2002 Berkshire Hathaway Annual Meeting

Lessons from this meeting:

1. Don’t Cling to Obsolete Models
   • Blue Chip Stamps: $120 M→$46 K because they never modernized redemption.
   • Always ask, “Am I still solving customers’ problems the way they want?”
2. Shareholders Can Be Philanthropists
   • Investors who concentrate on Berkshire then donate proceeds (like Cleveland trips or the Othmers’ $750 M) amplify impact.
   • Berkshire’s culture → more owners giving back.
3. If You Want Pharma, Buy the Whole Basket
   • Health care as a group has earned great returns, but picking single names is a crapshoot.
   • Valuations too rich? Wait or use an index/fund.
4. Owning the Brand Beats Owning the Factory
   • Coke syrup (trademark) yields higher returns than capital-hungry bottling.
   • Leverage in bottlers is fine—but it just delivers “decent,” not “extraordinary,” profits.
5. Accounting Is Just a Starting Point
   • Don’t take GAAP at face value—adjust pension assumptions, non-cash charges, goodwill, etc., to reflect true economics.
   • New “no-amortization” goodwill rules align perfectly with Buffett’s long-time view.
6. Beware “Cultural Drift,” Not Just Bad Incentives
   • General Re hiccups weren’t due to pay plans but to lax underwriting discipline.
   • Key lesson: Keep incentives rational, but never lose your underwriting compass.
7. Stock Options Need a True Cost-of-Capital Charge
   • Late-career CEO grants without a hurdle rate are “demented” and “immoral.”
   • If you do grant options, embed a real cost-of-capital benchmark or repurchase trigger.
8. Float ≠ Free Money—Price Every Underwriting Like an Investment
   • $37 B float won’t force you into junk bonds—Berkshire’s scale + external earnings give flexibility.
   • “Cheap capital” only works if you price risk vs. return; walk away in soft markets.
9. Ignore Macro Noise—Value Is in Future Cash Flows
   • Gold prices, Fed moves, bubbles: none change what a business actually produces over time.
   • Always ask, “Would I still own this if markets closed for five years?”
10. Stay in Your Circle—When in Doubt, Sit It Out

• Only invest where you truly understand the economics (if you can’t explain it simply, it’s outside your circle).
• For novel or fast-changing sectors, demand a wider margin of safety—or skip it.