Berkshire Hathaway 2000 Annual Meeting Audience Question # 11

Focus on what’s knowable and what’s important

Warren Buffett:

Number 3?

Audience Member:

Good morning Mr. Buffett, Mr. Munger. My name is Stacey Braverman. I’m 15 years old, and I’m from South Setauket, New York. It was very nice meeting you Mr. Buffett, yesterday.

Warren Buffett:

Thank you.

Audience Member:

I especially appreciated your internet stock tips.

Warren Buffett:

Yeah, keep it… keep it to yourself now, Stacey. That’s our deal.

Audience Member:

I bought the B shares two years ago, when I decided that I needed to save some money for college. When the share price dipped below 1,500 I decided to investigate correspondence courses.

Warren Buffett:

Maybe you can get a scholarship.

Audience Member:

So I’m glad to see that things are back on track now.

My question is, a lot of the companies that you invest in, like Coca-Cola and Gillette, seem to do better when the dollar is weak and interest rates are falling. That seems to be the opposite of what’s happening now.

So how is Berkshire positioning itself to take advantage of the current economic position, with that assessment in mind?

Warren Buffett:

Yeah, well, that’s a good question. But if we thought we knew what the dollar was going to do, or interest rates were going to do, we would… we won’t do it… but we would just engage in transactions involving those commodities, in effect, or futures directly.

In other words, it would not be… if we thought that the dollar was going to weaken dramatically… and we won’t get those kind of thoughts… but if we did, you know, we would buy other currencies.

And it would be… it might benefit Coke, in dollar terms, if that happened.

But it would be so much more efficient, directly, to pursue a currency play or an interest rate play than an indirect way through companies that have big international exposure. We would probably do it directly.

We don’t really think much about that. Because… just take currency. If you look at what the yen has traded at, you know over the last… well, since World War II, you know. From… what was it? Three-sixty down to… what? Seventy-some, Charlie? At lowest?

Charlie Munger:

Uh-huh.

Warren Buffett:

And, you know, back up to 140-some. And now, I don’t know, 105, or wherever it may be. I mean, those moves are huge.

But, in the end, we’re really more interested in whether more people in Japan are going to drink Coca-Cola. And, over time, we’re better at predicting that than we are at predicting what the yen will do.

And if Coca-Cola satisfies people’s needs… liquid needs… for more and more people, we will probably get a reasonable percentage of their purchasing power of those people around the world for their right to drink Coca-Cola, or for shaving, or whatever it may be.

So, if the world’s standard of living improves, bit by bit over time, in an irregular fashion, and we supply something the world wants, we will get our share in dollars, eventually.

And what it… quarter-to-quarter or year-to-year… how that moves around, because of currency moves, really doesn’t make any difference to us.

It makes a difference to reported earnings in that quarter or… but in terms of where Coca- Cola’s going to be 10 or 20 years from now, it would be a big mistake, I think, to focus on currency moves as opposed to focusing on the product itself.

And Japan offers a good example of that because you had this… I mean, you really had a move from 360, or whatever it was, to the high 70s or thereabouts. I mean, that is an incredible move in currency, and it can overshadow in the short run, even, what’s happening in the business.

But long-range, what’s really made Coca-Cola strong in Japan is the fact that the Japanese people have accepted their products in a big way. And Coca-Cola’s built this tremendous, for example, vending machine presence.

And the Japanese market is very different than all the rest of the markets in the world, virtually, in that such a high percentage flows through vending machines.

And my memory is that, you know, we may have something like 900-and-some thousand, out of something over 2 million, vending machines in the country.

So we’ve got this tremendously dominant position. It’s a little like billboards might be in this country. Plus, we have this terrific product, Georgia Coffee, which is huge over there.

And that’s the sort of thing we focus on, because that’s something we understand.

We don’t understand what currencies are going to do week-to-week or month-to-month or year-to-year. And we always try to figure on what… focus on what’s knowable and what’s important.

Now, currency might be important, but we don’t think it’s knowable. Other things are unimportant, but knowable. But what really counts is what’s knowable and important.

And what’s knowable and important about Coca-Cola is the fact that more and more people are going to consume soft drinks around the world, and have been doing so year after year after year, and that Coca-Cola’s going to gain share, and that the product is extraordinarily inexpensive relative to the pleasure it brings to people.

Coca-Cola… in the ’30s, when I was kid, I bought, you know, for… six for a quarter and sold them for a nickel each. That was a 6 1/2 ounce bottle for a nickel, at Coke.

And you can buy a 12-ounce can now at… pick a supermarket sale… for not much more than twice per ounce what it was selling for in the ’30s. You won’t find many products where that kind of value proposition has developed over the years.

So that’s the kind of thing we focus on. And interest rates and foreign exchange rates, important as they may be in the short term, really are not going to determine whether we get rich over time.

The best time to buy stocks, actually was, in recent years, you know, has been when interest rates were sky high and it looked like a very safe thing to do to put your money into Treasury bills at… well, actually the primary got up to 21 1/2 percent… but you could put out money at huge rates in the early ’80s.

And, as attractive as that appeared, it was exactly the wrong thing to be doing. It was better to be buying equities at that time, because when interest rates changed, their values changed even much more.

Charlie?

Charlie Munger:

Yeah, we have a willful agnosticism on all kinds of things. And that makes us concentrate on certain other things. This is a very good way to think, if you’re as lazy as we are.

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