Berkshire Hathaway 1999 Annual Meeting Audience Question # 39

What Warren and Charlie thinks about the cable television business and their philosophy of children handling and inheriting money

Warren Buffett:

We’ll go to zone 6.

Audience Member:

My name is Merritt Belisle from Austin, Texas.

And the company has a large investment in the Washington Post Company, which has many cable television systems serving non-major metropolitan areas, as well as a recent investment in TCA Cable.

And so, I was hoping to get a comment about the cable television business generally.

And the other question is about your philosophy of children handling money and inheriting money.

Warren Buffett:

The first question about cable, the Washington Post Company does have… and we own about 17, or so, percent of the Washington Post Company, and I believe they have 700,000-plus homes. And as you say, they’re in largely… in smaller areas.

It’s been a good business. And as you know, cable prices have been galloping here in the last year, or thereabouts. From the standpoint of the Post that’s bad news, because the Post would have been a net buyer of cable and will not be a seller.

And it’s very, very much like our attitude towards stocks and stock prices. It is not good news for the Washington Post Company when cable prices go up, because the Washington Post Company’s going to be investing funds. It’s going to be a generator of funds over time. And if it wants to put money in cable, it’s way better off if cable prices go down than up.

The TCA is not… Lou Simpson runs a separate portfolio at GEICO… equity portfolio… so I’ve never read an annual report of TCA Cable. I know nothing about it.

If he still has it, it’s an investment of Lou’s at GEICO, for GEICO, and it’s not something that falls under my management at all.

It’s a point I should mention, because, periodically, the press picks up some item that says that Berkshire… or sometimes it says that I am buying X, Y or Z.

And sometimes that’s true, but sometimes it isn’t true, because filings are made on behalf of various other entities that are associated with us, and I don’t know anything about them.

I saw one here a couple of weeks ago reporting that I was… I don’t know if it was me or Berkshire… I think it was me personally… it was buying some real estate investment trust with the name Omega in it. I’d never heard of it. But that story appeared various places.

Well, I can assure you, I filed no form with the federal government that said that I was buying that stock, although you would have deduced that from certain press accounts.

But various other entities, I think that there may be a subsidiary of General Re, New England Asset Management, that may have to report periodically on what they do.

And since General Re is owned by Berkshire, and New England Asset Management’s a part of General Re, you know, who knows what they pick up on that.

So I do caution you, generally, to be a little careful about reports as to what is being bought or sold by me or by Berkshire Hathaway.

Now, as I remember, there was second question that I didn’t like quite as well to answer.

Charlie, you want to tackle that one?

Charlie Munger:

Well, I think there was more interest in the future of cable.

That is, we have demonstrated a signal lack of aptitude in correctly diagnosing the future of cable in a way that made us a lot of money.

And we’ve done that in spite of the fact that in retrospect it seems like a lot that was perfectly obvious was lying around.

Warren Buffett:

Today cable is not, I mean, cable has been here for what, 30 years or so. Cable has not made extraordinary returns on invested capital, at all.

But it’s always had the promise of greater returns and it’s had the promise that you wouldn’t have to keep investing money in it the way that you’ve had to date.

But currently, people think that unusual returns will be made in cable, relative to invested capital, not relative to the purchase price of them, but relative to the invested capital in the property itself. And, as I say, that has not really been the case as… it’s been the case with cable programming. Cable programming, there’s been a lot of money made in relation to capital investment.

But in terms of the actual investment in cable facilities, the capital investment has been such, the expenditures in developing systems have been such, that the returns so far have not been great.

But the prices for cable systems now would indicate that people think that those returns are finally going to start flowing in, in a big way.

Warren Buffett:

What was the second part of that question that you had?

Voice from Audience:

Children and wealth.

Warren Buffett:

Oh, inherited wealth and children…

Audience Member:

It was about kids inheriting money.

Warren Buffett:

Yeah. Well… we have a minority viewpoint down here in the front row. .

I think my views on that subject changed when I was about 18.

Until that point I thought it would be a great idea.

No, I am quite a believer in a meritocracy and I think a part of that is not having people start way, way ahead of other people in life, based on whether they were lucky enough to come from the right womb or not.

So I’ve never been big on the idea that either society benefited or, in many cases, the kids… although I think that’s much more problematic, but… by the fact that great transfers of wealth will go from one generation to another, I…

You know, I would rather see the degree of talent possessed by individuals determine the resources they command in this world, and their ability to influence other people’s lives and command the labor of other people, and all of that, than any divine right of the womb.

So that’s… and Charlie has a somewhat different view on that.

Charlie Munger:

Yeah. I am a little more willing to let the world take the succeeding generations down. It’s…

Warren Buffett:

He believes in crossing it…

Charlie Munger:

I don’t think they need much help.

Warren Buffett:

Charlie believes in passing it along, as long as you’re sure they’re going to blow it.

OK. Zone…

Charlie Munger:

If you stop…

Warren Buffett:

Go ahead.

Charlie Munger:

If you stop to think, Warren, of the great fortunes of yore… if you go back to 1900, 1870 and, you know… name me the people that have vast power because they are in the fourth generation in that family. Some of them are living awfully well, but they are not running the world.

Warren Buffett:

I would say the Rockefeller family had considerably more influence than if their name had been, you know, just plain Rock.

Charlie Munger:

Well, I think that’s true, but you’re picking probably the strongest, single family of the piece. And now that it’s dispersed among 60 or 70 or 80 Rockefeller, it…

I think it’s true there were four or five brothers there that had an unusual share of worldly influence. I must say, in that case I think they handled it very well.

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