early, including Ajit Jain walking in the door looking for work, that would be unlikely to happen in a replay. “You couldn’t expect to have three lucky events happen.”
The first succession question didn’t come until at least an hour in, this one on how shareholders should assess the Berkshire Hathaway culture once Warren and Charlie are gone.
“When you have 97 percent of shareholders vote and say, ‘We don’t want a dividend,’ I don’t think there’s another company like that in the world,” Buffett said. “It’s self-reinforcing, and I think it’s a virtual certainty to continue . . . for decades and decades to come. Culture is everything at Berkshire.”
Then he talked a little about his experience running Salomon Brothers. “It would be hard to turn Salomon into Berkshire,” he said.
“I don’t think anybody’s ever done it on Wall Street,” Munger said.
There was a question about Berkshire Hathaway being long sugar through investments in See’s, Dairy Queen, Heinz and Coke and whether that was still wise given an increasing focus on the health hazards. No answer all day dated Buffett more than this one. He acknowledged the trend that Andrew Ross Sorkin had described, then basically dismissed it.
“In the last 30 years, one quarter of all the calories I’ve consumed have come from Coca-Cola,” he said with delight. “If I’d been eating broccoli or Brussels sprouts, I don’t think I’d live as long . . . It’s like going to jail.” He said he likes Coke better than whatever they’ll sell you to drink at Whole Foods.
He also said he doesn’t see anybody smiling at Whole Foods. Since I’m guessing he’s rarely if ever been in a Whole Foods store, this seemed emblematic of his departure from empiricism on this topic. He likes what he likes and he’s lived a long time eating the way he eats and he’s not changing now.
Sugar, Munger added, “prevents premature softening of the arteries.” If it causes him to die a little earlier then he would have otherwise, he’ll miss a few months in a nursing home.
Somebody asked about building scale in the auto dealership business. Buffett said scale doesn’t much matter in cars because local dealers develop local reputations, so it’s all about the quality of the dealerships you own.
Somebody asked about the characteristics he considered 45 years ago in building a company culture.
“Just like your child sees what you do rather than what you say, it’s the same way in a business,” he said. His rule is to work with people as if their positions were reversed and treat them the way he would want to be treated.
Somebody mentioned two metrics of market valuation Buffett has cited in the past — the ratio of total market cap to U.S. GNP and the ratio of corporate profits to U.S. GNP — and pointed out both make the market look overvalued here. Total market cap to GNP is about where it was in 1999, shortly before the dotcom bubble burst (125 percent, more or less) and corporate profits now equal about 10.5 percent, compared to the range Buffett called normal of 4-6.5.
“What it indicates is American business has done wonderfully well over the last number of years,” Buffett said. He attributed them largely to low interest rates. “The question is how long those are going to prevail.” If interest rates return to historically normal levels, stock prices will look high, he said. If they stay low, stock prices will look cheap.
Munger: “Since we failed to predict what exists now, why would anybody ask us to predict what’s going to happen in the future?”
Buffett: “We think any company that has an economist certainly has one employee too many.”
There was a question about new tank car rules. Buffett replied they came out two days ago and consist of 300 pages, so he hasn’t read them yet. He and Munger both said BNSF and all the big outfits have a lot of engineers working on safety. Then Buffett said something reassuring if you were afraid all this 50th anniversary stuff was beginning to sound like a swan song:
“I may write about this next year in the report,” referring to Burlington Northern’s safety record.
Somebody asked how you get to meet important people if you don’t have the good fortune to have a lot of rich business school classmates.
“I think you should do the best you can playing the hand you’re dealt,” Munger said without sympathy. “I never had any business school training. Why should you have any?”
Somebody wondered how badly a worst-case Burlington Northern accident — metropolitan area, big explosion, etc. — would hurt Berkshire. “We don’t need insurance at Berkshire,” Buffett said. “We’ve got the ability to handle any loss that comes along.” They offer big-ticket reinsurance like that to others.
Somebody asked about transfers of cash within the company, mostly from subs into National Indemnity. “Well, we just got around to it,” Buffett said. “It makes it a little simpler.”
Somebody asked about the Asian Infrastructure Investment Bank and why the U.S. hasn’t joined.
“That’s a subject I know absolutely nothing about,” Buffett said. He turned to Munger.
“I know less than you do,” Charlie said.
Buffett: “If we started talking about it, we’d be bluffing.”
Buffett gave the questioner a second chance and he asked about the dollar as a reserve currency. Munger said he likes it better when we print money to build infrastructure than when we print money to spread around with a helicopter.
Somebody asked about Buffett’s recent willingness to brand subs with the BH name, citing Berkshire Hathaway Automotive Group, which is what Van Tuyl is becoming. The answer was basically brand names that have value won’t change. “We’d be crazy to call it Berkshire Hathaway peanut brittle instead of See’s,” Charlie said. “We have some brands that are worth a lot of money.”
Someone asked if distributed energy and Elon Musk’s new battery for the home threaten to disrupt the utility business model. “People who have adopted solar in our territories are minuscule,” Buffett said.
Munger: “It’s not a threat, it’s a huge benefit to humanity and I think it’ll be a huge benefit to Berkshire. There’ll be some disruption in the utility industry, but I think there’ll be more opportunity than disruption.” Greg Abel agreed and cited some big numbers BH Energy is devoting to renewables, particularly wind.
Someone wanted to know about Buffett’s most memorable failure, so he told the Dexter story again, saying the stock he paid for it is worth $6 billion or $7 billion now. “Nobody misled me on that. I just looked at it and came up with the wrong answer.”
He added another familiar refrain that the biggest mistakes have probably been missed opportunities because he’s never willing to take risks that might endanger the net worth of his partners, his shareholders. They could have used more leverage, he said, leading to this exchange:
Munger: “But we would have been sweating at night. It’s crazy to sweat at night.”
Buffett: “Over financial things.”
Munger: “Over financial things.”
Buffett: “Well, we won’t pursue that.”
They were asked for the thousandth time about the Fed, and Buffett repeated his general bafflement that its easy money policy hasn’t produced any noticeable inflation. “I think we’re operating in a world that Charlie and I don’t