Berkshire Hathaway 2010 Annual Meeting Transcript
Transcript of the 2010 Berkshire Hathaway Annual Meeting held on May 1, 2010 on Omaha, Nebraska:
(Click here to skip to the Q&A section)
(To see the full transcripts of all Berkshire Hathaway Annual Meetings on record, click here)
Introduction and meeting agenda
Warren Buffett:
Good morning. I’m Warren, he’s Charlie.
He can hear, I can see. We work together for that reason.
Like to make one correction in the movie. My fast ball was filmed in slow motion. They tried the regular way and you couldn’t even see it, so…
Our approach today will be to announce a couple of things, our earnings, and introduce you to the directors. But as soon as that’s through, we’ll move on to questions. We’ll have those until noon.
We’ll break for an hour and we’ll come back at 1:00. Those of you who are in the overflow rooms may find that you can get into the main arena here at that time.
And we’ll go till 3:30 with the questions and then we’ll have the annual meeting, business meeting, for those of you who are still around at that point. And at that time, we will have the election of directors.
Warren introduces Berkshire’s board of directors
Warren Buffett:
But because not all of you may be here at that time, I would like to introduce the directors to you, and I’ll ask them to stand.
And if you’ll hold your applause until they’re all done standing, or you can even hold it after that… it will make… it will make for a very orderly meeting.
So let’s start in with Howard Buffett. I’m the next one alphabetically. Our new director, Steve Burke.
They didn’t hear the part about stay standing, but that’s OK. They’re generally fairly obedient, but the…
Susan Decker.
Bill Gates. David Gottesman, Sandy Gottesman. Charlotte Guyman.
Don Keough is unable to be with us today. He’s had a serious operation but he’s recovering very well and he’s got a lot of friends in this audience and he’ll be with us next year.
Charlie, we’ve already introduced. Tom Murphy. Ron Olson, the manager in our movie. And Walter Scott.
Now you can go wild with applause for the group.
Berkshire’s preliminary earnings for the first quarter
Warren Buffett:
Now, before we start with the questions, we do have preliminary earnings figures for the first quarter.
And I’d like to ask the projectionist to put up slide A. There’s nothing really very surprising in these numbers, but we’d like to give them to you. They up there OK? Yeah. If you have any questions on these later on.
What we’re seeing in our businesses is that, in what was sort of a sputtering recovery a few months ago, seems to have picked up steam in March and April.
And our businesses that kind of serve broad industry, such as the railroad or Marmon or ISCAR, we’re seeing a pretty good uptick. It’s a long way from where it was a couple years ago, but what was very spotty in the recovery a couple of months ago, the trends really seem a fair amount stronger in the last few months.
And we always encourage you to focus on operating earnings. We have the figures there for our investments and derivative businesses.
We don’t really think they mean anything on a quarterly basis. Obviously, they’re meaningful over the years. I mean, we’ve piled up a lot of net worth over the years with capital gains. But in any quarter, they mean absolutely nothing.
And you’ll notice another thing about our report. We don’t even put down… we have to when we publish generally… but we don’t even put down the earnings per share. We’re not focused on that number in any quarter or any year.
We’re focused on the buildup of value. And we really think that an undue focus on quarterly earnings, not only is probably a bad idea for investors, but we think it’s a terrible idea for managers.
If I had told our managers that we would earn three dollars and 17 1/2 cents for the quarter, you know, they might do a little fudging in order to make sure that we actually came out at that number.
And there was a very interesting study that was published a few months ago where thousands of earnings reports were examined.
And instead of taking it out to the penny, which is customary in the reporting, they took it out one further digit. And of course if you go out one further digit, and it’s four or less, you round downward, and if it’s five or more, you round upward.
And they found out that a statistically impossible number of… small number… of fours showed up because if they got to four-tenths of a cent, somehow somebody in the accounting department managed to find another tenth of a cent so they could round upward. It was not an accident.
And, you do not want to have… in our view, we think it’s terrible practice to be thinking about trying to report to some penny that you’ve whispered to Wall Street analysts in previous months.
And we probably carry that to an extreme at Berkshire. But we always think of the enterprise as a whole. We think about building value over time.
And we do not worry about earnings per share, and we don’t worry about investment gains or losses.
Charlie may want to weigh in on this one a bit. Charlie?
Charlie Munger:
Well, I agree with you.
Warren Buffett:
Yeah.
He is the perfect vice chairman. They don’t come any better. OK.
With that preliminary… we probably ought to quit at that point, actually.
Warren introduces the panel of journalists
Warren Buffett:
We’re going to alternate the questions between a panel of three journalists here. We have Carol Loomis of Fortune magazine on the… on the far right.
And we didn’t do it quite alphabetically. We have Andrew Ross Sorkin from The New York Times.
And Becky Quick of CNBC.
Andrew’s maneuvered for a seat there, apparently, to get earlier in the questioning order, but I’ll probably stick with the alphabetical list.
And we will alternate between our journalists, and then we will go around the auditorium here where people have been chosen by chance to ask questions.
And we also will go to just I guess one of the overflow rooms; we have a whole lot of overflow rooms, but we’ll not go to all of them.
So let’s just start things off. Carol?
Carol Loomis:
Well, since I won the alphabetical lottery, I get to make two very short statements also.
One is that we received an awful lot of questions. We really don’t know how many because some people sent their question to all three of us. But I would guess we had something between 1,500 and 2,000 questions.
And obviously, we’re not going to be able to ask all of those, and we’re sorry for those we didn’t get to ask. They were very good questions and we appreciate the work that people put into them.
The other thing I want to mention is that Warren and Charlie have had absolutely no hint as to what the questions will be so they will have to field them just as they come up.
Q&A – Morning Session
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- Warren defends Goldman Sachs in light of the SEC’s law suit against the investment bank.
- Warren and Charlie share their thoughts on the financial reform the United States Congress is working on.
- Berkshire doesn’t have a “huge” derivative position.
- Warren and Charlie are agnostic in terms of the relative values of currencies, but not agnostic about where they think all currencies are headed.
- More questions about Berkshire’s investment in Goldman Sachs.
- Is GEICO or the Gates Foundation investing on driver feedback technologies?
- Berkshire shares being sold to fund Warren’s philanthropy will not affect the stock price.
- Warren and Charlie is still optimistic about investing in the United States.
- An update on the potential candidates for Berkshire CIO.
- Warren thinks he can still put Berkshire’s cash to work intelligently.
- The difference between investing in a company’s debt instruments and buying its equity.
- It is easier to build a new organization around a culture than trying to change the culture of an existing one.
- It would be a huge loss to Berkshire if anything happened to Ajit Jain.
- Why Berkshire is not investing in India.
- Warren thinks the prospects for significant inflation have increased.
- Getting good financial habits early in life is enormously important.
- How Warren would change the tax system if he could.
- Currencies are a poorer bet than they have been for some time.
- The biggest mistake made by the management of NetJets.
- Berkshire would not have invested in BYD if the opportunity came five, or ten years earlier.
- How Berkshire structures the performance-based compensation of the CEOs of its subsidiaries.
- What Warren and Charlie is doing to maintain Berkshire’s good reputation.
- How Warren would “help” regulators calculate the so called “allowable returns” in the railroad industry.
- The willingness to endure fluctuating annual results is a big advantage for Berkshire’s insurance businesses.
- The usefulness of derivatives has always been overrated.
Lunch Break
Warren Buffett:
OK, with those hopeful words… we’re going to break for lunch. Before we break for lunch, I made a charitable wager with a group, Protégé Partners, two years ago about the behavior of funds of funds that they would select, hedge funds, and the S&P index fund.
The duration of our wager is ten years, and whichever one loses, the money goes… well the money from both goes to the winner’s charity, is what it amounts to.
Interesting firm out on the West Coast that supervises what they call these long bets. So if we’ll put up exhibit 6, you can see at this point I’m behind.
And have we gotten exhibits? Yeah. Let’s go to lunch. OK.
Q&A – Afternoon Session
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- There’s nothing wrong in speaking out as long as it’s done responsibly.
- Any synergies at Berkshire come about at the operational level.
- Warren makes no decisions about who gets hired at Berkshire’s subsidiaries.
- Warren: “We have met the test of retained earnings proving their worth”.
- Society owes some minimum living standards to people looking for or trying to get work.
- Why Berkshire is not making investments in the car insurance industries of China, India, or Europe.
- The most important lesson Warren and Charlie learned from China.
- How Warren writes Berkshire’s annual reports.
- Charlie is converting his IRA to Roth IRA. To learn more about what’s an IRA and a Roth IRA, click here and here.
- Newspapers are no longer the only game in town when it comes to advertising.
- There will always be opportunities to invest if you’re not working with large amounts of money.
- Warren: “I don’t know the answer on what default rates (of municipal bonds) are going to be over the next few years“.
- Warren doesn’t know what the stock market is going to do in the short term and it doesn’t matter.
- The ratings agencies have been, and still are, incredibly wonderful businesses.
- The world will continue to prosper even without oil.
- Warren thinks Kraft’s decision to buy Cadbury was “dumb” and its decision to sell its North American frozen pizza business was “particularly dumb”.
- Lack of integrity “in many a management” led to the crisis.
- If you are scared when others are fearful, you are not going to make a lot of money in securities over time.
- Charlie thinks solar is coming because “we have no other practical alternative”.
- Berkshire will continue to do reasonably well over time.
- Why Charlie is optimistic with the future.
- Warren admits he “do a lot of things that aren’t the best use of my time for Berkshire shareholders”.
- How Berkshire was able to attract and retain loyal shareholders.
- A zero percent interest rate environment is “very tough for anybody that’s got their investment in short-term money”.
- How to get better at valuing businesses.
- Examples of great businesses that need very little or negative capital.
- Warren and Charlie talks about the future growth and acquisition outlook of Berkshire.
- What Warren and Charlie would ask themselves if they were one of the shareholders asking a question during the annual meeting.
- How to build a business that Warren would be interested in buying.
- Warren and Charlie’s fundamental guiding principle in life.
- The economics of private high speed passenger trains.
- Berkshire is prepared and can handle insurance claims resulting from a major catastrophe.
- Berkshire can withstand anything that any corporation can.
End of Q&A
Warren Buffett:
I want to thank you all for coming. Charlie and I really appreciate it. And thank you.
Charlie Munger:
Thank you.
Warren Buffett:
Thank you. I appreciate it, we appreciate that, I’m sure the panel does.
Now we’ll break for about five minutes. Some of you can go shop and some of you will want to stay around for the business meeting, and we’ll start the business meeting in five minutes and we’ll see how long it takes.
Start of formal business meeting
Warren Buffett:
OK. I’ve already introduced the Berkshire Hathaway directors.
Also with us today are partners in the firm of Deloitte and Touche, our auditors. They are available to respond to appropriate questions you might have concerning their firm’s audit of the accounts of Berkshire.
Mr. Forrest Krutter is secretary of Berkshire. He will make a written record of proceedings.
Miss Becki Amick has been appointed inspector of elections at this meeting, and she will certify to the count of votes casts in the election of directors.
The main proxy holders for this meeting are Walter Scott and Marc Hamburg.
Does the secretary have a report of the number of Berkshire shares outstanding, entitled to vote, and represented at the meeting?
Forrest Krutter:
Yes, I do. As indicated in the proxy statement that accompanied the notice of this meeting that was sent to all shareholders of record on March 3, 2010, being the record date for this meeting, there were 1,029,738 shares of Class A Berkshire Hathaway common stock outstanding, with each share entitled to one vote on motions considered at the meeting, and 926,013,086 of Class B Berkshire Hathaway common stock outstanding, with each share entitled to one ten-thousandth of one vote on motions considered at the meeting.
Of that number, 705,611 Class A shares and 566,627,821 Class B shares are represented at this meeting by proxies returned through Thursday evening, April 29th.
Warren Buffett:
Thank you. That number represents a quorum, and we will therefore directly proceed with the meeting.
First order of business will be a reading of the minutes of the last meeting of shareholders. I recognize Mr. Walter Scott who will place the motion before the meeting.
Walter Scott:
I move that the reading of the minutes of the last annual meeting of the shareholders and the special meeting of shareholders be dispensed with and the minutes be approved.
Warren Buffett:
Do I hear a second?
Voice from Audience:
I second the motion.
Warren Buffett:
The motion has been moved and seconded. Are there any comments or questions?
We will vote on this motion by voice vote. All of those in favor say aye.
Voice from Audience:
Aye.
Warren Buffett:
Opposed? The motion’s carried.
Election of Berkshire’s board of directors
Warren Buffett:
Second item of business is to elect directors. The shareholders present who wishes to withdraw a proxy previously sent in and vote in person on the election of directors, he or she may do so.
Also, if any shareholder that is present has not turned in a proxy and desires a ballot in order to vote in person, you may do so.
If you wish to do this, please identify yourself to meeting officials in the aisles who will furnish a ballot to you. Would those persons desiring ballots please identify themselves so that we may distribute them?
I now recognize Mr. Walter Scott to place a motion before the meeting with respect to the election of directors.
Walter Scott:
I move that Warren Buffett, Charles Munger, Howard Buffett, Stephen Burke, Susan Decker, William Gates, David Gottesman, Charlotte Guyman, Donald Keough, Thomas Murphy, Ron Olson, and Walter Scott be elected as directors.
Warren Buffett:
Is there a second?
Voice from Audience:
I second the motion.
Warren Buffett:
It’s been moved and seconded that Warren Buffett, Charles Munger, Howard Buffett, Stephen Burke, Susan Decker, William Gates, David Gottesman, Charlotte Guyman, Donald Keough, Thomas Murphy, Ronald Olson, and Walter Scott be elected as directors.
Are there any other nominations? Is there any discussion? Nominations are ready to be voted upon.
If there are any shareholders voting in person, they should now mark their ballots on the election of directors and allow the ballots to be delivered to the inspector of elections.
Miss Amick, when you’re ready, you may give your report.
Becki Amick:
My report is ready. The ballot of the proxy holders, in response to proxies that were received through last Thursday evening, cast not less than 756,041 votes for each nominee.
That number far exceeds a majority of the number of the total votes related to all Class A and Class B shares outstanding.
The certification required by Delaware law of the precise count of the votes, including the additional votes to be cast by the proxy holders in response to proxies delivered at this meeting, as well as any cast in person at this meeting, will be given to the secretary to be placed with the minutes of this meeting.
Warren Buffett:
Thank you, Miss Amick.
Warren Buffett, Charles Munger, Howard Buffett, Stephen Burke, Susan Decker, William Gates, David Gottesman, Charlotte Guyman, Donald Keough, Thomas Murphy, Ronald Olson, and Walter Scott have been elected as directors.
End of formal business meeting
Warren Buffett:
Does anyone have any further business to come before this meeting before we adjourn?
If not, I recognize Mr. Scott to place a motion before the meeting.
Walter Scott:
I move this meeting be adjourned.
Warren Buffett:
Second?
Voice from Audience:
I second the motion.
Warren Buffett:
Motion to adjourn has been made and seconded. We will vote by voice. Is there any discussion? If not, all in favor say aye.
Voice from Audience:
Aye.
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