Berkshire Hathaway 1998 Annual Meeting Transcript

Transcript of the 1998 Berkshire Hathaway Annual Meeting held on May 4, 1998 on Omaha, Nebraska:

(Click here to skip to the Q&A section)

(To see the full transcripts of all Berkshire Hathaway Annual Meetings on record, click here)

Meeting Start – Introduction and Warren explains how the meeting will proceed

Warren Buffett:

Morning. Morning. I’m Warren Buffett, chairman of Berkshire, and… this is my partner. This hyperactive fellow over here is Charlie Munger.

And we’ll do this as we’ve done in the past, following the Saddam Hussein school of management, we’re going to go through the business meeting in a hurry, and then we’re going to do questions.

And we’ll do those until 3:30, with a break at noon, when we’ll take off for 30 minutes or so while you can grab lunch. And those of you… there’s… we’re operating in an overflow room as well… so those of you who are in the overflow room now can join the main floor after the noon break, because we’ll have plenty of room then.

We’ll go until 3:30. We’ll try to get to all the questions we can. We’ve got 11 zones, ten of them in this room, and we’ll just make our way around them. I’ve got a little map here, which I’ll get oriented on here in a second. And let’s see.

And I think we’ll get through the business meeting now. Incidentally, I don’t see that movie before it’s shown, but that was one of our directors singing at that final session there.

We keep costs down at Berkshire.

Introduction of Berkshire’s Board of Directors

Warren Buffett:

OK, the meeting will now come to order. I’m Warren Buffett, chairman of the board of directors of the company and I welcome you to this 1998 annual meeting of shareholders.

I will first introduce the Berkshire Hathaway directors that are present in addition to myself.

So we have… and I can’t see very well with the lights here, but if you’ll stand as I name you.

Susan T. Buffett, the vocalist.

Howard G. Buffett, the non-vocalist.

Malcolm G. Chace.

Charlie, you’ve met. And Ron Olson.

And Walter Scott Junior.

Also with us today are partners in the firm of Deloitte and Touche, our auditors. They are available to respond to appropriate questions you might have concerning their firm’s audit of the accounts of Berkshire.

Mr. Forrest Krutter is secretary of Berkshire. He will make a written record of the proceedings.

Miss Becki Amick has been appointed inspect of elections at this meeting. She will certify to the count of votes cast in the election for directors.

The named proxy owners for this meeting are Walter Scott Junior and Marc D. Hamburg. Proxy cards have been returned through last Friday, representing 1,039,276 Class A Berkshire shares, and 1,080,509 Class B Berkshire shares to be voted by the proxy holders as indicated on the cards.

The number of shares represents a quorum and we will therefore directly proceed with the meeting.

We will conduct the business of the meeting and then adjourn the formal meeting. After that, we will entertain questions that you might have.

Minutes of the Last Meeting of Shareholders and Quorum

Warren Buffett:

First order of business will be a reading of the minutes of the last meeting of shareholders. I recognize Mr. Walter Scott Jr., who will place a motion before the meeting.

Walter Scott Jr.:

I move the minutes… the reading… reading of the minutes of the last stockholders meeting be dispensed with.

Warren Buffett:

Do I hear a second?

A lot of seconds. The motion has been moved and seconded. Are there any comments or questions? We will vote on this motion by voice vote. All those in favor say aye.

Audience:

Aye.

Warren Buffett:

Opposed? Motion’s carried.

Does the secretary… have a report of the number of Berkshire shares outstanding, entitled to vote, and represented at the meeting?

Forrest Krutter:

Yes, I do. As indicated in the proxy statement that accompanied the notice of this meeting that was sent by first-class mail to all shareholders of record on March 6, 1998, the record date for this meeting, there were 1,199,680 shares of Class A Berkshire Hathaway common stock outstanding, with each share entitled to one vote on motions considered at this meeting.

And 1,245,081 shares of Class B Berkshire Hathaway common stock outstanding, with each share entitled to 1/200th of one vote on motions considered at the meeting.

Of that number, 1,039,276 Class A shares and 1,080,509 Class B shares are represented at this meeting by proxies returned through last Friday.

Warren Buffett:

Thank you, Forrest.

If a shareholder is present who wishes to withdraw a proxy previously sent in and vote in person on the election of directors, he or she may do so. Also, if any shareholder that is present has not turned in a proxy and desires a ballot in order to vote in person, you may do so.

If you wish to do this, please identify yourself to meeting officials in the aisles who will furnish a ballot to you. Those persons desiring ballots, please identify themselves so that we may distribute them.

Election of Berkshire’s Board of Directors

Warren Buffett:

The one item of business at this meeting is to elect directors. I now recognize Mr. Walter Scott Junior to place a motion before the meeting with respect to election of directors.

Walter Scott Junior:

I move that Warren E. Buffett, Susan T. Buffett, Howard G. Buffett, Malcolm G. Chace, Charles T. Munger, Ronald L. Olson, and Walter Scott Junior, be elected as directors.

Warren Buffett:

Is there a second? It’s been moved and seconded that Warren E. Buffett, Susan T. Buffett, Howard G. Buffett, Malcolm G. Chace, Charles T. Munger, Ronald L. Olson, and Walter Scott Junior be elected as directors.

Are there any other nominations? Is there any discussion? Nominations are ready to be acted upon.

If there are any shareholders voting in person, they should now mark their ballots on the election of directors and allow the ballots to be delivered to the inspector of elections.

Would the proxy holders please also submit to the inspector of elections a ballot on the election of directors, voting the proxies in accordance with the instructions they have received.

Miss Amick, when you are ready you may give your report.

Becki Amick:

My report is ready. The ballots of the proxy holder, in response to proxies that were received through last Friday, cast not less than 1,039,298 votes for each nominee. That number far exceeds the majority of the number of the total votes related to all Class A and Class B shares outstanding.

The certification required by Delaware law of the precise count of the votes, including the additional votes to be cast by the proxy holders in response to proxies delivered at this meeting, as well as those cast in person at this meeting, if any, will be given to the secretary to be placed with the minutes of this meeting.

Warren Buffett:

Thank you, Miss Amick.

Warren E. Buffett, Susan T. Buffett, Howard G. Buffett, Malcolm G. Chace, Charles T. Munger, Ronald L. Olson, and Walter Scott Junior have been elected as directors.

After adjournment of the business meeting, I will respond to questions that you may have that relate to the businesses of Berkshire that do not call for any action at this meeting.

Does anyone have any further business to come before this meeting before we adjourn?

End of Formal Business Meeting

Warren Buffett:

If not, I recognize Mr. Walter Scott Junior to place a motion before the meeting.

Walter Scott Junior:

I move this meeting be adjourned.

Warren Buffett:

Second?

Motion to adjourn has been made and seconded. We will vote by voice. Is there any discussion? If not, all in favor say aye?

Audience:

Aye.

Warren Buffett:

All opposed say I’m leaving. This meeting is adjourned.

Charlie and I may not get paid much, but we work fast on an hourly basis.

Q&A Guidelines

Warren Buffett:

Now, we’re going to do this by zones, and I think you can see who is manning each… yeah, I see we’ve got a number out there already.

And please ask just one question.

The only thing that I can think of that we won’t discuss is what we’re buying or selling or may be buying or selling, but we’ll be glad to talk about anything that’s on your mind. So let’s go right to zone 1 and start in.

Q&A – Morning Session

(Click on a link below to skip to a particular topic)

1. How to find companies that will grow their relative price-earnings ratios as well as their earnings.
2. Where to find a good mentor like Ben Graham.
3. Warren was asked if he would consider investing in Japan.
4. Warren and Charlie will only consider investing in companies they can understand.
5. Who Warren thinks is the “next Warren Buffett” within Berkshire.
6. When to sell a stock.
7. You have to make your decision on whether to invest in a company.
8. The insurance business is “by far” the most important business at Berkshire.
9. The effect the year 2000 compliance (Y2K) issue will have on the US stock market and global economy. (Note: click here for a detailed explanation of the Y2K issue)
10. Warren’s thoughts on the issue of trying to control campaign spending.
11. Is the current higher returns on tangible equity of the major banks sustainable over the next 5 or 10 years?
12. Warren and Charlie’s book recommendations.
13. Higher interest rates would hurt Freddie Mac and Fannie Mae.
14. Problems that keep Warren awake at night.
15. Warren’s view on the world financial business environment and US position for economic competition in the next decade.
16. How Warren keeps track of so many stocks.
17. Consolidation in the insurance industry will not hurt Berkshire’s insurance businesses.
18. Is there a price at which it’s inappropriate for a company to use its capital to buy back its stock?
19. Berkshire’s float has had a greater value to Berkshire than an equal amount of equity.
20. Would Japan dump US treasuries to bail themselves out?
21. How Warren and Charlie would invest money for social security.
22. What is the cost of capital for Berkshire Hathaway and on Yahoo not recommending Berkshire Hathaway stock.
23. Berkshire’s overall insurance business, not just the super-cat, is its most important business.
24. What to look for when reading annual reports.
25. Charlie’s prediction of Coca-Cola’s long-term growth versus Pepsi.
26. Warren’s evaluation of the current quality of earnings in the US and what multiple should be placed on Coca-Cola’s recent asset gains.
27. How Warren would teach business valuation.
28. Can Wesco be regarded as a Berkshire C share type company?
29. Should one invest in Berkshire or in the stocks that Berkshire owns?
30. The three factors Warren thinks is driving the bull market.
31. The amount of time Warren and Charlie spends playing bridge.
32. Warren doesn’t think Disney did anything wrong in the way it accounted for the purchase of Capital Cities.
33. Would Warren consider investing in technology companies in the future?
34. Is Berkshire considering buying back its shares?
35. A shareholder missed his chance to ask a question.
36. Warren explains why he invested in silver.
37. The only group Warren talks to are students.
38. If given a choice between Berkshire’s insurance and private business, Warren would choose the private businesses. 
39. Who would take over Berkshire if something happens to Warren.
40. You must make your own conclusions on the intrinsic value of a business.
41. Charlie on his multiple mental models and Warren on whether he would trade more actively if there is no capital gains tax.
42. Warren and Charlie talks about how to identify management who loves the business more than money.

Q&A – Afternoon Session

(Click on a link below to skip to a particular topic)

1. When to buy a house.
2. Warren is bothered when companies pay a lot of money for mediocrity.
3. The class B shares worked out as well as possible.
4. Berkshire will only invest in companies it can put in at least $500 million by itself.
5. Warren thinks Sandy Weill is a “very, very good manager” and admits missing the opportunity to invest in pharmaceutical companies.
6. How Warren manages Berkshire’s non-public operating investments.
7. How Warren calculates a company’s future free cash flow.
8. Criteria in selecting stocks.
9. Is nostalgia one of Warren’s filters when looking for a company to buy or invest in?
10. The difference between class A and class B Berkshire shares.
11. How teenagers can prepare for their future and be as successful as Warren.
12. Will Warren consider investing outside the United States?
13. The Berkshire shares Warren will be giving away for charity will not unduly drive the stock price down.
14. The best book to read to learn about Warren’s investment philosophy.
15. Warren admits selling Disney shares in the ’60s was a huge mistake.
16. Phil (Philip) Carret is one of Buffett’s heroes.
17. The end of the cold war is not something Warren will factor into his evaluation of businesses.
18. Warren wants each Berkshire subsidiary to run their business in the way that they think is best for their operation.
19. On the tobacco settlement and whether there was a relationship between the acquisition of Dairy Queen and the disposal of McDonald’s.
20. Warren and Charlie’s view on inheritance.
21. How to tell if a market is overvalued.
22. How to determine if a dollar spent on capital expenditures creates more than a dollar of market value.
23. The rule of thumb specified on the owner’s manual of Berkshire’s annual report is still applicable.
24. Make your own judgment on a company and don’t be affected by what others are doing.
25. No plans to split Berkshire’s stock.
26. Earnings are what determine value, not book value.
27. Correlation coefficients can be calculated but won’t have much meaning.
28. Techniques to figure out the maintenance capital expenditures of a company.
29. Would Berkshire continue to be successful on a 1929 style of depression or a prolonged bear market?
30. Warren and Charlie refuse to comment on Berkshire’s stock price.
31. Warren’s message for anyone who is concerned with his unhealthy diet.
32. How long is Warren willing to wait for a good investment opportunity?
33. Why Berkshire seems never to have any real, pure real estate investments.
34. Warren is not keen on sharing what he thinks about a stock.
35. Warren and Charlie doesn’t think there would be a trend of fatty-food litigation.
36. Credit for the strong US economy doesn’t just go to one person.
37. How much time does Warren spend in performing intense investigation on a business?
38. The final bottom line GAAP reported earnings mean absolutely nothing at Berkshire.
39. Warren and Charlie doesn’t worry about risk in the traditional way they are taught at universities.
40. Berkshire got a high caliber group of share holders.
41. The best way to look at any investment is how you will feel if you will own it forever.
42. Warren is not interested in spinning off subsidiaries.
43. Warren doesn’t think evaluating the auto industry is within his circle of competence.
44. The internet presents a huge potential for a couple of Berkshire’s companies like Borsheims.
45. Major differences between McDonald’s and Dairy Queen.
46. The importance of the US public education system and what can be done to improve it.
47. How Warren determines if a person is honest or not.
48. Y2K will not cause any major problems on Berkshire’s subsidiaries.
49. It would be extraordinarily difficult to separate the real estate business of McDonald’s out from its Franchising business.
50. Warren explains double taxation and how it impacts Berkshire’s investment philosophy.
51. Warren regards conducting due diligence before acquiring a company as “sort of boilerplate in most cases”.

End of Q&A

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