Berkshire Hathaway Annual Meeting Extensive Notes

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for someone to just yell about everything they disapprove of all the time. It is more effective to pick spots. If we all yelled all the time, we wouldn’t be able to hear each other.

WB: In any social interaction, if you always belch at the table, you will be eating in the kitchen. You often have a limited ability to change others. You have to pick spots

Greg Warren

BRK has historically generated outsize returns. The size of the company will limit its ability to do this in the future. What do you think is BRK’s cost of capital

WB: Size is definitely an anchor to performance. Our cost of capital is what can be produced by our 2nd best idea. I’ve listened to so many nonsensical cost of capital discussions.

CM: Never heard an intelligent one

WB: A CEO often talks about his cost of capital and he and I don’t know what the hell his cost of capital is, but I don’t embarrass him. The real test is whether the capital we retain creates a dollar+ of value. As long as this is true, we will keep retaining the capital.

CM: A phrase like cost of capital means different things to different people. We just don’t use it.


NFM. Based on the data you provided in the 2014 annual report, you bought the NFM at 85pct of BV or 2x earnings. How?

WB: We did not buy it this cheap. We paid 11-12x after tax earnings. Bought 80pct of the company. $60mm valuation for 100pct. $60mm was above book at the time in 1983. $60mm was 11-12x earnings. Sales were 100mm and pretax margins were 7% or so. After tax margins were 4% or so. There was another company from Germany trying to buy NFM at the time. Erskin Bowles was representing the German company. On Aug 30, 1983, I went to Rose Blumkin with a contract and we made a deal.

NFM had $40mm in sales in 2013 and are up 7% or so this week. On Tuesday, we did $7.8mm in sales. Tuesday’s sales were bigger than the monthly sales of the stores we own in Sacramento, Boise, LV.

WB was at Dallas NFM a week ago. It is 1.8mm sqft. I think it will do more volume than any other home furnishing store in the world.

CL: This was the most popular question asked. In your will, you have given instructions who will be acting on behalf of your wife to put 10% into tbills and 90% in low cost index funds. Why not into Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B)?

WB: When I die, all the Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) shares will go to 5 different foundations, 100% of shares. They will be distributed over 10-12 years after death. WB’s instruction is to not sell BRK shares until they have to be sold. For WB’s wife, the goal is not to maximize capital but rather to get peace of mind.

CM: WB is entitled to do what he pleases with his family money.


Burlington Northern Santa Fe, LLC (NYSE:BNI) has done very well. Union Pacific Corporation (NYSE:UNP) has grown its earnings more than BNSF since you acquired it. Can you talk about service challenges BNSF has had. Can you talk about differences in strategies that might have lead to different earnings results? Did BNSF get too aggressive trying to grow that lead to service shortfalls?

WB: We have had a lot of service problems particularly in the Northern route. We have been spending more money than UNP. We have been spending in anticipation or more volumes coming from Bakken oil. Maybe Matt Rose can discuss cold weather.

Matt Rose: Last year, the industry grew units about 820k units. BNSF took about 53%. It was not about what we wanted to take or not take of that. It had to do with the oil volumes growing very rapidly. Also, we have never seen a winter like this in my 13 years as CEO. Chicago and MN had extremely cold weather. 0 to 10 below does not really allow the railroad to work much.

WB: BNSF will spend $5bn on capex this year. That is an industry record. I got a letter from a guy in ND saying he couldn’t get fertilizer. We now send it to them in time for planting. There can also be flooding in the summer. The weak link for all 4 big rails is potentially Chicago.


USA’s use of NG to generate electricity.

WB: Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) is the largest alternative generator in the country. In 2015, we will generate 40% of our Iowa power by wind

Greg Abel: We had a very cold winter in the midwest. Our systems were challenged significantly for the first time. But there was substantial gas available to homes to both heat homes and produce electricity. We must continue to move towards using more gas in the US. The 39% wind share in Iowa will only go up.

At gas utilities, when underlying gas prices go up, we have ability to pass on prices to customers in various states.

WB: BRK’s gas pipelines move about 8% of gas in US. The pipeline moving the gas coming into Omaha is owned by BRK (Northern Natural Gas). They bought this from Dynegy and before that Enron


During the past several years, much has been speculated about your successor. Has there been any discussion about a replacement for CM?

WB: Charlie turned 90 and I find it encouraging how he is handling middle age. I do think that it’s very likely that whoever replaces WB will develop a working relationship with someone. We saw this with Keough/[] at KO, Murphy/Burke at Capital Cities. I think they accomplished far more because they had 2 people who worked well together and had complementary talents. You can’t force someone to do this, but I would not be surprised if some kind of partnership like this developed.


Matt Rose shifted from CEO to exec chairman of BNSF. Does this change who will be CEO of BRK?

WB: Matt’s change was his own idea. It was to address the succession situation at BNSF. Each manager sends a letter to WB saying what WB should do if they had an accident and died today.

CM: I think BRK is in great shape as far as succession goes.


At 2009 meeting, you said that if you were required to

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