Do you invest based on trends or sectors?
We don't play big trends like demographic trends. They just don't mean that much. There's too much money to be made year to year than worry about trends that take ten years to play out. I can't think of one investment we've ever made based on a macro or demographic trend.
[CM: Not only that, but we've missed the biggest commodity boom in history - and we'll continue to miss things like this!]
• Source: BRK Annual Meeting 2006 Tilson Notes
• Time: 2006
What do you think about the utility industry?
I have thought about that a lot because you can put big money in it. I have even thought of buying the entire businesses. But I don't quite understand the game in terms of how it is going to develop with deregulation. I can see how it destroys a lot of value through the high cost producer once they are not protected by a monopoly territory.
I don't for sure see who benefits and how much. Obviously the guy with very low cost power or some guy has hydro-power at two cents a KwH has a huge advantage. But how much of that he gets to keep or how extensively he can send that outside his natural territory, I haven't been able to figure that out so I really don't know what the Industry will look like in ten years. But it is something I think about and if I ever develop any insights that call for action, I will act on them. Because I think I can understand the attractiveness of the product. All the aspects of certainty of users need and the fact it is a bargain and all of that. I understand. I don't understand who is going to make the money in ten years. And that keeps me away.
• Source: Lecture at the University of Florida Business School
• Time: October 15th 1998
What do you think of utilities?
The production of electricity is a huge business and it's not inconceivable that we'd invest heavily here.
The Public Utilities Holding Company Act [PUCA], written in 1935, has a lot of rules about what the parent company of a utility can do. It was set up to check abuses that existed then, so it was appropriate at the time. But I don't think there's anything pro-social about limiting Berkshire Hathaway's ability to acquire utilities today. We might have done one or two acquisitions in past years but for PUCA.
[Regarding the Californian Power Crisis] With deregulation, the incentives [for power producers] were changed such that instead of wanting abundant supplies, they wanted tight supplies, which would result in higher prices.
You can't take utilities with a cost of X, invite new producers in with a cost of 3X, and expect prices to go down.
The old system strikes me as better for society.
[CM: "The old system had the NIMBY [not in my back yard] problem. If you let unreasonable, self-centered people make decisions, you'll get into trouble. We may be making the same mistake today with oil refineries."]
• Source: BRK Annual Meeting 2001 Tilson Notes
• Time: April 2001
In the domestic soft drink model, is it winner take all, or is there room for three competitors?
Sure, there's room for more than one. I think Coke's market share will grow pretty much year after year. We're talking tenths of a percent, but tenths of a percent are important.
The U.S. market is 10 billion cases, so one percent is 100 million cases. It's interesting how regional tastes can be: Dr. Pepper may have a far bigger market share in Texas than in Minnesota ... You can make money with a soft drink company that doesn't dominate the business. You can do a lot better with one that does dominate, but it's not winner take all. It's not like two newspapers in a town of 100,000 or 200,000. There are certain businesses that are winner takes all.
• Source: BRK Annual Meeting 1997
• Time: May 1997
What do you think of the airline industry?
"The big problem is not aggregate costs, but costs versus competitors." Buffett recalled US Air's difficulties competing against Southwest and concluded, "If your costs are out of line, you're going to get killed eventually."
[Munger: "Airline pilot unions are really tough. It's interesting to see people paid as well as airline pilots to have such a tough union. No airline can afford a shutdown very long."]
If you're in a business that cannot take a long strike, then you're playing a game of chicken with labor. Ironically, if you're weak, you're in a stronger negotiating position.
• Source: BRK Annual Meeting 2001 Tilson Notes
• Time: April 2001
What do you think of the banking business model?
• Banking is a good business - many banks earn high returns on tangible equity
• 银行业是个很好的行业 - 很多银行都有很高的有形资产回报率。
• "Charlie and I have been surprised at how much profitability banks have, given that it seems like a commodity business."
• Underestimated how sticky customers are and how unaware they are of fees banks charge them
• If you have a well run bank, you don't need to be the #1 bank in an area
• Bank ROA is not highly correlated to size
• You may have to pay 3x tangible equity to buy a bank
• Only problem with banks is that sometimes they get crazy and do dumb things...'91 was a good example
• If a bank doesn't do dumb things on the asset side, it will make good money
• Source: Buffett Vanderbilt Notes
• Time: Jan 2005
We've been somewhat surprised at how well banks have done. Some have generated 20% or greater returns on tangible equity over many years, though this is in part due to increasing leverage.
• Source: BRK Annual Meeting 2002 Tilson Notes
• Time: 2002
Banking, if you can just stay away from following the fads and making bad loans, has been a remarkably good business. Since WW II, ROE for banks that have stayed out of trouble has been good. Some large well-run banks earn 20% ROE. I've been surprised that margins in banking haven't been competed away.
如果银行不跟随潮流，也不放坏账，那它就是一个非常好的行业。 自第二次世界大战以来，在困境之外的银行其ROE（净资产收益率）一直很好。 一些运营良好的大型银行ROE高达20％。 令我惊讶的是，银行业的利润并没有被挤掉。
It's pretty extraordinary that institutions competing against each other without real competitive advantages can all make high returns. Part of it is higher loan to value ratios than in past years. Some banks get into trouble making bad loans, but you don't have to.
• Source: BRK Annual Meeting 2003 Tilson Notes
• Time: 2003
Financial companies are more difficult to analyze than other companies. They can report whatever earnings they want - it's an easy game to play. For banks, earnings depend on loans and the reserves set aside. It's easy to change and manipulate the reserves.
With a company like WD-40 or a brick company, the financials are easy to analyze. But with financial [companies] it's tough, especially when you throw in derivatives.
There were very high grade, financially sophisticated people who were on the boards of the GSEs [Government-Sponsored Enterprises, such as Fannie Mae and Freddie Mac] and they were not negligent, but it's very tough [to detect the shenanigans that went on].
Charlie and I were on the board of Salomon and Charlie was on the audit committee, and [it's just impossible to evaluate thousands of transactions]. You'll just have to accept that with insurance companies, banks and other financial companies - it's just a more dangerous field to analyze.
[CM: Where you have complexity, by nature you can have fraud and mistakes. This will always be true of financial companies, including ones run by governments. If you want accurate numbers from financial companies, you're in the wrong world.]
• Source: BRK Annual Meeting 2005 Tilson Notes
• Time: 2005
[Q - Small regional banks - what would you look at before you buy?]
WB: It is hard to make a categorical decision about regional banks. So much depends on the character of the institution. It will be a reflection of the CEO you have. A bank can mean anything. It can be an institution that is doing all sorts of crazy things. The Bank of Commonwealth was an example. We owned a bank in Rockford, Illinois, run by Dean Aback-he would always run a super, sound bank.
You should know the culture of the management and the institution before making the decision to buy a bank. We own Wells Fargo and M&T, but it doesn't mean they are immune. But likely they are immune from institutional stupidity. There was a wise man that said there are more banks than bankers. If you think about that a while, you will get my point.
• Source: BRK Annual Meeting 2008 Boodell Notes
• Time: 2008
You've recently invested in Goldman Sachs and GE. Is the financial sector a good buy right now?
No sector is a good buy unless you understand the business. However, I do believe that there is good value and great opportunity now in the financial sector because it is extremely unpopular. Sector's themselves don't make good buys, companies that are undervalued make good buys. You know how to value a business, you project the future cash flows discounted to present and buy with a margin of safety. The earnings prospects need to be greater than the current value. Anything that is unpopular is aways great to look at. If I was getting out of school right now, I would take a look.
• Source: Q&A with 6 Business Schools
• Time: Feb 2009
Your opinion of the gambling industry?
I don't know about which stocks to recommend, but, as long as we're talking about the legal ones, gambling companies will have a perfectly good future. The desire of people to gamble is very high, including in stocks. Day trading comes very close to gambling. People like to gamble. If there's a football game, especially if it's boring, you'll enjoy it more if you bet a few bucks. The human propensity to gamble is huge.
When it was only legal in Nevada, you had to travel or break laws to gamble, but now states are legalizing it. The easier it is, the more people who will gamble.
People will always want to gamble. I'm not a prude about it, but to quite an extent, gambling is a tax on ignorance. You just put it in and guys like me don't pay the taxes - it relieves taxes on those who don't gamble. I find it socially revolting when a government preys on its citizens rather than serving them.
Munger: I would argue that casinos use clever psychological tricks [to get people to gamble], some of which are harmless, but a lot of grievous injury has been done. You won't find a lot of gambling companies in Berkshire's portfolio. [Applause]
• Source: BRK Annual Meeting 2007 Tilson Notes
• Time: 2007
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