Berkshire Hathaway 2003 Annual Meeting Audience Question # 47

Charlie thinks the creation of a state fund to invest in equities on behalf of the people is “a pretty dumb idea”

Warren Buffett:

Number 8.

Audience Member:

Good afternoon, Mr. Buffett and Mr. Munger. My name is John Norwood and I hail from Des Moines. Thank you for providing this opportunity to speak today.

I have two questions, one as an individual investor and one as a state resident.

The first has to do with intrinsic value. Can you provide some additional Cliff Notes for working with the Berkshire Hathaway annual report and calculating an intrinsic value for the stock? I’m a little bit hazy.

And the second question has to do with public sector investing. As an example, the state of Iowa is considering the creation of a $1 billion Values Fund.

What sorts of guidelines, strategies, and advice would you employ if you were responsible for investing this money on behalf of the general public?

Are there any significant differences when representing shareholders versus the general public? Thank you.

Warren Buffett:

Yeah, elaborate if you will just a second, because I am not familiar with that billion dollar… is the state of Iowa literally creating a billion dollar fund to invest in equities on behalf of the people?

Audience Member:

That’s what’s being proposed.

Warren Buffett:

Is that right? Oh.

Charlie, what do you think about that? That’s a new one to me.

Charlie Munger:

I think it’s a pretty dumb idea.

Warren Buffett:

Yeah. He lives in California. That’s why I had him answer. I live right on the border here, so I…

Yeah, I would… I mean, I guess Iowa doesn’t have any bonded debt, so I’m not sure what… they probably wouldn’t be creating a margin account.

But I would think that most states or municipalities would want to let the citizenry invest on its own and would not want to be taxing people in order to set up an equity fund. So that strikes me as a pretty novel idea. Charlie…

Charlie Munger:

In California, certainly the… of the investment management partnerships… use all kinds of political contributions to finagle their way into managing state pension funds, et cetera, et cetera. It’s not a pretty scene.

To the extent that Iowa can dampen it down, why, I think they’re better off.

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