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103. Wesco Annual Meeting 2008 – Final Part 7 – Tutelage 37-43

2008 Wesco Annual Meeting –  Notes courtesy of Peter Boodell
http://valueinvestingresource.blogspot.com/2008/05/2008-wesco-shareholder-meetingdetailed.html
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Tutelage 37. I don’t think USD weakness will fix trade deficit.

Q41: USD Currency. How many months would it take for exporters benefit

I don’t think USD weakness will fix trade deficit.

Tutelage 38. On some companies moving abroad: It is the natural response to incentives.

Q42: MN. Insurance and healthcare: How can we go about having best medical care at lowest cost? Also, could we get your book in schools?

A lot of people think existing system is all bad. People tire of dealing with dumb insurance companies. There may be some reality. Changes have been hard. If you look at hospital I am Chairman, we used to knife the kidney. Now we use lithoscripsy, with a 100% cure rate. I would argue our specialist doctor was one of greatest doctors Los Angeles ever had. I think there are good things in system as well as bad. It isn’t clear how it will work out.

I do have one clear opinion. There is way too much intervention when dying. It is a national disgrace. They are way better at handling it in Europe than US. You can take pride in Europe at dealing realistically. We blow more money on stupid cases near death where no one is helped by the intensity of the interventions.

I have trouble getting my family to read my book.

Q43: US. Are we losing our competitive edge? Education failing, infrastructure falling down. Should corporations move abroad?

Some movement offshore for tax reasons is happening, and it hasn’t ruined the country. It is the natural response to incentives. Berkshire could save a lot of money, but we just haven’t done it. We have some companies in lower tax zones. But we pay enormous income taxes. There is a huge taxation claim between you and your money. We pay taxes that are astronomical. I hope they become more astronomical. There is some development to shift around to save taxes.

Should be concerned if it gets big, but it isn’t really big at the moment. Pharma co’s make drugs in Puerto rico, etc etc.

Q44: CA. Insurance linked securities. Can you discuss insurance linked securities? Are they a threat to quality of underwriting?

Of course. Like slicing and dicing insurance risk – it wouldn’t improve matters.

Tutelage 39. Only reason we’ve been able to keep a shred of decency in our record is that we have been hell bent to keep learning.

Q45: What has changed since you first started investing?

I owe a great deal to Mr Buffett. It took a while to convince me. Warren and I together got very good at reinsurance transactions and portfolio transfers. We’ve learned together at it. Berkshire would have been a mess if it had ever stopped learning. Only reason we’ve been able to keep a shred of decency in our record is that we have been hell bent to keep learning.

Tutelage 40. On Credit Cards: I don’t admire the guys who are good at acquiring the serfs.

Q46: There is no shortage of well regarded financial experts about debt – equal to great depression?

Pushing credit hard makes me nervous. I know how countries got ahead, and it wasn’t by pushing consumer credit to its extreme. I am not wild about the developments. But a great system will handle a fair amount of abuse. Some of the [credit] expansion was good. Do I like multiple credit cards being juggled? Do I look like kind of person who thinks that is good idea? It turns someone into a serf. You get customers just screwed together enough to pay you but who don’t realize cost of 36% interest… I don’t admire the guys who are good at acquiring the serfs.

Tutelage 41. For a security to be mispriced, someone else must be a damn fool.

Q47: Sweden. Why do you have so few followers?

From my point of view, we have too many damn followers. I don’t think we have shortage of followers. Of course great bulk of people do things differently because people running the systems have incentives to do it differently. For a security to be mispriced, someone else must be a damn fool. It may be bad for world, but not bad for Berkshire.

Tutelage 42. Marriage: Ben Franklin gave best advice, keep your eyes wide open before marriage and half shut thereafter.

Q48: Germany. What do you think of energy drink business and how to can you avoid a bad marriage?

I abuse caffeine, and I like soft drinks. I’ve never even tried an energy drink. There seems to be a growing market for it. Marriage: Ben Franklin gave best advice, keep your eyes wide open before marriage and half shut thereafter. [applause]

Tutelage 43. Warren says, ‘you should take high road since so much less crowded.’

Q49: TX. You said at the Berkshire meeting that if there is inflation, Iscar would make a lot more money.

Iscar is selling to very professional customers who know a lot. They can just raise prices like some consumer goods. If I gave impression they would make a lot of money, I didn’t make myself clear. Iscar is so good at delivering good products, it is hard for me to imagine them not selling more to customers who are making more money. They don’t have automatic pricing power. But a price increase is a price increase.

Q50: In 2005 both Berkshire and Bill Gates bought NZD. What do you think now?

I don’t have an opinion about NZ. Some things Warren does I just ignore. [laughter, pause] If I had something intelligent to say, I would say it.

Q51: Why the reluctance to own real estate?

Total real estate holdings are close to zero in the total enterprise. The Chairman has quirks. Old real estate purchases, at times we did borrow out equity in old real estate in order to reinvest it in Coca-cola and other things. We have huge surplus of cash now. But believe me we know all the tricks. We may behave differently in future.

Q52: Where would you sell an operating business?

We tend not to sell operating businesses. That is a lifestyle choice. We have bought well. We have a few which would be better if we sold them. But net we do better if we don’t do gin rummy management, churning our portfolio. We want reputation as not being churners and flippers. Competitive advantage is being not a churner. Warren says, ‘you should take high road since so much less crowded.’

Q: Amex Visa Mastercard. Can you compare these companies?

American Express has better customers, and we like that position, a lot.

Good friends – you are through another of our idiosyncratic meetings.