2009 Berkshire Hathaway Annual Meeting (Full Version) | Summary and Q&A

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November 6, 2020
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2009 Berkshire Hathaway Annual Meeting (Full Version)

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Summary

Warren Buffett and Charlie Munger participate in a question and answer session at the annual Berkshire Hathaway meeting. They discuss various topics including derivatives, financial literacy, rating agencies, real estate market, and potential successors.

Q: Do you think the large derivative positions held by Berkshire are appropriate for a highly rated insurance company?

The net positions are expected to make money over time, and they do not impinge on Berkshire's capital. Collateral posting requirements are minimal, and the transactions are explained in the annual report. The financial consequences to shareholders outweigh any accounting consequences.

Q: What should future generations know about financial literacy?

There is a problem with financial literacy in the current generation as well. Efforts are being made to address this issue through programs and initiatives. Educating students about financial literacy will give them a significant advantage in managing their finances.

Q: Do you agree with the chairman of Wells Fargo that some of the government's programs to reinvigorate banks are asinine?

The government faced a severe financial crisis and had to make tough decisions quickly. It is unreasonable to expect perfection in such situations. The actions taken were commendable overall. There were some foolish reactions, but the government's efforts deserve lenient judgment given the circumstances.

Q: Why do you retain a large holding in Moody's despite their role in the economic crisis?

The conflict of interest was not the major reason for the rating agencies' shortcomings. The failure to foresee the decline in house prices was a widespread mistake. Moody's made a significant error, but so did many others. The rating agency business is likely to continue in some form, and Moody's has the potential to remain a good business.

Q: How do you approach valuation and do you use DCF analysis?

Buffett follows a simple approach to investing. He looks for opportunities where you lay out cash to get back more in the future. He doesn't use calculators or spreadsheets extensively. Buffett believes that if you need a calculator to make an investment decision, you probably shouldn't be making that investment.

Q: Why did the rating agencies rely on flawed history-based models, and why didn't you use your stake in Moody's to prevent this?

The rating agencies made a mistake, but so did everyone else. They believed that house prices would not significantly decline, which led to flawed models. The conflict of interest was not the primary cause of this failure. Berkshire does not actively use its stakes in companies to influence their behavior. Rating agencies still have the potential to be a good business despite the challenges they face.

Q: Where do you see the residential real estate market headed nationally, particularly in California?

The future of the real estate market is uncertain, but there are signs of stability at reduced prices in certain areas of California. There has been a pickup in activity, especially in the medium to lower-price range. Interest rates are down, making it easier for buyers to afford mortgages. The excess inventory created during the housing boom is gradually being absorbed, but the recovery will take time. Certain areas, like South Florida, could face difficulties for a long time.

Q: Can you provide information about the investment managers you mentioned as possible successors?

Buffett and Munger don't provide quantitative or qualitative details about the four potential successors discussed in the annual report. They highlight the importance of finding individuals who can anticipate unprecedented events and make sound investment decisions. The goal is to select people who can protect and enhance Berkshire's intrinsic value for the long term.

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