Berkshire Hathaway 2018 Annual Meeting Audience Question # 55

Warren and Charlie on the prospects of investing in China

Audience Member:

Dear Mr. Buffett and Mr. Munger, thank you very much for hosting the meeting. It’s truly been remarkable. Thank you.

My name is Yen, and I’m a partner at Tiger Brokers, a leading electronic brokerage firm from China.

Let me rephrase that. So, I and my colleagues flew half a way from the globe with (the sound in this part of the video is inaudible) to be here, and it is honor, just like everyone else in the stadium, we’re honored to be here.

My question is, you mentioned earlier that investors don’t really have to be struggling in picking the right stocks. They would do well in picking, probably, the right market and the right country.

China is the second-largest economy, and probably has the biggest growth potential. Just by passively weighting a portfolio… by passively valuating a portfolio… U.S. investors are significantly underweighting China. So in your opinion, what are stopping the investors from investing in China? Thank you.

Charlie Munger:

Well, I think the answer is that you’re absolutely right. That we are… American investors are missing China. And they’re missing it because it’s a long way away, it looks different, they’re not used to it, it’s complicated, the headlines confuse them.

In other words, it just looks too hard, sitting in Omaha, to outsmart the Chinese market. But I think you’re absolutely right. It’s where they should be looking.

Warren Buffett:

OK.

We’ve actually had a couple investments in China. We’ve done pretty well. But there were… well, if you go back a number of years, (the sound in this part of the video is inaudible).

In terms of getting a lot of money into something, you know, many billions, and we have to get billions into things in… to move any kind of a needle, that can be tougher in markets that you’ve got… you’re unfamiliar working in. And it’s difficult under any circumstances.

But accumulating a 6 or 8 or $10 billion position in investments outside the United States can be very difficult. For example, in U.K. and much of Europe we have to report when we own 3 percent of a company. In fact, we can be asked to report if we even have less than 3 percent.

That really gets very tough when we get a bunch of followers and a lot of publicity that probably isn’t deserved in terms of what we’re doing in the markets and everything.

Some of the problems are, just by the nature of our size. It would be lot… it’d be a lot easier if we were running a smaller fund.

PetroChina, we managed to get a very big position. But the government owned 90 percent of it.

So we bought 14 percent of what the government didn’t own, but it was still only 1.4 percent of the company.

But Charlie, Charlie actually keeps pushing me to do more in China. And we’ve tried a couple of times, actually. And there was one operation that we got involved in…

Charlie Munger:

Well, you did so poorly the first time, you put in 200,000 and got about 2 billion, so.

Warren Buffett:

Yeah. Yeah. Well.

Charlie Munger:

Wasn’t encouraging enough.

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