understand very well.”

The cash hoard is about $60 billion. “We will be very willing to act if economic turbulence occurs, and we’ll be prepared and a lot of people won’t be.”

Munger: “We just keep swimming and let the tide take care of itself.”

The problem with making macro predictions, Munger added, is you start thinking you know something about it.

Somebody asked if a $37 billion difference between cash taxes and reported taxes is as good as float. Buffett said deferred taxes now amount to about $60 billion, including unrealized gains in the stock portfolio, but he doesn’t see them the same way as he sees float. “Float is a tremendous asset,” he said. “The deferred tax liability is a plus, but it’s not a big asset.”

Somebody asked about Henry Singleton and Teledyne, which opened the door for Charlie, who knew him, to say he was much smarter than Buffett but not as good as investor because he was so busy doing other things.

Buffett: “When people get their ego involved, people do things they normally wouldn’t do. You really should understand human behavior if you’re going to run a business.”

Then he went into all the bad stuff managers have done trying to please a CEO who set profit goals or revenue goals or whatever.

“You really have to be very careful in the messages you send as a CEO,” Buffett said.

Someone wanted to know what it would mean to Berkshire Hathaway if its reinsurance operation were designated as too big to fail. Buffett went into some detail on Systemically Important Financial Institutions, mentioned that GE, Prudential and Metropolitan have been designated in addition to the big banks, and said it basically takes 85 percent of revenues coming from the financial side. At Berkshire, it’s about 20. “We have no reason to think Berkshire Hathaway would be designated as a SIFI,” Buffett said.

Somebody asked about Todd and Ted. “I think the whole thing is working pretty well,” Munger said. “Each one has helped to buy a business recently.”

Buffett said the key factors in people he wants around him are qualities of character, not expertise.

“Charlie and I have run into more dysfunctional people with 160 IQs than most people, probably . . . A lot of people are incapable of functioning well day after day even though they’re capable of brilliance from time to time.”

I missed the last half-hour of the morning session to go downstairs and get the 50th anniversary book before they ran out. Just browsing it is fun. Much of it is original documents reproduced — letters, newspaper clippings, etc. I’m looking forward to poring over it in more detail, but it’s a nice historical document and with only 15,000 copies printed, maybe it’ll be worth something one day. Bought one for my son just in case.

Got back just in time for Buffett’s update on his market vs. hedge funds bet, now seven years old. Even after a rough start in 2008, market: 63.5 percent; fund of hedge funds: 19 percent. With their fees, he pointed out, the hedge funds have done well; it’s their investors who have paid the price of their underperformance.

Passed on the box lunch this year and ate tacos. Pretty good tacos.

First question after lunch was about which businesses thrive in an inflationary environment and which suffer. Buffett said the best are businesses that don’t require continued capital investment; mentioned real estate. Utilities and railroads are the opposite; lots of continuing capital investment. “A brand is a wonderful thing to own during inflation,” he said, citing See’s. He mentioned that Gillette paid $100,000 in 1939 for the radio rights to the World Series (Yankees 4-0 sweep over the Reds) and that investment paid off throughout the lives of the kids who listened to it, even as the cost of those rights multiplied many times.

Munger: “If it weren’t for Weimar inflation, we might not have had Hitler . . . We don’t want inflation because it’s good for See’s Candies.”

Someone wanted to know if Buffett might rekindle his interest in buying a big commercial insurance operation now that he’s started his own.

“It’s almost certain we will not take over a big commercial insurance company,” Buffett said.

Munger: “Well, I certainly agree with you.”

Buffett: “That’s how he keeps his job.”

This is when Buffett apologized to those who had been unable to find anywhere to watch the meeting in the morning. Then he raised his glass. “This is pineapple juice, incidentally. People were wondering . . . ”

Munger was asked about his discussion of reputation in the annual report. “Hardly anything is more important than behaving well as you go through life,” he said.

Someone noted that Buffett has said climate change has no effect on Berkshire Hathaway insurance pricing, but that other companies, including Travelers, list it as an insurance risk.

Buffett said it might be different if you asked about the next 50 years, but pricing insurance on an annual basis, “I see nothing that tells me on a yearly basis that global warming should make me change my prices a lot. That doesn’t mean it’s not a threat to humanity . . . It does not change the situation in a material way in a one-year period, in my judgment.”

Munger; “I don’t think it’s totally clear . . . I think there’s a lot of guesswork in that field . . . It’s not that global warming isn’t happening, it’s just that you can get so crazy excited about it that you make all kinds of crazy extrapolations that might not be correct.”

Somebody asked about investments in oil and gas companies that haven’t gone that well — ConocoPhillips, Exxon — and wondered if Berkshire Hathaway wouldn’t be better off sticking to BH Energy.

“That’s not the oil and gas business,” Buffett said. “We have not distinguished ourselves at all in the oil and gas field.” But he also said he probably hasn’t bought his last oil and gas stock.

Munger on Exxon, given its dividend and interest rates at the time: “It was not a bad cash substitute.”

Somebody asked about the “broken” tax code, citing $2.1 trillion in offshore corporate cash and . . . well . . . you know . . . all the other stuff.

“Well, it takes 218 members of the House and 51 U.S. senators and a president that will sign the bill,” Buffett said. Despite all their complaints about the corporate tax rate, corporate profitability has never been better, he pointed out. Corporate taxes now represent about 2 percent of GDP compared to 4 percent years ago, while the proportion of individual taxes has increased. “We operated with corporate rates at 52 percent and then at 48 percent and we did pretty well . . . I don’t shed any tears for American business as far as the tax rate.”

Charlie went off on California for its 13 percent capital gains tax, calling it much dumber than Florida. “The idea of driving the rich people out . . . it is really demented.”

Anyway, said Buffett, there’s a chance Orrin Hatch and Ron Wyden will make a deal on corporate tax reform privately, which is the only way a deal can be done. He ruminated on what would have happened at

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