1. What do you think about the utility industry?
I have thought about that a lot because you can put big money in it. I have even thought of buying the entire businesses. There is a fellow in Omaha actually that has done a little of that through Cal Energy. But I don't quite understand the game in terms of how it is going to develop with deregulation. I can see how it destroys a lot of value through the high cost producer once they are not protected by a monopoly territory.
I don't for sure see who benefits and how much. Obviously the guy with very low cost power or some guy has hydro-power at two cents a KwH has a huge advantage. But how much of that he gets to keep or how extensively he can send that outside his natural territory, I haven't been able to figure that out so I really know what the Industry will look like in ten years. But it is something I think about and if I ever develop any insights that call for action, I will act on them. Because I think I can understand the attractiveness of the product. All the aspects of certainty of users need and the fact it is a bargain and all of that. I understand. I don't understand who is going to make the money in ten years. And that keeps me away.
来源：Source: Lecture at the University of Florida Business School ；URL: ；Time: October 15th 1998
2. What do you think of the banking business model?
We've been somewhat surprised at how well banks have done. Some have generated 20% or greater returns on tangible equity over many years, though this is in part due to increasing leverage.
[CM: "We misdiagnosed it and, even worse than that, we haven't changed."
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.
[CM: 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.]
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.
Financial companies are more difficult to analyze than other companies. They can report whatever earnings they want – it’s an easy game to play. For banks, earnings depend on loans and the reserves set aside. It’s easy to change and manipulate the reserves.
With a company like WD-40 or a brick company, the financials are easy to analyze. But with financial [companies] it’s tough, especially when you throw in derivatives.
There were very high grade, financially sophisticated people who were on the boards of the GSEs [Government-Sponsored Enterprises, such as Fannie Mae and Freddie Mac] and they were not negligent, but it’s very tough [to detect the shenanigans that went on].
Charlie and I were on the board of Salomon and Charlie was on the audit committee, and [it’s just impossible to evaluate thousands of transactions]. You’ll just have to accept that with insurance companies, banks and other financial companies – it’s just a more dangerous field to analyze.
With GEICO it’s easier because the statistics are quite accurate – it’s short-tailed insurance. It’s not like asbestos.
I wouldn’t fault the ratings agencies. Even the big-name auditors didn’t catch it.
[CM: Where you have complexity, by nature you can have fraud and mistakes. You’ll have more of that than in a company that shovels sand from a river and sells it. This will always be true of financial companies, including ones run by governments. If you want accurate numbers from financial companies, you’re in the wrong world.]
[Q - Small regional banks - what would you look at before you buy?]
WB: It is hard to make a categorical decision about regional banks. So much depends on the character of the institution. It will be a reflection of the CEO you have. A bank can mean anything. It can be an institution that is doing all sorts of crazy things. The Bank of Commonwealth was an example. We owned a bank in Rockford, Illinois, run by Dean Aback—he would always run a super, sound bank. You should know the culture of the management and the institution before making the decision to buy a bank. We own Wells Fargo and M&T, but it doesn’t mean they are immune. But likely they are immune from institutional stupidity. There was a wise man that said there are more banks than bankers. If you think about that a while, you will get my point.
CM: The questioner is on to something. So many large banks have cast a pall over the entire industry. You are prospecting in a likely territory.
WB: If you took the 20 largest and the 20 smallest banks in Florida, I don’t know if you could tell the difference.
CM: It is a territory that has some promise.
WB: That is a wildly bullish statement from Charlie. I may need to go start buying! [laughter]
来源：Source: Buffett Vanderbilt Notes ；URL: ；Time: Jan 2005
3. You’ve recently invested in Goldman Sachs and GE. Is the financial sector a good buy right now?
No sector is a good buy unless you understand the business. However, I do believe that there is good value and great opportunity now in the financial sector because it is extremely unpopular. Sector’s themselves don’t make good buys, companies that are undervalued make good buys. You know how to value a business, you project the future cash flows discounted to present and buy with a margin of safety. The earnings prospects need to be greater than the current value. Anything that is unpopular is always great to look at. If I was getting out of school right now, I would take a look.
来源：Source: Q&A with 6 Business Schools ；URL: ；Time: Feb 2009
4. Berkshire has invested in several insurance companies, would you go into the health insurance business?
No. Health insurance is so ingrained into national policy that it is a tough business. It’s pretty adversarial. I’m not really that excited about it from a business perspective. I don’t want to write policies with high loan loss ratios. That being said, I would buy the stock of an undervalued healthcare insurer.
Insurance is an interesting business. You know, we underwrote a two year life insurance policy on Mike Tyson. I wanted an exclusion against women shooting him, but they wouldn’t let me.
来源：Source: Q&A with 6 Business Schools ；URL: ；Time: Feb 2009
5. What industry will be the next growth driver in the 21st century and what do you see that supports that?
We don’t worry too much about that. If you’d look at the 1930s, nobody could have predicted how much the automobile and airplane would transform the world. There were 2000 car companies, but now only 3 left in the US and they are hanging on barely. It was tremendous for society, but horrible for investors. Investors would have had to not only identify the right companies, but also identify the right time. The net wealth creation in airlines since Orville Wright has been next to zero. If a capitalist had been at Kitty Hawk and shot him down, would have done us a huge favor. Or look at TV manufacturers. There are hundreds of millions of TV’s, RCA & GE used to produce them, but now there are no American manufacturers left.
If you want a great business, take Coca-Cola. The product is unchanged, they sell 1.5 billion 8 ounce servings per day 122 years later. They have a moat; if you have a castle, someone’s going to come after you.
Gillette accounts for 70% of razor sales at 80% gross margins and it is the same over time. Men don’t change much. Shaving might be the only creative thing they do, like painting the Sistine Chapel.
Snickers has been the #1 candy bar for the past 40 years. If you gave me $1 billion to knock off Snickers, I can’t do it. That’s the test of a good business. You don’t knock off Coke or Gilette. Richard Branson is a marketing genius. He came in with Virgin Cola, we’re not sure what the name means, perhaps it turns you back into one, but he couldn’t knock off Coke. We look for wide moats around great economic castles. Growth is good too, but we prefer strong economics. In the upcoming annual report I have a section titled “The Great, the Good, and the Gruesome” where I talk about these.
来源：Source: Emory's Goizueta Business School and McCombs School of Business at UT Austin ；URL: ；Time: February 2008
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