Berkshire Hathaway 2002 Annual Shareholders Meeting

Warren Buffett opens the 2002 annual meeting with formal procedures including director elections. A shareholder proposal is presented requesting Berkshire to refrain from charitable contributions, particularly those related to population control and Planned Parenthood. The proposal sparks debate about shareholder value and controversial activities.

Buffett discusses GEICO's strong performance in Q1 2002, highlighting significant underwriting profits and growth. He explains that while inquiry volume hasn't increased much, closure rates and retention rates have improved substantially, leading to decent growth across all insurance categories (preferred, standard, and non-standard classes).

Buffett addresses why Berkshire sold McDonald's and Disney despite his philosophy of holding stocks forever. He explains that sales occur when they re-evaluate a company's competitive advantage, not necessarily because the company is failing. He discusses how franchises like newspapers and TV networks have eroded since the 1970s.

A shareholder asks about the characteristics of Berkshire's non-GEICO insurance businesses that should give confidence in replacing and growing float at reasonable costs. Buffett discusses how existing float runs off annually and must be replaced through operations, then exceeded for growth.

Buffett reflects on being 71 and never having more fun than he's having running Berkshire. He notes that unlike many professions limited by age, the investment business allows them to continue effectively as long as they can communicate. He emphasizes it's a very easy business to conduct throughout one's life.

Buffett explains the Fruit of the Loom acquisition from bankruptcy, emphasizing it was troubled due to excessive debt ($1.2 billion) and operational problems, not fundamental business weakness. He made the offer contingent on John Holland being available to run the business, highlighting management's critical importance. The company has 40-45% market share in men's and boys' underwear.

Charlie Munger recommends two books sent to him by Berkshire shareholders: 'Ice Age' about glaciation history (calling it the best book of scientific explanation he's ever read) and a book about how the Scots helped create the modern world. Buffett recommends Bob Miles' book about Berkshire managers.

Buffett and Munger criticize common stock option practices, particularly for older CEOs with substantial existing holdings. They note the irony that General Re option holders made more money during a period when General Re decreased Berkshire's value. Munger calls it 'demented' and 'immoral' to grant large options to preserve loyalty of wealthy older executives.

Munger and Buffett discuss how the tort system makes certain businesses unwise for wealthy corporations to enter. They share examples including inventing a better policeman's helmet and providing airport security guards. Berkshire's deep pockets would make them vulnerable to massive lawsuits while judgment-proof competitors face no such risk.

Buffett provides an update on the Finova bankruptcy deal where Berkshire guaranteed a $5.6 billion loan to enable creditor payouts. The loan has been reduced to $3.2 billion through repayments. September 11th significantly impacted the aircraft portfolio and resort properties, reducing expected returns, though Berkshire will still make significant money overall.

Buffett discusses the challenge of selecting leaders and investment managers, using his experience picking a Salomon CEO in three hours as an example. He explains it's difficult to quantify the selection process - it involves body language, character assessment, and intuition. Munger adds that multiple factors cause success, and great strength in one area can compensate for weakness in another.

A shareholder from Minnesota asks about opening a See's Candies location at Mall of America. Buffett explains that See's is the only company making money with boxed chocolates through retail outlets in the US, but they haven't successfully expanded beyond the West. Americans only buy one pound per capita annually of boxed chocolate, making it a very tough business where hundreds of firms have failed.