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I left the meeting at noon. WEB was going to take off-mike questions at that time.

The meeting was like old times; only 500 or so people.

1. Two questions on the Gen Re: bond portfolio. The basic answer was that he is an agnostic on bonds at this time. While he won't make any changes in the current portfolio he suggested that he would as new cash came in the door. He also mentioned how the merger allows the new BRK to pursue any asset allocation model he wants. And, oh yes, WEB will be picking the stocks although the investment department at Gen Re. may be talented.
2. A humorous note. Three questions into the meeting, WEB props up a cardboard cutout of Charlie. He then during the meeting would play a tape of Charlie saying, "I have nothing to add." Charlie looked better than usual.

 

(3)WEB was as sharp and funny as ever. A women asked him about the 1987 report and he corrected her; gently as usual.

3. WEB was very positive on Executive Jet. He sees a big growth opportunity there. He also was pumped about GEICO growing market share and achieving more economies of scale.
4. He sees growth in the international reinsurance business but not domestically. He doesn't want all the business; only if it is priced right.

 

5. WEB still doesn't mind paying over $1 billion in corporate taxes. "Feel patriotic on the way out."
6. Paid $300 million (or maybe $30 million) to SEC for registration fees because of unclear tax ramifications due to no final IRS reg from 1981. Our government at work. WEB says he doesn't want to break that SEC fee payment record again.

 

7. Doesn't think, or worry, about international events. He started investing in May 1942 when WW 2 was at a bad stage. If you buy good businesses that are managed by the right people those type of outside (uncontrollable) events are irrelevant.

Another example he gave was how the farm crisis of the 80's created some good buying opportunities. As long as the farm is productive, if you want to be in that business and have the capital then buy when others are selling.

I was going to ask him about KO's international sales problems but his answer to this question satisfied me. KO's economic profit, franchise value and demand are such that while there may be a problem for a year or two, it will right itself because of the strength of the business.

8. "We are going to be buyers of businesses for ever."

(10) He was indifferent to being added to the S&P 500 from the point of view that some of his shareholders would be "forced" to buy him; not as flattering. He likes who owns his company now.

If you have a specific topic that I didn't cover, then post a question. The World-Herald now has a website and it might post a story tomorrow. The reporters really do a great job-covering WEB.

... More ...

Tonight's OWH front-page headline," Buffett isn't in a hurry to shift bonds to stocks." The WEB quote is "I do not have any desire to convert General Re's portfolio to a 100% stock portfolio, because I don't see things to do now.... But it'll happen."

That's my sense: new money into equities, bonds of short maturities held until due and gradually convert the 17 billion in bonds to the mix he wants.

WEB didn't care about being in the S&P 500 other than the fact that its net worth is such that it would be an anomaly not to be in simply because of BRK's size. He said that within 5-10 years it would be in the index. He thought S&P managers' would have an "interesting" discussion on the topic especially re: A or B shares.

Nothing on the IRS ruling and no clue as to when it will be issued. BRK pays .5% of all federal taxes. Nonetheless "we are not phobic about paying taxes."

Nothing on effective date although as of yesterday only 50% of all eligible Re shareholders had voted. I thought that was a small number this late in the day.

Nothing on the Euro meddling.

No question or comment on the price decline although WEB wished the stocks would go to zero for one day to avoid the fee to the bankers. There was reference to arbitrage selling and a migration out of General Re simply because some s/h might not want to be in BRK's business. WEB thought he would have the desired s/h crowd within six months.

DB

Here are a few quick highlights from the just ended meeting...I'm sure others will be posting more detailed accounts soon. Warren answered questions from about 9:30 until 12:30. I'm not good at estimating crowds, but I'd guess somewhere about 1,000 folks were there.

1. BRK shareholders approved both the merger proposal and the increase in authorized shares. (No surprise there.)

2. Sounds like the GRN vote Friday is a sure thing as well... WEB says that as of a day or so ago more than half the shares had voted, and the vote was running 93% or so in favor of the merger.

3. In regards to joining the S&P 500 it sounded to me as if WEB wouldn't mind it a bit if that were to occur, saying that a group of index funds holding up to 5% of BRK stock would be a very stable group of shareholders that wouldn't be going anywhere. Said BRK was 3 times the size of the next largest company left out of the index, and that it was likely BRK would have to be added sometime in the next 10 years or so due to its ever-growing size,

but that the criteria & decision are up to S&P.

4. WEB hasn't heard from the IRS yet in regards to the tax-free question, but he still expects a favorable ruling.

5. Comic Relief: Several questions in, WEB pulled a cardboard cut-out of Charlie from beneath the table, set it up beside him & asked a question to it. "I've got nothing to add," came the familiar response from his partner. WEB later said he'd never seen Charlie more animated.

Many other questions (including the standard "Is this a good time to buy BRK?"...with the standard answer.) There even was a good question from the most famous Yellow BRKer from Missouri Valley, IA. I'm sure he and others will do a more complete report in the days to come.

Just returned from the meeting. I have to rush to get on the soybean combine while the others relax and carouse around Omaha today & tonight.

Here are a couple of highlights and I'm sure others will fill you in better later.

Yes the BRK vote was a chip shot. No problem.

The General Re. vote outlook? In response to my question about the same, we understood WEB to say more or less "done deal". If we understood him correctly, with at least 50% of the votes in, around 95% affirmative. He had no concerns on this point.

With the likes of Tode, Neuroberk, and BRK FAN and others taking notes, I'm sure they will weigh in this and many other items.

Our official ambassador, Country, passed along your affections by planting a big kiss on WEB's cheek.

(Better her than I.) WAY TO GO, COUNTRY. She did draw the line at doing the same to the cardboard cutout of Charlie that WEB placed in the chair next to him during the meeting.

As the meeting closed, WEB explained he was going to take our Matt Troxel to lunch. Attaboy Matt, maybe you can give us a report.

I think, and most people I spoke to agree, that this was the best meeting in years, due to the small crowd and the nature of the questions. Of the 2500 seats more than half were empty. All the Yellow BRK'ers sat in the first and second rows. BRKFAN was first in line and arrived at 7am. One half-hour later there were just Yellow BRK'ers waiting in front of the building. Warren mingled with us before and after the meeting, but had to run to

have lunch with Matt Troxel. He announced that as he closed the meeting after 1230. The Orphrum is beautiful. This was a meeting that you should have never missed. Country and Warren hugged each other and Country kissed him for being so good to us. Maybe it was just me, but Warren seemed to get so much more personal as he spoke to his partners in this smaller setting. Doshoes was there too and will try to make Mr. Todes this evening.

Warren repeated his warning--don't borrow money to buy stock and don't buy any stock including BRK unless you can tolerate a 50% drop in price. This was in response to a question as to whether this is a good time to buy. Of course he added that he is not selling.

Warren seemed more excited about the Executive Jet purchase than the General Re. He likened the EJ deal to Fed EX--the idea of one man that is and will grow by leaps and bounds. Even GE which has 4 jets of its own has leased 200 jet hours annually from EJ, because EJ promises a jet in 4 hours or less at any location. Even our Chairman has leased a set number of hours annually for personal and family travel.

For me, this was the best meeting ever. If you don't attend every meeting, you are missing an opportunity of a lifetime. This meeting was that indeed.

I just got back from Omaha. It was a great meeting! I feel so fortunate to watch the Master at his best, almost like watching Michaelangelo painting the Sistine Chapel.

I will just make a few personal observations.

S&P 500 index listing----- As BRKFarmer mentioned,WEB was not hostile to the idea at all. He predicted that BRK would be on the index within next 10 years. I would not be surprised if it happens fairly soon.

GRN's prospect ---- WEB did not expect any dramatic increase of GRN's float, saying that the synergy would come slowly, unlike GEICO. He said reinsurance was not a high growth business and actually he did not want rapid growth of GRN anyway. It appeared to me that WEB wanted to moderate people's expectation level on GRN's near term growth.

"Air plane service business" ---- WEB used this term to describe FlightSafety and Exec Jet. He really seems to believe that these businesses would grow very fast, adding significant IV to BRK in next 10 years. We seem to have underestimated the importance of these businesses.

GEICO --- "GEICO's growth is accelerating quarter by quarter."

BRK stock trading ---- WEB seems to believe that major part of GRN related BRK trading, such as arbitrage or sell out by GRN holders, might be behind us, saying that the volatility of BRK trading would settle down within several months.

BRK Stock repurchase ---- WEB seemed to be slightly more receptive to the idea than before, but not by much.

World economic "crisis" ---- WEB said when he first bought stocks in 1942,the world was not exactly in good shape either but it did not make any difference in the long run. WEB said he was not surprised by these events, although he did not expect them either.

Outlook on Bonds ---- WEB said he was "agnostic" regarding the direction of bonds. That might be why he has $9 billion in cash.

There is a lot more items WEB discussed, some of them important. I hope other members correct some of my misunderstandings and add more.

It was a great meeting. All of you really should attend the meeting next May. As far as I am concerned, there will never be "another" or "next" Buffett. Learn as much as you can while he is teaching.

I'm back in KC, but too late to scoop the reporters on this board. You have already heard about the vote tally on GRN (over half counted, 93% of those in favor of the deal). This was the big news item for me.

A few other tidbits:

BRK now has $9 billion cash. This is up a couple billion from 6/30--maybe WEB sold some investments? He didn't say, of course. He hinted that he wasn't doing any substantial stock buying since the correction. Said he had "bought a few things and sold a few things but nothing substantial."

He doesn't sound hostile to the idea of BRK joining the S&P500. There might be some disruptions initially due to index funds establishing positions, but after 3 months or so things would settle down and the index funds would be stable owners. If they owned 5% or so, no big deal. He isn't lobbying for BRK's inclusion but he regards it as almost inevitable some time within the next ten years, as BRK grows.

He is very positive on GRN and the synergies discussed in the prospectus. But he also stressed that it is hard to grow float substantially from GRN's existing level, particularly in the U.S. (which is about half of their business). Internationally they have greater opportunities. Of course, if the market tightens during the next ten years, this will be good for BRK/GRN and would produce a higher IV ten years from now.

Currently GRN has a couple billion in receivables from other reinsurers it has ceded business to. In the future BRK/GRN won't cede business away. Over time this couple billion will find its way back home to BRK/GRN.

Had BRK offered 50% cash/50% stock for GRN it would have reduced TANGIBLE net worth by $5B. WEB didn't want to take this kind of a hit to tangible net worth, so he preferred a 100% stock deal in this case (part of the "Fort Knox" story to market reinsurance). As discussed before, when BRK's stock price reached the point where BRK could offer a premium to GRN shareholders without hurting BRK shareholders, the stock deal got done.

GRN's historic 100 combined ratio didn't count the 1% cost of stock options issued to GRN managers (the normal kind of option accounting in U.S. industry). As part of BRK, this cost will be counted so the combined ratio will already be 101, and competitive pressures will make it a challenge to write 101 business in the future. But GRN will be better situated than its competitors to do so, as part of BRK.

GAAP net worth will take a big jump this year due to the GRN deal. WEB likely will state in next year's report that the increase in GAAP book value outpaced the increase in IV in 1998. (Accounting trivia item--the GAAP Book Value is calculated based on the price of BRK stock at the time the deal was announced, not the price when the deal closes. Unfortunately for Goldman Sachs, the same rule does not apply to their fee, which is a % of the deals

value at closing. The drop in BRK's price post-announcement has cost Goldman $4 or 5 million. WEB is hoping BRK temporarily reaches zero at closing.)

WEB does not rule out repurchases of BRK stock. In the past he says he has "frequently" been "wrong" in buying other stocks instead of repurchasing BRK's own stock. At some price he would buy back stock. He ain't saying what price.

Shareholders should pay very close attention to the growth in GEICO and what WEB now calls the "aircraft services" businesses (FSI and EJ). He mentioned EJ several times. It is in its "infancy". It has 1000 customers today and 135 planes. It has about 20 customers in Europe where they are just getting started. EJ is the "premier franchise" in this industry, which will become very big over time. There are substantial economies of scale. FSI's prospects

also are good with the recent Boeing joint venture. Training pilots will be a very big business internationally--WEB commented there are lots of Chinese pilots who need training. FSI dominates this industry. My impression is that after GEICO and GENRE, WEB considers the aircraft service business to be the next biggest driver of IV growth over the next ten years.

GEICO is accelerating its growth every quarter. With 3% of the auto market it has better defined growth prospects than GRN. WEB isn't interested in distracting GEICO's management with international markets when there are such huge opportunities domestically. GEICO is doubling its physical plant over 3 years to handle the growth. In contrast, the big growth market for GRN is international.

If the market declines "significantly" from here, "you can be pretty sure that Berkshire won't have $9 billion cash the next time we meet."

WEB stressed what a remarkable insurance group we have. He gets calls all the time offering to add insurers to the BRK family but he rejects nearly all of them. 98+% of the insurers in the U.S. are of no interest to us. There are 1 or 2 that we would consider compatible if the opportunity presented itself.

WEB expects the internet to be a huge force and asks himself when he buys a business, how could the internet hurt this business. He mentioned newpapers as businesses that will be hurt. He hinted that he now does some surfing the net, and suggested that the audience play around with it. (He has come a long way since my first meeting in 1986.)

In sum, I left the meeting feeling better than ever about BRK's prospects. We had a great time at Mr. Toad's and Gorat's yesterday. Sorry you all couldn't be there to meet Matt. He is an inspiration to us all, and the only Yellow BRK-er who got invited to have lunch with the Chairman. We look forward to his report on what is REALLY going on at World Headquarters.

I am under the impression that Buffett will definitely be at the GRN meeting. Susie is not going, however, she told us.

Someone asked Warren if he is buying these days. He said he is sitting on 9 billion and waiting. He said he has dabbled just a little bit, but nothing significant.

Regarding Gillette and Coke, he said, sure sales may be down for a year or so, but that is not to be compared to a bank that lent money out and now is wondering if they will get it back. He mentioned that for 40 years we have had incidents like these and stocks like G and KO do just fine over time. In 10 years he says BRK owners are going to be mighty pleased.

Never have I heard him so upbeat about the future for BRK.

Here are my notes from the meeting. I apologize for any repeat info, however, I want to be complete. Most of this is quoted or paraphrased from WEB.

The meeting started with WEB saying that CM would not be in attendance. CM said his salary only covers one meeting a year and besides it was time for WEB to "take off the training wheels" and do it alone.

The impetus for the GRN deal was the strength and synergies that the two companies could realize if combined. GRN had the integrity, technical skills, and management already in place, however, combined with BRK's financial strength and operating businesses it could become even better. BRK and GRN have had a relationship for a long time. GRN has been ceding a lot of business to BRK. They have mutual respect and trust for one another. In an effort to reduce the volatility of their earnings GRN was in the business of giving away some of its good business. This is where BRK fits in.

BRK "provides an appetite for risk and willingness to accept volatility." Volatility is at the core of the reinsurance business. BRK welcomes volatility as long as it carries the expectation of larger profits. Another benefit is BRK's stream of taxable income. I didn't catch exactly why this is true, however, it has something to do with offsetting underwriting losses. Having the operating businesses provides more flexibility to an insurance company.

WEB did say that GRN is not another Geico. The growth in float from GRN will be small. All Geico needs to do is increase promotional activity and you will see results immediately. This is not the case in the reinsurance industry. WEB was however very bullish on the prospects for continued rapid growth at Geico.

WEB's comments about institutional ownership were that it might take 3-6 months for the shareholder base to take shape. BRK will be inheriting an audience that didn't come to BRK by natural selection. They had a choice to buy GRN or BRK and chose GRN. He then stated that some "will look at BRK and stay, others will leave." I don't know how others in attendance interpreted this comment, however, it struck a chord with me. Having seen WEB in person 7 times now this answer seemed cryptic to me. I almost got the feeling it was his way of telling us the stock is too low at 60,000. I took it as him saying those that take the time to analyze and look at BRK will see the value and potential and stay and those that are lazy will just say BRK is to high and sell. I might be crazy.

As far as using stock as the currency for this transaction his comments were very clear. The deal was just too big to use all $$$. If they did 50/50 cash and stock the tangible net worth of the company would have gone down $5billion. He also stated that they needed to do the deal at a time when BRK could offer a premium to GRN investors while not diluting BRK shareholders. WEB said that he would be surprised to see BRK do an all stock deal in the next 10 years. If you do see an all-stock deal where synergies are not discussed it would mean that either BRK is overvalued or the target company is very undervalued.

After the deal WEB will be responsible for investing the float of GRN. Someone else will be responsible for investing the float of Cologne Re. Roughly 2/3 of the float comes from GRN. WEB doesn't know if there is future investment talent at GRN, ala Lou Simpson/Geico. He said he has only met the Board and senior executives at GRN.

Regarding the current market environment his comments were as follows. After the deal he will make some changes to the GRN portfolio. He will sell those securities that BRK inherits that they don't like. He will not do much with the bonds, neither buy nor sell. WEB stated "I have no desire today to change the GRN portfolio to 100% stocks." In the future there will be a time when we might desire that allocation. He said they still have $9

billion in cash and there aren't a lot of things to buy right now. He indicated that BRK has "done nothing significant in recent dip". He went on to say that he doesn't think many companies are doing their shareholders a favor by repurchasing shares today. At a different point in the meeting he said not to rule out BRK repurchasing shares in the future. He also stated that "no market prediction or forecast was involved in this deal."

He said that overseas activity can have an effect on BRK's stocks in the short run, however, "the only thing that is going to make us money is being in the right businesses with the right people over time." "Just make sure you never have to sell at the wrong time." Investors should be like Rip Van Winkle, buy good businesses and go to sleep for 90 years.

When asked about the increase in daytraders (people trying to make a living trading the market day by day) he said, "we want a maximum amount of stupid people in the market as possible".

About the internet companies he said "investing implies having an idea of the cash flows" therefore purchasing internet stocks is not investing.

He said he expects BRK to be in the S&P within 5 years.

He named two goals.

1. Grow I.V. at 15% per year.

2. Become the "premier reservoir of financial strength in the insurance industry for time in memorial."

WEB doesn't like EBITDA as a valuation measure. He feels you neglect some real costs of operating a business when you use this measure. I believe his exact quote was "it is used by investment bankers to justify a lot of silly things".

The last thing he discussed was employee stock options. He indicated that BRK has rejected some investment ideas because of the imbalance between earning power to owners and employees caused by stock options. Many companies have given managers the right to purchase 10% of the company at a fixed price for years. Imagine that every time you buy 100 shares you really are buying 90 and giving the management the right to purchase 10 of those shares at

your cost for 5 or 10 years. Pretty powerful argument.

Look for great growth at Geico, Flight Safety, and ExecJet. Look for things to remain weak in the shoe business. Sorry for being longwinded and for anything I may have missed.

It was great seeing you all and spending the evening and day together.

Just going through my handwritten notes of the meeting, which I'll post if you can stand to read another version of the weekend.

This is my fourth trip and the best by far. Might have been as good as the previous three put together.

What a treat to dine and wine with the BRKers at Toads, Gorat's, French Cafe. A very high slice of American society. Kathy is actually two to three times more beautiful in person than her posted pictures on the board from last year!

I got a little worried during the meeting, as WEB never opened his box of SEE's candy.

He did remark he wouldn't have to share with Charlie, then he never ate any at all. Maybe he is moving into the healty-eating, fitness mode. We can only hope.

The meeting in the much smaller Orpheum Theatre was relaxed and friendly and more informal. Crowd was less than 500 I'm sure. Many veterans said it was like the good old days. Before my ownership time, unfortunately.

WEB says their insurance business is willing to assume volatility, in fact they welcome it if the price is right.

26 billion of float after the merger. No dramatic growth in float after merger.

BRK can follow ANY asset allocation they want, whatever makes the most sense.

The quote I underlined and circled, that I considered the most significant of the entire meeting:

NO DESIRE TO CONVERT 100% OF GRN BOND HOLDINGS TO STOCK, BUT IT WILL HAPPEN! I don't know how he could spell that out in plainer language!

After merger we are inheriting an audience (shareholders) that did not come in through natural selection. 95% of GRN shareholders MIGHT BE out if BRK is not what they want.

WEB proposed this merger in May of 1998. He tried last year and the deal wouldn't work.

BRK can give an immediate answer to those seeking underwriting, and they know that our CHECK WILL CLEAR in ten years!

BRK is the ultimate in security (our insurance).

GRN did not want to make this deal with anyone but BRK, now they can keep ALL the business they generate

Probably will not be another stock deal in next 10 years.

2/3 of the combined INVESTMENTS will be under WEB's control

You can still buy GRN up to the actual date of the merger (I suppose the day before actually) and still be able to convert to BRK. The arbitrage option is still workable.

IRS has not approved or disapproved yet. They ask for info, BRK sends it, they then ask for additional info, etc, etc.

We have paid 30 million in SEC and related registration fees.

Some stock holdings will change. We will not keep what we would not buy. I thought this was interesting. WEB won't do anything by default. If he doesn't like, it's history.

Biggest supercat risk: Calif Earthquake Commission, could be $1 billion payout.

Second biggest: Florida hurricane, $500 million

In GRN we're getting a wonderful business and giving up 18% of ours.

Book net worth increase up about $22 billion

Doesn't rule out buying our own stock. Said it could/should have been done numerous times in the past. Spent quite a bit of time on this. First time I've ever heard him spend this much time on this subject. HINT, HINT, HINT!

They are adding $100 million/year in new flight simulators. Very, very, very enthusiastic on the "Flight" businesses. Have ordered a "bunch" of new Falcon 2000 jets.

WEB looks at the recent international events (Japan, S. America, Russia) as a

SPECTATOR SPORT!

"Only thing that will make us money is being in the right business with the right people running them."

NEVER OWE MONEY ON STOCK!!!

An agnostic is a person who says, "At least I'm not an atheist, thank God."

GE is the biggest customer of Executive Jet

Our jets can get to 5,500 airports within 4 hours

What we want is the maximum possible number of STUPID people dealing in stocks!

What the companies earn is what the owners earn.

The market dip is good for us in the merger. Goldman Sachs gets a % of the whole deal. So far we've saved $4 to $5 million!

ALWAYS beneficial to us when the market goes down. We are going to be buyers FOREVER! If market goes down more you can be sure we won't have $9 billion by May.

We're risk adverse, NOT volatility adverse.

Earnings before depreciation, wages, rent, etc., is actually SALES!

We have rejected deals because of the stock option programs in place for managements.

Thanks again for the great company this week. The Yellow BRK crew is the greatest group imaginable, and we did ourselves proud in Omaha.

Miscellaneous notes:

1) Next annual meeting May 3, 1999

2) WEB has bought some stocks and sold some this year, and expects to pay +1 billion in taxes this year. Doesnt seem excited by the current correction in the market as a buying opportunity. He is looking for a far more dramatic downturn to put Berkshire's cash to work. He believes this opportunity will come, but he does not know when.

3) 99% of the people who buy internet stocks do not know what they are doing.

4) The internet will be huge, but he does not know how to make money from it for BRK. Rather he is looking to see to what extent the internet will hurt the businesses that BRK is already engaged in.

5) Looking for 1 or 2 acquisitions a year for BRK.

6) Goal is to increase the intrinsic value of BRK by 15% per year.

7) Get off margin, because you might be forced to sell stocks at a low price.

8) Buy stocks of great businesses at a reasonable price and be like Rip van Winkle and just go to sleep.

9) Much emphasis on a 10-year horizon when buying stocks. Very difficult to predict what the market is going to do in the short term. Must be prepared for a 50% drop at any time (including a 50% drop in the stock price of BRK).

10) Very excited by the growth prospects of GEICO, Flite Safety and Executive Jet over the next 10 years. BRK stockholders should focus on the growth of these three businesses in the future to asses how BRK is progressing. He believes Flight Safety and Executive Jet businesses to be in their infancy at this point.

11) Downplayed expectations as far as acquisition of General Re is concerned. Did not foresee many if any growth initially, but because of synergies, over 10 years there should be a significant growth component added to BRK's income and intrinsic value.

Hi all. I just arrived back from Omaha this afternoon and am exhausted from trying to keep up with the hectic pace the Yellow Brk’rs keep. Still, there are many of you I didn’t get to spend nearly enough time with. I reviewed some of your excellent meeting notes & I don’t think I can add all that much. To save time let’s consider these notes only as an addendum (or amplification) to the notes already posted. In

no order:

This merger will not change BRK’s current insurance operations. And, we shouldn’t expect overnight results -- WEB stressed that "things don’t happen quickly in the reinsurance field". GRN will provide a steady stream of taxable income. GRN’s premium volume probably won’t grow all that much – particularly domestically. But internationally, the world is GRN’s oyster. Reinsurance is just not a high growth industry. But 10 years from now BRK will

be considerably more dominant in the reinsurance business.

Super Cat securitization has hurt BRK's business more than once.

Managements have certain personalities and this personality often reveals itself in how managment shows reserves. WEB feels as good about GRN reserves as any in the business. Accidental over reserving by some in the insurance industry has resulted in draw downs that artificially inflate earnings. "A lot of companies play accounting games with a cynical attitude towards investors… This is not done at BRK. We will not play with the numbers."

AXP's franchise value will travel with untapped demand compared to the US. And reinsurance too (there is added value because of GRN's expertise and asset base). But franchise value is not enormous in banking. In banking, market share does not equal profitability. There is just no correlation between the size of the deposit base and the avoidance of foolishness.

WEB said that early in 1998 BRK appreciated, "and appropriately so". <---- That one's for you Tex -- jb

WEB said he "would be slow" to buy back shares when he could add other fine businesses. But he said there could come a time that "the single best thing to do by considerable margin would be to buy back shares…. We like our ownership in BRK and want to increase it." He went on to add that many current repurchase programs are ill advised. He sees very few companies that should be repurchasing shares at this time.

He restated his goal of increasing the IV at a 15% clip. In the past book value grew at about the same rate as IV so it was a "good proxy". IV did not grow as fast as book value this year (see Tode's post), but looking 9 or 10 years out, using book value as a "parallel rate" is okay.

We won’t see "c" shares any time soon. Sorry.

Goodwill Amortization has no economic meaning. Beta is nonsense. Real risk is business risk so academics cannot measure it. "If we don’t understand it, it is risk." (See BRKFAN re: EBITDA. Also note BRKFAN’s comments about stock options. WEB mentioned that there was a company that he once owned that used an option plan like that. Any ideas which it was???)

REPEAT: PAY ATTENTION TO THE "AIRCRAFT SERVICES"!!! He called it "scale service economics". (See Tode’s post.) The one thing everyone who went to the meeting agreed upon was that WEB seemed more delighted about the Executive Jet deal than the GRN deal!

As to the merger date, he said he anticipated it would be sometime in the 4th quarter – "but a lot of funny things happen at Berkshire". (And I don’t think he was talking about John Gartmann’s hat!)

I am certainly not as articulate as some of the rest of you regarding these post but here goes: The GRN meeting.

The meeting was held at the Holiday Inn Select in a room, which approximates the size of a large conference room. BTW the Holiday Inn is across the street from the palatial Green Glass GRN headquarters which is one of the largest buildings in Stamford.

I sat next to Ron Ferguson's wife and daughter who were both charming, and attractive and best of all genuinely looking forward to their future relationship with BRK.

Ron started with the normal housekeeping and a few prepared remarks. These rehearsed and memorized remarks flowed as precisely and smoothly as they would from a professional actor.

The overall thrust of Ferguson's remarks were that GRN has had a tremendous history of success in the insurance business and that by linking up with the demonstrated investment genius of Charlie and Warren that a great company would be created.

A number of previously stated and well documented reasons were offered for the merger but let me put a different spin on them from the GRN shareholder point of view: These were all mentioned at the meeting through the comments or the Q's and A's but they did not occur in this order:

1. GRN shareholders get 1/5 of BRK

2. GRN shareholders are getting BRK at a discount

3. GRN shareholders stand to get a higher valuation on GRN earnings.

4. Fewer deals have to be laid off through retrocessionaires

5. GRN's customers want to do bigger deals so the merger will facilitate these deals

6. There is a lot of benefit from being owned by a firm with a long term perspective on investments as opposed to stockowners who may require quarter to quarter earnings gratification.

7. We really benefit from BRK's stream of taxable income. Explaining this would take me two pages and would end up incomprehensible, but the GRN portfolio is allocated to perform consistent with their tax situation. BRK's operating businesses would allow a higher yield investment mix. GRN is always trying to manage their AMT status. I know most of you are familiar with AMT and the effect of preference items and increased tax liability so I

won't repeat it.

As the Q&A developed a number of BRK meeting typical, can't answer, questions were aired --- the answers were diplomatically avoided. Some of the more interesting points made were as follows:

1. We are satisfied with the BRK succession plan

2. If the BRK merger was not on the horizon the GRN price would likely be 165- 185/share.

3. There is no material overlap between the BRK and the GRN portfolios

4. I am happy to play second fiddle to WEB

5. We will be more competitive though we have a great deal of respect for our competitors.

6. Ron plans to stay on for the duration and tap dance to work...

7. BRK is at a bargain price now

Naysayers in the crowd before and after the meeting ---

1. When you do a deal with a horse trader like Warren he gets the better side of the deal.

2. A very prominent GRN shareholder that I will not identify feels that GRN could command a higher price.

Overall feelings about the meeting:

1. Great job by Ferguson ---- don’t worry about his management capability

2. BRK is undervalued today --- personally I would think by 30%+

3. The few GRN shareholders I met were a real treat.

Thanks Nakoma for your notes. Here are some additional comments and observations:

By my estimates, about 150-200 persons attended the meeting. The majority who asked questions were either BRK & GRN shareholders or BRK shareholders which I found quite interesting. With the exception of the first person to ask a question (refer to previous post..."Buffett is a known horse-trader"...), all questions and comments from the audience extremely articulate and well-thought out.

About our new company: GRN. Ron Ferguson, Chairman, has been with the company for 29 years and intends to stay. GRN has 3800 employees in 150 countries. KolnRe (Cologne-Re) is the oldest re-insur. company in the world. Their investment portfolio, by the way, will remain separate for awhile. They have their own CFO and some minority shareholders that prefer to keep it this way. There are no immediate plans for this scheme to change.

Re: culture of new company. WEB's role will be that of advisor, investor and provider of financial resources to grow the company by building a bigger business franchise from a better platform. Growth will occur through: fewer retrocessions (laying off business to other companies), creation of additional products, writing business in more places geographically. Ron mentioned growth in Asian premiums, Brazil, and India.

Re: IRS ruling. Ron F. felt confident that the private letter ruling would be forthcoming and that things are moving along. Could happen at the end of October, but perhaps before.

Other growth areas: Ron felt that life & health re-insur would continue to grow in low double digits yearly, in the US and other parts of the world. Property/casualty fairly soft and not a growth area. (I found this surprising). Commercial clients want larger limits and would like to wrap various insurance lines into one policy. This is a growing trend and a real competitive issue. (I think the merger gives GRN the muscle to crank out really

first-class products for this client group.)

Re: Asian crisis. Up to this point, GRN has not experienced any credit problems from clients who may be affected.

Re: Y2K GRN has been working on this and will be compliant by the end of this year. The expense to the company has not been significant. Re: GRN's clients. They are working with each client individually to mitigate Y2K problems. This relates to the way GRN does business. They work DIRECTLY with clients in all their lines and all their markets. Their products are not sold as a "commodity" Clients pay about a 10% (very imprecise) premium for

this value-added service.

Well, that's about it...'tho' I'm sure there's lots more. In short, Ron Ferguson is very impressive, and just the kind of "manager" WEB looks for. He's 57 years old by the way and has all is nickels and dimes in GRN...soon to be BRK.

It was great to see & meet other BRKers and learn more about our new company (which will amount to 20% of BRK).

WEB, Ron F and others have said it, but it's worth repeating...this is a strategic home run and superior business model.

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