Berkshire Hathaway Annual Meeting 2006 - Full Q&A with Buffett & Munger

Classic opening: 'Morning. I'm Warren, he's Charlie. We work together. We really don't have any choice because he can hear and I can see.' Andy Hayward cartoons: 'That cartoon was done by Andy Hayward who has done them now for a number of years. He writes them, he goes around the country and gets voices dubbed in. It's a labor of love - we don't pay him a dime. He comes up with the ideas every year, he's just a terrific guy. He's unable to be here today because his daughter's having a bat mitzvah.' Liberty's Kids: 'He did something a few years ago called Liberty's Kids and if you have a child or grandchild that wants to learn American history around the time of the revolution it's a magnificent series. I think it's maybe as many as 40 or so half-hour segments. It's appeared on public broadcasting, it will be appearing again. You can get it in video form. I've watched a number of segments myself - it's a wonderful way to get American history.' Charlie upset: 'The only flaw in it is that the part of Ben Franklin is handled by Walter Cronkite and Charlie is thinking of suing. A little upsetting when Charlie is available.' Poor Charlie's Almanac: 'Incidentally we have Poor Charlie's Almanac on next door in the exhibition hall and it's an absolutely terrific book that Peter Kaufman has put together and I think it's going to be a seller, a huge seller long after most books have been forgotten. It's Charlie at his best and Charlie's at his best most of the time but it's a real gem.'

Dinner story: 'We have a dinner at Gorat's the day after the meeting and we were in having dinner - the whole family was there, the place was packed. And it started raining cats and dogs. And a waitress came to me - we were eating - waitress said I've got to tell you, she said that it's raining like crazy outside and there's a long line and Michael Eisner is standing out there getting soaked.' Request to daughter: 'So I turned to Susie and Michael and Jane are friends of mine, good friends. And I said to Susie why don't you go out there and help them out before they get drenched.' Susie's response: 'And she looked at me and said: I've waited in line at Disneyland.' Audience reaction: 'That seems to strike a responsive chord.'

Howard Marks example: 'Some investment operations are very ethical in this regard. I think Howard Marks is here today. He sent a lot of money back and stops listing money from his clients in certain activities where the opportunities went away. That's the right way to behave but it's not normal.' Similar positions: 'Those actually are Howard's figures for one of his funds and like I say we were doing similar things. We didn't know it at the time but we find out we had some similar positions later on.' Reinsurance story: 'About five or six years ago when the terms of these deals were somewhat different I actually had a fellow call me whose name most of you would recognize. He started asking me questions about the reinsurance business because he was thinking about buying a given company which got sold. And he didn't really know much about the business but unless he spent these X dollars he was going to have to give it back to his investors in a few months because the term of the initial signup period expired at that point and any unexpended funds were to be returned.' Fee structure problem: 'And he was going to get 2% a year on those funds regardless of how they did. So he was looking at businesses that he didn't understand with the hope that he could place the money.' Berkshire difference: 'Charlie and I are at disadvantage in buying businesses because we have almost all of our net worth in the downside as well as the upside. So if we had a 2% fee and 20% of the profits and goodbye kiss for the losses - that's a different equation that exists at Berkshire. We run it as if it's 100% our money which it is close to 100% of our net worth and we will own the downside and we don't get paid for spending the money, we get paid for making money.' Current environment: 'Competing right now is tough and likely to be relatively futile although we have one or two things that could happen that could involve the expenditure of real money. I don't think any of the businesses that have sold to us over the years which are run by the kind of people we like being associated with would have wanted to sell to a hedge fund. So there is a class of assets out there that doesn't want to deal with hedge funds or private equity funds. Thank god.' Munger: 'Yeah we've seen no deal anybody else's made the last year that we wish we had made. Now that was not the case 15 or 20 years ago - there used to be plenty of deals made with other people that we would have liked to have made if they'd come to us. But I have seen nothing that if it sold for 10% less than the advertised price that we would have had any interest in buying. So we are in a different world right now.'

Getting started: 'I got interested probably when I was maybe seven or thereabouts. I wasted my time before that. A little like WC Fields when he inherited some money - somebody asked him what he did with it and he said he spent half of it on whiskey and the rest he wasted. So there I was dawdling around.' Dad's influence: 'I got in - my dad was in the business so I would go down to his office and I would see these interesting books and I would read them. I would go down - he was on the fourth floor of what's now known as the Omaha Building at 17th and Farnam and on the second floor was Harris Upham company and they had a board and I would go down there. The market was open on Saturdays in those days for two hours so I could go down on Saturday and I saw these interesting things going across the tape.' Voracious reading: 'And I just read a lot. I took probably every book in the Omaha Public Library that they had on investing or the stock market. Basically I was very interested in New York Stock Exchange. I thought maybe I'd want to become a specialist when I grew up and maybe I still will. But I took all the books out, I read them and finally when I was 11 I bought three shares of stock.' Library expansion: 'I didn't know - I was fascinated by the subject. My dad got elected to Congress so now the library became even bigger and I took all the books I could out of there on markets and I used to chart and do all that sort of thing. And then finally I read Graham's book when I was at the University of Nebraska, The Intelligent Investor when I was 19 and that just changed my whole framework.' Advice: 'The advice I would give is to read everything in sight and to start very young. It's a huge advantage in almost any field to start young. And if that's where your interest lies and you start young and you read a lot you're going to do well.' No secrets: 'There are no secrets in this business that only the priesthood knows. We do not go into temples and look at tablets that are only available to those who have passed earlier tests or anything. It's all out there in black and white. It's a simple business.' Temperament key: 'It requires qualities of temperament way more than it requires qualities of intellect. If you've got more than 125 IQ you can throw away the rest of the points or give them to your other members of the family or do something because you don't need it in investing. But you do need a certain temperament that enables you to think for yourself and then you have to develop a framework and I developed it from reading Ben Graham - I didn't come up with it myself.'

Current UK presence: 'We own of course as you know 80% or so of Mid-American Energy which has a very large business in the UK but that's an operating business as you know.' Reporting problem: 'In the UK there's a rule that requires reporting when you own 3% of a company's stock and actually there's some conditions under which the ownership will be reported even sooner than that 3%. There's a provision that I think if there's an inquiry or anything that has to be responded to. So if you take a company with a market cap of £5 billion, if we bought £150 million of it we would have to report and that tends to mess up subsequent purchases.' Past investments: 'We bought stock, we own stock in Diageo which was Guinness at the time. We've owned stock in some other UK companies but we've thought twice before going over 3% because of the reporting requirements and then we'd have to report if we were selling and all that. So that's a deterrent but it's not an overwhelming deterrent.' Criteria same: 'We would feel very comfortable with lots of UK businesses. They'd have to be - it'd be the same criteria we applied over here: a durable competitive advantage and management that we like and trust and a reasonable price.' Insurance example: 'We have seen some of those. There was an insurance company in the UK a year or so back that I would very much have liked to have bought but we couldn't come to terms on price. But we have no bias whatsoever against buying business in the UK.' Yorkshire and Northern Electric: 'At Yorkshire and Northern Electric we have a business that shows in our report made close to $300 million after tax. And actually considering my views on currency, I would give a slight edge to buying something where the earnings would be in sterling in the future rather than in dollars.' Munger on currencies: 'Well I regard it as kind of amusing that we ended up preferring the currencies of Europe when that's so much more socialized than the United States is. That's a queer occurrence. Over a considerable period of recent months we've actually preferred the currencies of socialized Europe to our own currency. I just regard that as an odd occurrence for both of us - that wouldn't have happened.' Buffett's change: 'Up till three years ago if I came back from Europe and I had a euro in my pocket I couldn't wait to run to the bank or someplace. I was afraid it would depreciate before I could get rid of it. But I changed my views a few years ago.'