Shareholder: Going forward, how can we determine how good a job that you have done allocating capital?
Munger: We continue to beat the market, but not our past averages.
Buffett: The market value can fluctuate from time to time, so market value is not as good of a determinate of intrinsic value. At the end of the day, though, the stock needs to trade at some premium to that value and so far we've done a good job of that.
Carol Loomis: You made some lucrative deals--Goldman, General Electric, Wrigley, et al--during the financial crisis. Can you explain some of the terms of these deals? The thinking behind them, given that the terms are not necessarily the same.
Buffett: Interest rates we charge dependent on opportunity costs at time, not similar deals at different points in time.
Shareholder: What advice would you give people who want to read faster? Or read as fast as you, given the 5 newspapers per day you read, along with 10-ks, et al?
Buffett: Great question. I’m not a fast reader, and not as fast as I used to be. Charlie can read faster. I would love to read faster.
Munger: Speed is overrated. Go a little slower, what difference does it make?
Becky Quick: Are you worried about Congress playing political games with the debt ceiling?
Munger: The US of 2011 has a different debt capacity than the US in 1911. While more debt is not a good thing necessarily, putting a ceiling on it is not the right answer, especially when it leads to situations like this.
My $0.02... Munger was fairly subdued in the morning, but he's warmed up now and in rare form.
Shareholder: What are your thoughts on the potential liability that would come from MidAmerican's proposed nuclear power plant in Eastern Iowa, given the huge payouts that Tokyo Electric are likely to be forced to make to people displaced by their disaster? How does this jive with your wish to avoid super catastrophies that could jeopardize the firm as a whole?
Buffett: I think nuclear power is an important part of the world’s equation in dealing with its problems with emissions. I think it is safe.
Munger: Have to have courage to take some risk.
Buffett: We already have dangerous pipelines and carry hazard chemicals on railroads. I view myself as chief risk officer.
Buffett: More people die in coal mines in US every year than have died in Japan from the nuclear disaster.
Andrew Ross Sorkin: Would Berkshire consider a charitable gifting program with shareholders directing where the cash would go?
Buffett: We had it in the past. We loved it. But there was always some dissention on the charities we were giving to. For instance, some people would refuse to buy Sees Candies if we gave money to Planned Parenthood. The same thing happened with Pampered Chef, which actually started to impact individual livelihoods. We chose to shut the program down becasue we didn't want people being affected by what were the charitable contribution decisions of our shareholders.
Shareholder: For your businesses, like Burlington Northern or Coca-Cola, do you forecast long-term cash flows? growth?
Buffett: Growth is part of investment equation, and we love profitable growth. When we look at business and future, love businesses where return on incremental capital will be high.
Munger: Projections about distant future done with computer do more harm than good. Enormous false precision. We make rough projections all the time.
Carol Loomis: There are three stocks in the 13-F that are said to be held by Warren E. Buffett? Can you explain this?
Mark Hamburg: Those are holdings in benfits plans. As a major shareholder, Warren is listed.
Buffett: I personally own a lot of the securities I've been telling you not to buy: US treasuries. But this is just because I don't want to think about this money.
Shareholder: How do you think about investing outside of the US? What sort of hurdles do you face?
Buffett: PetroChina at time of purchase looked just as cheap as Yukos, but more comfortable with political system in China.
Buffett: We don't pretend to know anything about tax laws, customs, et al, which makes investing overseas all that much harder. We do make allowances for our lack of understanding, as we might do in the US, but the basic principles of trying to value the business, finding good managers, and getting a good purchase price never change.
Becky Quick: With bank deposits, money markets, et al, paying such low rates, where do you put the cash on your balance sheet?
Buffett: All choices are lousy for short-term money, but we don't fool around. Irritating to get paid nearly nothing, but last thing we want to do is reach for basis points. It's just a parking place that is unattractive, but we know we'll get our car back when we need it.
Buffett: Of the $38 billion we had on the books at end of 1Q, most of that was in treasuries.
Munger: We bought one pipeline on Saturday that had to close on Monday. If we were fooling around with money, could not be opportunistic like this.
Buffett: Our ability to come up with cash very quickly has enabled several attractive deals.
Shareholder: Mid-American Energy is investing heavily in wind power. What are your thoughts on wind power, especially considering the amount of capital being thrown at it?
Buffett: Wind is great, but wind only blows about 35% of time. Can't use for baseload. Economics only make sense with government help; wind does not stand on its own.
Andrew Ross Sorkin: Perplexed about your comments about David Sokol saving NetJets from the verge of bankruptcy, given that this wasn't shared with us at the time of the management changeover. Did you not have an obligation to shareholders to inform us that this business was on the brink of bankruptcy?
Buffett: NetJets would have gone BK as stand-alone, but not under Berkshire's umbrella. Same with two insurance subsidiaries.
Shareholder: With youth unemployment at 20%, and probably easiest environment we've seen in a long time to start your own business, what advice would you give these kids?
Buffett: Main thing you can do is improve your own skills. One diploma hanging in office from Dale Carnegie, paid $100 for course in early 50's, and got incalcuable value from it.
Carol Loomis: Does BRK interest in Munich Re and Swiss Re limit your exposure on reinsurance? Would you consider similar investments to allow you to do more direct reinsurance business?
Buffett: Just a couple billion in two reinsurance investments. Not enough to move needle.
Buffett: These investments are no constraint on ability to write reinsurance. We'd like to underwrite more, but it's a matter of finding the best opportunities. We didn't succeed at all for first 15 years we were in reinsurance. It wasn't until Ajit came along that we started to turn a profit.
Shareholder: Todd Combs. Can Charlie talk about how relationship with Todd started? How can we gauge his success?
Munger: He sent me a letter, then I had a meal with him.
Buffett: His results will be known in 5 years, not in 6 months. Over time, highly likely we will have more than one investment manager.
Buffett: His results will be based over five years. Can't judge him on six month results. Over time we should have more than one investment manager. If we end up with two or three that would be great.
Becky Quick: Any thoughts on JNJ's recent acquisition, using stock, given your derision of Kraft for using stock to buy Cadbury?
Buffett: I would like deal a whole lot better if it was done with cash. When you trade away present businesses for new businesses, not saying good things about current businesses, or you are not valuing own businesses properly.
Munger: We know much more about chocolate and pizza than we do about medical devices.
Shareholder: What is your acquisition appetite? What is too big? Has your phone been ringing lately?
Buffett: Appetite is always there. But not going to issue shares, or sell a business to buy another business. Cash will build month to month until we decide to do something.
Sorkin: Insight into state of residential construction market?
Buffett: Immediate situation is terrible. Affects Shaw, Johns Manville, Acme Brick. No bounce at all; all I see is pain. But those are good businesses. Over time, we as country will build houses at same rate as household growth. But we aren't at this normalized rate of construction at moment.
Munger: What do we care if earnings are lumpy as long as it is good over time.
Looks like that's all folks, at least regarding Q&A.
And the Q and A session adjourns.