Warren Buffett: How To Make Easy Money From Falling Markets

We always will have $20 billion around Berkshire; we will never be dependent on the kindness of strangers. It didn't work that well for BL to Bo either, but, but in any event, uh, we don't, we don't count on Bank lines—you know, we don't count on, we don't count on anything. There will be sometime in the next 100 years—and, no, maybe tomorrow and maybe 100 years from now—and nobody knows, you know, where; we cannot depend on anybody else, uh, to keep our own strength and to maintain our operations. And, uh, we spent too long building Burg here to have that one moment, uh, destroy us.

I mean, we lent money, as you probably know, to Harley-Davidson at 15% and we lent it at a time when short-term rates were probably a half a percent. Well, Harley Davidson is a fine company and, but it, like Goldman Sachs and General Electric and a bunch of other companies—one, the Tiffany—uh, they, you know, they needed when you need cash, you know; it's, it's the thing, it's the only thing you need, and, and it's because other people aren't coming up with it.

I've always said that, you know, cash is available—cash or credit is a Lot Like Oxygen—that, that you don't notice the lack of it, uh, 90 of the time; but if it's, if it's absent, it's the only thing you notice. And we don't want to be in that position, so we, we will keep 20 billion. We will never go to sleep at night worrying about any event that's taken place that could hurt our ability to keep playing our game, and above 20 billion we'll try to find, uh, ways to invest it in intelligently. And so far we've, we've generally done it—I mean, right, you know, we, we've always had something above that, but, uh, you know, we've spent—we spent a fair amount of money so far this year; we'll probably spend more later in the year. So far I feel we can get the cash out at reasonable returns—we never feel a compulsion to use it though, just because it's there, Charlie. I think we're very lucky to have these businesses that can employ a lot of new capital at very respectable rates.

Uh, and if earlier in the history of Berkshire we didn't have such automatic opportunities and now that we're so affluent, we really are way better off having these opportunities. It's a blessing—I mean, who would want to get rid of mid americ and the Burlington Northern Railroad? Nobody in his right mind has.

There been any discussion at your board meetings about a replacement for your partner, longtime friend, and co-chairman Charlie—Charlie Munger—as it been determined Berkshire will continue to be led by a similar dynamic duo, two magnif, magnificent investor Minds, each providing a unique point of view, have been a major reason the business has performed magnificently over the decades and has delighted the shareholders.

Well, Charlie is my—he's my canary in the coal mine; char, Charlie turned 90 and I find it very encouraging how well he's handling middle age, uh, so I hope to be able to do the same thing myself. Uh, no, and it's—you raised a point which is, I'm thought about but I'm a little sensitive now that you raised it. They, they always talk about replacing me but they never talk about replacing Charlie. I, I do think, I think it's very likely—incidentally—that whoever replaces me at CEO probably, over the years, certainly develops—they'll never be able to develop another Charlie, but they'll develop somebody that, that they work with very closely. It's, it's, it's, it's a great way to operate; Berkshire is better off because the two of us have worked together than if either one of us have been working individually—there's no question about that. And, uh, and but I do think, you know, we saw it with, with Roberto Goa and Don Kio at Coke; we saw it with Tom Murphy and Dan Burke at cap cities. I mean, these were magnificent companies, uh, and I think that in both cases that I just named, uh, I think that they accomplished far more because they had two incredible people running them who admired and worked well with the, with the other. And, and they, they were complimentary in terms of the talents they brought in many ways—they, uh, it, it, it's, it's a great way to operate. You can't, you can't will it to somebody, but I, I would be very surprised if a few years after my successor takes over or maybe sooner that there isn't some, some relationship or partnership that, that enhances, uh, uh, the CEOs, uh, uh—not only, not only achievements but, but the fun they have, and, uh, uh, but so far nobody's brought up in the meeting any successor to Charlie, and frankly I have a, a lot of trouble thinking of anybody that could be a successor to Charlie. Charlie, you want to com—I, I got to give you a [Laughter] chance. I don't think the world has much to worry about; most 90-year-old old men are gone soon enough—the canary has spoken.

Okay, my question is: Why are you advising the trustee to put 90% of the cash into an S&P 500 Index Fund instead of into Burkshire shares? This might imply that you expect the index fund to outperform birkshire in the F future when the company is run by new CEO and chairman—please clarify.

Yeah, I'll be glad to clarify that. That letter didn't come from Vanguard by any chance—the, uh, when I, when I die incidentally, the all of the virtal shares I have at that point will go to five different, uh, foundations. Every single share— I mean, there, there are no shares that have not been designated, uh, mentally and, uh, to charity; a good many of them been designated specifically to in numbers and all of that—but, and they will be, they will be distributed over the 10 years after my estate is closed—so figure over 12 years—and I tell my, I tell the trustees that that will be holding these shares. You know, don't sell any burshire shs until they have to be sold. So my views on Burkshire, at least through 12 years after my death, are as bullish as anybody could possibly come up with, and incidentally without those kind of instructions anybody would say, you, you know, you're crazy to keep many, many billions of dollars All in One stock. I can't think of anything better to do it over those 12 years in terms of, of my wife's situation—you know that I, that is not a question of maximizing Capital; it's just a question of total 100% peace of mind, uh, uh, on something that cannot get a bad result, uh, and, uh, like I said there's way more money for it than she'll ever use. As a matter of fact, those of you who know—or you know—may feel that I've added about three zeros too many, uh, but it, it, it is not designed for her to get even larger amounts of capital and there'll be Capital left over on that part of it, uh, on the part that I care about maximizing. Uh, I have instructed, uh, the three trustees to not sell a single share, uh, until it has to be sold—so that's, that's good for 12 years after I die as to my best advice as to what I want them to hold.

Charlie, well, Warren is a little peculiar in the way he distributes money in the family and I think he's entitled to do what he damn pleases. [Applause] Speaking—do I hear my children applauding? And, uh, I've never had this feeling—I had to starve the family; did down to a few triples and weren really—and Susie when she was alive was the same way. He really is a meritocrat—he, he, he, he's really quite extreme in wanting to let most of his money go back to the civilization in which it was earned. I like being associated with it.

If you were to publish the five highest salaries at CNBC, I don't think the salaries overall would go down the following year—so I think that is a, I think that's a, u, uh, a good reason for not, for us, not publishing the salaries of, uh, of, uh, you know, say, our top 10 managers of the, of the, uh, of the company. We at Solomon, uh, we mentioned that a little earlier—uh, everybody, virtually everybody, was dissatisfied with what they were getting paid and they were getting paid enormous amounts of money—but they were, they were disappointed not because of the absolute amount; they were disappointed because they looked at somebody else in the place and it drove them crazy. And, as a matter of fact, the first big crisis we had, uh, in compensation was when the management made a what was regarded as a secret deal, uh, with the AR group—as I remember, uh—whereby John Merryweather and his crew, uh, got paid a lot of money which I would argue they earned—I mean, I think they deserved it—but as soon as that happened, uh, it made compensation, which had always been a terrible problem, an even greater problem because of the jealousy that broke out among the people that weren't in John merryweather's group. But, uh, very—I think it's been, I think it's very seldom that publishing compensation, uh, accomplishes much, uh, for the shareholders. In fact, uh, you can argue that much of what's going on in Corporate America—uh, well, I would put it this way—corporate CEOs as a group would be being paid a lot less money if proxy statements hadn't revealed how much, uh, other people were getting paid. It is only human to look at a whole bunch of proxy statements and say, "Well, I'm worth more than that guy" and negotiate that, that way, and a comp committee is going to respond to that. So, so our American shareholders are paying a significant price for the fact that they get to look at that proxy statement every year and see how much those top five officers are earning.

Shortly—oh, in a spirit of transparency—you’re asking for something that wouldn't be good for the shareholders and it's not going to happen unless the SEC makes it happen, but it's—we're way better off without adding to the culture of Envy in America. Yeah, there's no one that looks at—there's no CEO that looks at other proxy statements and comes away thinking, "I should get paid less." I mean, that—you know, we haven't—se, have we ever seen that? No, no, no. I, well, we're not over enough—I would say that Envy is doing the country a lot of harm and our practices are Envy dampeners.