1998 Berkshire Hathaway Annual Meeting (Full Version) | Summary and Q&A

Summary

In this video, Warren Buffett and Charlie Munger hold the annual meeting for Berkshire Hathaway shareholders. They discuss various topics including the election of directors, the criteria for buying and selling stocks, the importance of the insurance business, and the impact of technology on businesses. They also touch on the issue of campaign spending and their thoughts on it. The video ends with a Q&A session where they answer questions from the audience.

Questions & Answers

Q: How do relative and absolute price-earnings ratios move?

Relative price-earnings ratios move up when there is an expectation of better prospects for a specific industry or company compared to others. Absolute price-earnings ratios move up in response to changes in interest rates and based on the perceived future earning power of a business. The recent increase in corporate profits and improved return on equity has also contributed to the rise in absolute price-earnings ratios.

Q: How do you forecast improvements in price-earnings ratios?

Our predictions are often better because we make fewer of them. We prefer to focus on simple and understandable investments rather than complex ones. We believe that one can be successful by focusing on businesses with good prospects and better returns on equity. We look for businesses that will be better in the future and buy them at a reasonable price.

Q: How can individuals find a mentor in value investing like Warren Buffett found in Ben Graham?

There are a few educational institutions that offer courses on value investing, such as the University of Florida and Columbia. They bring in practitioners and experts in the field to teach students. It is also helpful to read books and publications on value investing and attend conferences or seminars where industry experts share their knowledge and insights.

Q: Are there good investment opportunities in Japanese companies trading below net working capital value?

While there have been reports of value investing in Japanese companies, Warren Buffett and Charlie Munger are less enthusiastic about those stocks. Japanese businesses generally have low returns on equity, which makes it difficult to generate good returns as an investor in the long run.

Q: What are the criteria for deciding when to sell stock?

The best scenario is to buy stocks that you don't ever want to sell. The focus should be on buying good businesses at reasonable prices and holding onto them for a long time. Selling may be necessary if the investor needs money for other investment opportunities or if the valuation between different stocks or sectors appears out of balance. However, the preference is always to hold on to great businesses for as long as possible.

Q: What is the most important business in Berkshire Hathaway's portfolio, and what are the second and third most important businesses?

The insurance business is considered the most important business in Berkshire Hathaway's portfolio. Flight safety is the second largest source of earnings. However, Warren Buffett and Charlie Munger emphasize that they enjoy and find value in all of their businesses. The ranking of importance may change based on the opportunities and profitability of each business.

Q: Will the high returns on equity in the banking sector be sustainable in the long term?

Warren Buffett and Charlie Munger do not believe that the high returns on equity in the banking sector will be sustainable in the long term. These returns may be a result of a unique set of circumstances and may not be replicable in the future. They caution against assuming that such high returns are normal or can be sustained indefinitely.

Q: What are your thoughts on campaign spending and its impact on the stock market and global economy?

Warren Buffett personally believes that the escalation of campaign spending by businesses can have a significant impact on political influence and regulations. He has joined efforts to restrict soft money and promote fast disclosure campaign finance reform. He predicts that campaign spending by businesses will continue to increase, creating an arms race for political influence. Legislation may be necessary to address the issue and prevent undue influence on government decisions.

Q: What are your thoughts on the year 2000 compliant issue and its impact on the stock market and global economy?

Warren Buffett and Charlie Munger believe that the year 2000 compliant issue will not have a significant impact on Berkshire Hathaway. They have taken measures to ensure compliance within their company. However, they acknowledge that some areas in national, state, and local governments, as well as foreign governments, may be behind in their preparations. This could lead to challenges and additional expenses for those entities, but they do not foresee a major impact on the stock market or global economy.

Q: Can you share your thoughts on controlling campaign spending?

Warren Buffett has joined efforts to control campaign spending, particularly by businesses. He believes that the increasing influence of money on politics is a cause for concern. The cost of political influence has been an underpriced product in the past, but as the price rises, it may create an imbalance in the political system. He believes legislation and reform are necessary to address this issue and prevent an escalation of spending in political campaigns.

Q: Are the high returns on equity in the banking sector sustainable?

Warren Buffett and Charlie Munger do not believe that the high returns on equity in the banking sector can be sustained indefinitely. It goes against classic economic theory to believe that such returns can be consistently achieved. The sustainability of these returns depends on factors such as the overall growth of the economy, interest rate changes, and the ability of businesses to manage their capital efficiently.