上班族美股台股園地

Notes from the 2003 Berkshire Hathaway Annual Meeting

Notes from the 2003 Berkshire Hathaway Annual Meeting

By Whitney Tilson (Feedback@Tilsonfunds.com)



Note: This is not a transcript. No recording devices were allowed at the meeting, so this is based on many hours of rapid typing, combined with my memory (egads!). I have reorganized the content of the meeting by subject area. All quotes are Buffett's unless otherwise noted. Words in [brackets] are my comments or edits.

For more on this meeting, see my 5/5/03 column, Report from Berkshire's Meeting. For my columns and notes on previous Berkshire and Wesco meetings, click here.

To read the transcript formatted in MS Word, click here. To download a Word version, RIGHT-click here and select "Save Target As."

COMMENTS ON BERKSHIRE HATHAWAY

Q1 Results

The economy has been quite sluggish -- it has been for a very long time. Right after 9/11, I posted a letter that said we had been in a recession [even prior to 9/11]. Since 2000, housing and autos have done very well, but everything else has been quite sluggish. Interest rates are down to 1.5%, but business continues to be sluggish.

So, our non-insurance businesses didn't do so great in the first quarter. But insurance businesses did great. The first quarter will show $290 million of pre-tax income, after $140 million in charges for retroactive insurance contracts. And, our float grew $1.3 billion to $42.5 billion in float. (Float is what people pay us to use the money.) I don't see our float growing much from this point, but Charlie said that at last year's annual meeting [and it's grown 8.8% from Q1 02 to Q1 03].

I think our insurance businesses are in exceptionally good shape. We have some terrific businesses. Geico's premium volume was up 16% in Q1, with a 6% underwriting profit. Gen Re, thanks to Joe and Tad, has turned the corner in a big way. And Ajit Jain [of National Indemnity] made so much money in the first quarter that I don't even want to tell you about it. [Audience and Munger applauded.] When you see Charlie clap, you know he's made us a lot of money.

You never know what's going to happen in insurance -- there could be a big earthquake tomorrow or huge hurricanes -- but I can't imagine having a better group of companies and people. For a while Gen Re was a drag, but that's not true right now. We have a very good chance of having low or no cost float for as far as the eye can see. Having $42.5 billion for free is a good thing.

Q1 was a very good quarter. Pre-tax operating earnings were around $1.7 billion (not including securities gains). [Buffett later clarified that after-tax earnings, including securities gains, were also about $1.7 billion.]

Munger: I hate to be an optimist, but we have really added a lot of wonderful businesses to Berkshire over the past few years.

Berkshire's Float

I wish our float would keep growing at 10%/year as long as it's profitable. But with $42.5 billion of float and a US P&C [property and casualty insurance] market of $500 billion, we are 8-9% of the market so it's going to be much harder to grow at significant rates in the future. What we really want is low-cost float. That's what I tell my managers.

Every once in a while, we get off track. I don't think most companies in the P&C business will generate float at an attractive cost. You have to be exceptional, and we have some exceptional businesses. If GEICO grows 16%, it adds $1 billion of float. GEICO will grow -- I'd bet my life on that.

Munger: With interest rates where they are right now, the float we've built up isn't worth so much to us right now. We have $16B of cash earning very low rates. But eventually we'll get more than 2%.

Buffett: We're getting a lot more than 2% [I think he was referring to the total return from Berkshire's float]. We have roughly $16 billion in cash, excluding the finance operation, and we're getting about 0.75% on it [1.25% pre-tax], which does not make us salivate. But we'd rather avoid salivation than have problems.

We earned $1.7 billion in Q1, pretty much all cash, plus $1.3 billion of float, so there's a lot of money coming in. We're getting chances to deploy it. If we get it at low cost, then it's pretty close to equity.

COMMENTS ON BERKSHIRE HATHAWAY HOLDINGS

McLane

Yesterday we announced a deal to buy McLane from Wal-Mart. Wal-Mart announced that the price for the two deals it did -- one was a small trucking company -- was $1.5 billion. [It's been reported that the purchase price McLane was $1.45 billion.] McLane is a wholesaler to convenience stores, quick-serve restaurants, Wal-Mart, movie theaters and so forth. It will have about $22 billion in revenues this year. Wal-Mart had owned it since 1990 and it grew substantially while they owned it. It is run by a terrific manager, Grady Rosier, and under his leadership, it grew from $3 billion to $22 billion.

Wal-Mart, for very good reasons, wants to specialize on what they do extremely well. We were approached by Goldman Sachs to buy the business a week ago. It makes sense for both sides. It was a sideline business for Wal-Mart. Their ownership of McLane resulted in certain people who would be logical customers not to do business with McLane because they didn't want to do business with a competitor. We'll be seeing them soon to explain that they can sleep well at night buying from us.

A representative of Wal-Mart, the CFO, came up to Omaha last Thursday. In one hour, we had a deal and shook hands, and when you shake hands with Wal-Mart, the deal is done. There needs to be regulatory review, but we fully expect that in just a few weeks, McLane will become part of Berkshire.

It serves presently 36,000 of the 125,000 convenience stores in the United States, and has 58% share among the largest chains. To each store, it sells about $300,000 of products/year. McLane also serves 18,000 quick-serve restaurants, mainly those operated by YUM Brands (Taco Bell, Pizza Hut and KFC).

It's a tough business. You have Hershey and Mars on one side and 7-11 Eleven on the other side, so you have to work hard to earn 1% pretax. [If McLane earns 1% pre-tax on $22 billion in sales, that's $220 million, so Buffett may have bought this business for 6.6x pre-tax earnings. I think this is a good price, especially if the business can grow substantially under Berkshire, but not a steal -- the guys at Wal-Mart aren't fools. But I think they let it go for a below-market price to Buffett because their biggest concern is that the business continue to be a reliable supplier to their stores. Such a low-margin business has little room for error, and it could get into trouble (as other similar companies have) under the ownership of a financial buyer that used too much leverage or tried to tinker with its operations.]

Clayton Homes

Clayton Homes is the class of the manufactured home industry. The deal came about in an unusual way. Every year, a class (about 40 students) from the University of Tennessee comes to Omaha. They visit some sights and then we a have classroom session for a couple of hours. Afterward, they typically give me a football or basketball. Last year, Bill Gates happened to be in town. This year, we had a good session and when they got through, they gave me a book, the autobiography of Jim Clayton, the founder of Clayton Homes. He'd written a nice inscription. I said to the students that I was an admirer of Jim's. I read the book and called Kevin Clayton, Jim's son, and said how much I'd enjoyed his dad's book. I said if they ever decided to do anything [regarding selling the company], we'd be interested and I told him what price I'd be willing to pay. A few phone calls later, we had a deal. That's the way things tend to happen at Berkshire.

The manufactured home industry got in a lot of trouble. They'd gone crazy with credit and when you go crazy with credit, you get into a lot of trouble. Look at Conseco and Oakwood (we owned Oakwood's junk bonds), which went into bankruptcy. The industry lost the ability to securitize receivables and was in the tank. There were 160,000 new manufactured homes this year, but there were 90,000 repossessions, so this hurts demand. For the strong, like Clayton, especially with a backer like Berkshire, it should be a good time in the industry. And it's a big industry -- about 20% of new homes are manufactured. We can put you in one for $30/square foot. Compare the prices -- that's a deal.

Competitors admit that Clayton is the class of the field, but even for Clayton, financing was hard. The lenders had gotten burned. Clayton did a securitization earlier this year, but [to get the deal done, they] had to keep more of the risk on their books.

[Later in the meeting, in response to a question, Buffett commented further on Clayton Homes:] In the manufactured housing industry, everyone is losing money, but Clayton is making money. Most of Clayton's houses are sold through 297 outlets that they own. Managers are in a 50/50 profit split with Clayton. This is unlike what was going on in the industry a few years ago, whereby dealers would have a floor plan and the [manufactured housing] company would finance 130% of the purchase price, so the dealer would bring in any warm body. The system was designed for disaster. At Clayton, if a dealer takes in an inadequate down payments, it's his problem and he has to take care of repossessing it. This creates the right incentives.

If you read Jim Clayton's book [First A Dream], he tells about the first home he sold [when working for someone else] and all of the funny business and gaming of the financing. These activities are coming home to roost in a huge way among the manufacturers and those who financed them. There's such a stain that Clayton is only one that can securitize, and without us, not to the extent they wanted. They are a class player and have the right systems in place with the right incentives. We will not securitize -- we will keep it for the portfolio.

You're right [he was speaking to the questioner] that if you see companies with lots of gains on sales, be suspicious.

NetJets

We took a loss in the first quarter and will have a loss for the year. It's our only business that's losing money.

The used aircraft market has excess capacity, which is pushing down prices. We bought back some planes from our owners, which we've always done and will continue to do. [Because NetJets owns both new and used aircraft -- before selling them to fractional owners -- I believe it had to take a non-cash charge in Q1 for the decline in this asset's value.]

We're slightly profitable in the US and losing money in Europe. 1/2 of all [business jet] miles flown in Europe are by Americans, and this will rise. We've made a huge investment Europe and there will be no competitors behind us.

There are three major competitors. We have always been the biggest and our market share is rising. At 75% recently. I believe all of our competitors are losing money on an operating basis -- not even including asset write-downs. I think some of them will exit the industry -- look at Raytheon's recent prospectus. There will be a shake out, and we will not be one of the ones shook.

This will eventually be a huge business for us -- 10 times what it is currently.

MidAmerican Energy Holdings and Investment Opportunities in the Energy Sector

MidAmerican is already a big part of Berkshire. It could be much bigger if PUHCA [Public Utility Holding Company Act] were repealed. It was enacted in 1935 in response to abuses -- it was needed then, but it's now outdated. A couple of companies could be in bankruptcy if we hadn't stepped in [to buy some of their assets last year].

I think there's a reasonable chance of repeal [of PUHCA, and if so] MidAmerican could be quite a bit bigger and could be a whole lot bigger. We might acquire a natural gas pipeline or a utility. We'll look at what comes along and we're always ready to act. We'll look at some big deals this year -- whether we'll get one done is another matter. The good thing about this sector is that you're always talking about big deals.

There's fabulous management at MidAmerican. Dave Sokol and Greg Abel have done things that have made Berkshire money that hasn't benefited MidAmerican -- they didn't get paid a dime. They are terrific assets, and we love the idea of pouring money behind them.

Munger: The interesting thing is the field is so big -- it's enormous. One thing a modern civilization needs is energy.

Value Capital

Value Capital is run by Mark Byrne. We've made a lot of money with the Byrne family. [Jack Byrne turned around GEICO in the 1970s, making Berkshire a ton of money, and has recently been doing the same with White Mountains Insurance, in which Berkshire also has an investment.] Mark is a very bright guy and runs a hedge fund specializing in fixed income securities around the world. The Byrnes have put in money, but we own 95% of the capital -- though we are exposed to no further risk. Value Capital uses some leverage, but not as much as similar funds. We're comfortable with it, as long as Mark has upside and downside, which he does. We disclose the numbers. Value Capital has $600 million or so, including $200 million of retained earnings. We do not regard it as a business part of Berkshire. We are a limited partner (even if accounting rules say we have to consolidate it). There are no guarantees, but we're very happy with it. I've looked at Mark's portfolio and I like the positions.

Gen Re and Goodwill

If you buy a business over tangible assets [e.g., you pay more than the value of the company's tangible assets], you set up a goodwill account [for the difference] and if it becomes impaired, you run a charge through the income statement. We took on a lot of goodwill when we bought Gen Re. If you looked at the last few years, you'd say Gen Re was impaired and we would have agreed, but I think Gen Re is now worth more today than when we bought it. It's generating substantial float and it's low cost.

Circle of Competence, Telecom, Level 3 and Junk Bonds

I don't have the faintest idea how to evaluate what telecom companies will look like down the road. I only understand a little of what they do. I suppose if you gave me some information, I could regurgitate it back to you but in terms of understanding their economic characteristics down the road, I don't know. Charlie, what do you know about the telecom business?

Munger: Less than you do.

Buffett: Then you're in trouble. I know people will be drinking Coke, using Gillette blades and eating Snickers bars in 10-20 years and have rough idea of how much profit they'll be making. But I don't know anything about telecom.

It doesn't bother me. Somebody will make money on cocoa beans, but not me. I don't worry about what I don't know -- I worry about being sure about what I do know.

Munger: Berkshire in its history has made money betting on sure things.

Buffett: We might buy some junk bonds in that business [telecom], and we have, but we expect losses in junk bonds -- though we expect a decent result -- because we're dealing with institutions that have demonstrated problems. In some cases -- not at all with Level 3 -- there are management issues. We expect to have significant losses, and we haven't seen our biggest loss yet, believe me.

It's like being an insurer of substandard risks -- you'll have more accidents, but can charge a premium.

We don't buy businesses in which 15 will be train wrecks and 85 will work out OK.

There are all kinds of businesses where you can't predict what they're going to earn, so we try to favor a few where we can.

At Level 3, they are fine people and they acknowledge that they borrowed too much money. I have yet to see an electron and have no working relationship with them at all. I don't know anything about the technology at all, but I understand the people involved. It's of a different sort [of investment] than we usually do, but we're happy we did it.

Acquiring More of Cologne Re

What really happened was Gen Re acquired a significant position in Cologne Re with a put and call arrangement for the remainder. It was a two-step purchase. So all along, we have accounted for it as if we would acquire it. We will have about 89% when the options exercise. There's nothing new about this arrangement and we made no new judgment or decision. Cologne is an integral part of Gen Re. We knew all along that we would own 89% of it.

PetroChina and Foreign Investments

We have five equity investments in foreign companies. We don't list all of our investments -- only those larger than $500 million -- and none of our foreign investments have hit our reporting threshold since Guinness. In the case of PetroChina, the government owns 95% of it, but Hong Kong stock exchange rules require disclosure if an investor owns more than 5% of a stock, and we own 13% of H shares. It's a fluke of reporting that we have to report it. We don't make any great judgment about China -- we simply look at investments around the world and buy things that make the most sense [offer the most value]. We prefer slightly things in the US and avoid some countries altogether.

Coca Cola's Inevitability

When I talked about Coca Cola being an "inevitable," I talked about the probabilities that Coke will dominate the global market for soft drinks. I don't think anything will change that. It has a huge distribution system and position in people's minds worldwide. They'll make a little more profit per drink sold over time as well. I don't know how anyone could dethrone them.

BERKSHIRE'S ACQUISITION PROCESS

Deal Flow

We don't like the term "deal flow" because we don't view them [businesses we might buy] as deals. We look at deals a few times a year. In the US, we get a pretty reasonable percentage of the calls we should get. We didn't get those calls 20-40 years ago because we weren't as well known.

It feeds on itself. If we acquire companies and people say good things, we'll hear from more. We acquired one furniture company, which led to four more.

It's like a snowball. By being around 38 years, it's been a high mountain [and Berkshire is now a] big snowball and attracts a lot of snow.

Outside the US, we don't see many deals because we're not as well known.

I don't hear about one [deal] a week or even a month. But most we want to hear about, we get a good percentage of the calls. It would be a plus [if we were to see more deals] outside this country.

Munger: The general assumption is that it must be easy to sit behind a desk and people will bring in one good opportunity after another -- this was the attitude in venture capital until a few years ago. This was not the case at all for us -- we scrounged around for companies to buy. For 20 years, we didn't buy more than one or two per year.

Buffett: We didn't have the money to do many deals. When we bought National Indemnity, it was a big deal for us. We hope there's a lot of mountain left and a lot of wet snow.

Munger: It's fair to say that we were rooting around. There were no commissioned salesmen. Anytime you sit there waiting for a deal to come by, you're in a very dangerous seat.

The Story of Buffett Buying National Indemnity

Jack Greenwald would want to sell National Indemnity for 15 minutes per year -- a claim would come in that upset him or something like that. I discussed the phenomenon of Jack being "in heat" 15 minutes per year. One day, Charlie called and said Jack's ready and he came over and we made deal in 15 minutes.

Having made the deal, Jack really didn't want to do it. He tried to get out of it by saying, "I suppose you want audited financial statements." I said "No." If I'd said yes, he would have called off the deal. He said, "I suppose you want to buy the agencies." I said, "I wouldn't buy them under any circumstances." Again, if I'd said "Yes," he would have backed out. Finally, he gave up and I bought the business. He was an honorable guy. After we closed the deal, Jack was 10 minutes late to pick up the $7 million check because he was looking for parking meter with a few minutes left on it -- that's when I knew he was my kind of guy.

Bidding for Bankrupt Companies; Burlington Industries

We submitted a bid of more than $500 million for Burlington, which included $14 million in breakup fees. When we submitted the bid, it has to remain outstanding for many months. This has option value [to the company and its creditors]. For $14 million, we told creditors that they could sell business for that amount, or very close to it. That's a very low price for a put, but it's customary. A court said that's too much to charge, so they set up a new procedure that will end up having Burlington sold to someone else under the new procedure.

We'd never agree to anything like this except in the case of bankruptcy. Look at how stocks move 50-100% per year. We will not participate in a procedure in which we bid hundred of millions of dollars and then if there's a World Trade Center disaster or earthquake, our bid sits out there and we only get paid $5 million [to assume this risk].

It's tough to buy things out of bankruptcy, though we've done it twice successfully. We tried with Burlington and we spent a lot of time and money and it was not accepted.It's a lot easier to make a deal with Wal-Mart [e.g., McLane] where we sit for an hour and have a deal. But it's probably a necessary part of the procedure. You gotta follow the bankruptcy laws. If we have to bid where we have our bid sit out there, and get paid [only a] 1% [breakup fee], we won't make many bids.

Munger: We don't think a modest 2% fee was too much, but the court disagreed.

OTHER BERKSHIRE HATHAWAY COMMENTS

Information on Berkshire

We want you to understand Berkshire. I hope you see that. We want to you have the information we'd want if our positions were reversed. You need some basic information. We give information that Charlie and I would need to come up with our rough estimates of Berkshire's intrinsic value. You don't need to focus on all of the details, like whether we lease a particular building, but you can judge roughly in aggregate.

Munger: I think our reporting, considering the complexity of the enterprise, is better than that of any enterprise I know at giving shareholders the information they need. We do it conscientiously and I don't think it will get better.

Approach to Risk

We have some structured contracts with paraplegics who are depending on a piece of paper with our name on it that says we're going to pay them for the rest of their lives. So people who care about this should come to us.

What To Do With Berkshire's Cash

We have $16 billion in cash not because of any predictions [about a market decline], but because we can't find anything that makes us want to part with that cash. We're not positioning ourselves. We just try to do smart things every day, and if there's nothing smart, then we sit on cash.

Investment Hurdle Rates

10% is the figure we quit on -- we don't want to buy equities when the real return we expect is less than 10%, whether interest rates are 6% or 1%. It's arbitrary. 10% is not that great after tax.

Munger: We're guessing at our future opportunity cost. Warren is guessing that he'll have the opportunity to put capital out at high rates of return, so he's not willing to put it out at less than 10% now. But if we knew interest rates would stay at 1%, we'd change. Our hurdles reflect our estimate of future opportunity costs.

Buffett: We could take the $16 billion we have in cash earning 1.5% and invest it in 20-year bonds earning 5% and increase our current earnings a lot, but we're betting that we can find a good place to invest this cash and don't want to take the risk of principal loss of long-term bonds [if interest rates rise, the value of 20-year bonds will decline].

Smooth vs. Lumpy Earnings

We have a preference for a lot of money coming in all of the time. But we write huge insurance policies where money could come or go in big chunks. All other things being equal, we like smoothness, but we often get offered a spread to take on lumpiness.

Pepsi is running a contest in which one person will have a 1-in-1,000 chance of winning $1 billion -- a present value of $250 million [since the billion is paid out over time]. [If the person wins,] we will pay it. We are willing to assume that for a payment, and very few people would be. We would be willing to assume a $2.5 billion payout (but not $25 billion) if we got paid more than proportionally more.

Munger: If you're risking a $250 million payout and you have $60 billion of capital, it's not crazy. But I think it's crazy to do it based on someone else's circumstances or abilities.

Investment Mistakes

If we start buying a stock, we want to go in heavy. I can't think of a stock where we wanted to quit.

We've made some big mistakes starting to buy something that was cheap and within our circle of competence, but trickled off because price went up a bit. Good ideas are too scarce to be parsimonious with.

Munger: After nearly making a terrible mistake not buying See's, we've made this mistake many times. We are apparently slow learners. These opportunity costs don't show up on financial statements, but have cost us many billions.

What Do You Look for in a Manager?

We look for managers that have a passion for their business. We've had terrific luck with entrepreneurs who love their businesses like I love Berkshire. They'll tell me to butt out if I'm going to screw it up. They are part of Berkshire, but guard their businesses jealousy.

We got a book from an investment bank from someone who bought a business a few years ago [and now wanted to sell it]. The business was a piece of meat to them. What are the odds that they didn't doctor the books?

[I look for people who] have a lot of love for their business. There can't be a company in the country, if you could measure passion for the business, no-one would come close [to Berkshire].

Munger: What matters most: passion or competence that was born in? Berkshire is full of people who have a peculiar passion for their own business. I would argue passion is more important than brain power.

Buffett: By the time they get to us, if they didn't have brainpower, they wouldn't have gotten to us. We're not going to see an incompetent but passionate manager -- those got weeded out a long time ago. But I do have to weed out a manager who just wants to cash out.

We see lots of businesses that play games with their accounting and just want to cash out.

Berkshire's Compensation Systems

When a business requires no capital, we reward the manager on earnings. If it does [require capital], then we add a charge for the cost of capital. We don't have one compensation system.

We've never had problems with compensation. If capital is an important part of business, we include a charge for it. If not, if we don't.

Our compenastion systems are simple. This is not rocket science [though Corporate America seems to make it so]. Read proxy statements -- it's mind-boggling the complexity. Compensation consultants have to earn their fee [by coming up with a complex plan that they can] tweak each year. It's becomes an industry and it won't break itself up. True of any bureaucracy.

We could spend $1 million per year on something we could figure out in five minutes. Can you imagine a consultant giving you a one-page compensation agreement? They couldn't charge you a lot of money for that.

The main reason we get good results from our managers is that they like batting .400. Yes they like the pay, but it's incidental. It has to be fair, but that is not a complicated procedure. It's tailored to things under their control.

Some of our businesses are easy, so they much achieve high performance before [the CEO's] bonus kicks in. In tough businesses, lower performance requires as much hard work, so the hurdle is lower.

Morale is pretty good in Berkshire subsidiaries. Berkshires managers hardly ever leave. In 38 years, we've never had a CEO leave to work for a competitor. We face one management succession problem roughly every 18 months.

Do Berkshire's Manager's Enjoy Coming to the Annual Meeting?

We have many managers here. We don't require them to come. Some have rarely come. If they enjoy it, they come. We have a sensational group of managers. We don't get in their way and don't demand anything except that they work for the owners. I hope you thank them when they see them.

Munger: I don't think our managers who come to this meeting are picking up new tricks -- they know all the tricks related to their business -- but this is an interesting place and it gets more interesting every year and they like being part of it.

Buffett: In some cases, our managers will check with each other to see what they're paying for things, combine purchasing power, etc. Sometimes they save real money, but this is not organized by Omaha and nobody has to play.

Berkshire's Intrinsic Value

I think (and Charlie does too) that Berkshire's value has grown significantly over past few years.

Intrinsic value is the stream of cash from now until judgment day, discounted based on consideration of other uses. You have to understand what kinds of businesses you can make a reasonable assessment of. At Berkshire, you have two questions: 1) what its businesses are worth now, and 2) what we do with the capital. 35 years ago, people underestimated what we would do with the capital. But we're now in a whole different game, with lots more capital.

Stock Prices and Share Buybacks

In 1999 [the 1999 annual letter, published in early 2000, in which he offered to buy back shares at $45,000 or less], I thought Berkshire was more attractive than the general market.

We addressed share buybacks in the annual report released on the exact day that the Nasdaq hit its high and Berkshire hit its low [March 10, 2000]. Our preference is to buy business of a quality and managers of a quality comparable to those we already own. We would only buy back stock if we thought Berkshire was significantly undervalued and didn't think we could put money to work elsewhere.

Intrinsic value is a range. We'd leave a significant margin of safety. It's not our #1 preference -- we love adding good businesses to Berkshire. We'd have to give all shareholders relevant info. I think it's unlikely that that happens. It could happen though -- it almost happened in March 2000 and then things turned around very abruptly.

I have not thought stocks were cheap at all for quite some time. I've never wanted to encourage anyone to hold Berkshire. I've never sold a share. I think we had a great bubble.

We don't comment on specific stocks, including our own, and only occasionally comment on the market in general.

Currency and Inflation Risks

Berkshire has a couple of billion dollars of liabilities denominated in other currencies, but also has roughly the same amount of assets in other currencies -- we don't spend much time worrying about precisely balancing this. We have little exposure to currency risk.

Corporate Governance

We'll have new independent directors by next meeting. They will be experienced and have interests aligned with shareholders; they will own a lot of stock. Shareholder Resolution [A shareholder presented a resolution whereby anyone who owned 7 Berkshire B shares or more could participate in Berkshire's shareholder charity program. Under this proposal, each B share would be entitled to 60 cents/share.]

When we offered the B shares, we laid out certain rights and we're not going to give B shareholders any additional rights, but they can also be assured that we're not going to give A shareholders any additional rights either. A deal's a deal.

Munger: There are also significant administrative costs that would make the proposal impractical.

[Buffett then asked if someone wanted to second the motion. No-one did so it died.]

Munger's Influence on Buffett

Munger: I think there's some mythology in this idea that I've been this great enlightener of Warren. He hasn't needed much enlightenment. But we know more now than five years ago.

Relationship with Charlie Munger

Charlie and I have been partners in some way since 1959. We worked together in a grocery store and both came to the conclusion that we don't like hard work.

We have never had an argument. You just have to learn how to calibrate his answers. If you ask Charlie something and he says "no," then we put all of our money in it. If he says "that's the stupidest thing I've ever heard," then we make a more moderate investment. If you calibrate his answers and then you'll get a lot of wisdom.

RISKS IN THE FINANCIAL SYSTEM

Financial Guarantee Companies

In many cases, people participating in this [the credit guarantee] business don't know what they're doing. In the insurance business, people hand you money to put something on a piece of paper. What you put on that paper is very important, but the money can tempt you to do dumb things.

At a firm in Omaha a while back [he was referring to Mutual of Omaha], in a short time someone wrote a very few contracts [about 10] that wiped out half of the company's net worth.

If you're willing to do dumb things, people will find you. Even if you're in a rowboat in the ocean, the brokers will swim to you, with their fins showing. It's brutal. You'll see a lot of cash, won't see any losses for a little while, and then the roof will fall in.

I mentioned in this year's annual report that GEICO took in $70,000 [in the annual report, he said a net of $72,000; $3,051,000 in premiums for commercial umbrella and product liability insurance, offset by $2,979,000 in reinsurance purchased] for a few policies, and so far we've lost $93 million [$94.1 million from the annual report: "Of the total loss, uncollectable receivables from deadbeat reinsurers account for no less than $90.3 million…So much for 'cheap' reinsurance."]. We could only make 70,000. When you're playing in a game like that, you can't afford to make a mistake. A few mistakes can wipe out a lifetime of earnings. You make a few cents when you're right and lose a fortune if you're wrong.

Financial guarantors use back-tested arrangements, but the problem is correlation. When things go bad, all sorts of things correlate that no-one ever dreamed was possible. Look at what happened in the in energy sector. There's nothing more deadly than unexpected correlations.

To get a BBB credit enhanced to AAA, a guarantor might charge 15 basis points, but the spread is 100 basis points. That's not very smart [for the guarantor to charge such a low price].

They [the financial guarantors] are rated AAA for claims paying, but not generally AAA. Only one other insurance company, AIG, is rated AAA [like Berkshire is].

I would say you could get into a lot of trouble levered 140:1 issuing [financial] guarantees.

Munger: Accounting [for financial guarantees] is terrible, and is most terrible in accounting for guarantees a long way out. People pay attention to numbers without consideration for reality, which can lead to bad decisions.

Buffett: I will guarantee you that for every single contract written, there was recognized some sort of income entry and someone got paid for it. You know it's going to be a terrible contract. Nobody ever wrote a loss at the time, but if someone sold them to me, I would sell them at a loss.

I find it extraordinary that if Dealer A and Dealer B do a deal, both can write a profit, especially on a 20-year contract.

Derivatives and the Story Behind Pre-Releasing Part of the Annual Letter in Fortune

I was interested in the section on derivatives -- I thought it had a broader audience. It had no relation to Berkshire directly. The primary reason is that I hoped for a wider audience.

Charlie and I think that there is a low but not insignificant probability that at some time -- I don't know when; it could be three years, it could be 20 years -- derivatives could lead to a major problem. The problem grows as derivatives get more complex. We hoped to give a mild wakeup call to the financial world that there's a problem. In the energy sector, derivatives destroyed or almost destroyed institutions that shouldn't have been destroyed. [He mentioned Enron.]

Charlie and I would not know how to regulate it. We have some experience seeing specific dangers in that field and some insight into systemic problems that can arise. People don't want to think about it until it happens, but it is best thought about before it happens.

It's a low probability, but we think a lot about low probability events. We have some experience with Salomon and Gen Re. Charlie saw some things on Salomon's audit committee [that were very risky/questionable].

Munger: In engineering, people have a big margin of safety. But in the financial world, people don't give a damn about safety. They let it balloon and balloon and balloon. It's aided by false accounting. I'm more pessimistic than Warren. I'll be amazed if we don't have some kind of significant blowup in next 5-10 years.

Buffett: Derivatives are advertised as shedding risk for the system, but they have long crossed the point of decreasing risk and now increase risk. The truth is that Coca Cola could handle risk [I think he was talking about currency exposure], but now with every company transferring risk to very few players, they are all hugely interdependent. Central banks are exposed to weaknesses. If Salomon had failed, the problems for the rest of the system could have been quite significant. When you start concentrating risk in institutions that are highly leveraged, [watch out]. They have big trading departments with people who make a lot of money.

It's not a prediction, it's a warning.

Fannie Mae, Freddie Mac and Other Highly Leveraged Financial Institutions

I have a lot of respect for Frank Raines [the CEO of Fannie Mae]. I think he's done a good job at Fannie Mae. The problem with Fannie Mae, Freddie Mac and the S&Ls in the past -- they have a terrible problem of matching assets and liabilities. The problem is the optionality of mortgage interest. You have a 30-year instrument [e.g., a fixed-rate home mortgage] if you [the homeowner] have a good deal and a 30-minute deal if it's a bad one [e.g., interest rates fall further]. The public has been educated and will refinance. It's a big problem when you are operating on borrowed money in a very big way. If you run an institution that is highly leveraged, you'll look for one way or another to try to match liabilities as close as you can with the duration of assets. And you try to deal with the optionality of your counterparty. It's not easy to do. Fannie and Freddie try to mitigate this risk through various ways, and do a good job -- probably better than we could. But it's not perfect. I'd try to reduce this optionality and would be careful of counterparty risk.

The things that really destroy people are 5- or 6-sigma events -- things that really aren't supposed to happen. Financial markets don't do every well at modeling this. It works until it doesn't. There are more theoretical 6-sigma events than any theory of probabilities will come up with. When you have gaps, markets close, etc., this is what causes companies to go out of business. Derivatives increase the chance of this happening and magnify the damage if it does.

If anyone uses precise figures in finance, be careful.

When Long-Term Capital Management had trouble with one type of asset, they had troubles with other types of assets -- and everyone else did too. The Fed stepped in -- something they never dreamed they would have to do -- because it threatened stability of the US financial system.

Munger: I agree with [Warren's points about] counterparty risk. I think Fannie and Freddie have been thinking about a lot of scenarios where they'll be okay if the counterparties pay. But I'll bet they weigh the risk of counterparties not paying a lot lower than I would.

Buffett: I'll bet Fannie and Freddie are handling this better than their counterparties, such as the financial guarantors.

The best thing you can do is count on your own resources. That's what we do at Berkshire. Charlie and I are rich enough that we don't need to stay up at night.

Other Insurance Companies

Munger: I certainly hope that we're better underwriters than Munich Re.

Buffett: Let's not name names. Munich Re is a fine company. Our policy is that we compliment by name and criticize anonymously. They [Munich Re] lost their AAA because they were too exposed on the asset side -- they would tell you this. They have an important position and we do a lot of business with them.

Some reinsurers we won't do business with. If there were a major financial or natural catastrophe, there are a number of reinsurers who wouldn't pay.

INVESTMENT ADVICE

The Ideal Business

The ideal business is one that generates very high returns on capital and can invest that capital back into the business at equally high rates. Imagine a $100 million business that earns 20% in one year, reinvests the $20 million profit and in the next year earns 20% of $120 million and so forth. But there are very very few businesses like this. Coke has high returns on capital, but incremental capital doesn't earn anything like its current returns. We love businesses that can earn high rates on even more capital than it earns. Most of our businesses generate lots of money, but can't generate high returns on incremental capital -- for example, See's and Buffalo News. We look for them [areas to wisely reinvest capital], but they don't exist.

So, what we do is take money and move it around into other businesses. The newspaper business earned great returns but not on incremental capital. But the people in the industry only knew how to reinvest it [so they squandered a lot of capital]. But our structure allows us to take excess capital and invest it elsewhere, wherever it makes the most sense. It's an enormous advantage.

See's has produced $1 billion pre-tax for us over time. If we'd deployed that in the candy business, the returns would have been terrible, but instead [we took the money out of the business and redeployed it elsewhere. Look at the results!]

Munger: There are two kinds of businesses: The first earns 12%, and you can take it out at the end of the year. The second earns 12%, but all the excess cash must be reinvested -- there's never any cash. It reminds me of the guy who looks at all of his equipment and says, "There's all of my profit." We hate that kind of business.

Buffett: We like to be able to move cash around and find it's best use. We'd love to have our companies redeploy cash, but they can't. Gillette has a great business, but can't sensibly reinvest all of the profit.

We don't think the batting average of American industry redeploying capital has been very great. We knock other people doing what has made us so successful.

Munger: I'm uncomfortable with that, which is why we say negative things [to discourage others from trying to do what we do].

Types of Businesses To Look For

We want a business that we think, if run well, is going to have a competitive advantage. We don't buy hula hoop or pet rock companies, or companies with explosions in demand but we don't know who the winners will be.

The Importance of Buying a Good Business

The way to get a reputation for being a good businessman is to buy a good business.

Cigar Butts vs. Quality Businesses; Learning from Constructive Criticism

Munger: If See's Candy had asked $100,000 more [in the purchase price; Buffett chimed in, "$10,000 more"], Warren and I would have walked -- that's how dumb we were.

Ira Marshall said you guys are crazy -- there are some things you should pay up for, like quality businesses and people. You are underestimating quality. We listened to the criticism and changed our mind. This is a good lesson for anyone: the ability to take criticism constructively and learn from it. If you take the indirect lessons we learned from See's, you could say Berkshire was built on constructive criticism. Now we don't want any more today. [Laughter]

Buffett: The qualitative [evaluating management, competitive advantage, etc.] is harder to teach and understand, so why not just focus on the quantitative [e.g., cigar butt investing]? Charlie emphasized quality [of a business] much more than I did initially. He had a different background.

It makes more sense to buy a wonderful business at a fair price. We've changed over the years in this direction. It's not hard to watch businesses over 50 years and learn where the big money can be made.

Even when you get a new important idea, the old ideas are still there. There wasn't a strong line of demarcation when we moved from cigar butts to wonderful businesses. But over time, we moved.

Think Independently

When we were viewed as out of step a few years ago, I didn't care as long as I felt okay about how Berkshire was doing.

Calculating Intrinsic Value

Intrinsic value is terribly important but very fuzzy. We try to work with businesses where we have fairly high probability of knowing what the future will hold. If you own a gas pipeline, not much is going to go wrong. Maybe a competitor enters forcing you to cut prices, but intrinsic value hasn't gone down if you already factored this in. We looked at a pipeline recently that we think will come under pressure from other ways of delivering gas [to the area the pipeline serves]. We look at this differently from another pipeline that has the lowest costs [and does not face threats from alternative pipelines]. If you calculate intrinsic value properly, you factor in things like declining prices.

When we buy business, we try to look out and estimate the cash it will generate and compare it to the purchase price. We have to feel pretty good about our projections and then have a purchase price that makes sense. Over time, we've had more pleasant surprises than we would have expected.

I've never seen an investment banker's book in which future earnings are projected to go down. But many businesses' earnings go down. We made this mistake with Dexter shoes -- it was earning $40 million pretax and I projected this would continue, and I couldn't have been more wrong.

20% of Fortune 500 companies will be earning significant less in five years, but I don't know which 20%. If you can't come up with reasonable estimates for that, then you move on.

Discount Rate Investors Should Use

We use the same discount rate across all securities. We may be more conservative in estimating cash in some situations.

Just because interest rates are at 1.5% doesn't mean we like an investment that yields 2-3%. We have minimum thresholds in our mind that are a whole lot higher than government rates. When we're looking at a business, we're looking at holding it forever, so we don't assume rates will always be this low.

Losing and Regaining Competitive Advantage

There aren't many examples of companies that lose and then regain competitive advantage. I have a friend who likes taking over lousy businesses and trying to turn them into great businesses [I wonder whether he was referring to Jack Byrne of White Mountains Insurance?]. I asked him for examples of this [bad businesses turning into good businesses] over the past 100 years [and he couldn't name very many].

Sometimes businesses have problems, but haven't lost their competitive advantages. When GEICO had problems [in the mid-1970s], the model wasn't broken.

One example: Pepsi lost its edge post-WW II when costs went up, but they successfully changed. To some extent Gillette lost its competitive edge in the 1930s to penny blades, but then regained it.

But generally speaking, when a company loses its edge, it's very difficult to regain. Packard [cars] went downscale one year and never regained its upscale image. Department stores have done this. You can always juice sales by going down market, but it's hard to go back up market.

Focus Investing

You don't have to be right on everything or 20%, 10%, or 5% of businesses. You only have to be right one or two times a year. I used to handicap horses. You can come up with a very profitable decision on a single company. If someone asked me to handicap the 500 companies in the S&P 500, I wouldn't do a very good job. You only have to be right a few times in your lifetime, as long as you don't make any big mistakes.

Munger: What's funny is that most big investment organizations don't think like this. They hire lots of people, evaluate Merck vs. Pfizer and every stock in the S&P 500, and think they can beat the market. You can't do it. Very few people have adopted our approach.

Buffett: Ted Williams, in his book The Science of Hitting, talked about how he carved up the strike zone into different zones and only swung at pitches that were in his sweet spot. Investing is the same way.

Temperament of Successful Investors

Munger: I think there's something to be said for developing the disposition to own stocks without fretting.

Buffett: I think it's almost impossible to do well investing over time without this. If the market closed for years, we wouldn't care. Would still keep making Sees candy, Dilly bars, etc.

If you focus on the price, you're assuming that the market knows more than you do. That may be the truth, but in that case you shouldn't own it. The stock market is there to serve you, not to instruct you.

Focus on price and value. If a stock gets cheaper and you have some cash, buy more. We sometimes stop buying when prices goes up. This cost us $8 billion a few years ago when we were buying Wal-Mart. When we're buying something, we want the price to go down and down and down.

Investor Expectations

The problem is the starting point in predicting modest returns for equity investors. [Expectations were too high.] In 1999, a Gallup poll showed people expected 15% [returns from stocks] in a low inflation environment. In a low inflation environment, how much will GDP grow? If there's 2% inflation and 3% [real] growth, that's 5%. This will be the rate of corporate growth, so if you add dividends, you get 6-7% [annualized returns] before frictional costs -- and investors incur high frictional costs (they don't have to, but they do) -- which adds up to 1.5%. [This 4.5-5.5% is] not bad.

Munger: My attitude is slightly more negative than Warren's.

Buffett: It [6-7% growth] is not the end of the world. If we get 5-6% of the pie -- those of us who put our capital out -- I don't know if it's exactly what someone who designed the universe would come up with, but I don't think that's crazy in either direction. It provides a pretty decent real return in a period of low inflation. If you get high inflation, you could get very low real returns, even negative.

Munger: I don't you'll get real help from me or from economists either. If an economist saw a job going to China, he doesn't care -- it saves costs. But if all the jobs go to China, what then? People actually get paid to say things like this.

Buffett: Maybe we should export all economists to China.

Meeting with Managements

Almost everything we learn is from public documents. I read Jim Clayton's book, for example. There is adequate information out there to evaluate businesses. We do not find it particularly helpful to talk to managements. Often managements want to come to Omaha to talk, and they come up with all sorts of reasons, but what they really hope is that we become interested in their stock. That never works. The numbers tell us a lot more than the managements. We don't give a hoot about anyone's projections. We don't want even want to hear about it.

Self-Discipline When Investing

I'd feel more qualified to talk about self-discipline if I weighed about 20 pounds less. [Laughter.]

Critique of How Most Money Is Managed

Munger: We have this investment discipline of waiting for a fat pitch. If I was offered the chance to go into business where people would measure me against benchmarks, force me to be fully invested, crawl around looking over my shoulder, etc., I would hate it. I would regard it as putting me into shackles.

Buffett: I would hate it. In 1956 [when I started the Buffett Partnership], I passed out the ground rules, which said "here's what I can do and can't do." The idea of setting out to do what you know you can't do [is terrible].

Munger: The general systems of money management [today] require people to pretend to do something they can't do and like something they don't. It's a terrible way to spend your life, but it's very well paid.

Stock Market Predictions

Munger: I don't know if we'll ever see stocks in general at mouthwatering levels that we saw in 1973-4 or 1982 even. I think there's a very excellent chance that neither Warren or I will see those opportunities again, but that's not all bad. We'll just keep plugging away.

Buffett: It's not out of [the realm of] possibility though. You can never predict what markets will do. In Japan, a 10 year bond is yielding 5/8 of 1%. [Who could have ever imagined that?]

Munger: If that could happen in Japan, something much less bad could happen in the US. We could be in for a period in which the average fancy paid investment advisor just won't do very well.

Buffett: Chaotic markets might not be good for society, but create opportunities for us.

There were some great opportunities in junk bonds last year and we invested in a few. But money is pouring into junk bonds right now, $1 billion per week. The world hasn't changed that much.

Cost of Capital

Charlie and I don't know our cost of capital. It's taught a business schools, but we're skeptical. We just look to do the most intelligent thing we can with the capital that we have. We measure everything against our alternatives. I've never seen a cost of capital calculation that made sense to me. Have you Charlie?

Munger: Never. If you take the best text in economics by Mankiw, he says intelligent people make decisions based on opportunity costs -- in other words, it's your alternatives that matter. That's how we make all of our decisions. The rest of the world has gone off on some kick -- there's even a cost of equity capital. A perfectly amazing mental malfunction.

Building Investment Knowledge

We read a lot: daily publications, annual reports, 10Ks, 10Qs, business magazines, etc.

Fortunately, the investment business is one where knowledge accumulates and builds into a knowledge base that's useful. There's a lot to absorb over time. 40-50 years ago, I visited a lot of companies, but haven't done this in a long, long time.

Munger: The more basic knowledge you have, the less new knowledge you have to get. The guy who plays chess blindfolded [a chess master comes to Omaha during Berkshire's annual meeting weekend and, in an exhibition, plays multiple players blindfolded] -- he has a knowledge of the board, which allows him to do this.

I'd hate to give up The Wall Street Journal.

Buffett: You'd also hate to give up the Buffalo News [which Berkshire owns]. [Laughter.] You want to read a lot of financial publications. The New York Times has a much better business section than it had 25 years ago. Read Fortune.

I don't read any analyst reports. If I read one, it's because the funny pages weren't available. I don't know why anyone does it.

Favorite Book on Accounting

I haven't read an accounting book years. I think I read Finney[?] in college. I'd suggest reading Berkshire reports and things like magazine articles about accounting scandals. You need to know how figures are put together, but also have to bring something else. Read a lot of business articles and annual reports. If I don't understand it [an annual report], it's probably because the management doesn't want me to understand it. And if that's the case, usually there's something wrong.

Munger: Asking Warren what good books he knows about accounting is like asking him what good books he has on breathing. You start with basic rules of bookkeeping, and then you have to spend a lot of time [to really become knowledgeable].

ACCOUNTING SHENANIGANS

Gen Re was discounting Workman's Comp reserves at 4.5% -- figures we inherited. These were not conservative, so we're now using 1% in 2003 and going forward. Thus, our figures [reported profits in Q1] would be even better if we hadn't made this change.

Munger: This accounting change is typical of Berkshire. We're so horrified by aggressive accounting [that is rampant in Corporate America] that we reach for ways to be conservative. It helps our business decisions and protects Berkshire. How did we get in situation where we're all so close to the line?

Buffett: I felt much more comfort working with financial statements in the 1960s than today. There was more information then, even through there was less disclosure.

In the case of Gen Re, [having overly aggressive] Workman's Comp reserves was a quick fix, but it's like heroin. Like trade loading, people seek a quick fix. People are encouraged by their CFO or auditors to play with their numbers. It never works, though I guess if you're 64 and a half [years old and about to cash in your stock and retire], maybe it does. It's so much better to address problems.

[In a news conference on Sunday, Buffett was quoted as saying: "You would be amazed how compliant auditors have been in the past decade, not only co-operating but suggesting techniques for making numbers less useful -- less truthful -- to investors."]

The real problem is [accounting for] pension and healthcare liabilities. I've looked at companies recording pension income of hundreds of millions [of dollars] when their pension plan is underfunded by billions [of dollars]. It's the same mentality as stock options.

[I have written many columns about accounting shenanigans in: Corporations Favor Fudge, Where Has Corporate Integrity Gone?, More Earnings Shenanigans, IBM's Accounting Tricks, Lessons from the Enron Debacle, Lessons from Lucent's Cash Flow, Stocks to Avoid, More Stocks to Avoid, Another Financial Scandal? and Accounting for Non-Paying Customers.]

Adjustments to Reported Earnings; Depreciation and EBITDA

[When goodwill was required to be amortized,] we ignored amortization of goodwill and told our owners to ignore it, even though it was in GAAP [Generally Accepted Accounting Principles]. We felt that it was arbitrary.

We thought crazy pension assumptions caused people to record phantom earnings. So, we're willing to tell you when we think there's data that is more useful than GAAP earnings.

Not thinking of depreciation as an expense is crazy. I can think of a few businesses where one could ignore depreciation charges, but not many. Even with our gas pipelines, depreciation is real -- you have to maintain them and eventually they become worthless (though this may be 100 years).

It [depreciation] is reverse float -- you lay out money before you get cash. Any management that doesn't regards depreciation as an expense is living in a dream world, but they're encouraged to do so by bankers. Many times, this comes close to a flim flam game.

People want to send me books with EBITDA and I say fine, as long as you pay cap ex. There are very few businesses that can spend a lot less than depreciation and maintain the health of the business.

This is nonsense. It couldn't be worse. But a whole generation of investors have been taught this. It's not a non-cash expense -- it's a cash expense but you spend it first. It's a delayed recording of a cash expense.

We at Berkshire are going to spend more this year on cap ex than we depreciate.

Munger: I think that, every time you saw the word EBITDA [earnings], you should substitute the word "bullshit" earnings.

STOCK OPTIONS AND COMPENSATION SYSTEMS

Value of Stock Options

Charlie and I have thought about options all of our life. My guess is that Charlie was thinking about this in grade school. You don't have to understand Black-Scholes at all, but you have to understand the utility and value of options, and cost of issuing them -- a very unpopular topic in some quarters.

Let's say you sold a house and you asked for an option on the future appreciation of the house. Wouldn't you say that this option had value?

Any option has value, and that's why some people who are kind of slick in business matters get options for nothing or little -- far less than market value. The Black-Scholes model is an attempt to measure market value of options. It cranks in various variables, mainly past volatility of the asset involved, which are not the best judge of value. [For example,] Berkshire had a very low beta -- experts like to give complex Greek names to simple things -- but that doesn't mean the option value to anyone who understood it was lower than another stock with higher volatility.

As Charlie said, Black-Scholes can give silly results over longer term. Last year, we made one large commitment in which somebody on the other side was using Black-Scholes and we made $120 million. We love the idea of someone else using mechanistic formulas. They may be right 99% of the time, but we can pass 99 times and only invest the one time they're wrong.

Munger: Black-Scholes is a know-nothing system. If you know nothing about value -- only price -- then Black-Scholes is a pretty good guess at what a 90-day option might be worth. But the minute you get into longer periods of time, it's crazy to get into Black-Scholes. For example, at Costco we issued stock options with strike prices of $30 and $60, and Black-Scholes valued the $60 ones higher. This is insane.

Buffett: We like this kind of insanity. We will pay you real money if you deliver someone to our office who is willing to offer us three-year options that we can pick and choose from.

Options have value. We issued them last year when we sold $400M of bonds [the SQUARZ deal -- see my column, Berkshire's Unusual Security]. We knew what we were giving up -- it had a negative coupon, but options have value.

Accounting for Stock Options

They [other companies] pay people with options, [whereas] we pay with cash bonuses. We'd love to not record this expense. Why the opposition? Some people [CEOs] care a lot. They argue that the cost of options is included in the footnotes [of the 10-K], [to which I say] why not pull all expenses in footnotes? Then you could just have two lines on the income statement: sales and the same amount on the next line, profits.

It's amazing what people with high IQs will do [for money]. Charlie has a theory [that it's more than money -- that it's driven by pride.]

Munger: I'm so tired of this subject. I've been on this topic for so long. It's such a rotten way to run a civilization to make the accounting wrong. It's like getting the engineering wrong when making a bridge. When perfectly reputable people say options shouldn't be expensed, it's outrageous.

Buffett: The auditors swing back and forth. Now four firms [the Big Four accounting firms] that lobbied against options as an expense in 1993 are on the other side. I don't know how this could be [options were not an expense then, but are now, but I'm happy to see it].

[For more on stock options, I wrote a three-part series on the topic: The Stock Option Travesty, Stock Options' Perverse Incentives, and Rebutting Stock Option Defenders.]

Compensation Systems

Munger: As the shareholders know, our system is different from most big corporations. We think it's less capricious. The stock option system may give extraordinary rewards to some people who did nothing, and give nothing to those who deserve a lot. Except where we inherit it [a stock option program], we don't use it.

Buffett: We inherited stock options, primarily with Gen Re. Those options turned out to be quite valuable. Would not have been if Gen Re had been a stand-alone. Not to criticize anyone, but some people made a lot of money who contributed nothing. Options are a royalty on the passage of time. They put management's interests contrary to the interests of shareholders.

We believe in tying incentives to things under management's control. To give a lottery ticket to someone who runs 1% of Berkshire is really crazy. We saw more crazy stuff in the 1990s than in the previous 100 years. There was wealth transfer that has never been experienced before. I'll accept lottery tickets, but they would have no impact on my decisions or behavior.

A properly designed option system, tied to performance, can be sensible. But to just pass them out, give a 10-year ride and grant more if the stock goes down, doesn't make sense.

Munger: If we're right, then it has considerable implications. [It would mean that] more than 99% of corporate compensation systems are more than a little crazy. We're not against vast rewards for people who deserve them, but [most stock options programs don't achieve this.]

Buffett: We love to see people at Berkshire making money, but only if they're making money for you. Compensation is an interesting subject and I'm going to write about it next year.

It's not a market system. Compensation people say it's like baseball negotiation [between a team owner and a star player], but it's not. The player is negotiating with someone who's paying the money. But at large corporations, on one side is guy who really cares and on the other side is the compensation committee -- generally people who are not picked for their strong spines -- to them, it's play money. It's almost meaningless to the guy on one side if the CEO gets 100,000 shares of restricted stock or one million, but the guy on the other side cares a lot. You get parity in negotiations with unions -- that's real negotiation.

I've never seen a compensation consultant say that the Board should reduce the CEO's salary or get rid of this bozo. They'd never get hired again. It's a bad system and needs improvement. There have been some improvements. It [improvement in this area] is the acid test of corporate reform.

Over time, a vast disparity in pay has arisen, and there's a disconnect between performance and pay. So arise, shareholders!

Buffett's Salary and CEO Compensation

[The questioner asked why Buffett doesn't charge a percentage management fee to Berkshire, given that he earned 25% of the profits above 6% each year when he ran the Buffett Partnership. Is it because he believes, as he's said before, that "it's better to give them to receive"?" Buffett replied, to great laughter, "Try again."]

I would pay a lot of money for the job I have. If I can work with people I like, why do I need to make a further override when I already have a lot of money? I was changing my life at the time [when I ran the Buffett Partnership] and I needed money then. I got no management fee at all.

Berkshire was originally owned by the [Buffett] partnership and I would be double dipping [to also take a fee from Berkshire]. By that time I had all of the money I needed. It [taking a percentage of Berkshire's profits] would make a difference in the size of my foundation, but I like the way that I live.

Munger: Carnegie was always proud that he took very little salary. Rockefeller, Vanderbilt were the same. It was a common culture in a different era. All of these people thought of themselves as the founder. I was delighted to get rid of the pressure of getting fees based on performance. If you are highly conscientious and you hate to disappoint, you will feel the pressure to live up to your incentive fee. There was an enormous advantage [to switching away from taking a percentage of the profits to managing Berkshire, in which their interests as shareholders are exactly aligned with other shareholders].

Buffett: Bill Gates takes a small salary -- the only reason he takes a salary at all is so that he can reduce it if they have a bad year. He wants to be able to take a 90% cut. He's also never taken a stock option. I think this is true of Steve Ballmer as well. They got rich with their shareholders, not off of their shareholders.

EVA Compensation Systems

We would not dream of using EVA [Economic Value Added], though some of our subsidiaries do. They set pay [scales] below the CEO level.

Munger: On EVA, there are implicit ideas that we use, such as hurdle rates, but the system has a lot of baggage.

COMMENTS ON OTHER ECONOMIC MATTERS

The Banking Industry

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.

Munger: What you're saying is that we screwed up, because banking has turned out to be better than we thought. We made a few billion [dollars] from Amex while we misappraised it. My only prediction is that we will continue to make mistakes like that.

Buffett: 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.

Tort Reform

I'm sympathetic to what you're saying [the questioner had suggested that Buffett use his clout to advocate for tort reform], but our clout is nothing compared to that of trial lawyers. It's appalling the friction costs to our society of tort insurance. People pay off rather than go through the nuisance of a suit. The people that pursue that activity pursue it not because it's right, but profitable.

But when I look at what's happened in Corporate America, I don't think they should get off scot-free. I just wish the people who engaged in the wrong-doing would pay, not the D&O insurance.

Munger: If you say the tort system includes Workman's Comp, which I would, I'd agree [that the system has serious problems]. In California, Costco has 1/3 of its employees but pays 2/3 of its total Workman's Comp [bill]. It's institutionalized fraud -- chiropractors, etc. all working together. It'll cost jobs. I had a friend who moved his plant from Texas, where his Workman's Comp was 30% [of wages] to Utah, where it was 2%. In California, it's gotten so bad that I think there will be reform, even though the legislature is controlled by Democrats.

Most of the time they [the plaintiffs' lawyers] are suing someone who has done something terrible. A lot of defendants who are screaming about plaintiffs bar have done some terrible things. The present system is crazy, but I don't know how to fix it.

Buffett: Would you make people who did wrong things pay a portion themselves?

Munger: I think it would be a great improvement if there were no D&O insurance . The counter-argument is that no-one with any money would serve on a board. But I think net net you'd be better off.

Healthcare Costs

We looked at healthcare costs, which were exploding a few years ago. Workman's Comp costs have risen dramatically, and are huge for us. $6,000-$7,000 per employee. That's in inflationary part of the US economy and we and our employees can't control it.

Health costs will keep growing and we don't have any answers. But Charlie runs a hospital, so maybe he'll have some insights.

Munger: The quality of the medical care delivered, including the pharmaceutical industry, has improved a lot. I don't think it's crazy for a rich country like the US to spend 15% of GDP on healthcare, and if it rose to 16-17%, it's not a big worry.

Buffett: But if other countries spend 7-8% [of GDP on healthcare] and have good systems, are we getting a good deal?

Munger: We're not on a dollar for dollar basis. But I'm not [troubled by how much we spend].

Impact of Inflation

There's no question that a lack of inflation is a plus for owners. The real return from owning American businesses will be better if there is low inflation over a long period.

The biggest danger [to investors] is high inflation. There's not a small chance of this in the next 20-30 years.

Social Security

Social Security is a good thing and it works well. Don't try to change it. The money should not be invested in stocks.

ADVICE ON LIFE AND OTHER

Happiness and Success

I tell college students, when you get to be my age you will be successful if the people who you hope to have love you, do love you. Charlie and I know people who have buildings named after them, receive great honors, etc., and nobody loves them -- not even the people who give them honors. Charlie and I talk about wouldn't it be great if we could buy love for $1 million. But the only way to be loved is to be lovable. You always get back more than you give away. If you don't give any you won't get any. Everybody loves Don Keough [former senior executive and Board member of Coca Cola]. There's nobody I know who commands the love of others who doesn't feel like a success. And I can't imagine people who aren't loved feel very successful.

Munger: You don't want to be like the motion picture exec who had so many people at his funeral, but they were there just make sure he was dead. Or how about the guy who, at his funeral, the priest said, "Won't anyone stand up and say anything nice for the deceased?" and finally someone said, "Well, his brother was worse."

Buffett: Most people in this room and most college students I talk to will have plenty of money, but some will have few friends.

View on Cutting Taxes on Dividends

Currently, I'm paying about the same percentage of my income to the government as my secretary does. I pay a higher income tax rate, but she pays higher Social Security taxes as a percentage of her income because taxes aren't charged on income above $68,400. At Berkshire, if we declared a $1 billion dividend and it were tax free, I might be paying 1/10th of the rate of my income as she would be.

Now, I could make argument that different structures shouldn't have different rates, but I can make no argument that will all the luck I've had that I would send 1/10th the portion of my income to the federal government that my secretary does. So I am not for the Bush plan.

Munger: I agree with you. Even if you assume that the whole economy would work better had we never had double taxation, having the envy and resentment of the richest paying low or no taxes screams of injustice. You have to have a fair system.

Buffett: The big benefits of no taxes on dividends will go to people like me and Charlie and that's not going to stimulate the economy, it will stimulate us.

Income Inequality, GDP, Decline in Consumer Spending

The American consumer overall is better off, but not dramatically better than 10 years ago. You're right that there's been increasing inequality. We don't make decisions on what business we buy based on some sweeping projections about what American consumers will do. We're very certain that Americans will do better over time. Average income per capita rose 7x in the 20th century. A simple phone call across the country used to cost a great deal relative to income. People will be better off decade after decade. We're not big on being futurologists.

Our consumer businesses -- candy, furniture, etc. -- are very very soft. They were down in Q1. I think we've been in a recession -- although not huge or violent one -- for two years. When government talks about GDP growing 2%, keep in mind that the population grows 1%. It's GDP per capita that counts. And GDP counts people who make you take off your shoes before you get on a plane. It counts good and services that we wish we didn't want. When you get into a war, if you drop planes into the ocean, it [building replacement planes] is part of GDP. Desirable GDP, my guess, has gone no place in the past three years. The quality of GDP isn't talked about very much.

Munger: Figures you gave on inequality obscure an important fact: if the same family were always on the bottom, then you'd have big resentments. But if DuPonts go down and Pampered Chef up, [that's good]. That much churn makes people think the system is fairer. Buffett: We don't like churn now, but we liked it more 30-40 years ago. [Laughter.]

Philanthropy

[A shareholder asked Buffett to ask his cousin, Jimmy Buffett, to play at a charitable event to help save Cypress Gardens.]

I don't ask my friends to do such things because it puts them in an uncomfortable position. If they did it, I'd never know if they did so because I asked them or because they believed in it.

Munger: Both of us feel that those of us who have been very fortunate have a duty to give back. Whether one gives a lot as one goes along as I do or a little and then a lot [when one dies] as Warren does is a matter of personal preference. I would hate to have people ask me for money all day long. Warren couldn't stand it.

Buffett: Let's assume that I was in the womb and there was an identical twin next to me, and genie appeared and said "You're going to be born in 24 hours and one of you will be born in Omaha and one in Bangladesh. You two decide which is which. Let's start bidding and whichever one of you bids a higher percentage of your estate to society when you die gets to be born in Omaha. I think the bidding would be 100%. Imagine me in Bangladesh walking down the street saying "I can allocate capital." I wouldn't last very long.

When we were born, odds were 50 to 1 against us being born in the US. So we were lucky. My lump sum should go to society. There's no reason little Buffetts should be running around in 100 years rich because they were lucky.




--------------------------------------------------------------------------------

posted by USstock @ 11:43 AM 0 comments

Berkshire 2004年年度股東會議記錄

Notes from the 2004 Berkshire Hathaway Annual Meeting


Berkshire 2004年年度股東會議記錄


May 1, 2004

Omaha, Nebraska

2004.05.01

奧瑪哈 內布拉斯加州


By Whitney Tilson

WRTilson@T2PartnersLLC.com

Notes: This is not a transcript. No recording devices were allowed at the meeting, so this is based on many hours of rapid typing, combined with my memory (egads!). I have reorganized the content of the meeting by subject area. All quotes are Buffett’s unless otherwise noted. Words in [brackets] are my comments or edits, and all web link insertions are mine.

請注意：這並非正式記錄，因為現場不准攜帶錄音設備，所憑藉的是快速的打字以及個人的記憶(天啊!)，同時按照主題不同，我已調整內容順序，除非特別註明，所有引用的數字都是巴菲特本人提出，至於框線中的字以及網路連結，則是我個人的評論。

For more on this meeting, see my 5/3/04 column, Buffett’s Wit and Wisdom. To read my columns and notes from previous Berkshire and Wesco meetings, click here. Links to all of my published columns are here.

。

　

COMMENTS ON BERKSHIRE HATHAWAY

關於Berkshire

Succession

繼任人選

[When asked why he doesn’t ask Bill Gates to take over Berkshire when he’s gone – there are always a few whacko questions – Buffett replied:]

[當被問到是否可能請比爾蓋茲接掌Berkshire時-總是有人會問到一些關鍵問題，巴菲特回答說：]。

Did Bill put you up to that [question]? [Laughter.]

是比爾蓋茲派你來的嗎?? [現場一片笑聲]。

We have four people today in the organization who can do my job – in some cases better than I can, in some ways not quite as well. That wasn’t true 15 years ago.

目前公司內部有四位人選可以接任我的工作-也時甚至可以做得比我好，有時則沒有那麼理想。這與15年前情況不同。

We will have someone take over Berkshire who’s been in the organization a long time. One reason is that we like the culture and want someone who knows the culture and how it works. Also, we’ve gotten to know them and observe them.

我們將從公司內部資深人員中尋找，理由之一是我們很重視企業文化，所以希望接手的人了解並知道它如何運作，當然我們也必須對他有足夠的了解，並花很長的時間觀察。

Maintaining the Culture

維持企業文化

If I die first, all my stock goes to my wife. She might put it in the [Buffett] foundation then, or it’ll go there when she dies. It has approximately 30% of the votes. By law, the foundation would have to get down to 20% within five years.

如果我先死，我個人所有的Berkshire股份將歸我太太所有，屆時她很有可能會把它擺在巴菲特基金會，這部份的股權約達30%，但根據法令，基金會的持股比率在五年內必須降到20%以下。

I think Berkshire has a far better chance than any major company of maintaining its culture [when Charlie and I are gone]. The people running it have grown up in the culture. My wife and son are there [on the board] as guardians of the culture.

我認為Berkshire應該比任何一家大公司都能夠維持既有的企業文化[在查理跟我死後]，可能的接任人選皆已受到本公司企業文化的薰陶，而我內人與兒子在董事會也能確保文化可以維繫下去。

A great example [of how this can work] is Wal-Mart when Sam Walton died. The Walton family has done a magnificent job of hiring successors to run the place and maintain the culture. The Waltons are there to step in if needed, but they don’t run the business.

最好的例子就是威名百貨，當Sam Walton死後，Walton家族成功地聘請繼任者並維持其企業文化，當然若有必要Walton家族也會適時介入，只不過他們並不負責實際的經營管理。

I think my family and Berkshire’s managers will retain the culture.

所以我有信心，我的家人以及Berkshire旗下的經理人也能維持企業文化。

Munger: If anyone would have a reason to worry, it would be me, but having known the Buffett family for decades, I say to you: “Don’t worry about it. You should be so lucky.”

曼格：如果有人擔憂這個問題，那應該是我本人，不過認識巴菲特家族已經好幾十年，我可以告訴各位：大家大可不必擔心，我們的運氣還算不錯。

[During the initial official-business part of the meeting, a shareholder asked Buffett why he had his son and wife on the board, rather than Berkshire operating managers, who (according to the shareholder) have more business experience. Buffett did not answer the question – perhaps because it was not the appropriate forum (the shareholder could have gotten in line and asked the question during the Q&A period) – but I think the answer is quite simple: Buffett is increasingly sensitive to making Berkshire a role model for good corporate governance (it always has been, but appearances are especially important these days). Hence, Berkshire added a number of world-class independent board members this year. However, Buffett also wants to be sure that Berkshire’s unique culture is maintained forever, and he trusts his wife and son to ensure this more than anyone else.]

[在會議正式開始時，有股東問到巴菲特為何要讓他的老婆及兒子而不是公司專業的經理人擔任公司的董事，後者應該比較有商務經驗，巴菲特當時並沒有回答這個問題-有可能是因為還沒到討論時間(在Q&A階段股東可以排隊輪流發問)-不過我認為答案很簡單：巴菲特越來越有意致力讓Berkshire成為公司治理的典範，(雖然實際上它已經是，但近年來表面的規定越來越重要)，這也是為何今年Berkshire又增加了幾位獨立董事的原因，然而巴菲特也想確保Berkshire特有的文化得以永久地維持下去，關於這點他太太及兒子是最讓他信得過的人選]。

Compensation Systems at Berkshire

Berkshire的薪資報酬體系

You could make a lot of money working for Berkshire, but it will relate to performance. No-one’s going to make a lot of money for average performance.

在Berkshire工作，也是有可能賺大錢，但這絕對要與本身的績效相關，沒有人可以依著平庸的表現坐領高薪。

We have some extraordinary management at MidAmerican [Energy Holdings]. In terms of compensation, there are two key individuals [David Sokol and Greg Abel]. For their compensation, I took a yellow pad, sketched out a proposal in two minutes, talked to Walter Scott (who’s our partner in this business) and when he said it looked OK, talked to the managers. The only change was that we had more than 50% of the rewards going to the CEO, David Sokol, and he said to make it 50/50.

比如美中能源[控股公司]的經營階層相當傑出，主要有兩位重要人物[David Sokol and Greg Abel]，關於他們的薪資報酬，我先拿了一張便條紙，花了兩分鐘簡單地早擬我們的想法，然而直接跟Walter Scott談(他是這項事業的主要合夥人)，他表示看起來合理後，就跟他們兩人敲定，唯一的改變是我們本來將超過半數的獎勵劃歸總裁David Sokol，但他個人表示一半一半就好。

Charlie and I spend a couple of minutes [designing compensation plans]. It’s not highly complex, but you have to understand the business. No one formula can work – that would be asinine. Take Chuck Huggins at See’s – he’s had the same plan for 30 years. For GEICO, there are two variables [that determine compensation] for Tony Nicely on down.

查理跟我只花了幾分鐘的時間來擬定[薪資報酬計畫]，它並不是很複雜，但你必須對這產業有基本的了解，沒有固定的公式-那未免太愚蠢了，又以喜斯糖果的Chuck Huggins來說，他的薪資計算公式已經維持30年了，至於GEICO，則有兩項變數來決定自Tony Nicely以下所有員工的薪資報酬。

[From Buffett’s 1996 annual letter, the two are: "Today, the bonuses received by dozens of top executives, starting with Tony, are based upon only two key variables: (1) growth in voluntary auto policies and (2) underwriting profitability on "seasoned" auto business (meaning policies that have been on the books for more than one year). In addition, we use the same yardsticks to calculate the annual contribution to the company's profit-sharing plan. Everyone at GEICO knows what counts." [premium growth and combined ratio, I believe].

。

We do not bring in compensation consultants and we don’t have a human resources department, legal department, etc. That makes life way to complicated, and people get vested in going to conferences.

我們從未雇用人力顧問，我們也沒有人力資源部門或法務部門來處理這些事務，那未免將事情過於複雜化，人們在會議時習慣自我防衛。

In some businesses, like network television, you’ll earn a huge return on equity even if your nitwit nephew runs it (as long as you keep him out of the office). But other businesses are the opposite.

就某些產業而言，比如說像地方電視台，就算你找個笨蛋親戚也能夠賺大錢(只要你不要讓他常進辦公室)，但某些產業的情況卻正好相反。

You should charge some cost of capital. Measure the key metrics, set a hurdle and only pay for adding value [above this hurdle], even if the returns appear low [but would have been a lot lower without the value the manager added]. If you had a group of network television stations, you would have 35% pretax margins if a chimp ran it, so you’d only pay for excess above this. It would be silly to have 10% or 15% hurdle, but a bad manager will try to get this.

你必須先計算資金成本，然而衡量主要的變數，設立一個基本門檻，然而僅就增添的價值[亦即高於門檻的部份]，就算得到的報酬看起來很低[但如果沒有這些經理人的貢獻結果可能會更慘]，如果你擁有一系列的地方電視台，就算是阿達在管，也可以輕鬆的賺取35%的稅前利益，所以你只能就超出的部份給予獎勵，單單設10%或15%的門檻是件很蠢的事，當然不良的經理人會企圖爭取這樣的門檻。

In the end, if you have a great manager, you want to pay them very well.

總而言之，如果你擁有一位傑出的經理人，你一定要善待他們。

Views on Berkshire Hathaway shareholders

關於對Berkshire股東的看法

[When asked why Berkshire Hathaway doesn’t meet with analysts or large shareholders, Buffett replied:]

[當被問到為何Berkshire不召開大型法說會，固定與分析師及大股東會面，巴菲特回答：]

I have some problems with having meetings with some sub-groups of investors. If we had them, I’d want meetings with everyone. We try to convey a lot about our business in our annual report.

我不習慣與特定一小群投資人會面，如果我跟他們單獨談過，那麼我覺得就應該也跟所有股東見面，所以我們選擇利用年報跟所有股東傳達公司的理念。

I don’t think it fits our temperament at all. Many corporations spend a lot of time talking to analysts. One of our strengths is not doing this. It’s very time-consuming and gives some shareholders an advantage. We’re very egalitarian.

所以那並不是我們的調調，許多公司花很多時間跟分析師溝通，但堅持不這樣做反而是我們的優勢，我認為那很浪費時間而且可能讓少部份股東得利，在Berkshire我們對股東一視同仁。

Munger: We like our current shareholders and don’t want to entice anyone to become one. It would help current shareholders to hear our CEOs [of the Berkshire operating subsidiaries], but we promised them they could spend 100% of their time on their business. We place no impediments on them running their businesses. Many have expressed to me how happy they are that they don’t have to spend 25% of time on activities they didn’t like.

曼格：我們很滿意現有的股東組合，也不想吸引其他人加入，雖然讓股東與Berkshire旗下專業經理人碰面有助於他們了解公司，但同樣地我們也承諾讓這些經理人可以百分之百專注於他們的本業，關於企業經營，我們完全沒有設限，許多經理人一再跟我表示很高興可以不必花25%的時間強迫他們去做不喜歡的事。

Buffett: We ask ourselves: “Are we telling you what we’d want to know if our positions were reversed?” We really try to put everything in our annual report that’s germane to that. Anything that counts, in aggregate, we include.

巴菲特：我們不斷反問自己：「假設今天我們站在股東的立場，我們是否已經把我們所有想知道的告訴各位了??」我們確實很努力地想要把該說的東西放進年報中，所有相關的，全部都已經放進去了。

The Washington Post has a shareholder day, which is very useful, because the annual meeting has turned into a farce, with so many people complaining about particular articles that were in the paper. But I really think that if we spend six hours here and spend time writing the annual report, we can convey the information we need to.

華盛頓郵報訂有一個股東日，就相當有用，因為許多人利用每年股東會來批評報紙刊登的某些文章，使得股東年會已逐漸變成一場，但我還是認為倒不如利用這六個小時的時間靜下心來好好地撰寫年報以傳達我們的理念。

We’re not trying to appeal to people who care about next quarter or year. We want to appeal to people who view this as a lifetime investment. There are relatively few investors who think about buying and putting it away forever like a farm.

我們不希望吸引只在乎短期利益的人加入，我們要找的是把Berkshire看作是個人終生投資的人，當然把投資Berkshire視同購置家園的人畢竟是少數。


COMMENTS ON BERKSHIRE HATHAWAY’S

INVESTMENTS & BUSINESSES

關於Berkshire的投資與旗下事業

Junk bonds

垃圾債券

When we were buying junk bonds, we focused on ones we could understand. They were yielding 30%, 35%, 40% to maturity. We thought of them like equities. Within 12 months, they went to yielding 6%. This is amazing, given that there were no major events. Prices do amazing things.

當我們在買進垃圾債券時，我們只專注於那些我們可以了解的，持有到到期日，其報酬率高達30%、35%、40%，我們把他們當作股票一樣看待，只是不到一年，他們的報酬率驟降到6%，這實在很誇張，尤其是基本面根本就沒有什麼變化，價格的波動實在是太離譜了。

Super-Cat Insurance

霹靂貓保險

[When asked how one might price super-cat insurance policies, Buffett replied:]

[當被問到霹靂貓的保單是如何訂價的，巴菲特回答：]

Try to be as realistic as you can on those numbers [the key variables] – err on being conservative – and then when you’re through, make sure you have a margin of safety.

盡量讓某些數字(主要的變數)越明確越好，不要過於保守，等你算出來後，確定保留一些安全邊際。

In pricing earthquake insurance, look at the number of major quakes in past century – there have been 26 – so we’d assume 30 or 32 going forward (not 50 or we’d never write any business). If we calculated the resulting price to be $1 million, then we’d price it at $1.2 million to build in a margin of safety.

以地震險保單來說，看看過去百年來大地震發生的數量-實際上發生了26次，所以我們便假設之後會有30或32個地震發生(當然不能用50次，這樣我們肯定接不到生意)，如果初步算出的價位是100萬美元，那麼最後的價格可能就訂在120萬美元以保留一些安全邊際。

Munger: Using the book Deep Simplicity [see link on page 33, below], you can predict how size is likely to be allocated. A standard power law will tell you how many earthquakes there will be of various sizes – many small ones, but big ones are less likely. So just do the math, apply the power law and calculate estimated damages.

曼格：參考「深入淺出」一書，我們大概可以預估地震規模是如何分佈的，標準的能量法則告訴我們地震的規模可分為不同的程度，大部分的規模都很小，但大地震也不是不可能發生，只有運用數學公式、能量法則來計算出可能的損失。

Buffett: It’s difficult if someone wants to protect against a 9.0 quake, which happens only once every 1,000 years. But in investing, if it’s too hard, skip it.

巴菲特：沒有人可以抵擋平均1,000年發生一次的9級大地震，就投資而言，這太難預估了，所以可以直接省略不計。

MidAmerican Energy Holdings and Investment Opportunities in the Energy Sector

美中能源控股公司以及能源產業的投資機會

PUHCA [Public Utilities Holding Company Act] passed in 1935 as a justified reaction to some really wild antics in the 1920s in the public utility field, most dramatically in Sam Insull; there was pyramiding, capital structure... [For more on Insull, see this web page, which has the following sentence: “Another example comes from the breakup of Samuel Insull's empire, whose failure was a major source of the attack on holding companies…”] The act addressed a lot of wrong things, but it’s long been outmoded. The SEC agrees and various energy bills included the repeal of it, but no energy bill passed last year.

1935年通過的PUHCA(公用事業控股公司法)主要是立法單位對於1920年能源產業界不斷發生的種種不當行徑所作的因應之道，其中尤以Sam Insull公司為最，金字塔的組織與資本結構，(其潰敗是眾人詬病控股公司的主要原因)，這項法案抑制了很多不當事件的發生，但有些規定卻早已過時，證券主管機關也已同意，提出多項法案來廢除它，但去年並沒有任何一項法案獲得通過。

PUHCA restricts what we do. But it’s not clear that if it were repealed that it would create lots of opportunities for us, because other companies might be competing against us. So, it’s not clear that Berkshire Hathaway would necessarily be worth a lot more money [if PUHCA were repealed]. But it would be logical to repeal it. There are plenty of regulations already.

PUHCA限制了我們的行動，但它被廢除後，也不能保證就能為我們創造更多的機會，因為如此許多公司也會加入競爭的行列，所以PUHCA被廢除，Berkshire的價值不一定就能大幅提升，當然廢除它是很合理的一件事，相關的法規已經夠多了。

It would be beneficial to have companies like Berkshire pouring money into this field. It will be repealed someday I think.

這產業有Berkshire挹注資金絕對是一件正面的事，我想總有一天它會被廢除。

Munger: If there were a great opportunity in the energy field, we’d find a way to do it.

曼格：如果能源產業真有一些大機會，我們一定會努力好好地把握。

Buffett: That’s right. There’s been nothing we’ve wanted to do and couldn’t. It isn’t like we got one yard from the finish line [on a deal] and couldn’t finish it. But the repeal of PUHCA may make life simpler on a large transaction.

巴菲特：沒有錯，到目前為止，還沒有一件事是我們想做而做不到的，既然已經快抵達終點線了，就沒有理由不跑完全程，若PUHCA真的被廢除，將有助於某些大筆交易更容易完成。

PetroChina

中國石油公司

PetroChina is not opaque. It’s very similar to big oil companies elsewhere in the world. It’s the 4th most profitable oil company in the world – it produces as much crude as Exxon. It’s not complicated – it’s a big integrated oil company, so it’s fairly easy to get your mind around the economics of the business.

中國石油沒有什麼不透明，它就像是全世界其他主要的石油公司一樣，目前排名位居第四，出產的原油比艾克森還要多，它是一家垂直整合的石油集團，所以大家可以很容易就了解這家公司的體質。

The annual report will tell you more about the business than [the annual reports of] other oil giants. They tell you they’ll pay out 45% of their earnings, barring the unexpected. I like knowing that that cash will come to Berkshire.

該公司年報所透露的資訊甚至比其他主要石油公司還要詳盡，他們明確表示會將盈餘的45%分配給股東，避免不確定性，我很喜歡期待配發現金股利的感覺。

It was bought because it was very, very cheap by any metric – far cheaper than Exxon, BP, Shell... You could say it should be cheaper, given that it’s 90% owned by the government of China, which is a factor, yes, but not so big for me. If you read the annual report of PetroChina, you’ll have as good an understanding of the company as reading the annual report any other oil company. Then, you can think about risks such as a disruption of US-China relations.

我們買進的原因是它們實在是很便宜，不管從任何角度看，比起艾克森、英國石油或殼牌等都便宜許多，當然你可以說它之所以便宜是因為90%的股份為中國政府所有，這是原因之一，但我並不在乎，如果你讀過中國石油的年報，你一定能像讀其他石油公司的年報一樣了解這家公司，當然你也可能會想到諸如美中關係惡化等不確定的風險。

Munger: I think if it’s cheap enough, you can afford more country risk or regulatory risk. It’s not complicated.

曼格：我認為它們實在很便宜，所以可以多忍受一些國家風險或管制風險，這項投資案並不複雜。

Buffett: There’s Yukos, the big oil company in Russia. In evaluating country risk, you can reach your own judgments. In our view, PetroChina had less risk.

巴菲特：比如像俄羅斯最大的石油公司Yukos，評量國家風險本來就是見仁見智，相較之下，我們認為中國石油的風險比較低。

[Later in the meeting, Buffett and Munger returned to the discussion of this company:]
[會議的後段，巴菲特與曼格再度談到中國石油:]。

Buffett: You don’t need any blinding insights to invest in PetroChina. They’re producing 2.5% of the world’s oil, it’s priced in US dollars, they control a significant part of the refining in China, and they pay out 45% of their earnings in dividends. If you’re buying something like that at 1/3 the valuation of comparable companies, it’s not hard. You just have to do the work.

巴菲特：投資中國石油不需要特別銳利的眼光，其石油產出佔全世界2.5%，以美元計價，同時控制中國主要的煉油設備，將盈餘的45%支付股利給股東，這就好像你以三分之一的價格買進類似的公司一樣，只要作好功課就足夠了。

Munger: But when you were buying, no-one else was. It required uncommon sense.

曼格：但是當市場上只有你獨自買進時，這就需要一點特殊的智慧了。

National Indemnity and Incentives in the Insurance Business

國家產險以及保險業的激勵方式

We are very big in insurance and having the wrong incentives in place could be very harmful.

我們在保險業有相當大的投資，所以若激勵方式使用不當將會有相當嚴重的後果。

[Buffett had prepared slides and had them put up on the screens in the convention center. Slide 1 showed Berkshire Hathaway’s balance sheet shortly before it bought National Indemnity.]

[巴菲特特別準備了投影片，在會議中心的現場放映給全體股東看，投影片一顯示Berkshire在剛買下國家產險時的資產負債表]

For 15 minutes each year, Jack Greenwald [the owner of National Indemnity] would get frustrated with something and want to sell his company. I told Charlie that the next time he was in heat, bring him to me. So, we bought it in ’67 for $7 million.

每年約有15分鐘，Jack Greenwald(國家產險公司的老闆)會對某些事情感到不快而想要賣掉公司，為此我告訴查理如果下一次發現有這個念頭時，趕快帶我去見他，就這樣我們在1967年以700萬美元買下這家公司。

[Slide 2 showed premium volume for National Indemnity from 1980 through 2003. It was $80 million in 1980, rose to $366 million in 1986, then declined nearly every year down to $54 million in 1999, and then spiked up to $595 million in 2003. Buffett highlighted the decline from 1986 to 1999 and asked:]

[投影片二顯示國家產險1980年到2003年的保費收入，從最初的8,000萬美元一路成長到1986年的3.66億美元，然後又一路下滑至1999年的5,400萬美元，之後又暴增至2003年的5.95億美元，巴菲特特別指出1986年到1999年的下滑，並問到：]

How many public companies in America would see premiums go down every year for such an extended period?

試問全美有哪一家上市公司可以容忍保費收入如此長期持續地下滑?

[Slide 3 showed the number of employees at National Indemnity from 1980-2003. The number rose from 1980-86 and then declined from 1986-99, but much more slowly than premiums declined. Buffett noted:]

[投影片三顯示國家產險從1980年到2003年間的員工人數，1980年到1986年人數一路增加，然後從1986年到1999年又下滑，但巴菲特強調下滑的速度明顯低於保費收入減少的幅度]

We never fired anyone – the decline in headcount was solely due to retirements. The key is you can’t fire people if they don’t write business, or they’ll write business. You must be able to tell them that if they write no business, their job is not in jeopardy.

我們從來不開除員工，這段期間人數的下滑完全是員工屆齡退休所致，重點在於你不能只看員工是否有簽下保單來決定其去留，你必須明確地告訴他們，即使他們沒有簽下任何保單，也不必擔心會被炒魷魚。

[Slide 4 showed National Indemnity’s expense ratio from 1980-2003, which was as low as 25.9% in a peak year, and as high as 41% in the worst year, 1999. Buffett noted that:]

[投影片四顯示國家產險1980年到2003年的費用率，從最低的25.9%到最高的41%不等]

Some companies would feel that this is unacceptable. [We don’t.] We can take an expense ratio that’s out of line, but can’t take writing bad business.

巴菲特表示某些公司可能會覺得根本不可能接受這樣高的比率，但我們卻不這樣認為，我們可以接受離譜的費用率，但卻無法忍受簽下品質不良的保單。

[Slide 5 showed the combined ratio at National Indemnity from 1980-2003. The combined ratio exceed 100 during a few bad years for the industry in the early 1980s, which is what led to the hard market that peaked in 1986, but National Indemnity’s combined ratio has been below 100 – e.g., the business has been profitable – in every year for the past 20. Buffett pointed out:]

[投影片五顯示國家產險1980年到2003年的綜合比率，1980年初期產業表現普遍不佳時，同業平均綜合比率曾經一度超越100，但即便是最慘的1986年，國家產險的綜合比率還是低於100，巴菲特指出，這表示該公司過去20年來，每年都能持續獲利]

In 1986, our combined ratio was only 69.3 because we did the most volume ever that year, up to that point [the company has done more volume in the past few years]. We coined money when we wrote a lot of business, and made a little when we didn’t. We’re the only company like this. We’ll have a high expense ratio when business is slow.

1986年我們的綜合比率只有69.3，原因是當年度我們的保費收入創下歷史新高，當我們大舉簽單時就表示要賺大錢，若是不接業務則不賺錢，沒有公司像我們這樣，當業務量低時，我們的費用率就會變得偏高。

National Indemnity was a no-name company when we bought it, and has no copyrights, patents, etc. to distinguish it, but they have a record like no-one else because they had discipline.

國家產險在我們買下它時還默默無名，沒有任何著作權或專利來凸顯自己，但獨有的核保紀律使得它與眾不同。

You can’t run an auto or steel company this way, but it’s the best way to run an insurance company.

你不可能以這樣的方式來經營汽車或鋼鐵公司，但這卻是經營保險公司最好的方式。

Munger: Nobody else does it, but to me it’s obviously the only way to go. A lot about Berkshire is like this. Being controlling owners is key – it would be hard for a committee to make these kinds of decisions.

曼格：沒有人這樣做，但我卻認為這是唯一的可行之道，Berkshire旗下的事業經營很多都是如此，成為具控制權的股東是一個關鍵，合議制很難做下這樣的決定。

HomeServices of America

美國居家服務

HomeServices will grow. It owns 15-16 local real estate firms, which retain all of their local identities – akin to the whole Berkshire model. Managers operate them as if they owned them themselves. We have no national identity, unlike Cendant, which operates under a few big names.

居家服務還會繼續，它在全美擁有15-16家地區型的房屋仲介公司，依照Berkshire的經營慣例，全都以原有的品牌經營，經理人就像是在經營自己的事業一樣管理公司，我們沒有認同問題，不像Cendant只以少數的大品牌經營。

There’s no question that we’ll buy a few – or a lot – of [real estate brokerage] companies over the next 10 years. It’s a great company with great management. Last year, we participated in $50 billion of transactions – but this was only a small percentage of the national total. We’re big in California, Minnesota and Nebraska.

毫無疑問我們未來10年內會繼續買下一些或甚至許多房地產仲介公司，這是一家擁有好的經營階層的好公司，去年我們的成交金額累積達到500億美元，這只佔全美成交總額的幾個百分點而言，我們在加州、明尼蘇達州及內布拉斯加州的業務量都相當大。

It’s a good business, but very cyclical. It’s very good now. We’ll go through a bad period, but we’ll keep buying. I don’t know how big it will become, but it’s conceivable that as we grow, we’ll add things like buying furniture. When people buy a new house, they need a lot of things.

這個產業相當不錯，不過產業波動性相當大，現在處於景氣高峰，當然以後也會遇到低潮，但我們仍將繼續買進，我不確定將來它會變得多大，但可以確定的是只要這類的業務成長，人們一定會多添購傢具，當人們買下一個新家，他們總是需要很多的東西。

[In response to another question about whether the internet will threaten the commission structure of real estate brokers like HomeServices, Buffett replied:]

[另外有人問到，網路的興起是否會威脅到像居家服務這類房仲業者原有的佣金收費模式，巴菲特回答說：]

I think commissions in HomeServices are sustainable. Barry Diller is interested in the space via Lending Tree, and the internet is a threat to any business, including real estate brokerage. But when I think about the process of owning a home, the for-sale-by-owner (FSBO) was with us 50 years ago and it is now [but it hasn’t affected commissions]. My guess is that 30 years from now, a very significant percentage of home sales will be done through the brokerage system like today’s, though there are people trying to change it.

我認為居家服務的佣金收費模式應該可以繼續維持下去，Barry Diller(譯註：USA Network董事長)有意透過網路建立另一套模式，網路對任何行業都是一項威脅，當然也包含房仲業在內，但我個人認為買賣房屋的過程，FSBO屋主自售的形式已有50年的歷史，一直維持到現在，[但卻從來沒有威脅到佣金制度] ，雖然不斷有人想要試圖顛覆現有制度，但我個人預估在未來的30年內，房地產的交易有絕大部份還是會透過仲介商完成。

Munger [speaking to Buffett]: You tried to change it dramatically in Omaha, and you fell on your ass. [Chuckling.] You tried to take home listing business from the Omaha World Herald with your little paper and failed.

曼格[對著巴菲特說：]你自己就曾在奧瑪哈地區嘗試做改變，結果自討沒趣，[一陣大笑]，為了自己的小報紙，他試著從奧瑪哈世界先鋒報手中搶下房地產廣告業務，結果失敗了。

GEICO, the History of the Direct Model, and the Importance of Being the Low-Cost Producer

GEICO、直接模式歷史以及身為低成本業者的重要性

The idea of direct marketing in auto insurance at GEICO came from Leo Goodwin and his wife. They came from USAA, which was established because US military personnel moved around a lot and had trouble getting insurance. Leo took this idea and broadened it beyond military officers. It’s a better system.

GEICO直接銷售汽車保單的想法來自創辦人Leo Goodwin跟他的太太，他們來自蘇聯，其成立的原因在於美軍人員經常移防，所以投保很麻煩，Leo承接這個概念，並將它推行到軍中以外，這套制度比原先來得好。

Going back 100 years, auto insurance was sold by casualty companies via a system of agents that charged large commissions. It was a cartel. State Farm was formed in the 1920s and had the idea of a captive agency force, which brought down costs. It became the largest auto insurer, and Allstate because #2 following the same model. This was a better system.

100年前，當時的產險公司都是經由收取大額佣金的仲介系統銷售車險保單，它本身就是一個卡特爾，直到1920年州農公司引進內部業務人員的制度，降低營業成本，進而成為最大的汽車保險公司，至於Allstate也沿用相同的模式而排名第二，這套制度比原先來得好。

Leo bypassed the agents and brought down costs even further.

至於Leo則跳過仲介，更進一步降低成本。

Every American family has to buy auto insurance. It’s not a luxury item, so cost is key and the low cost is going to win. The direct sellers, GEICO and Progressive, will slug it out and will win. GEICO has a tough competitor in Progressive – they’ve seen how we’ve done it [the direct model] and are moving to it.

幾乎每個美國家庭都會購買車險保單，它並非奢侈品，所以成本是關鍵，因此低成本業者終將勝出，直接銷售業者，諸如GEICO及Progressive強棒出擊，Progressive是GEICO可敬的對手，他們一直關注我們的一舉一動，而且迎頭趕上。

Dell is very efficient. I’d hate to compete with them. If they turn out a decent competitive product at a good price, that system will win.

Dell非常有效率，我痛恨與他們為敵，如果你的產品相當有競爭力且價格也很理想，這個系統就會成功。

Charlie is on the board of Costco. Costco and Wal-Mart have figured out how to do this [be ultra-low-cost] and they’re winning.

查理是Costco的董事，Costco跟威名百貨就很懂得這一套[超低成本]，他們都是大贏家。

It’s always a good idea to go with the low-cost producer over time. Being the low-cost producer of something that people need is a good business.

能與低成本業者常在是個很好的idea，至於成為人們所需的低成本產品生產者則鐵定是一家好企業。

Wells Fargo and Its Derivatives Risk

Wells Fargo銀行以及其衍生性金融商品風險

[A shareholder asked why Buffett felt comfortable owning Wells Fargo stock, and even buying more, given its exposure to derivatives. Buffett replied:]

[股東問到為何巴菲特會放心持有Wells Fargo的股票，甚至還持續加碼，該公司不是有衍生性金融商品的部位不是很高嗎? 巴菲特回答到：]。

I don’t have Wells Fargo’s annual report here, but I’d bet that J.P. Morgan Chase is far larger [in terms of exposure to derivatives]. I don’t think of them [Wells Fargo] as being a big player in the derivatives game.

我手上沒有Wells Fargo的年報，但我打賭J.P. Morgan Chase的衍生性金融商品部位一定比Wells Fargo大得多，我不認為他們是這場遊戲的主要玩家。

There is no perfect measure of the size of a derivative position. The numbers sound large that are thrown around, but you can talk about a $1 billion notional exposure in one derivative and have less risk than a $50 million derivative of another type. I don’t think Wells Fargo is a really big derivatives player.

很難有一個標準還衡量衍生性金融商品部位到底合不合適，這些數字看起來都是天文數字，但有些金額的風險可能高達10億美元，但金額在5,000萬美元的部位也有，我不認為Wells Fargo是的主要玩家。

Wells Fargo is an exceptional bank. We disagree with management violently on expensing stock options, so I voted our stock to expense options. But even though I disagree on this accounting point, management has a terrific record. Dick [Kovacevich, Well Fargo’s Chairman and CEO] is a great guy and I’d rank him way up there in terms of bank managers.

Wells Fargo是一家相當傑出的銀行，雖然我們對於該公司經營階層強烈反對將選擇權費用化的看法不敢苟同，(所以我個人就投票贊成將選擇權費用化)，但即便在這項會計議題上看法相異，但無可否認他們的經營績效相當不錯，Dick(Wells Fargo的總裁兼董事長)是一個優秀的人才，在同業中屬一屬二。

Criticism of MidAmerican’s Environmental Record

關於對美中能源環保記錄的批評

[A shareholder asked about an article he read – perhaps this one – that was critical of David Sokol’s support for President Bush because, the article claimed, MidAmerican was seeking concessions from the government on environmental matters. Buffett asked Sokol to take the microphone and Sokol said (my notes are weak here):]

[股東問到他讀到一篇文章(編註：我想應該是這一篇)，批評美中能源的總裁David Sokol支持布希總統，該文章宣稱美中能源企圖遊說政府對其環保問題做出讓步，巴菲特請Sokol接下麥克風回答這個問題，Sokol表示：(編註：我這部份的記錄不是很清楚)

The article criticized me for being a Ranger [a category of large donors who produce $200,000 or more] for President Bush. The article implied that I was trying to influence the Bush Administration so that MidAmerican could benefit from weaker environmental standards. In fact, MidAmerican has a great environmental record. Also, my being a Ranger was certainly not an attempt to influence regulation/legislation – and incidentally, I’m no longer a Ranger.

這篇文章批評我是Ranger布希總統的金主[指捐贈金額超過20萬美元]，並暗指我試圖影響布希政府降低對美中能源的環保標準，事實上，美中能源的環保記錄一項優異，而我身為金主的目的絕非是企圖影響法令規定，而碰巧的是我現在已經不再擔任金主了。

Silver Position

白銀部位

I have no comment on whether we’ve added to, held, reduced or completely sold our silver position. But I would disagree with you very much that the gold or silver market is rigged. Many writers have conspiracy theories. The answer is that there is plenty of silver above ground and I’m not sure of supply and demand recently, but there’s nothing flawed about the market of any commodity I can think of.

關於這個問題，我不評論是否有增加、持有、減少或完全出清我們的白銀部位，而且我也不認同黃金或白銀市場有被操縱的說法，許多作者慣用陰謀論，我認為地底下還有豐富的白銀礦藏量，我個人對於最近銀金屬的供給需求也不甚清楚，我不認為目前的大宗商品也任何太大的問題。

Munger: You’re asking for the opinion of people who haven’t particularly distinguished themselves in this arena.

曼格：我想你問到的人對於這個市場並沒有特殊的研究。

Foreign Currencies

外幣投資

[Buffett was not asked about his foreign currency holdings at the annual meeting, but at another venue he, according to one news story I read, “said he has increased his bet against the U.S. dollar in the past several months on concern that the U.S. trade deficit will weaken the currency over time. Buffett told reporters…that he has boosted his foreign currency holdings by ‘more than a little bit.’”]

[在股東大會上，巴菲特並沒有被問到有關外幣投資的問題，不過在另外一個場合，根據我個人聽到的一個消息，巴菲特說：過去幾個月以來，由於美國赤字問題持續惡化，所以他告訴在場的記者，他再度加碼投資外幣，而且是大幅加碼! ]

　

OTHER BERKSHIRE HATHAWAY COMMENTS

其他有關Berkshire


Thinking on Investing Berkshire’s Cash

如何運用Berkshire的資金進行投資

[When asked about the relative attractiveness of bonds, arbitrage, etc., Buffett replied:]
[當被問到債券、套利等投資哪一種比較好時，巴菲特回答到： ]。

Charlie and I are competent to make judgments on certain things, and not other things. We try to focus on what we can understand, which is a reasonable amount.

查理跟我相當擅於判斷某些事物，但某些則不行，我們試著將精神集中在那些我們弄得懂的，這部份還不算太多。

In the summer to mid-fall of 2002, when junk bonds became very attractive, we bought a lot. But we did not make a big decision to buy junk bonds – it’s just that a lot of them got really cheap.

2002年的秋天，當時的垃圾債券相當吸引人，所以我們一口氣大量買進，但我們判斷的邏輯並不複雜，我們只是認為他們實在是太便宜了。

We have an open mind – whatever we see on a given day that overcomes our resistance to take risk, we’ll do. Charlie and I do not have a checklist to prioritize categories. I hope he gets a good idea, he hopes I have one and if we find one, then we move, hopefully in a big way. It has to be big.

對於投資我們保持開放的態度，只要時機對了，我們能夠克服自己下海去承擔風險，查理跟我並不會特別去列一張優先順序表，我希望他有好的idea，而他也希望我能夠有好的idea，如果我們真的發現，就會立刻行動，而且希望越大越好，事實上不大也不行。

We’re recently made big investments in currencies and viatical settlements. We don’t do arbitrage any more because we’re too big.

就像我們最近大手筆投資外幣以及保單貼現，我們不再做任何套利投資，因為我們的規模實在是太大了。

Munger: We have a lot of cash because we don’t like any of those fields at the moment. Trying to prioritize among things we’re unlikely to do is pretty fruitless.

曼格：我們手頭上握有大筆現金，部份原因在於我們對於目前市場上的投資大多不感興趣，勉強在不喜歡的東西間選擇終將徒勞無功。

Investment Mistakes

投資錯誤

The main mistakes we’ve made – some of them big time – are: 1) Ones when we didn’t invest at all, even when we understood it was cheap; and 2) Starting in on an investment and not maximizing it.

我們犯過的主要錯誤是-其中有些大者：1)那些明明知道夠便宜，但最後卻沒有投資；2)確實進場投資，但卻沒有真正買夠。

Charlie is a big fan of doing things on a big scale. But when I bought something at X and it went up to X and 1/8th, I sometimes stopped buying, perhaps hoping it would come back down. We’ve missed billions when I’ve gotten anchored.

查理喜歡大手筆投資，但是當我以X價位買進某個投資時，一旦它的價格上漲超過10%，我往往就會停止買進，當然一部份原因是希望等它回檔再加碼，但這一遲疑讓我們少賺數十億美元。

Munger: Do you have anything worse to confess than Wal-Mart?

曼格：除了威名百貨外，你還有沒有其他要招的??

Buffett: I cost us about $10 billion. I set out to buy 100 million sharers, pre-split, at $23. We bought a little and it moved up a bit and I stopped buying. Perhaps I thought it might come back a bit – who knows? That thumb-sucking, the reluctance to pay a little more, cost us a lot. There are other examples.

巴菲特：為此我們付出了100億美元的代價，本來我預計用23塊(分割前)買進1億股，一開始我們確實買進一部份，但之後股價開始上漲，所以我就停止買進，本來以為等它回檔再加碼，誰知道? 為了愚蠢地省下一點小錢，結果反而讓我們損失不貸，這樣的例子還算不少。

On the other hand, it doesn’t bother us. If every shot you hit in golf was a hole-in-one, you’d lose interest. You gotta hit a few in the woods.

當然換個角度想，我們一點都不覺得難過，如果每一次揮擊都是一桿進洞，那麼人生還有什麼樂趣，總是有幾球會不小心打到樹叢裡。

We probably won’t make the kind of mistake that costs us a lot – though we did with Dexter Shoes. We’re more likely to make mistakes of omission, not commission, in the future.

我們大概不太可能會犯下什麼天大的錯誤，雖然有Dexter鞋業這樣的先例，未來我們犯的錯誤可能也都是應為而不為，而不是不應為而為之。

Munger: Since mistakes of omission don’t appear in the financial statements, most people don’t pay attention to them. We rub our noses in mistakes of omission – as we just did.

曼格：由於這類的疏失不會在財務報表上顯現出來，所以多數人都注意不到，而我們在犯下這類錯誤時，大多也只能摸摸鼻子了事。

Berkshire Running a Mutual Fund?

Berkshire經營共同基金的可能性?

[Responding to a shareholder’s suggestion that they get into the money management business, Buffett replied:]

[在回應股東提議Berkshire是否可能介入基金管理行業時，巴菲特回答到： ]

There would be too many conflicts. We’re managing too much money as it is and we can’t wear two hats. I certainly wouldn’t want to start a fund management company and then pro-rate purchases. I’ve been pitched many times [to start a fund company] and we could certainly sell it, but once we did so I don’t know what we’d do with it. Do you, Charlie?

這中間可能會有太多的利益衝突，我們現在管理的資金已經夠多了，我們不大可能身兼數職，我個人也沒有這個意願從新創立一家基金管理公司，然而按比例去認購，我已經被傳了好幾次，而要我們推銷這類基金也沒有什麼太大的困難，但一旦我們真的下海，我實在不知道這樣做是為了什麼，查理你呢?

Munger: No. That’s why we don’t do it. But that doesn’t seem to bother other people.

曼格：我也不曉得，我想這也是我們沒有這樣做的原因，反正我們也沒有礙到什麼人。

Competition to Buy Companies

購併公司時所面臨的競爭

You are absolutely correct that the private equity funds are a form of competition for Berkshire. Stocks sometimes trade well below intrinsic value, but businesses are sold in a negotiated transaction, so pricing doesn’t get as extreme. But our strong preference is to buy entire businesses at a fair price rather than stocks, even if stocks [can be acquired] a bit cheaper.

沒錯，私募的基金確實成為Berkshire購併公司時的競爭對手，股票市場上的價格有時會遠低於其實質價值，但企業要出售通常都是經過協議談判的方式進行，所以價格通常不會差到哪裡去，但如果可能，我們還是偏愛以合理的價格買下整家公司而不是少部份的股權，即使後者的價格相對便宜。

If someone wants what we are offering, we are pretty much one-of-a-kind. People can sell their company to us, yet continue to run it as they please as long as they want. So, if someone needs liquidity for tax or inheritance or other reasons, but doesn’t want to auction their business off like a piece of meat, they can come to us and they know they’ll get the response they want. We don’t get super bargains this way, but it allows us to put money to work at a sensible price.

如果有人對於我們的報價有興趣，我們確實是一時之選，人們可以放心的把公司賣給我們，然後以原有的模式繼續經營這家公司，所以如果有人因為租稅或是繼承或其他原因想要出售公司，但又不願意公司好像一塊豬肉一樣秤斤論兩賣，他們大可以來找我們，我相信他們一定可以得到滿意的回應，雖然通常這樣的情況很難讓我們買到便宜貨，但這至少可以讓我們的資金獲得合理的報酬。

Acquisitions don’t come along every day.

購併案件並不是每天都會發生。

If I owned a business that my father had started and wanted to monetize it, I would sell to Berkshire because I wouldn’t want to split it up to auction it off, just as it would be silly to auction your daughter off to the man who bids the most.

如果我擁有一家父親留下來的祖傳事業，想要把它變賣掉，那麼我一定會把它賣給Berkshire，因為我不希望這家公司被拍賣分割掉，這感覺就好像沒有人會想要把自己的女兒以拍賣的方式，嫁給出價最高的人。

There is no-one else who can make the promises we can make [not to ever sell the acquired company]. Most big companies can’t do that because what if the board decides it wants a pure play? I tell sellers that I’m the only one who can double cross you – nobody else can. We don’t have consultants or Wall Street advisors.

再也沒有人可以像我們這樣做出類似的承諾(意指保證不再將這家公司轉賣掉)，大部分的公司都做不到，因為它們無法保證董事會不會決議這只是玩票性質的投資，我可以向賣方做出雙重保證，我們沒有購併顧問或是華爾街分析師。

But, yes, we do have a lot of competition.

不過，是的，我們確實面臨相當多的競爭。

Munger: We’ve had private equity competitors for a long time, but one way or another we’ve managed to buy quite a few things.

曼格：來自私募購併基金的競爭也不是一天兩天的事，不過不論如何，我們確實買下了不少的企業。

Splitting the Stock

股票分割

We have the best investors and the lowest turnover of any major company. Why? It’s a self-selection process. People who say they’re not interested in a stock that trades for thousands of dollars per share, simply for this reason, are probably not as intelligent or as in-sync as this group [referring to Berkshire’s current shareholders]. It’s a sign, a symptom.

我們擁有最佳的股東陣容，以及最低的股權週轉率，為什麼? 這是一個自我篩選的過程，有人說他們對股價動輒好幾萬美元的股票沒有興趣，有這樣愚昧想法的人，基本就不是屬於我們同類，這是一個徵兆，也是一個指標。

By not splitting, we’ve helped attract the best shareholders – people who don’t care if the stock is at $90,000 or $9.

刻意不將股票分割，我們得以吸引到最優質的股東，他們不會在乎公司的價位是9萬美元或是9塊錢。

Munger: I think the notion that liquidity of tradable common stock is a great contributor to capitalism is mostly twaddle. The liquidity gives us these crazy booms, so it has as many problems as virtues.

曼格：我認為那些宣稱股票的流動性有助於資本主義的發展的說法根本就是胡說八道，就是這種流動性導致股市的瘋狂泡沫，他們跟病毒一樣麻煩多多。

After the South Sea bubble, England banned tradable stocks and England did fine during this period. If you think liquidity is a great contributor to civilization, then you probably think all real estate in America, which is mostly illiquid, is a problem.

繼南海泡沫之後，英格蘭禁止股票交易，結果經濟運作一切正常，所以若你以為流動性對人類文明有重大的貢獻，那麼你是不是也認為目前美國大部分不具流動性的不動產也是很大的問題呢。

Buffett: Berkshire trades $50 million per day, so very few people will have problem selling.

巴菲特：Berkshire股份每天的成交金額約在5,000萬美元左右，所以如果真的有人想賣，也不致求售無門。

Munger: But were trying to create more people who have the problem of owning stock worth so much that liquidity is an issue.

曼格：當然如果越來越多的股東擁有價值如此高的股票，流動性確實是一個問題。

Buying the Stocks of Businesses That Make Unhealthy Products

買進那些專門製造有害健康產品的公司股份

I’ve been drinking five cokes a day for years and I feel terrific.

多年來我每天平均喝五罐可樂，但我覺得再愉快也不過。

We passed one time on the chance to buy a terrific business [I think he’s likely referring to UST], [even] after we [spent the time and] met management. They were fine people, but we didn’t want to be in the business. But we’d buy stock in the business. I don’t have any problem with buying stock or bonds of companies that engage in activities that I wouldn’t endorse myself, but I’d have a problem with owning outright and directing the activities myself.

曾經有一度我們有機會買下一家相當不錯的公司(編註：我想他指的是UST)，我們曾與經營階層見過面，他們人相當的不錯，但我們卻不想介入這項產業，但即便如此，我們還是買進部份的股份，對於那些我個人無法對其所處的產業形態給予背書的公司，我不介意買進部份股票或是債券，但不能擁有直接經營權，主導整個企業的經營。

Every retailer sells cigarettes, but it doesn’t bother me to own the retailer.

每家零售商店都會販賣香煙，但這並不妨礙我們投資這些零售通路。

Munger: But you wouldn’t own the company that made the tobacco or the advertisements.

曼格：但你就不會想要買下香煙製造公司或相關的廣告公司。

Buffett: Yes. I can’t tell you why I draw the line there, but I do. One time, I owned the bonds of RJR, and I’d still do it, but I would not buy the company. We walked [away from] one [situation like this] – we were thinking about it…

巴菲特：沒錯，我無法向各位說明是如何畫出這樣的界限，有一度我曾經投資RJR的債券，我想若有可能，以後我也會做出類似的投資，但我絕不會買下整家的公司，我們曾經放棄過一家類似的公司，雖然我們曾經考慮過買下它的可能性。

Munger: We didn’t think very long. We don’t claim to have perfect morals, but at least we have a huge area of things that, while legal, are beneath us. We won’t do them. Currently, there’s a culture in America that says that anything that won’t send you to prison is OK.

曼格：但我們沒有考慮很久，我們坦承沒有最高的道德標準，但至少我們的底線遠超過法令的相關規定，我們不會那樣做，但以目前美國企業界普遍地認為，任何事情只要不違法萬事都OK。

Buffett: Eating hamburgers or drinking Coke – that’s a choice. If one lives to 75 eating what they want or 85 eating carrots and broccoli – who’s lived a better life? I know where I come out on that. [Laughter.]

巴菲特：要吃漢堡或是喝可樂，都是個人的選擇，如果一個人可以選擇，每天都吃山珍海味但只能活到75歲，跟另外一個每天粗茶淡飯，卻能活到85歲，到底是哪種生活好呢? 我想我自己很清楚自己的選擇(現場一片大笑)。

I’ve never been near a Whole Foods Market.

我幾乎就很少吃所謂的天然食品。

Munger: My idea of a good place to shop is Costco – it has these heavily marbled fillet steaks. The idea of eating some wheat thing and washing it down with carrot juice has never appealed to me.

曼格：我個人最喜歡逛的店就是Costco，它那裡有很棒的菲力牛排，要我只吃穀類食品配紅蘿蔔汁，我實在是不敢領教。

Buffett: Charlie and I never disagree on where to eat. [Laughter.]

巴菲特：查理跟我從來就不會為要到哪裡用餐而爭吵(現場一片大笑)。

Buffett’s Salary

巴菲特的薪水

[A shareholder pointed out that Buffett’s salary is only about 10 cents/year/A share and suggested shareholders would happily pay him 25 cents/share/year. Buffett replied:]

[有股東指出巴菲特的薪水每年約當每股A股區區10美分，因此建議股東會將他的薪水調為25美分，巴菲特回答到： ]

I would pay to have this job. It doesn’t get any better than this. I’m getting SS now. My family would go crazy if I were getting any more money.

如果必要，就算是付費我也要做這份工作，再也沒有比這個好的了，我已經夠忙了，我的家人如果知道我變得更有錢時，可能會瘋掉。

Google’s Owner’s Manual Modeled After Berkshire’s

網路搜尋引擎Google效法Berkshire的股東使用手冊

I’m pleased that the fellows at Google were, they say, inspired by the Berkshire Owner’s Manual, and that they think it’s good for companies to communicate with shareholders. If you read it [the Google Owner’s Manual], you know what they’re like.

我很高興聽到Google公司的人受到Berkshire的啟發引用我們的股東手冊，這將有助於公司與股東們溝通，如果你讀過他們的股東手冊，應該會覺得很熟悉。

It’s like writing a letter to your partner in a business, in which you’d say, “I’d like you to join me as a partner, I’d like you to invest your money, so here’s the information I want you to have and how I will treat you...”

這就像是企業主寫一封信給所有的合夥人，裡面說到：歡迎你成為合夥人，由於我將運用你的資金去投資，所以以下是我希望你能知道的事以及我們將如何對待你。

I like their prose, though that doesn’t mean I agree with every idea. I hope more companies sign on for this.

他們的文章相當不錯，雖然這不代表我同意所有的內容，我希望有更多的公司也能加入同樣的行列。

Munger: Most of the world doesn’t in any way imitate Berkshire Hathaway. 19,500 Berkshire shareholders came [the announced attendance at this year’s annual meeting], but we’re the quirky few.

曼格：世界上會想要模仿Berkshire的人並不多，現場的19,500位股東(出席開會的股東人數)，可以說是最特別的少數。

The Google guys are among the smartest in the country – it’s always nice to be imitated by smart people.

Google的人是全美國最聰明的一群，而被聰明的人仿效的感覺很不錯。

Buffett: We think they’re a lot smarter this week than last [because they imitated us]. [Laughter.]

巴菲特：我想在這個禮拜後，比他們又比以前更聰明一點了(現場一片大笑)。

　

HOW TO BECOME A BETTER INVESTOR

如何成為一位優秀的投資人

General

總論

If we were to do it over again, we’d do it pretty much the same way. The world hasn’t changed that much. We’d read everything in sight about businesses and industries we think we’d understand. And, working with far less capital, our investment universe would be far broader than it is currently.

如果我們可以重頭再來一次，我們可能還是會這樣做，世界並沒有多大的改變，我們會大量閱讀那些我們能夠了解的企業與產業資訊，而如果可運用的資金規模較小的話，我們可以投資的世界將比現在寬廣許多。

There’s nothing different, in my view, about analyzing securities today vs. 50 years ago.

我個人認為現在的我在分析股票的看法，與50年前沒有任何改變。

Ongoing Learning

持續學習

I haven’t been continually learning the basic principles [of sound investing], which are still Ben Graham’s. They were affected in a significant way by Charlie and Phil Fisher in terms of looking at better businesses. And I’ve learned more about how businesses operate over time.

基本的投資原則數十年如一日，還是葛拉罕那一套，後來受到查理跟費雪的影響，在看待優質企業的方面做了一些修正，當然這些年來我也學習到許多企業經營管理之道。

You need an intellectual framework, which you can get mostly from The Intelligent Investor. Then, think about businesses you can get your mind around if you really work at it. Then, you will do well if you have the right temperament.

你必須擁有一套健全的知識網絡，這部份的觀念你絕對可以從智慧型投資人一書中獲得，然而看看周遭那些你可以接觸到的任何企業，我相信如果有正確的心態，你一定可以表現的很好。

Munger: I’ve watched Warren for decades. Warren has learned a lot. He can pooh pooh investing in PetroChina, but he’s learned, which has allowed him to [expand his circle of competence so he could invest in something like PetroChina].

曼格：我觀察巴菲特已經有好幾十年了，他確實學到很多，過去他可能不會投資中國石油，但他確實做了改變，使得他能夠跨越原先的能力範圍投資像中國石油這樣的公司。

If you don’t keep learning, other people will pass you by.

如果你不能持續的學習，別人很可能就會趕上你。

Temperament alone won’t do it – you need a lot of curiosity for a long, long time.

光是氣質還無法做到，你還必須一直保好奇心，我說的是一直。

Filter Out the Noise

過濾雜音

Munger: Part of [having uncommon sense] is being about to tune out folly, as opposed to recognizing wisdom. If you bat away many things, you don’t clutter yourself.

曼格：擁有不凡的見識必須避免愚昧的行為，唯有摒除繁雜事物，你才不會把自己搞得太複雜。

Buffett: People get frustrated because they start to pitch something to us and when they get halfway through the first sentence, we say we’re not interested. We don’t waste a lot of time on bad ideas.

巴菲特：有些人可能會覺得很沮喪，因為當他們準備跟我們講一些事時，話才說到一半，我們馬上表明沒有興趣，對於那些沒意思的想法，我們不願浪費任何的時間。

When humans compete against computers in chess, how can human compete? The human eliminates 99% of possibilities without even thinking about it – they get right down to few possibilities that have any chance of success. They get rid of the nonsense.

人類如何能夠與電腦比賽下棋呢?? 人類會直接消去99%的情況，只考慮那些有可能成功的情況，他們不會去理那些不可能的機會。

When people call you with bad idea, don’t be polite and waste 10 minutes.

當別人打電話告訴你一些有的沒有的，別客氣，不要跟他浪費一分一秒的時間。

Thinking About Risk

論風險

We think the best way to minimize risk is to think. Our default is [to have our capital] in short-term instruments and only do something when it makes sense.

我們認為降低風險最好的方式就是思考，若沒有其他用途，我們資金設定的去處就是短期票券，除非謀定，否則我們不輕舉妄動。

The Importance of the Right Temperament

心態正確的重要性

Munger: We read a lot. I don’t know anyone who’s wise who doesn’t read a lot. But that’s not enough: You have to have a temperament to grab ideas and do sensible things. Most people don’t grab the right ideas or don’t know what to do with them.

曼格：我們經營閱讀，我沒有聽過有那位智者不經營閱讀的，當然光這樣還不夠，你必須能夠抓住想法然而做出有意義的事，大部分的人都無法找到正確的想法或是不知道如何去執行。

Buffett: The key is to have a “money mind,” which is not IQ, and then you have to have the right temperament. If you can’t control yourself, you’re going to have disasters. Charlie and I have seen it. The whole world in the late 1990s went a little mad in terms of investments. How could that happen? Don’t people learn? What we learn from history is that people don’t learn from history.

巴菲特：主要的關鍵是賺錢的頭腦而不是IQ，然後你還要擁有正確的心態，如果你無法控制自己，麻煩就會上門，查理跟我都曾目睹，1990年代全球都曾陷入投資的狂熱，它到底是如何發生的? 難道人們不能記取教訓，我們從歷史學到的教訓就是人們從來不能從歷史記取教訓。

Diversification

多角化分散風險

You’ll occasionally see something that so obvious that you’ll load up on it, like junk bonds in 2002 or Berkshire Hathaway many years ago. If you think you’ll see an opportunity every week, you’re going to lose a lot of money.

有時你會發現一些好東西，那時你就會一口氣買個夠，就像是2002年的垃圾債券或是許多年以前的Berkshire，如果你發現每個禮拜都有好機會出現，那你可能馬上就會有大麻煩出現。

Munger: The idea of excessive diversification is madness.

曼格：過度地強調多角化實在是很荒謬。

Asset Allocation

資產配置

We don’t hold any committee meetings. The business of saying you should have 50% in stocks, 30% in bonds…it’s nonsense.

我們沒有什麼投資委員會，有些企業要求資產配置必須有50%的股票、30%的債券等等，實在是有夠無聊。

The idea of recommending that assets should be split 60/40 [between stocks and bonds], and then have a big announcement that you’re moving to 65/35 is pure nonsense. It just doesn’t make any sense.

至於建議資產應該分成60/40(股票及債券)，然後又大舉宣稱比例要調整為65/35的做法更是無聊透頂，這實在是沒有什麼意義。

Valuation Matters

評價

If you pay way too much for a business, you’ll get a poor return on what you paid, even if the return on tangible equity is very good.

如果你買貴了，那麼你的投資報酬率將會因此大受影響，即使這家企業本身的資產報酬率極高也沒有用。

Avoid Leverage

避免舉債

The most dramatic way we protect ourselves is we don’t use leverage. We believe almost anything can happen in financial markets. The only way smart people can get clobbered is [if they use] leverage. If you can hold them [the positions you own during a crisis], then you’re OK. But even smart people can get clobbered with leverage – it’s the one thing that can prevent you from playing out your hand.

保護我們自己最好的方式就是不使用財務槓桿，我們認為金融市場什麼事都可能發生，而聰明人被逮到的唯一可能就是使用槓桿，如果你在危機發生時可以控制住，那麼你就過關，但即使是最聰明的傢伙也有可能因為使用槓桿而突鎚，避免舉債是讓事情失控的最好方式。

Weathering Financial Cataclysms

渡過金融危機

Absent leverage or just going crazy on valuation, the financial cataclysms won’t do you in. And if you have any more money, you buy.

沒有使用槓桿或是評價發生重大失誤，金融危機都拿你沒有辦法，而如果你手上有多餘的閒錢，就可多買一些。

Berkshire is in an extraordinary position to weather any financial cataclysm. While we don’t go around like an undertaker, hoping for a plague, we would benefit [in such a situation] and have done so in the past. We’ve never gotten hurt in the past 30-40 years by what’s going on in the world around us.

Berkshire早已做好準備以渡過任何金融危機，雖然我們不是殯葬業者，整天期盼瘟疫發生，但不可否認過去我們確實因此受惠，過去的3、40年間，我們從來沒有因為周遭的巨變而受到傷害。

Spotting Crooked Managements

辨別不正派的經營階層

Munger: Bernie Ebbers and Ken Lay were caricatures – they were easy to spot. They were almost psychopaths. But it’s much harder to spot problems at companies like Royal Dutch [Shell].

曼格：Bernie Ebbers及Ken Lay都是跳樑小丑，他們很容易被發現，他們近乎是變態，相較之下，人們就很難發覺像荷蘭皇家(殼牌)這類公司的問題。

Buffett: [Throwing up his hands] Charlie and I would not have spotted the problems at Royal Dutch.

巴菲特：(舉起他的手)查理跟我還沒有發現荷蘭皇家的問題。

Munger: But we don’t learn because I’d still expect that Exxon’s figures are fair.

曼格：但我們之所以沒學到是因為我還是認為艾克森的數字尚稱公允。

Buffett: In the late 1990s, one business leader after another was cutting corners. They sink faster to a lower prevailing morality than rise to a higher prevailing morality, but they still generally follow the crowd.

巴菲特：在1990年代後期，企業領袖相繼走捷徑，他們向下沈淪的速度相當驚人，但他們還不致於脫軌太多。

Munger: I want to make an apology. Last night, referring to some of our modern business tycoons – specifically, Armand Hammer – I said that when they’re talking, they’re lying, and when they’re quiet, they’re stealing. This wasn’t my witticism; it was used [long ago] to describe the robber barons.

曼格：我想先向各位倒個歉，昨天晚上 (他指的是某些有名的企業大亨，特別是Armand Hammer) ，我說他們不但睜眼說瞎話，又五鬼搬運，我並不是在開玩笑，古時候人們稱這種行為叫做貴族強盜。

Forecasts

預測

Munger: People have always had this craving to have someone tell them the future. Long ago, kings would hire people to read sheep guts. There’s always been a market for people who pretend to know the future. Listening to today’s forecasters is just as crazy as when the king hired the guy to look at the sheep guts. It happens over and over and over.

曼格：人們總是渴望有人可以告訴他們未來，古時候，國王會請專人來判讀動物內臟，總是會有人跳出來自稱知道未來，聽信今天的股票分析師分析未來，就好像古代的君王聘請專人判讀動物內臟一樣荒謬，歷史總是一再地重演。

Thinking About Growth Rates When Estimating Valuation

在估算價值時，想到成長率

When the [long-term] growth rate is higher than the discount rate, then [mathematically] the value is infinity. This is the St. Petersburg Paradox, written about by Durant 30 years ago.

當長期成長率高過折現率，則理論上價值將無限大，這是著名的聖彼得堡詭論，由Durant在30年前所提出。

Some managements think this [that the value of their company is infinite]. It gets very dangerous to assume high growth rates to infinity – that’s where people get into a lot of trouble. The idea of projecting extremely high growth rates for a long period of time has cost investors an awful lot of money. Go look at top companies 50 years ago: how many have grown at 10% for a long time? And [those that have grown] 15% is very rarified.

某些經營階層真的認為自己所經營的公司其價值無限大，事實上這樣的舉動相當危險，人們往往因此惹上不小的麻煩，預期公司將可以一直以很高的成長率的這種想法，一再讓股東與投資人損失大筆的金錢，看看50年前全美最頂尖的那些公司，有哪一家到現在還可以穩定地維持10%的成長，更不要說15%了。

Charlie and I are rarely willing to project high growth rates. Maybe we’re wrong sometimes and that costs us, but we like to be conservative.

查理跟我很少會用高成長率來預估一家公司，或許有時我們真的看走眼而失去一些機會，但我們寧願選擇保守一點。

Munger: If your growth rate is so high that you conclude the business has an infinite valuation, you have to use more realistic numbers. What else could anyone do?

曼格：如果你因為設定過高的成長率而使得企業評估的價值變成無限大時，我想你必須換一個更實際的數字，否則別人也無能為力?

Avoid Bad Businesses

規避不良的企業

In the textile industry, we always had new machinery that held the promise of increasing our profit, but it never did because everyone else bought the same machinery. It was sort of like being in a crowd, and everyone stands on tip-toes – your view doesn’t improve, but your legs hurt.

在紡織業界，我們總是能找到一些號稱能夠增加我們獲利的新機器，但結果往往令人大失所望，原因在於別人也同樣買了這些新機器，這就好像是在擁擠的人群中，每個人顛腳的結果，不但大家看不到更遠，反而是全部腳酸。

Thinking About Regulatory Risk

談到法規管制風險

In some businesses, regulatory changes have a big impact, others none. We just try to think intelligently about any business that we’re in. What regulatory changes might there be? What might the impact be? If we’re in furniture retailing, we’re not going to think about it. It’s up to Charlie and me to think about this and weigh it in our evaluation of a company.

對某些產業來說，法規的改變影響很大，但有些產業則沒有太大的差別，我們只是試著了解所處的這些產業，會受到哪些法規的影響，如果是傢具零售業，那我們就不必太費心，這部份的判斷必須仰賴查理跟我本人，將之納入到評估企業價值的因素之中。

Munger: In our early days, we tended to overestimate the difficulties of regulation. We refrained by buying the stocks of television stations because we thought it was peculiar that someone could ask to have the government pull your license any year – and the government could do it.

曼格：在Berkshire早期，我們時常過度高估法規的困難性，我們之所以沒有投資電視台的股票便是覺得電視台的執照隨時都可能被地方政府所撤銷。

Buffett: Tom Murphy [the former head of Capital Cities and Cap Cities/ABC; click here to read a 2000 interview with him] was way ahead of us on this one.

巴菲特：Tom Murphy(資本城/ABC的前領導人)在這方面比我們懂得太多。

Index Funds

指數型基金

[When asked whether one should buy Berkshire, invest in an index fund, or hire a broker, Buffett replied:]

[當被問到投資人應該買Berkshire，還是買指數型基金，或是直接找投資顧問，巴菲特回答到：]

We never recommend buying or selling Berkshire. Among the various propositions offered to you, if you invested in a very low cost index fund – where you don’t put the money in at one time, but average in over 10 years –you’ll do better than 90% of people who start investing at the same time.

我們從來不建議大家買進或賣出Berkshire，在各種投資機會當中，如果你投資手續費很低的指數型基金，且不是一次而是分十年慢慢投入，那麼你的績效可能超過其他90%的投資人。

Munger: It’s hard to sit here at this annual meeting, surrounded by smart, honorable stock brokers who do well for their clients, and criticize them. But stock brokers, in toto, will do so poorly that the index fund will do better.

曼格：要我在年度股東會中批評，周遭坐滿了非常聰明且受人尊敬的股票經紀人，實在是難以啟口，但我還是必須說股票經紀人，總的來說還是比不上指數型基金。

　

BUSINESS AND INVESTING TOPICS

企業與投資

Outlook for the Market

股票市場的前景

[In response to a shareholder laying outexpressing all of his the many reasons why he is concerned s about the future outlook for the economy and the market, Buffett replied:]

[當股東問到他在判斷未來經濟與股票市場的前景時，會考量哪些因素，巴菲特回答到：]

I would say that at any given point in history, including when stocks were the cheapest, you could find have found an equally impressive list of negatives. In ‘74, you could have written down all kinds of things that would show the future would be terrible.

我認為不論是什麼時候，即便是股票價格便宜到不行，你都可以找到一大串負面的因素，就像1974年，在那個時候，你可以列舉出一堆未來前景極其悲觀的理由。

We don’t pay any attention to this kind of thing. Our underlying premise is that this country will do very well and that businesses will do very well. We used nuclear bombs, endured the cold war, etc., but over time the opportunities have won out over the problems.

我們不理會這類事物，我們背後的前提是這個國家不會有問題，企業也不會有問題，我們動用核子彈、渡過冷戰時期，事後證明機會一再凌駕問題之上。

I expect this will continue, barring use [against us of] weapons of mass destruction – it would be hard for businesses to win out over this.

而我預期這樣的情勢將繼續維持下去，除非有人運用大規模的毀滅武器來傷害我們，我想這是一般企業所無法獨立對抗的。

Going back to ‘59, I can’t think of any discussions Charlie and I have had in which we’ve passed on something because of a view on macro conditions. It won’t be the economy that will do in investors; it will be investors themselves. If you’d just owned stocks over time, you’d do fine. We’re unaffected by the variables that you mentioned. Show us a good business tomorrow and we’ll jump.

時光回到1959年，我記不起來任何一次查理跟我因為總經情勢的關係而錯過什麼投資機會的，經濟情勢對投資人不會有什麼影響，會影響的是投資人本身，如果你打定主意長期投資股票，那麼你就不會有問題，我們並不會受到你所提的那些因為所影響，只要有好的企業出現，我們就會大舉買進。

Munger: We wouldn’t be surprised if professionally managed money in the US will have unimpressive returns relative to the high returns we had until three years ago.

曼格：如果過去三年美國專業管理的基金績效表現遠低於我們，我們一點都不會感到訝異。

Buffett: Our expectations were more modest than most three years ago [see Buffett’s Fortune article, Mr. Buffett on the Stock Market, 11/99]. We didn’t project the end of the world, but said anyone who thought they could sit at home and day trade to double digit returns was living in a fool’s paradise. It’s hard to understand how people could believe such things. To some extent, they’re sold these beliefs.

巴菲特：目前我們的預期比起三年前稍微樂觀一點[參見巴菲特在1999年11月在財富雜誌發表關於股市的看法]，我們並不是預期世界末日要到了，只是要提醒哪些整天坐在家裡買賣股票就妄想每年有兩位數以上投資報酬率的人不要再傻了，實在很難想像怎麼會有那麼多人會相信這樣的事，就某種程度而言，他們被這些想法給賣掉了。

Impact of Inflation

通貨膨脹的衝擊

The best thing to combat the threat of inflation is to have a lot of earnings power of your own. If you’re the only surgeon in town, you’ll be OK [because you can simply raise your prices to keep up with inflation and people will pay it]. Charlie and I think it’s best to own fine businesses that can price in inflationary terms and don’t require big capital investments. See’s Candies can handle an inflationary world and maintain value.

對抗通膨最好的武器就是自己擁有賺錢的能力，如果你是鎮上唯一的一位醫生，你就可以安心，[因為你大可隨心所欲地提高你的收費]，查理跟我都認為面臨通膨最好的方式就是擁有可以隨時反應售價又不必再投入大量資本的優質企業，像喜斯糖果都能安度高通膨以維持既有價值。

Unfortunately, most businesses will not come out well in real terms. Earnings might be up, but the business will be compelled to invest more and more dollars into the business to stay in place. The worst businesses compel you to put more and more in, without any rise in profits.

不幸的是，大部分的企業處境都不那麼好過，盈餘或許會提高，但企業卻必須被迫投入更多的資金才能繼續生存下去，更慘的企業是一再又一再投入的結果是獲利不增反減。

TIPS [Treasury Inflation Protected Securities] are not a bad investment for people worried about inflation heating up, which we’re seeing signs of.

TIPS[預防通膨的國庫券]是害怕通膨高漲人士不錯的投資選擇，目前我們確實看到某些通膨績效。

Munger: Most people will see declining returns [due to inflation]. One of the great defenses if you’re worried about inflation is not to have a lot of silly needs in your life – if you don’t need a lot of material goods.

曼格：大部分的人會眼看投資報酬率下滑[受通膨影響]，如果你真的擔心通膨的話，最好的防衛方式就是降低生活不必要的需求，擺脫那些不必要的物質享受。

Buffett: Charlie, we’re selling a lot of material goods in the other room, so keep quiet. [Laughter.]

巴菲特：查理，我們在隔壁房間有許多東西在出售中，所以還是少說一點，[現場一陣大笑]。

The Mutual Fund Scandal

共同基金醜聞

Munger: The business of selecting investment managers was recently shown to be even harder by the revelation that a significant fraction of mutual fund managers took bribes to betray their own shareholders.

曼格：選任基金經理人這檔子事在最近傳出基金經理人背棄投資人收受賄款後，顯得更加複雜。

It was as if a man came up and said, “Why don’t we kill your mother and we’ll split the insurance money?” And many people said, “Why, yes, I’d like some of that insurance money.”

這就好像是有人跳出來說：要不要殺了你媽，然後由我們來平分你的保險金? 結果很多人竟回答說：好啊! 但我要分多一點。

Buffett: And they were already rich.

巴菲特：而且重點是這群人本來就很有錢。

Munger: And many of them think what happened to them was unjust.

曼格：更甚者，這群人認為他們受到不公平的對待。

Buffett: Many people had to know what was going on. Many people at the big funds, even if they were not doing it themselves, had to know. The Investment Company Institute was patting itself on the back and getting cozy with legislators, but nothing was done until a whistleblower went to Spitzer and he publicized it.

巴菲特：大家必須了解到底發生了什麼事，那些在大型基金公司工作，就算不為自己而做也必須知道的，投資公司機構以逐漸振作並與立法單位的關係日漸融洽，不過直到一位史匹哲檢察官跳出來公開真相以前，並沒有什麼太大作為。

Hundreds of people knew and it went on for a long time, but nobody did anything.

長期以來，成千上萬的人都知情，但就是沒有人跳出來說一句話。

Compensation Systems

報酬制度

[Our approach to compensation] is wildly different from the approach of most companies, which go through elaborate procedures. The typical corporation has a compensation committee, and believe me, they don’t ask Dobermans to be on it; rather, they want Chihuahuas who’ve been sedated.

我們的報酬制度與其他公司有極大的不同，後者通常有相當精細的程序，一般來說，這些公司都設有薪資報酬委員會，但我敢打包票他們絕對不敢找杜賓犬而看門，通常會找乖巧的吉娃娃。

I’ve been on 19 boards and only been asked to be on one compensation committee they put me on one committee – and they regretted it. [In that case, because I opposed the compensation plan,] I was outvoted – by two smart, honorable people, by the way.

我個人擔任19家公司的董事，但只有一家邀請我出任薪資委員會，而且事後證明他們後悔不已，因為我曾經反對過他們的薪資提案，當然最後反對無效，被另外兩位受尊敬且識時務的社會賢達所推翻。

I’ve never seen a compensation consultant say: “This bozo you’ve got [the CEO] is only worth half what you’re paying him.”

我從來沒有聽過薪資顧問會說：你們請的這傢伙只值現在付給他的一半。

It’s an unequal negotiation [between the board and the CEO]. The CEO really cares, but to the board, it’s play money. It’s hard for board members – they just get handed a piece of paper showing what the top quartile of comparable CEOs get paid, so there’s a ratcheting effect. In this kind of system, things will quickly get out of whack. There’s some change now, but it’s not being led by CEOs.

這是不公平的談判[指董事會與經理人]，經理人非常在乎，但對董事會來說，這只是數字遊戲，對董事會成員來說，他們往往會拿到一張頂尖經理人薪資報酬的列表，期望引起比照效應，在這樣的制度下，事情通常很容易就失控，所以若要改革，絕對不是由經理人做起。

Munger: I’d rather throw a viper down my shirt front than hire a compensation consultant.

曼格：我寧願被丟到毒蛇面前也不要看到薪資顧問。

Irrational Markets

不理性的市場

In insurance, we think a lot more about low-probability events than most people. We think more about big events in the financial arena than the natural arena. Financial markets have vulnerabilities that we try to think of and build in ways to protect us against them – and even some capabilities where we might profit in a huge way.

在保險業，我們非常關心發生機率非常小的事件，但在投資領域我們關心的則是一些重大的事件，金融市場有其脆弱的一面，而我們首要之務就是盡量避免受到其波動的影響，甚至有可能因而得以大有斬獲。

Munger: The temporary collapse in junk bonds, where they got to 35-40% yields, was just a strange thing. There was absolute chaos at the bottom tick. Apply this behavior to stocks – it’s not hard to imagine a big crunch coming along.

曼格：垃圾債券市場暫時性的崩盤，使得值利率飆高到35-40%的報酬率就是一個怪現象，節拍器有時也會亂了步調，在股票市場中，暫時性的崩跌也是時有所聞。

Buffett: It’s a fascinating thing to me: in 2002, there were tens of thousands of smart people, money was available, everyone had the desire to make money, yet look at what happened [to the prices of junk bonds]. Extraordinary things happened. Can these be the same people [buying such bonds yielding 6% today] who let them sink to such levels?

巴菲特：當時真是令人回味再三，回顧2002年，成千上萬的聰明人士、資金充沛，所有人都妄想大發利市，但大家看看垃圾債券的價格，奇怪的事情發生，一直等到垃圾債券殖利率回到6%時，同樣這群人才又回過頭來買這些債券。

Wall Street is awash in money and talent, but you get these absolutely extraordinary swings. It doesn’t happen with apartments and other types of assets.

華爾街的資金與人才匯集，但市場的波動也相當劇烈，不像不動產那樣價格穩定。

At the minimum, you want to protect yourself from this type of insanity from wiping you out – and better yet, make a profit from it.

最低底限，你必須保護自己不被這類不理性的瘋狂行為所掃出場，更有甚者，還有可能從中獲利。

Risk of Derivatives

衍生性金融商品

We don’t think that in any year the chance is very high that derivatives will lead to or greatly accentuate a financial trauma, but we think it’s there.

我們不確定哪一個特定年度衍生性金融商品會導致或加劇金融風暴的產生，但我們認為這樣的危機確實存在。

It’s fascinating to look at a company like Freddie Mac: an institution that dozens of financial analysts were looking at; that had an oversight office; that was created by Congress with committees to oversee it; that had two smart, exceptional board members, Marty Leiiebowitz and Henry Kauffman; and that had auditors present – yet Freddie misstated earnings by $6 billion in a short time. That’s big money. And a large part of it was facilitated by derivatives. You can go back and read the footnotes, listen to the conference calls, etc. and you wouldn’t have known. In the end, it was $6 billion, but it could have been $12 billion if they’d wanted.

Freddie Mac這家公司相當有趣，這是一家財經分析師相當關注的一家公司，它上有一個主管機關，並由國會立法成立並受其委員會監督，它有兩位優秀又聰明的董事Marty Leibowitz及Henry Kaufman，同時還有會計師負責查帳，但最後Freddie Mac還是出了問題，突然間盈餘被灌水60億美元，這可不是一筆小數目，其中大部分的虧損係衍生性金融商品所造成，你或許可以再把過去的年報附註拿出來讀一讀、或者去參加公司記者說明會等等，但我打包票你一定找不出問題在哪裡，就這樣60億美元飛了，若是他們敢，誰說不可能是120億美元。

Derivatives can lead to a lot of mischief. When you have a complicated derivative transaction, and a trader with investment house A on one side and investment house B on the other side, and on the day the deal is done, both record a profit, this can lead to mischief – and the scale is getting bigger every day.

衍生性金融商品有可能招致相當多舞弊，當你進行一項相當複雜的衍生性金融商品交易，一位營業員代表投資銀行A，另一位則代表投資銀行B，在合約敲定的當天，兩家同時都有可能記錄獲利，這很容易導致舞弊事件發生，而且規模與日俱增。

I know the managements of many large financial institutions and they don’t have their minds around this. We tried at Gen Re [where we had a small derivative book] and couldn’t.

我認識很大大型投資機構的管理階層，但他們卻一點也沒有警覺，我們在Gen Re便試過(該公司目前有小額的衍生性金融商品部位)，結果沒有用。

Whatever problems there were at Salomon [during its crisis years ago], they’re far, far worse now [systemwide].

所羅門當年發生很嚴重的問題，但我認為現在的情況比起那時又嚴重許多。

In 1991, if the government hadn’t reversed himself [in its plans to put take actions that would have put Salomon out of business], we were preparing documents [to file for bankruptcy. Had this happened,] We had $1.2 trillion [notional value] of derivative contracts that others were counting on, that would have gone bad. All sorts of securities transactions wouldn’t have settled, accounts in Japan and the UK would have been affected, etc. For instance, Salomon had a relationship with a bank in Germany which took large deposits in Germany and lent the money to Salomon. All kinds of things would have come out. You don’t need to put these strains on a system that’s already highly leveraged.

1991年，如果政府沒有撤回吊銷所羅門業務資格的決定，我們將會遞件申請破產，一旦如此，所羅門將有總值1.2兆美元的衍生性金融商品合約待解決，所有的證券交易將無法順利交割，還包含日本與英國的帳戶也會跟著受到影響，舉個例來說，所羅門跟德國一家銀行有大量的金額借貸關係，什麼事都有可能發生，事實上，在高度槓桿的系統下，任何一點壓力都有可能變成壓垮駱駝的最後一根稻草。

When you get huge amounts of transactions, which not many people understand, you create a huge problem that may be triggered by an exogenous event.

當你從事大量的交易不是很多能搞得懂的，這些交易就很有可能因為某些外部事件而惹出大麻煩。

We use derivatives – we get them collateralized – and we’ve made money on them. But I predict that sometime in the next 10 years, we will have a big problem caused by or exaggerated by derivatives.

我們利用衍生性金融商品，並提供相關擔保，從中獲利，但我預期未來10年以內，我們將因此爆發嚴重的金融問題。

Munger: People don’t think about the consequences of the consequences. People start by trying to hedge against interest rate changes, which is very difficult and complicated. Then, the hedges made the results [reported profits] lumpy. So then they use new derivatives to smooth this. Well, now you’ve morphed into lying. This turns into a Mad Hatter’s Party. This happens to vast, sophisticated corporations.

曼格：人們往往知其然不知其所以然，一開始有人試著想要去規避利率變動的風險，這本來就是相當困難且複雜的事，然而避險的結果反而讓帳面的獲利起伏不定，所以接下來他們又利用另一種新的衍生性商品來讓獲利看起來平順一點，值此你為了圓第一個謊，就必須編更多的謊言，到最後就演變成瘋狂的派對，這種情形在龐雜的集團公司尤為常見。

Somebody has to have to step in and say, “We’re not going to do it -- it’s just too hard.”

我認為應該有人介入，說到：我們不應該這樣子做，這太麻煩了。

It was bonkers and the accountants sold out.

只有笨蛋及會計師會被出賣。

Buffett: If you want to have a little fun, go to the annual meeting of a big financial company and ask for about the details of a complex transaction. They won’t know – but you can be sure the trader who did it will be well paid for it.

巴菲特：如果你想找點樂子，到一些大型金融機構的股東年會，然後問一些複雜的交易細節，相信他們一定也搞不懂，但我敢保證該付給這些人的高額報酬一毛也少不了。

Any time you have situation where smart people can make money by taking risk, you’ll get it.

只要讓這些聰明的傢伙逮到機會，他們絕對會狠狠地撈一筆。

Derivatives were supposed to spread risk, and some make that argument today. This may be true much of the time, but what about when risk becomes highly concentrated in a few institutions.s? Coke is better able to take currency risk than most trading desks. Overall, there’s much more risk in the system because of derivatives.

理論上衍生性金融商品應該是能夠分散風險，這是學者們一直強調的論點，或許通常的情況下確實如此，但要是這些風險全部集中在少數的幾家金融機構時又如何? 可口可樂比起這些交易商還能夠承擔匯率風險，不論如何，整個金融系統因為衍生性金融商品的存在而使得風險大大增加。

Derivative Risk vs. Super Cat Reinsurance Risk

衍生性金融商品風險vs.超級災難再保風險

[In response to a shareholder who compared super cat reinsurance risk to derivative risk, Buffett responded:]

[當股東問到，超級災難再保風險與衍生性金融商品風險時，巴菲特回答到：]

The derivative contracts that Gen Re wrote are not similar to the super cat insurance we’re writing. We’re reinsuring personal or business risks others don’t want to or are unable to bear. In our view, it made no sense to be in the derivatives business.

Gen Re簽訂的衍生性金融商品合約與超級災難保險保單並不相同，我們承接的再保業務是個人或企業不想或無法承擔的風險，在我們看來，衍生性金融商品業務並沒有存在的意義。

Munger: They’re radically different. Derivatives are full of clauses that say if one party’s credit gets downgraded, then they have to put up collateral. It’s like margin – you can go broke. In attempting to protect themselves, they’ve introduced instability. Nobody seems to have recognition of what a disaster of a system they’ve created. It’s a demented system.

曼格：這兩者有極大的不同，衍生性金融商品有許多條款言明如果交易的一方信評等被降級，他們就必須補提擔保品，這就好像是保證金交易，你有可能因此傾家蕩產，為了要保護自己，他們反而使得整個系統很不穩定，似乎沒有人了解他們創造的交易系統潛藏著多大的危機，這是一個瘋狂的系統。

Buffett: Gen Re, which had been rated AAA, hHad Berkshire not bought itGen Re, which was rated AAA, it could have run into terrible financial difficulty post-9/11, especially if they’d recognized their actual liabilities. They would have been downgraded, which could have triggered things in derivative activities which would have triggered coming up with loads of cash.

巴菲特：要不是因為Berkshire的買進使得Gen Re的信用評等因而被提升為三A等級，光是911事件被迫承擔許多責任，就有可能導致金融危機的發生，Gen Re有可能因而被降等，進而導致衍生性金融商品合約要求提撥大量的現金。

The system wasn’t built to last. Many CEOs at other major financial institutions don’t really comprehend that. When you get margin calls for huge amounts of money, it only has to be one day when you can’t meet it [and you can be forced to file for bankruptcy]. In 1987, there was a large wire transfer that didn’t make it towas late arriving at the a Chicago brokerage house, and it came close to unraveling the system (the money finally showed up).

這樣的系統禁不起任何的考驗，許多大型金融機構的總裁根本就不了解其嚴重性，但你被要求補提大量的保證金時，往往就是你調不到頭寸的緊急時刻，結果有可能就因此導致公司破產倒閉，回顧1987年，有一次因為系統故障使得一大筆匯款遲遲無法入帳，就差點讓整個交割系統因而瓦解，所幸在最後一刻，資金及時到位才化解危機。

Corporate Governance

企業治理

[A shareholder asked what Buffett thought of the Calpers/ISS proposal that he should not be on Coke’s audit committee. (From a Forbes article: “The California Public Employees Retirement System, or Calpers, and investor advisory group Institutional Shareholder Services argued that votes for Buffett for the Coke board should be withheld because Berkshire subsidiaries, such as ice cream chain Dairy Queen and food distributor McLane Co., do business with the world's largest soft drink maker… In defending the decision last month, an ISS spokesman said the group didn't want Buffett off the board entirely, just off of the audit committee, which should operate with zero tolerance for any conflicts. The spokesman said they don't make exceptions for anyone, even Buffett.”) Buffett replied:]

[有股東問到，巴菲特對於美國最大的退休基金- Calpers/以及投資人協會ISS建議股東投票反對巴菲特續任可口可樂審計委員會的看法，巴菲特回答到：]

(根據富比士報導，加州公務人員退休組織Calpers以及投資人顧問協會聲稱基於利益迴避原則，必須制止股東投票支持巴菲特續任董事會，由於Berkshire旗下許多子公司諸如冰淇淋連鎖國際乳品皇后以及物流公司McLane與全世界最大的飲料公司有生意上的往來，為了替自己的言論辯護，ISS的一位發言人強調，他們並不是要求巴菲特要完全退出可口可樂的董事會，而只是不希望他續任審計委員會，因為後者不能存在絲毫的利益衝突，該發言人表示，任何人都不能例外，就算是巴菲特也一樣)

I would say that whoever suggested that should do 500 sit-ups [this was a reference to a funny skit in the movie shown before the meeting, in which Arnold Schwarzenegger punishes Buffett for taking about raising taxes in California by making him to do 500 sit-ups].

我必須說，講這話的人應該要先罰500個仰臥起坐[這是影射在正式會議前，會場播放的一段影片，當中提到阿諾在競選加州州長時，因為巴菲特提及加稅議題而開玩笑說要罰他做500個仰臥起坐]。

Actually, Charlie and I have encouraged the idea that shareholders should behave like owners, not sheep – where, in too many cases, they’ve been shorn. Big institutional shareholders have too long sat on the sidelines when they should have been active. [Now that they’re finally waking up,] the question is: Can they behave like intelligent owners? In last year or two, as they’ve woken up, they’ve searched for checklists, but frankly, a checklist is no substitute for thinking. Bertrand Russell once said: “Most men would rather die than think. Many do.”

實際上，大家都知道我們鼓勵股東因為要有自己當老闆的想法，而不是一昧順從公司的看法，通常他們都會變得像綿羊一樣被修理，大型投資機構法人在很多應該挺身而起的時刻反而在一旁坐視不管，[現在他們終於慢慢醒過來]，問題是：他們真能表現的像一個有智慧的老闆嗎? 過去一兩年，當他們終於覺醒後，開始尋找一個檢查清單，但坦白說，光是一份清單無法真正解決問題，Bertrand Russell曾說過：大部分的人，打死都不肯用心思考，確實如此。

A board’s real job is to find the right CEO and prevent him or her from overreaching. Not much else matters. Bertrand Russell once said: “Most men would rather die than think. Many do.”

我認為董事會真正的職責在於尋找合適的總裁，同時要能防止他踰越權限，至於其他事情根本無管緊要。

I think it’s absolutely silly, if Berkshire Hathaway owns 200 million shares of Coke worth $10 billion, to think that because Berkshire Hathaway sells a few hours of flight training to Coke, that I’m conflicted. It's almost absurd that people don't understand proportionality at all.

我認為如果你覺得Berkshire持有2億股價值100億美元的可口可樂股票，會因為為了出售一些飛行訓練時數給可口可樂而觸犯利益衝突，這樣的想法未免太幼稚了，我認為不考量中間的比例原則實在是很荒謬的一件事。

I receive $100,000 per year [to sit on Coke’s board]. This is obviously a tiny amount of money to me. If we picked someone from the welfare line and gave them the same money, this would represent all of their income, yet they’d be considered independent, but they wouldn’t really be. This thinking is kind of silly.

擔任可口可樂的董事，每年我約可獲取10萬美元的報酬，這筆錢對我來說，根本就是九牛一毛，又如果我們從靠領取社會救濟金的人士中，隨便抓一個來擔任可口可樂董事，那麼這筆錢幾乎等於他全部的所得，雖然表面上他們完全符合獨立性的規定，但事實上剛好完全相反，所以這種想法實在是愚昧的可以。

I encourage institutions and large owners to behave like owners and think carefully about what causes to take on.

我鼓勵投資機構以及大股東表現的像老闆的樣子，同時好好地想一想該採取何種作為。

Munger: The cause of reform is hurt not helped when an activist makes an idiotic suggestion like saying that having Warren on the board of Coke is contrary to the interests of Coke. Nutty behavior undermines their cause.

曼格：當有人積極主張「像華倫這樣的人擔任可口可樂的董事會違背可口可樂利益」的白癡建議，反而會讓改革的目標受到傷害，神經病的行為將讓改革的旗號大大受損。

Buffett: It’s like having a slicing machine in an apple orchard. The machine picks up things like rocks, so you program it to slice only red round things, but when red balloons come down the conveyor belt, the machine doesn’t know what to make of it.

巴菲特：這就好像是在蘋果園裡擺一台削皮機，這台機器可以自動設定挑出石頭，而只削紅色圓形的物體，但是當輸送帶送來一個紅色的大氣球時，這台機器反而不知道該怎麼辦。

Institutions are coming around to new ways of thinking. Hopefully, with evolution, they’ll think about what’s actually good for the shareholders of the company.

投資機構正在尋找新的思惟模式，個人衷心盼望他們能夠思考出什麼是真正對於公司股東有利的做法。

Finding Good Investment Advisors

找尋好的投資顧問

The question of finding investment advisors is a hard one. When I was winding up my partnership [in the early 1970s], I was returning a fair amount of capital to people, and they asked me what to do with it. I recommended two people who I felt were exceptionally good and honest: Sandy Gottesman, who just joined Berkshire’s board, and Bill Ruane [of the Sequoia Fund]. They were contemporaries of mine, so I knew their results and how they’d achieved them, which is critical. I don’t know today’s managers, so I can’t recommend anyone.

對我來說，找尋好的投資顧問實在是個難題，當我在1970年代結束合夥事業時，我將一大筆資金還給投資人，當時他們問我該如何處理這筆錢，我向他們推薦兩位人選，我認為他們的表現與誠信都相當不錯：一位是Sandy Gottesman(他剛加入Berkshire董事會)，一位是Bill Ruane (係Sequoia基金經理人)，他們和我屬於同類型，而且我也很清楚他們的表現以及達到目標的過程，這很重要，至於現在的基金經理人由於我不熟，所以我不便推薦任何人。

The fact that I only knew two shows the difficulties of finding someone good. The promotional types going around to institutions today are not likely to be good – or have high integrity.

事實上，只認識兩位也凸顯找到好的經理人的困難性，以目前投資機構慣用的推銷方式，實在是很難找到優秀且具誠信的經理人。

I read an article [in the Wall Street Journal last week] about the two fellows who founded Google and all the problems they’ll have with their new-found riches – I almost sent a sympathy card. [Laughter.] They don’t have a big problem. They’re smarter than the people coming to them. The people with the problem are the people trying to sell them services and want to convince them that they have a problem.

我在上禮拜華爾街日報讀到一篇文章，係有關兩位Google創辦人以及他們如何與那些新貴間產生的問題，我幾乎想要發函慰問他們，[現場一陣大笑]，他們的問題不大，他們比那些所接觸的人聰明的多，真正有問題的人是那些想要推銷本身提供的服務，同時企圖說服你有問題的人。

It’s merchandising. You don’t need these people at all in investing – all these professionals who say you’re going to be in big trouble if you don’t listen to them. They’re selling.

他們只不過是想賣東西而已，想要投資並不需要這些人的協助，所有那些說你如果不聽他們的建議就會碰到大麻煩的專業經理人，他們只不過是想賣東西給你而已。

It reminds me of when I asked my former brother-in-law: “How do you get farmers to pay you to sell their cow to Swift or Armour?” He replied, “Warren, it’s not how you sell ‘em, it’s how you tell ‘em.”

這讓我想起我曾經問我的姊夫：你是如何讓這些農夫付費請你賣牛給肉品公司的? 他回答到：華倫，重點不在如何賣，而是你如何說服他們。

The Investment Advisory Business

投資顧問行業

Munger: Mutual funds charge 2% per year and then brokers switch people between funds, costing another 3-4 percentage points. The poor guy in the general public is getting a terrible product from the professionals. I think it’s disgusting. It’s much better to be part of a system that delivers value to the people who buy the product. But if it makes money, we tend to do it in this country.

曼格：共同基金每年收取2%的手續費，而仲介將投資人的資金在基金間轉來轉去，又要收取3到4%的手續費，可憐的一般投資大眾只能被動地從專業經理人那些得到悲慘的服務，我認為這實在是很可恥，我認為能夠讓投資人增加價值的產品才算是好系統，當然除非真的有利可圖，我們才會考慮從事這類業務。

Hedge Funds

避險基金

I think people who invest in hedge funds, in aggregate, are unlikely to do well. Hedge funds are in the midst of a fad. It’s distinguished by an extraordinary amount of fees. If the world is paying hedge funds 2% and a percentage of the profits, and the losers fade away, then it won’t be good for all investors. Obviously, some will do well, but not in aggregate.

我認為投資避險基金的投資人，總的來說，不可能有好的結果，避險基金正陷入一片狂熱，它以收費高而著稱，如果大家支付給避險基金業者2%的手續費，以及實際獲利的一定百分比，但虧錢則不用賠，那麼我想這並不適合大部分的投資人，很顯然的或許有些基金的表現可能不錯，但總的來說則有問題。

Munger: Why would you want to invest with a guy whose thought process says, “Iif a second layer of fees is good, then let’s add a third layer.”

曼格：我為什麼要將錢交給這樣的傢伙投資，他說如果你可以接受二層的收費機制，那何不試試三層。

Buffett: Maybe [high fees] are what the traffic can bear, but that reflects an attitude. It’s a basically unfair arrangement. In effect, [hedge fund managers] are getting four times standard fees. And I’d bet they don’t have all of their own money in their own funds.

巴菲特：或許高收費才能負擔如此複雜的通路，但這也反應出某些態度，這基本上是一種不公平的制度，事實上，避險基金經理人已經收取四倍以上的管理費，而我敢打賭他們一定不會把自己的錢擺在這些基金內。

Charlie and I both ran partnerships that would generally be classified as hedge funds. There are some similarities, but I don’t think we had quite the same attitude that the present managers have.

查理跟我過去都曾經營過類似避險基金的合夥組織，當然其中有一些類似之處，但我不認為兩者的態度有任何雷同之處。

The fund of funds stuff – it’s really unbelievable, piling on the layers of costs. People don’t become geniuses because on the door it says “hedge fund.” But they may be good at marketing – in -- in fact, if they’re good at this, they don’t need to be good at anything else.

怎麼會有基金中的基金這種東西，這實在是很難想像，多層的收費組織，人們不會因為自己的門口掛上避險基金而變成天才，但不可否認，他們的行銷手法確實優異，事實上，他們只要靠這部份的專長就可以吃喝不盡了。

Willingness of Bank to Do Deal s Wwith Shady Characters

銀行為何喜歡跟有爭議的人打交道

Munger: It’s amazing what goes on. Salomon was at least as disciplined and rational as other investment banks, but by the end, Salomon was begging for investment business from Robert Maxwell, whose nickname was “The Bouncing Check.” You’d think if this was his nickname, investment banks wouldn’t be chasing his business.

曼格：這實在是讓人感到很訝異，所羅門至少像其他投資銀行一樣具有紀律以及理性，但結果所羅門還擠破頭要跟Robert Maxwell這樣的人做生意，他有個外號叫做「跳票人」，我想你一定在想，如果這果真是他的綽號，投資銀行為什麼還要拼命搶接他的生意。

Buffett: The day they found him bobbing [in the water; he committed suicide as the scandal about his misdeeds broke], we [Salomon] sent money to him in exchange for money they he wasere sending to us, but they he didn’t pay. So, we went to England to collect from his sons and it was a mess. We got what we deserved.

巴菲特：記得我們發現被騙的那一天[Maxwell在東窗事後宣佈破產之後，畏罪自殺]，我們(指所羅門)必須先借他錢好讓他把先前的債務還給我們，但結果他又跳票，所以我們感到英國去向他的兒子要錢，當時真是一片混亂，我們實在是活該倒楣。

To an investment banker, his earnings would be affected to a significant way if he wrote a few more tickets to Maxwell. You have to control this if guys can make money by bringing dubious things in the door.

對投資銀行經理人來說，他的獎金會隨著開給Maxwell的帳單多寡而有很大的不同，所以你必須小心防止這些傢伙為了撈錢而將不可靠的客戶帶進門。

[Buffett and Munger chuckled to themselves as they recalled Salomon doing business with another shady character they didn’t name – perhaps .]

[巴菲特跟曼格在回想到所羅門跟另外一位有爭議的人物做生意的情景時，自我解嘲地輕笑]

Munger [dripping with sarcasm]: That was a wonderful experience. Warren, Lou Simpson and I are were all on the board [of Salomon], we’re we were the largest shareholders, and we said, “Don’t do business with this guy.” But they ignored us and said that the underwriting committee had approved it.

曼格以自我諷刺的語調說：那實在是很難得的經驗，華倫、辛普森跟我當時都擔任所羅門的董事，我們是持股比例最高的股東，當時我們一再強調，不要跟這個傢伙做生意，但他們就是不聽，堅稱審議委員會已經核准這個案子。

Buffett: He had a neon sign on him saying “CROOK.” He did go to jail. Incidentally, he claimed to have owned a lot of Berkshire stock and to have made a lot of money on it, but I checked the shareholder records and couldn’t see it. It could have been in street name, but for a block that big, I think I would have found it [so he has probably lying about his Berkshire holdings].

巴菲特：他身上明明掛了一個招牌「騙子」，結果他果真踉鐺入獄，更好笑的是，他聲稱擁有Berkshire大量的股份，並因此賺了一大筆錢，但我特定查了一下股東名冊卻找不到他的名字，雖然他有可能用別人的名字，但以那樣龐大的持股，我應該會發現[所以我猜他可能連這個也是在騙人]。

Dividends and Share Buybacks

買回庫藏股

The equation is simple, but practice doesn’t always follow logic. Assuming you’ve been honest with shareholders [in communicating enough information so they can accurately estimate intrinsic value], then if your stock is far below intrinsic value, then buying stock it back adds a lot of value. The Washington Post did this and Teledyne bought back 90% of its stock over time.

這道理很簡單，但實務上卻不一定就合邏輯，假設你對股東們夠坦白，讓他們有足夠的資訊可以自行判斷公司實質的價值，又假設你公司的股價明顯低於實質的價值，那麼買回庫藏股將可以大大增加公司的每股價值，華盛頓郵報過去便曾這樣做過，而Teledyne公司甚至買回90%流通在外的股份。

Today, stock buybacks are popular. The underlying rationale – not the professed rationale – is that people hope the stock price won’t go down. But often this doesn’t make sense for shareholders.

今天，股份買回相當普遍，其基本而不是宣稱的原理是投資人希望股價不要下跌，但這實際上對股東不見得有意義。

If the stock is underpriced, buy it back with excess cash; if it’s overvalued, don’t buy a single share.

如果股票價格被低估，那就利用多餘的資金買回，但是如果股票價格被高估，那麼就算有再多的錢也不要輕舉妄動。

If we wanted to return cash to shareholders, we’d go to them and say, “Our stock is cheap and we’re going to return cash to you by buying it back.”

如果我們想要把錢退還給股東，我們也向大家宣佈，由於我們的股票太便宜了，我們將以買回股份的方式將現金退給你們。

Dividends and Frictional Costs

股利與摩擦成本

In terms of dividends, you get into an expectational problem. Most public companies don’t bounce around their dividend from year to year (although this is very common in private companies and Berkshire subsidiaries) because investors come to rely on it. So once you establish a dividend policy at a public company, think a long time before changing it.

就股利而言，你可能會陷入一個預期的迷思，大部份的上市公司的股利發放不太會跳來跳去(雖然這在私人公司以及Berkshire的子公司來說非常普遍)，因為投資人有依賴的傾向，所以一旦上市公司有意建立一股利政策的話，要改變請三思而為。

Munger: The total amount paid out in dividends is roughly equal to the amount lost in trading and investment advice, so net dividends to shareholders are zero. This is a very peculiar way to run a republic.

曼格：全體公司支付的股利金額約當支付在手續費以及顧問費的總額，所以實際上股東們收到的結餘等於零，這個世界實在是有夠奇怪。

Buffett: In a Fortune article I published in 1999 [Mr. Buffett on the Stock Market, 11/99], the frictional costs are equal to the total amount paid out in dividends.

巴菲特：我在1999年曾在財富雜誌刊登過一篇名為[巴菲特對股票市場的看法]的文章中提到，整體股市的摩擦成本約當於實際支付的股利。

Companies should be paying out dividends. Take See’s Candies: we’ve tried to grow it without successwe haven’t figured out a way to grow it, so we can’t reinvest, so something approaching a 100% payout [of profits] would make sense [were it a public company]. Most managements want to ensure regularity [of dividends], so they go with a conservative level [below 100%].

公司本來就應該配發股利，以喜斯糖果為例，由於我們實在找不到好的方法讓它繼續成長，所以我們無法將盈餘轉投資，結果當然應該將盈餘100%支付給股東[我想就算是上市公司也應該如此]，大部分的上市公司經營階層都希望確保股利正確的穩定性，所以傾向比較保守的比例[低於100%]。

We think about this at Berkshire. If we don’t didn’t think we could put it [all of our excess cash] to work, then we’d pay it out. But we expect – and this is reasonable, I think – that we will have the chance to put it to work.

在Berkshire我們的想法就是如此，一旦我們認為無法利用這些多餘的資金，我們就將它分出去，但目前我們仍合理地預期，這些資金將有機會得以好好運用。

[If we decided to return cash to shareholders and] iIf our stock wasn’t underpriced, then we’d probably pay out a dividend – but don’t plan count on it anytime soon.

如果我們決定將現金還給股東，而我們的股票價格又未被低估，那麼我們很有可能就會分配股利，但目前並無這樣的計畫。

Stock options

股票選擇權

Congress has no business legislating accounting. It was a disgrace when Congress 10 years ago effectively bludgeoned Arthur Leavitt into backing down on expensing stock options, at the behest of big corporate contributors. In a very significant way, this accelerated the [accounting] abuses of the late 1990s.

國會無權立法規範會計原則，十年前在企業金主的要求下，國會強勢介入脅迫Arthur Leavitt推翻將選擇權列為費用的法案，這實在是很可恥，此舉大大助長了1990年代濫用會計原則的惡果。

The Senate voted 88-9 to say that it’s more important to have stock prices go up than to have accurate expenses. All of the big auditing firms endorsed their big clients’ views, so they could report higher earnings. and put option expenses in the footnotes. They [the auditing firms] have now shifted completely [and support expensing options].

參議院以88比9的票數說明其認為股價上漲遠比正確地將費用入帳重要多了，所有的大型會計師事務所紛紛為其大客戶的觀點做辯護，好讓它們的盈餘報表好看一點，然而時至今日，這些事務所又幡然悔改，轉而支持將選擇權費用化。

The compromise was the firms were given the choice of expensing options or showing their cost in the footnotes – and 498 of the S&P 500 companies chose the latter.

當時的折衷方式是事務所可以選擇將選擇權費用化或是在財務報表中的附註揭露相關的成本，結果在S&P 500家公司中，有498家選擇採用後者。

I suggest that you write to your Congressman Congressmen and tell them that FASB knows more about acting than he they does.

我建議大家寫信給自己選區的國會議員，告訴他們FASB的專家比他們更懂得如何去執行。

In Google, type in “Indiana” and “pi” and you’ll find a site [here’s one] that relates how, in 1897, the Indiana state legislature voted to round pi to 3.20 because it’s an easier number to work with. It passed the Indiana House, but by the time it got to the Senate, a few people managed to get it shot down.

在Google你只要輸入“Indiana” 及 “pi”，你就可以發現一個網站，提到1897年時，印地安那州的國會立法將pi訂為3.2，只因這樣比較方便好記，最後這項法案在印地安那州通過後，在參議院被一些人給擋了下來。

In 1993, the U.S. Senate cleansed the record of the Indiana House by changing the rules on something they knew nothing about [stock options]. 88 senators declared the world was flat because big donors said it was thus.

到了1993年，美國參議院把印地安那州地方議會的慘痛教訓忘的一乾二淨，88位參議院議員公然宣稱地球是平的，只因他們背後的大金主要他們這樣子說。

Munger: The people who voted this way were way worse than in Indiana. Those people were stupid. These people [the 88 Senators] are stupid and dishonorable. They knew it was wrong and did it anyway.

曼格：這些人幹得好事比起印地安那所作的要惡劣的多，因為後者都是笨蛋，但前者卻是可恥的笨蛋，他們明明知道不對但卻還是執意那樣做。

[For more on stock options, I’ve written the following columns on stock options: The Stock Option Travesty, Stock Options’ Perverse Incentives, Rebutting Stock Option Defenders and Coalition of the Greedy.]

關於這個問題，我曾經寫給以下這些文章：股票選擇權的荒謬、股票選擇權-邪惡的誘因、反駁股票選擇權的支持者以及貪婪的聯盟等。

IPOs

初次公開發行

Munger: It is entirely possible that you could use our mental models to find good IPOs to buy. There are a zillioncountless IPOs every year, and I’m sure that there are a few cinches that you could jump on. But the average person is going to get creamed. So if you’re talented, good luck.

曼格：運用我們的心態是有可能找得到好的初次公開發行標的，每年有相當多的初次公開發行公司，而我也確信其中必定有一些是不負大家所望，但平均而言，參與的投資人大多會被海削一筆，所以如果你自認膽識過人，那麼就祝你好運。

IPOs are too small for us, or too high tech, so we won’t understand them. So, if Warren’s looking at them, I don’t know about it.

初次公開發行的公司對我們來說不是規模太小，就是屬於高科技領域，這方面我們不太懂，說不定華倫曾他們做過一些研究，至於我則不太了解。

Buffett: An IPO is like a negotiated transaction – the seller chooses when to come public – and it’s unlikely to be a time that’s favorable to you. So, by scanning 100 IPOs, you’re way less likely to find anything interesting than scanning an average group of 100 stocks.

巴菲特：初次公開發行就好像是協議買賣，賣方可以選擇何時公開上市，因此這類時機對於買方來說不見得有利，所以與其花時間研究100件初次公開，還不如把精力花在研究100家已經上市的公司身上。

The seller of a $100,000 house in Omaha will never sell for $50,000. But if 100 entities each owned 1% of a basket of homes in Omaha, the price could be anywhere.

座落奧瑪哈的屋主絕不可能以5萬美元出售價值10萬美元的房子，但若是將這個地區房子拆成100等份來出售，那麼交易的價格很可能有很大的差異。

You’re way more likely to get incredible prices in an auction market.

所以在拍賣市場你很有可能可以得到意想不到的價錢。

The Importance of Math

數學的重要性

[When asked why math reflects reality, Munger said:]

[當被問到數學可以反映現實，曼格回答到：]

It’s just the way it is. If you want to understand science, you have to understand math. In business, if you’re enumerate, you’re going to be a klutz. The good thing about business is that you don’t have to know any higher math.

如果你想要了解科學，你就必須懂點數學，但在商業界，如果太拘泥於數字，你就會變成呆頭鵝，從商的好處就是你不必懂得太高深的數學。

Buffett: It may be an advantage not to know it.

巴菲特：或許不懂反而更好。

Munger: Yes, it is. If you know it, you feel the need to use it.

曼格：沒錯，如果你懂，你就會覺得一定要用它。

Comments on Philip Fisher

對於費雪的看法

Phil Fisher was a great man. He died a month ago, well into his 90s. His first book was Common Stocks and Uncommon Profits in 1958. He wrote a second book, and they were great books.

Phil Fisher是個偉大的人物，一個月前他剛過世，享年九十好幾，他的第一本著作1958年出版的「普通股與不普通的獲利」，另外他還寫的第二本書，也相當不錯。

You could get what you wanted from the books (I only met him once). Like Ben Graham, it was in the books – the writing was so clear, you didn’t need to meet them.

你可以從書中得到你想要的(我只跟他見過一次面)，就像葛拉罕，所有的精華盡在書中，寫作文筆相當清晰，你甚至可以不必與他們親身見面。

I thoroughly enjoyed meeting him. I met Phil in 1962. I just went there. I’d go to New York and just drop in on people. They thought that because I was from Omaha, they’d only have to see me once and be rid of me. [Laughter.] Phil was nice to me. I met Charlie in ’59; he was preaching a similar doctrine, so I got it from both sides.

那次的會面相當愉快，我是在1962年遇到他的，當時我走進去，我本來到紐約是要順道去拜訪一位朋友，他們或許認為我大老遠從奧瑪哈趕過來，所以不得不見見我然而就可以把我給打發回去，[現場一陣大笑]，費雪對我相當親切，而我是在1959年第一次碰到查理，當時他也正在宣揚類似的理念，所以我從這兩方面受益不少。

Munger: I always like it when someone attractive to me agrees with me, so I have fond memories of Phil Fisher. The idea that it was hard to find good investments, so concentrate in a few, seems to me to be an obviously good idea. But 98% of the investment world doesn’t think this way. It’s been good for us – and you – that we’ve done this.

曼格：當我欣賞的人認同我的理念時，總是讓人感到相當高興，所以我對費雪也感到特別的懷念，「由於好的投資標的難尋，所以一旦發現就務必集中火力投資」，對我來說這樣的理念再明顯不過，但投資界中98%的人卻不這樣想，當然對你我來說，這樣的情形反而對我們有利。

Risk of Holding Assets at Banks or Brokerage Houses

將資產擺在銀行或證券商的風險

As a depositor in major banks and brokerages firms, I wouldn’t worry. We have a too-big-to-fail view toward large institutions to protect depositors – though this is not true of equity holders or margin accounts.

身為大型金融機構與證券商的存款大戶，我並不擔心這一點，我們這個社會存在有銀行已經大到絕對不能倒閉以保護存款人的既有共識，雖然這並適用於銀行股東或保證金帳戶。

Thinking About the Odds of a Nuclear Attack

核子攻擊的可能性

You are quite correct that people tend to underestimate low probability events when they haven’t happened recently, and overestimate them when they have.

你說的沒錯，對於發生可能性極低的風險，人們總是健忘的，但對剛發生的事件卻又一朝被蛇咬，十年怕草繩。

On the nuclear question, you can do the math easily – the question is whether your assumptions are right. If there’s a 10% chance each year [of an attack], then there’s only a 0.5% chance it doesn’t happen sometime in the next 50 years. But if the odds are only 1% each year, then there’s a 60% chance you get through the next 50 years.

關於核子攻擊這個問題，對我來說，就好像是一個簡單的數學公式，問題的關鍵在於你的假設是否正確，如果每年有10%的機會會爆發攻擊事件，那麼在往後的50年後都不會發生這類事件的機率就低於0.5%，但是如果每年發生的機率推估只有1%，那麼往後的50年後都不會發生這類事件的機率就高達60%。

Corporate Profits as a Percentage of GDP

企業獲利佔國民生產毛額的比例

I don’t see how corporate profits will move up as percentage of GDP.

我不認為企業獲利佔國民生產毛額的比例會往上增加。

Recommendations for Audit Committees

對審計委員會的建議

[During the opening business-of-the-annual-meeting segment of the meeting, Buffett put four slides up, each with a question that the audit committee of Berkshire Hathaway asked the auditors, and the response. This was taken nearly word-for-word from his 2002 annual letter, so I’ve just reprinted this section from that letter below.]

[在年會會議一開始關於企業經營的部份，巴菲特曾經播放四張投影片，每張分別有一個Berkshire審計委員會詢問簽證會計師的問題以及其回覆，那幾乎是一字不差的從2002年的年報上抄過來的，所以我直接把年報這部份的內容列示如下]

Buffett: If such questions were asked every year – or better yet, every quarter – there would be a lot fewer accounting problems…They should be asked and the answers should be put into the record. It would have a very helpful effect. It puts the auditors on the line. I’ve been on many boards and in retrospect many things went by that I wish the auditors had brought to my attention…I noticed that in Google’s Owner’s ManualOwner’s Manual [ADD LINK], it said that if the numbers are lumpy when they come to us, they’ll be lumpy when we report them to you.

巴菲特：如果每一個問題在每年都重複被問到或甚至每一季會更好，那麼因為會計制度所引發的問題就會降到最低，他們必須一再被問到，同時將其回覆列入正式記錄，這將會有大大的效果，因為此舉等於直接將會計師推上火線，我曾經擔任過許多公司的董事，但事後很多情況是我想聽聽會計師關於這些事情的看法，我特別注意到Google的股東手冊中提到，如果結出的財報數字很慘，那麼各位最後看到的數字也會是那樣。

Excerpt from 2002 Berkshire Hathaway annual letter:

這是Berkshire2002年年報的摘要

The Audit Committee

審計委員會

Audit committees can’t audit. Only a company’s outside auditor can determine whether the earnings that a management purports to have made are suspect. Reforms that ignore this reality and that instead focus on the structure and charter of the audit committee will accomplish little.

審計委員會沒有能力進行稽核，唯有公司外部獨立的會計師才有能力判斷公司管理
當局提出的盈餘報告是否可疑，沒有正視這項現實而只是將焦點放在審計委員會組
織架構上的任何改革終將徒勞無功。

As we’ve discussed, far too many managers have fudged their company’s numbers in recent years, using both accounting and operational techniques that are typically legal but that nevertheless materially mislead investors. Frequently, auditors knew about these deceptions. Too often, however, they remained silent. The key job of the audit committee is simply to get the auditors to divulge what they know.

就像是我們先前討論過的，近年來太多的經理人在公司的營運數字上動手腳，不管
是會計帳上或是營運統計皆是如此，表面上雖然完全合法，但實際上卻嚴重誤導投
資人，在通常的情況下，會計師都相當清楚這些欺騙手法，但偏偏他們選擇保持沈
默，所以審計委員會最主要的職責就是讓會計師吐露他們所知道的事實。

To do this job, the committee must make sure that the auditors worry more about misleading its members than about offending management. In recent years auditors have not felt that way. They have instead generally viewed the CEO, rather than the shareholders or directors, as their client. That has been a natural result of day-to-day working relationships and also of the auditors’ understanding that, no matter what the book says, the CEO and CFO pay their fees and determine whether they are retained for both auditing and other work. The rules that have been recently instituted won’t materially change this reality. What will break this cozy relationship is audit committees unequivocally putting auditors on the spot, making them understand they will become liable for major monetary penalties if they don’t come forth with what they know or suspect.

要達成這項任務，委員會必須確定會計師勇於冒犯管理當局，免於成為同謀誤導委員會的共犯，但很遺憾近年來會計師的想法作為卻剛好相反，他們往往把公司的CEO，而不是股東或董事當作是客戶，這是因為平日合作的關係使然，同時會計師也很清楚，不論公司的報表數字如何，CEO與CFO保證會支付簽證公費，並且有權決定是否由原會計師繼續進行簽證業務及其他服務，而近來修正的法令依然無法改變這個根本的現實，想要打破這種曖昧的關係，唯有靠審計委員會明白地告訴會計師，讓他們清楚地了解如果不將所發現或懷疑的事實說出來，他們將必須負擔大筆的金錢賠償。

In my opinion, audit committees can accomplish this goal by asking four questions of auditors, the answers to which should be recorded and reported to shareholders. These questions are:

我個人認為，審計委員會可以經由詢問會計師以下四個問題來達到這個目的，同時必須將他們的回覆記錄下來，並向股東報告，這四個問題分別是：

If the auditor were solely responsible for preparation of the company’s financial statements, would they have in any way been prepared differently from the manner selected by management? This question should cover both material and nonmaterial differences. If the auditor would have done something differently, both management’s argument and the auditor’s response should be disclosed. The audit committee should then evaluate the facts.
1.如果今年是由 貴會計師單獨負責本公司的財務報表編製，那麼你的做法會不會與現在管理當局準備的報表有所不同? 不論是重大或不重大的差異，都必須答覆，如果 貴會計師的做法有任何不同，包含管理當局的論述以及會計師的回覆都必須揭露，然後由審計委員會來評估現實的狀況。
If the auditor were an investor, would he have received – in plain English – the information essential to his understanding the company’s financial performance during the reporting period?
2.如果 貴會計師身為投資人，那麼你是否認為已經收到了-講的白一點-你認為了解這家公司在簽證期間財務經營狀況，所需的所有必要資訊?
Is the company following the same internal audit procedure that would be followed if the auditor himself were CEO? If not, what are the differences and why?
3.如果 貴會計師是本公司的CEO，那麼你認為本公司是否已經遵循了所有必要的內部稽核程序? 如果沒有，是哪邊有差異，以及其原因為何?
Is the auditor aware of any actions – either accounting or operational – that have had the purpose and effect of moving revenues or expenses from one reporting period to another?
4. 貴會計師是否知悉管理當局有任何可能挪移公司的收入或費用的舉動，不管是會計帳面或者是營運統計上的數字?
If the audit committee asks these questions, its composition – the focus of most reforms – is of minor importance. In addition, the procedure will save time and expense. When auditors are put on the spot, they will do their duty. If they are not put on the spot . . . well, we have seen the results of that.

我相信如果審計委員會能確實詢問會計師以上四個問題，那麼其組織架構(這是大部分改革計畫的重點)就一點也不重要了，此外，這樣的做法可以大大節省時間跟成本，當會計師被推上火線，保證他們會乖乖負起職責，但如果讓他們靜靜地躲在角落，嗯! 屆時你就知道結果如何。

The questions we have enumerated should be asked at least a week before an earnings report is released to the public. That timing will allow differences between the auditors and management to be aired with the committee and resolved. If the timing is tighter – if an earnings release is imminent when the auditors and committee interact – the committee will feel pressure to rubberstamp the prepared figures. Haste is the enemy of accuracy. My thinking, in fact, is that the SEC’s recent shortening of reporting deadlines will hurt the quality of information that shareholders receive. Charlie and I believe that rule is a mistake and should be rescinded.

我們列舉的這些問題必須要財務報表正式對外公佈的前一個禮拜提出，這段時間應該足夠讓委員會了解會計師與管理當局間的差異在哪裡，並把問題解決，因為如果時間太緊，將會面臨財報發佈在即，但會計師與委員會卻還在溝通的窘境，這將使委員會迫於壓力淪為橡皮圖章的老路，時間越趕，準確度就越差，就像是我個人認為，證管會最近縮短財報公佈的時程的做法，將嚴重影響到股東們接收財務資訊的品質，查理跟我認為這樣的規定根本就是個錯誤，應該要立即加以改正。

The primary advantage of our four questions is that they will act as a prophylactic. Once the auditors know that the audit committee will require them to affirmatively endorse, rather than merely acquiesce to, management’s actions, they will resist misdoings early in the process, well before specious figures become embedded in the company’s books. Fear of the plaintiff’s bar will see to that.
我們這四個問題最主要的優點在於，它們將能夠發揮防範於未然的效果，一旦會計師了解到審計委員會將會要求他們肯定地為管理當局的行為背書，而不是默默地姑息他們時，會計師就能夠在事情剛發生的初期就出面制止，讓有問題的數字不在會計帳上出現，可能的牢獄威脅保證會發生效用。

Behavior of Accountants in Tax-Avoidance Schemes

會計師在租稅規避方面的作為

Some of the tax shelter proposals that were sponsored by the most prominent auditing firms were absolutely disgusting. [Such schemes are one of the] reasons why the middle class pays more taxes than it should.

某些由大型會計師事務所提案的租稅規避方案實在是令人感到不齒，就是這些方案導致中產階層因此負擔更多不合理的稅負。

Berkshire is a heavy contributor to the Treasury. As I pointed out in the annual report, if only 540 contributors paid what we did last year, no-one else would have pay anything – corporate, personal, social security, etc. taxes.

Berkshire是國庫相當重要的納稅人，我在年報中曾經提到，去年只要有540位像我們這樣的納稅義務人，其餘的美國企業及人民就完全不必再支付包含像企業所得稅、個人綜合所得稅以及社會安全捐在內的任何稅賦。

Sure, we buy tax-exempt bonds sometimes but we pay full 34% taxes on our capital gains.

確實我們也會買一些免稅的公債，但大部分的時候，我們必須為我們獲得的資本利得繳交34%全額所得稅。

Munger: You’ll better understand the evil when top audit firms started selling fraudulent tax shelters when I tell you that one told me that they’re better [than the others] because they only sold [the schemes] to their top-20 clients, so no-one would notice.

曼格：我告訴大家，這些聲譽卓著的大型會計師事務所，目前正流行販售不老實的租稅規避方案給其客戶，其中有一家事務所甚至告訴我，他們的方案比較好，因為他們只介紹這類業務給排名前20名的大客戶，所以沒有人會發現。

Buffett: And the lawyers wrote the opinions [blessing these schemes] -- – don’t leave them out.

巴菲特：而且還有律師為這些方案背書，老天保佑千萬不要讓他們得逞。

We had people come to our office, from top auditing firms – but not our auditors [Deloitte & Touche] – and they wanted us to sign confidentiality agreements for schemes to set up 20 offshore trusts, etc. It was designed to be so complex and spread out that no [IRS] agent could figure out the totality.

曾經有不是我們簽證會計師(目前為Deloitte & Touche)的大型會計師事務所派人來到我們辦公室，他們希望我們為設立20家海外信託基金方案而簽下保密協定，由於這架構設計複雜的程度，將使得國稅局官員無法弄清楚真貌。

It makes everyone else pay more. I was a little hard on Pamela Olsen [Assistant Secretary for Tax Policy at the U.S. Treasury, who Buffett criticized in his annual letter (pages 6-7) for accusing him of “playing the tax code like a fiddle”], but I applaud Pamela on her work exposing this.

這將使得其餘的人支付更多的稅負，或許我對Pamela Olsen女士或許要求太過，但我還是對Pamela勇於揭發這個問題而給予讚許。

[Pamela Olsen係美國財政部主管稅務政策的助理秘書，巴菲特曾經在年報中批評她不實指控巴菲特玩弄稅法]。

NYSE’s Specialist System

紐約證券交易所的專家系統

Munger: Generally speaking, I think the specialist system has worked pretty well for a long time. Yes, there have been a few abuses, but I’m not that horrified that some guy who stands there all day makes a lot of money.

曼格：基本上，我認為目前專家系統運作的還算不錯，雖然曾經發生過幾次問題，但如果說有人在哪裡可以因此大賺一筆，我並不會感到非常驚訝。

Buffett: You should know that Charlie actually had a specialist firm that was the specialist on General Motors on the west coast for 13 years.

巴菲特：大家或許不知道，事實上，查理曾經在西岸的一家顧問公司擔任通用汽車顧問長達13年。

Fraud By and On Insurance Companies

保險公司的舞弊行為

[In response to a compliant by a shareholder that his insurance company had – he claimed – defrauded him on a Workman’s Comp claim, Buffett said:]

[在回應，一位股東抱怨他投保的保險公司反控他在勞工退休保險理賠案中詐欺，巴菲特回答到：]。

There is plenty of fraud in various aspects of insurance. In automobile insurance, we have fraud units.

保險業界時常發生很多詐欺案，以汽車保險來說，我們就設有投訴部門。

We have lost more money in Workman’s Comp insurance than just about any other line in terms of aggregate dollars. It’s been a tough period. We have one small direct seller of Workman’s Comp insurance in California, and then Gen Re does Workman’s Comp reinsurance, and it’s been a bloodbath – the rates haven’t covered the losses. There’s been a fair amount of fraud, especially in the direct lines.

就金額來說，我們在勞工退休保險險種所損失的金額居所有險種之冠，這險種相當不好經營，我們在加州有一個小型的直接銷售部門，而Gen Re也從事這類業務的再保險，這實在是一個殺戮戰場，目前的費率根本無法反應成本，其中確有相當多的詐欺案件，尤其是直接銷售的保單。

Many companies that have been in the Workman’s Comp business, especially in California, wish they hadn’t. They haven’t made money from it.

許多保險公司都曾經經營過勞工退休保險這一塊，但大部分都後悔莫及，尤其是在加州，根本就沒有人賺過錢。

Munger: If a company gets into a lot of trouble by fraud practiced on it, and its own affairs are disrupted, then it’s just human nature to give customers a hard time.

曼格：如果一家公司面臨許多詐欺案件，那麼其公司本身的業務勢必受到影響，自然而然，其客戶也不會好受到哪裡去。

But the main fraud isn’t by insurance carriers against small businessmen, but by the doctors, lawyers, etc. doing it against the carriers.

但真正的詐欺並不在於保險承保人與這些投保的中小企業主，而是在專門與保險公司對立的醫生與律師身上。

Asbestos and Tort Reform

石綿案以及侵權行為改革

Munger: What’s happened in asbestos is that a given group of people get mesothelioma – a horrible cancer that comes only from asbestos exposure and kills people. Then, there’s another group of claimants who smoked two pack of cigarettes a day and have a spot on their lung. Then you get a lawyer who gets a doctor to testify that every spot is caused by asbestos. Once you effectively bribe a doctor, then you can get millions of people to sue on fears of getting cancer.

曼格：石綿案的成因是因為有一特定族群罹患間皮瘤，這是一種因為長期暴露在石綿環境中而罹患足以致命的惡性腫瘤，接著另外還有一群原告聲稱，因為每天抽兩包香煙因為在其肺部發現斑點，然後就找律師請醫生證明這些斑點都是因為石綿所造成的，一旦你能夠利用賄賂找到願意配合的醫生，那麼你就不難在找到一大票人出面控告害怕自己得到癌症。

But there’s not enough money [to pay all of the claimants], so people who are truly harmed don’t get enough. In a southern state with a jury pool that hates all big companies [you get big judgments], but lawyers are stealing money from people who are hurt and giving it to people who aren’t entitled. It’s a bonkers system, but with federalism [state’s rights], there’s no way to stop it. The Supreme Court refused to step in.

結果是根本就不可能有足夠的錢讓所有的原告都獲得理賠，這導致真正受害的人得不到應有的賠償，尤其是在南方幾個特別仇視大財團的州，其陪審團幾乎一面倒，最後的結果導致不肖的律師從那些真正的被害人口袋中搬走錢，再放到哪些不應獲得理賠的人手裡，這實在是一個混蛋的制度，然而根據聯邦制度，這又是各州的權限，聯邦最高法院拒絕介入，所以根本就無法可管，。

The Manville [Personal Injury Settlement] Trust [created when Johns Manville went into bankruptcy; it separated the operating company from the asbestos liabilities; Berkshire bought the operating company and the proceeds went into the trust to pay asbestos claims] had more new claims last year than in any year – and the company last mined and sold asbestos 35 years ago.

Manville個人傷害賠償信託基金，是在Johns Manville破產之後，從原來的營業單位中提撥一定的資金而成立的，後來Berkshire買下其營業單位，至於這些基金則轉為信託以支付石綿案賠償，結果該基金去年實際賠償的件數創下新高，而該公司最後一次出售石綿產品已經是35年前的事了。

Trying to buy people off is like trying to put out a fire by dousing it with gasoline. With word processors, lawyers can easily produce countless claimants. But only 25% of the money goes to claimants – the rest goes to the lawyers, doctors, etc.

想要把一個人買斷，就好像是試著在火上加油一樣，只要有打字機，律師就有辦法變出一大堆原告，實際上只有25%的錢落到原告的手上，其餘的錢都流入到律師以及醫生等人士的口袋裡。

The only people who can fix it are the Supreme Court or Congress. The Supreme Court – some people would say rightly – refused refused to get involved – [but I say] they chickened out. And Congress, given the politics, has yet to step in.

唯一能夠化解這個問題的人就是最高法院或是國會，但最高法院的人卻義正嚴詞地予以拒絕，但我卻認為實際上是因為他們的膽量不夠，至於國會以目前的政治環境來說，也力有未逮。

There’s an important lesson here: Once wrong-doers get rich, they get enormous political power and you can’t stop it, so the key is to nip things like this in the bud.

這裡我們學到一個很重要的教訓，那就是一旦作惡多端的人變得有錢，他們就可以獲得巨大的政治影響力，你就更拿他們沒有辦法，唯一能做的就是防患於未然。

It would be easy to fix the problem: the right way is to say we’re not going to pay off all these little claims.

目前可能的解決問題的方案就是我們對外宣稱完全不打算支付任何賠償。

Buffett: We own Johns Manville and their behavior was reprehensible.

巴菲特：我們擁有Johns Manville公司，他們過去的行為確實應該受到譴責。

Munger: Johns Manville’s behavior was one of the worst in the history of Corporate America – they knew asbestos hurt people and covered it up to make more money.

曼格：Johns Manville的行為確實堪稱美國企業史上一大醜聞，他們明明知道石綿對人體有害，但為了賺錢卻裝作什麼都不知道。

Buffett: We have no connection to this. The Manville Personal Injury Settlement Trust has billions of dollars and has been around for close to 20 years.

巴菲特：我們跟這件事情完全無關，Manville個人傷害賠償信託基金擁有數十億美元的資金，而且已經存在有將近20年了。

It didn’t have a record number of claims last year due to new injuries. Rather, it’s a honey pot. But they’re only paying 5% on claims, so the guy who’s been drastically injured is only getting a small amount. It’s not the right way to do it.

因新的傷害而獲得理賠的個案數目並未創下新高，但它卻被視為是一隻肥羊，實際上，最後賠償的金額只有當初求償數目的5%，所以這使得那些特別嚴重的受害人無法獲得足額的理賠，我認為這樣的做法實在是不對。

Regarding the proposed legislation [in Congress]: in the end, we didn’t support it. It wasn’t the answer we needed.

關於目前正在國會審查的法案，事實上，到最後我們並不支持，因為那不是我們想要的答案。

The Supreme Court, when they ducked it, they left a problem that will be around for decades and decades.

由於最高法院的迴避，將使得這個問題，永遠無法獲得合理的解決。

Munger: If you want to be cynical, look at the perjury. There are only three solvent companies left [facing asbestos claims], so [surprise!] plaintiffs can only remember those three names [when recalling which products they were exposed to decades ago]. It’s a case of perjury being suborned by practicing lawyers.

曼格：如果你是憤世嫉俗的人，看看什麼叫做偽證，由於為石綿案所困的廠商當中，目前只剩三家公司還健在，所以當原告在被問到幾十年前，使用的是哪一家公司的產品時，往往都只能找這三家公司開刀，這根本就是執業律師唆使原告做出偽證證詞。

Immigration

移民政策

Munger: I’m very pleased when the smartest people come [to the U.S.] and almost never pleased when the very bottom of the mental barrel comes in.

曼格：我很高興全世界最聰明的人都能來到美國，但我不喜歡社會最底層的那些問題份子過來。

Buffett: Over the past 200 years, we started with four million people and we now have over 30% of the GDP of the world. We’ve been characterized by lots of immigration. Whether that’s responsible for our success, I don’t know, but I suspect so. I don’t think we’ve been hurt by immigration.

巴菲特：過去200年來，我們的人口數從400萬人成長到現在的國民生產毛額佔全世界的30%，我們一向以擁有眾多移民而著稱，這是不是造就今日成功的原因，我不確定，但我認為可能性很大，我不知道移民對我們有任何壞處。

I think Charlie would like to be the admitting officer. It would work pretty well, but it’s not very practical.

我認為查理應該會很樂意擔任移民官，我相信他一定會做的很好，只是不知道切不切實際。


ADVICE ON LIFE AND OTHER

人生建議及其他

Keys to Happiness and Success

快樂與成功之鑰

Munger: Just avoid things like racing trains to the crossing, doing cocaine, etc. Develop good mental habits.

曼格：就是盡量不要在平交道與火車爭先或是吸毒之類的，培養好的習慣興趣。

Buffett: I get letters every day from people in financial trouble. Often it’s health related, but it’s often debt. They’re decent people, but they’ve made a mistake. They’re not going to catch up, so I tell them to just file for bankruptcy and start fresh. In most cases, they should have done so a lot earlier.

巴菲特：我每天都會接到很多人寫信提到自己碰到財務上的問題，有時與身體健康有關，但大多數是債務問題，他們都算是不錯的人，但卻犯了很嚴重的錯誤，由於他們實在補不起這個大洞，所以我只能建議他們直接宣佈破產，並重新開始做人，大多數的狀況，我認為他們早就應該這樣做。

Munger: Avoid evil, particularly if they’re attractive members of the opposite sex.

曼格：不要做壞事，尤其是那些特別具吸引力的異性。

Buffett: If you hang out with a bad bunch, it’s likely to rub off.

巴菲特：如果你成天與一群壞朋友鬼混，你就有可能會變壞。

Look at the people you like to hang out with. What qualities do you like about them? Why don’t you copy them? And look at the people you don’t like. What don’t you like about them, and can you stop doing these things?

看看那些你想要一起鬼混的人，你喜歡他們哪一點?? 你是不是會想要模仿?? 再看看那些你不喜歡的人，你不喜歡他們哪一點，是不是可以不要再做那些事??。

Munger: If your new behavior gives earns you a little temporary unpopularity with your peer group, then the hell with them.

曼格：如果你的新行為使得你在同儕間突然不受到歡迎，那麼你就千萬不要再犯了。

Buffett: This reminds me of the old lady who was asked what she liked about being 103 years old? She replied, “No peer pressure.”

巴菲特：這讓我想起曾經有一位老太太，高齡103歲有什麼好處，她回答到：沒有同儕壓力。

Book Recommendations

推薦好書

Munger: One book I like is Deep Simplicity by John Gribbon. A perfectly marvelous book. But it’s not published yet in North America. [Here is a link to the book on Amazon.com’s UK web site; I’ve heard they’ll ship to the U.S.]

曼格：有一本書我相當喜歡，書名叫做「Deep Simplicity」由John Gribbon所著，這實在是一本絕妙好書，但目前仍未在北美上市，[大家可以透過亞馬遜在英國的網站訂購]。

Buffett: I’ve been reading A Short History of Nearly Everything. It’s interesting to see people in the mid mid-18th century trying to estimate the weight of the earth. Isaac Newton spent most of his career trying to turn lead into gold – he would have been a good stock broker. [Laughter.]

巴菲特：我最近讀過一本「A Short History of Nearly Everything」書中描寫18世紀的人是如何估算地球的重量，內容相當有趣，牛頓畢生致力於研究如何將鉛變成黃金，我相信他應該可以成為一個很好的股市專家[現場一陣大笑]。

Munger: He was the smartest guy on earth yet got caught up in the South Sea bubble.

曼格：他曾經是世界上最聰明的人，但還是被南海熱潮所套牢。

Munger: If you want to read one book, read the autobiography of Les Schwab [Les Schwab Pride in Performance: Keep It Going]. He ran tire shops in the Midwest and made a fortune by being shrewd in a tough business by having good systems.

曼格：如果你想要找一本書來讀，我建議可以看看Les Schwab的自傳[Les Schwab Pride in Performance: Keep It Going]，Schwab在中西部經營一家輪胎店，雖然所處產業面臨困境，但因為經營得當，最後還是賺了大錢。

Buffett [underscoring how impressed he is by what Schwab achieved]: How do you make money selling tires?!

巴菲特為了強調他對Schwab的成就感到印象深刻，還特地問到：賣輪胎怎麼可能賺到大錢。

Munger: He made hundreds of millions selling tires.

曼格：他靠賣輪胎賺了好幾百萬美元。

posted by USstock @ 11:42 AM 0 comments