Berkshire Hathaway – Special Shareholders Meeting, September 16, 1998

Notes by Rich Rockwood:

Welcome volatility as long as it produces greater return on equity

Unlikely to be dramatic growth in float of General Re

On the new investors coming into Berkshire, "audience that didn’t come through natural selection"

Volatility should be back to normal in three to six months

General Re has terrific distribution system

Why companies come to Berkshire Hathaway (in relation to insurance):

--- Get answer immediately

--- Check will clear in ten years

Tangible ten worth would have decreased by 5 billion if bought GRN in cash, synergies actually made deal possible.

9 billion in cash, prefer to use cash for transactions

General Re will be buying Cologne Re in 2000 (??)

Adjustment of float

--- May get rid of some stocks

--- Not a lot of equity to buy

Scale economics not huge in banking, scale economics in our auto insurance is huge

No correlation with avoidance of foolishness and size in banking

General Re will have real trouble writing at 100, very difficult currently to stay around 100 due to competitive situations.

We agreed to introduce compensation situation to replace stock option with comparable cash (plan)

Cost of (General Re) stock options granted came to 1% of premium value, has been paid but hasn’t been recorded. Just like a tree that falls down when no one is around, it makes a noise even if no one hears it…

(Answer to a question concerning BRK entering the S&P 500)

No notion of what S&P will do… sure they will look initially at BRK, certain things would be logical, certain things would make them pause, BRK would be a standout in size, but has lower trading activity. Almost certainly will get into S&P 500 in 5 to 10 years. "Not very flattering that they (index funds) bought you because you are there". Don’t know which class of share will be included, doesn’t make a difference to him what happens.

Intrinsic value of BRK will be greater than book value but not as much as before because GRN will be placed on books at full value.

Why not repurchase shares?

Don’t rule out repurchasing shares would be slow to do it, would rather buy good businesses.

Love buying into companies that are repurchasing shares. Don’t think most companies are doing shareholders a favor by buying back shares at this time. Nine billion in cash now, would love to buy business with cash but will look at repurchasing shares.

Goal is to increase intrinsic value by 15%, intrinsic value will not be growing as fast as book value.

Flightsafety as new joint venture with Boeing

Executive Jet twice as big as nearest competitors, 1,000 customers. Will grow significantly around the world, shareholders should pay close attention to growth rates, same as Geico.

Shareholders are "empowered" by being able to split A into B.

** Performance of business and communications serve as a customer relations section.

Not seen creating a "C" share stock that would be 1/30 of a B.

He stated he had never read breakup fee in great detail.

Asked about Y2K question:

Question was asked to all our subsidiaries, we think we are in decent shape, Geico has greatest cost, 20 million or so.

Re-Insurance won’t grow in US much if at all, we don’t want under priced business, want great distribution system.

Ordered more Falcon 2000s for Executive Jet. See major growth around the world, essentially start at 0%. (Meant that business is really just starting) World has real market for services. Also pilot training will grow greater internationally (specifically mentioned China).

Asked about Geico expansion overseas:

Geico has so much to do here (US) only have about 3% share here, economies of scale in effect. Have hand full (expanding) in the US, huge physical expansion plans, double the amount of service centers. (A few years ago Geico was buying insurance companies) In buying companies Geico suffered opportunity cost (by not expanding their own business in US).

Look at Asia as a spectator sport, don’t think they (foreign markets) change value

Mentioned Merck as a good business.

Terrible to buy stock on borrowed money because you may have to sell at wrong time.

Goodwill amortization: no economic value. Very illogical.

Company that elects pooling accounting gives up opportunity to repurchase shares is doing shareholders a disservice. He favors purchase accounting.

Feel good about bond portfolios, agnostic about bonds

Will over a billion in federal taxes.

More international business in 5 years wants to expand life and health….

GE is biggest customer of Executive Jet.

Most customers buy shares to supplement for own plane.

Charlie would even say if plane was worth it – Ask him at the annual meeting.

No value in daytrading.

Market dip is good for us in merger because the fee we pay Goldman Sachs will be smaller.

BRK is a net buyer, so market dip buying opportunity.

No interest in 98% of insurance companies

Shoe business has been most disappointing in the last three years, this years will not be doing much better, worse than last year.

(BRK) extremely little real risk.

Beta is nonsense, standard deviation is dangerous

Think of risk as business risk, can’t be done with numbers, everything we don’t understand is risky, little business risk in BRK.

Think long term estimates (of BRK) are good.

Internet is going to be a huge force. Don’t have faintest idea how to make money out of it.

99% of people buying Internet stocks don’t have any idea what they are doing, can’t evaluate earnings or valuation, newspapers can get hurt by Internet.

Compensation costs for GRN will be reflected in earnings (since no more stock options)

Companies surprised at contagion effect, not end of world at all.

Very unprobable that G and KO would be doing less business 10 years from now, idea that they are inevitable.

No formula (for Intrinsic Value) looking for stream of cash discounted from now to Doomsday, discounted back.

rrockw@yahoo.com
Developed by: Richard M. Rockwood