The last session of Q&A part of the 2017 Berkshire Hathaway AGM starts with Warren Buffett inviting a question from a shareholder who has likely queued most of the night to get close to get in front of a microphone.
Now, weâre moving from one station to another from 15:30, so weâll now go to station 8.
Good afternoon, Warren, and Charlie. Iâm John Norwood, from Weston, Iowa. You guys have iron bladders.
We wonât tell you the secret to that.
I was wondering about a contraption under the table there.
No, you can come down and inspect.
All right, yes, I have a question for each. Warren, I was fortunate to ask you a question, I think in 2011, about legacy and what you wanted to be known for 100 years from now, and Iâm kind of curious to hear what Charlie would like to be known for. Warren, Iâm 52, so I guess you started doing this when I was born and Iâm kind of interested in a memory from your first annual meeting.
My first memory was when Warren got on the subject and they asked him âwhat he wanted said at his funeral?â He said, âI want them to all be saying thatâs the oldest looking corps I ever saw.â
That maybe the smartest thing Iâve ever said. With me, itâs very simple. I really like teaching, so basically, Iâve been doing it formally and you can say somewhat informally all my life, and Iâve certainly had the greatest teachers you can imagine. If somebody thought that I did a decent job at teaching, Iâd feel very good about that.
Yes, it made me teaching endurable, if it has to have a better wiser assure in it, and that weâve both been able to supply.
For those of you who are old time basketball fans, I may mention that on Will Chamberlainâs two of them that was recruited they were going to say, âAt last I sleep alone.â Â Okay, station 9?
Good afternoon, Mr Munger and Mr Buffett. My name is Ms Yen, and I come from China. Itâs my first time to come to this meeting and I think Iâm very lucky to have a chance to ask a question.
Weâre glad to have you.
Thank you. Everyone has personal dreams at different ages, there will come different dreams. Whatâs your dream now?
Charlie, Iâll let you take that one.
I didnât quite hear that.
Whatâs your dream now?
My dream, wellâŚ
Letâs skip the first one.
Read also:Â Berkshire AGM 2017 â The CEO Buff/Munger most admire; activist swings, misses
Sometimes when Iâm especially wishful I think âoh, to be 90 again.â Iâve got some advice for the young. If youâve got anything you really want to do, donât wait until youâre 93.
Just do it. Thatâs the same thing I would tell students. You canât always find it the first time, but the second time, when you go out in the world look for the job that you would if you didnât need a job. Donât postpone that sort of thing. I think somebody like Kierkegaard who said that life must be evaluated backwards but it must be lived forwards. You want to sort of, Charlie says all he wants to know is where heâll die, so heâll never go there. You do want to do a certain amount of reverse engineering in life. It doesnât mean you can do everything that way but you may really want to think about what would make you feel good when you get older about your life and you, at least generally, want to keep going in that direction. You need some luck in life and youâve got to accept some bad things that are going to happen as you go along but life has been awfully good to me and Charlie, so we have no complaints.
Well, you donât want to be, itâs like the man when they have his funeral and the Minister says, âNow is the time for somebody to say something nice about the deceased?â And nobody came forward. He said, âSurely somebody can say something nice about the deceased.â And nobody came forward. Finally, one man came up and he said, âWell, his brother was worse.â
Okay, weâll move to station 10, and see if we can improve on that.
"The big money is not in the buying and selling. But in the waiting." – Charlie Munger pic.twitter.com/mu4Q5rWJor
— Warren & Charlie (@WEBuffett1) May 1, 2017
Hi Iâm from the capital of Shanghai. This is my sixth year from Shanghai to here and I have to say to you two, Warren and Charlie, you are highly respected and deeply loved by millions and millions or even billions globally. I have two questions today. The first question, in your letters to shareholders, you said you believe EBITDAR is not a good parameter to value a business why is that? Can you elaborate on that? The second question, you both have very successful and happy lives, with great respect, my question is to each of you in retrospect, from a personal standpoint, do you have regrets in life? If there is one thing you could have done differently in your life, family, personal, or business, what is it? Thank you very much.
I donât think you should expect us to answer that on personal but in business, I would say I wish I had met Charlie earlier. Weâve had a lot of fun ever since I was 29 and he was 35 but it would have been even more fun if weâd started many years earlier. We had a chance to, we worked in the same grocery store but not at the same time. In respect to EBITDAR â the depreciation is an expense and itâs the worst kind of expense. We love to talk about float and float is where we get the money first and we have the expense later. Depreciation is where you spend the money first and then record the expense later and its reverse float and itâs not a good thing. To have that enter into a removable itâs much better to buy a business that has everything else being equal. It has no depreciation because it has essentially, no investment and fixed assets and makes X. Than it is to buy a company where thereâs a lot of depreciation in getting to X. Actually, I may write a little bit more on that next year because itâs such a mass delusion and of course, itâs in the interest of Wall Street enormously, to focus on something called EBITDAR because it results in higher borrowing power or higher valuations and all of that sort of thing. Itâs become very popular in the last 20-years but itâs a very misleading statistic and can be used in very propitious ways. Charlie, on either one of those subjects?
#BRK2017: Munger (93) – Some advice for the young. If you have anything you really want to do, don't wait until you're 93.
— Alec Hogg (@alechogg) May 6, 2017
I think youâve understated the horrors of the subject and the disgusting nature of the people that brought that term into the evaluation of business. It was just⌠It would be like a leasing broker of real estate, who had a 1000sqft new suite to be leased and he says itâs got 2000ft in it. Thatâs not honourable behaviour and thatâs the way that term got into common usage. Nobodies right mind would think that depreciation is not an expense.
But itâs very much in the interest of Wall Street.
Yes, thatâs why they did it.
Yes.
It made the mullables seem lower.
Whatâs amazing is the way itâs accepted actually but anyway, it just illustrates how people use language and sell concepts that work to their own use and 2 and 20 has the same sort of thing. The number of people, the amount of money thatâs over-performed, after paying 2 and 20, compared to the expenses that have been incurred, I will ensure you that it makes for a terrible indictment of that particular arrangement but as long as it can get sold, it will get sold.
Now they even use it in the business schools, and that is horror squared. I mean, itâs bad enough that a bunch of thieves start using a term but when it gets so common that the business schools copy it. That is not a good result.
Okay, station 11.
Munger: "I think we have 1 big advantage. A lot of other people are trying to be brilliant, & we're just trying to stay rational." #BRK2017
— Becky Quick (@BeckyQuick) May 6, 2017
Good afternoon, Iâm Whitney Tillson, a shareholder from New York. My question is related to the ones asked earlier about job cuts. Perhaps the only thing that makes American workers angrier than layoffs is to shut down an operation entirely and move the jobs overseas. Ask anyone in Ohio and Michigan and theyâll tell you stories about companies that have been operating in those States for decades. Benefitting from the educational system, infrastructure, and so forth. Things that were paid for by local taxpayers but then some high paid consultants came along and showed the company how it could reduce its cost by relocating production to Mexico or China, then âpoofâ the good US jobs disappeared. My observation is that most investors and those in corporate America today worship at the altar of maximising shareholder value, which is code for doing whatever is necessary to boost the share price as high as possible. But in doing so, companies are taking actions that make millions of workers feel, at best, fearful and left behind and, at worst, deeply harmed by corporate America. It makes so many people so angry that I think itâs testing the post-World War 2 economic order, which is rooted in free trade and even the strength of our democracy. Iâd argue that it was decisive in our last election, so my question to you is, do you think that businesses should consider factors outside of pure economics when making these types of decisions? What obligations, if any, do they have to their employees and communities in which they operate, and lastly, if a Berkshire CEO came to you and asked for your approval to close a US operation and relocate it overseas to save money. What questions would you ask beyond the economics of this decision?
Yes, well the truth is that in certain cases production that would otherwise, that had formally been in the United States has definitely been supplanted by production that comes from other parts of the world originally. I was there when Fruit of the Loom was called Union Underwear and bought by Graham Newman Corp in 1955, I believe, and it was probably all domestic then and the truth is, if it was all domestic now it wouldnât exist. We had the same thing happen with Dexter Shoe, a wonderful company, with skilled workers and in the end, we sold the shoes at a price that yielded what they cost us. They were not competitive with shoes from around the world. Now trade, I would argue both ways, export and import, massive trade should be and is actually, enormously beneficial, both in the United States and in the world. If greater productivity will benefit the world in a general way but to be road kill, to be the textile worker in New Bedford, that was put out of a job eventually. To be the shoe worker at Dexter to have been put out of work. It would be no fun to go through life saying Iâm doing this for the greater good and so that shoes or underwear were sold for 5% less or something and the American public will actually, never know. So, what you need is two things, in my view. Youâve got an enormously prosperous country, youâve got almost $60,000 of GDP per capita. Itâs unbelievable, six times what it was when I was born, in real terms, so weâve got the prosperity and that prosperity is enhanced by trade. We were only exporting 5% of our GDP back in 1970, and I think itâs around 12% or something like that now. We are doing what we do best but we need an educator and chief who, and logically the President, and I donât mean this specific president. I mean any president thatâs been around for decades, has to be able to explain to the American public, the overall benefits of essentially free trade and then beyond that we have to have policies that take care of the people that become the road kill in the process because it doesnât make any difference to me. As far as Iâm concerned, if my life is miserable because Iâve been put out of business by something thatâs good for 320 some million people in some in accessible way and itâs messed up my life when Iâve tried to live it in a proper way. So, we have got the resources to take care of those people. The investors I donât worry about. I wrote about this a few years ago. The investors can diversify their investments in such a way that overall trade probably benefits them and they donât get killed by a specific industry condition. But the worker in many cases canât do that. Youâre not going to retrain some 55-year-old worker in New Bedford, who may not even speak English in a textile mill or something. If they get destroyed by something thatâs good for society they get destroyed. Unless Government puts in some policies that takes care of people like that and weâve got a rich society that can do that and weâve got a society that will benefit by free-trade, and I think we ought to try to hit both objectives of making sure that there is not road kill and that, at the same time again, 320 million people get the benefits of free trade. Charlie?
"Jeff Bezos is a different species." â Munger #BRK2017
— Shane Parrish (@farnamstreet) May 6, 2017
Well, I wonât quarrel with that. We have unemployment insurance for that exact reason but Iâm afraid that a capitalist system is always going to hurt some people, as it modifies and improves. Thereâs no way to avoid it.
Yes, capitalism is brutal to capital, if youâre in the wrong businesses and, like I say, you can diversify those results. Capitalism is brutal the people that have the bad luck, to be skilled or develop their skills for decades but a very rich society can actually, if itâs beneficial to society overall, it can take care of those people. I mean, the new tax, the Bill that was passed a couple of days ago, reduces my taxes by 17%. Itâs not needed by the Government or anything.
I wouldnât start spending the money.
No, but that was the will. No, I agree, I donât thinkâŚWho knows what happens with the Bill but Iâm just to have that happen and I think if you pulled a thousand people in Omaha that were walking through a shopping centre as to whether my tax bill, of some very large sum, because it was passed â I donât think many people would have the faintest idea what happened there, in terms of the coverage of it and all of that that took place. We do have probably more like $57 or $58 thousand of GDP per capita. A family of four $230 thousand but nobody should be road-kill in this.
But remember what Bismarck said. There are two things that nobody should have to watch. One was the making of sausage and the other is the making of Legislation.
Well, I would say that somebody ought to watch. Anyway, weâve hit the magic hour of 15:30. Weâll reconvene at 15:45 to do or have a formal shareholdersâ meeting and that may take a while. So, youâre welcome to stay and watch that or youâre welcome to shop and I might even have a small preference to that, but go and do whatever you wish, okay.
