What questions were asked and answered during the 50th annual Berkshire shareholders meeting on May 2, 2015?

[Please thank Jason Yum for these notes. We were both in attendance, and he took great notes. No recording devices were allowed so this is not verbatim, but the spirit of the questions and answers are captured very well. He is a friend of mine and a loyal reader of the newsletter. Feel free to contact him at www.linkedin.com/in/jasonyum if you have any questions. Thanks again to Jason!]


 

Notes by Jason Yum:

Here are my notes from the Berkshire meeting. #web = warren, #munger = charlie. Warren usually spoke first, so if there's no # marking it usually means warren was talking.

Berkshire Notes:

1. Clayton homes subsidiary & growing partnership with 3G capital. Questions balance between capitalism with compassion. Also: is there a moral case for clayton? for 3G? ANS: look back at the housing bubble, ending in 2008. the cause: mortgage holders were divorced from the mortgage originator. the homebuilder built a house and sold it and that's that. Mortgage originator -> package -> sold outside the world -> no connection to the transaction. no connection with the actual outcome. at clayton we offer mortgages to all the buyers of the loans and retained 12B of mortgages. in a default two people lose, the originator and the home owner. Clayton keeps 100% of the mortgage, and that aligns interests. manufactured housing target for lower income individuals (low FICO). 3% mortgage defaults at Clayton. 97% success for homeowners.

"we help people aspire to live in 95k homes, with our own money at risk, and if we make a mistake it hurts them and it hurts us, and that is an unusual financial arrangement in the housing industry." "their average interest payment is $600 a month." "we don't have 30 year mortgages, except the FHA mortgages because those have a low rate." Clayton has 50% of the market. Munger wonders why manufactured housing isn't a bigger share of the market.

ANS on 3G: After they reduce the headcount to the number needed the companies have done extremely well. Seen it with Burger King & DR Horton. They get it down to what they need. #munger: "they pretend to pay us, we pretend to work. of course we want the right number of people for a job." #WEB: mentions railroad industry in terms of efficiency and 1.6m people running it to what it's at today.

2. Traditional method of selling cars vs new ways of selling. How hard is it to change cultures? ANS: the one price system seems to break down. negotiations, people say they don't like it but that's what ends up happening. #WEB: won't be surprised if auto dealership sales culture won't change. #munger: negotiating for a car, is amazingly resistant to change. #WEB: happens in jewerly and real estate. how would a real estate business work in terms of listing? People like to negotiate on big ticket items, especially if they think that's built into the system.

3. IBM case studies. 5 characteristics. ANS: #munger: no one sized fits all. every industry is different. and what we did ten years ago we're doing better now. #WEB: BNSF, most of the things going in my minds will stop us for going further. there are a lot of filters there, in the business & who we're dealing with, that will stop us from going to the next layer. we look for reasonable fix on how something will look in 5-10 years. and certainly it's not the same five questions. a very big question: do we want to be in partnership with this person + count on them to behave the same when they own vs don't own the business. We don't have a list of five.

4. Did you try to talk Warren out of buying IBM? #munger: no, interesting company and dominates for a long period. IBM adapts. IBM is still an enormous enterprise and admirable and we bought it at a reasonable price. #WEB: it was a 2 to nothing vote. either we or the company will be buying the stock in the future, we don't want the stock to go up. the mentality of the wall street is to talk our book. If we were to talk our book we would be super pessimistic because they're buying stock. #munger: if people weren't so often wrong we wouldn't be so rich.

5. Berkshire's insurance success, Charlie questions whether or not Buffett could repeat that performance. ANS: Many pieces of luck. As a 20 year old kid, WEB happened to be in Washington where in 4 hours --> Davidson explained the insurance business to WEB. Next time Jack is in the mood to sell, we bought National Indemnity / that was lucky. in the mid 80's on a saturday where he met ajit jain. There's an awful lot of accident in life, but if you keep yourself open to have good accidents happen, and accept the bad accidents ... for you it probably won't be the insurance business.

6. How do we determine the culture post WEB & charlie. ANS: Berkshire's culture runs deep as long as other large companies. Just 3-4 days ago we closed on a transaction with a woman named Mrs. Lewie (retail shops, for motorcycle owners). The culture is self-reinforcing. It is not the force of personality, it is institutionalized. If you run into a terrible culture... you can't turn a salomon into berkshire (#munger: you couldn't do it with anyone on the Street).

7. The true cost of sugar consumptions / berkshire shareholders are net long sugar. is the KO moat narrowing? is there an inflection point? ANS: trends are true. #WEB doesn't think anything revolutionary will happen, but food & bev companies will adjust to the consumers as they go along. #WEB: "in the last 30 years 25% of my consumption has been coca cola." I think there's something to be said to being happy. "every meal I approach, would be like going to jail." #munger: sugar prevents the premature softening of the arteries." #WEB: it's remarkable how durable brands are in this field (look at Kraft, look at Heinz). It's a pretty good bet that an awful lot of people will like the same thing. "I don't see smiles on the faces of people at whole foods!"

8. What attracted you to Van Tuyl? Rolling up auto dealerships? ANS: #web: not any huge advantages of scale in owning lots of dealerships, but running dealerships well is a local business / very good business. There are 17,000 dealerships in the country. People can quote local names. We don't bring anything to the finance part of the dealership game. Wells Fargo has a cost advantage. We will look for local operations. We won't widen out margins unless we can run a local deal better. #munger: meritocracy culture, the right people are prospering at Van Tuyl.

9. Tips from you on what characteristics you thought about 45 years ago. ANS: written culture. followed. led from the top. it's even better if you inherit a culture that you like. there are a lot of large firms, and we couldn't change that culture. When we bought Kirby we put in a golden age policy. #mun: we were always dissatisfied with what we knew and always wanted to know more. It's that we kept learning that made it work.

10. General level of the stock market. The % of total market cap / US GNP = best single indicator of where the stock market is at. The second indicator in a 1999 speech, is the corporate profits / GNP (between 4-6% range). According to the St. Louis Fed, profit margins are at 10%. Are these concerning? ANS: The second profits / GNP, the facts are american businesses have prospered incredibly. The first % total market cap / US GNP is affected by the current interest rate environment. Profits are worth a whole lot more if the government bond yield is 1% than if the government bond yield is worth 5%. We talked about alternatives and opportunity costs. I look at those numbers, but also in the context of the world we live in, with low interest rates. Will it go to Japan. Will it go back (then stocks will look really rich).  We try to find the average profitability & competitive moat over time, and don't try to make deals based on macro factors. "any company with an economist has one employee too many." #munger: we got it wrong before, why would anyone ask us now?

11. Tank cars industry / new rules. ANS: there are really dangerous products that need to be carried on rails over truck or pipeline. it's up to washington and the government to devise the rules of transport. Burlington Northern has the best safety record.

12. How to network without a business school alumni network. ANS: #munger: you should do the best with what you've got. i've never had any business school training why would you have any? WEB: Efficient markets. #munger: you were very lucky to avoid what you avoided. on law firms: "its a pie eating contest where if you win you get to eat a lot more pie."

13. BNSF - if a spill happens in an urban area. Are they insured? ANS: If ammonia or chlorine got out in an urban area... these are small probabilities but if we run trains millions of miles year after year. You run trains slower when you're in an urban area. You're working for safer, but you won't ever be perfectly safe. Berkshire offers insurance but the railroads have declined. There's going to be a lot of retrofitting, and we probably won't buy the additional tank cars.

14. Metpro & Guard. Geico into National Indemnity. What's the main purpose of those movements? ANS: There's a simplification benefit. Easier to manage the money if most of the funds are concentrated in National Indemnity.

15. Asian Investment Bank. AIIB. ANS: #web: no idea. 15.b) World reserve currency. ANS: probability is that this will be the reserve currency are very high. #munger: i'm happier when we print money and use it on infrastructure than print money and spread it around on a helicopter. it's always more dangerous than the economic profession believes.

16. Which subs are allowed to rebrand? NetJets. Clayton Homes. ANS: as long as the name doesn't get abused that's fine.

17. Renewable energy sources like solar & wind. Now that Elon Musk has joined with batteries for the home.. how long do you think it will be before DG will be a threat to utilities. ANS: storage is definitely the key. distributed energy is something we pay a lot of attention to. The best defense is to have the lowest cost energy. Huge improvements in storage would make a difference in a lot of ways. #munger: we will use renewables because we'll run out of fossil fuels. farmers like wind because that's extra income. it's not a threat it's a huge benefit to humanity and to berkshire. love owning midamerican in a world with more solar and storage. #WEB: Greg, what % will wind be in Iowa / Nevada. #Greg: 4000 MW built in last 10 years in Iowa. 58% of energy that we provide will come from wind. #WEB: wind and solar at present are dependent on tax credits. hence, berkshire benefits from the tax credit. There's no one situated as well as midamerican energy because of this consolidated tax return advantage at Berkshire and so it's been the biggest developer in the utility industry. Most utilities don't pay that much income tax and that limits their development of wind and solar.

18. Biggest failure / explanation. ANS: Dexter. $400 million -> 0. Gave purchase price in stock worth 6-7billion. Nobody misled. Just misjudged. I would rather be 100x more cautious than 1% less cautious. #munger: if we had used the leverage that a lot of successful operators did, berkshire would be a lot bigger, but we would be sweating at night, and it's crazy to sweat at night (#WEB: over financial things).

19. Consequences of high inflation. ANS: WEB wouldn't have predicted 5-6 years of low rates, and run fairly large deficits.. (the country could sustain 2.5% deficit forever), but we have taken the fed reserve balance sheet to over 4 trillion, and done a lot of things beyond the economics 101 course and nothing bad has happened except savers have been totally killed. It's hard to see how .. if you don't .. helicopter money --> how can there not be inflation? Money supply growing faster than goods and services. We're operating in a world that Charlie and I don't understand very well. #munger: we swim and let the tide take care of itself. the problem with making these economic pronouncements is that eventually people think that they know something. it's much easier to say i'm ignorant. #web: you can be sure that over the next 10 years you will see things that you didn't think were possible and we will occasionally see things that are good for berkshire both financially and psychological.

Berkshire Hathaway 50th annual meeting

20. Deferred tax liability. Bonus depreciation. Will this form of float continue to grow? ANS: unrealized depreciation on securities. factor of accelerated depreciation, we will get a return on equity and that's not free equity because regulators take that into account. that's good for our customers and not a benefit for us. I wouldn't look at that as a hidden form of equity. I would have the deferred taxes than not have them, but what could happen is that the deferred taxes were accrued at a 35% rate. So if the corporate rate changed then you could see a big change. But it would be a book entry and wouldn't mean much. The float from the insurance business is a huge asset, but deferred tax liability is a plus but not a huge asset.

21. Henry Singleton and Teledyne. ANS: #munger: very smart man, and WEB was thinking about investing and that got him over the deficit in IQ. Singleton had clever incentives on all the key executives and they were tough and meaningful. There were 3 defense departments that eventually got into scandals. The incentives and culture and performance got too strong and that got destructive. #web: the power of incentives and there are hidden incentives. we have seen really decent people misbehave because they felt a loyalty to the CEO to deliver certain numbers because the CEO made a lot of forecasts on what the company would earn. If WEB went out to say berkshire will earn X%, then managers who set up loss reserves ... that will lead to misbehavior because they don't want to make the CEO look bad in terms of his forecasts. When people get their ego involved / ego-satisfaction, we consider it.

National Indemnity in the late 1960's Jack... would start berating the fellow when he got claims. Jack was joking, but then the guy took it seriously and then started to hide claims. That led us to misreport to the reinsurers. He had no financial incentive to hide claims, but he didn't like to go into Jack's office and have him kid him.

22. If Berkshire would be deemed too big to fail, what effect? ANS: Happening in Europe where insurers deserve special attention. Systemically important financial institutions. So which non-banks are in it? General Electric / Prudential / Metropolitan. It's not a question if you're large (AAPL, WMT). THe definition of a SIFI is 85% of revenue coming from financial measures (BRK is 20%). #munger: definitely a lot of risk in high finance. and dodd frank hasn't removed it. trading derivatives is like running a gambling parlor where you have a proprietary edge, and it doesn't help people or society.

#WEB: my understanding is that dodd-frank actually weakens the power of the fed and the treasury that they took in 2008 and those powers were needed to keep the system from going into utter chaos. the ability to say and have the ability to actually do what needs to be done, has resided in the federal reserve and the ECB. the fact that people believed hank paulson that money market funds were safe stopped a run on money market funds. If people hadn't believed.. that 150+billion run would have gone to a trillion. When you have a panic, you need someone who can be believed that he or she will do whatever it takes. You saw that in Europe when Draghi said that and in the US when Bernanke and Paulson said that. In the past Bank of America brought out gold to stop runs on the banks. "If they said Basel rate was x%, that would make the line longer."

23. Online workers comp. ANS: The channel conflict isn't a big problem. The nature of the insurance business has changed. Geico used to be direct mail. The basic idea that saving people money on auto insurance continues to that day where it went from direct mail -> tv -> internet -> mobile. The world moves on, but the key is to save people money and give them good service. Whichever way does that the best way will stay on top.

24. Which question would you love to be asked? ANS: pass

25. Follow up on 3G. I intend no disrespect to 3G's money making abilities. However, you took more than a decade to shut down the Berkshire's mills, and you have great pride in letting managers running. If 3G ran berkshire would there not be layoffs in the name of short term profits. ANS: GEICO has 30,000 people. 25 people in the office. We don't believe in having extra people involved. At our newspapers they have to cut back. Closed the womback mill before the berkshire mill. When it was hopeless we gave up on it. If we put in this loom we could get rid of 8 people. We were trying to lower labor to increase profits because we were in competition. Buffett tolerates it but doesn't advocate for running businesses at a loss where that will continue. The same goes for having excess people.

26. Average consumer staples firms.. do you see further consolidation? ANS: there are bound to be. coca cola, has a strong brand. take heinz, 60% in brand estate in the US. Retailers and the brand are always going to be in tension. Retailers might want to switch to private label. You've got to take really good care of brands. Gillette is another good example: get a promise in people's mind and make sure it gets delivered that way. Strong brands will always have to deal with tough retailers. #munger: waves of layoffs frighten people and jobs are important and it's no small thing to lose it, but where would our country be without rightsized businesses?

27. Does value investing work in China? ANS: value investing has no borders. extraordinary period of 1973 / 74 you could buy stocks at unbelievably cheap prices (cheaper than 2008). It doesn't make sense why these fluctuations happen but they will. It's an easy game if you can control your emotions. #munger: It looks easier but in fact it's harder. #web: when you buy a farm or an apartment you don't get a quote on it every day.

28. The US superior economic position. Chemical + cyber security problems. (CNBC). ANS: 2% growth and 1% population growth means 20% gain in a generation. That can all be nullified by religious fanatics or sociopaths. Those people aren't going to go away and they will look for more ingenious ways to use the raw materials available to them.

29. Investment officer in the future given the organization is fairly decentralized. ANS: a CIO should have an array of skills ... you need operating experience + investment experience. By being in operations, you learn about operations.

30. Ted Weschler - what investment process / qualities does he bring? ANS: smart about businesses and investments. they understand the reality of business operations and what makes for a competitive strength. on top of that they have qualities of character. we used to see people with great great investment records. when i gave up my partnership i knew 20 people with investment records but I picked Ruane (of Sequoia), and he was a terrific manager but also a terrific human being. They do their share and don't claim to do things that they didn't do. Charlie met Tod first and I met Ted first. We talked about stocks and what kind of people they were. #munger: each one has helped buy a business recently and will help oversee it. they're smart about business and what touch to apply in terms of how much to get involved. Smart / good sense / how to deal with people. Charlie and I have both seen IQ's that have far surpassed our own go on to self-destruct in order to make money that they didn't need. That's madness. #munger: trustworthiness is more important than ability.

31. Cumulative return of S&P and hedge funds. 63.5% vs 19.6% and Protege Parners Wager. The hedge fund managers did well, just not their investors. There's a website called "long bets."

32. Couldn't hear the question, something about your reputation. ANS: the reputation that you have when you're old is the one that you deserve, and it's the same with companies.

33. Climate change, is it a risk? ANS: we price our business every year. we're in the property casualty business. I see nothing that global warming should change my prices a lot. If I sell a one year insurance policy on $1b plant, I may be thinking about a fire but not global warming. Marvin the torch, "I don't burn down buildings..."

34. Impact of the Wealth of Nations. ANS: If you read Adam Smith and Keynes. And if you also read 'where are the customers yachts that's helpful #munger: adam smith is rightly recognized as one of the brightest people, his lessons were borne out when communism failed and china came up so fast. the productive power of capitalism.

35. short term, calendar - do public companies have problems with short-termness when they become private? ANS: #WEB doesn't see a problem here. #munger: not apparent to us. #web: they know we run berkshire with a 100 year horizon. We try and reinforce it, and hammering this same message over and over. We don't ignore yearly results at all, but we don't live by them. I read monthly reports with great interest, but we don't live by them. What really counts is where we are in 3 years and 5 years. Maximizing something in 10 years doesn't mean throwing away money in the short run.

36. Differences between Germans and the US. #munger: we've had a hard time buying things in Europe, it's been quite rare. The traditions and the family traditions are different in Europe than in the US. Germans work fewer hours than other people and produce a lot more - like me and warren. We admire the engineering chairmans. Prediction: we'll make a german acquisition in the next 5 years. Prices may be more attractive there than in the US but we haven't bought any yet.

37. Actuarial models at Geico. ANS: we can beat the rate for 30-40% of the time, but we can't be the lowest in all cases. We have our own underwriting criteria (one of which is age, though it is not dominant). Different firms have different underwriting variable weightings. How should we evaluate drivers?

38. Reinsurance business. ANS: it's not as good as it was before. but it's an attractive asset class on so called non-correlated asset returns. one motivation is that it's a facade for hedge funds that want to be located in bermuda. reinsurance won't be as good as it has been in the last 30 years. it's a business who's prospects have made a turn for the worse. there are certainly things that berkshire can do (underwritings over a billion). #munger: we never search for a robust narrative to sell something. #web: we've had the opportunity to sell reinsurance, but we could get a big overwrite on it, but that's not our game.

39. How do you get a lot of friends and have people get to know you. ANS: #munger: the only way I was to get people to like me was to get very rich and very generous. #web: people will see a lot of virtues when you write a check. Look at other people and why you admire them, and be the qualities that you like. charlie has said the most important thing in a marriage partner.. is you look for someone with low expectations.

40. NetJets. Can you comment on pilots. Whitney Tilson: what kind of return on investment capital. Will it be a mistake? ANS: NetJets is a very decent business. pilots have a good job. it's not a return on investment on the billion of dollars of orders because we resell them to others. the investment is held in very large part by the owners themselves. we have no anti-union agenda whatsoever. Our pilots get paid 140k / year. They have 7 days on / 7 days off. It's perfectly understandable that employees / employers have differences.

41. Duracell. it's core business is in decline. looking back, berkshire has been willing to hold these investments. How much were tax considerations a part of this? ANS: proctor and berkshire both had tax benefits. the battery business is definitely a declining business, and certainly duracell has a strong position, but it will have unit declines over a period of time.

42. can you wrap up the coca cola stock into an entity similar to how yahoo did with baba? ANS: there's no way to use appreciable shares .. but there's no way to distribute to shareholders without taxes. Yahoo wasn't able to get rid of the tax. It may give them some other option with baba. there are lots of examples of large unrealizable gains in securities .. and no one seems to have figured out how to get it to shareholders in a tax-free way.

43. Household formation. seems to not have recovered. could the US become more like Europe, or will there be a regression back. ANS: my impression is that they will return to normal. it always turns down in a recession.. and you could argue that we're not out of the recession but we can't truly know. #munger: it's not healthy to look for a pie in the sky or whatever the hell they're doing.

44. How can we increase philanthropy? ANS: believer in individual philan instead of corporate philan. Shareholders should determine their own activities since it's their money. We want our businesses to participate in their communities but I won't spend your money since this is a partnership.  The people who give money on Sunday, that's money that is going to change their lifestyle. Giving a dollar away has never forced me to give up watching a movie, or giving a gift to my kids. Everything I have given has come from an ungodly surplus.

45. Eurozone currency. Is it good for the Euro or bad? ANS: #munger: noble motivation, but it's a flawed system to put countries that are so different together. The big strains are in Greece and Portugal. "You can't make a partnership with your frivolous, drunken brother in law." #web: there are flaws, but there were flaws in our constitution. the fact that it wasn't perfectly designed in the beginning doesn't mean that it should be abandoned. We could have made the US work with Canada, but we couldn't have made a currency with Argentina. #praise by name, criticize by category. There were rules with the Euro that were broken very early on by Germany and France. It was investment banker motivated fraud. The euro can and should survive but it will take real changes and examples in order to enable them to do so.

46. Geico and Van Tuyl. Synergies? ANS: investment bankers talk a lot about synergies but they generally don't work. People don't buy automobile insurance at dealerships. Geico is a low cost model. Those two companies will do better if run independently. #munger: it's a very dumb idea and we're not going to do it.

47. Silver market? ANS: I don't follow it as much as before. WEB knew about supply and demand before. We made a little money. There are some pure silver mines, but overwhelmingly it's produced as a byproduct to copper mining. So it doesn't respond as much to its own supply characteristics but it does respond to the demand characteristics of copper / these other secondary markets.

48. Activism. If WEB gives his shares away, how will BRK defend itself from activists who want to split up the company. ANS: it's unlikely that on any long term basis the parts > whole. the best defense against activism is performance. there's been a lot of money brought to activist funds... insitutional money is going in there and consultants recommend it.. and now activism is pretty reaching and the claims of what they can do. there's been so much stupidity written about stock repurchases. Repurchase them if you're taking care of the needs of your business and your stock is trading at below what its worth. It's become a contorted and silly discussion. When stocks are cheap buybacks tend to fall off and when things are overpriced buybacks pick up. We'll buyback stock at 1.2x book but not at 2x. #munger: I don't want any activists to marry into the family.

49. AXP has had strong network effects. the image of exclusivity ended when costco moved off. how does AXP defend its moat? It's also gone downstream into debit cards and such, which could potentially dilute the brand? ANS: all aspects of payments will be subject to a lot of innovation and attack. AXP is a very special company in anticipating a lot of these trends and guiding this into different markets. #munger: AXP was better when there was less competition. #web: It's got a history of adaptation, from travelers checks to credit cards.

50. teaching financial literacy. ANS: #munger: if you don't know how to save I can't help you. #web: it's important to build good habits early on. Habits make an enormous difference.

51. Put / unwinding derivative trade. ANS: We carry a liability of well over 3.5-4billion, so it's very hard for us to take . The float really is essentially very close to permanent. It can decline a few percentage a year but it can also grow. We have very little debt. Logically, we should take on more debt at these prices. If we find a very nice deal, and we need to borrow then that could be worth it.

52. Chinese dealerships. ANS: not sure what the chinese dealership scene is.. we'd like to see the owners have skin in the game. when profits are good we want to pay a lower multiple. we would rather buy a 10-12x in a bad year vs a 8x multiple in a very good year. That's not how sellers think.

53. The internet. ANS: WEB uses the internet, it's changed his life. He would give up his plane over the internet. #munger: I don't like multitasking, it's a terrible way to think. I'm so stupid that I need to think about a single thing at the same time. I've never thought about multitasking my way to glory. It's changed many of our businesses.

54. Whitney Tilson. Rising income inequality. ANS: income inequality is extraordinary in the United States. Since I was born in 1930, the average GDP per capita has gone up 6x. If you had to guess, you would think that everyone would be living a great life.. but clearly they're not. I don't think you can raise the minimum wage ... significantly without costing a lot of jobs, supply and demand curves do exist. The earned income tax credit, rewards to people at work but also helps people. #munger: if you raised the minimum wage massively you would hurt the poor, but it would help them if you instituted the earned income tax credit.

55. College education. ANS: #munger: most people are getting subsidies. education has been raising the price, but "it's a big bargain" but maybe it's because they were much better before they went to college. #web: it's really silly, because the statistics that say you go to college and their salaries, but you can't point it to that one variable. #munger: prices tend to gravitate to what can be collected. When the great recession came.. every great university with a shortage of money fired a bunch of people. This rightsizing is not all bad.

56. China over the long term. ANS: #munger: big fan of what's happening in China. Lee Kuan Yew in Singapore ended a lot of corruption. You don't want to be run by a den of thieves. What Lee Kuan Yew did was he paid civil servants way better and recruited better people. China is wildly copying Singapore. They've actually shot a couple of people, and that gets people's attention. #web: it strikes me as totally miraculous how fast this country has grown.

For 200 years the US became close to 25% of the world's GDP and China didn't really go any place..  but then the same people 40 years ago.. not smarter and not more hard working.. and look what's been accomplished. It shows you human potential when you combine it with a system that unleashes it. For centuries, people were going nowhere. In the future, China and the US will be superpowers as far as the eye can see. We're both better off if the other is doing well.

57. operational metrics when you first started out? ANS: we wanted to see if we knew what the future of this company would be like in 3-4-5 years. Prices were different back then, and it was a much easier decision than it was currently. No planning sessions, just kept reading and comparing opportunity A with B. We probably leaned much more towards things we were probably going to get a decent result than a brilliant result. #munger: we made some of our luck by being curious and seeking wisdom. there's nothing quite like getting wisdom than getting your nose whacked. #web: we thought we knew about the trading stamp business (mistake), we thought we knew about department stores (mistake). we've had a lot of fun on the way. #munger: we were both lucky to have come from families with admirable people.

58. How were you able to convince early investors? ANS: the people that joined me.. they just had faith in me. I had been investing for 5-6 years. If I was retired by 26 years old I was doing something right. An ex-stockholder from Graham's partnership recommended me. Initially it was people who just knew me. #munger: we've watched a lot of people start. the people who follow graham and newman path.. everyone's done fairly well. if you avoid being a perfect idiot and have a good character and do it day after day it's amazing how it worked.

59. What matters to you most? ANS: #munger: your main duty is to become as rational as you can possibly be. rationality is a moral duty. berkshire is a temple of rationality. what's valued is that you see it the way it is. that's the way I did it. that goes beyond a technique. if you have easily removable ignorance and keep it .. that's dishonorable.. to stay stupider than you have to be. You have to be generous because it's crazy not to be because we're a social animal and we're tied to be. #web: what matters to me the most is that berkshire does well. there are a million or more people that are involved with the organization.. i would not be happy if berkshire was doing poorly. #munger: we hate losing someone else's money. a good doctor doesn't like it when the patient dies on the table either.

60. What helped you early on? ANS: I had a great teacher. Exceptional focus. and the right sort of emotional qualities. It's hard enough to be interesting but it requires emotional stability. I went after it hammer and tong. I went through the manuals. I started out between ages seven and nineteen I had that same enthusiasm. I didn't have the guiding principal that I found in the intelligent investor. #munger: it's an easy game if someone has the temperament for it. I have a problem that I don't like to be an example by getting rich by being shrewd for being a good stock investor. I like it when you're investing for a endowment or a pension fund, but I never considered it enough of a life.. #web: running berkshire is much more fun than running the partnership. Berkshire is way more satisfying.

61. The Old Wall Street Journal. What did they miss? ANS: WSJ got beat by Bloomberg. WSJ had the advantage but they didn't see various areas that they could have pursued. they had a great balance sheet and a great position. rupert murdoch is going into a competition with the NYT and that's an interesting competitive situation. If tom murphy had that hand it would be in the 100's of billions. #munger: it's hard to invent new modalities.