That allowed us to set up the Graham Buffett concentration in security analysis at the University of Florida College of Business. And we honored, and Mr Buffett has agreed to come and lend his name to this concentration.

The Graham Buffett course sequence is important to this college because it enables us to attract students who want this perspective on investing and the managing of corporations, a perspective that has been successfully employed by Mr Buffett, Mr Hawkins and before them, Benjamin Graham. This perspective is quite simple, but sometimes lost and the complexity of our university analysis, The perspective is that you have to understand the underlying economics of the businesses you invest in work in. You have to be clear eyed and not be swayed by the crowds or the passing fancies of the moment. And you have to learn and stick to discipline principles of business valuation. In the long run, this disciplined approach will more often than not bring success, perhaps just as important, avoid spectacular failures. Hopefully here at the University of Florida, we can successfully convey those principles to our students and create a program that attracts the very best people and in time, the very best employers as well. So we thank Mr Hawkins for his gift and for creating this environment that makes it possible for a man like Warren Buffett to come to our university and share his thoughts with us today. So without any more conversation, let me introduce to you Mason Hawkins.

Thanks a lot, doctor Moy. I've got a prepared thing or two to say, but before I started wanted to just say that looking around this audience, it's a huge improvement from when Dan Collin with storme and some of the rest of us were here. This group's been greatly upgraded.

As a Florida graduate living in the state of Tennessee. It's been a, it's been quite an experience. And so I can say without, without any exaggeration, it's great to be back in gator country, especially after our little sojourn to the city of Knoxville not too long ago. If I ever hear Rocky Top again, it's going to be one time too many.

These are exciting times for value investors. They're very exciting times to be University of Florida graduate business student. Today, we're extremely fortunate and grateful to have a very special guest to share as many, many insights with us. He's someone I've admired tremendously for the last 30 years, and additionally, he is a person I think each of us could pattern our lives after as a role model, even if he, even though he happens to be an avid in Nebraska Cornhusker, and we've got our scars for that too. It's my honor as well as my privilege to welcome our lifetimes. Best long term investor, Mr Warren Buffett.

1 million, million, 3 million seems to be working. I'd like to just say a few words pulmonarius, and then the highlight for me will be getting your questions in a few minutes because that's I want to talk about what's on your mind. I urge you to throw Hardball is it's more fun for me if you put a little speed on the pitches as they come in. You can ask about anything except last week's Texas A and M game. That's off limits.

We have a couple of men here from Sundress. I was just up at the Coke meeting and I sat next to Jimmy Williams there who ran sundress for many years and he wanted to be sure that I wore the Suntrust shirt down here. I've tried to get sponsorship on the senior golf tour. I haven't had much luck, but now in the Banker store I'm doing a little bit better. He says I got a percentage of the increase in deposits in Gainesville, so I'll go out for Suntrust your old sub-drainage I would like to talk for just one minute to the students about your future.

When you leave here, you're going to learn a tremendous amount about investments, and you'll have to learn enough to do well. You've all got the IQ to do well, you've all got the initiative and energy to do well, or you wouldn't be, you wouldn't be here, and most of you will succeed and meeting your aspirations.

In determining whether you succeed, there's more to it than intellect and energy. And I'd like to talk for just a second about that. In fact, there was a fellow that pet Kiwi in Omaha used to say that he looked with free things in hiring people, look for integrity, intelligence, and energy. And he said if the person didn't have the first two, that the latter two would kill them. Because if they don't have integrity, you want them dumb and lazy. You don't want them smart and energetic. And I really like to talk about that first one because we know you've got the second too. And play along with me in a little game for just a second.

In terms of thinking about that question.

You've all been here, I guess, almost all of your 2nd year Mbas, and you've gotten to know your classmates and think for a moment that I granted you the right to buy 10% of one of your classmates for the rest of his or her lifetime. You can't pick one with a rich father. That doesn't count. I mean, you've got to, you've got to pick, pick somebody who's going to do it on their own merit. And I gave you an hour to think about it, which one are you going to pick among all your classmates is for the one you want to own 10% of for the rest of their lifetime? Are you going to give him an IQ test?

Pick the one with the highest IQ? I doubt it, I got to pick the one with the best grades. I doubt it, you're not even going to pick the most energetic one necessarily. You are the one that displays the most initiative, but you're going to start looking for qualitative factors in addition, because everybody's got it up, right? No, and I would say that if you thought about it for an hour, decided who you're going to place that bet on, you'd probably pick the one who you responded the best to because the one that was going to have the leadership qualities, the one that was going to be able to get other people to carry out their interest.

And that would be the person who was generous and honest, who gave credit to other people even for their own ideas, all kinds of qualities like that. And you could write down those qualities that you admire in this other person, whoever you admire most in the class. And then I would throw in a hooker, I would say, as part of owing 10% of this person, you had to agree to go short 10% of somebody else in the class. That's more fun, isn't it? And you think, well, who do I want to go short of. And again, you wouldn't pick the person with the lowest IQ, or you would start thinking about the person really who turned you off for one reason or another.

I mean, they had various qualities quite apart from their academic achievement, but they had various qualities. And the Indians shouldn't really want to be around them. And other people didn't want to be around them. And what were the qualities that lead to that? Well, it'd be a whole bunch of things, you know, but it's the person who's egotistic or the person who created the person who slightly dishonest, cuts corners all of these qualities, and you can write those down on the right hand side of the page. Look at that, we just, I don't know which 1 I'm using, Can you hear me okay with us?

It just came, just came loose. You can see why I avoid technology. That chewing gum is about as far as I get.

As you look at those qualities on the left and right hand side, there's one interesting thing about them. It's not the ability to throw a football 60 yards. It's not the ability to run the 100 yard dash in 9 3. It's not being the best looking person in the class qualities that if you really want to have the ones on the left hand side, you can have them. I mean, they are qualities of behavior, of temperament, character that that are achievable. They're not forbidden to anybody in this group. And if you look at the qualities on the right hand side, the ones that you find turn you off in other people, there's not a quality there that you have to have. If you have it, you can get rid of it and you get rid of a lot easier at your age than you can at my age, because most behavior is habitually, they say the chains of habit are too light to be felt until they're too heavy to be broken.

And there's no question about, I see people with these self destructive behavior patterns at my age or even 10 or 20 years younger, and they really are entrapped by them. They go around and they do things that turn off other people right and left and they don't need to be that way, but by a certain point they get so they can hardly change it. But at your age, you can have any habits, any patterns of behavior that you wish. It's simply a question of which you decide. And why not decide the ones that I mean?

You like Ben Graham did this and Ben Franklin did it before him, but Ben, Ben Graham in his in his low teens looked around and he looked at the people he admired and he said, you know, I want to be admired, so why don't I just behave like them? And he found there was nothing impossible about behaving like them. And similarly, he did the same thing on the reverse side in terms of getting rid of those qualities. So I would suggest that if you write those qualities down and think about them a little while, I will make them habitual. You will be the one that you want to buy 10% of when you get all through. And the beauty of it is you already own 100% and you're stuck with it, might you might as well be that person as somebody else.

Well, that's that's a short little sermon. So let's get on to what what you're interested in. And like I say, you can go all over the lot. So I don't know exactly how we're going to handle this, but let's start with a hand here someplace or other. Where do we go with the first one? You know, right here, your thoughts about Japan? My thoughts about Japan, I I'm not a macro guy.

Now I say to myself, Berkshire Hathaway can borrow money for 10 years at 1% in Japan, now 1%. And I say to myself, gee, I took Graham's class 45 years ago and been working hard at this thing all my life. Maybe I can earn more than 1%. You know, I really work hard at it, 1% angry. It doesn't seem impossible, does it?

I wouldn't want to get involved in currency risk, so I'd have to do it in something that was yen denominated. So I have, I have to be in Japanese real estate or a Japanese business or something of sort and be, and all I have to do is beat 1%. And that's all the money's going to cost me. And I can get it for 10 years. So far, I haven't found anything. It's kind of interesting.

Japanese companies earn very low returns on equity. They have a bunch of businesses that earn 4 or 5, 6% on equity. And it's very hard to earn a lot as an investor when the business you're in doesn't earn very much money. Now some people do it. In fact I've got a friend, Walter Schloss, who worked with Graham at the same time I did. And it was the first way I went at stocks to buy stocks selling way below working capital, very cheap quantitative stocks.

I call it the cigar butt approach to investing.

You walk down the street and you look around for a cigar butt someplace, you find you see one and it's soggy and kind of repulsive, but there's one puff left in it, so you pick it up and the puff is free. I mean, it's a cigar, but stock. I mean, you get 1 free puff out, and then you throw it away, and you walk down the street and drive by another one. I mean, it's not elegant, but if you're looking for a free puff, it works. Those are low return businesses. But time is the friend of the wonderful business. It's the enemy of the lousy business. You're in a lousy business for a long time, you're going to get a lousy result, even if you buy it cheap, if you're in a wonderful business for a long time, even if you pay a little too much going in, you're going to get a wonderful result if you stay in a long time.

I find very few wonderful businesses in Japan at present. Now, they may change the culture in some way so that the managements get more stockholder responsive over there and returns are higher, but at the present time you'll find a very lot of low return businesses. And that was true even when the Japanese economy was booming. I mean, it's amazing. They had an incredible market without incredible companies. They were incredible in terms of doing a lot of business, but they weren't incredible in terms of the return on equity that they achieved, and that's finally caught up with them. So we have so far done nothing there, but as long as money's 1% I'll keep looking.

Yeah, you were rumored to be one of the rescue buyers of long-stay capital.

What was the play there, what did you see? Well, there's a story in the current Fortune magazine. One has Rupert Murdoch's picture on the cover that tells the whole story of our involvement. It's kind of an interesting story because, well, it's a long story, so I. Won't go into all the background of it, but I got the really serious call about long term capital 4 weeks ago this Friday.

Whenever it was, it was my granddaughter. I got it in mid afternoon, the moon, and my granddaughter was having her birthday party that evening, and then I was flying that night to Seattle to go on a 12 day trip with Gates on to Alaska and a private train, all kinds of things where I was really out of communication.

But I got this call on a Friday afternoon saying that things were really getting serious there. I'd had some other calls before that the article gets into a few weeks earlier. I know those people, most of them pretty well. So a lot of them were Solomon when I was there. And the place was imploding and the Fed was sending people up that weekend. And so between that Friday and the following Wednesday, when the New York Fed, in effect, orchestrated. A rescue effort, but without any federal money involved.

I was quite active, but I was having this terrible time because we were sailing up through these. So these canyons, which held no interest for me whatsoever in Alaska. And the captain would say, you know, if we just steer over here, we might see some bears and whales. And I said, steer where you got a good satellite connection. So, so it was that there's a picture, unfortunately, where I've got my old faithfuls going off behind me and I've got my back to it.

I'm on the phone, which was the people the group thought was kind of funny that way, working on the phone. But we put it a bit on Wednesday morning. By then I was in Bozeman, Montana, and I talked to Bill McDonnell, the head of the New York Fed. About 10 o'clock they were having an E, the bankers at 10 o'clock that morning in New York, and I caught him.

We actually delivered a message to him. He called me out there in Wyoming a little bit before 10 New York Times, and we made a bid. It was because it was being done at a long distance and everything, really the outline of a bid. But in the end, it was a bid for 250 million, essentially for the net assets of, but we would have put in three and three quarters billion on top of that, and it would have been 3 billion from Berkshire Hathaway, 700 million from AIG, and 300 million from Goldman Sachs. And we submitted that. But we put a very short time use on it because when you're betting on $100 billion worth of securities that are moving around, you don't want to leave a fixed price bid out there very long plus we were worried about it getting shopped in the end. The bankers made the deal, but it was an interesting period.

The whole long-stem capital management, and I hope most of you are familiar with it, but the whole story is really fascinating because if you take John mewes her and ERC Rosenfeld, Larry Hillenbrand G Hawkins victor agani the two Nobel Prize winners, Merton shows, if you take the 16 of them, they probably have as high an average IQ as any 16 people working together in one business in the country, including at Microsoft or wherever you want to name.

So incredible amount of intellect in that room. Now you combine that with the fact that those 16 had had extensive experience in the field they were operating. I mean, this was not a bunch of guys who made their money selling men's clothing and then all of a sudden went into the securities business or anything they'd had in aggregate, the 16 and probably had 350 or 400 years of experience doing exactly what they were doing. And then you throw in the third factor that most of them had virtually all of their very substantial net worth in the business. So they had their own money up, hundreds and hundreds of millions of dollars of their own money up super high intellectual, working in a field they knew. And essentially they went broke. And that to me is absolutely fascinating.

I mean, if I ever write a book, it's going to be called Why Smart People do dumb things. My partner says it should be autobiographical, but this might be an interesting illustration. And these are perfectly decent guys. I respect them and they helped me out when I had problems with Solomon. So they are not bad people at all, but to make money they didn't have and didn't need, they risked what they did have and did need, and that's foolish.

That is just plain foolish, doesn't make any what your IQ is. If you risk something that is important to you for something that is unimportant to you, it just does not make any sense.

I don't care whether the odds are 100 to 1 that you succeed or 1000 to 1 that succeed. If you hand me a gun with 1000 chambers, a million chambers in it, and there's a bullet in one chamber, and you said put it up your temple, how much do you want be paid to pull it once? I'm not going to pull it. You know, you can name any sum you want, but it doesn't do anything for me on the upside, and I think the downside's fairly clear, so I'm not interested in that kind of a game. And yet people do it financially and without thinking about it very much.

There was a great book, it wasn't a great book, it was a great title, it was a lousy book written once with a great title by Walter Gutman. The title was you only have to get rich once. Now that seems pretty fundamental, doesn't it?

What different if you've got $100 million at the start of the year and you're going to make 10% if you're unleveraged and 20% if you're leveraged 99 times out of 100, what difference does it make at the end of the year whether you've got 110 million or 120 million makes no difference at all. I mean, if you die at the end of the year, you know, the guy that writes up the story may make a title and he may say 110 even if 1 120, so you've got nothing at all it makes absolutely no difference makes no difference to your family makes no difference to anything, and yet the downside, particularly managing other people's money, is not only losing all your money, but it disgrace and humiliation and facing friends whose money you've lost everything.

I just can't imagine an equation that that makes sense for, and yet 16 guys with very high Iqs who are very decent people entered into that game and you know, I think it's madness and it's produced by an over reliance to some extent on things those guys would tell me back when I was in Solomon Six Sigma event would wouldn't touch us or a Seven Sigma event, but they were wrong.

I mean, history does not tell you the probabilities of future financial things happening. They had a great reliance on mathematics and they felt that the bait of the stock told you something about the risk of a stock. It doesn't tell you a the damn thing about the risk of a stock, in my view. And sigmas do not tell you the risk of going broke, in my view, and maybe in their view now too, but I don't like to even use them as an example because they are, I mean, the same thing in a different way could happen to any of us, probably where we really have a blind spot about something that's crucial because we know a whole lot about something else. It's like Henry Kauffman said the other day that the people are going broke in this situation are just of two types, the ones who knew nothing and the ones that knew everything.

And it's sad in a way, I urge you and anything, we never basically borrow money. I mean, we got to float through an insurance business and to do things, but I never borrowed money. I never borrowed money when I had 10000 bucks, basically, what difference did it make? I was having fun as I went along, and it didn't make difference whether I had $10000 or a million dollars or $10 million, except if I had a medical emergency or something had come along like that. I was going to do the same things When I had a lot of money is when I had very little money.

You know, if you think about the difference between me and you in terms of how we live, you know, we wear the same clothes, basically. Suntrust gives me mine, but. So we wear the same clothes.

You, we all have a chance to drink the juice of the gods here, but we all go to McDonald's or better yet, Dairy Queen. And we live in a house that's warm in winter and cool in summer. And we watch Nebraska, Texas, a m.m. on a big screen.

Now, you see it the same way I see it. We do everything, our lives aren't that different. You know, you'll get decent medical care if something happens to you, and I'll get decent medical care. The only thing we do is we travel differently. I ride around this little plane and I love. It and that takes money. But if you leave that aside, if you leave that, we travel differently. But other than travel, you know, I think about it, think, what can I do that you can't do?

Now? I get to work in a job that I love, but I've always worked in the job I love. I love it when I loved it just as much when when it was a big deal, if I made a thousand bucks, I urge you to work in jobs you love. I mean, I think you're out of your mind if you take keep taking jobs that you don't like because you think it'll look good on your resume.

I was with a fellow at Harvard the other day who was taking me over to talk, and he was 28. And he told me about what he had done in life, which was terrific. And then I said, what are you going to do next? And he said, well, he said, after I get out MBA says, I think maybe I ought to go work for a management consulting firm because it'll look good on my resume.

I said, well, you've been 28, you've been doing all these things. I mean, you've got a resume that's 10 times as good as anybody I've ever seen it already. I said, if you take another job you don't like just for you, isn't that little like saving up sex for your old age, you know? I mean, there comes a time when you ought to just start doing, here we go. I think I got the point across to him. But you ought to take when you get out here, take a job you love. Don't take a job, but know you think it's going to look good on your resume. Take a job, you love it, You may change it later on, but you'll jump out of bed in the morning.

I mean, when I got out of Columbia, the first thing I tried to go to work for Graham immediately. I offered to go to work for him for nothing. He said I was overpriced. But I kept pestering him. I went out to all on. I sold securities for three years, and I kept writing him and giving him ideas and new, all ofan. And finally I went to work for him for a couple of years and it was a great experience, but I always really worked in a job.

I've worked in a job that that I would, that I love doing. And you should really take a job that if you were independently wealthy, you would take. That's the job to take because that's the one that you're going to have great fun and you'll learn something, you'll be excited about it and you can't miss, you may go do something else later on, but you'll get way more out of it.

And I don't care what the starting salary is or anything of the sort. I don't know how I got off on that, but there I am. So I do think that that if you think you're going to be a lot happier if you've got 2x instead of X, you're probably making a mistake, I mean. You ought to find something you like that works with that, and you'll get in trouble. If you think that making 10x or 20x is the answer to everything in life, because then you will do things like borrow money when you shouldn't. Or maybe you cut corners on things that your employer wants you to cut corners and honor. It just doesn't make any sense. You won't like it when you look back on it.

Yeah, when you talk to the students about the company that you like, I don't mean names. I mean, what makes the company? Yeah, I like, I like businesses like and understand. We'll start with that. That narrows it down about 90%. See, there's all kinds of things I don't understand, but fortunately there's enough I do understand. And you got this big, wide world out there. Almost every company is publicly owned, so you got all American business practically available to you.

Now to start with, doesn't make sense to go with things that you think you can understand, but you can understand some things. I can understand this, I mean, you can understand this, anybody can understand this. I mean, this is a product that basically hasn't been changed my out of the cherry, but, you know, since 1886 or whatever it was, and it's a simple business, it's not an easy business.

I don't want a business, it's easy for competitor, so I want a business with a motor around it, I want a very valuable castle in the middle, and then I want to, I want the Duke who's in charge of that castle, to be honest and hardworking and able. And then I want a big motor around the castle, and that moat can be various things, The moat in a business like our auto insurance business at Geico is low cost.

I mean, people have to buy auto insurance, So everybody's going to have one auto insurance policy per car, basically per driver. And I can't sell them 20, you know, but they have to buy one. When are they going to buy on? They're going to buy it on based on service and cost. Most people will assume the service is fairly identical among companies are close enough so they're going to do it on cost. So I've got to be the low cost producer. That's my Mo. To the extent my costs get further lower than the other guy.

I've thrown a couple of sharks into the moat, but all the time, if you've got a wonderful castle, there are people out there going to try and attack it and take it away from you, And I want to castle that. I can understand, but I want to castle with a motor on it. 30 years ago, Eastman Kodak's moat was just as white as Coca Cola moat.

I mean, if you were going to take a picture of your six month old baby and you're going to want to look at that picture, 20 years from now, and you're going to look at that 50 from now and you're never going to get a chance. I mean, you're not a professional photographer so that you're going to evaluate what's going to look good 20 or 50 years ago. What is in your mind about that? About that photography company is what counts because they are promising you that the picture you take today is going to be terrific to look at 20 or 30 or 50 years from now about something that's very important to you, maybe your own child or whatever it may be.

Well Kodak had that in spades 30 years ago. They own that. They had what I call share of mine. Forget about share of market share of mind. They have something in everybody's mind around the country, around the world with a little yellow box that said Kodak is the best. That's priceless. They've lost some of that. They've been lost at all and not due to George Fisher run.

George is doing a great job, but they let that moat narrow, they let Fuji come and start narrowing the moat in various ways. They let him get into the Olympics and take away that special aspect that only only Kodak was fit to photograph the Olympics. Fuji gets there and immediately in people's minds Fuji becomes more and a parody with Kodak.

You haven't seen that with Co Coke's modes wider now than it was 30 years ago. You can't see the moat day by day, but every time, you know, the infrastructure gets built in some country that isn't yet profitable for Coke but will be 20 years from now, the mode is widening a little bit. Things are all the time changing that mode in one direction or another. 10 years from now, you can see the difference. Our managers of the businesses we run. I've got one message to them, you know, which is to widen the mode. And we want to throw crocodiles and sharks and everything else, gators, I guess, into the moat to keep away competitors.

That comes about through service, it comes about through quality of product, it comes about through cost, it comes about sometimes through patents, it comes about through real estate location. So that's the business I'm looking for.

Now, what kind of businesses am I am going to find like that? But I'm going to find them. I'm going to find them in simple products because I'm not going to be able to figure out what the mode's going to look like for Oracle or Lotus or Microsoft 10 years from now. I mean Gates is the best businessman I've ever run into. And, you know, they've got a hell of a position, but I really don't know what the business is going to look like 10 years from now. And I certainly don't know what his competitors, businesses are going to look like 10 years from now. Now I'll name 1 I don't own.

I know what the chew income business is going to look like from 10 years from now. I mean, the internet is not going to change how we chew them and nothing much else is going to change how we chew Gu. And then are there going to be lots of new products?

Is that really know our spearmint fruit and all those going to evaporate isn't going to happen? You'll get me a billion dollars and tell me to go in the chewing gum business and try and make it real dent in Wrigley's. I can't do it, and that's the way I think about business. I say to myself, give me a billion dollars and how much can I hurt the guy? Give me $10 billion, give me $10 billion and how much can I hurt Coca Cola around the world? I can't do it, but those are good businesses. Now give me some money and tell me to hurt somebody and in some other fields, and I can figure out how to do it.

So I want a simple business, easy to understand, great economics, now, honest, enable management, and then I can see about in a general way where they're going to be 10 years from now. And if I can't see where they're going to be 10 years from now, I don't want to buy it.

Basically, I don't want to buy any stock where if they close the New York Stock Exchange tomorrow for five years, I won't be happy owning it. I buy a farm and I don't get a quote on it for five years. And I'm happy if the farm goes over, You know, I buy an apartment house, don't get a quote on it for five years. I'm happy if the apartment house produces the returns that I expect, but people buy a stock and they look at the price the next morning and they decide whether they're doing well or not doing well. It's crazy because they're buying a piece of a business. That's what Graham, the most fundamental part of what he taught me.

You know, you're not buying a stock, you're not buying a part ownership in a business. You will do well if the business does well and if you didn't pay a totally silly price. And that's what it's all about. And you ought to buy businesses, you understand? Just like if you're buying farms, you ought to buy farms, you understand? It's not complicated. And in calling us Graham Buffett, I mean, it's just pure Graham.

I was very fortunate I picked up a book when I was 19, I got interested in stocks when I was about 6 or 7, and I bought my first stock when I was 11. But I was playing around with all this stuff, and I had charts and volume, and I'm making all kinds of technical calculations and everything. And then I picked up a little book and it just said that you're not buying some little tipper symbol that bounces around every day, You're buying a part of the business. And as soon as I started thinking about it that way, everything else followed very simple.

So we buy businesses we think we can understand. There's no one here that can't understand the coca cocola company. I would say there's no one here that can understand some new internet company. I said at the annual meeting this year, if I were teaching a class in business school on the final exam, I would pass out the information on Internet company and ask each student to value it. Anybody that gave me an answer I'd flunk. I don't know how to do it. But people do it every day. I mean, it's more exciting.

I mean, if you look at it like going to the races or something, that's a different thing. But if you're investing, investing is putting out money to be sure of getting more money back later, you know, at an appropriate rate. And to do that, you have to understand what you're doing it. And I, you have to understand the business.

You can understand some businesses, but not all businesses. Yeah, Warren, you covered half of it, which is trying to understand the business and buying a business, but you also alluded to getting a return on the amount of capital you invest in the business as an investor. And, you know, that comes back to what are you paying for the business? How do you determine what you think is a fair price to pay for the business? That's a tough thing to decide.

I don't want to buy into any business I'm not terribly sure of, so if I'm terribly sure of it, it probably doesn't, it probably isn't to offer incredible returns. I mean, why should something that is essentially a cinch to do well offer you a 40% a year, something like that? So we don't have huge returns in mind, but we do have in mind never losing anything, and I mean, we bought SS candy in 1972, see candy was then selling £16 million of candy at a dollar $95 a pound, and it was making 2 b a pound or 4 million pre-tax. We paid $25 million for it, took no capital to speak of. When we look at that business, basically my partner, Charlie and I really decide whether there was a little untapped pricing power there, in other words, whether that dollar 95 cent box of candy, because just as easily sell for two or 2.25, you could sell for 2.25. Another 30 cents a pound was 4000008 on £16 million, which on a 25 million purchase price was fine.

We didn't do any, You know, we've never hired a consultant in our lives. I mean, our idea of consulting is go out and buy a box of candy. But what we did know was there was that they had share of mind in California. I mean, there was something special. Every person in California had something in their mind about seas candy and overwhelmingly was favorable. They had taken a box, you know Valentine's Day and given some girls, She'd kissed him. If she'd slapped him, you know, we'd have no business. But, but as long as she kisses him, you know, that's what we want in their mind, sees Candy getting kissed, and if we can get that in the minds of people, we can raise prices and bought that.

I bought it in 1972, we every year I raised the price on December 26. I raised it the day after Christmas so that everybody, because we sell a lot at Christmas, in fact, we'll make $60 million this year, we'll sell £30 million, make 2 dollars a pound, same business, same formulas, same everything, 60 million bucks still doesn't take any capital and we'll make more money 10 years from now, but about 60 million, we make about 55 million in the three weeks before Christmas and our company song is what a friend we have in Jesus. It is a good business. But the important thing about that business is think about a little, people don't buy, Most people don't buy boxed chocolates to consume themselves. They buy them as gifts, you know, somebody, somebody's birthday, more likely it's a holiday.

Valentine's Day, single biggest day of the year, Christmas is the biggest season by far, but women buy for Christmas and they plan ahead and buy over a two or three week period. Men buy on Valentine's Day, they're driving home, we run ads on the radio, you know, guilt, guilt, guilt, guilt, You know, the guys are veer off off the freeway, right, left, and they won't dare go home without a box of candy when we get through with them on our radio ads. So that Valentine's Day is the biggest day, but can you imagine going home on Valentine's Day and our seas candy is now 11 bucks a pound, thanks to my brilliance, and let's say there's candy available at 6 dollars a pound, but you really want to walk in on Valentine's Day, and I mean, your wife's all these favorable images of the seas candy over the years and she sees you and that's the way she thinks of you during the rest of the year when you behave got it badly and you walk in and say honey this year I took the low bid and then hand her a box of candy, it just isn't our work. So in a sense untapped price price, it's not price dependent.

Basically, think of Disney. I mean, Disney is selling will say home videos for, I don't know what, 1695, 1895 or whatever all over the world people, and we'll say particularly mothers in this case, have something in their mind about Disney. Every person in this room, when you say doesn't, he has something in their mind about it. I say Universal Pictures, you don't have anything in your mind? You know, if I say 20th Century Fox, you don't have anything special in your mind. I say, Disney, you have got something in your mind, and that's true around the world.

Now picture yourself with a couple young kids, you know, who you want to put away for a couple hours every day, a little piece of mind. And you know, if you get them 1 video, they'll watch it 20 times. So you go to the video store or wherever you buy the video, are you going to sit there and premiere, you know, 10 different videos and watch them each for an hour and a half to decide which one your kids should watch?

Let's say there's one there for 1695 and the Disney's there for 1795. You know, if you take the Disney video, you can be OK, so you buy it and you don't have to make a quality decision on something that you don't want to spend the time to do, and so you can get a little bit more money if you're if you're Disney and you'll sell a lot more videos, makes it a wonderful business, makes it very tough for the other guy.

How would you try to create a brand? DreamWorks is trying, but how would you try to create a brand to compete with Disney around the world and to replace the concept that people have in their minds about Disney with something that says Universal Pictures, you know, so that the mother's going to walk in, pick out a Universal Pictures video in preference to a Disney? It's not going to happen.

Coca Cola is associated with people being happy around the world where every place they're happy, where Disney World or Disneyland with the World Cup will be at the Olympics, where every place where people are happy, happiness and Coco together.

Now you'll give me, I don't care how much money and tell me that I'm going to do that with RC Cola around the world and have 5 billion people that have a favorable image in their mind about RC Cola can't get done know and you can fool around with, you can do anything you want to do. You have price discounts on weekends and everything, but you're not going to touch it and that's what you want to have in a business. That's the moat and you want that moat to widen and if your sees candy, you want to do everything in the world to make sure that the experience basically of giving that gift leads to a favorable reaction.

That means, means what's in the box? That means the person that sells it to you, because all our business is done when we're terribly busy. I mean, people come in those weeks before Christmas around Valentine's Day, they long lines, so at 5 o'clock in the afternoon, some woman is selling the last person, the last box of candy. And that person's been waiting in line for maybe 20 or 30 customers. And if the salesperson smiles at that last customer, our mode is widened. And if she snarls at him, our mode is narrowed and we can't see it. It's going on every day, but that's the key to it. I mean, it's a total part of the product delivery is having everything associated with with it, say, sees candy and something pleasant happening.

And that's what business is all about.

Qualitative analysis needed versus. You ever bought a company where the nervous is probably not to those the Best Buy? The question is whether have I ever bought a company where the numbers told me not to, and how much is qualitative and how much is quantitative. The best buys have been when the numbers almost tell you not to. I mean, because then you feel so strongly about the product and not just the fact that you're getting a used cigar, but cheap, that it's compelling.

I mean, I owned a windmill company at one time. So windmills are cigar butts, believe me. I bought it very cheap. I bought a third of working capital and we made money out of it. But there's no repetitive money to be in. I mean, there's a one time profit in something like that, and it's just not, it's not the thing to be doing. I went through that phase, I bought streetcar companies and all kinds of things.

In terms of the qualitative, I probably understand the qualitative. The moment I get the phone call. I mean, almost every business we bought has taken five or 10 minutes. I mean, in terms of analysis. And we bought two businesses this year.

General Reed is, you know, 18 billion or something deal. I've never been to their home office. I hope it's there. There could be just a few guys. And they say, well, what numbers shall we say? Buffett this month? I can see coming in once a month and, well, we'll just tell them we've got 20 billion in the bank this month instead of 18 billion or something, but I've never been there. And before I bought executive jet, which is fractional ownership of jets. And before I bought it I'd never been there. I bought my family a quarter interest in the program three years earlier.

And I'd seen the service and seen developer and I got the numbers. But if you don't know enough to know about the business instantly, you won't know enough in a month or two months. I mean, you have to have sort of the background of, of understanding and knowing what you do understand and don't understand. And that is the key. It's defining what I call your circle of competence. And everybody's got a different circle of competence. The important thing is not how big the circle is, the important thing is staying inside the circle, And if that circle has only got 30 companies in it out of thousands on the big board, as long as you know which 30 they are, you're okay. And you should know those businesses well enough so that you don't need to read, do lots of work.

Now, I did a lot of work in the early years just in getting familiar with businesses. And the way I would do that is I would go out and use what Phil Fisher called the scuttlebutt. I'd go out. I'd talk to customers I'd talk to I'd talk to maybe ex employees in some cases, I talk to suppliers, everybody, every time I'd see somebody in an industry, let's say I was interested in the coal industry, I go around and see every coal company and I'd ask every CEO, if you could only buy stock in one coal company that wasn't your own, which one would it be and why?

You piece those things together and you learn a lot about the business after a while, and funny thing is you get very similar answers as long as you ask about competitors. You, I say, if you got a sober bullet, you know, you put it through the head of one competitor, which competitor and why? You'll find out who the best guy in industry is in that case or the one that's coming up.

And so there's a lot of things you can learn about a business. I've done that in the past on the businesses that I feel I could understand. So I don't have to do much of that anymore. It's a nice thing about investing is you don't have to learn anything very new. I mean, you can do it if you want to, but if you learn about Wrigley's chewing gum 40 years ago, you still understand Wrigley's chewing gum, not a lot of great insights to get or anything of the sort. As you go along, you do get a database in your head.

I had a guy Frank Rooney, who ran Melville for many years, His father in law died, owned a company called Hh Brown or Shoe Company, and he put it up with Goldman Sachs, but he was playing golf with a friend of mine here in Florida and mentioned to this friend, the guy said, why don't you call Warren? He called me at the end the golf match and in five minutes I basically had a deal, but I knew Frank and I knew the kind of business, I sort of knew the basic economics of a shoe business and so I could buy it and quantitatively, I got to decide what the price is but. That's either yes or no. I mean, I don't fool around a lot with negotiations. If they name a price that makes sense to me, I buy it. And if they don't, I was happy the day before, so I'll be happy the day after without owning it, yeah.

The fact that has a lot of their profits coming in outside the United States, you to speak is going to affect Co for that matter. Question is about the Asian crisis and how it affects a company like Coke that recently announced that the earnings actually, they just announced a third quarter earnings, but a few weeks ago, they tipped people off that they were going to be lower in the fourth quarter and so on.

Well, basically, I love it, but because the market for coca cocola products is going to grow far faster over the next 20 years internationally than it will in the United States, it'll go in the United States on a per capita basis, It's going to go faster elsewhere. So the fact that it's going to be a tough period for, who knows, three months or three years, but it won't tough for 20 years, people are still going to, you know, they're going to work productively around the world and they're going to find that this is of a bargain product in terms of the portion of their working day that they have to give up in order to have one of these or better yet, five of them a day Like I do.

It's, you know, this is a product in 1936 when I first bought six of those for a quarter and sold them for a nickel eachach and it was in a 6.5 ounce bottle. And you paid a 2 cent deposit on the bottle That was a 6.5 ounce bottle for a nickel at that time. It's now a 12 oz can, which if you buy it on on weekends or if you're buying bigger quantities so much money, doesn't go to the packaging, you essentially can buy the 12 ounces for not much more than 20 cents. So you're paying not much more than twice per ounce price of 1936. And it is a product that's gotten cheaper and cheaper and cheaper relative to people's earning power over the years and which people love in 200 countries. You have a per capita use going up every year for products of over 100 years old. And that dominates the market. I mean, that is, it's unbelievable.

One thing that people don't understand, one of the things that makes this product is worth tens and tens of billions of dollars is one simple fact about it, about really all Coas, but we'll call it coca cocola for the moment, happened to be a name I like.

Cola has no taste memory. You can drink one of these at 9 o'clock, 11 o'clock, 3 o'clock afternoon, 5 o'clock. The one at 5 o'clock will taste just as good to you as the one frank early in the morning. You can't do that with cream soda, root beer, orange, great, you name it. All of those things cumulate on you.

Most foods and beverages accumulate on you. You get sick of them after a while. And if you eat, I mean, we get these people go to workforces, see candy, and we tell them, you all the candy they want, the first day they go crazy. But after a week, they're eating about the same amount they eat it if they're buying it. Chocolate accumulates on, everything accumulates on.

There is no taste memory to cola. And that means that you get people around the world that are heavy users that will drink five a day or Diet Coke, maybe 7, 8 a day or something of the sort. They'll never do that but it with other products. So you get this incredible per capita consumption. The average person in this part of the world, well, maybe a little north of here, drinks about 64 ounces of liquid a day. And you can have all 64 ounces of that be Coke and you will not get fed up with Coke if you like it to start with in the least. But if you do that with almost anything else, if you eat just one product all day, you'll get a little sick of it after a while.

It's a huge factor. So that today, over 1000000008 oz servings of coca cocola products will be sold in the world. And that will grow year by year. It'll grow in every country virtually, and it'll grow on a per capita basis. And 20 years from now, it'll grow in a lot faster internationally than in the us. So I really like that market market better because there is more growth there over time, but it will hurt him. It is hurting him in the short term right now, but that doesn't mean anything.

I mean, coca, coco went public in, I think it was 1919. Stocks sold for $40 a share, went back before that as a can or family, and they went back, they bought it for 2000 bucks, the whole business as the can or back in the late 1880s in a couple of purchases. So now he goes public in 1919, $40 a share, one year later selling for $19, gone down 50% in one year.

Now, you might think that's some kind of disaster. And you might think that sugar prices increased and the bottles were rebellious and a whole bunch of things. You could always find a few reasons why that wasn't the ideal moment to buy it. Years later, you'd have seen the Great Depression and you'd have seen World War Two, and you've seen sugar rationing, and you've seen thermonuclear weapons and the whole thing. There's always a reason. But in the end, if you bought one share for 40 bucks and reinvest the dividends, it'd be worth about 5 million now. And that factor so overrides anything else.

I mean, if you're right about the business, you'll make a lot of money. And the timing part of it is very, it's a very tricky thing. So I don't worry about any given event.

If I've got a wonderful business, you know, whether what it does to next year, something of the sort, you know, the price controls been in this country at various times and that that's followed up even the best of businesses. I mean, I wouldn't be able to raise the price on December 26 to see candy if we had price controls and we've had them in this country, but that doesn't make it a lousy business if that happens happen because you're not going to have price controls forever. We had them in the early in the early 70s. So the wonderful business know you can figure out what will happen. You can't figure out when it will happen. You don't want to focus too much on when you want to focus on what If you're right about what, you don't have to worry about one very much.

Is there an area I'm missing back there, any place, or I just want to make sure I'm not focusing all of them in one place? Let me get this gentleman over here.

The question is about my business mistakes. How much time do you have? Well, the interesting thing about the mistakes is that in investments, at least for me and for my partner, Charlot Munger, the biggest mistakes have not been mistakes of commission. They've been mistakes of omission. There.

We knew enough about the business to do something, and for one reason or another, we sat there sucking our thumbs instead of doing something. And so we've passed up things where we could have made billions and billions of dollars from things we understood, forget about things we don't understand. In fact, I can make billions out of Microsoft. It doesn't mean anything because I never understand Microsoft, but if I can make billions out of healthcare stocks and I should make it and I didn't, you know, when when the Clinton health care program was proposed and they all went in the tank, we should have made a ton of money out of that because I could understand it. I didn't make it. I should have made a ton of money out of Fannie Mae back in the mid 80s. I understood it and I didn't do it.

Those are billion dollar mistakes or multi-levelled dollar mistakes that generally accepted accounting principles. Don't pick up the mistakes. You see.

The mistake you see we made isn't we, I made a mistake buying us Air preferred some years ago. I mean that I had a lot of money around, I make mistakes when I get cash, Charlie tells me to go to a bar instead. Don't hang around the office, but I hang around the office and I got money in my pocket. I do something dumb and it happens every time. And so I bought this thing, nobody made me buy it.

I now have an 800 number I call every time I think about buying stock in an airline and they talk me down. They say, I say I'm Warren. I'm an aerolite. And then the guy says, you know, keep talking, don't hang up, you know, don't do anything rash. Finally, I get over it, but I, but I bought it, you know, and it looked like we were going to lose all our money in that and we came very close to losing all our money and say we deserved to lose all our money. We bought it because it was an attractive security, but it was not an attractive business. I did the same thing with Solomon. I bought an attractive security in a business that I wouldn't have bought the equity in.

So you can say that that's one form of mistake buying something because you like the terms when you don't like the business that well. I've done that in the past, but probably do it again.

The bigger mistakes though, were the ones of of all mission I did back when when I had the 10000 bucks, I put $2000 of it into a Sinclair service station, which I lost. So my opportunity cost. Now that's about 6 billion right now. Fairly big mistake. It makes me feel that my Berkshire goes down then, because the cost of my Sinclair station goes down too. My 20% opportunity cost. But I will say this, you talk about learning from mistakes.

I really believe it's better to learn from other people's mistakes as much as possible, but, but we don't spend any time looking back at Berkshire. I've got a partner, Charlie Munger. We've been pals for 40 years. We never had an argument. We disagree on things a lot, but, but we don't have arguments about it and we never look back. You know, we just figure there's so much to look forward to that there's just no sense thinking about what we might. It just doesn't make any difference. I mean, you can only live life forward and you can learn something perhaps from the mistakes.

The big thing to do is stick with the business, you understand? And so if there's a generic mistake of getting outside of your circle of competence, you know, buying something because somebody tips you on it or something of the sort in an area you don't know anything about, I mean, that you should learn something from that, which is that you stay with what you can figure out yourself. I mean, you really want your decision making to be by looking in the mirror and saying yourself.

I'm buying 100 shares of General Motors at 55 because I mean, it's your responsibility if you're buying it. And there's got to be a reason. And if you can't state the reason you shouldn't buy it, it's because somebody told you about it at a cocktail party. Not good enough, you know? I mean, it's just, it's got to be something, you know, can't be because the volume, you know, the chart looks good on it or anything like that got to be a reason you'd buy the business and that we stick to pretty carefully. That's one of the things Ben Graham taught me, yeah.

Although our econ is seem to be still tagging along quite well, where are we going? The question about what's going to happen in the interest rates, where we go in the world, I don't think about the macro stuff.

Important what you really want to do in investments is figure out what's important and knowable. If it's unimportant or unknowable, you forget about it. What you talk about is important, but in my view, it's not knowable. Understanding coca cocola is knowable, or Wrigley or Eastman Kodak or anything. I mean, you can understand those business that's knowable And whether it turns out to be important depends on where your valuation leads you in the current price and all of that.

But we have never either bought a business or not bought a business because of any macro feeling of any kind. We don't read things about predictions, about interest rates or business or anything like that because it doesn't make any difference. I mean, let's say in 1972 when we bought these candy, I think maybe Nixon put on the price controls a little bit later, let's say we've seen that. But so what? We have missed a chance to buy something for 25 million that's earning 60 million pre-tax now to pass up the chance to do something intelligent because of some prediction about something that we're no good on it anyway. So we just don't, we don't read or listen to or do anything in relation to the macro factors at all.

0. And the typical investment counseling organization goes out and they give you, they bring out their economist, they trot him out and he gives you this big macro picture. And then they start working from there on down. In our view, that's nonsense. And if Alan Greenspan was on one side of me and Bob Rubin on the other side, they're both whispering in my ear exactly, they're going to do the next 12 months wouldn't make any difference to me and what I pay for executive Je or general reinsurance or anything else I do.

Yeah? Well, what's the benefit of being an out of towner as opposed to being in Wall Street? I worked in Wall Street for a couple of years. And I like I've got I've got my best friends actually, and I both coasts. And I like seeing them. And I get ideas when I go there.

But the best way to get to think about investments is to be in a room with no one else and just think. And if that doesn't work, nothing else is going to work. And the disadvantage of being in any kind of a market type environment and Wall Street would be the extremes that you get overstimulated.

You think you have to do something every day. I mean, the Canberra family pay 2000 bucks for this company. You don't have to do much else. Pick one of those and the trick then is not to do anything else, even not to sell it in 1919, which they, the family, did later on. So what you're looking for is some way to get one good idea a year, you know, and then, and then write it to its full potential. And that's very hard to do in an environment where people are shouting prices back and forth every five minutes and shoving reports under your nose and all that.

Wall Street makes its money on Activ. You make your money on inactivity, you know? I mean, if everybody in this room trades their portfolio round every day with every other person, you know, you're all going to end up broke and the intermediary is going to end up with all the money. On the other hand, if you all own a stocking and a group of average businesses and just sit here for the next 50 years, you'll end up with a fair amount of money and your broker will be broke. So his activity, he's like a doctor who gets paid out. How often he gets you to change pills? I mean, basically, if he gets you one pill and it cures you the rest of your life, and he's got one sale, one transaction, and that's it. But if he can convince you that changing pills every day is the way to great health, it'll be great for him and the prescription list and you'll be out a lot of money and you won't be any healthier.

Be a lot worse off than Aly. You want to stay away from any environment that stimulates activity, and Wall Street would have the effect of doing that. I want to, oh, I would go back about once every six months and I'd go back with a whole list of things I wanted to check out one way or another companies I wanted to see, and I would get my money's worth out of those trips. But then I'd go back to home on and think about it.

Yeah, how should an investor evaluate owning shares of Pathway? Yeah, well, look, the question with Berkshire Hathaway, because it wasn't about evaluating Berkshire, one doesn't pay any dividends and it won't pay any dividends either.

The promise I can keep. All you get with Berkshire, you sit in your safe deposit box, and then every year you go down and fondle it and you take it out and the then you put it back. And I mean, there's enormous psychic reward in that. You don't underestimate it.

But the real question is whether we can keep retaining dollar bills and turning them into more than a dollar at a decent rate. And that's what we try to do. And Charlie Munger and I have our money in it to do that. That's all we'll get paid for doing. We won't take any options, we won't take any salaries to pick up or anything we ride around in the plane, but that's what we're trying to do. It gets harder all the time.

Money we manage, the harder it is to do that, and we would do way better percentage wise with Berkshire if it was one 100th the present size, but it is run for its owners, but it isn't run to give them dividends because so far every dollar that we've earned and could have paid out, we've turned into more than a dollar. It's worth more than a dollar to keep it, and therefore it'd be silly to pay it out even if everybody was tax free that owned it, it would have been a mistake to pay dividends at Berkshire because so far the dollar bills retained have turned into more than a dollar, But there's no guarantee that that happens in the future.

At some point, the game runs out on that, but it is the goal.

I mean, that is what the business is about, we're not nothing else about the business, do we judge ourselves by, we don't judge it by the size of its home office building, you know, anything of the number of people working around it. We've got 12 people at headquarters, we've got 45000 employees at Berkshire and 12 people at headquarters, 3500 square feet, and we won't change it so it we will judge ourselves by the performance of the company and that's the only way we'll get paid, but believe me, it's a lot harder than it used to be, the only way in the back because I want to make sure I'm not missing people back there.

I call, okay, then we'll go to the well, how about way over there on the aisle, yeah. And this what made me decide to invest What investment? One of your investments has reached its full potential, As you said earlier, that you, I missed the last part. Oh, reach its full potential. Well, ideally, you buy in business where you feel that will never happen in terms of. I don't buy Coke with the idea that it's going to be out of gas in 10 years, you know, or 15 years. I mean, there could be something happen. But I would think the chancellor that almost nil. So what we really want to do is buy businesses that we would be happy to own forever.

It's the same way I feel about people to buy Berkshire. I want people to buy Berkshire. The plan to hold it forever. They may not for one reason or another, but I want them at the time they buy it, to think they are buying a business that they're going to own forever, and I don't say that's the only way to buy things. It's just that that's the group I want to have join me because I don't want to have a changing group all the time.

I measure Berkshire by how little activity there is in it. If I had a church and I was the preacher and half the congregation left every Sunday, I wouldn't say, oh, this is Marvel's going to have all this liquidity among my members, you know? There's terrific turnover. You know, I would rather get a church where all the seats are filled every Sunday by the same people.

Well, that's the way we look at the businesses we buy. We want to buy something that we're really happy to own virtually forever, and we can't find a lot of those. And back when I started, I had way more ideas than money. So I was just constantly having to sell what I thought was the least attractive stock in order to buy something that I just discovered that looked even cheaper. But that's not our problem really now. And so we hope we're buying businesses we're just as happy with five years from now as now.

And if we ever found some huge acquisition, then we'd have to sell something maybe to make that acquisition. But that would be a very pleasant, pleasant problem to have.

We never buy something with a price target in mind. I mean, we never buy something at 30 saying if it goes to 40, we'll sell it or 50 or 60 or 100. We just don't do it that way any more than when we buy a private business like Seas Candy for 25 million. We don't say ourselves if it ever, if we ever got to offer 50 million for this business, we'd sell it. That's just not the way to look at the business. We to look at the businesses. Is this going to keep producing more and more and more money over time? And if the answer to that is yes, you don't need to ask any more questions there. Yeah, way back there.

Well, Solomon, like I said, I went into that because it was a 9% security in 1987. September 1987, the Dow was up 35%. That year.

We sold a lot of stuff and I had a lot of money around. It looked to me like we were never getting a chance to do anything, so I took an attractive security form in the business. I would never buy the common stock of, and I went in because of that. And I think that's generally a mistake. It worked out OK finally on that, but it's not what I should have been doing. I should have, I either should have waited, in which case I could have bought more coca cocola a year later, thereabouts, could have been bought coke at the prices it was selling at. And even though it was selling at a pretty good price at the time. So that was a mistake on long term capital.

That's, we have learned, other businesses that are associated with securities over the years. And I mean, one of them is arbitrage. I've done arbitrage for 45 years in Graham Deford, probably 30 years before that. And that's a business. Unfortunately, I have to be near a phone for, and I have to, I have to really run out of them or the office myself because it requires being more sort of market attuned, and I don't want to do that anymore. So I, unless a really big arbitrage situation came along that I understood, I won't be doing much of that, but we I've probably been in 300 arbitrage situations at least in my life, maybe more, and it's it was a good business, perfectly good business long term capital has a bunch of positions, they got tons of positions, but the top 10 are probably 90% of the money that's at risk. And I know about those 10 positions, I don't know everything about them by a long shot, but I know enough where I would feel OK at a big discount going in and we would have the staying power to hold it up, we might lose money on something like that, but the odds are with us. That's a game that I understand there's a few other positions we have that aren't that big because they can't get that big, but they involve they could involve yield cur relationships or on the runoff the run governments or things like that that are just things you learn over time if you're around securities markets, they're not the base of our business.

Probably on average, they've accounted for a half a percentage point of our return a year, you know, three quarters of a percentage point a year of our return there, little pluses that you get for actually having just been around a long time and learning a little bit about first arbitrage, not the first arbitrage I did, but one of the first arbitrages I did involved the company where you they were offering cocoa beans in exchange for their stock that was in 1955 and I bought the stock turned to the stock got warehouse certificates for cocoa beans and they happened to be a different type they were trading in the air cocoa exchange, but there was a basis differential in my favor and I sold them. I mean, that's just something that I was around at the time, so I learned about hasn't cocoa bean deal since 40 odd years I've been waiting for another cocoa bean deal, I haven't seen it, but it's there in my memory if it ever comes along and that long term capital is that on a big scale ye.

The question is about diversification, and I've got a dual answer to that. If you are not a professional investor, if your goal is not to manage money in such a way as to get a significantly better return than the world, than I believe in extreme diversification. So I believe 98 or 99%, maybe more than 99% of people who invest should extensively diversify and not trade. That leads them to an index fund type of a decision with very low costs because all they're going to do is own a part of America. And they made a decision that only a part of America is worthwhile. I don't quarrel with that at all. That is the way they should approach it, unless they want to bring an intensity to the game to make a decision and start evaluating businesses. But once you're in the business of evaluating businesses and you decide that you're going to bring the effort and intensity and time involved to get that job done, then I think that diversification is a terrible mistake to any degree.

I got to ask that question when I was at Suntrust the other day. And if you really know businesses, you probably shouldn't know more than six of them. I mean, if you can identify 6 wonderful businesses, that is all the diversification you need and you're going to make a lot of money and I will guarantee you that going into a seventh one is going to, rather than putting more money in your first one, it's got to be a terrible mistake. Very few people have gotten rich on their seventh best idea, but a lot of people have gotten rich on their best idea, so I would. Say that for anybody working with normal capital who really knows the businesses they've gone into, 6 is 20 and I probably have half of it. And what I liked best, I don't diversify personally. I mean, and all the people I know that have done well with the section we mentioned, Walter Schloss, Walter diversifies a lot.

He owns a little of everything. I call him Noah. He's got two of everything on. Yeah?

Well, Parker and Ham was a good, very, very good business. Strong distribution capabilities, lots of brand names and everything.

But if you ask me are going to go away for 20 years to put all my family's net worth in one business, I read how Procter and Gamble or Coke, actually Procter and Gamble was a little more the more diversified at Monk product line. But I would feel sure of Coke and Procter and Gamble. I wouldn't be unhappy if somebody told me I had to own Procter and Gamble during that 20 year period. I mean, that would be in my top 5% because they are not going to get killed. And I would feel better about the unit growth and the pricing power of a Coke over 20 or 30 years then I would about a Procter and Gamble.

Right now, the pricing power might be tough, but you think a billion, billion servings a day, you know, an extra penny, $10 million a day, you know, we own 8% of it, that's thats $800000 a day for Berkshire Hathaway. Get another penny on the stuff. Doesn't seem impossible, does it? I mean, it's worth another penny, it doesn't right now, it'd be a mistake to try and get it in most markets, but over time coke will make more preserving than it does now 20 years from now, I will guarantee it'll make more preserving. I'll be selling a whole lot more service, I don't know how many, I don't know how much more, but I know that Png's main products, I don't think they have the kind of dominance and they don't have the kind of unit growth, but they're good businesses, you know, I would not be unhappy if you told me that I had to put my family's net worth in P and G and that was the only stock I could own. I would. I might prefer some other names, but there aren't 100 other names I would prefer.

McDonald's. The question about McDonald's and going away for 20 years, McDonald's has got a lot of things going for it, particularly abroad. Again, I mean, their position abroad in many countries is stronger relatively than here.

It's a tougher business over time. People do not want to eat exception to the kids when they're giving away Beanie Babies or something. People do not want to eat at McDonald's every day. If people are drinking Coke today, they drink five of them today day. They'll probably drink 5 tomorrow.

The fast food business is tougher than that. But if you had to pick one hand to have in the fast food business, which is going to be a huge business worldwide, you pick McDonald's. I mean, it has the strongest position. It doesn't win taste tests, you know, with adults, I mean, does very well with children and it does fine with adults. But I mean, it does not like it's a clear winner. And it's gotten into the game in recent years of being more price promotional. And, you know, you remember the experiment a year ago or so. And so it's gotten more dependent on that rather than just selling the product by itself. I like the product by itself sells.

I feel better about Gillette if people buy the Mach free because they like the mock free than if they get a Beanie Baby with it. And so I just think it's fundamentally a stronger product if that's the case. And it probably is.

We own a lot of gelatin and you can sleep pretty well at night if you think of a couple billion men with her hair growing on their faces, you go to you, it's growing all night while you sleep, you know, and women have two legs, it's even better so. These count sheep. And those are the kind of business.

But if you guys thinking, what promotion am I going to put out there against Burger King next month, you know, and what if they sign up Disney and I don't get Disney? And I mean, is I like, I like the products that standalone absent promotional or pricing appeals? Although you can build a very good business based on that. And McDonald's is a terrific business. It's not as good a business as Coke, but that, you know, there really hardly any. It's a very good business. And if you bet on one company in that field, aside from Dairy Queen, of course you might be McDonald's. We bought Dairy Queen here a while back. That's why plugging it shamelessly here. Yeah, way back there.

What do I think? What the electric utility industry? Well I've thought about that a lot because you can put big money in it, and I've even thought of buying entire businesses.

There's a fellow in Omaha actually that's done a little of that through Cal Energy, but I don't quite understand the game in terms of how it's going to develop with deregulation. I mean, it's got, I can see how it destroys a lot of value for the high cost producer, you know, once they're not protected by a monopoly territory. And I don't for sure see how, who benefits and how much. I mean, obviously the guy with very low cost power, some guy's got hydropower, you know, at 2 cents a kilowatt or something like that, has got a huge advantage. But how much of that he's going to get to keep and everything or how extensively he can send that outside his natural territory, I haven't been able to figure that out with a S so that I really think I know what the industry is going to look like in 10 years. But it is something I think about. And if I ever develop any insights that call for action, I will act on it because I think I can understand the attractiveness of the product and all that all the aspects of certainty of user need and the fact there's a bargain and all of that, I understand. I just don't understand who's going to make the money in 10 years from now.

And that keeps me away.

Favored the large half food chip stocks over the small cap stock.

Question is large caps versus small caps? And why large caps overperform? I don't know the answer to that. We don't think we don't care whether companies large cap, giant cap, middle cap, small cap, micro cap doesn't make any difference. I mean, the only question now is, can we understand the business? Do we like the people running it? And does it sell for a price that is attractive?

From our my personal standpoint, running Berkshire now, because we've got pro forma for January, I don't know what we have, maybe 75 or $80 billion to invest and I only want to invest in about 5 things. I'm really limited to very big companies, but if I were investing $100000, I wouldn't care whether something was large cap or small cap or anything. I would just look for businesses I understood.

I think that on balanced large cap companies, as businesses have done extraordinarily well over the last 10 years and way better than people anticipated they would do. I mean, you really have American business earning close to 20% on equity. And that's something nobody dreamed of being produced by very large companies in aggregates. So you've had this huge revaluation upward. Because of lower interest rates and then much higher returns on capital. You know, if American business is really a disguised bond that earns 20%, has a 20% coupon, it's much better than if it's a bond with a 13% coupon. And that's happened with big companies in recent years.

Whether it's permanent or not, it's another question. I'm skeptical of that, but I wouldn't even think about except for questions of how much money. We and I wouldn't even think about the size of the business.

A good small seas candy was a $25 million business when we bought it. I, if I could find one, just like it now, even as big as we are I'd love to buy it. It's the certainty of it that counts. Yeah, way over there.

Yeah, securitization, enormous securitization of the debt, too, of real estate. And that is one of the items right now that is really clogging up the capital markets. The mortgage backed securities are they're just not moving in commercial mortgage back, not residential mortgage back.

So that, but I think you're directing your question at equations and the equation you leave out the corporate form has been a lousy way to own equations. I mean, you've interjected a corporate income tax into something that people individually have been able to own with a single tax. And by having the normal corporate form, you got a double taxation in there you really don't need with estate, and it takes away too much of the return. Reits have, in effect, created a conduit so that you don't get the double taxation. But they also generally have fairly high operating expenses.

And if you get real estate, let's just say you can buy fairly simple types of real estate on an 8% yield or thereabouts, and you take away maybe close to one or one and maybe even 1.5 percent by the time you come, stock options and everything. It's not a terribly attractive way to it. Maybe the only way a guy with a thousand bucks or 5000 bucks can own it. But if you have a million dollar, $10 million, you're better off owning a real estate properties yourself and seeking some intermediary in between that will get a sizable piece of the return for himself.

So we have found very little in that field. You'll see an announcement the next couple of weeks that may be live. What I'm telling you thing, so I don't want you to think I was double crossing you up here out, but generally speaking, we've seen very, very little in that field that gets us excited.

People sometimes get very confused about they'll look at some huge land company. I'll take one that it won't evoke any emotional reactions on the part of anybody like Texas Pacific Land Trust, which has been around over 100 years and got a couple million acres in Texas. And they'll take the, you know, they'll sell 1% of their land every year and they'll take that as applying to everything and come up with some huge value compared to the market value. But that's nonsense If you really own the property, I mean, you know, you can't move. You can't move 50% of the properties or 20% of the properties. It's way worse than a no liquid stock. So you get these, I think you get some very silly valuations placed on a lot of real estate companies by people that don't really understand what it's like to own one and try to move large quantities of property.

Reits have behave terribly in the market this year, as you know, and it's not at all inconceivable they would become a class. It would get so unpopular that they would sell significant discounts from which you could sell the properties for, and they could get interesting as the class then. And then the question is whether the management would fight you in that process. They would be giving up their income stream for managing things, and their interest might run counter to the shareholders on that.

I've always wondered about the Reits that say, you know, our assets are so wonderful and they're so cheap, and then they go out and sell stock. I mean, there's a contradiction in that. They say our stock at 28 is very cheap, and then they sell a lot of stock at 28 less than underwriting commission doesn't. You know, they either there's a disconnect there. And so, but it's a field we look at. I mean, Charlie and I can understand real estate and we would be open for very big transactions periodically and if there was a long term capital management situation translated to real estate, you know, we would be open to that. Trouble to so many other people would be too. That would be unlikely to go at a price that would really get us excited way back there.

Well yeah. I've got no idea where the market's going to go. I prefer it going down. You know, my preferences have nothing to do with it. The market knows nothing about my feelings. That's one of the first things you have to learn with the stock 100 shares of General Motors. Now all of a sudden, you have this feeling about General Motors. I mean, if it goes down, you may be mad at it. You may say, well, if you just go up to what I paid for it, you know, my life will be wonderful again. Or if it goes up, you may say how smart you were and how you and General Motors had this love affair to you've got all these feelings.

Stock doesn't know you own it. Stock just sits there. It doesn't care what you paid, it doesn't care that you owned it or anything. Any feeling I have about the market is not reciprocated. I mean, it is the ultimate, it is very cold shoulder we're talking about here and anybody that is going to be in that area, practically everybody in this room, is more likely to be a net buyer of stocks over the next 10 years than they are a net seller. So every one of you should prefer lower prices.

I mean, you're going to be a net eater of hamburger in the next 10 years. You want hamburger to go down unless you're a cattle producer. If you're gonna be a buyer of coca cocola and you don't own coca stock, you hope coke, the price of coca is down. I mean, you're looking for it to be on sale this weekend at your supermarket. You want it to be down on the weekends, not up on the weekends when you're gonna and the supermarket, your stock exchange is a big supermarket of companies and you're going to be buying stocks. What do you want to have happen? You want those stocks to go down, way down, and you know you will make better buys then later on, 20 years from now, 30 years now, when you're in a period when your dissaving or when your heirs dissaving for you, you're gone, I mean, then you may care about higher prices, but I find people that was one of the, there's a chapter 8 and Ben Graham's intelligent investor about the attitude towards stock market fluctuations and that and the chapter 20 on the margin of safety are the two most important essays ever written on investing as far as I'm concerned because when I read chapter 8, when I was 19, I figured, I mean, I just figured out what I just said, but it's obvious I didn't figured it out myself though it was explained to me I'd probably gone another 100 years if I had read still thought it was good when my stocks were going up now want we want things to go down, but I have no idea what the stock market is going to do.

I never do, I never will. It's not something that I think about it all when it goes down. I feel I look harder at what I might buy that day, because I know there's more likely to be some merchandise there that I can use my money effectively, and Warren, we'll take one more question from the audience, okay? I'll let you pick who gets it. You could be the guy.

All right, thank. If you?

I would say this is going to sound disgusting. Question is, what would I do if I could live over again and have a happier life? Well, the only thing I might do is select a gene pool where people live to be 120 or something that came from. I've been extraordinarily lucky, I mean, I use this example. I'll take a minute or two because I think it's worth thinking about a little bit.

Let's just assume that it was 24 hours before you were born and a genie came to you and he said, he said herb. You look very promising. And I've got a big problem. I've got to design the world in which you're going to live. And he says I've decided, hell, whether it's too tough, you design them. So you've got 24 hours, you figure out what the social rules should be, the economic rules, the governmental rules, and you're going to live under those. And your kids are going to live under. Their kids are going to live under. And you say, I can design anything.

Jeannie says, yeah, you can do it. And you say, well, there must be a catch. He says, well, there is a catch. You don't know whether you're going to be born black or white, rich or poor, male or female, infirm or able bodied, brighter, retarded. All you know is you're going to take one ball out of a barrel that's got 5.8 billion. You're going to participate in what I call the OVC lottery. You're going to get one ball out of there, and that is the most important things that are going to happen to you in your life because that is going to control whether you're born here or in Afghanistan or whether you're born with an IQ 130 or an IQ of 70. It's going to determine a whole lot and you're going to go out of the world and you're going to have that wall.

What kind of a world do you want to design? I think that's a good way to look at social question because not knowing which ball you're going to hit, you're going to want a ball that you're going to want a system design, a system that's going to produce lots of goods and services because you're going to want people on balance to live well and you're going to want it that produces more and more so your kids live better than you do, and your grandchildren look better than the kids, but you're also going to want a system that if it does produce lots of goods and services does not leave behind a person that accidentally got the wrong ball and has not well wired for this particular system, See I'm ideally wired for the system I fell into here.

I mean, I came out and I got something that enables me to allocate capital, you know nothing so wonderful about that if all of us were stranded on a desert island, you know we all landed there, we're never going to get off of it, the most valuable person will be the one that could raise the most rice, you know, over time and know I could say, well I'm going to allocate capital, how about paying bill? And you wouldn't get very excited about that. So I am in the right place.

I mean Gates says if I've been born a few million years ago, I did some animals lunch. He says you can't run very fast, you can't climb trees, you can't do anything, just, you know, just been chewed up in the first day. So he says you're lucky you were born today, I and I am.

But the question getting back, one question you can to ask yourself, incidentally, is here is a barrow with 5.8 billion balls. Everybody in the world, if you could put your ball back and they gave you and then they took out at random 100 other balls and you had to pick one of those, would you put your ball back in now, those 100 balls that you're going to get out, roughly five of them will be American. So there's 95 versus 5, 5, So you only going to have five ball if you want to be in this country, you're only to have five balls now left. You know, half of them are going to be women, half of them are going to be men. I'll let you all decide how you vote on that one half of them are going to be below average intelligence, half are going to be above, but you want to put your ball back, most of you I think will not want to put that ball back to get 100. So what you're saying is I'm in the luckiest 1% of the world right now, right now sitting in this room, top 1% of the world? Well, that's the way I feel. I mean I've been lucky to be born where I was because it was 50 to 1 against me in the United States when I was born.

Lucky with parents, lucky with all kinds of things, and then lucky to be wired in a way that in a market economy pays off like crazy for me, doesn't pay off for somebody's absolutely as good a citizen as I am. You know, leading Boy Scout troops teaching Sunday school, whatever, raising fine families, but it just doesn't happen to be wired in the same way I am. So I've been extremely lucky. So I would like to be lucky again. And if I'm lucky, then the way to do it is to play out that game and do something, enjoy all your life and be associated with people you like.

I only work with people I like, you know, I don't, I don't If I can make $100 million by buying a business with some guy that caused my stomach to churn. I'd say no, because I say that's just like marrying for money, which probably isn't a very good idea under any circumstances. But if you're already rich, it's crazy, right? I am not going to marry for money. So I would baile do almost exactly what I've done, except that I don't think I have bought the us Air, thanks.