Berkshire Hathaway Annual Meeting 2004-2005 Documentary - Buffett & Munger on Investment, Business & Economy

The setting: 'This is the Berkshire Hathaway annual meeting. 20,000 people come from all over the world to Omaha Nebraska for a weekend of fun, shopping and to see their hero in person.' Fun element: Opening with 'Warrinator' movie parody - 'A biogenic being who can travel back in time and stop the strategic alliance (Microsoft, Walmart, Starbucks merger) from ever taking place.' Buffett on format: 'The nice thing about taking unfiltered questions is you find out. The press is naturally on governance issues but in the end we'll end up talking about what shareholders want to talk about. It is a kind of weather vein of where they are in terms of their concerns.' Scale: 'We'll get 50 or 60 questions by the end of by 3:30 this afternoon. Interestingly enough every question almost comes from somebody outside of Omaha - the Omaha people seem to defer to the out of towners.' Buffett and Munger on stage answering questions for more than four hours. Munger humor: 'We work together, we really don't have any choice because he can hear and I can see.'

Real ownership: 'We have real owners on our board and what they make for being board members is really inconsequential, as I get reminded occasionally, compared to their investment and they're friends of mine.' Board quality: 'They're smart, they're very smart. They are hand-picked in terms of business brain power and quality of human being. I really think we have the best board in the country.' Checklist criticism: 'The people that want to make their evaluations by checklists - whether in terms of diversity or in terms of supposed independence although I don't know how anybody that's getting half their income from board memberships can be independent - we may not stack up so well but it's the kind of board that I want to have.' Director story: 'We will have one of our directors who's been removed twice from compensation committees of other corporations because he had the temerity to actually question whether the compensation arrangement being suggested was the appropriate one.' Chihuahua comment: 'Being put on the comp committee of American corporations - they're looking for Chihuahuas and not Great Danes and Dobermans. I hope I'm not insulting any of my friends that are on comp committees.' Munger: 'You're insulting the dogs.' Lau Root standard: 'Lau Root who had three different cabinet appointments said no man was fit to hold public office who wasn't perfectly willing to leave it at any time. He had an identity to go back to and he didn't need the government's salary. I think that ought to be more the test in corporate directorships - is a man really fit to make tough calls who isn't perfectly willing to leave the office at any time.' Munger: 'My answer is no.'

Buffett's view: 'The degree to which the administration or other people are worrying about the deficit in Social Security 25 years out when they have a 500 billion dollar deficit excluding the Social Security surplus now - it strikes me as nonsense. Here we are deploring something that's going to happen in 20 years that's a fraction of what is happening right now while they're cheering. Charlie what do you say?' Munger: 'Well that's the view from Berkshire's Democratic Chairman. And the odd part of Berkshire on this issue is that the right wing Republican who is speaking feels more strongly than Warren that the Republicans are out of their cotton-picking minds to be taking on this issue right now.' Annual meeting uniqueness: 'Remember that the annual meeting of virtue as it has evolved is without any close precedent in the history of the world. No capitalist enterprise had ever had an annual shareholders meeting anything like the one we have. We just morphed by accident into this enormous event that everybody loves.'

Partnership praise: 'Charlie is the best partner a guy could have. Charlie is in Los Angeles, I'm in Omaha and Charlie has got multiple other interests but anytime on anything important that I want to have the world's best brain working on - and he usually gets the answer in about 15 seconds - I can pick him up and talk to him.' Understanding: 'He understands everything about me, understands everything about Berkshire. He doesn't spend all day thinking about it like I do - he's got plenty of other things he does - but when he's needed he's there and he's right.'

1956 return from New York: 'It was kind of disgustingly low. I didn't know what I was going to do. I had about $150,000 at that time and I felt if I earned 10 percent on that'd be $15,000 a year and I could live big on that at the time.' Interests: 'I was interested in reading and taking courses at the university. I took my father-in-law's course in psychology and I thought if I go to law school I knew there were a whole bunch of subjects I wanted to read about.' Partnership formation: 'Then I sort of stumbled into this partnership a few months later because seven members of the family said we want you to handle our investments and I didn't want to do it one at a time or tell them what I was doing. So I put the seven together in a partnership that had $105,100 in it - you can guess who the hundred dollars was.' Growth: 'A few months later a fellow named Homer Dodge who had been a stockholder at Graham Newman came out, saw me in Omaha and he said Graham Newman was liquidating and he'd asked Ben where to put his money and Ben said maybe Warren would be a good choice. So he joined me for I think about $100,000 at the time. Then four months later some fellow in Omaha that read the legal notice, a friend of mine, called me up said what are you doing and I told him and he did it. So I just kind of stumbled along. All of a sudden you have a partnership and you're making money.' Textile mistake: 'The partnership did well and part of the partnership was buying what looked like cheap stocks. Berkshire Hathaway looked like a cheap stock. It wasn't a very - it was a terrible business.'

Initial confidence: 'I started out by thinking I was a textile expert but I was just abused of that notion fairly fast. I thought well what do these guys know about making textiles - they've only been doing it a few hundred years. The Egyptians I think figured out how to weave. But I've been in Omaha for a while - that's right, I know a lot of that. Just turn me loose at the plant and see what happens.' Reality check: 'Anyway what happened was right at that period the textile business was good for a very short period of time. So I was like a duck floating on a pond when it was raining. I was going up in the world but I thought it was because I was flapping my wings but it was that damn rain that was coming down. And then when it quit raining I found out what do I know, right. And then we went into other businesses.'

1967 acquisition: 'When Jack Ringwalt decided to sell his insurance companies in early 67, we paid $8.7 million - I think $8.4 million I guess it was. We had in Berkshire maybe four or five million around, maybe we borrowed a few million. So that was your first entry into the insurance company.' Attraction: 'It does control money and if you've got somebody that's doing a decent job on the insurance and in underwriting it gives you money to invest on my end.' Impact: 'How much of your revenue comes from the insurance business? A lot comes from insurance and then we have a lot of money that's generated by insurance. So insurance has propelled our growth, there's no question about that because it gave you money. It gave us the money to both invest in marketable securities and also money to buy businesses outright.' Scale today: 'Berkshire Hathaway is now $140 billion company.'

Partnership days difference: 'If I was running the partnership like I did back in the 60s I definitely should have sold those stocks. They - stocks went crazy. But you do not today look back and say I should have sold Coca-Cola when the bubble was there because it just it wasn't me.' Awareness: 'I knew it was selling at a very fancy price and I even wrote about it and same way with Gillette. But I don't do that very often. I'm not saying I wouldn't ever do it. If we went into the wildest speculative orgy in history and some of these things went crazy maybe I would sell some but it's not mine - it goes against the grain for one thing.' Hold strategy: 'But wonderful businesses are not that common and if you get a big position in a wonderful business, not a bad thing.'

Best investment question: 'GEICO three times in my life has been a good investment.' First time: 'It was a good investment when I was really 20 years of age and when I bought - I put three quarters of my net worth in GEICO when my net worth was like $10,000 and that caused my net worth probably to double or something like that and that was great at the time.' Second time: 'In 1976 the company got in trouble and what we bought - what turned out to be half of the company - for like $40 million dollars.' Third time: 'Then in 1995 or so we bought the other half for $2 billion. And that was a good deal. So it's been a triple play.'

$40B cash dilemma: 'You're sitting with more than 40 billion dollars essentially in cash. You could buy some big businesses I would assume for 40 billion but you don't see any at a price that you want to own. That's right. And when I look at the deals that have been made in the last year there's not one I'm envious of. So it isn't like we missed them. There's nothing that I feel gee I wish I bought that last year. But I hope I buy one tomorrow.' GM analysis: 'General Motors is selling for about 15 billion dollars now. There's 500 million shares at 28 or 29 something like that. The whole General Motors is 15 billion and of course that was the most powerful company in the world back when I was a kid.' Why not GM: 'I think it's too tough to figure. It is a company that sells 25% of all the vehicles in the United States and 1/7 of all the vehicles in the world. Employs hundreds of thousands of people but it's got some terrible obligations.' Problem: 'They really entered into contracts with the UAW and they were based on the economics of market dominance and they don't have market dominance anymore but they still got the contracts. I don't blame the UAW - it was a free will negotiation - but they signed up. I think they're paying like 2.5 people that don't work for every person that works or something like that in terms of retirement and health care. That gets to be crushing if you're competing with people that don't have the same obligations.' Description: 'General Motors is a huge annuity and health insurance company with a major auto company attached and unfortunately the huge annuity and health company has got a terrible bunch of contracts out. It is worth some big minus number and the question is whether the auto company is worth a big enough plus number to offset that big minus number. But you can't separate the two and you can't figure it out.' Conclusion: 'I don't know whether you can exist with the kind of obligations they've got in 25% of the market and very tough people like Toyota and all kinds of people coming at them who don't have those costs - they call them legacy costs.'

The dilemma: 'You got 40 billion dollars in cash and you've gotten so big that you've got to make a big play, right? That's your problem. That's my problem. And I thought it was a problem when we were a lot smaller and it wasn't but it's a bigger problem now.' Looking ahead: 'So what happens? If I'm lucky it'll be an even bigger problem five years from now.' How it plays out: 'The odds are good that one way or another we will find reasonably intelligent things to do with most of the money but they won't be as intelligent as the things that we could find 30 or 40 years ago with much smaller amounts of money. Nowhere close. It just can't - it won't happen.' The test: 'What's the test? What test does it have to meet? It has to be a business I understand. It has to be a company that I think has some kind of enduring competitive advantage.'

Trade deficit priority: 'When you think about the dollar I think the dollar over time will go down because I think we're following policies that in connection with trade will cause the dollar - I don't know whether it'll be in six months, six years, ten years - but the policies we're following as a country will cause the dollar in my view to decline. Primarily our trade deficit.' Mechanics: 'The flip side of our trade deficit is when we consume more than we produce we have to trade the rest of the world something for that and we give them our assets. We get IOUs of the government, we give them dollars initially and then they can convert those into other assets in this country. So we're trading away assets in order to over consume.' Farm analogy: 'As you said to me earlier we're giving away pieces of the farm. Yeah we'll give away pieces of the farm. We want to consume more than we produce and so we trade away a little bit of the farm. And we've got such a big farm - this is one prosperous country - but we can trade away. We don't see it day by day but it adds up and it has consequences.' Severity comparison: 'More severe to you than the fiscal deficit? That's true. Fiscal - our national debt in relation to GDP is not extraordinary. We've had plenty of times in the past when it's been higher particularly after World War II. And I don't like it when it keeps going up as a percentage of GDP but a very rich country can stand more debt than a poorer country and we can handle a lot more debt than in the past. Now as that debt gets to be more and more owned by the rest of the world because of the trade deficit it can cause problems down the line. But if you ask me whether I'd rather cure one or the other I would rather cure the trade deficit.'