These notes are approximate reconstructions of the direct quotations. They should not be considered precise transcriptions, but are intended to reflect the nature of what was said as accurately as possible.
Warren Buffett: I'm bearish on currencies generally. Running 10% annual deficits is "a lot of fun" in the short term, but if it worked in the long term, the world would've been doing it long ago.
Charlie Munger: There are plenty of CEO's I'd like to see gone in America. Goldman Sachs CEO Lloyd Blankfein is not one of them.
Warren Buffett: I was afraid he was about to start naming names.
Warren Buffett: A lot of things have been done to make vehicles safer. I'm not sure cell phones and BlackBerries are among them.
Warren Buffett: My gifts to foundations are made annually in July. If the sale of 1.5% of outstanding shares is enough to move a stock's price significantly, it probably deserves to drop.
Charlie Munger: Shareholders probably have much bigger things to be concerned about than Buffett's stock gifts.
Warren Buffett: The risk of nuclear, biological, or chemical attack over the next century is very high. The risk from year to year is very low. The crowd assembled at this shareholders' meeting is not smarter and doesn't work harder than an equivalent crowd assembled 200 years ago. Yet their lives are materially better. We probably haven't even begun to crack the limits of human potential. Even if I were somehow required to invest only in the United States -- with not a single foreign opportunity allowed -- I'd still be very happy with the prospects for the future.
Warren Buffett: The succession plan for Berkshire's chief investment officer is less important than the CEO succession. A successor CEO could be installed within 24 hours of my passing. Finding a replacement CIO could take months, but there's no reason to worry. Our investments like Coca-Cola aren't going anywhere tomorrow.
Warren Buffett: A capital-intensive business like an electric utility or a railroad is an "intelligent if not brilliant" use of the $2 billion per quarter in productive cash produced by Berkshire's operating businesses. It's almost impossible to find "brilliant" uses of as much capital as is produced by the company.
Warren Buffett: I like a business [like Harley-Davidson] where people tattoo your name on their chests. Maybe I should interview some of those customers and learn something. It was easier to evaluate their risk profile for debt than for equity when they needed capital last year.
Warren Buffett: It's a lot easier to build a new organization with a new culture than to change an existing culture. It's one of the things I like about Berkshire Hathaway; you can't easily change the culture. We've had the luxury of having since 1965 to get new acquisitions to buy-in to the culture. I tried to change the culture at Salomon Brothers, and I wouldn't grade myself an A+.
Charlie Munger: In my experience, the rate of failure at changing a corporate or organizational culture is 100%.
[notes conclude here at about 11:00 in the morning]
[notes below resume from around 2:30 in the afternoon]
Warren Buffett: It's hard to overstate the effects of near-zero interest rates. Stock prices of the past year reflect the fact that people are being pushed hard to find good short-term options for their money.
Warren Buffett: Benjamin Graham taught me how to evaluate a certain type of company, but that type has dried up. Charlie Munger taught me how to evaluate a company with a durable competitive advantage.
Warren Buffett: Recognize your limitations and your circle of competence. That will open up more options than it excludes.
Charlie Munger: You have to practice a lot to get better at anything. Your competitors will keep learning, so you have to go to bed smarter than you woke up. I saw a man at the Omaha Club in my childhood who appeared to make a lot of money without doing a lot of work. I asked my father how; he said "He renders horses and has no competition." Peter Kiewit built a great business by caring more and disciplining himself more than his competitors cared or disciplined themselves.
Warren Buffett: You don't have to be brilliant. Just avoid the obvious mistakes.
Warren Buffett: We define a business by the capital required to run it and the purchase price. Magazines operate on negative capital because subscribers pay in advance and there's no inventory. Blue Chip was a great negative-capital company. See's Candies needs very little capital, but we can't get people to eat ten pounds of chocolates every day. Insurance is another great negative-capital business. Business Wire is a low-capital company. Consumer businesses are generally low capital.
Charlie Munger: The formula never changes.
Warren Buffett: If you could only own one business, what would it be?
Charlie Munger: The one with the highest possible pricing power we can find.
Warren Buffett: The telephone doesn't ring often with people looking to sell their businesses to us. Our published acquisition criteria weed out a lot of businesses. A year with three to four legitimate prospects is a good year. We're as interested as ever in buying new ones. I would love it if the phone would ring on Monday morning with a great deal. I will find a way to do it.
Charlie Munger: Our sellers are smart. They avoid fee-hungry intermediaries. We rarely get intermediaries because we attract sellers who have just one buyer in mind.
Warren Buffett: Sellers see three options: (1) Sell to a competitor, who will cut employees and make the business second-rate. (2) Private-equity firms, who will chop up the business like a piece of meat. (3) Us.
Charlie Munger: I don't think the buying period for Berkshire Hathaway is over. The process of acquisition will probably be slower than in the past.
Warren Buffett: The change in format to the annual meeting has worked, and it will continue in the future. It improves the quality of the questions we receive.
Charlie Munger: I think shareholders should be interested in how we did the BYD purchase. We've always avoided technology companies, but BYD showed our capability for learning. They will solve some significant problems. BYD reminds me of Kiewit; they work harder and are more disciplined than their competitors. BYD and MidAmerican Energy bring a lot of engineering knowledge to Berkshire.
Warren Buffett: Can we keep using all of the capital generated by the company efficiently? It gets extraordinarily hard, especially ten to fifteen years out. I'm not sure we can exceed $1 in profit to $1 in outlay over that time horizon. There is a limit. There will come a time when we can't distribute all capital internally.
Charlie Munger: Fortunately, we will have some decent approximations of Warren Buffett on the way to help us do the investing.
Warren Buffett: It was dumb luck that I was born to a father who was in securities, and that I read his books. But everyone needs to find a passion, because few people will outrun you in a race you love to run. Nebraska Furniture Mart was built on $500 of invested capital by a woman who never went to school. Every item of furniture in her house had a price tag, because it made her feel at home to be surrounded by her work.
Charlie Munger: Warren and I do things differently because it suits us and because we're pragmatic. It works. When something works, you keep doing it.
Warren Buffett: By its nature, high-speed passenger rail would be uneconomic in the United States. There's not enough return on capital to justify it, at least not on a point-to-point basis. It won't meet the test of private economics.
Charlie Munger: The cost of installing high-speed rail in densely-populated areas is very high. In Los Angeles, it's going to be a bottomless pit.
Warren Buffett: High-speed rail requires point-to-point service; no spurs are possible. One estimate says it'll cost $200 million to build a tram system currently under consideration in Omaha, but the math simply doesn't work. People think that Federal money is "free," but it isn't. Buffalo, New York, has a tram system, but operating it costs more than offering free cab rides to every person who uses the tram. Rail systems have different economics when the population is as densely concentrated as it is in places like Japan or China.
Warren Buffett: If an earthquake in California were to cause $250 billion in damage, we could still have positive earnings in that year.
Charlie Munger: A lot of earthquake damage is uninsured; wind and fire can do a lot more damage than the earthquake itself.
Warren Buffett: We have so much non-insurance earnings power outside insurance that we could have net earnings even if all of the other insurance companies in the country got crushed.
Warren Buffett: If something truly paralyzing occurs (like a nuclear, biological, or chemical attack against the United States), it won't be an insurance company that causes us the most pain. I can't guarantee against something apocalyptic like a comet strike, but even huge amounts of debt won't do us in.