you're doing, you know, you're likely to get a better result than if you go to work with your teeth clenched every morning.

CHARLIE MUNGER: I think we were helped because we came from families where there was some admirable people, and we tended to identify other admirable people better than we would have coming from a different background.

So, my deceased wife used to say, you can't accomplish much in one generation.

We owe a considerable amount, both of us, to the families we were raised in. I think the family standards helped us to identify the good people more easily than we would have if we'd had a more disadvantaged background.

Do you agree with that, Warren?

WARREN BUFFETT: Yeah. Have you still got your father's briefcase?

CHARLIE MUNGER: I've still got it, but I don't know where it is. (Laughter)

Can't carry it anymore. It's worn out. It's got holes in it.

WARREN BUFFETT: I've got my dad's desk from 75 years ago.

WARREN BUFFETT: OK. Station 4.

AUDIENCE MEMBER: Hi, Warren and Charlie. This is Cora and Dan Chen from Talguard in Los Angeles, and we're thrilled to be here again.

Thank you for planting the seeds for which my generation can sit under the shade, and for my children's generation with "The Secret Millionaires Club," so that they can sit under the shade. I walk amongst giants.

WARREN BUFFETT: Go on. Go on. (Laughter)

AUDIENCE MEMBER: That's all I have. (Laughter)

WARREN BUFFETT: Don't hold back.

AUDIENCE MEMBER: Seriously though, thank you so much for everything you've taught us.

WARREN BUFFETT: Thank you.

AUDIENCE MEMBER: How were you able to persuade — (applause)

WARREN BUFFETT: Thank you.

AUDIENCE MEMBER: How were you able to persuade your early investors, all early on, besides your family and friends, to overcome their doubts and fears and to believe in what you're doing?

There's a lot of other asset classes out there, such as — a lot of people believe, real estate, bonds, gold. How were you able to get over that? And something I've been really dying to ask you —

CHARLIE MUNGER: We didn't do very well until we had a winning record. (Laughter)

AUDIENCE MEMBER: Prior to the early winning record, how were you able to get them to buy into what you were trying to do?

I mean, no one has ever done what you're doing, and no one has, still. And I've been really wanting to ask you, in the past, you said you're 90 percent Graham and 10 percent Fisher. Where does that percentage stand today?

Thank you again from a grateful student of your teachings, and my children love what you do, too. They wrote you a letter.

WARREN BUFFETT: Thank you. Thank you. (Applause)

A lot of it — you know, I started selling stocks here when I was 20 years old. I got out of Columbia. And although I was 20, I looked about 16 and I behaved like I was about 12.

So I was not — I did not make a huge impression selling stocks. I used to just walk around downtown and call on people, which is the way it was done, and then I went to work for Graham.

But when I came back, the people that joined me, actually — one of my sisters, her husband, my father-in-law, my Aunt Alice, a guy I roomed with in college, and his mother, and I've skipped one — but in any event, those people just had faith in me.

And my father-in-law, who was a dean at the University — what was then the University of Omaha — he gave me everything he had, you know, and to quite an extent they all did.

And so it was — they knew I'd done reasonably well by that time. That would have been 1956, so I'd been investing five or six years. And actually, I was in a position where when I left New York and came back to Omaha, I had about $175,000 and I was retired.

So I guess they figured if I was retired at 26, I must be doing something right and they gave me their money.

And then it just unfolded after that. An ex-stockholder of Graham-Newman, the president of a college came out, Ben Graham was winding up his partnership for his fund and he recommended me.

And then another fellow saw the announcement in the paper that we formed a partnership and he called me and he joined, and just one after another.

And then, actually, a year or two later, a doctor family called and they were the ones that ended up with me meeting Charlie.

So a lot of stuff just comes along if you just keep plodding along.

But the record, later on, of the partnership attracted money, but initially it was much more just people that knew me and had faith in me. But these were small sums of money. We started with 105,000.

Charlie?

CHARLIE MUNGER: Well, of course that's the way you start, and — but it's amazing. We've now watched a lot of other people start. And the people that have followed the old Graham-Newman path have one thing in common: they've all done pretty well. I can hardly think of anybody who hasn't done moderately —

WARREN BUFFETT: Everybody did well, yeah.

CHARLIE MUNGER: So, if you just avoid being a perfect idiot — (laughter) — and have a good character and just keep doing it day after day, it's amazing how it will work.

WARREN BUFFETT: Yeah. It was accident, to a significant extent.

If a few of those people hadn't have said to me, you know, "What should I buy?" And I said, "I'm not going to go back in the stock brokerage business, but I will — you know, we'll form a partnership and, you know, your fate will be the same as mine and I won't tell you what I'm doing."

And they joined in, and it went from there.

But it was not — it was not planned out in the least. Zero.

I met Charlie, and he was practicing law, and I told him that was OK as a hobby, but it was a lousy business. (Laughter)

And so he —

CHARLIE MUNGER: Fortunately, I listened. (Laughter)

It took a while, however.

WARREN BUFFETT: Yeah.

WARREN BUFFETT: OK. Station 5. We've got —

AUDIENCE MEMBER: Hi. My name is Arthur. I'm from Los Angeles. I want to thank you for having us in your hometown.

And we've all been listening to your business prowess and all your successes. There's no question that you're good at business and finance and have fun doing it.

But there are comments that you've made on income inequality, giving away 99 percent of your wealth, and I'm led to believe that you're motivated by more than just amassing wealth or financial gains.

So, I'd like to speak to your value core and ask what matters to you most and why?

WARREN BUFFETT: Charlie, what matters to you most?

CHARLIE MUNGER: Well, I think that I had an unfortunate channeling device.

I was better at figuring things out than I was at everything else. I was never going to succeed as a movie star, or as an athlete, or as an actor, something, so — and I, early, got the idea that — partly from my family, my grandfather, in particular, whose name I bore, had the same idea — that really, your main duty is to become as rational as you could possibly be.

I mean, rationality was just totally worshiped by Judge Munger, and my father and others.

And since I was good at that and no good at anything else, I was steered in something that worked well for me and — but I do think rationality is a moral duty.

That's the reason I like Confucius. He had the same idea all those years ago. And I think Berkshire is sort of a temple of rationality. What's really admired around Berkshire is somebody who sees it the way it is. Wouldn't you agree with that, Warren?

WARREN BUFFETT: Yeah, that —

CHARLIE MUNGER: More than anything, more than —

WARREN BUFFETT: You better see it the way it is.

CHARLIE MUNGER: Huh?

WARREN BUFFETT: You better see it the way it is.

CHARLIE MUNGER: See it the way it is.

And so, that's the way I did it.

But that goes beyond a technique for amassing wealth. To me that's a moral principle.

I think if you have some easily removable ignorance and keep it, it's dishonorable. I don't think it's just a mistake or a lack of diligence. I think it's dishonorable to stay stupider than you have to be, and so that's my ethos.

And I think you have to be generous because it's crazy not to be. We're a social animal, and we're tied to other people.

WARREN BUFFETT: Well, I would say — this doesn't sound very noble, but the — what matters to me most now, and probably has for some time — I mean, there are things that matter that you can't do anything about, I mean, in terms of health and the health of those around you and all that — but actually, what matters to me most is that Berkshire does well.

Basically, I'm in a position where we've probably got a million or more people that are involved with us, and it just so happens that it's enormously enjoyable to me so I can rationalize it, the activity.

But I would not be happy if Berkshire were doing poorly. That doesn't mean whether the stock goes down or whether, you know, the economy has a bad year.

But if I felt that we weren't building something every year that was better than what we had the year before, I would not be happy.

And, you know, I get this enormous fun out of it and I get to work with people I like and —

CHARLIE MUNGER: But that's very important. Truth of the matter is it's easy for somebody like Warren or me to lose a little of our own money, because it doesn't matter that much, but we hate losing somebody else's.

It's — and that's a very desirable attitude to have in a civilization.

Don't you hate losing Berkshire money?

WARREN BUFFETT: Yeah. That would be the only thing that would keep me up at night. (Laughs)

CHARLIE MUNGER: Yeah.

WARREN BUFFETT: Yeah. We won't do it.

We can lose money on individual things, obviously. We can have bad years in the economy, and we can have years the stock market goes down a lot. That doesn't bother me in the least.

What bothers me is if I do something that actually costs Berkshire, in terms of its long-term value, and then I feel, you know, I do not feel good about life on that day.

But we can avoid most of that, fortunately. We do get to pick our spots. We're very fortunate with that.

CHARLIE MUNGER: Well, a good doctor doesn't like it when the patient dies on the table, either, you know. (Laughter)

Not a new thought. (Laughter)

WARREN BUFFETT: OK. Let's go to — let's go to station 6.

AUDIENCE MEMBER: Hi, Mr. Buffett and Mr. Munger. My name is Petra Bergman. I'm from Stockholm, Sweden, in northern Europe. I work at something called EFN.SE.

I wanted to ask you, from my point of view, what would be the answer to the most intelligent question I could ask you right now? (Laughter)

CHARLIE MUNGER: Everybody tries that question, and it would be wonderful if that would solve all your problems. But I don't think it's a very good question. (Laughter)

Or perhaps I should say —

WARREN BUFFETT: Let's phrase that differently, Charlie.

CHARLIE MUNGER: Well, what I mean is, you're asking too much of somebody when you — you ask him to honestly say what is the most enlightening question he can answer.

WARREN BUFFETT: Yeah. I get that asked by the students a lot. And I've had a lot of practice in hearing it asked, but I haven't had very much success in answering it.

So I'll have to beg off on that one.

WARREN BUFFETT: How about 7?

AUDIENCE MEMBER: Good afternoon, Warren and Charlie. Congrats on 50 years. My name is Jim and I'm from Brooklyn, New York.

This is kind of a follow-on to a recent question. You both had success in investing, even before Berkshire Hathaway, as investors and as fund managers.

While it's well known you closely followed Graham's teachings, others, like Walter Schloss and his son, also had success with similar teachings, yet different strategies.

What would you cite as the most important reason for your early success with small amounts of capital, and given hindsight today, what might you have done to improve your strategy with these small funds?

WARREN BUFFETT: Yeah. Well, I had a great teacher, I had exceptional focus, and I had the right sort of emotional qualities that would help me in being an investor.

I enjoyed the game. You do give it all back in the end. It wouldn't make any difference if I — you know, that was not the key thing.

The game was enormously fun. And I think Gene McCarthy said about football one time, you know, it's just about, you know, hard enough to be interesting but not so hard as to be beyond the capabilities of people understanding it, and that's kind of the way this game is.

I mean, it's not like Henry Singleton, kind of questions he took on. It's actually a pretty easy game, and it does require a certain emotional stability.

And I went at it hammer and tong. I went through the manuals and everything, but I was enjoying when I did it.

And, like I say, I started out — between ages seven and about 19, I had that same enthusiasm, but I didn't really have any guiding principle.

And then I ran into "The Intelligent Investor" and Ben Graham. And then at that point, I was able to take all this energy and everything, and enthusiasm for it, and now I had a philosophy that made a lot of sense — total sense — and I found that I could employ, and so the game became even more fun. But it wasn't really more complicated than that.

Charlie?

CHARLIE MUNGER: Well, I don't have anything to add.

I do think that it's an easy game if somebody has the temperament for it and keeps at it because he's — likes it and it's interesting — interested in it.

I have a problem that Warren has less of. I don't like being too much an example to people who want to get rich by being shrewd and buying and passively holding securities.

I don't think that's enough of a life. If you wrest a fortune from life by being shrewder than other people and buying little pieces of paper, I don't think that's an adequate contribution in exchange for what you're taking.

So, I like it when you're investing money for an endowment, or a pension fund, or your relatives, or something, but I never considered it enough of a life to merely be shrewd in picking stocks and passively holding them.

WARREN BUFFETT: Yeah. Running Berkshire has been far, far more fun than running, in my case, multiple partnerships, or just an investment fund. I mean, that —

CHARLIE MUNGER: You'd be less of a man. If you'd run that partnership —

WARREN BUFFETT: It would be a crazy way to go through life.

CHARLIE MUNGER: Yeah.

WARREN BUFFETT: Yeah. I mean, it just — you know, Berkshire is incredibly more satisfying.

CHARLIE MUNGER: So if you're good at just investing your own money, I hope you'll morph into doing something more.

WARREN BUFFETT: OK. We'll do 8 and then we'll move onto the annual meeting.

AUDIENCE MEMBER: My name is John Boxtose (PH). I'm from South Dartmouth, Massachusetts.

My question was regarding an interview that you gave, Mr. Buffett, several years ago.

You made a very interesting point. It was about the old Wall Street Journal, if you will, the one before it was purchased by News Corp.

You mentioned in the interview that Wall Street Journal, at some point in the past, had very significant competitive advantages, but a number of them were largely unrealized.

I was just wondering if you could elaborate on that, what the advantages were, how they were unrealized, et cetera. Thank you.

WARREN BUFFETT: Well, Dow Jones, which owned the Wall Street Journal, you know, in the '60s and '70s, going into the era of the enormous spread of financial information — and value of financial information — you know, they basically, they owned the field.

They had the news ticker and they had the Journal, which, you know, anybody interested in finance in the country identified with.

And they — starting with that, in what would be an incredible growth industry, finance, you know, for the next 30 or 40 years they — I forget a couple of those ventures they went into, and they bought a chain of small newspapers, I remember, one time — and they just totally missed what was going to happen.

You know, here comes Michael Bloomberg and, you know, takes away financial information. They had such an advantage. And they didn't really see various areas that they could have pursued, which could have turned that company into something worth many hundreds of billions of dollars, in all probability.

And, you know, they had a situation where a family owned it, and a lawyer essentially controlled the family's behavior, and they were sitting pretty. You know, they were all getting dividends, but there was nobody there with any imagination as to what could be done in the financial field.

So, starting with this position, they were a trusted name, they were in every brokerage firm in the country with a news ticker.

I mean, I went to Walter Annenberg's house one time and he had the Dow Jones ticker there — it just — or the news ticker.

And it was — they couldn't have been in a better place. They couldn't have started with a stronger position. They had a very good balance sheet. And they just let the world pass them by.

Now, Rupert is changing it into a different newspaper. He's going into — he's basically going into competition with the — or he's gone into competition — with the New York Times, so he — but that's the game he likes. And it makes for a very interesting competitive situation.

Charlie?

CHARLIE MUNGER: Well, they did end up with 6 or $7 billion, so they may have blown their opportunities, but they didn't destroy their fortune.

WARREN BUFFETT: If you'd had the hand — if Tom Murphy had had the hand —

CHARLIE MUNGER: Oh, yeah.

WARREN BUFFETT: — it would have been in the hundreds of billions, wouldn't it?

CHARLIE MUNGER: Well, I don't know. I'm not sure if we had had that hand we would have —

WARREN BUFFETT: Well, I'm not so sure. I'm talking about Murph. (Laughs)

There were a lot of opportunities there.

CHARLIE MUNGER: Well, I think even Murph is more like us than he is like Bill Gates.

WARREN BUFFETT: Well, I'm not sure where that goes, but... (Laughter)

CHARLIE MUNGER: Well, but I think it's hard to invent new — entirely new — modalities and so on.

WARREN BUFFETT: I think Bill would have done well with Dow Jones, too.

CHARLIE MUNGER: Yes. He might —

WARREN BUFFETT: I'd like to buy into that retroactively.

WARREN BUFFETT: OK. 3:30 has arrived. We're going to go to the annual meeting in about five minutes. We've got a certain amount of formal business to take care of. And I thank you all for coming. (Applause)

WARREN BUFFETT: Let's reassemble and we'll conduct the business of the meeting.

The meeting will now come to order. I'm Warren Buffett, chairman of the board of directors of the company, and I welcome you to this 2015 annual meeting of shareholders.

This morning I introduced the Berkshire Hathaway directors that are present.

Also with us today are partners in the firm of Deloitte & Touche, our auditors. They are available to respond to appropriate questions you might have concerning the firm's audit of the accounts of Berkshire.

Sharon Heck is secretary of Berkshire Hathaway, and she will make a written record of the proceedings.

Becki Amick has been appointed inspector of elections at this meeting. She will certify to the count of votes cast in the election for directors and the motion to be voted at this meeting.

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

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

SHARON HECK: 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 5, 2015, the record date for this meeting, there were 824,920 shares of Class A Berkshire Hathaway common stock outstanding, with each share entitled to one vote on motions considered at the meeting, and 1,227,069,442 shares of Class B Berkshire Hathaway common stock outstanding, with each share entitled to one ten-thousandth of one vote on motions considered at the meeting.

Of that number, 592,750 Class A shares and 736,403,387 Class B shares are represented at this meeting by proxies returned through Thursday evening, April 30.

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

First order of business will be a reading of the minutes of the last meeting of shareholders. I recognize Mr. Walter Scott, who will place a motion before the meeting.

WALTER SCOTT: 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?

VOICE: I second the motion.

WARREN BUFFETT: The motion has been moved and seconded. Are there any comments or questions?

We will vote on this motion by voice vote. All those if favor say "Aye."

AUDIENCE: Aye.

WARREN BUFFETT: Opposed? The motion is carried.

WARREN BUFFETT: The next item of business is to elect directors.

If a shareholder is present who did not send in a proxy or wishes to withdraw a proxy previously sent in, you may vote in person on the election of directors and other matters to be considered at this meeting. Please identify yourself to one of the meeting officials in the aisle so that you can receive a ballot.

I recognize Mr. Walter Scott to place a motion before the meeting with respect to election of directors.

WALTER SCOTT: I move that Warren Buffett, Charles Munger, Howard Buffett, Stephen Burke, Susan Decker, William Gates, David Gottesman, Charlotte Guyman, Thomas Murphy, Ronald Olson, Walter Scott, and Meryl Witmer be elected as directors.

WARREN BUFFETT: Is there a second?

VOICE: Second.

WARREN BUFFETT: It has been moved and seconded that Warren Buffett, Charles Munger, Howard Buffett, Stephen Burke, Susan Decker, William Gates, David Gottesman, Charlotte Guyman, Thomas Murphy, Ronald Olson, Walter Scott, and Meryl Witmer be elected as directors.

Are there any other nominations? Is there any discussion? The nominations are ready to be acted upon.

If are there any shareholders voting in person, they should now mark their ballot on the election of directors and deliver their ballot to one of the meeting officials in the aisles.

Ms. Amick, when you are ready, you may give your report.

BECKI AMICK: My report is ready. The ballot of the proxy holders in response to proxies that were received through last Thursday evening cast not less than 657,744 votes for each nominee. That number far exceeds a majority of the number of the total votes of all Class A and Class B shares outstanding.

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

WARREN BUFFETT: Thank you, Ms. Amick. Warren Buffett, Charles Munger, Howard Buffett, Stephen Burke, Susan Decker, William Gates, David Gottesman, Charlotte Guyman, Thomas Murphy, Ronald Olson, Walter Scott, and Meryl Witmer have been elected as directors.

WARREN BUFFETT: Does anyone have any further business to come before this meeting before we adjourn?

If not, I recognize Mr. Scott to place a motion before the moving.

WALTER SCOTT: I move that this meeting be adjourned.

WARREN BUFFETT: Second?

VOICE: Seconded.

WARREN BUFFETT: A motion to adjourn has been made and seconded. We will vote by voice. Is there any discussion? If not, all in favor say "Aye."

AUDIENCE: Aye.