Berkshire Hathaway 2018 Annual Shareholder Meeting

Buffett discusses Berkshire's record Q1 2018 operating earnings and explains his strong criticism of new accounting rules requiring unrealized gains and losses on securities to flow through the income statement. He argues this makes bottom-line earnings useless for analytical purposes.

Warren shares his first stock purchase story from March 1942 during World War II. He bought three shares of Cities Service preferred stock at $38 when headlines were filled with bad news from the Pacific. The story illustrates his philosophy that investing during fearful times and holding for the long term creates wealth.

Discussion of how Berkshire's reputation as a permanent home for companies will survive beyond Warren and Charlie. Buffett explains that the reputation belongs to Berkshire now, not to him personally, and will continue to attract sellers who care about the long-term future of their businesses.

Warren discusses his estimate of a 2% probability of a $400 billion super catastrophe and confirms that cyber risk is included in that calculation, not just natural disasters like earthquakes.

Extended debate with accounting professional Jack Ciesielski about whether unrealized gains/losses should run through the income statement. Buffett argues it would be enormously deceptive and confusing to investors, while Charlie dismisses the new rule bluntly.

Discussion of deteriorating margins at McLane Company, Berkshire's grocery and convenience store distribution business. Buffett explains that margins have been squeezed from already thin levels of about one cent on the dollar pre-tax.

Warren addresses questions about what Berkshire would do if cash hits $150 billion. He expresses preference for share repurchases over special dividends, but only when shares trade below intrinsic value. Notes that B-shareholders voted 47-1 against dividends in a previous vote.

Question from China about how Warren would invest $1 billion. He explains he'd likely find opportunities in the $30 trillion US market where he has better understanding, but shares story of buying Korean stocks 15 years ago when managing smaller amounts.

Discussion of how economic moats can be breached by technology and innovation. Buffett emphasizes that being the low-cost producer, like GEICO in insurance, remains a powerful moat. Charlie and Warren joke that Elon Musk wouldn't want to take them on in candy.

Extended discussion about Berkshire Energy's future capital needs as renewable energy tax credits phase out. Buffett expects continued large capital deployment opportunities in grid improvements and utility infrastructure for decades to come.

Buffett explains his large Apple investment and why he supports their massive share buyback program. He notes that as Apple buys back shares, Berkshire's 5% ownership will grow to 6-7% without deploying additional capital. Emphasizes that companies should only buy back shares when trading below intrinsic value.

Buffett delivers scathing critique of cryptocurrencies, calling them non-productive assets that will come to a bad ending. He compares them to tulip mania and explains that real investments produce value themselves, like farms producing crops. Charlie's response is even harsher, calling it 'dementia' and comparing trading them to 'trading turds.'

Discussion about where the benefits of the corporate tax rate cut will ultimately flow - to shareholders or consumers. The consensus view is that benefits get competed away to consumers over time, though some may stick to shareholders in businesses with strong competitive positions.

Technical discussion of Berkshire's $10.2 billion retroactive reinsurance agreement with AIG covering pre-2016 losses. Buffett explains the structure where AIG pays the first $25 billion, then Berkshire pays 80% of the next $25 billion, and discusses whether the cost of float will be lower than borrowing costs.

Buffett tells the story of how American Express entered the credit card business after Diners Club and chose to charge MORE than the established competitor. The American Express card with the centurion became a status symbol, while Diners Club looked like you were kiting checks. Illustrates the power of brand perception and premium positioning.

Charlie and Warren dismiss the idea that machine intelligence will revolutionize capital allocation and investing. Charlie calls it 'immunity fee earning twaddle' and suggests there's more hype than probable achievement. They emphasize the importance of human judgment and general ideas over formulas.