WARREN BUFFETT: OK, so take your seats please. Sales are terrific out there, so you're my kind of crowd. (LAUGH) I've been getting reports we're breaking all kinds of records. And we're going to start off with question number 26, which goes to station two.

AUDIENCE MEMBER: Hi Warren and Charlie. My name is James from Malaysia. Given the recent challenges faced by the U.S. banks, what is your outlook on the banking industry? How do you assess the risk and the opportunity in this section?

WARREN BUFFETT: Well, anticipating a few questions on banks, I decided we should start using bank language here to (LAUGHTER) describe —

And Charlie. (LAUGHTER AND APPLAUSE)

The situation in banking is very similar to what it's always been in banking, that fear is contagious, always.

And historically sometimes the fear was justified, and sometimes it wasn't. My dad lost his job in 1931 because of a bank run, and they had a bank run on state banks. And the head of the Alamo National Bank said, "Well, we're a national bank, and they didn't never a run on the national banks."

And, of course, they both faced the same problem. So, it used to be that if you saw people lining up at a bank, the proper response was to get into the line. And they'd always leave it. And the story is that Sidney Weinberg of Goldman Sachs, during one of the bank runs back in 1907 or thereabouts, had a job as a runner at Goldman Sachs, and asked his boss if he could take the week off.

And the boss said, "Sure, not much is going on anyway." So, he got in line, whether it was the Knickerbocker Trust or wherever. And as he got toward the front of the line, he sold his place in line to somebody. He didn't have an account at the bank, but that was an asset. (LAUGHTER)

And the banking system has changed so much over the years. And we did something enormously sensible, in my view, when we set up the FDIC. As many as 2,000 banks had failed in one year back after World War I. I mean, bank runs were just part of the picture.

And if you have people that are worried about whether their money is safe in the bank and are all trying to withdraw, you can't run an economy very well. So, the FDIC was very logical. It's got changed over the years some, but here we are in, you know, 2023.

And we actually see the FDIC pay off at a hundred cents on the dollar to everybody or make it available on all demand deposits. And yet you still have people very worried about their — periodically, geographically, all kinds of crazy ways.

And that just shouldn't happen. So, the messaging has been very poor. It's been poor by the politicians, who sometimes have an interest in having it poor. It's been poor by the agencies, and I would say it's been poor by the press.

I mean, you shouldn't have so many people that misunderstand the fact that although there may be a debt ceiling, it's going to get changed.

Although there's a $250,000 limit on FDIC, the FDIC and the U.S. government and the American public have no interest in having a bank fail and have deposits actually lost by people. We had a demonstration project the weekend of Silicon Valley Bank, and the public is still confused.

So, it really, it's something to have a law that became effective in 1934, although mollified it in some ways, not understood about something as important as the banking system.

I don't think the American public is that dumb, and I just, well, I made that offer over in Tokyo, incidentally, that I haven't heard from anybody that wants to take up my $1 million bet on whether the public will lose money if they have a demand deposit at a bank, no matter what the size.

So that's the world we live in. It means that a lighted match can turn into a conflagration, or it can be blown out. And who knows what will happen. And we don't have any worry — we keep our money in cash and Treasury bills at Berkshire, because we keep $128 billion or whatever it was at the end of the quarter.

And we want to be there if the banking system temporarily even gets stalled in some way. It shouldn't, I don't think it will, but I think it could. And I think that the incentives in bank regulation are so messed up, and so many people have an interest in having them messed up, that it's totally crazy.

I mean, Fannie Mae and Freddie Mac were doing 40% or so of the mortgage business in the United States. That is huge. They were regulated, just those two companies were regulated by some group. I forget what they called it. But they had 150 people that were in charge of just figuring out whether Freddie and Fannie were doing the right thing.

Well, I could've done it. You know, Charlie could've done it. You know, and I'm not sure they needed an assistant even to do it. But the incentives were all wrong. And Freddie and Fannie, which were doing fine in August, or apparently doing fine in July and August of 2008, were put into conservatorship, you know, early in September.

And the things that followed from that were just incredible. So, there are second order and third order and fourth order effects that are somewhat unpredictable, as to what they will be and the sequence and all that. But things change. And if people think that deposits are sticky anymore, they're just living in a different era.

You know, press a button, you don't have to get in a line and wait for days and have the teller counting out the money slowly in gold so (LAUGH) that you hope the line goes away. You're going to have a run in a few seconds. So, the way it hasn't been addressed properly is a problem.

And who knows where it leads.

WARREN BUFFETT: But you will have to have a punishment for the people that do the wrong thing. And if you take First Republic, for example, you could look at their 10-K and see that they were offering non-government guaranteed mortgages to, in jumbo amounts, at fixed rates, sometimes for ten years before they changed to floating.

And that's a crazy proposition. If it's to the advantage of a bank, they've got the guy coming in and says, "I'll refinance at 1.5% and then 1%," and if it's to the advantage the other way, they keep it out ten years. You don't give options like that.

But that what First Republic was doing, and it was in plain sight. And the world ignored it till it blew up. And some of the stock in some of these banks that were held by insiders was sold. And who knows whether they had a plan, or some plan that was innocent, or whether they started sensing what was coming.

But you do know that the directors are not going to be able to read some book or anything like that. But they do have the ability to hold the CEO accountable. The CEO gets the bank in trouble, both the CEO and the director should suffer.

The stockholders of the future shouldn't suffer. They didn't do anything. It doesn't teach anybody any lessons or anything, it teaches the lesson that if you run a bank and you screw it up, you're still a rich guy and the clubs don't drop you and the charity groups don't quit asking you to their benefits.

And the world goes on. And that is not a good lesson to teach people who are holding the behavior of the economy in their hands. So, I think there's some work to be done, but it's not a difficult problem. It's just we've screwed up the answer and we've screwed up the communication of it. Charlie?

CHARLIE MUNGER: Well, I'm so old fashioned that I kind of liked it that when banks didn't do investment banking. That makes me very outmoded in the modern world.

WARREN BUFFETT: And the country decided it was contrary to public interest for a while, and then the banks wanted to get back into it.

CHARLIE MUNGER: Did they ever.

WARREN BUFFETT: Yeah. No, I mean —

CHARLIE MUNGER: And I don't think having a bunch of bankers, all of whom are trying to get rich, leads to good things. But I (APPLAUSE) think a banker should be more like an engineer. He's more, like, into avoiding trouble than he is getting rich.

WARREN BUFFETT: Yeah, and they could do fine.

CHARLIE MUNGER: They can do fine that way. And I think that we're making a big mistake when we get a bank where everybody who joins it plans to get rich. It's a contradiction in values.

WARREN BUFFETT: And we came to that conclusion, I don't know when Glass-Steagall was passed or anything, but then they want to get back in. How many of you know, and maybe I'm wrong on this, I haven't looked lately, but the Federal Reserve actually was given the responsibility for setting margin requirements.

And they change margin requirements a lot of time because it was known that people that borrow a lot of money cause a danger to the banking system if you get too many in the picture and all of that sort of thing. And what's happened? The banks figured out a thousand different ways to get so you could borrow on 100% margin, you know? I mean, through derivatives and everything, they just totally distorted all the lessons that were learned in the '29 crash and —

CHARLIE MUNGER: Imagine taking banking into derivatives trading. Who in his right mind would have allowed that?

WARREN BUFFETT: Yeah. Well, there's more money in it. And —

CHARLIE MUNGER: Well, that's why they're in on it.

WARREN BUFFETT: Yeah. And —

CHARLIE MUNGER: And but it isn't necessarily a great social outcome for the rest of us.

WARREN BUFFETT: That's what those Senate committees decided back in 1931 and '32. And then in the late 1990s, particularly, I mean, very decent people, but, you know, Bob Ruhlman and some of the people, you know, they said this was the modern world. And here's what the modern world has turned out to hand us. And banking can have all kinds of new inventions, but it needs to have old values. And —

CHARLIE MUNGER: Well, if we do —

WARREN BUFFETT: —we don't know what's going to happen. You know, because there are a lot of things that could happen out of the present situation.

Depositors will not lose money. Stockholders and debt holders, the holding company and all that, they should lose money.

And people borrowed out on commercial real estate and now it isn't, the loans aren't getting extended, they should leave. It's too bad. That's part of borrowing on 100% margin, which is what people have been doing with commercial real estate.

You've got to have the penalties, hit the people that cause the problems. And if they took risks that they shouldn't have, it needs to fall on them if you're going to change how people are going to behave in the future. (APPLAUSE)

WARREN BUFFETT: OK, Becky?

BECKY QUICK: This question comes from Davis Hans in Houston, Texas. He writes, "What do you think about the business models of the big banks as compared to the regional banks in the wake of the events at Silicon Valley Bank? And how does the perceived implicit guarantee of all deposits at all banks affect big banks and those regional banks?"

WARREN BUFFETT: Yeah. Well, I can say this. If you follow sound banking methods, which means not doing some things that other people do, a bank can be a perfectly decent investment. And in fact, Charlie and I, well, me originally in 1969, we bought a bank at Berkshire.

And we had $19 million invested in that bank. And we had $17 million I think invested in our insurance companies. And if the Banking Holding Company Act of 1970 hadn't been passed, we might've ended up owning a lot of banks instead of a lot of insurance companies.

We were looking at more banks, and Harry Keefe was taking us around Chicago. And there were other things we could do. And then, bingo, they passed the 1970 Bank Holding Company Act, and we had to divest ourselves of that bank in ten years, which we did —

CHARLIE MUNGER: By the way, it never had a bad debt.

WARREN BUFFETT: Oh, it —

CHARLIE MUNGER: It never had an unnecessary cost. It made nothing but money with no risk. It never presented any deposit insurance risk to the government.

WARREN BUFFETT: Zero.

CHARLIE MUNGER: It was a lovely, sound, constructive institution in this community. And any person who went in and deserved credit could get credit.

WARREN BUFFETT: Yeah, and we were going to buy more banks.

CHARLIE MUNGER: And we were forced out of it.

WARREN BUFFETT: We were going to buy more banks. And if we bought more banks, we probably wouldn't have expanded the insurance business. But, you know, the law changed and so we divested, and we've done OK in insurance. But banking was more attractive to us. It was bigger and there were more targets to buy.

And you could run a perfectly sound bank then, and no negotiable certificates of deposit. All these things, all the inventions that came later, and you could still run them today and you could earn good money. Very good money. And we would've found more banks. But we're precluded from doing that.

And we've sold banks, bank stocks in the last, well, we sold them first when the pandemic broke out, and then we sold some more in the last six months. And we don't know where the shareholders of the big banks, necessarily, or the regional banks or any bank, are heading now.

I've got my own personal money, and I'm probably above the FDIC limit, and I've got it with a local bank. And I think, I don't worry about it in the least. But in terms of owning banks, events will determine their future. And you've got politicians involved.

You've got a whole lot of people who don't really understand how the system works. And I would say you've had something less than a perfect communication between various people and the American public. So, the American public is probably as confused about banking as ever.

And that has consequences. And nobody knows what the consequences are because every event starts recreating a different dynamic. I mean, in physics you know that pie is going to be 3.14, you know, infinite number of numbers after that, but no matter what happens.

But you don't know what has happened to the stickiness of deposits at all. It got changed by 2008. It's gotten changed by this. And that changes everything. And so, we're very cautious in a situation like that about ownership of banks. And we do remain with one bank holding, a deal, but we originated that deal with the Bank of America.

And I like Bank of America. I like the management. And I proposed the deal with them, so I stick with it. But do I know how to project out what's going to happen from here? The answer is I don't, because I've seen so many things in the last few months which really weren't that unexpected to me to see.

But which reconfirmed my beliefs that the American public doesn't understand our banking system, and some people in Congress perhaps don't understand it any more than I don't understand why the spaceships go up. I mean, there's all kinds of things I don't know about. But if you're in Congress, you have to take a position on everything. And sometimes it's to your advantage if you really understand it not to say exactly what you feel. And here we are. Charlie?

CHARLIE MUNGER: Well, a lot has happened in banking in my lifetime. I welcomed all that early banking of the deserving immigrants by the early Bank of America. And I think all the credit cards when they came in as original bank cards were a great contribution to civilization.

CHARLIE MUNGER: And but the gamier it gets and the more it looks like investment banking, the less I like it, as a citizen. I don't want, I am always, I am deeply distrustful of situations in which everybody wants to get rich and envies everybody else. I regard that atmosphere as utterly toxic.

And to people who like one story, which this is, again, a true story, and I'm not naming the name, and it wasn't Pete Jefferies, because he might fit this name, but it wasn't Pete. But our hero, Gene Abegg, was going to have to retire at some point.

And so, we hired a future replacement. This is kind of a little bit of the problem I talked before, about having the perfect business, and now we're going to bring in somebody. We actually bring in somebody who went to Central High with Charlie, although —

CHARLIE MUNGER: My class.

WARREN BUFFETT: Yeah. (LAUGH) And Charlie didn't know I was picking out this guy. He wasn't —

CHARLIE MUNGER: If he'd have asked me, we wouldn't have hired him. (LAUGHTER)

WARREN BUFFETT: Well, if I asked you, I probably wouldn't have hired anybody, but that's another question. But this guy comes over, and perfectly decent guy, but presentable, you know, looks like a banker and everything. And, of course, the first thing he wants to do, we've got this wonderful bank, but we've got the crummiest looking building in Rockford.

And we don't need a great building, we just need a great banker. And naturally this guy wants to build a new building. And because we were the most profitable bank, but we didn't look like we were the most profitable (LAUGH) bank. So, I told him he could have any building he wanted, as long as it was not higher than, it had to be shorter than our nearest competitor.

And he lost interest totally. (LAUGH) He wanted to be on the top floor of the biggest building in town, and I told him he could horizontally do anything he wanted but he couldn't do it vertically. And it taught me a lot about the guy's motivations in life. But — and he didn't end up running the bank anyway. Anyway, that's all I know about banking and probably more.

WARREN BUFFETT: Station three?

AUDIENCE MEMBER: Mr. Buffett and Mr. Munger, hi.

WARREN BUFFETT: Hi.

AUDIENCE MEMBER: My name is Daphne. I'm 13 years old, and this is my sixth annual Berkshire Hathaway Shareholder's Meeting. (APPLAUSE) And I've had the privilege to ask you both questions in years past.

My question for you today is the following. As you know, the U.S. national debt is currently at an estimated $31 trillion, making up about 125% of the U.S. GDP.

In the meantime, over the past few years, the Federal Reserve has telegraphed that they intend to monetize the debt by printing trillions of dollars, even as they insist that they're fighting inflation. Already other major economies in the world, such as China, Saudi Arabia, and Brazil are moving away from the dollar in anticipation of this.

My question is are we likely to face a time in the future when the U.S. dollar is no longer the global reserve currency? How is Berkshire prepared for this possibility? And what can we do as American citizens to attempt to shelter ourselves from what's beginning to look like the beginnings of de-dollarization?

WARREN BUFFETT: Well, (APPLAUSE) I should ask you to come up here and answer some questions. I mean, (LAUGHTER) maybe. It's very interesting, I mean, we are the reserve currency. I see no option for any other currency to be the reserve currency. And I think that nobody understands the situation better than Jay Powell.

And but he's not in control of fiscal policy, and every now and then he drops a few hints. And there was no question that when the pandemic broke out, I mean, it was a semi-war-like situation. But nobody knows how far you can go with a paper currency before it gets out of control.

If, and particularly if you're the world's reserve currency, nobody knows the answer to that. And you don't want to try and pick out the point at where it does become a problem, because then it's all over. And I think we should be very careful.

I mean, you know, we all learned Keynesianism and we applied it in World War II to the advantage of the country, and we did everything we could to prevent inflation during the war. And then the war ended in August of '45 and I think in January of '46, and I'm not giving you exact figures at all now, but in January of '46 I think the rate of inflation was at, you know, something like 1% or thereabouts.

And by the end of the year, I think it was at, like, 15%. And again, I'm doing this from long memories. But it's easy for America to do it a lot, but if we do too much it's very hard to see how you recover once you let the genie out of the bottle.

And people lose faith in the currency. And they behave in an entirely different manner than they do when they feel that if they put some money in the bank or have a pension plan, or whatever it may be, that they're going to get to have something with roughly equal purchasing power.

And it just changes the (UNINTEL). And all kinds of things can happen then. And I can't predict them and nobody else can predict them. But I do know they aren't good. And we will see, and I do this as, you know, I've voted for both parties. And it's not limited to politicians of either party or anything of the sort.

But people take positions, some of them understand what they're doing, some of them don't understand what they're doing. And, you know, if they put me on some medical board, I don't understand what I'm doing. You know, there's nothing wrong with the fact that you can't master everything.

We can't all be Isaac Newton. But you can't go around pretending you do or making decisions on it. And we are not as well off in relation to curbing inflation expectations, which become self-fulfilling, then we are not as well off as we were earlier.

And Berkshire is better prepared than most investments for that kind of a period. And, I mean, I said this in the annual report, but we aren't perfectly prepared, because there's no way to perfectly prepare. You don't know what course of action will occur.

And it's a very political decision now. It's a tribal decision to some degree. And you hope for leadership that actually will do something, recognizes the problem. And America's an incredible society, rich, you know? We've got everything going for us. But that doesn't mean we can just print money indefinitely as debt. And it'll be interesting to see how it turns out. Charlie?

CHARLIE MUNGER: Well, at some point printing money to buy votes will be counterproductive.

WARREN BUFFETT: Yup.

CHARLIE MUNGER: And we don't know (APPLAUSE) exactly where that comes. And if something is going to be dangerous and unproductive, you ought to keep it a fair distance away. Now, if you have a culture that is exceptionally strong, like Japan, they have done some strange things there.

WARREN BUFFETT: But they couldn't have been a reserve currency.

CHARLIE MUNGER: No, of course not. And, but Japan bought back most of the national debt and most of the, a lot of the common stocks and debt. Just the federal reserve owns practically everything in Japan, and the country's working. It's had 30 years of economic stasis, but it's not going to hell. I really admire Japan. And, but I don't think we should try and imitate it. I don't think we're as good as Japan at taking —

WARREN BUFFETT: They have a cohesive culture, and we don't, Charlie. We —

CHARLIE MUNGER: Yeah, that's exactly right.

WARREN BUFFETT: Yeah.

CHARLIE MUNGER: In Japan, everybody's supposed to suck it up and cope, and in America we complain. (LAUGHTER)

WARREN BUFFETT: So, I hope you come next year with a tougher question. (LAUGHTER) But — and thank you.

And I predict, I would love to be being born again today in the United States. I mean, we can do a lot of dumb things and get away with it. We can't do an unlimited number.

There are people who care about that. And, you know, you have to be willing to be extraordinarily unpopular. I mean, Paul Volcker, there are other Federal Reserve chairpeople that would not have done what he did. It's just, it's too uncomfortable.

And there used to be a politician in Nebraska, and if you asked him some really tough question like, you know, how do you stand on abortion, he would look you right in the eye and he'd say, "I'm all right on that one." And then he'd move next.

Well, that's what people have done basically on inflation. And they, one way or another, they say, "I'm all right on that," and then they don't really think about what the consequences of their actions could be, particularly. And it's so much fun to, if there's 435 of you, to just be one of 435 instead of being the person actually responsible.

Anyway, I am still, next to the question of two superpowers and when you get in to really destroying a planet, destroying the reserve currency of the world when there's really no substitute, and forget about all the toys, you know, I mean, it's a joke to think of any tokens or (LAUGH) that sort of madness.

But it's also madness to just keep printing money, yeah. And we know how to do it, and we actually came from a money-printing economy in World War II, which was required. And we suffered significant inflation, the price level — I mean, there's a million ways to judge it — but it's maybe ten times what it was then or something like that.

Well, that's getting close to the edge of where you don't want to hold dollars anymore, you want to hold something else. You want to hold real estate; you want to hold interest in a business. There's a lot of good, and your best defense is your own earning power.

If you're the best doctor in town, if you're the best lawyer in town, if you're the best teacher in town, or even if you're the tenth best, you're going to make a good living. You know, the economy is productive. And you will succeed with your talents. But you won't succeed by hoarding dollars, you'll just succeed by the fact that your value to the community, which is a rich community overall, is sustained. And so the best investment is always in yourself. That's the answer I would give you.

CHARLIE MUNGER: Well, we have a situation where we've learned to print money in gobs, and a big chunk of our young people go right into wealth management. (LAUGHTER) This is —

WARREN BUFFETT: Like we did. (LAUGH)

CHARLIE MUNGER: Yeah, like we did, like we did. Yes, we're bad examples.

And I want to say that I didn't realize wealth management was going to get so big when I went into it. And I want to apologize for what's happened. (LAUGHTER)

WARREN BUFFETT: Yeah, well. Anyway, you did well. (LAUGH)

WARREN BUFFETT: Becky?

BECKY QUICK: This question comes from Gary Gambino in Parma, Ohio, who says he's been a Berkshire shareholder since 2004.

He says, "The amount paid this year for the 41.4% stake in Pilot values the entire company at around $19 billion. That's about six times what BP is paying for Travel Centers of America, but Pilot's market share is just three times Travel Centers of America's.

"Was it a big mistake to base the final price in 2022 earnings, which has unusually high fuel margins?"

WARREN BUFFETT: Yeah. Well, that's a very good question. And the answer is that we arranged to buy it in three stages, with the third stage being at the option of the owner of 20%. The first stage we bought at what turned out to be a very attractive price. The second stage turned out to be a very good year for the diesel business, which means that the seller got a very good price.

And I would say that overall, we feel very good about the fact that we own the 80% at the price that we do, but we would've been better if we just bought the 80% to start with. And the last 20% the seller has the option, and that's always an unintelligent way of structuring something.

We've had that arrangement with other, well, we had it with the Furniture Mart, we bought 80% of the [Nebraska] Furniture Mart on August 30th, 1983, almost 40 years ago, and it's worked out perfectly. But when you give the other person the option, they've got some advantage.

We have 80% now of a business we like very much, and the comparison to Travel America is really spurious, because Travel America is not only much smaller, but they rent all their properties. And we have hundreds and hundreds of locations on the interstate that are zoned for what we, commercial, maybe 15 acres or, there's nothing like it.

And they're not going to move the interstate two miles to the right or something, you know, or anything of the sort. So, we've got a position that, you know, BP may or may not have made a fine deal. I've read the prospectus and I can understand.

I mean, it's a big source of output for BP. But I like the management we have had at Pilot. I like very much the fellow who's coming in that's the new CEO. I just have to tell you a little bit about Adam Wright, who's taking that job on. He came from Omaha.

He wasn't selected because he came from Omaha. He came from Omaha. He came from North High, a public school that my wife graduated from. I've got grandchildren that graduated from there. He went to the University of Nebraska and almost set the rushing record in football, which will never be beaten because they've given up football, but I think he rushed for maybe (LAUGHTER) 3,600 yards.

He held three jobs while he went through there. He interned at MidAmerica 20 years ago, his mother worked to put him through school. I mean, it's just, it's Horatio Alger-squared. And we have him to manage Pilot. And the Haslams have given us a wonderful business, "Big Jim," and now he (UNINTEL) great people. And here we are.

And I'm very glad we own Pilot, I just wish we bought 100% (LAUGH) of it when I first made the deal, but that was not the deal that was offered to us —

CHARLIE MUNGER: Warren, it wasn't for sale.

WARREN BUFFETT: It wasn't for sale. Yeah. And the last 20% of the Furniture Mart wasn't for sale when we bought it, so we bought 80% of it. And that's worked out well. And we've done various deals various ways. The best way to do it is just write people the check and get the stock.

But we did that with TTI, but you can't always make the same deal. If we like the business well enough and the people well enough, we will tailor it differently, but our preference is to write a check and own the whole place and keep the management in place. Charlie, anything to add on?

CHARLIE MUNGER: No.

WARREN BUFFETT: Yeah. It's really wonderful to watch something like Adam Wright work out. I mean, basically, you know, I don't know what his mother was earning, but he went to North High, which is probably four or five miles from here. Public school graduate. And worked his way up.

Went through a short period at Pacific Gas and Electric, and we brought him home there on Pilot. And Pilot, well, Pilot, the prices on diesel were way different last year. Pilot was close to $80 billion of sales last year, but more normal prices this, it's significant, you know, it's half that or thereabouts, maybe a little more.

But he is, I don't know how old Adam would be, but he's in his 40s. And he came up through the organization that Greg Abel was involved with. And now here he is, running a very major business. It's good at Berkshire to be able to do that. And I don't, you know, somebody else may have gone to more prestigious business schools, and I think so what? You know, we've seen what Adam can do.

WARREN BUFFETT: OK, station four?

AUDIENCE MEMBER: Good afternoon Mr. Buffett, Mr. Munger. My name is J.C. I am 15 years old and I'm from Ohio. This is my fourth in-person Berkshire meeting. I have a lot of passion learning from your speeches, interviews, and articles. Thank you for sharing your wisdom all the time.

Mr. Buffett, in your annual shareholder letter this year, you said that Berkshire's journey consisted of "continuous savings, the power of commanding, the American tailwind, and avoidance of major mistakes". You have humbly admitted in the past that you have made many mistakes.

But this is the first time that major mistakes stood out to me. Could you please advise us on what major mistakes we should avoid in both investing and in life? I would also like to have Mr. Munger's thoughts too, please. Thank you very much.

WARREN BUFFETT: Well, the main, (APPLAUSE) Charlie said the major mistake you could make, you know, you're lucky if you're in the United States. If you go around the world you don't have a lot of choices in some places.

But you should write your obituary and then try and figure out how to live up to it.

And, you know, that's something you get wiser on as you go along. The business mistakes, you just want to make sure you don't make any mistakes that take you out of the game or come close to taking you out of your game. You should never have a night when you're worried about investing, I mean, assuming you have any money to invest at all.

And you should just spend a little bit less than you earn. And you can spend a little bit more than you earn, and then you've got debt, and the chances are you'll never get out of debt. I'll make an exception in terms of a mortgage on your house.

But credit card debt, and we're in the credit card business big time, and we'll stay in the credit card business, but why get behind the game? And if you're effectively paying 12% or 14% or whatever percent you're paying on a credit card, you know, you're saying, "I'm going to earn more than 12% or 14% of my money."

And if you can do that, come to Berkshire Hathaway. So, it's, I hate to say this when Charlie's around me, but it's straight out of Ben Franklin. I mean, (LAUGH) and it's not that complicated. But you, well, I'll give you a couple lessons.

You know, Tom Murphy, the first time I met him, said two things to me. He said, "You can always tell someone to go to hell tomorrow." Well, that was great advice then. And think of what great advice it is when you can sit down at a computer and screw your life up forever by telling somebody to go to hell, or something else, in 30 seconds. And you can't erase it.

And, you know, haven't lost the option. And he said, you know, "Praise my name, criticize my category." Well, what makes more sense than that? I mean, who do you like that criticizes you all the time? And you don't need to vilify anybody to make your point on subjects of discussion.

And then the other general piece of advice, I've never known anybody that was basically kind that died without friends. And I've known plenty of people with money that have died without friends, including their family. But I've never known anybody, and you know, I've seen a few people, including Tom Murphy Sr. and maybe Jr., who's here, (LAUGH) but certainly his dad, I never saw him, I watched him for 50 years, I never saw him do an unkind act.

I didn't see him do very many stupid acts either. I mean, it wasn't that he was non-discriminating, he just decided that there was no reason to do it. And wow, what a difference that makes in life. Charlie?

CHARLIE MUNGER: Well, it's so simple to spend less than you earn, and invest shrewdly, and avoid toxic people and toxic activities, and try and keep learning all your life, et cetera, et cetera, and do a lot of deferred gratification because you prefer life that way.

And if you do all those things, you are almost certain to succeed. And if you don't, you're going to need a lot of luck. And you don't want to need a lot of luck. You want to go into a game where you're very likely to win without having any unusual luck.

WARREN BUFFETT: I'd add one more thought too, you need to know how people can manipulate other people, and you need to resist the temptation to do it yourself.

CHARLIE MUNGER: Oh yes, the toxic people who are trying to fool you or lie to you or aren't reliable in meeting their commitments. A great lesson of life is get them the hell out of your life.

WARREN BUFFETT: Yeah.

CHARLIE MUNGER: And do it fast. (APPLAUSE) Do it fast.

WARREN BUFFETT: And I would add, Charlie would totally agree with me, do it tactfully, if possible, too. (LAUGH) But do get them out of your life.

CHARLIE MUNGER: Yes. Yeah, I don't mind a little tact. (LAUGHTER) Or even a little financial cost. But the question is getting them the hell out of your life.

WARREN BUFFETT: OK, Becky?

BECKY QUICK: All right, this comes from Roger Lee Tan. He says, "My name is Roger from Hong Kong, a long-term shareholder of Berkshire, admirer and follower of Mr. Buffett's and Munger's wisdom and principle. Both of you have said before that the most difficult problems in life are always people problems.

"And one of the key lessons you have learned to be able to live a happy life and a successful life is to stay away from negative people. My question is what to do if those negative people are your families, the people (LAUGHTER) whom you can't simply stay away from?"

WARREN BUFFETT: Yeah. You minimize it. But you can't, no, I mean, there's no question about it. And Charlie gave an answer I thought was master of tact the other day when he says, "You always ought to interact with people who behave well." He says, "Of course, you have to make some exceptions for your family."

But (LAUGH) it's true. And, you know, you really, I don't know what it's like to have, you know, a drunken, you know, bully-ish, probably father, but parent, just generally. I mean, you know, how do you handle it? It's very interesting that the MacArthur family, the very famous John MacArthur, the man who set up the MacArthur Foundation, he had five kids.

And four of them turned out to be superstars of one sort or another, and then they had this crazy, itinerant, drunken father. But they all decided that the thing to do was to get the hell out of the house.

And so, he had this, the father of the — of the MacArthur Foundation that did that along with three of the siblings out of five.

So, you know, I was lucky, I mean, and Charlie was lucky that, you know, if you have, I mean, our fathers saw plenty of shortcomings in both of us, but, you know, they would still be there for us.

And if you have one that won't be there for you, you know, it's a very tough problem. And I think one way or another I probably would have gotten through with that, if I had that situation, but I think my life would've been a lot different. Charlie?

CHARLIE MUNGER: I have nothing to add.

WARREN BUFFETT: OK, station five?

AUDIENCE MEMBER: Hey Warren and Charlie, good afternoon. My name is Sudakaredi Anapredi. I am from Bentonville, Arkansas, home of Walmart. I'm a shareholder since 2019, and my daughters are shareholders since 2020. My question is, this is my first time coming to shareholders, and my question is Walmart and Berkshire Hathaway has a very great relationship with BNSF, McLane, and consumer goods like Fruit of the Looms and Garanimals, and et cetera.

My question is Garanimals is exclusively sold at Walmart, and Fruit of the Loom is sold at many other retailers. How does Berkshire Hathaway decide some items are sold at some retailers exclusively, versus others are sold at many retailers?

WARREN BUFFETT: Well, that's a good question. But obviously you'd love to control, if you have a product, you'd love to control the distribution. And you're probably going to get better gross of margins if they ask for you by name. I mean, they just had an article about Bernard Arnault, who built LVMH, and you know, he's got a blue box at Tiffany.

And the blue box itself means something. And Coca-Cola, the bottle meant something. In the 1920s, I think, there was a study that kind of (UNINTEL) bottle and blindfolded, and a very high percentage of the population could recognize it was Coca-Cola.

When they can recognize not only the product, but the container, you know, you're going to have good gross margins. And if you're just another cola, and there have been hundreds of them, and even if you have distribution through something like Walmart, who has Sam's Cola, it just doesn't, it's not the same.

I mean, here I am, you know? And 1886 or so, John Pemberton in Atlanta created it, and they spent a very significant amount of money advertising. And on the other hand, Hershey's didn't spend any money on advertising. So, we have observed, Charlie and I both, have observed so many products, so many methods of retail.

And we really think we know quite a bit about them, and we also know how much we don't know about it at the same time. And it doesn't mean that we want to go into retailing ourselves, but it does mean we've learned, to some extent, what to avoid.

And we've learned when somebody really has something. And Garanimals has something. It's just that there's only been, you know, Walmart does a great job of distribution for us. And it's a good product for Walmart, it's a good product for us.

And on Fruit of the Loom, they can sell lots of types of underwear, and they can do a big volume, but we're not going to make as much money, as well as I believe the capital employed or anything, with a product that has a whole bunch of competitors.

And if the kid wants a Garanimals, well, pajamas or something, it's not the sort of product that causes people to drive 20 miles out of their way to buy it, or anything of the sort. But if you're in the Walmart and you're picking out pajamas or something for the kid, and he or she wants a particular product, and it's reasonably priced and everything, and wears well and everything, you know, we're happy to have it distributed through somebody with the distribution power of Walmart.

And they're very happy to have the product. On balance it's obviously better if you own See's Candy than if you own the no-name candy company. You know, particularly when people buy it as gifts a couple times a year. I mean, they know that if they give their girlfriend, if they give somebody in the hospital, if they give a gift at Christmas or going to a dinner, they know if they hand the box of candy to somebody they don't say at the same time, "Here, I got a wonderful deal on this candy."

I mean, that just kills the moment, right? What they really want to see is a smile on the other person's face that they're receiving it, and they get it. So, knowing what customers, and See's boxed chocolates, A, are not remotely the market that soft drinks are.

And the product does not travel particularly. Hershey's chocolate didn't travel. I mean, if you look at candy bars, what's popular in the U.K. isn't that popular in the U.S. and all kinds of things. Coca-Cola travels. There's 200 countries, roughly, and probably 180 of them it's the dominant product.

And how do you do it? Well, it helps if you started in 1886 (LAUGH) and go from that point forward. So, we've learned a lot. We got lots to learn. But we did learn that something like Garanimals we understood. When it came around nobody had ever heard of it and we bought it for a very low price, as it turned out.

And 20 years ago, and still nobody knows it, or that we own it, and that's fine. But they know what Garanimals are, and it has legs. It just keeps going year after year. And some things are like pet rocks. And we're learning all the time. Charlie? (LAUGHTER)

CHARLIE MUNGER: I have nothing to add.

WARREN BUFFETT: OK. You probably have never bought any Garanimals.

CHARLIE MUNGER: No. I never have. (LAUGH) I don't even wear them. (LAUGHTER)

WARREN BUFFETT: You wouldn't fit. (LAUGH)

WARREN BUFFETT: OK, Becky?

BECKY QUICK: This question comes from Barry Laffer in New York City. "Berkshire owns about 94 million shares of Paramount Global as of the last published data. This asset-rich company has disappointed on recent quarterly earnings reports, and just this week slashed its dividend by 80%.

"How do you see the streaming wars evolving? And do you still have conviction in your investment thesis? Is your investment thesis based on the company being an acquisition target, or based on its fundamentals?"

WARREN BUFFETT: Yeah. And how would you like to manage my money for nothing? (LAUGH) They, you know, we are not in the business of giving stock advice to people. And people who don't know anything about stocks can make a lot of money doing that, and we don't think it's something we should give away.

But I will say this, it's not good news when any company passes its dividend or cuts its dividend dramatically.

And the streaming business is extremely interesting to watch, because there's, people love to use their iPhones, watching, being entertained on a screen in front of them, or a phone, or whatever it may be.

But there's a lot of companies doing it. And you need fewer companies, or you need higher prices. And, well, you need higher prices, or it doesn't work. And you don't lock in people when you get them to join up for the streaming period when your serial runs.

I mean, you know, you keep them on for a while, but you get them for, like, a month. And we'll see what happens. I mean, I had a gasoline station when I was 21 or 22, and it's about three or four, four or five miles from here. And we had one competitor.

And he determined our profit, because we looked at his price every day. And if we cut the price he'd match it, and we couldn't raise the price. And he did twice the gallonage, so he won. And there's just basic business problems that you see with certain industries that you don't see with the other.

Disney was unique in its animated — what it offered, you know — in the '30s and '40s. And they wrote the stuff off at the first showing, and then they rejuvenated Snow White and all these other people every seven years, and that was fine.

But this is a different world. And the eyeballs aren't going to increase dramatically in the time they can spend is not going to increase dramatically. And you've got a bunch of companies that don't want to quit. And who knows what pricing does under that. But anybody who tells you that they know what pricing will do in the future is kidding themselves.

Charlie? Charlie's had a lot of experience, incidentally, with Hollywood. I mean, he used to, before I even met him —

CHARLIE MUNGER: I think the movie business is one tough business.

WARREN BUFFETT: Yeah.

CHARLIE MUNGER: That's my view.

WARREN BUFFETT: The talent will make the money; the agents will make the money. And if you've got a theater, you know, the theaters are now doing 70% of the business that they did before the pandemic. And big hits, you know, have enormous grosses. But you can't reduce the supply.

People have only got so many hours in the day. They've only got two eyeballs. And they've got more choice than ever before, and they've got stuff that's cheaper that offers them the same experience. And some of them like the experience, you know, particularly with the big hits of going.

But it isn't like you can double the number of people or double the eyeballs or anything like that. And you've got a lot of people. The talent will always get paid. And when you essentially are packaging that talent one way or another, and you need to get higher prices, and you've got a lot of strong companies who don't want to quit, that's an interesting equation.

CHARLIE MUNGER: And if you think the movies are tough, try to invest in a New York show on a conventional stage. There they think it's a breach of faith in that business to let the person who put up the money to ever get any money back. (LAUGHTER)

WARREN BUFFETT: Yeah. Yeah, well, Charlie saw a lot of that actually when —

CHARLIE MUNGER: Yeah. I don't like those businesses.

WARREN BUFFETT: Tell them what happened on "Cleopatra, Charlie." (LAUGHTER)

It, no, it's a business that everybody's tempted. They love the idea of going in it, you know, and they get a certain amount of psychic income. But —

CHARLIE MUNGER: I never owned any racehorses, either.

WARREN BUFFETT: Well, my father-in-law and I used to talk about claiming a horse at AK-SAR-BEN, but we never quite got around to it. And we had a lot of fun going to the track together. (LAUGH)

WARREN BUFFETT: OK, section six?

AUDIENCE MEMBER: Good afternoon. My name is Hannah Hayes and I'm a high schooler from Iowa. You said earlier today that transitioning to renewable energy has the people and capital to support it.

So, with enough investment in renewables, the development of energy storage technology to soon meet Iowa's energy needs, and support from the government system through Inflation Reduction Act funding, why hasn't Berkshire Hathaway Energy truly invested in the future by accelerating retirement plans for the coal plants, which have high operating costs and are currently Iowa's biggest carbon polluter, and will continue to be until they're finally retired in 2049, which is too late to be curbing emissions, according to the IPCC?

WARREN BUFFETT: Yeah. It's very interesting. In Iowa, we have actually produced more wind energy than is the total amount of energy used by our customers. But it's not producible 24 hours a day necessarily. So, there's problems. And incidentally, in Iowa, a significant majority of counties welcome us when we come around and want to put in wind.

And some don't want it. I mean, you know, there's a not-in-my-backyard someplace. There's other places where they love the money they get from a small plot of ground. And people like the taxes that are paid. But I would say that if there's one state in the Union that stands out in the development, it's Iowa. But what's also interesting in Iowa is that we have one other major company.

There's always loads of little co-ops and all kinds of things that sell electricity. But we have one major competitor. And our prices are significantly lower. And, as a matter of fact, we are now in the Omaha Public Power District. And three miles or four miles away, we're selling the electricity in Iowa.

And we are selling it cheaper, even though public power was invented in Nebraska, and has been — I think it's going on — George Norris did it back in the 1930s. And, you know, Nebraska's resisted, to some extent wind power, more than Iowa. But like I said, our competitor — alternate source — hasn't really pursued it the way we have.

But I would say that our record in wind and solar has not been topped by any utility in the United States. And, of course, it's been aided by the fact that most utilities pay out 70% or 80% of earnings and dividends. And we haven't taken a common dividend, you know, for 20 years. We reinvested I don't know how many billion.

That's the reason why the earnings have gone from $200,000,000 to $4 billion, but we're not earning a higher rate of return on capital than we were when we started. We just put way more capital into the business as we went along, kept reinvesting the capital.

So, I wish Greg were here to tell you more details about it. But I would say that we'd really put up Berkshire Hathaway Energy's record against any utility in the United States. Charlie, you've watched it.

CHARLIE MUNGER: Well, I have. And I'm not personally at all sure how bad the global warming is going to be. I don't think anybody knows for sure whether the seas are going to rise two inches or 20 feet. And so, I think there's a lot of false claims here in a world where much is not known.

WARREN BUFFETT: Yeah. (APPLAUSE) There is a lot of wind in Wyoming. And we are building transmission lines that extend out through the West. But it was World War II when they told us to do it. And we had a czar in Washington that could say, you know, "Just get it done," like they said to said Henry Kaiser on building ships.

You know, you can't believe how ahead we would be down from where we are. But we've got the money. We've got the know-how. This year our depreciation in our utility company is on the order of $4 billion. And we spend maybe $3 billion additional to that. So, maybe we spend $7 billion.

And there are very few companies in the utility industry that are spending, you know, that percentage of their depreciated money.

But we'd love to be spending more, but there are people all over that don't want the pipeline to go through there. They don't want the tower, whatever it may be.

And that is the problem of a democracy. And even, as I mentioned, within Iowa, you've got a great many counties that — majority, great majority of the counties I think would welcome the wind power.

And you've got some counties that don't like it. And we're obviously going to work with the ones that want to work with us. We do not have the ability to go in and tell anybody what do on that.

And there's a public utility commission in every state that basically governs what we earn on it, what we do, and that's the way the industry's developed. And that's not bad, unless you get into the things that in effect, you know, extend — they're part of a country-wide system, rather than state-wide system.

CHARLIE MUNGER: I think also that even if we weren't worried about global warming, it would make sense to —

WARREN BUFFETT: Sure.

CHARLIE MUNGER: — shift to renewables to conserve our hydrocarbons. There're certain things hydrocarbons can do that nothing else can do. And there's only so much of them there. Why not be cautious in conserving them?

WARREN BUFFETT: And the cost, they've gotten so much more efficient, too. I mean, the wind. I mean, if you look at what we're doing now, those towers are way more efficient than —

But there's a lot of people that are talking about things that can't be done. And then there's —

CHARLIE MUNGER: There's a lot of nonsense in this field. If you like nonsense, this is the field for you. (LAUGHTER)

WARREN BUFFETT: But we're in the field, so. (LAUGHTER)

CHARLIE MUNGER: I know. I know.

WARREN BUFFETT: Ok, Becky.

BECKY QUICK: This is a question from Monroe Richardson (PH). The Wall Street Journal reported in March that oil producers are producing less oil and may have reached their peak in the Permian Basin.

Given the major positions of both Occidental Petroleum and Chevron in the Permian, which you please explain the rationale for Berkshire's significant holdings of both those companies, considering that future outlook for oil there?

WARREN BUFFETT: Well, there's no question — it's really interesting about oil, and Charlie knows way more about oil than I do, when did you buy that royalty in Bakersfield, or wherever it is? But that was before I met you, right?

CHARLIE MUNGER: Yes — no, it wasn't before — it was — yes, it was. It was just before. You're right. And that goddamn royalty is still paying me $70,000 a year.

WARREN BUFFETT: What'd you pay for the royalty?

CHARLIE MUNGER: A thousand dollars.

WARREN BUFFETT: Yeah. Yeah. Now that's the opposite of the Permian. My dad bought $1,000 or $1,500 worth of royalties before he died in 1964. He left them to my mother. My mother left them to her two daughters. And my older sister died. And my younger sister is here today.

And she gets these checks every month. And she knows about all these different fields, and what they're producing. And that's the reality of half of the oil production, or something around that, in the United States. And then the other half is shale.

And, you know, if you've gone to the movies, and ever watched oil, you've never watched the things that are pumping Charlie's royalties in California. You'll see these gushers of oil. Well, in the Permian, this should sink in on you, in the first day, the first day when you bring in a well, you know, it may be 12,000 barrels, or maybe 15,000 barrels.

And it's dangerous. Occidental had one come in at I think at 19,000 barrels or something like that in one day. And in a year, year and a half, it becomes partly nothing. It's a different business in effect. In the United States, it's interesting. We use maybe 11 and a fraction — well, we produce 11 and a fraction million barrels of oil equivalent a day.

But if shale stopped, I mean, it would drop to six million very fast. Well, just imagine taking five million barrels a day out of production in the world. And then we're also taking down our strategic petroleum reserve. Strategic petroleum reserve is the ultimate oilfield. You don't have to drill. It's just we've got them.

And it was supposed to be strategic, but it gets involved in politics. And so, there's all — when you talk about the oil business, you're talking about different kinds of businesses, basically. And we like Occidental's position in the Permian. And we wouldn't like that position — well, it got to minus one day. It got to minus $30 a barrel.

That was crazy, of course. But if oil sells at X, you know, you do very well. And if it sells at half of X, you know, your costs are the same, and it doesn't change the production. And it doesn't work as well, but it also brings down the oil production of the United States very fast.

So, we don't know what oil prices will be. But we do very much like the Occidental position they have. And that's why we financed them a few years ago, when it looked like it was a terrible mistake. Then the oil market just totally collapsed. And then it changed around. And we bought a lot of the common stock.

In the last few months, they've reduced our preferred, which we don't like, obviously. But we'd be disappointed in them if they didn't reduce it. It's intelligent from their standpoint. So, we've taken — of the $10 billion preferred, we've gotten maybe $400,000,000 or $500,000,000 of it, retired at 110% of par.

But, Vicki Hollub, she's an extraordinary manager of Occidental. Her first job was with Cities Service. That was the first stock I bought in 1942. She knows what happens beneath the surface. I know the math of it. But I wouldn't have the faintest idea what to do if I was in an oil field.

I mean, I can dig two feet down in my backyard. And that's my understanding of subsoil in the world. I can't picture the field that Charlie has been collecting that monthly check from, from 50-plus years, 60 years roughly, or my sister, getting at various fields, where they just keep pumping, and pumping, and pumping.

And we, in the United States, we're lucky to have the absolutely to produce the kind of oil we've got from shale. But it is not a long-term source, like you might think, by watching movies about oil, or something of the sort. Charlie, do you have anything to add?

CHARLIE MUNGER: Yeah. It really dies fast, those shale wells. If you like quick death in your oil wells, we have them for you.

WARREN BUFFETT: But Occidental, they're doing a lot of good things.

CHARLIE MUNGER: Yeah. They drill a lot of new wells. And they're doing it at a profit, but it's a different kind of oil than this.

WARREN BUFFETT: It's just different. Yeah. Yeah. And that's true of almost half the oil produced in the United States. And there's times —

CHARLIE MUNGER: There's a lot of oil down there that nobody knows how to produce. And they've been working at it for, like, 50 years. But they worked at the existing shale production for about 50 years before they figured it out. And it was weirdly complicated when they finally were able to do it. There's only one type of sand that works.

WARREN BUFFETT: Can you imagine a horizontal pipe, you know, maybe a mile and a half or something? It's just so different than what you think about.

CHARLIE MUNGER: It goes laterally for three miles, two miles down. How in the hell do you drill two or three miles laterally, when you're already two or three miles under the Earth? They have mastered a lot of very tricky technology to be able to get any oil out of these wells at all.

WARREN BUFFETT: And we love the position with Occidental. And we love having Vicki run it. And they've been —

CHARLIE MUNGER: And there's a lot more oil down there, if anybody can figure out another magic trick. That's all we need is another magic trick.

WARREN BUFFETT: But Occidental has some other things too.

CHARLIE MUNGER: Yes. Yes. But —

WARREN BUFFETT: But the price of oil still is incredibly important in terms of the economics of short-lived oil. I mean, no question about that.

CHARLIE MUNGER: Well, if it's —

WARREN BUFFETT: And we will incidentally — you know — There's speculation about us buying control. We're not going to buy control. (Laughs) We don't want to run — We've got the right management running it. We can't — we wouldn't know what to do with it. And (UNINTELLIGLE) wouldn't know what to do with an oil field.

CHARLIE MUNGER: Admitting you're buying coal would be like going out and seeking to acquire cancer or something. You can't even borrow to expand a coal mine now. It got very unfashionable.

WARREN BUFFETT: Yeah. And we think, frankly, some of the things said are ridiculous.

And on both sides. In both extremes.

I mean, you're dealing with physics. You're dealing with — the politicization of positions on something that's enormously important in terms of energy just lends itself to demagogues, and fundraisers, and advisory organizations, and everybody in sight. And we will make rational decisions. And we do not think it's un-American to be producing oil.

CHARLIE MUNGER: And there is no oil basin in the United States that compares to the Permian, in terms of promise.

WARREN BUFFETT: Yeah. We were lucky.

CHARLIE MUNGER: Well, I don't —

WARREN BUFFETT: We didn't know it was there until –

CHARLIE MUNGER: Yes.

WARREN BUFFETT: — not that many years ago.

CHARLIE MUNGER: It had sort of been used up. And then they always knew the shale oil was there. But they thought it was going to stay unrecoverable forever.

WARREN BUFFETT: The second or third stock I bought was Texas Pacific Land Trust. And they owned 3,000,000 acres down there. And they were raising revenues of $10,000 a year or something like that. And they were sitting on this incredible amount of oil. And basically, that company is now actually part of Chevron.

And it went through Texaco and did all kinds of things. And there's still a Texas Pacific Land Trust. But a lot of that property is fee owned by — the minerals are owned by Chevron, which is some advantage. But it's an interesting subject, I'll put it that way.

And we will not be making any offer for control of Occidental. But we love the shares we have. And we may or may not own more in the future. But we certainly have warrants, which we got as part of the original deal, on a very sustainable amount of stock, at around $59 a share. And those warrants last a long time. I'm glad we have them.

WARREN BUFFETT: OK. Station seven.

AUDINCE MEMBER: My name is Max Joa (PH). I'm from Toronto, Canada. I have a question for Charlie regarding a statement you made in the past.

You once mentioned that you'd prefer to hire someone with an IQ of 130 who believes it's 120, over someone with the IQ of 150 who thinks it's 170.

I understand that you are referring to Elon Musk. (LAUGHTER)

Given the recent success of his ventures, such as Tesla, SpaceX, and Starlink, I'm curious to know if you still hold the view that Elon Musk overestimates himself. Thank you so much. (APPLAUSE)

CHARLIE MUNGER: Well, yes. I think Elon Musk overestimates himself. But he has a — he is very talented. So, he's overestimating somebody who doesn't need to overestimate to be very talented.

WARREN BUFFETT: There's a Bill Maher program, about a week old, maybe two weeks old.

But he interviews Elon. And Elon does a terrific job toe-to-toe with Bill Maher. It's worth watching.

And Elon is — he's a brilliant, brilliant guy. And I would say that, you know, he might score over 170.

But he — you know, it's — he dreams about things. And his dreams have got a foundation.

CHARLIE MUNGER: He would not have achieved what he has in life if he hadn't tried for unreasonably extreme objectives.

He likes taking on the impossible job and doing it. We're different, Warren and I. Warren and I are looking for the easy job that we can identify. (LAUGHTER)

WARREN BUFFETT: Yeah. If we can do it playing tic-tac-toe, we'll do it, you know? (LAUGHS)

CHARLIE MUNGER: We have a totally different way of going about it.

WARREN BUFFETT: But we don't want to compete with Elon in a lot of things.

CHARLIE MUNGER: We don't want that much failure.

WARREN BUFFETT: Yeah. (LAUGHTER) Yeah.

And it takes over your life in a way that it just doesn't fit us. But there are going to be — well, there have been important things done by Elon already. And it requires — fanaticism isn't the word.

CHARLIE MUNGER: Yeah. It is the word.

WARREN BUFFETT: OK. (LAUGHTER)

Well, it isn't quite the word. But it's a dedication to solving the impossible. And every now and then, he'll do it. But it would be torturous to me or Charlie. And I like the way I'm living. And I wouldn't enjoy being in his — but he wouldn't enjoy being in my shoes, either.

Watch the Bill Maher interview.

WARREN BUFFETT: OK. Becky.

BECKY QUICK: This question comes from Foster Taylor (PH).

"At the 2010 Berkshire annual meeting, you said the one question that you would ask of the Berkshire CEO would be about the distribution of cash to shareholders, as the Berkshire cash pile grows larger and larger.

"So, let me ask that question. Do you still feel confident of the future prospects for our over $100 billion in cash on hand, or are we getting closer to cash distributions?"

WARREN BUFFETT: Well, the one thing, if Berkshire shares are selling for less than we think they're worth, that could be a pretty big way to distribute cash. But what we would really like to do is buy great businesses. If we could buy a company for $50 billion, or $75 billion, $100 billion, we could do it.

And we could do it. And our word's good. It's difficult with a public company, because in effect, if you bid on a company, you make the bid, and their shareholders vote months later. And you're giving out an option. If we're good for it, and the other guy has a way to —

CHARLIE MUNGER: Top you.

WARREN BUFFETT: —top you, or all kinds of things, they can get out of it. And then you get paid 2% for that, or 1% that, that is not an appropriate price. And on the other hand, Delaware will decide whether they should do it or not. And that's the way the world is. I mean, that's the law. So, it'd be easier to do with a private company.

And there aren't very many that are big. On the other hand, there's nobody else that can quite make a deal like we can, under the right circumstances. And there could be a situation where a number of very decent companies have got a very uncomfortable borrowing structure, and money comes due to them at the exact wrong time.

And that's when they pick up a phone, as did Tiffany, and Harley-Davidson, and you name it. I mean, a whole bunch of companies in 2008. That sort of thing will happen again, whether it results in us getting the calls, or what the world is exactly at that time.

But the one thing we know is that the number of phone calls that you can make at a time like that is very, very limited. And there can be good companies, they don't want to sell the company necessarily, but they just may need $5 billion, or $10 billion, or $20 billion, depending on what company you're talking about.

And that can happen. And our own shareholders can be selling the stock too cheap. And we'll never do anything to make them sell it cheap. And we'll tell them the truth about what the business is. But if market circumstances result in us being able to buy in $50 billion of our own stock, we'll buy it.

So, we'll see what the world holds. But we don't have the opportunities we used to have. But we've got enough. And we're making money with the things we have. It isn't killing us to hold $130 billion of bills at 5% plus bond equivalent yields.

And everybody says, "Well, yields are going to go down in the future." I don't have the faintest idea what yields are going to do in the future.

And, you know, the prime rate was 21.5% in 1981 or '2. And people were worried that it was going to go totally out and spin out of control. And [Federal Reserve Chairman Paul] Volcker kept it from happening.

But if Volcker hadn't been in there, who the hell knows what would've happened.

So, we're running Berkshire so that we'll do OK. And maybe we'll do a little bit better than OK. Charlie?

CHARLIE MUNGER: OK. Maybe. Fine.

WARREN BUFFETT: OK. Station eight.

AUDIENCE MEMBER: Hello, Mr. Buffett and Mr. Munger. My name is Carlos Sanchez (PH). And I am honored to be here from Guadalajara, Mexico. Mr. Munger, as a fellow lawyer, I have a question regarding corporate law.

Considering your experience and success, if you were to offer guidance to someone like Ralph Tortorella when he was at the beginning of his career, and before becoming Berkshire Hathaway Company's lawyer, what key principles or lessons would you suggest to help him excel in his profession?

CHARLIE MUNGER: Well, I'm not sure I quite caught all of that. But I don't think I have a lot of advice about how to succeed as a lawyer. I have a son-in-law who describes modern law practice in a big firm.

He says, "It's like a pie-eating contest where if you win you get to eat more pie." (LAUGHTER) And I advise you to avoid that kind of a law firm. Life is too short to just do nothing but eat pie.

WARREN BUFFETT: Yeah. Charlie has not practiced law since what 1964 maybe, whatever it was.

CHARLIE MUNGER: 1962.

WARREN BUFFETT: '62. And Charlie has given me four or five pieces of advice that don't really come from his legal background, but because he knows the system so well, and, you know, really did do quite well at Harvard Law School, despite his taunting of teachers in a few things.

He has given me four of five solutions on things that nobody else in the world would've given me, law firm or otherwise. And it's been within a nanosecond of when I described the problem to him. And he just gave me the answer that nobody else would've come up with.

And I told you one of them last year. So, I won't repeat it at this meeting. But we've got the best lawyer in the world in Charlie, if it's something that really matters. And there've been times when I've taken advantage of that. And Charlie didn't want to be a lawyer.

He didn't want to sell his time, maybe at 20 bucks an hour or something, to people he thought were making the wrong the decisions. And he knew more about it than they did. And that just did not strike him as a good way to go through life. And I think he's probably right on that.

I think he'd have really gotten to be miserable if he had to keep doing that. It's just no fun. It'd be like me giving investment advice to somebody that — or taking it from somebody. I just wouldn't want to do it. And Charlie figured that out. And so, we decided to work for ourselves. And this worked. Been happy, happily ever after.

CHARLIE MUNGER: We have no complaints.

WARREN BUFFETT: Yeah. None.

WARREN BUFFETT: OK. We're at Becky.

BECKY QUICK: This question come from Ryan Harding (PH). And it's about the new 15% corporate minimum tax rate. As he sees it, its implementation is currently understood, he thinks as he understands it, to apply over rolling three-year periods, and to be based on reported earnings.

First, does the inclusion of unrealized gains and losses in reported earnings under the current financial reporting standards contribute to the calculation for corporate minimum tax rate purposes?

And could it potentially convert some of those notional deferred taxes into cash taxes, even if a rise in the market price of a major holding is only temporary, but rather extreme? And then second, could it reduce the effect of some of the renewable energy tax incentives, and others?

WARREN BUFFETT: I think the answer on the second part, probably, is no. But I don't want to say it is for sure, because he's asking the same questions I ask of Marc Hamburg, who's the smartest guy on combining understanding a business, understanding the tax code, understanding SEC rules, and everything else, that you'll find in corporate America.

And these questions — the particular question on marginable securities — I don't think has been answered yet. And I think that there are a number of things about the new tax act that were not enacted yet. But I would say this. We have said ourselves what we think the proper approach to operating income.

We didn't design that because this tax law came along, we did some years back. So, we would think that you wouldn't include capital gains, unrealized capital gains in. But we've got enough, I think no matter how things turn out. The 15% tax doesn't bother me in the least.

And we can figure ways, once we know the rules, where we will pay the 15% tax. And, you know, we were paying 52% tax as federal income taxes when I bought control in the partnership of Berkshire Hathaway. I mean, the tax rate has come down dramatically.

And the deferred tax that was embodied, for example, at Sanborn MAT, when it was involved in a system that was allowed under the tax law to avoid that tax. But that was a huge tax, 52%. So, we will live with this tax code. And we do not think corporations are overtaxed in the United States.

And, you know, I think that the conversation about how we'd lose out to the world, and all that sort of thing is really nonsense. But we've got a new law that the regulations haven't been written on. And when we know what the game is, we will absolutely figure out a way to pay 15% every year, which generally, we've been paying anyway.

And as I pointed out, if there were a thousand corporations in the United States that paid what Berkshire has been paying, nobody else in the United States, no individual, no corporation, would ever pay any income tax, social security tax, gift tax, estate tax, anything else.

A thousand like Berkshire Hathaway would produce the revenue that's being derived under the present tax code from everybody in the United States. And I don't feel badly about that. And I love to get it to one five-hundreth, or something of the sort. But I'd like to do it — we can do it at this rate. I'm happy to do it.

I think we are privileged to live in the United States. But we also have to control spending. And that's something that Congress doesn't quite like to do. And they didn't like to do it when my dad went to Congress. But they've dug in more, as the years have gone by. Charlie?

CHARLIE MUNGER: Well, we covered this subject earlier.

WARREN BUFFETT: OK. (LAUGHTER)

WARREN BUFFETT: Station nine.

Am I right on this? Yeah.

AUDIENCE MEMBER: My name is Avlon Gross (PH). And I am from Los Angeles, California. I am a shareholder. And it's my fourth year coming to the "Woodstock of Capitalism." (LAUGHTER)

WARREN BUFFETT: We're glad you came.

AUDIENCE MEMBER: Thank you so much for everything Warren Buffett and Charlie Munger.

What is the funniest story that you have never told about each other? And also, what is the hardest part of your business? (APPLAUSE)

WARREN BUFFETT: I'll answer the second. The second part of your question is that we don't have a hard business. We love our business. Every morning, when I get up, I feel good. I don't know what's going to happen that day. Maybe nothing will happen. But maybe something will happen.

And if nothing else, I'll roll some T-bills or something. But I work with the greatest group of people you can imagine. I mean, we like each other. And nobody is after anybody else's job, or anything of the sort. It's ideal working conditions. And it's five minutes from my home, or thereabouts. So, I haven't spent my life commuting. I just can't imagine having anything better.

And Charlie's got a lot of funny stories you haven't heard. But we'll see which one he comes up with.

CHARLIE MUNGER: Well, I think Warren and I are naturally so ridiculous that we don't need very many funny stories. We each do things that are peculiar enough so that we can keep one another amused.

WARREN BUFFETT: Tell them what you told the lawyer when we were buying Hochschild Kohn.

CHARLIE MUNGER: I don't remember. You tell them.

WARREN BUFFETT: Well, you remember? (LAUGHTER) It was 1966, and we were down in Baltimore, buying a department store. And we needed a lawyer. And we needed a lawyer who was nearby and would do exactly as told. And Charlie came up with a very good lawyer from Wilmer Cutler's, I believe. And I don't know whether Charlie remembers the instructions he gave the lawyer or not.

CHARLIE MUNGER: No. I don't.

WARREN BUFFETT: Well, Charlie told the lawyer, who we never met before. And he said, "Treat Warren like" — I was 36 at the time or 35. He said, "Treat Warren like any other 90-year-old client." (LAUGHTER)

This guy knew exactly what he meant. And we made the deal in a hurry. And then we went to the bank, First National Bank, I believe it was — or Maryland National Bank, actually. And there was a fellow named Cammy Slack there, wasn't there, Charlie?

CHARLIE MUNGER: Yeah.

WARREN BUFFETT: We wanted to borrow $6,000,000 bucks against a $12,000,000 purchase. And Cammy looked at us with bewilderment. And he says, "You want you borrow $6,000,000 for this little old Hochschild-Kohn?" And Charlie and I said something to the effect, "Well, the Maryland National was our first call. And if they didn't want to do it, we had another bank we'd go to."

And, anyway, they lent us the money. But when he said little old Hochschild-Kohn, we immediately started thinking, "Maybe this isn't the best deal we've ever seen in our lives." And from that point on, we were trying to figure out how to sell it. Sandy Gottesman was involved with us then too.

And we had as much fun out of deals that didn't work in a certain sense as the ones that did work. I mean, if you knew you were going to play golf and you were going to hit a hole in one on every hole, you just hit the ball, and it went in the hole that was 300 yards away, or 400 yards away, nobody would play golf.

I mean, part of the fun of the game is the fact that you hit them to the woods. And sometimes you get them out, and sometimes you don't.

So, we are in the perfect sort of game. And we both enjoy it. And we have a lot of fun together. And we don't have to do anything we don't really believe in doing.

I mean, we are not dictated to by any group. And so, we get to forge our own destiny. And in a sense, forge the principle by which we can run the company. And that's a huge luxury in life.

And we don't want to be president of any other company in the world, or CEO, or anything else. We'd have to conform to certain things that we really don't want to conform to.

Is that a fair description, Charlie?

CHARLIE MUNGER: Yeah, it is.

WARREN BUFFETT: Yeah.

WARREN BUFFETT: OK, Becky.

BECKY QUICK: This question comes from David Kass, who is a professor at the business school at University of Maryland.

He says, "At last year's annual meeting, Warren mentioned that Berkshire had taken a large stake in Activision Blizzard as a merger arbitrage play. Since the U.K. regulator has blocked its acquisition by Microsoft, has Berkshire reduced or sold its stake?"

WARREN BUFFETT: Well, I think in terms of what we do with stocks, we don't give information except when required to, which is in the 13F, or whatever we file. And there's certain things you can actually figure out by looking at our 10-Q, which we filed this morning.

But you have to look pretty hard. But I would say this. I think Microsoft has been remarkably, what's the word, willing to cooperate with governing bodies. I mean, they want to do the deal. And they've met the opposition, it seems to me, more than halfway.

But that doesn't mean that it gets done if a given country, in this case the U.K., wants to block it. They're in a better position to block it than the United States, by just the way the world works. And that doesn't get solved by offering more money.

So, I don't know how it turns out. But if it doesn't go through, I don't think it's through any shortcoming by either Microsoft or Activision. But not everything that should happen does happen. And, well, we ran into it when we made the deal with Dominion Energy 18 months ago. And they let us buy a good bit of what we wanted to buy.

And then the government in effect said, "You can't buy something else," which I think we would've done a better job with than anybody else did, and which the states involved did not object to it, which the customers didn't object to it. But you don't take on the United States government, you know?

And you try and figure out things that you won't have a problem with. And I think in that case, the U.S. government made a mistake. I think the British government's making a mistake in this case.

But that's life in the big city, as Charlie would say.

And what we do will depend on a lot of things. Charlie?

CHARLIE MUNGER: Well, I think — well, we do — yeah — you kissed that one off beautifully. (LAUGHTER)

WARREN BUFFETT: OK. Station 10. (Laughter)

AUDIENCE MEMBER: Hi, Warren. Hi, Charlie. My name's Anderson Fuller (PH). And I'm from Avonport, Nova Scotia in Canada.

And before I ask my question, I just want to thank you for all you've done to give us insight into your minds as investors.

So, for me, the most compelling takeaway from Berkshire is your guys' emphasis on and successful use of properly aligned incentives.

In my view, owning and leading a business has two central benefits. First, you directly benefit as the company grows, through your equity in it, and second, you have autonomy. Incentives for employees are a bit easier to understand, such as offering benefits, fair pay, and creating a strong culture.

But I've always struggled to understand them at the highest level. Even though you say Berkshire gives its managers significant flexibility, it must be less than what they had when they were independent.

Additionally, you would think passion and a willingness to sell would be inversely correlated. So, how exactly does Berkshire bridge this gap and incentivize owners of its subsidiaries to give up these benefits to Berkshire? Thank you.

WARREN BUFFETT: Well, what we really hope to find is managers who love their business, but don't like a lot of what comes with it as a public company. I mean, if they have to spend a lot of time listening to people tell them what to do about this or that, and they can't afford to irritate them, or they have to go along with their trade association, or whatever they may call it, because you don't want to look like a free rider.

There's all kinds of things, compromises that people have to make in most jobs. And Charlie and I solved that problem. I had five bosses in my life. And I liked all five of them. And two of them were just huge factors in making my life better. But I liked all five of them.

A couple of them were, you know, some people hear JCPenney, Cooper Smith, you know, I worked for 75 cents an hour and I loved working at Penny's. Well, I didn't love working at Penney's. But I loved working for Cooper Smith. And, you know, it was 75 cents an hour.

But I had to do what they told me to do, which was to sell men's shirts first, and then men's clothing, and then children's clothing, and so on. And I loved working for the newspaper. And I had a great manager when I was at the University of Nebraska. I got to work for Ben Graham. I mean, everything worked out.

But there's nothing like working for yourself. And if you can't own a big company, working at Berkshire Hathaway, from running a company is the closest thing you will get. You don't have to spend time courting analysts who you'll probably have contempt for in many cases.

You don't have to spend time with banks, you know, getting money, and particularly in terrible times.

There's all kinds of — you get a lot in the way of freedom that I would think would be meaningful to me. And it might be better if you own the whole place yourself.

But maybe you've got siblings that want out. Maybe — there's a million reasons why you may not be able to achieve that unless you sell to Berkshire. And that's easier, probably, if you have a family business, where people want to go in different directions, than it is with a public company. But there's still possibilities there.

So, that's why I think if I owned a public company, and it was worth a great many billions of dollars, and Berkshire Hathaway wanted to buy it, and the shareholders were willing to vote it, I would consider the way I would feel about life, for one thing, I wouldn't want to retire at 65. I'd want to keep working.

And there are reasons to sell to Berkshire, which Charlie and I, in certain positions, if we were on the other side, would take the deal. But it isn't for everybody. Charlie?

CHARLIE MUNGER: I think we have a pretty good one. We've been very lucky. And I don't know. It seems to me that most of the people who are going to end up the way we did, they almost already know how to do it.

WARREN BUFFETT: But the most important purchase, in retrospect, that we may have made was National Indemnity. Now because specifically what it did, but what it led to. And Jack Ringwalt controlled the company. And I knew him and liked him. And he knew me. And once a year, he'd get irritated when the Nebraska Department of Insurance, or somebody would come around.

And he said they always came around when the AK-SAR-BEN racetrack was open. I mean, he had all these theories about why it was a pain in the neck to be regulated. And I told Charlie Heider, "Next time Jack is in that mood, where he's ready to sell, just because he's tired of fooling around with all these guys, be sure and find him."

And so, Charlie called me one day. And he says, "Jack is in heat." And I said, "Bring him over." And we made a deal. But that's why Jack sold. And he was happy after he made the deal. And I was happy after we made the deal. So, there's a man that controlled a business, but just decided these people didn't seem to bother him as much once they were my problem and not his.

And you just can't tell when lightening will strike. And that didn't do magnificent things for us initially. But just look at what it led to, you know?

So, you never — you know, if you knew how you were going to shoot all 18 holes, it wouldn't be any fun playing. You wouldn't get out on the first tee. I mean, it's the uncertainty, the fun of playing the game, the opponents, all kinds of things that make a game interesting. And I think Charlie and I are in the most interesting game in the world.

WARREN BUFFETT: OK. Becky?

BECKY QUICK: Here's a question from Simon Withers (PH), in Perth, in Western Australia.

"It's been a long time since we've heard about See's Candy and NetJets. Could you please give us an update on See's performance, and when you project it will run out of places to open stores in the United States?

"And could you also give us an overview of how NetJets has performed since its acquisition, and whether it's achieved the potential you saw at the time of that acquisition?"

WARREN BUFFETT: Well, with See's it hasn't been a question of opening stores. We found out that we have this wonderful brand that doesn't travel. You know? The mystique, the actual product, the feelings people have about some things, as we said before, I mean, it sometimes it's limited to given markets.

Dr. Pepper sells at a huge rate in Dallas-Fort Worth, and maybe at 10 times the percentage per capita, maybe that it has in Detroit, or Boston. And you say, "Well, how can that be with a product that's been around for a century?" And people travel. You have national advertising.

And I'm not sure. But I keep learning more, as I watch different brands. And Charlie and I, our economics were so good in California, that we tried in many cases the same experiment over and over again. It doesn't cost much to experiment. And we've tried everything in the world to cause a brand to travel.

And we always think we were right for the first week. And then we find out that the magic — we can beat any other candy store, pretty much. But there aren't any candy stores anymore to speak of, as the world has changed. So, See's is 101 years now. It has magic.

And it has limited magic in sort of the adjacent West. It's gravitational, almost. And then you get to the East. And incidentally, in the East, people prefer dark chocolate to milk chocolate. In the West, people prefer milk chocolate to dark. In the East, you can sell miniatures, and dark — in the West —

I mean, there's all kinds of crazy things in the world that consumers do. But you want to keep observing it, because you do learn a little. And with Charlie and I, the temptation to keep trying things, because the economics were so good if we succeeded, so we tried various things. And, of course, every manager wants to try that comes along.

Because they've learned that it should work. But it doesn't work. So, but that's what makes it very interesting.

WARREN BUFFETT: And NetJets, we have really learned how to distinguish, and justifiably distinguish a service to people that you have to be very well to do to use it.

But if you're very well to do, in effect, you're spending your heir's money. I mean, it's what I told my Aunt Alice after she went from teaching to be worth millions and millions of dollars. And she came to see me. She'd never been married. And she said, "Can I afford to buy this fur coat?" in 1968 or '69. And I said, "Alice, you aren't buying it. Your nieces and nephews are buying it, because that's who you're leaving your money to."

"Speaking on behalf of your nieces and nephews I would say we want you to buy it." And it's the same way. Do your heirs want you to fly around in that jet? Or do they want you to leave a little more money to your foundation or your kids? And the way to solve that one is to offer your kids a few hours themselves.

Then their attitude can change. So, it's in a class by itself. It's done what Ferrari has done in a different sort of way in cars. Ferrari sells 11,000 cars a year. I mean, maybe 12,000. And they're known throughout the world. And we'll have a Chevy dealership in Boston or something. We'll sell as many cars. But we're not Ferrari.

And NetJets has 600 — well, counting Europe, I mean, it's maybe 650, but we're going to buy 100 planes this year. And we won't sell any, because we've got a backlog. And we took a NetJet flight over to Tokyo. And we arrived in good shape. And we spent a couple days there. And we flew back.

And there's just nothing to it. Now, you can say, "Well, you're getting sort of decadent and all that in your old age." But the money will go to philanthropy. And the money will probably be a hundred billion or more. And I figured the philanthropies want me to spend a few bucks on myself.

All it has to do is be better than the last dollars that are spent by various philanthropies, which have plenty of problems finding things to do that make lots of sense. So, NetJets, there isn't any competitor. We had looked the other day at Wheels Up.

Stock came out at $10 a couple years ago. It was selling at 48 cents the other day. And they've got 12,600 people that have given a billion dollars, a little over a billion dollars on prepaid cards where they've given them money, and they get a certain number of hours later on.

And they don't — I think there's a good chance that some people are going to be very disappointed later on.

When they have money to do the NetJets, they know they'll get on the same planes, with the same pilots as I and my family have flown on since before we bought the company. So, the decision wasn't shaped by some commercial objective.

A couple years before, I'd never heard of NetJets. And Frank Rooney mentioned it to me. And I bought share immediately. And we bought the company. And, well, my kids have to fly commercial sometimes. But sometimes they get to use ours, too.

But I've never flown anything else. And why would I? I mean, it's the gold standard. And nobody will match our fleet. I mean, if you got 600 planes, you've got them a lot more places in the United States than anybody else will have theirs. I think we're the second largest fleet (UNINTEL) commercial airliners.

And our fleet's growing, like I said, at the rate of a hundred planes a year. So, it's a marvelous company.

And Adam Johnson has performed. You just can't believe what he's done with the business. It was a tough model for a long time. But he's brought it where it is. And we should have a wonderful company forever. Charlie?

CHARLIE MUNGER: Well, NetJets has been remarkable. You can argue that it's worth as much as any airline now.

WARREN BUFFETT: It's so different. And Charlie — we had a hard time selling Charlie a NetJets membership. And then we figured the way to get him to buy a membership was to put a coach seat in the fuselage. (LAUGHTER)

And that really knocked him off. I think he's the only one we sold on the basis of that.

CHARLIE MUNGER: I used to come to the Berkshire annual meetings on coach from Los Angeles. And it was full of rich stockholders. And they would clap when I came into the coach section. I really liked that. (LAUGHTER) (APPLAUSE)

WARREN BUFFETT: But I've got to tell you, we semi-corrupted him. He feels he kind of has to explain it, but he still flies in NetJet himself, so. And it'd be crazy not to. You know, your heirs are paying for it. I mean, find me anybody whose estate came in at less than zero because of what they spend on NetJets, threw them into that position, let me know.

But I've never seen a case yet. And it won't be the case for the Buffett family. And it's the residual bottom beneficiary that's paying for your membership.

And it's a little hard to get used to paying that much money though, when you've lived like Charlie and I have most of our lives.

WARREN BUFFETT: OK. We will go to section 11.

AUDIENCE MEMBER: Hello. My name is Humphrey Liu, I'm from Charlottesville, Virginia.

WARREN BUFFETT: Ah!

AUDIENCE MEMBER: First, I wanted to add my thanks to you and Mr. Munger and Mr. Buffett, and all of Berkshire, for throwing this grand event each year.

Looking at the global trends, it increasingly does seem that zero-emission vehicles may have finally reached the cusp of mass adoption. Do you see any opportunities in this space, either in specific vehicle manufacturers or in related technologies?

WARREN BUFFETT: Well, I would say that Charlie and I, we long have felt that the auto industry is just too tough. You know, the Ford Motor Company, I mean, Henry Ford, looked like he owned the world with the Model T. And he brought down the price dramatically, he took up wages dramatically. He might have been, with a different personality, or some different views, elected President of the United States.

I mean, there's a good book that came out on that recently that told about the story — it tells a little about Nebraska in terms of it, but Henry Ford and Thomas Edison joining up, maybe a year or two it was. If you're interested in autos, you ought to read that book.

But Henry Ford did that, you know, and 20 years later they were losing money. And the other guy, with a gun in his pocket, I think Harry Bennett, you know, was running the Ford Motor Company. It was on its way to the junk heap when the whiz kids came in.

And Henry Ford II, "Hank the Deuce," as they called him, brought in Tex Thornton, and my friend RJ Miller, and a few people. I was reading the other day, actually, the 1932 Annual Report of General Motors. And it's one of the best annual reports I've read. It's a totally honest, you know, assessment of exactly where they were: They had 19,000 dealers then, and the population, as I mentioned earlier, was about 120 million or so.

And now, with 330 million people, all brands in the United States have, like, 18,000 dealers or something. It's just a business where you've got a lot of worldwide competitors, they're not going to go away. And it looks like there are winners in any given time, but it doesn't get you a permanent place. Although, as I mentioned, I would say Ferrari is in a special place.

But they only sell 11,000 or 12,000 cars a year. In the U.S. last year, I think there were 14 million-something. And it's not a business where we find it fascinating to be in. We like our dealership operation, but I don't think I can tell you what the auto industry will look like five or ten years from now.

I do think that you're right that, you know, you will see a change in the vehicles. But you won't see anybody that owns the market because they changed the vehicle. Charlie?

CHARLIE MUNGER: Well, the electric vehicle is coming big time, and that's a very interesting development. At the moment, it's imposing huge capital costs and huge risks. And I don't like huge capital costs and huge risks.

WARREN BUFFETT: And we're subsidizing it in the United States, and we're actually doing it — tried putting in a pro-labor-type — I mean, it is subject to politics like you can't believe, too. But it's going to be with us, we're not going to quit driving cars, and — the American public has love affair with them.

But I think I know where Apple's going to be in five or ten years, and I don't know where the car companies are going to be in five or ten years. And I may be wrong. But Charlie and I follow the auto business with intense interest. Charlie's firm was the specialist at General Motors on the Pacific Coast Stock Exchange, and that was a franchise, wasn't it, Charlie?

CHARLIE MUNGER: Yeah. By working very hard, we could make a minor amount of money.

WARREN BUFFETT: Yeah. Yeah. Wasn't "minor" at the time, though. Come on — (LAUGH) but —

CHARLIE MUNGER: Yeah, it was. It was —

WARREN BUFFETT: Was it?

CHARLIE MUNGER: — pretty minor at the time even.

WARREN BUFFETT: Yeah? Well, it was pretty minor.

WARREN BUFFETT: OK. Becky?

BECKY QUICK: This question comes from Lindsay Peter Schumacher in Cedar Rapids, Iowa.

"Does the current size of the Federal Reserve balance sheet concern you? In particular, the result of quantitative easing — the Federal Reserve expanded its balance sheet out of nothing. The net effect in essence is a form of single-entry accounting creating something of value out of nothing other than a series of book entries. And wondering what Mr. Munger thinks about this as well."

WARREN BUFFETT: Well, I don't think the Federal Reserve is the problem, and I think they can't solve the fiscal problem. I do not worry about the Federal Reserve. I think it's fulfilling the functions for which it was established. They have two objectives, and I would not have been one probably that would have changed the inflation objective: to 2% a year from 0.

You know, I think that if you tell people that you're shooting to depreciate your currency at 2% a year, that has a lot of implications. Although it feels good to a (LAUGH) lot of people. A lot of people want a little inflation, but nobody wants a lot of inflation except somebody's that got a lot of debts.

And I do not worry about the Federal Reserve balance sheet. I enjoy looking at it, and the numbers are big — I always like big numbers. But it's interesting: One of the most interesting figures, to me, is currency in circulation. I mean, it has gone — they were saying, "Cash is trash," back in 2007 and '08, "and all that cash is going to disappear."

Well, if you look at the Federal Reserve balance sheet, it's gone from $800 billion to $2.2 trillion, and most of that's in hundred-dollar bills, overwhelmingly. And I figured out I think there's about 50 $100 bills per person — babies, everybody, in the United States, and I would really like to know where all of that is.

I mean, nobody's hoarding eurodollars, you know, in South America, or Africa, or wherever. And the demand for currency now — you know, some of it may be subtle drug dealers' activities and of that. But anybody who thinks "cash is trash" ought to look at the Federal Reserve balance sheet. And, actually, you can look at how many $5 bills and $2 bills, and ones and all that, and the action has been in $100 bills.

I mean, it is just astounding the way that hundred-dollar bills have spread. And, of course, I don't know where they are, and I don't think the Fed can know exactly, but they'd probably make a lot better guess than I could. But I do it's happened, and you can watch it every week, and you'll watch currency in circulation probably grow a little bit. And, believe me, "cash" is not trash. Charlie?

CHARLIE MUNGER: Well, I don't know where we're headed with all of this. It's been very extreme. I think you could be pretty extreme in fighting it: depressions and so forth, if you reverted afterwards to a period of some discipline. But if you just —

But if you're going to just keep printing money and spending it, I think eventually it causes bad trouble. And you can see it Latin America. Latin America let its currency get out of control all the time, and, of course, it lagged the United States in economic achievement greatly. So, I think we pay a price if we ever give up our old ways entirely and go into a new world where we just try and print money, just make it easier to get through the year.

WARREN BUFFETT: We paid a price in World War II, I mean, everybody: school kids and everybody else, myself included. And we bought what were originally called "War Bonds," and "Defense Bonds," and "Savings Bonds," and all that. But from 1942 to 1944 or '45, you paid out $18.75 and you got $25.00 back, and every kid saved savings stamps and all that.

But when you got all through, you know, you had 120% of GDP in the national debt instead of 30% or 40%. And we had a lot of inflation subsequently, a lot. So, the people that really bought those bonds and supported the war had a portion of their purchasing power taken away from them.

Well, there wasn't anything wrong with that, particularly. But when the country gets in the habit of doing that, I think it's tough to figure out where the breaking point is with society. But I don't think you want to come anywhere close to it.

CHARLIE MUNGER: Yeah, but it's also tough to have a mass of people unemployed. That's the tension.

WARREN BUFFETT: Yep. Well, that's why the Fed has two objectives, in terms of employment and inflation. But they are not the ones that could create the deficits. And so far, the system has worked pretty well, although, like I say, it's been —

CHARLIE MUNGER: So, far, the man who just jumped off a tall building —

WARREN BUFFETT: Yeah, right.

CHARLIE MUNGER: — is all right until he hits the ground.

WARREN BUFFETT: Yeah. (LAUGHTER) Well, but there could be ways we can stop now at the third floor, or the sixth floor. We don't know what floor it is, but we know it hasn't hit the ground. But, you know, politically it's very, very, very tempting to vote appropriations, and it's not fun to vote taxes.

And Russell Long, head of the Senate Finance Committee, they've got a building named after him now, he said, "You know, don't tax you, don't tax me, tax that guy behind the tree." And (LAUGH) basically that is the attitude — I mean, it's the reality of what is useful in politics.

And so far, this country's managed to work very well with lot of things that could theoretically cause a lot of problems. But it doesn't guarantee us the future on it and being the reserve currency lets us do a lot of things, but it also creates a lot of consequences if we screw it up. Charlie?

CHARLIE MUNGER: Well, we're beating a subject to death, but it is a problem. I wish we had a solution.

WARREN BUFFETT: OK. With that we'll go to station one and see if we —

AUDIENCE MEMBER: Hello, Mr. Buffett and Mr. Munger. My name's Connor, I'm an economics student at the University of Nottingham.

My question for you today is during the pandemic we witnessed supply chain shortages, especially from Asia. As a result, companies have chosen, with political intentions, to move production away.

Should companies make these decisions? And should the government support them?

WARREN BUFFETT: Charlie?

CHARLIE MUNGER: Well, that's a good question.

WARREN BUFFETT: Yep.

CHARLIE MUNGER: Obviously, it's logical — if you're in business and you can make the thing in Mexico way cheaper, it's natural to open a factory in Mexico and get your parts cheaper. And a lot of the auto manufacturers have done exactly that.

On the other hand, nobody wants to hollow out the whole country, so all the manufacturing jobs are elsewhere and we're all living like a bunch of farmers: You know, like English colonies in 1820 or something. And these ideas are, of course, in big tension. We don't have that much foreign production, right, Warren?

WARREN BUFFETT: Yeah. Well, but we've lost — well, originally Berkshire Hathaway, as a textile manufacturer, lost because the South became feasible versus the North. And, of course, then eventually —

CHARLIE MUNGER: The South got expensive —

WARREN BUFFETT: South got —

CHARLIE MUNGER: — and moved to China.

WARREN BUFFETT: Sure. And society benefits and some people get killed in that sort of a situation. And a rich society should take care, one way or another, of people that worked in our shoe factories, people who worked in our textile companies. I mean, if you worked in our textile operation, in 1964 when we took it over, half our workers only spoke Portuguese.

And, you know, they weren't getting great wages at all. But now you could do it in the South, and we were doomed to go out of business. And it wasn't the fault of the worker in any way, shape, or form. It wasn't our fault: We kept trying to compete.

CHARLIE MUNGER: Well, TVA had cheap power down there.

WARREN BUFFETT: Sure.

CHARLIE MUNGER: And tax dollars really can yield power.

WARREN BUFFETT: And air conditioning changed everything because the heat in those damn places was impossible. And so, a lot of things. But then it moves offshore in many ways, and net the country is better off because of it.

But it displaces a lot of people who really can't do something else in life. You can't talk about "retraining" somebody that's 55 or 60, and speaks only Portuguese, and really tell them they're going to have "a great future" in New Bedford, Mass.

You know, and so you don't want to be glib about it. And we can afford to take care of those people. And we've got some systems that work reasonably well, but there's a tension between — you know, what about the person that doesn't do anything and all that kind of stuff. So, these are not easy problems to solve.

But I would say that, by and large, we want the whole world to prosper, we do not want the United States to be a country of extraordinary prosperity, and have the rest of the world —

CHARLIE MUNGER: — starving.

WARREN BUFFETT: No. It isn't going to work. And it particularly isn't going to work in a nuclear world. So — and you can have your own feelings about it as a humane person, but it can be done better. And we've got the resources to do it. I mean, the output of this country, one, can be done with a lot fewer people, and doing more specialized things.

And, of course, it has been. The workweek in the United States, you know, in my lifetime, has dropped dramatically. And people still feel busy. And it will be the human lot to say, you know, "How can I get all these things done?" But my mother didn't drive three kids anyplace, I mean, if you wanted to go anyplace, if you were lucky and you got old enough, you had a bicycle.

And the world just keeps looking at everything moving up as becoming sort of a base that leaves them somewhat dissatisfied. And with our prosperity, we can do a lot of things we couldn't do in 1930, including taking care of people that got displaced by the fact that somebody else can do that work and improve their lot in life.

And we've got to make sure that we have the best system that takes care of the people who get displaced by that. But doing that in the political system we have and everything, we'll make a lot of mistakes along the way. But we've got to keep moving in that direction. And I'd say —

CHARLIE MUNGER: The really interesting thing about it is that Adam Smith was right: that free market capitalism automatically leaves a property in private hands. And free trade and all that automatically creates GDP per capita that grows and helps everybody, including the people at the bottom: helps everybody a lot.

But inherent in the process, there's a lot of pain in that free market capitalism: for instance, for the Portuguese workers in a textile company in New Bedford. And nobody's ever figured out how to take all the pain out of it. We do have government safety nets that take some of the pain out, and we make those safety nets a little bigger as time goes by.

But, apart from that, if you try and take all the pain out, you'll also take all the gains out of it. We won't have a growing GDP per capita. You'll have an economy like Russia's, which has been characterized as saying: "They pretend to pay us, and we pretend to work." (LAUGHTER)

WARREN BUFFETT: Yeah. The other systems haven't worked better, but it also produces more and more disparities in wealth. And people that do nothing but get assets under management without actually performing anything extra make fortunes. And, I mean, it's a job of government to keep the best aspects of capitalism, while not causing people that only speak Portuguese to suffer in the process.

I mean, the two aren't compatible politically over time. And we stumble along making progress on things like Social Security and all that. And we are a lot better off than we are when I was born.

CHARLIE MUNGER: Net, the United States has done a very good job of this tension between capitalistic growth and a growing social safety net. We can be pretty proud of our country, looking backward.

WARREN BUFFETT: Yeah. That may be why we have 25% of the world's GDP starting with a half-a-percent of the population and did it in a few centuries. I mean, it's a miracle. And it wasn't because we're smarter, but we've got to say there must be something to the system that's worked pretty well even though it's produced a civil war and all kinds of things, you know?

And women, you know, not getting a shot at anything, you know, even after they passed the 19th Amendment. But it's a work in progress. I think actually there's been progress, but it's mankind's nature to see the things wrong with it if you —

CHARLIE MUNGER: It's even worse: It's man's nature to take the progress as a right. Not something to be earned or strive for, but something that should automatically just flow in over the transom. And that attitude is poison. It doesn't do anybody any good.

WARREN BUFFETT: OK. Now ask us an easy question, Becky. (LAUGH) (APPLAUSE)

BECKY QUICK: This question comes from Doug DeShiel (PH). "Since the accounting rules changed requiring Berkshire to report the change in fair value of its equity investments through the income statement, Mr. Buffett has repeatedly told shareholders to ignore those changes as they're not reflective of the long-term returns that those investments will produce.

"Recently, Mr. Buffett has argued that hold-to-maturity accounting used by the banks to avoid reflecting the changes in fair value of bank investment portfolios in the income statement and the shareholder equity account do a disservice to its various stakeholders. Can Mr. Buffett elaborate on why he views mark-to-market accounting differently for banks in comparison to Berkshire?"

WARREN BUFFETT: Well, I believe, in both cases, in doing it on the balance sheet and not in the income statement. And it's a very tough problem the auditors face is that obviously the income statement feeds into the balance sheet. But the balance sheet tells you whether deposits can be paid, it tells you a lot of things.

And we show it on our balance sheet. We believe in showing market values on our balance sheet. We just don't believe in running it through the income account. And in getting there we would put in "other comprehensive income," like it was for a long time.

So, I sympathize, to some extent — a far extent, with the audit group. But they have to really decide whether they want the balance sheet to represent values — except it doesn't reflect them on the upside if we buy a See's Candy and it's worth way more money, so it's conservative in that sense; or whether they want to have an income account that becomes meaningless to people. Because it really changes every five seconds, you know?

I mean — well, the market's closed today, but, you know, I guess Apple was up, what, seven or eight points or something on Friday. I mean, that's $7 billion: I mean, that's a crazy income account. It is a reflection of where we stand at that point.

And, of course, if you're a bank, where you're putting out money really at things — mortgages, I mean, primarily, that are terrible instruments for a bank to own, but a great instrument for a consumer to buy; and built-in to the whole society now in a way that is entirely different than in the past, you've got to pay attention to whether they've gotten out of whack in terms of the value of what they own and what can be demanded of them tomorrow morning. (LAUGH)

And if we had all of our money that could be demanded from us tomorrow morning, we'd have to behave a lot differently than Berkshire does. So, I really think the way to do it is the way we recommend doing. Which is exactly what was being done until a few years ago. I recommend the shareholders look at it that way, but we're going to follow the rules, obviously that the SEC, you know, the state authorities and everybody require of us.

But I'll still explain to the shareholders exactly what I would explain to my sister about what really counts at Berkshire. And I think every management actually has an obligation to that, and instead of it, they go in the other direction and give them a lot of figures that are total nonsense.

You can't imagine some of the — you know, EBITDA, I thought, was about as bad as you could get. But they've kept going. You know, earnings before everything: EBE. (LAUGHTER) But that doesn't change what I would tell my sister, who's here in the audience, I hope. And I should tell this to all the shareholders: "We'll consistently do what is legal, and we'll consistently say what we think is right." Charlie?

CHARLIE MUNGER: Yeah. (APPLAUSE)

WARREN BUFFETT: We want owners who understand what they own. You know? That doesn't mean they have to understand the detail of it. But that's why we have people that have been around 50 or 60 years. That doesn't mean that they read the 10-Qs or anything like that. But they feel we're telling it to them like, you know, they lived next door to us.

CHARLIE MUNGER: Yeah, I don't know what the accountants were thinking when they made that change. It strikes me as bonkers, absolutely bonkers. I don't see how anybody who understands how businesses really operated, and should be operated by owning managers, would have made that accounting change. The accountants did it just because they had a wild moment.

WARREN BUFFETT: Twenty-five years ago, I suggested to the audit profession that the audit committee ask auditors four questions, and the shareholders would know a lot more about the company if those questions were asked. But it wasn't good for the auditors to be asked those questions because it might increase their liability if they answered them. And the client didn't want them to answer them because the management didn't want them to.

CHARLIE MUNGER: No, they want a system where, if they follow certain rules, they're safe. And that's understandable. But I don't think the past year, this rule requiring changes in marketable securities to go through the income account quarterly, they didn't do that to protect themselves from —

WARREN BUFFETT: No.

CHARLIE MUNGER: — liability. They just did that for some crazy reason of their own.

WARREN BUFFETT: Yeah.

CHARLIE MUNGER: You get a bunch of people who will all be drawing a lot of pay out of a big, complicated system, and rising in it like so many of our officers in the Army, God knows what they'll do if you put them in a little room by themselves and tell them to invent new accounting standards.

WARREN BUFFETT: Well, to our auditor, remember that's Charlie talking, and he doesn't really — (LAUGHTER)

But I agree with him, (LAUGH) 100%. He's 99, he can get away with more than I can get away with. (LAUGHTER)

OK. Station two —

But what he said is enormously important. I mean, you've got to have some insights into what the hell really goes on.

CHARLIE MUNGER: Even if you're (inaudible) accountant.

WARREN BUFFETT: Yeah.

WARREN BUFFETT: OK, Station two.

AUDIENCE MEMBER: Dear Warren, dear Charlie. My name is Victoria Winthrop, I am 22 years old, and I study in Munich at the CDTM, the Center of Digital Technology and Management.

As your grandchildren are more in my age group, let me ask you: How do you transfer your wisdom to your grandchildren and heirs? How do you lead them to investing? Do you see value in investing as a family, or individually? Thank you.

WARREN BUFFETT: I'm going to let Charlie do the answer now. He's got more —

CHARLIE MUNGER: Well, I have more grandchildren. But (LAUGH) I am quite philosophical about my grandchildren not thinking exactly the way I do.

It seems to me that's almost the natural course of life. And I just live my life my own way, and they can observe it as an example if they want to. And if they don't, they can try some other way.

I don't like it when they try some other way. (LAUGHTER)

And I have to pretend that I like some of the boyfriends and girlfriends I don't like, (LAUGHTER) but I just struggle through like everybody else. (LAUGHTER)

And usually, I just bite my tongue and keep silent. That's my way of handling it.

WARREN BUFFETT: Well, I would say that I think, in my case, my three children have grown a lot smarter in the last 30 years, and I think I've grown smarter. (LAUGH) And —

CHARLIE MUNGER: Well, I know, but you needed a lot of help.

WARREN BUFFETT: That is for sure — (LAUGHTER) no, I would totally acknowledge that. That's why I have the room to grow. I mean, I have plenty of room for improvement. But —

CHARLIE MUNGER: We all had a lot to grow. I worked a year for US Steel, which was in their fabrication department in Los Angeles, a big operation. The thing was utterly doomed, and three years later it went back to greenfields. The whole thing was razed to the ground.

I did not see it coming. Now, to be that ignorant as I was at that age, it was a sin. And my professors by and large were even more ignorant than I was. Nobody had observed the basic economics of business in a scientific way at all when I was young.

WARREN BUFFETT: Well, if we're getting into confession time, I have to tell you: It's 3:30. So, (LAUGH) we don't want to keep going on: Who knows what we'll be saying in another half-hour. So, (LAUGHTER) I thank you all very much for coming. At 4:30 we will have the shareholders meeting here.