Warren Buffett & Charlie Munger: Low Interest Rates, Opportunities and The Madness of Markets

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01. good afternoon david winters mountain lakes new jersey thank you again for hosting the berkshire weekend it's just great uh interest rates are the lowest they've been in i equity values in aggregate are still high berkshire has meaningful free cash flow a short duration bond portfolio and your buyer of low multiple high quality private businesses and a few stocks assuming that the stimulative economic policies to deal with a recession eventually cause interest rates to go up and maybe equity values to come down berkshire seems very well positioned to benefit would you comment and also are there any concerns on both of your parts about investors inadequately understanding the conglomerate structure of berkshire and then therefore improperly pricing the shares well to answer the second question first we hope the latter wouldn't be true because we do our best to explain it i mean i used 14 000 words in the last annual report which caused certain members of my family to ask whether i was getting paid by the word the we want you to understand berkshire and i hope that comes true that's why we have these kind of meetings that's why we why we spend a lot of time writing an annual report we try to tell you what we would like if the position was reversed and if our positions were reversed and we think that the information in the annual report if read by somebody that they have to have some understanding of business and accounting but if they don't you know nothing is going to help really in terms of helping them with the business but we think if they have some understanding of it we have given them the information that charlie and i would need in order to come up with our rough ideas of the valuation of berkshire and we and we hope we get across what it's all about um you know there are a lot of companies in berkshire but it's not important that you understand the nuances of every single one looking at what happens in aggregate in in many cases will be uh will be sufficient in terms of how we're positioned you know we have 16 billion in cash not because we want 16 billion of cash or because we expect interest rates to go up or because we expect equities to go down we have 16 billion in cash because we don't see anything that makes us want to part with that cash where we feel we're getting enough for our money but we would spend it we spent a monday morning on the right sort of uh a business or even if if if we could find equities that we liked or if we could find like last year we found some junk bonds we like we're not finding them this year at all because prices have changed dramatically so we're we're not really ever positioning ourselves we're simply trying to do the smartest thing we can every day when we come to the office and if there's nothing smart to do cash is the default option charlie in terms of future opportunities the issue is is it all likely that there'll be an opportunity like 1973 for or 1982 even when equities generally are just mouth-watering i think there's a very excellent chance that neither warren or i will live to see either of those occasions again if so berkshire's not going to have a lot of no-brainer opportunities we're going to have to grind ahead the way we've been doing it recently which is not all bad it's not impossible that we'll get some mouth-watering opportunities i mean it you just don't know in markets it's unbelievable what markets do over time and since you brought up interest rates uh you know in japan the 10-year bond is selling to yield five-eighths of one percent five eighths of one percent i don't think there's anybody in our annual meeting of 20 years ago certainly including charlie and myself who would have dreamt of the 10-year bond uh of a country you know running a significant deficit would be selling at five eighths of one percent i mean would you say so charlie whatever and it's but strange things happen strange things happen but if that could happen in japan something much less horrible for the investing class uh could happen in the united states it's not unthinkable i mean we could be in for a considerable period when the average intelligent diversified investor in common stocks using fancy paid advisors just doesn't do very well but you can argue that if what we warned against and hope doesn't happen with derivatives should happen it might create enormous opportunities for us in some arena i mean you know that we wouldn't be it might very well turn out to be good for us if uh if you get chaotic markets you had you had a somewhat disorganized market in junk bonds last year because there were a lot of them created much faster than the funds available to absorb them were coming in now this year you have just the opposite situation money pouring into the junk bond funds billion dollars a week roughly and that's changed the whole price situation the world hasn't changed that much it's just that that the chaos has left the market uh for those instruments