Berkshire Hathaway 2006 Annual Meeting Audience Question # 31

Why Warren doesn’t like dealing with investment bankers

Warren Buffett:

Number 4.

Audience Member:

Hi. I’m Mike Kelly from Iowa City.

We’ve heard a bit about ISCAR today. Could you tell us some things about some of the other acquisitions of the past year?

Warren Buffett:

What would you like to know, Mike?

Audience Member:

Um.

Warren Buffett:

I mean, we described it a bit in the annual report, but…

Audience Member:

Right. Well, I believe since the annual report, there have been a couple others. Russell, for instance.

Warren Buffett:

Yeah. Russell is in the works. There’s just been a proxy statement that isn’t out yet, but it’s been filed with the SEC. You can get a copy of the filing. But that is one in process and is probably a couple months off from actual completion.

You know, we… I described the Business Wire situation in the annual report where I got a letter from Cathy after reading… reading a Wall Street Journal article. And, you know, these… they just all sort of pop up.

Medical protective, I think I suggested to Jeff Immelt at GE, that if… I knew they were interested in doing things with their insurance assets, and I suggested that was one portion of their insurance assets that Berkshire would have an interest in. And he and I met one time and we made a deal on that one.

PacifiCorp… that originated with Dave Sokol and the people at Scottish Power. I’m not even exactly sure what the sequence was.

But the one thing we haven’t done is we haven’t participated in any auctions.

I get books occasionally on various businesses, and the projections are just plain silly in these books. I mean, it’s a… I would… maybe that’s why they don’t sign their names in the books, the people that write them, because they’d be embarrassed about the projections they put forth.

I would just love to meet the people that write those investment banking books and make them a bet on the earnings that they project four years out. I would win a lot of money over time. They wouldn’t be met.

But we get the calls, occasionally, from the people that care about where their businesses end up.

We’re going to close on Applied Underwriters in just probably a few days, and those are two terrific guys, built it up from absolutely nothing.

Actually, I bought a tiny business here in Omaha… as I explained in the report… that’s why it’s here.

But they wanted to come with Berkshire. They think their own… they’re keeping 19 percent of the company. They think their own future will be the best in many ways, including financially, I’m sure, of being associated with us. They feel it’s the best place for the people, have the most opportunity to grow. And, you know, they came to us directly.

You know, I don’t know how many stories you read about a $4 billion deal, as appeared today in connection with ISCAR, where it doesn’t say anything about an investment banker, on either side.

But you’ll see more of those, I think, with Berkshire over the years.

Charlie, do you have anything in particular to add on our acquisitions recently?

Charlie Munger:

Well, the interesting thing about it to me is the mindset. With all of these new helpers in the world, they talk about doing deals.

That is not the mindset at Berkshire. We are trying to welcome partners. It’s a total different mindset.

The guy who’s doing a deal, he wants to do the deal and unwind the deal and… not too far ahead and make a large profit, et cetera, and that’s not our mindset at all.

We like the things that we can buy and that never leave us, and we like the relationships that last and are fruitful, not just for us, but for the people working there and the customers and everybody else.

I think our system is going to work better, long term, than flipping a lot of deals. And we have so many new deal flippers in the game that I think they’re going to get in one another’s way.

In other words, I don’t think there’s enough money out there to have all this new class make all the money they expect to make on a permanent basis just flipping, flipping, flipping, flipping.

Warren Buffett:

They’ll make it on fees, fees, fees, fees.

Charlie Munger:

Warren reminds me, once I asked a man who just left a large investment bank… and I said, “How does your firm make its money?” He said, “Off the top, off the bottom, off both sides, and in the middle.”

Warren Buffett:

I know which firm he’s talking about, too.

Charlie Munger:

That’s not our culture. And a lot of you have been here so long, you can see that’s not our culture. But in the end, it may be that Omaha will do better than Wall Street.

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