Warren Buffett Speech to University of Georgia Students Part 1 (Archive 2001)

April 21, 2013, 04:09:29 PM EDT By Juno Tay, GuruFocus

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Transcript:

Speaker: Well, good morning and welcome. You're a nice crowd, you certainly got
quiet quickly. That surprised me. Can you hear me all right? There in the back? Well,
for business school, you know it doesn't get much better than this. Having the
world's greatest investor come to your campus is quite an honor.

Warren Buffett is Chairman of Berkshire Hathaway, a holding company whose

investments range from GEICO Insurance, to American Express and Coca-Cola, to
Borsheims jewelry store in his hometown of Omaha, Nebraska.

Mr. Buffett has been described as 'the god of value investors' and 'the Michael Jordon
of the investing game.' He began his first investment partnership in the mid-1950s
with $100 of his own money. A few years later he began investing in a struggling
Massachusetts textile mill called Berkshire Hathaway. Through Berkshire he started
putting capital into other businesses, chiefly insurance, which generated cash
streams for more investments which have done very well indeed as we all know.

From a share price of about $18 in 1965, Berkshire today trades around $69,100 a
share. Think I'm going to go out and buy 500 shares. Over time the company has
annualized performances more than double that of S&P 500, and Berkshire today is
worth more than $100 billion. But Mr. Buffett is known as much for his unpretentious
style as for his lofty success. He has become a champion of investors and is legendary
for his aversion to corporate doublespeak. He is rare among CEOs in that he
cheerfully admits his mistakes. Three years ago he wrote in his annual report that
Berkshire would have done better if he'd simply had gone to the movies. There
weren't very many years like that since 1965, believe me.

Berkshire was proudly, even defiantly absent from the dot-com hysteria of the last
few years, and now that the bubble has burst as we all know, it's Warren Buffett
who's having the last laugh. In his most recent letter to shareholders he wrote,
quote, "We've embraced the 21 st century by entering such cutting-edge industries
as brick, carpet, insulation, and paint." Try to control your excitement. You know, and
personally from reading his letters, I mean it's just a joy. It's a business lesson in itself.
I would encourage you, whenever you get an opportunity, to take one aside and read
it carefully. You'll learn a tremendous amount.

His wisdom and insights are so valued that some investors buy a share of Berkshire
stock just so they can hear him at his legendary annual meeting, or as he calls it,
'Woodstock for capitalists.' He doesn't make speaking appearances often, and we are
extremely fortunate to have him with us today. Earl Leonard of Coca-Cola, and our
distinguished executive in residence had a lot to with that, Earl, and we're deeply
indebted to you for helping to arrange this. Thank you very much.

Our format today will be primarily questions and answers. Mr. Buffett will make some
brief remarks at the beginning and then we'll move into your phase. We will have a
microphone set up over here. We would like to come around- we're videotaping, so
we'd like you to use the microphone, please. So go ahead and begin to line up over
there to ask your questions. So would you please give a very warm welcome to the
oracle of Omaha, Warren Buffett .

Warren Buffett : Testing. 1 million. 2 million. Great, okay. I came in from Nebraska
today, and you're probably all familiar with us, mainly by our football team. We have
those fellows with the big white helmets with those red 'N's on them. I asked one of
our starters the other day, "What's the 'N' stand for?" And he said, "Knowledge." We
make it tough on them though. I mean you don't coast through Nebraska just
because you're a football player. They major in agricultural economics, and there's a
two question final for all of the players. And the first question is, "What did old
MacDonald have?" And they were giving that to one of our potential Heisman Trophy
winners the other day. He started to sweat. Finally he brightened up, he said, "Farm!"
The professor, delighted of course, you don't want to flunk a Heisman candidate. So
he said, "Now," he said. "You're halfway home. Just one more question. How do you
spell 'farm'?" Now the guy really starts to sweat, and he looks at the ceiling and he
looks around. Finally his face brightens up and he says, "Ee-i-ee-i-oh!" So watch for
that guy this year, he'll be dynamite.

I really want to talk about what's on your mind, so we're going to do a Q and A in a
minute. There are a couple questions I always get asked. You know, people always
say, "Well who should I go to work for when I get out then?" I've got a very simple
answer, we may elaborate more on this as we go along, but, you know the real thing
to do is to get going for some institution or individual that you admire. I mean it's
crazy to take in-between jobs just because they look good on your resume, or
because you get a little higher starting pay.

I was up at Harvard a while back, and a very nice young guy, he picked me up at the
airport, a Harvard Business School attendee. And he said, "Look. I went to undergrad
here, and then I worked for X and Y and Z, and now I've come here." And he said, "I
thought it would really round out my resume perfectly if I went to work now for a big
management consulting firm." And I said, "Well, is that what you want to do?" And
he said, "No," but he said, "That's the perfect resume." And I said, "Well when are
you going to start doing what you like?" And he said, "Well I'll get to that someday."
And I said, "Well you know, your plan sounds to me a lot like saving up sex for your
old age. It just doesn't make a lot of sense."

I told that same group, I said, "Go to work for whomever you admire the most." I
said, "You can't get a bad result. You'll jump out of bed in the morning and you'll be
having fun." The Dean called me up a couple weeks later. He said, "What did you tell
those kids? They're all becoming self-employed." So, you've got to temper that
advice a little bit. Play one game a little bit with me for just a minute and then we'll
get to your questions.

I'd like for the moment to have you pretend I've made you a great offer, and I've told
you that you could pick any one of your classmates- and you now know each other
probably pretty well after being here for a while. You have 24 hours to think it over
and you can pick any one of your classmates, and you get 10 percent of their
earnings for the rest of their lives. And I ask you, what goes through your mind in
determining which one of those you would pick? You can't pick the one with the
richest father, that doesn't count. I mean, you've got to do this on merit. But, you
probably wouldn't pick the person that gets the highest grades in the class.

I mean, there's nothing wrong with getting the highest grades in the class, but that
isn't going to be the quality that sets apart a big winner from the rest of the pack.
Think about who you would pick and why. And I think you'll find when you get
through, you'll pick some individual- you've all got the ability, you wouldn't be here
otherwise. And you've all got the energy. I mean, the initiative is here, the
intelligence is here throughout the class. But some of you are going to be bigger
winners than others.

And it gets down to a bunch of qualities that, interestingly enough, are self-made. I
mean it's not how tall you are. It's not whether you can kick a football 60 yards. It's
not whether you can run the 100 yard dash in 10 seconds. It's not whether you're the
best looking person in the room. It's a whole bunch of qualities that really come out
of Ben Franklin, or the Boy Scout coders, or whatever it may be. I mean, it's integrity,
it's honesty, it's generosity, it's being willing to do more than your share, it's just all
those qualities that are self-selected.

And then if you look on the other side of the ledger, because there's always a catch
to these free gifts and genie jokes, so. You also have to -and this is the fun part- you
also have to sell short one of your classmates and pay 10 percent of what they do.
So, who do you think is going to do the worst in the class? This is a way more. And
think about it again. And again, it isn't the person with the lowest grades or anything
of the sort. It's the person who just doesn't shape up in the character department.

We look for three things when we hire people. We look for intelligence, we look for
initiative or energy, and we look for integrity. And if they don't have the latter, the
first two will kill you, because if you're going to get someone without integrity, you
want them lazy and dumb. I mean, you don't want a spark of energy out of them. So
it's that third quality. But everything about that quality is your choice.

You know, you can't change the way you were wired much, but you can change a lot
of what you do with that wiring. And it's the habits that you generate now on those
qualities, or those negatives qualities. I mean the person who always claims credit for
things they didn't do, that always cuts corners, that you can't count on. In the end
those are habit patterns, and the time to form the right habits is when you're your
age. I mean it doesn't do me much good to get golf lessons now. If I'd gotten golf
lessons when I was your age I might be a decent golfer.

But, someone once said "the chains of habit are too light to be felt until they're too
heavy to be broken." And I see that all the time. I see people with habit patterns that
are self-destructive when they're 50 or 60 and they really can't change then, they're
imprisoned by them. But you're not imprisoned by anything, so. When you write
down the qualities of that person that you'd like to buy 10 percent of, look at that list
and ask yourself, is there anything on that list I couldn't do?
And the answer is there won't be. And when you look at the person you sell short,
and you look at those qualities that you don't like, if you see any of those in yourself
-egotism, whatever it may be, selfishness- you can get rid of that. That is not
ordained. And if you follow that, and Ben Franklin did this and my old boss Ben
Graham did this at early ages in their young teens, Ben Graham looked around and
he said, "Who do I admire?" And he wanted to be admired himself and he said, "Why
do I admire these other people?" And he said, "If I admire them for these reasons,
maybe other people would admire me if I behave in a similar manner." And he
decided what kind of a person he wanted to be.

And if you follow that, at the end you'll be the person you want to buy 10 percent of.
I mean that's the goal in the end, and it's something that's achievable by everybody
in this room. So that's the end of the sermon. Now let's talk about what's on your
mind, and you can ask anything. The only thing I won't tell you is what we're buying
or selling. I don't even tell myself that. I mean I write it down and then it's like the
Coca-Cola formula. There's only two people that can get into the trust department
and find out what they are, and I don't know who the two are, so. We don't talk
about what we're buying or selling, but anything else is fair game. Personal, business,
anything you'd like to talk about. And actually, the tougher the questions are, the
more interesting it is for me. So don't spare my feelings, I mean just throw it at my
head.

And with that, I guess we've got a microphone- is this the only microphone or is
there one on this side?

Speaker: It's the only microphone right here. To ask a question you'll need to come
down to this microphone.

Warren Buffett: Just stand in line, and I'll be Regis Philbin and you can- I have an old-
fashioned belief that I can only should expect to make money in things that I
understand. And when I say 'understand,' I don't mean understand what the product
does or anything like that. I mean understand what the economics of the business
are likely to look like 10 years from now or 20 years from now. I know in general what
the economics of, say Wrigley chewing gum will look like 10 years from now. The
internet isn't going to change the way people chew gum. It isn't going to change
which gum they chew. If you own the chewing gum market in a big way, and you've
got Doublemint, and Spearmint, and Juicy Fruit, those brands will be there 10 years
from now. So I can pinpoint exactly what the numbers are going to look like on
Wrigley, but I'm not going to be way off if I try to look forward on something like that.

Evaluating that company is within what I call 'my circle of competence.' I understand
what they do, I understand the economics of it, I understand the competitive aspects
of the business. There can be all kinds of companies that have wonderful futures but
I don't know which ones they are. I've given talks in the past where I carry with me a
70-page tightly-printed list, and it shows 2000 auto companies. Now if at the start of
the 20 th century you had seen what the auto was going to do to this country, the
impact it would have on the lives of then your children and grandchildren and so on.
It just, it transformed the American landscape. But of those 2000 companies, three
basically survive. And they haven't done that well, many times.

So how do you pick three winners out of 2000? I mean it's not so easy to do. It's easy
when you look back, but it's not so easy looking forward. So you could have been
dead right on the fact that the auto industry- in fact, you probably couldn't have
predicted how big of an impact it would have. But you wouldn't have- if you'd bought
companies across the board you wouldn't have made any money, because the
economic characteristics of that business were not easy to define.

I've always said the easier thing to do is figure out who loses. And what you really
should have done in 1905 or so, when you saw what was going to happen with the
auto is you should have gone short horses. There were 20 million horses in 1900 and
there's about 4 million horses now. So it's easy to figure out the losers, you know the
loser is the horse. But the winner was the auto overall. But 2000 companies just
about failed, a few merged out and so on.

There were three auto companies in the Dow Industrials in the 1920s and 30s:
Studebaker, Nash-Kelvinator, and Hudson Motor. Now those names are all familiar to
me, and maybe some of them are familiar to you, but they're not making any cars.
They didn't make money. And yet at one time they were in the Dow 30, they were
the aristocrats of American business. And they got creamed. So, figuring out the
economic characteristics of the winners in a wonderful business is not easy.

In North Carolina, you know Orville and Wilbur took off- or I guess Orville took off
and Wilbur watched. I'd have been Wilbur. But, if you could have seen the future of
the airline business from that point forward and how that would transform things, it
would have blown you away. And it's excited people incidentally ever since. But if
there had been a capitalist in Kitty Hawk, he should have shot Orville down, because
it's done nothing but cost investors money. There were over 400 airplane companies
in the 1920s and 30s alone. There was in Omaha, there was in Nebraska, we were
the Silicon Valley of apparently of aircraft, and they all disappeared. It's been a
terrible business.

At the end of 1991 if you'd added up the aggregate earnings from all airline
companies, with billions poured in since Wilbur and Orville were down there, they
came to less than zero. The number of passengers went up every year. The
importance of the industry was dramatically increased decade by decade, and
nobody made any money. So, figuring out the economic consequences- T.V. I think
there's, I don't know, 20-25 million sets a year sold in the United States. I don't think
there's one of them made in the United States anymore. You'd say, T.V. set
manufacturer, what a wonderful business. Nobody had a T.V. in 1950, thereabouts,
'45-'50. Everybody has multiple sets now. Nobody in the United States has made any
real money making the sets; they're all out of business. You know the Magnavoxs,
the RCAs, all of those companies.

Radio was the equivalent in the 20s. Over 500 companies making radios in the 1920s.
Again, I don't think there's a U.S. radio manufacturer at the present time. But Coca-
Cola, you know. What was it, 1884 at Jacobs Pharmacy or whatever, a fellow comes
up with something. A lot of copiers over the years, but now you've got a company
that's selling roughly 1.1 billion 8 ounce servings of its product, not all Coke -Sprite
and some others- daily throughout the world 117 years later.

So understanding the economic characteristics of a business is different than

predicting the fact that an industry is going to do wonderfully. So when I look at the
internet businesses or I look at tech businesses, I say this is a marvelous thing and I
love to play around on the computer, and I order my books from Amazon and all
kinds of things. But I don't know who's going to win. Unless I know who's going to
win, I'm not interested in investing; I'll just play around on the computer.

Defining your circle of competence is the most important aspect of investing. It's not
how large your circle is, you don't have to be an expert on everything, but knowing
where the perimeter of that circle of what you know and what you don't know is,
and staying inside of it is all important. Tom Watson Senior who started IBM said in
his book, he said, "I'm no genius. But I'm smart in spots, and I stay around those
spots." And, you know that is the key. So if I understand a few things and stick in that
arena, I'll do okay. And if I don't understand something but I get all excited about it
because my neighbors are talking about, the stocks are going up, everything; I start
fooling around someplace else, eventually I'll get creamed. And I should. So now let's
go over here.

Audience: Hello, Mr. Buffett. I've got two short questions. One, is how do you find
intrinsic value in a company?

Warren Buffett: Well intrinsic value is the number that if you were all-knowing about
the future and could predict all the cash that a business would give you between
now and judgement day, discounted at the proper discount rate that number is what
the intrinsic value of a business is. In other words, the only reason for making an
investment and laying out money now is to get more money later on, right? That's
what investing is all about.

Now, when you look at a bond, so when you see a United States government bond
it's very easy to tell what you're going to get back. It says it right on the bond. It says
when you get the interest payments. It says when you get the principal. So, it's very
easy to figure out the value of a bond. It can change tomorrow if interest rates
change, but the cash flows are printed on the bond. The cash flows aren't printed on
a stock certificate. That's the job of the analyst is to print out, change that stock
certificate which represents an interest in the business, and change that into a bond
and say this is what I think it's going to pay out in the future. When we buy some
new machine for Shaw to make carpet, that's what we're thinking about obviously,
and you'll learn that in business school.

But it's the same thing for a big business. If you buy Coca-Cola today, the company is
selling for about $110-15 billion in the market. The question is, if you had 110 or 15
billion- you wouldn't be listening to me, but I'd be listening to you incidentally. But
the question is would you lay it out today to get what the Coca-Cola Company is
going to deliver to you over the next 2 or 300 years? The discount rate doesn't make
much difference as you get further out. And that is a question of how much cash
they're going to give you. It isn't a question of how many analysts are going to
recommend it, or what the volume of the stock is, or what the chart looks like or
anything, it's a question of how much cash it's going to give you.

It's true whether if you're buying a farm, it's true if you're buying an apartment
house, any financial asset. Oil in the ground, you're laying out cash now to get more
cash back later on. And the question is is how much are you going to get, when are
you going get it, and how sure are you? And when I calculate intrinsic value of a
business when we buy businesses, and whether we're buying all of a business or a
little piece of a business, I always think we're buying the whole business because
that's my approach to it. I look at it and I say, what will come out of this business and
when?

And, what you'd really like of course is then to be able to use the money that you
earned, and earn higher returns on it as you go along. I mean, Berkshire has never
distributed anything to its shareholders, but its ability to distribute goes up as the
value of the businesses we own increases. We can compound it internally, but the
real question is, Berkshire's selling for, we'll say 105 or so billion now. What can we
distribute from that- if you're going to buy the whole company for 105 billion now,
can we distribute enough cash to you soon enough to make it sensible at present
interest rates to lay out that cash now.

And that's what it gets down to. And if you can't answer that question, you can't buy
the stock. You can gamble in the stock if you want to, or your neighbors can buy it.
But if you don't answer that question, and I can't answer that for internet companies
for example, and a lot of companies, there are all kinds of companies I can't answer it
for. But I just stay away from those. Number two.

Audience: So you've got formulas involved in finding intrinsic values on certain

companies? I mean, you got a mathematical system?

Warren Buffett: Just kind of present value, future cash, yeah.

Audience: Second short question is why haven't you written down your set of
formulas or your strategies in written form so you can share it with everyone else?

Warren Buffett: Well I think I actually have written about that. If you read the annual
reports over the recent years, in fact the most recent annual report I used what I've
just been talking about, I used the illustration of Aesop. Because here Aesop was in
600 BC- smart man, wasn't smart enough to know it was 600 BC though. Would have
taken a little foresight. But Aesop, in between tortoises and hares, and all these other
things he found time to write about birds. And he said, "A bird in the hand is worth
two in the bush." Now that isn't quite complete because the question is, how sure
are you that there are two in the bush, and how long do you have to wait to get them
out? Now, he probably knew that but he just didn't have time because he had all
these other parables to write and had to get on with it. But he was halfway there in
600 BC. That's all there is to investing is, how many birds are in the bush, when are
you going to get them out, and how sure are you?

Now if interest rates are 15 percent, roughly, you've got to get two birds out of the
bush in five years to equal the bird in the hand. But if interest rates are 3 percent,
and you can get two birds out in 20 years, it still makes sense to give up the bird in
the hand, because it all gets back to discounting against an interest rate. The problem
is often you don't know not only how many birds are in the bush, but in the case of
the internet companies there weren't any birds in the bush. But they still take the
bird that you give them if they're in the hand.

But I actually have written about this sort of thing, and stealing heavily from Aesop
who wrote it some 2600 years ago, but I've been behind on my reading. Yeah?

Audience: Good morning. I know you're famed for your success, but I was curious if
there were any particular moments in your life, or mistakes or failures that you've
made that were particularly memorable, what you may have learned from them, and
if you had any particular advice for the students here in dealing with discouraging
circumstances.

Warren Buffett: Yeah. Well I've made a lot of mistakes. The biggest mistake- well not
necessarily the biggest, but buying Berkshire Hathaway itself was a mistake, because
Berkshire was a lousy textile business. And I bought it very cheap. I'd been taught by
Ben Graham to buy things on a quantitative basis, look around for things that are
cheap. And I was taught that say in 1940 or 1950; it made a big impression on me.

So I went around looking for what I call used cigar butts of stocks. And the cigar butt
approach to buying stocks is that you walk down the street and you're looking
around for cigar butts, and you find on the street this terrible-looking, soggy, ugly-
looking cigar- one puff left in it. But you pick it up and you get your one puff.
Disgusting, you throw it away, but it's free. I mean it's cheap. And then you look
around for another soggy one-puff cigarette.

Well that's what I did for years. It's a mistake. Although, you can make money doing
it, but you can't make it with big money, it's so much easier just to buy wonderful
businesses. So now I'd rather buy a wonderful business at a fair price than a fair
business at a wonderful price. But in those days I was buying cheap stocks, and
Berkshire was selling below its working capital per share. You got the plants for
nothing, you got the machinery for nothing, you got the inventory and receivables at
a discount. It was cheap, so I bought it. And 20 years later I was still running a lousy
business and that money did not compound.

You really want to be in a wonderful business because the time is the friend of the
wonderful business. You keep compounding, it keeps doing more business, and you
keep making more money. Time is the enemy of the lousy business. I could have sold
Berkshire, perhaps liquidated it and made a quick little profit, you know one puff. But
staying with those kind of businesses is a big mistake.

So you might say I learned something out of that mistake. And I would have been
way better off taking- what I did with Berkshire is I kept buying better businesses. I
started an insurance business, See's Candy, the Buffalo- all kinds of things. I would
have been way better doing that with a brand new little entity that I'd set up rather
than using Berkshire as the platform. Now I've had a lot of fun out of it. I mean
everything in life seems to turn out for the better, so I don't have any complaints
about that, but it was a dumb thing to do.

I went into US Air; I bought a preferred stock in 1989. As soon as my check cleared,
the company went into the red and never got out. I mean it was really dumb. I've got
an 800 number I call now whenever I think about buying an airline stock. I call them
up any hour, fortunately I can call them at three in the morning, and I just dial and I
say, "My name's Warren and I'm an aero-holic. And I'm thinking about buying this
thing." Then they talk me down. It takes hours sometimes but it's worth it, believe
me. If you ever think about buying an airline stock, call me and I'll give you the 800
number because you don't want to do it.

But, we got lucky in terms of how we eventually came out on it. But it was a dumb,
dumb decision- all mine. And I've done- biggest in terms of opportunity costs,
eventual costs, I bought half interest on a Sinclair filling station when I was about 20
with a guy who I was in the National Guard with. And I had about $10,000 then and I
put $2,000 in, and I lost it all. So, that was 20%, and that means that the opportunity
cost is now $6 billion of that filling station which is a big price to pay for getting to
wipe a few windows and a few windshields and things like that. So, actually I like it
when Berkshire goes down because it reduces the cost of that mistake on an
opportunity cost.
But, the biggest mistakes we've made by far- I've made, not we've made. The biggest
mistakes I've made by far are mistakes of omission and not commission. I mean it's
the things I knew enough to do, they were within my circle of competence, and I was
sucking my thumb. And that is really, those are the ones that hurt. They don't show
up any place. I probably cost

Berkshire at least $5 billion, for example, by sucking my thumb 20 years ago, or close
to it when Fannie Mae was having some troubles. We could have bought the whole
company for practically nothing.

And I don't worry about that if it's Microsoft because I don't know. Microsoft isn't in
my circle of competence. So I don't have any reason to think I'm entitled to make
money out of Microsoft or out of cocoa beans or whatever. But I did know enough to
understand Fannie Mae and I blew it. And that never shows up under conventional
accounting. But I know the cost of it. I passed it up. And those are the big, big
mistakes, and I've got plenty of them. And unless I tell you about them in the annual
report -and I resist the temptation sometimes- unless I tell you about them in the
annual report you're not going to know it because it doesn't show up under
conventional accounting.

But omission is way bigger than commission. Big opportunities in life have to be
seized. We don't do very many things, but when we get the chance to do something
that's right and big, we've got to do it. And even to do it in a small scale is just as big
a mistake almost as not doing it at all. You've really got to grab them when they
come, because you're not going to get 500 great opportunities. You would be off if
when you got out of school here you got a punch card with 20 punches on it, and
every financial decision you made you used up a punch. You'd get very rich because
you'd think through very hard each one.

I mean I went to a cocktail party and somebody talked about a company he didn't
even understand what they did or couldn't pronounce the name. But they'd made
some money last week and another one like it. You wouldn't buy it if you only had 20
punches on that card. There's a temptation to dabble, particularly during bull
markets, and stocks are so easy. It's easier now than ever because you can do it
online. You know just you click it in and maybe it goes up a point and you get excited
about that and you buy another one the next day and so on. You can't much money
over time doing that. But if you had a punch card with only 20 punches, you weren't
going to get another one for the rest of your life, you would think a long time before
every investment decision. And you would make good ones and you'd make big ones,
and you probably wouldn't even use all 20 punches in your lifetime. But you wouldn't
need to. Yep?

Audience: Mr. Buffett, good morning. In your comments about making mistakes and
errors like that, could you talk a little bit about your sell discipline? When you're in a
position and you feel like it's no longer good. What criteria do you use when you just
finally abandon it?

Warren Buffett: Yeah when I started out- the sell situation has changed over the years
because when I started out I had way more ideas than money. I mean I would go
through Moody's Manual, I went through it page by page, and then I went through it
again page by page. And I found stocks in there that I could understand that were
selling at like two times earnings, even one times earnings. Well, when you only have
10,000 bucks that can get a little frustrating, and if you don't like to borrow money,
which I never liked to borrow money.

So, I was always coming up with more ideas than I had money, so I had to sell
whatever I liked least to buy something new that just was compelling to me. And for
a long time I was in that mode. And now our problem is we have more money than
ideas. So, if you look at our annual report which is on the internet at our homepage
berkshirehathaway.com. You'll see something in the back called the economic
principles of Berkshire, which I believe in setting out for my partners. They are my
partners; I don't look at them as shareholders I look at them as partners. They're
going to be my partners for life. So I want to tell them how I think. And if they
disagree with the way I think that's fine, but I don't want them to be disappointed in
me.

So I lay out there and I say, in terms of our wholly-owned businesses, we're not going
to sell no matter how much anybody offers us for them. I mean if somebody offers us
three times what something is worth- See's Candy, The Buffalo News, Borsheims,
whatever it may be, we're not going to sell it. I may be wrong in having that
approach. I know I'm not wrong if I owned 100 percent of Berkshire because that's
the way I want to live my life. I've got all the money I could possibly need, it just
amounts to a change in the newspaper story on my obituary and the amount of
money the foundation has. And to break-off relationships with people I like and
people that have joined me because they think it's a permanent home, to do that
simply because somebody waves a big check at me would be like selling one of my
children because somebody waved a big check. So I won't do that, and I want to tell
my partners I won't do it so that they're not disappointed in me.

More and more with certain stocks we've got that approach. Now, if we were
chronically short of funds and had all kinds of opportunities coming, we might have a
somewhat different approach.

But our inclination is not to sell things unless we get really discouraged, perhaps with
the management, or we think the economic characteristics of the business change in
a big way, and that happens. But we're not going to sell simply because it looks too
high. In all likelihood, you can't make that 100 percent but that's the principle under
which we're operating.

We're generating right now 5 billion of cash a year at least, so that's 100 million
bucks every week. We've been talking here half an hour and I haven't done a damn
thing. So, the real question is how do you put it out intelligently, and if we were
selling things it'd be just that much more, so. There may come a time when that
would change. But we want to- and I have partners, shareholders, partners, who
would say, "If you can get three times what See's Candy's worth, why don't you sell
it?" And that's why I want to be sure before they come in, they know how I think on
that. I mean they're entitled to know that.

But you really want- think for minute if you're going to get married and you want a
marriage that's going to last, not necessarily the happiest marriage or one that
Martha Stewart will talk about or anything, but you want a marriage that's going to
last. What quality do you look for in a spouse? One quality- do you look for brains?
Do you look for humor? Do you look for character? Do you look for beauty? No. You
look for low expectations. That is the marriage that's going to last, if you both have
low expectations. And I want my partners to be on the low side on ex