1997 Berkshire Hathaway Annual Meeting (Full Version)

52m read

·Nov 11, 2024

[Applause] Foreign. I'm Warren Buffett, the chairman of Berkshire Hathaway. As you probably have gathered by now, I had a real problem last night; I was losing my voice almost entirely. I don't want you to think I lost it cheering for myself this morning here. I think I'll do all right, but we've always got Charlie here too—he's always done the talking; I just moved my lips, you know.

So I'd like to tell you a little bit about how we're going to conduct things, and then we'll go through a script that was written by the speechwriter for Saddam Hussein. It has all the warmth and charm and participatory elements you'd expect. We'll get through the business of the meeting as promptly as we can—which is usually about five or six minutes— and then Charlie and I will answer questions—your questions—until noon, when we'll have a break for about a half an hour. There's food outside all the time, and then at 12:30, we'll reconvene, and we'll go till 3:30 or thereabouts, and I hope my voice lasts.

We've got various non-Coca-Cola products here that are designed to keep it going. We'll have a zone system where we have 12 microphones placed around, and I believe it's 12. We'll just go around in order, and if you'll go to the microphone nearest you, there will be someone there who will try to arrange to let people get to ask questions in the order in which they arrived, and we'll make sure that everybody gets a chance to ask their questions before people go on to second questions, particularly in the afternoon.

We'll make a special effort to answer questions from people that have come from outside North America. We really got quite an attendance today; all 50 states, at least in terms of tickets, are represented. We had—I had it here somewhere—yeah, we had ticket requests at least, and I met a number of people from South Africa, Australia, Brazil, England, France, Germany, Greece, Hong Kong, Ireland, Iceland, Israel, Saipan, New Zealand, Saudi Arabia, Singapore, Sweden, Switzerland. So when people have come from that sort of distance, we want to make sure that they, obviously, we want to make sure that they particularly get their questions answered.

Interestingly enough, we have an increased percentage from last year who come from Nebraska this year. You have to be a little careful in interpreting that because some people, for status reasons, you know, so make them produce their driver's license if they tell you they came from Nebraska.

I think that's most of the preliminary, so I'm going to get into this. We'll get the meeting over with here promptly with your cooperation, and I will go through this little script that's been prepared for me, and it says, "The meeting will now come to order. I'm Warren Buffett, chairman of the board of directors of the company. I welcome you to this 1997 annual meeting of shareholders. I will first introduce the Berkshire Hathaway directors that are present in addition to myself." I've introduced you to Charlie already, and the other directors, I believe, are in the front row here—could they stand when I mention their names? You can withhold any applause until finished, and then it's optional.

Howard Buffett, oh you want to stand up, Susan Buffett, Walter Scott, and Malcolm Chase III, Kim Chase; and that is our extensive directorate. [Applause] Give them a lot of applause because they don't get much else for it. It's a rather low paying board. [Applause]

Also with us today are partners in the firm of Deloitte & Touche, our auditors; they are available to respond to appropriate questions you might have concerning their firm's audit of the accounts of Berkshire.

The Secretary of Berkshire, he will make a written record of the proceedings. Ms. Becky Amick has been appointed an inspector of elections at this meeting; she will certify to the count of votes cast in the election for directors. The proxy holders for this meeting are Walter Scott Jr. and Mark D. Hamburg.

Proxy cards have been returned through last Friday representing one million twelve thousand fifty Class A Berkshire shares and six hundred forty-five thousand nine hundred forty Class B Berkshire shares to be voted by the proxy holders as indicated on the cards. That number of shares represents a quorum and will therefore proceed directly to proceed with the meeting.

We will conduct the business of the meeting and adjourn the formal meeting. After that, we will entertain questions that you might have. The first order of business will be a reading of the minutes of the last meeting of shareholders, and I recognize Mr. Walter Scott Jr. will place the motion before the meeting. Do I hear a second?

We got a second; the motion has been moved and seconded. Are there any comments or questions? We will vote on this motion by voice vote. Those in favor, say "aye." Opposed, say "no." The motion is carried.

Does the Secretary have a report of the number of Berkshire shares outstanding entitled to vote? Representative? Does the Secretary have a report of the number of Berkshire shares outstanding entitled to vote? And representative mail for all shareholders of record on March 7, 1997, being the record date of this meeting, there were one million twenty-five thousand seventy-eight shares of Class A Berkshire Hathaway common stock outstanding each entitled to one vote.

A motion is considered at the meeting, and eight hundred fifteen thousand fifteen shares of Class B Berkshire Hathaway common stock outstanding, with each entitled to one-twelfth of a vote. Emotionally considered at the meeting of that number, one billion twelve thousand fifty Class A shares, six hundred forty-five thousand nine hundred forty Class B shares are represented by the proxies returned through last Friday.

Thank you. To shareholders present, who wish to withdraw the proxy previously sent in and vote in person on the election of directors, he or she may do so. Also, if any shareholder that is present has not turned in a proxy and desires a ballot in order to vote in person, you may do so if you wish to do this. Please identify yourself to meeting officials in the aisles, who will furnish a ballot to you with those.

The one item of business of this meeting is to elect directors. I now recognize Mr. Walter Scott Jr. to place a motion before the meeting with respect to the election of directors. Charles T. Munger and Walter Scott Jr. be elected as directors. It sounds good to me. Is there a second?

It has been moved and seconded with a warranty Buffet, Susan T. Buffett, Howard G. Buffett, Malcolm G. Chase III, Charles T. Munger, and Walter Scott Jr. are the elected instructors. Are there any other nominations? Is there any discussion?

My kind of group. The nominations are ready to be acted upon. If there are any shareholders voting in person, they should now mark their ballots on the election of directors and allow the ballots to be delivered to the inspector of elections. I think we had one or two to collect there. Would the proxy holders please also submit to the inspector of elections ballot on the election of directors voting the proxies in accordance with the instructions they have received?

Islamic, when you are ready, you may give your report. [Music] Through last Friday, cast not less than one million fifteen thousand six hundred ninety-seven votes for each nominee. That number exceeds the majority of the number of total votes related to all Class A and Class B shares outstanding. The certification required by Delaware law of the precise counter-vote, including the additional votes to be cast by the proxy holders in response to proxies delivered at this meeting as well as those cast at the first Memphis meeting, if any, will be given to the Secretary to be placed with the minutes of this meeting.

Thank you, Ms. Amick. Warren Buffett, Susan T. Buffett, Howard G. Buffett, Malcolm G. Chase III, and Charles T. Munger and Walter Scott Jr. have been elected as directors. After adjournment of the business meeting, I will respond to questions that you may have that relate to the business of Berkshire but do not call for any action at this meeting.

Does anyone have any further business to come before this meeting before we adjourn? If not, I recognize Mr. Walter Scott Jr. to place a motion before the meeting to adjourn. The motion to adjourn has been made and seconded. We will vote by voice. Is there any discussion? If not, all in favor say “aye.” Opposed “no.” The meeting is adjourned. [Applause]

A very good group. You know in that movie, they said something about $350,000 an hour and I see you're conserving your money here by holding this thing right along. Now we're going to answer questions, and if you'll just go to the nearest microphone and let's see where we start here. I'm just orienting myself to a map here, and we have area one is right here. I might describe this ahead of time. We have six areas on the main floor, and we have six areas throughout the balcony, and they sort of work their way back from one through six, and then seven starts over here, and then it works its way around to twelve.

We look forward to having questions—tougher the better—and if you would always just identify yourself and where you're from and that you're a shareholder. Yes, sir. My name is Tom Conrad, and I'm from McLean, Virginia, and I'm a shareholder. I asked a question last year, Mr. Buffett, to you. I was struck with what you said that it takes only three quality companies to invest in and set for a lifetime, and I asked you the question last year, should I wait until the market goes down or should I get in now, and you advised to get in now. The three companies that I chose were Coca-Cola, Gillette, and Disney, and because of that advice, I was able to afford the ticket to come back this year to ask them a second question.

My question is this: you ought to quit wager I had but go ahead—McDonald's man. I said I just wanted to ask you, does it have the same ability to dominate the way Coca-Cola and Gillette has? And secondly, do you feel that, if the answer is yes, that I should wait until the prices come down a bit or get in now? That's my question.

Yeah, would you like it to the eighth of a pointer? Yeah, shall we round off the—we in the annual report, we talked about Coca-Cola based business being what I call the inevitables. But that reluctant product, oh, would you let it, doesn't extend every necessarily everything they do, but fortunately, in both those companies, those are very important products. I would say that in the food business, you would never get the total certainty of dominance that you would get in products like Coca-Cola and Gillette. People move around in the food business from where they eat. They may favor McDonald's, but they will go to different places at different times, and somebody starts shaving with a Gillette sensor plus is very unlikely to go elsewhere, in my view.

And so they do not, you just never would get in the food business, in my judgment, quite the inevitability that you would get in the soft drink business with a Coca-Cola. You'll never get it again in the soft drink business; I mean it took 100— in the soft drink business it took 100—I guess it was 1886, so they got to the point where they are, and the infrastructure is incredible.

And so I wouldn't put it quite in the same class in terms of an availability; that doesn't mean it can be a better stock investment depending on the price, but you're not going to get the price from me, and knowing Charlie, I doubt if you get the price. Remember, we'll give them a chance. He's breathing, folks; he's breathing. We've got this down to a routine, so I have nothing to add. I didn't have anything to say either; I just took longer.

How about area two? Mr. Buffett, my name is Pete Banner, and I'm from Boulder, Colorado, and I'm a shareholder. Recently, Mr. Greenspan's band made his comments about exuberance, and it wasn't long thereafter that you came out in the annual report and made major comments about you felt the market was fully valued or something of that nature. Did you have or have you had any communication with Mr. Greenspan regarding the valuation of the stock market now?

The answer to that is no. I can't remember precisely when the last time I saw Alan Greenspan, but it was a long time ago that we had one conversation. Today of the Solomon crisis, and he was formerly on the board of Cap City before he took his job with the Fed. You know, it's very hard to understand what Alan says sometimes, so there's not much sense talking to him. I mean, he's very careful about what he says.

But I should—I'm glad you brought up the subject of the annual report because what I was doing in the annual report is I had talked about Coke and Gillette as being the inevitables and what wonderful businesses they were. I thought it appropriate, particularly the report goes to a lot of people, that they would not take that as an unqualified buy recommendation about the companies because they're absolutely wonderful companies run by outstanding managers, but you can't pay too much—at least in the short run—for businesses like that.

So I thought it was only appropriate to point out that no matter how wonderful a business is, that there always is a risk that you will pay a price where it will take a few years for the business to catch— or for the business to catch up with the stock—that the stock can get ahead of the business. I don't know where that point is with those companies or any other companies, but I did say that I thought that the risks were fairly high that that situation existed with most securities in the market, including companies such as those. But it was designed to be sure that people did not take the remarks that I made about those companies and just take that as an unqualified buy recommendation regardless of price.

We have no intention of selling those two stocks. We wouldn't sell them if they were selling at prices considerably higher than they are now, but I didn't want particularly relatively unsophisticated people to see those names there and then think this guy is just touting these as a wonderful buy. Generally speaking, I think if you're sure enough about a business being wonderful, it's more important to be certain about the business being a wonderful business than it is to be certain that the price is not 10 percent too high or five percent too high or something of the sort.

And that's a philosophy that I came slowly to. Originally, I was incredibly price-conscious. We used to have prayer meetings before we would raise our bid. And, you know, we'd miss things because of that. And so what I said in the report was not a market prediction in any sense—we never try to predict the stock market. We do try to price securities. We try to price businesses is what we try to do.

And we find it hard to find wonderful good average substandard businesses that look like they're cheap now. But, you know, you don't always get a chance to buy things cheap. Charlie?

Well, I certainly agree with that. They funding weekend incompetently guarantee is that the real inflation-adjusted returns from investing in a standard collection of stocks will be lower in the long-term future than they've been in the last 15 years or so. This has been an unprecedented period and there will be some regression toward the mean in average returns from investing in the stock market.

Business has done extraordinarily well in the last decade-plus, and that's a huge, a huge plus for securities because they just represent pieces of those businesses. Interest rates over the last 15 years have fallen; that's a big plus for stocks. Anytime interest rates go down, the value of every financial asset goes up in rational calculation. Both of those factors have combined in recent years to produce conditions that enhance the true value of American business.

But those are pretty widely recognized now, and after a while, Ben Graham always used to say, you can get more trouble in investment with a good premise than with a bad premise because the bad premise will shout out to you immediately as being fallacious, whereas with a good premise, it'll work for a while. You know, businesses are worth more money if interest rates fall and stocks rise, but that eventually the market action of the securities themselves creates its own rationale for a whole lot of buyers, and people forget about the reasons and the mathematical limitations that were implied in what they got them excited in the first place.

And after a while, rising prices themselves alone will keep people excited and cause more people to enter the game. Therefore, the good premise after a while is forgotten except for the fact that it produces these rising prices. And the prices themselves take over. He wrote about that in connection with the 1920s when Edgar Lawrence Smith in 1924 wrote a fine book on why stocks were better than bonds, and that was sort of the Bible of the bull market of the 20s.

And it made sense if you paid attention to a couple of the caveats which were in Edgar Lawrence Smith's little book which was related to price, but people tend to forget about the importance of the price they pay as the experience of a bull market just sort of dulls the census.

Zone three. Mr. Buffett, my name is Lola Wells, and I come from Florida. I'm a very minimum stockholder and I'm curious why stockholders whose stock is held in street name aren't eligible to make recommendations for your donations group?

Yeah, the distinction really isn't whether their stock is held in street well—that's one distinction. The Class B shareholders, as was pointed out in the prospectus originally for the B shares, do not participate in the program. The A shares that are held by the beneficial owner do participate. We obtained a tax ruling in 1981 or thereabouts that really made sure that there would be no taxation as a constructive dividend of the amount that shareholders could designate.

There always was that possibility that the IRS would take a position that by allowing shareholders to designate a contribution to a charity that we were giving them something, which first would be taxed as a dividend and then they would later give away. So we have a tax ruling, and that tax ruling applies to shares held by beneficial owners themselves, and we follow that ruling.

Subsequently, I might say it would be sort of a nightmare too, frankly, if we got into street name holders with the point now where we probably have 30 or 35,000 street name holders of the A, and with a B, it's probably 60,000 or some number like that, and it would be quite a nightmare to do. Anyone, you know, unless they have margin debt against their stock, they can put it in their own name, and we encourage people to do it.

One reason we encourage people to do it is that they'll get their shareholder communications more promptly too. We find that the distribution of reports is quite erratic when handled through brokerage houses to street name holders, so we really do encourage you to have your stock registered in your own name. You'll get the communications promptly, and if you get the A shares, you'll be able to participate in the contributions program. And don't minimize your holdings, incidentally. Between the two of us, we control the company, so I'm glad to have you here, Charlie.

There's no ideological bias against the small shareholder; it's just not technically feasible to do it as a matter of administration. I should point out that the entire shareholder designated contributions program really—all of the work in relation to this meeting, I mean, Excarment has been terrific; they've helped out enormously. But in terms of sending out eleven thousand-plus tickets to the meeting, the baseball tickets, the planning that goes into everything, it's all done by the people at Berkshire basically—they pitch in to do all kinds of work.

So when you look at that three thousand plus square foot office, we get help from internal audit who works, does not work in the auditorium, in the office, but very few people just do all of their regular jobs and then they do this on top of it, and they never thought they were getting into this. Thank you.

[Applause] We could have a department of 50 people, you know, assigned to something like this. But the same way with the, you know, we get thousands and thousands of requests for annual reports, and they all come in. We've got just a few people, and they handle it courtesy, and I really take my hat to them.

Now let's go to zone four, please. Good morning, I'm Marshall Patton from Bandera, Texas, and first I'd like to thank you very much for not only giving us a good investment vehicle, but giving us a good education along the way. And thanks a lot for the two-volume set of the letters to stockholders over the years—it's required reading around our place.

And if you can contain your hostility, I'd like to thank Charlie Munger for the copy of his speech to the University of Southern California business school students back in 1994. It's also a required reading, and I wanted to ask you when are you going to write your book?

Well, first of all, I'd like to comment on Charlie's talk there. I think every investor in the world ought to read that talk before they invest. I think that's… I think every investor in the world ought to read that talk before they invest. I think that's… it's allowed—it's allowed to the shareholders at that time. But anybody like a copy, that talk could be by the supplier that—that there doesn't seem to be any need for me to write a book.

Everybody else was doing it. We've got Jana Lowe here who just wrote the most recent one, and you know, at one time or another, I've said everything I know and a good bit more. So, you know, at one time or another, I've said everything I know and a good bit more. So I’ve never felt compelled to do it.

I even feel that the annual reports are sort of a book on the installment system—kind of the unwarranted optimism, I guess, that the best has always yet to come. And there are a lot more interesting things that are going to happen, and I would hate to preclude commenting on those, so I think it's going to be a few years, but I may get around to it at some point, but I think maybe it’d be a bad sign if it happened because it might be that I really thought that what I was writing about was more important than what was going to happen next.

And Charlie, are you going to write a book?

No, but your comment about why you are unable to write a book reminds me of that middle western fellow who left an unfinished manuscript, and he apologized for not finishing his book, which was entitled "Famous Middle Western Sons of…" and he said he was always meeting a new one and therefore he could never finish the book.

[Applause] As a courtesy, Charlie and I are leaving each other out of the book that we write. Charlie grew up in Nebraska and he's authentic—he has the credentials to prove it.

We worked in the same grocery store at different times many years ago.

Area five, please. My name is JP from Singapore; I flew 24 hours to get here. Mr. Buffett, throughout your life, you’ve repeatedly under-promised and over-delivered for many recent years. For example, we have targeted Berkshire Hathaway's long-term book value growth at 15, yet you have come true at about 24 percent. That is a big gap of nine percent between your modesty and the outcome. Perhaps the biggest dose of modesty in corporate history! May I ask why is there such a big gap between your modesty and the outcome?

I don't think it was modesty. I think it was, for one thing, we've had a terrific market that has reappraised all businesses in the last 10 or 15 years. So when we really started worrying about future performance, a key factor was having larger amounts of capital. And there's no question that the larger the amount of capital you work with, the more difficult the job is.

Now, we were fortunate that that ascension and capital happened to coincide with things that just lifted all the boats substantially. And so we have had better luck than I would have guessed we would have had 10 years ago or five years ago, but it's been aided by a huge tailwind.

And years ago or five years ago, but it's been aided by a huge tailwind, and it's done as well in absolute terms. We won't have that tailwind in the future, I can assure you of that, but we will have a larger amount of capital which is the anchor that works on us.

So, Charlie and I could make a deal to increase the intrinsic value of Berkshire at 15 a year over the next 10 years; we would sign up now. And I don't want you to even tempt us with lower numbers because those numbers get astounding if we paid no dividend at all over a 10-year period. You can figure out where a 15 rate would take us, and we hope to get there, but we think that is absolutely tops, and it's very likely for a period when the market starts underperforming businesses that the rate could be substantially lower than that.

Charlie, do you want to expand on that?

Well, the questioner came from Singapore, which has perhaps the best economic record in the history of developing an economy. And therefore he referred to 15 percent per annum as modest. It's not modest; it's arrogant. Only somebody from Singapore would call it modest!

Yeah, be careful, Charlie, or they'll have a voice vote that we should move to Singapore. I mean this is the group that—watch performance. The large quantities of money are not going to compound at super rates. At super compound rates, large sums probably hard either, but large sums aren't.

If anybody promises anybody that manages large sums of money that promises or implies that they can achieve really outstanding returns, I'd stay away from them. The numbers just get too big, and you’ve seen some of that with certain money management organizations in recent years.

15 on an intrinsic value, which is substantially greater than our book value gets to be a very, very big number. And we need huge ideas; we don't need thousands of ideas. I mean we might need them, but we could never come up with them.

So what we look for is the very large idea. But we're not finding them now, and we'll keep looking, and every now and then we will find something. But really, if you think we're going to have any chance of doing better than 15 then believe me, that is no number that I'd want to sign my name to, but you really shouldn't. You're going to be disappointed in Berkshire, and we don't want to disappoint you.

So that's the reason we try to be realistic about expectations.

Zone six. My name is Daryl Patrick from Dayton, Ohio. How many shareholders do you have that own Berkshire longer than you and Charlie and have you ever gotten together with them?

How many shareholders have had it longer than we have? Well, we started buying in 1962, and it was seven, and I think the first ticket was at seven and five-eighths or thereabouts. But there was a two-thousand share. I've got the trading card on the wall, and I paid a dime commission; I can't believe I was paying a dime commission in those days.

We pay a nickel now, and that's on much higher price stocks! It's a good thing I didn't have a fistfight with a broker about whether to pay it or not; I might have never made those two thousand shares. We have, as a director, Kim Chase, whose family's holdings in Berkshire go back to what? Kim, where are you down here? There we are! But what year would you?

The 20s? Yeah, the Chase family has been in Berkshire since the 20s. But I would say we bought about 70 percent of the Buffett partnership, which was a partnership I ran in the 60s—what about 70 percent of the company? So that means there were 300,000 shares roughly that were not owned by us, aside from the Chase family.

I'm sure there are people that—we've got, you know, 50 or 100 shareholders maybe from that earlier date that are still around, and I'm glad they are. Charlie? Nothing to add.

Area seven, up in the balcony. Over here.

Moore Spence from Omaha, Nebraska. In light of recent stock market volatility, could you give us your definition of stock market risk and how does your definition differ from the standard definition? Finally, due to Charlie's recent counter-revelation about jets, are you going to rename the indestructible principle?

Charlie would like to make an announcement on that second point prompted by LLC—we are changing the name of the company plan from the indefensible to the indispensable! [Applause]

It was Chateaubriand, who incidentally was a writer and philosopher in addition to being the father of a piece of meat. Chateaubriand wrote one time, I believe that I have correctness on my attribution here that events make more traders than ideas.

And if you think about that in terms of Charlie's remark that the purchase of flight safety caused Charlie to have this counter-revelation and it's an experience that is duplicated many times in life where people flip over very quickly to a new view based on their new circumstances.

Now, what was that first question again?

I might add that I have a friend who's a United Airlines pilot, and he has recently been promoted into the 747-400. Before he started carrying people like you around for hire, he had to train intensively for five weeks, and one hundred percent of his training was in a simulator. They're that good, so it better be that good!

They cost us about 19 million, but they are fabulous. I mean, if you think about it, I think it's 85 percent of the problems that you can encounter in a plane. If you attempted to teach people by actually being in a plane, they wouldn't be here anymore!

So you want to develop the instincts and responses that can react to 85 percent of the problem; the only place to learn them is in a simulator, and probably the other 15—the best places. Now let's go back to your first question! Give it to me again!

The first part was, would you define, give us your definition of stock market risk and how it differs—the standard definition? Yeah, we don't think in terms of—as we think first in terms of business risk.

The key to Graham's approach to investing is not thinking of stocks as stocks or part of a stock market; stocks are part of a business. People in this room own a piece of a business. If the business does well, they're going to do all right, as long as they don't pay way too much to join into that business.

So we look at—we're thinking about business risk, how business risk can arise in various ways. It can arise from the capital structure when somebody sticks a ton of debt into some business, and so if there's a hiccup in the business, the lenders foreclose.

It can come about just by the nature of it—certain businesses are just very risky. Back in when there were more commercial aircraft manufacturers, you know, Charlie and I would think of making a commercial airplane, a big airliner sort of as a "bet your company" risk because you would shove hundreds and hundreds of millions of dollars out into the pot before you really had customers.

Then if you had a problem with the plane, you know, the company could go. There are certain businesses that inherently because of long lead times, because of heavy capital investment, that basically have a lot of risk and commodity businesses have risk unless you're the low-cost producer, because the low-cost producer can put you out of business.

Our textile business was not the low-cost producer, and we had a fine management, and everybody worked hard; we had cooperative unions, all kinds of things, but we weren't the low-cost producers, so it was a risky business.

The guy who could sell it cheaper than we could made it risky for us. So there's a lot of ways businesses can be risky. We tend to go into businesses that inherently are low risk and are capitalized in a way that that low risk of the business is transformed into a low risk for the enterprise.

The risk beyond that is that even though you buy and identify such businesses that you pay too much for them. That risk is usually a risk of time rather than loss of principle unless you get into a really extravagant situation, but then the risk becomes the risk of you yourself.

I mean, whether you can retain your belief in the real fundamentals of the business and not get too concerned about the stock market. The stock market is there to serve you and not to instruct you, and that's a key to owning a good business and getting rid of the risks that would otherwise exist in the market.

You mentioned volatility; it doesn't make any difference to us whether the volatility of the stock market is at average as a half a percent a day or a quarter percent a day or five percent a day. In fact, we would make a lot more money if volatility was higher because it could create more mistakes in the market.

So volatility is a huge plus to the real investor. Ben Graham used the example of Mr. Market, which we've used it; I've copied it in the report; I've copied it from all the good writers. Ben said just imagine that when you buy a stock, that you in effect bought into a business where you have this obliging partner who comes around every day and offers you a price at which you'll either buy or sell, and the price is identical.

No one ever gets that in a private business where daily you get a buy-sell offer by a party, but in the stock market, you get it that's a huge advantage; it's a bigger advantage if this partner of yours is a heavy-drinking manic-depressive.

I mean, the crazier he is, the more money you're going to make. So you should, as an investor, you love volatility—not if you're on margin, but if you're if you're an investor, you aren't on margin, and if you're an investor, you love the idea of wild swings because it means more things you're going to get mispriced.

Actually, volatility in recent years has dampened from what it used to be. It looks bigger because people think in terms of Dow points, and so they see these big numbers about plus 50 or minus 50 or something, but volatility was much higher many years ago than it is now, and you had the amplitude of the swings was really wild, and that gave you more opportunity.

Charlie?

Well, it got to be the occasion in corporate finance departments of universities where they developed a notion of risk-adjusted returns, and my best advice to all of you would be to totally ignore this development. Risk had a very good colloquial meaning, meaning a substantial chance that something would go horribly wrong, and the finance professors sort of got volatility mixed up with a lot of foolish mathematics, and to me, it's less rational than what we do, and I don't think we're going to change.

Yeah, the finance departments state that volatility equals risk. Now they want them. They want to measure risk, and they don't know any other way. They don't know how to do it basically, and so they say that volatility measures risk. And I've often used the example that the Washington Post stock when we first bought it in 1973 had gone down almost 50 percent from evaluation of the whole company of close to say 180 or 175 million down to maybe 80 million or 90 million.

Because it happened very fast, the beta of the stock had actually increased, and a professor would have told you that the stock, the company was more risky if you bought it for 80 million dollars than if you bought it for 170 million, and it's something that I thought about ever since they told me that twenty-five years ago, and I still haven't figured it out.

Incidentally, I should make an announcement on that because I think I've made a certain amount of fun of finance departments over the years. A fellow named Mason Hawkins who runs Southeastern Asset Management just gave a million-dollar gift to the University of Florida, and the State of Florida is matching that gift with 750,000, so this million 750 is going to be used to have several courses in what essentially is the Graham approach to investing, I think starting very soon.

So that there will be at least—and there are more than this—but there will be a finance department in this case specifically devoted to teaching the Graham approach, and I think they're even going to pick up on my suggestion that I stuck in the annual report about having a course on how to value a business and what your attitude toward the stock market should be.

So thanks to Mason, who's done very well managing money, I should add, and there will be at least one university course that tackles what I think are the important questions in investing.

Zone eight, please.

Gentlemen, my name is Richard Cerzer from Tucson, Arizona. Let's give them a hand. [Applause] This is the gentleman that led to the Flight Safety purchase. [Applause]

My question relates to owner earnings. What guidance can you give us as to the calculation of item C, which is maintenance capital spending and working capital requirements?

Richard, I was going to ask you a question: how about another company? Richard and his wife Alma have attended maybe eight or so meetings, and what he did is covered in the annual report, but, had it not been for Richard, we would not have merged with Flight Safety. And for that, we owe him a lot of thanks.

Now the item C, indeed, the compulsory reinvestment, oh, oh, back on the—it goes back some years on that description. Yeah, in the case of the businesses that we're in, both wholly owned and major investee companies, we regard the reported earnings, with the exception of major purchase accounting adjustments, which will usually be an amortization of intangibles, we regard the reported earnings—actually the reported earnings—plus or minus, but usually plus, purchase accounting adjustments—to be a pretty good representation of the real earnings of the business.

Now, you can make the argument that when Coca-Cola is spending a ton of money each year in marketing and advertising, that they're expensing that. Really, a portion of that's creating an asset, just as if they were building a factory because it is creating more value for the company in the future in addition to doing something for them and the president.

And I wouldn't argue with that, but of course, that was true in the past too, and if you'd capitalize those expenditures in those earlier years, you'd be amortizing the cost of them at the present time. I think that with a relatively low inflation situation with the kind of businesses we own, I think that reported earnings plus amortization of any—well, it's really amortization of intangibles, other purchase accounting adjustments usually aren't that important.

I would say that they give a good representation to us of owner earnings. Can you think of any exceptions in our businesses, particularly, Charlie?

No, we have, after some unpleasant early experience, we have tried to avoid places where there was a lot of compulsory reinvestment just in order to stand still. But there are businesses out there that are still like that; it's just that we don't have any.

Yeah, I would say that in the case of Geico, for example, the earnings, the gain in intrinsic value will be substantially greater than represented by the annual earnings, whether you want to call that extra amount of owner earnings or not; it's another question. But as we build float from that business, as long as it's represented by the same kind of policyholders that we've had in the past, there is an added element to the gain in intrinsic value that goes well beyond the reported earnings for the year.

But whether you want to really think of that as earnings or whether you just want to think of that as an increment to intrinsic value, you know, I sort of leave to you. But I would say that there's no question that in our insurance business, where our float was 20 million dollars or so when we went into it in 1967 and where it is now, that there have been earnings in effect through the buildup of the float that have been above and beyond the reported earnings that we've given to you.

I think our look-through earnings are very rough, and we don't try to—we don't believe in carrying things out to four decimal places, where we really don't know what the first digit is very well. So I don't want to—I don't want to—I never wanted you to think of them as too precise, but I think they give a good rough indication of the actual earnings that are taking place attributable to our situation every year, and I think the pace at which they move gives you a good idea as to the progress or the lack of progress that we've made.

The only big adjustment I would make in those is that in the supercat insurance business, we're going to have a really bad year occasionally, and you probably should take something off all of the good years, and you probably should not regard when the bad year comes, you should not regard that as something to be projected into the future.

Charlie?

No, no more.

Zone nine, please.

Mr. Buffett, I'm Rick Fulton from Omaha. Recently, I was in Washington, D.C., on a business trip with my wife, and I wanted to tell Mrs. Graham, I know she's here, what a pleasure it is to get up in the morning to a good newspaper like the Washington Post. Also, I have a question about Cap Cities and now Disney. Is Mr. Murphy keeping busy now that ABC is owned by Disney?

Also, every week you read in the paper the Nielsen ratings, and it doesn't matter that ABC now—it seems that less people recently are watching. Doesn't matter to the Disney's bottom line? Thank you.

Yeah, well, the first question about Mr. Murphy is that if we could hire Mr. Murphy, we would. I mean there's no one in this world that's a better manager than Tom Murphy or a better human being, as far as that's concerned. So he, I think he's keeping pretty busy.

He has been responsible for NYU Hospital; he wouldn't say that, but he's been the chairman of it for some years, and that's an 800 million dollar a year, thereabouts, organization. Charlie runs a hospital, so he knows how busy he can keep you, and he—I would say this, and I would love to find a business that I could entice Smurf to come back and run because they don't get any better than he is.

And Charlie, you want to add anything on Murphy?

Well, I'd like to because you're absolutely right. And what was the other part of the question, sir? Does the recent decline in ABC's Nielsen race ratings have anything to do with the bottom line?

Yeah, yeah, it makes a difference, sure, the ratings translate in many cases into money; they may not translate immediately, particularly if you have some big hit show—you may have sold it out too cheap—but over time, the prices you receive for your product relate to ratings. And over time, but over a longer period of time, the price that you pay for the product also relates to the ratings but there's a difference in the time cycle so that it makes a difference to any network's bottom line what their ratings level is and Disney is conscious of that and that they are very able operators.

I predict you'll see in a couple of years, but you can't do it immediately; the schedule fixes don't work on a week-to-week basis because people have habits, and there's a time lag involved in any change. You've seen over the last 20 years, you've seen various networks on top or on the bottom from time to time, so it moves around a fair amount. Charlie?

I think the TV network business is intrinsically a pretty tough business, and the SPN, then they might have forecast, and they probably did a little worse on the network. These things happen.

That was incidentally the situation when Cap Cities bought ABC in 1985; we made the deal, and I'm taking a closing I think it closed the first day or two of 86; I may be wrong in that, but the network diminished— ratings diminished significantly and particularly in daytime.

We'd always thought daytime was almost a certainty to produce big earnings, and it had, and even prime time is what people came the most attention to, but daytime slipped significantly after we bought it.

It has no relationship to those movies; I mean, that movie you saw earlier when I started appearing on it—I don't want anybody to make that connection—but it did happen to be at the same time.

The kicker we got again was SPN. SPN was losing money when Cap City made the deal to buy ABC, and we never really regarded it as having that big a potential, and we probably were too smart to pay any attention to them, and I think Disney has been pleasantly surprised by how well SPN has done too.

It's a powerhouse.

Zone 10, please. My name is Bill Turan; I'm from Des Moines, Iowa, and I'm a stockholder. It would appear that there's going to be a capital gains tax cut that does materialize—would you consider a stock split?

Secondly, is there an extra copy of your annual report available on the premises?

My guess is we’ll get you an annual report; in fact, if someone could take it up to Zone 10, we'll be glad to get it to you.

I don't think—well, I'll put it this way: if they cut the capital gains tax to zero, will maybe? No, we have— we will not be splitting Berkshire stock. [Applause]

Incidentally, we do not consider splitting the stock a pro-shareholder move. If we did, we'd do it. I mean it; we think that net to take the entire experience, it's worked out well for shareholders, and we think we have a more investor-oriented or investment-oriented audience in this room today than we would have had if we split many times.

It is a way of enticing certain types of investors and perhaps discouraging others, and so it's worked well, but I will say this too: we got pushed into, in effect, issuing the Class B shares last year. It wouldn't have been something we would have done except for the possible formation of the Unit Trust, and I would say that's worked out very well from our standpoint.

So we're happy that it happened, and we're happy that the Class B shareholders have joined us and we now have something that's denominated, you know, at a much lower level, and there have been no bad effects whatsoever from having the Class B out there.

So anybody who owns the A stock and wants to split can split thirty for one this afternoon. I mean, how many other companies give you that chance?

Charlie, I think what he's trying to tell you is that you’ve had your stock split.

Zone 11, please.

Yes, Mr. Buffett, I would like to thank you again for issuing that Class B shares. Well, I'm glad we did, and I hope you own them.

And I'm a Class B shareholder; I need your comment on some analysis that we did: If someone uses your investment philosophy of building a highly concentrated portfolio of six to eight stocks and adopts your buy-and-hold principle so that the maths of compounding and no tax works for you, but however with one major modification—invest in high-octane companies like Intel and Microsoft that are growing at 30 percent instead of typical 15 percent growth companies in your portfolio.

My question is: will this investment philosophy translate into twice the shareholder returns as you have historically provided to your shareholders?

Yeah, well, it will certainly work up to twice the return if Intel or Microsoft do twice as well as Coke and Gillette. I mean, it's a question of being able to identify businesses that you understand and feel very certain about.

And if you understand those businesses and many people do, but Charlie and I don't, you have to evaluate them. And if you decide they’re going to do very well, but there's a whole group of companies— a very large group of companies—that Charlie and I just don't know how to value, and that doesn't bother us.

I mean, you know, we don't know what we don't know, and we don't know how to figure out what cocoa beans are going to do or the Russian ruble, or I mean, there's all kinds of financial instruments that we just don't feel we have the knowledge to evaluate.

And really, you know, it might be a little much too much to expect that somebody would understand every business in the world. And when we find some that are much harder for us to understand, and when I say understand, my idea of understanding a business is that you've got a pretty good idea of where it's going to be in 10 years and I just can't get that conviction with a lot of businesses, whereas I can get it with relatively few.

But I only need a few, as you've pointed out. You only need a few, six or eight or something like that. It would be better for you, certainly would have been better for you if we had the insights about what we regard as somewhat more complicated businesses you describe because there was and may still be a chance to make a whole lot more money if those growth rates that you describe or maintain.

But I don't think there are—I don't think you'll find better managers than Andy Grove at Intel and Bill Gates at Microsoft, and they certainly seem to have fantastic positions in the businesses they're in, but I don't know enough about those businesses to be as sure that those positions are fantastic as I am about being sure the Gillette and Coca-Cola businesses are fantastic.

You may understand those businesses better than you understand Coca-Cola and Gillette because of your background or just the way your mind is wired, but I don't, and therefore, I have to stick with what I really think I can understand, and if there's more money to be made elsewhere, I think the people that make it are entitled to it.

Charlie, take a business like Intel. There are limitations under the laws of physics which eventually stop your putting more transistors on a single chip, and the 30 program or something like that, you know, I don't think those limitations are still a good distance away, but they're not any infinite distance away. That means that Intel has to leverage its current leadership into new activities, just as IBM leveraged the Hollerith machine into the computer.

Predicting whether somebody's going to be able to do that advance is just too tough for us.

Bob Noise, one of the two primary founders of Intel, grew up in Grinnell, Iowa. I think he's the son of a minister in Grinnell and went to Grinnell College and was chairman of the board of trustees of Grinnell when I went on the board of Grinnell back in the late 60s.

And when he left Fairchild to form Intel, Gordon Moore, Grinnell, bought 10 percent of the private placement that funded was the initial funding for Intel. And Bob was a terrific guy. He was very easy to talk to, just as Bill Gates is. I mean, these fellows explained the businesses to me, and they're great teachers, but I'm a lousy student.

And they really do it—they're very good at explaining their businesses. Bob was a very down-to-earth Iowa boy who could tell you the risks and tell you the upside. And enormously likable, 100 percent honest in every way.

So we did buy 10 percent of the original issue—the genius that ran the investment committee and managed to sell those a few years later. I won't give you his name, and there is no prize for anybody that calculates the value of those shares now.

You know, incidentally, one of the things Bob was very keen on originally—in fact, he was probably the keenest on it—was he had some watch that Intel was making, and it was a fabulous watch according to Bob. It just had one problem—we sent a guy out from Grinnell who was going out to the west coast to where Intel wasn't, and Bob gave him one of these watches.

And when he got back to Grinnell, he wrote up a report about this little investment we had, and he said, "These watches are marvelous," he said, "without touching anything, they managed to adapt to the time zones as they changed." We went along—in other words, they were running very, very fast as it turned out, and they worked with that watch for about five or six years, and they fell on their face.

And as you know, they had a total transformation in the mid-80s when the product on which they relied, that also ran out of gas. So it's not, and Andy Grove has written a terrific book incidentally, Only the Paranoids Survive, which describes strategic inflection points. I recommend that every one of you read that book because it is a terrific book.

But they had an Andy Grove there who made that transformation along with some other people, but that doesn't happen every time. Companies get left behind. We don't want to be in businesses where we feel companies can't be left behind, and that means that an Intel could have and almost did go off the tracks.

IBM owned a big piece of Intel, as you know, and they sold it in the mid-80s. So, you know, a bunch of people should know a lot about that business, but they couldn't see the future either.

I think it's very tough to make money that way. But I think some people can make a lot of money understanding those kind of businesses. I mean, there are people with the insights. Walter Scott, one of our directors, has done terrifically with a business that started, you know, just a gleam in the eye maybe 10 or 12 years ago here in Omaha, and it turned into a huge business.

And you know, Walter explained that to me on the way down to the football games, but bad student again, so Walter connected, and you know, I'd share from this dance. But that really doesn't bother me at all. I mean, what would bother me is if I think I understand a business and I don't.

That would bother me.

Charlie?

So having flunked when we were young and strong at understanding some complex businesses, we're not looking to master what we earlier failed at us in our latter years.

Zone 12. This may turn out like a revival meeting where we all confess our sins and come forward, you know. Good morning, gentlemen. My name is Carrie Blecker from Wellington, Florida.

I know in 1987, when you purchased or invested in the Solomon Brothers convertible preferred stock you had the eight-year time frame taken reverted into common or take the cash out. I know in '95 you took cash out, which was not a vote of confidence for Solomon Brothers. Any feelings on that in the future?

Yeah, as the gentleman mentioned, we bought it in 1987 and starting in 1995, we have every year for five years. We either have to take cash or convert to common—20 of the original issue of 700 million, and we don't have to make those decisions ahead of time.

So in 1995, we elected to take cash; in 1996, we elected to take stock. And, you know, we see no reason ever to swing at the ball while it's still in the pitcher's glove. We just soon wait until it gets to the plate to make the decision, so the ball will get to the plate on October 31st of 1997, I believe, for the next 20. And we'll decide whether to swing at that point.

But we don't need to make that decision today. I would say that, you know, the odds are overwhelming that we will convert, but we will swing at the ball when it gets to the plate.

Charlie?

No more.

Let's see, we did 12; we're back at one again. My name is Ted Vogeli from Corpus Christi, Texas, and I would like to ask a question: companies are purchased from time to time, and the purchasing company will give shares instead of cash and their shareholder will receive new shares.

Can an individual investor transfer non-Berkshire to Berkshire with or without going through a broker? And if not, how does Berkshire do this with another company? And if possible, I would also like to receive a copy of the annual report.

Okay, we'll get you a copy of the annual report. The only way I know of, and maybe Charlie knows some other way, the only way you can switch your shares in one company for into shares of another company is to have a tax-free merger, and the Internal Revenue Code has specifications about that.

You can have a transaction, as we had with Flight Safety, where some of the shareholders can take cash, and a portion can take stock, and it's still tax-free for the people who elect stock. You can't have too many people take cash and have that happen.

There are a lot of technical rules about what's tax-free, but there's no way that you can own General Motors and transfer it into General Electric stock without a tax and a broker. Well, you don't have to have a broker if your neighbor hasn't owned it; you can make a deal privately, but the easiest way usually is through a broker.

But there's no way you can do it without tax unless General Motors and General Electric decided to merge at some point. So the opportunities to switch from one security to another without tax are really limited to merger, and in terms of brokerage costs, it just happens to be that it's that the most economical way of finding the person in the world that wants to buy the stock you want to sell and sell you the stock you want to buy is through an intermediary broker.

And the cost of that actually can be relatively low.

Charlie?

Well, I think there's one way still permitted by the tax laws: you can still form a partnership. If you own General Electric and I own General Motors and we each feel too concentrated, we could form a partnership and each put in your stock.

And in essence, you would each thereafter be invested half and half with some diversification.

I will predict that Wall Street will eventually get around to promoting such partnerships.

Yeah, well they did through swap funds in a sense 25 years ago and then—that was where you put in your highly your stock that had an enormous amount of unrealized appreciation in and a whole bunch of other people did, and then you owned a fund which itself had a lot of unrealized appreciation in it, and you had a layer of costs.

Yeah, it was a new layer of costs always, and you owned a piece of this larger fund, and you owned a piece of everything else that the other people want to get rid of, and they owned a piece of what you wanted to get rid of. And superimposed with some costs, but that vehicle was sort of stopping its tracks, I think, in the mid-70s by an amendment to the Internal Revenue Code.

But as Charlie said, you could replicate the effect of a swap fund by doing it with a partnership. It'd be kind of awkward, but it can be done.

Zone two, gentlemen, Mark Ravenov from Australia. I am a shareholder. I had a question really related to our own businesses and how they're going and where you're looking to be in 10 years time. Perhaps I could start with the insurance float. It's grown at 20; do you think that 20 growth rate will continue for the next 10 years? Do you think our stable businesses, which have been growing at say 5 or 7 percent, will maintain that rate? And do you think Flight Safety, which from the SEC filings has been growing at about 5 percent—do you think that will continue at that rate?

Well, we're glad to have you from Australia. I think we've got about 15 people here from Australia, so we've got good representation.

I don't think the insurance float can grow at 20 a year; that's been helped by some acquisitions and things. I mean, it's done way better, obviously, than we ever thought it would 30, almost 30 years ago when we made the deal with Jack Ringwald. I would say though that I think Geico is going to do even better than we expected when we bought it.

And we thought it was going to do awfully well then. In Tony Nicely, you know, we have an absolutely outstanding manager of that business, and he is focused on it; he knows it. I think he went to work there when he was 18, and he's been there 35 years or thereabouts, and they don't come any better, and he is absolutely zeroed in on the things that he should be zeroed in underneath.

The implementation gets better all the time. I mentioned in the annual report that the unit growth of Geico's voluntary auto business—and we talk about voluntary because you get assigned risk-type things that lose you money—but the real business is the voluntary auto business grew at 10 percent last year, which was the best growth rate in over two decades!

First four months of this year, it's growing at about 16 percent, and 16 percent unit growth translates into about 20 percent a year premium growth. So Geico, at present, would give you some encouragement for at least that segment of the insurance float growing at a rate that's sort of comparable to the past.

Insurance is going to be a very big business for us, and the float will grow in my view at a good rate, but I wouldn't want to predict that good a rate. Most of our other businesses, very good businesses— they don't have 20 percent a year growth possibilities in them. They throw off lots of cash which we can use to buy other things which may turn out to be a better strategy than even having a single high-growth business.

At Flight Safety, about six weeks ago, or thereabouts, announced a major hookup in a joint venture with Boeing, as you may have noticed, and they're a terrific partner, and it'll be a great partnership. That's just for the training for our larger planes primarily, I think, 100-seat planes.

Although I think there may be a few Fockers in there that are slightly smaller planes, but it's basically the big commercial planes, and the combination of Flight Safety and Boeing worldwide in training over the coming decades I think will be a very powerful combination.

So we've got some very good businesses, and I don't see that movie that's presented before I sit out here like you and watch it, but I like the ending of it. The people we have out there have run businesses extremely well in the past. They get better results out of those businesses, frankly, than other people would, or that other people in the industry generally do, so I think they have good futures, but they will throw off lots of cash in aggregate, and the tough job, we like to tell people it's a tough job anyway, is that Charlie and I have to figure out where to put that cash to maintain a higher reasonable growth rate.

Could you—I'm not sure. Could you turn that on, please? I'm sorry, sorry to pin you down, but that's okay. Would you guess that Flight Safety then is more likely to be in that 10 to 15 ballpark?

Well, it's hard to tell on numbers. There is certainly going to be a growth in pilot training around the world, but Flight Safety already has a significant portion of the corporate market, for example, so it would be hard to grow a lot faster in the corporate market.

Although I can hear Al grinding his teeth when I say that, because he plans to grow a lot faster than the market. But the corporate market, we've got a significant percentage. Commercial market, there could be a lot of potential—it won't come tomorrow or the next day, but ideally we would like to see people, when they buy a 777 or 747 or something, buy a lifetime pilot training contract at that time.

I wouldn't want to stick a number on it, but I've got high hopes. And Flight Safety also announced recently a very major contract with the government through Raytheon, so it's a company that's got its sights set a lot higher than where it is now.

In insurance, 15 percent?

Yeah, well, you want tenths of a percent, or will you?

They, we just don't know. I mean, we didn't know 25—we didn't, 30 years ago, we didn't know we would be in the insurance business. I mean, Berkshire, we have no master plan.

If Charlie and I did not sit down in early '65 and say we're going to do this and that and all that we're going to do, we're going to try and do sensible things as we go along. The more money we have, the harder it is to find sensible things.

But that's the criterion. Insurance is certainly a major area of opportunity for us; it's been a major opportunity. We have, in certain fields, we have a terrific advantage for the three reasons I laid out in the annual report. We have capital strength, a willingness to take on risk, and a speed of action, and a certainty of payment that in aggregate no one matches.

Now how much demand there is for that depends on circumstances and, in the business, and how much supply there is at lower prices that we think don't make sense is another question. But I think we'll do okay in insurance over time.

Zone six, my name is Daryl Patrick from Dayton, Ohio. How many shareholders do you have that own Berkshire longer than you and Charlie, and have you ever gotten together with them?

How many shareholders have had it longer than we have? Well, we started buying in 1962, and it was seven, and I think the first ticket was at seven and five-eighths or thereabouts. But there was a two thousand share; I've got the trading card on the wall, and I paid a dime commission; I can't believe I was paying a dime commission in those days.

We pay a nickel now, and that's on much higher price stocks! It's a good, it's a good thing I didn't have a fistfight with a broker about whether to pay it or not; I might have never made those two thousand shares. We have, as a director, Kim Chase, whose family's holdings in Berkshire go back to what? Kim, where are you down here? There we are!

But what year would you?

I'm sure there are people that...we've got, you know, 50 or 100 shareholders maybe from that earlier date that are still around, and I'm glad they are. Charlie? Nothing to add.

Area seven, up in the balcony. Over here.

Charlie would like to make an announcement on that second point prompted by LLC—we are changing the name of the company plan from the indefensible to the indispensable! [Applause]

Now, what was that first question again?

No one ever gets that in a private business where daily you get a buy-sell offer by a party, but in the stock market, you get it—they you get it; that's a huge advantage; it's a bigger advantage if this partner of yours is a heavy-drinking manic-depressive.

I mean the crazier he is, the more money you're going to make. So you should, as an investor, you love volatility—not if you're on margin, but if you're if you're an investor, you aren't on margin, and if you're an investor, you love the idea of wild swings because it means more things you're going to get mispriced.

Charlie?

Yeah, the finance departments state that volatility equals risk. Now they want them. They want to measure risk, and they don't know any other way. They don't know how to do it, basically, and so they say that volatility measures risk.

And I've often used the example that the Washington Post stock when we first bought it in 1973 had gone down almost 50 percent from evaluation of the whole company of close to say 180 or 175 million down to maybe 80 million or 90 million.

So thanks to Mason, who's done very well managing money, I should add, and there will be at least one university course that tackles what I think are the important questions in investing.

Zone eight, please.

Gentlemen, my name is Richard Cerzer from Tucson, Arizona. Let's give them a hand. [Applause] This is the gentleman that led to the Flight Safety purchase. [Applause]

My question relates to owner earnings. What guidance can you give us as to the calculation of item C, which is maintenance capital spending and working capital requirements?

Richard, I was going to ask you a question: how about another company? Richard and his wife Alma have attended maybe eight or so meetings, and what he did is covered in the annual report, but had it not been for Richard, we would not have merged with Flight Safety. And for that, we owe him a lot of thanks.

I would say that they give a good representation to us of owner earnings. Can you think of any exceptions in our businesses, particularly, Charlie?

No, we have, after

1997 Berkshire Hathaway Annual Meeting (Full Version)

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