Berkshire Hathaway 2002 Annual Meeting Audience Question # 31

Expect Berkshire’s returns to be less than that of the last 20 years

Warren Buffett:

Number 8.

Audience Member:

My name is Bert Flossbach. I’m from Cologne, in Germany. And first of all, I would like you gentlemen, for all the monitoring you have done and the pristine investment philosophy, which is more and more followed in Germany as well.

My question refers to the importance of realism. If the dim prospects of the… on the stock market Mr. Munger made earlier become true, and given that the size of Berkshire Hathaway diminishes the impact of small investments, what do you think would be the realistic return on the float over the next 10 years or 20 years?

Warren Buffett:

Well, I wish I knew. The only thing I can tell you is it’ll be less than it’s been in the last 20 years.

But I think it’ll be satisfactory, compared to most alternatives. But I don’t know whether the alternatives are going to produce 4 percent a year or 8 percent a year. I don’t think they’re going to produce 15 percent a year.

And I would think that if we obtain very low-cost float, which I think we should and I think we will, and we keep getting chances to buy businesses on reasonable terms, not sensational terms, and we get occasional market… which we’ve even had a few occasions of things we’ve done in the bond market the last few years. We haven’t made huge amounts of money, but we’ve made a pretty good amount of money. And we’ll see some things to do on equities.

I think overall, we can have a return that we won’t be ashamed of, but we won’t come close to a return that you might think, looking back, we could achieve, but…

We don’t think the returns on equities are going to be terrible over the next 20 years. We just think that people whose expectations were built by 1982 to 1999 are going to be very disappointed.

But there’s nothing wrong with earning 6 or 7 percent on your money. I mean, there… it’s… in a world of relatively low inflation, you know, how much more is capital entitled to than that? I mean, it has to come out of somebody.

And to keep doing it on increasing amounts of money, if you earned much higher returns than that, you would have a whole shift in the national income stream over time.

So, I think we’ll get chances to do things that will leave us satisfied, but the question is whether they leave you satisfied.

Charlie?

Charlie Munger:

Well, I certainly can’t improve on that, but it won’t stop me from trying to say something. The…

I think one of the smartest things that a person can do under present conditions is just dampen the expectations way down from the investment achievements of the past, including, of course, with reference to Berkshire stock. I think that’s maturity and good sense.

All that said, I like our model and I like what we have in place, and I like what’s been coming in recently.

And I think we’ve had a lot of fun in the past, and some achievement, and my guess is we’ll continue to do that.

And I’m just up here, most of the time, to indicate to the rest of you that maybe you’ve got 10 more tolerable years coming out of Warren… and I’m doing the best I can at that.

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