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100. Wesco Annual Meeting 2008 – Part 4 – Tutelage 19-24

2008 Wesco Annual Meeting –  Notes courtesy of Peter Boodell
http://valueinvestingresource.blogspot.com/2008/05/2008-wesco-shareholder-meetingdetailed.html

Tutelage 19. I think rationality is of immense benefit. It is a deep moral duty, you must hold it in trust and must hone it.

Q6: NY. Rationality? No one is 100% rational. How do you reconcile rationality with irrationality required for successful human relationships?

CM: There are some relationships you couldn’t have if you were rational. If someone asked you to join heroin smoking party, you wouldn’t qualify if you were rational. I think rationality is of immense benefit. It is a deep moral duty, you must hold it in trust and must hone it. People who are no good at it, they have to go to a different guru. I was born into a different skin.

Tutelage 20. If you have competitive advantage, you might even make a little more money with inflation.

Q7: WA. Inflation?

CM: If you have competitive advantage, and make 10% of sales, and sales go up 10% due to inflation, you will tend to make a little more money. Whether we will earn less or more, my answer is probably earn a little more.

Q8: UT. General Re. Brandon resignation.

We want to stay away from that subject. But we will stand behind Joe Brandon. He did a magnificent job. We stand behind that observation. I would trust him personally.

[applause]

Q9: TX. Howdy. US force feeding 2bil per day. $2b a day to other countries, is it sustainable?

I would not be running twin deficits if I was running this country. I would have policies that didn’t push things as far as they have been pushed.

Q10: Dan Rizowsky. Discuss opinions and which model to reach a resolution?

We come to agreement once in a blue moon. Very seldom does he do something I wouldn’t do. Once in a while will we change each others’ view. We’re like an old married couple, humph humph and a nod and it is decided – no conversation necessary.

Tutelage 21: Danger of Overconfidence: You hang around with fellow ideologues. You should avoid this. Many people are totally confident they know the answer. When you have this confidence you need to get over it.

Q11: Harold from LA. Comments on Alan Greenspan and Ayn Rand and finance professor who can’t believe the success of Berkshire. Has there been a time like today when facts on the ground count so little for people in position of power?

You hang around with fellow ideologues. You should avoid this. Many people are totally confident they know the answer. When you have this confidence you need to get over it.

Q12: James Armstrong from Pittsburgh. You have said that Moody’s and HBS have the best pricing power of anyone in the world. What causes Moody’s moat to shrink?

All the rating agencies with 20/20 hindsight have performed poorly. When you perform poorly you impair your franchise. They weren’t quite fundamental enough. Exact example of the kind of thing I was speaking about. In an attempt to make more, they made their position a little worse. This is obvious isn’t it?

Tutelage 22. If I was managing smaller money I’d be looking in smaller places, I’d look for mispricing. But I don’t want to change places with you.

Q13: Scott from LA. With portfolio of $2m, vs. that of Berkshire, how would your mandate be different? Small vs mid, us vs intl, etc?

If I was managing smaller money I’d be looking in smaller places, I’d look for mispricing. But I don’t want to change places with you. [laughter]

Q14: Matt from San Jose. California is single A rating. Only other one is worse is Louisiana.

Both parties have been gerrymandering the legislature. It’s hard to get elected unless you’re a left or right wing nut. It’s a perfectly natural result in an insane system. We are not voluntarily going to change the system. I was the largest donor to the last attempt to change this system. We went down in flames. Stay tuned.

Q15: Sam from Santa Monica. What are your thoughts on the war on terror and the war in Iraq?

A: You’re going pretty far afield. Terror is a hell of a problem. People are vastly overconfident in the solution. They are probably making an error.

Q16: Phil, shareholder. What would you do if you were Fed. Suggestions on short and long term solutions to credit crunch?

Changing the system so the system is more responsible. We had margin requirements for decades and the fed forced this. Now with the combination of options and derivatives margin requirements have vanished. Federal Reserve has no power to deleverage. I think the system is seriously wrong.

Tutelage 23. We are accepting way lower returns now than we were ten years ago. It is natural consequence of the world getting more competitive.

Q17: Casey from Pasadena. Strong return on intangible assets is what WB likes. What else do you look for?

We buy Kraft these days because we have so much money. We are accepting way lower returns now than we were ten years ago. It is natural consequence of the world getting more competitive.

Q18: What do you think of the treasury market with negative real yields?

It would be depressing if that was my best opportunity.

Tutelage 24. Avoiding the most extreme follies of man makes you better.

Q19: Forest from Ft. Worth Texas. Do you look at railroads from a replacement value standpoint?

Do you know what it would cost to replace Burlington Northern today? We are not going to build another transcontinental. And those assets are valuable, have utility. Now they want to raise diesel prices on trucks. Wish I was smart enough to identify this few years earlier. Avoiding the most extreme follies of man makes you better.