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SPRING MEETING IN OMAHA WITH WARREN BUFFETT

Transcript of "An Evening with Warren Buffett"
October, 2003
Eagle Run Golf Resort
Omaha, Nebraska

Warren Buffett: Last year, as you may remember, was not a good year for Nebraska. It was their worst in about four years. It got so bad that Frank Solich, our coach, was addressing a group like this and he asked for our help and he said, “What we really need is a fullback. And the guy I have in mind would be about 6’4”, and weigh 130 lbs.” He said, “That might seem like kind of an odd requirement for a fullback, but it’s the only kind of guy who could get through the hole if the line opens up.”

So we found our fullback. We have a lot of student athletes at Nebraska and I asked one of them the other day, “What does that big N stand for on your helmet?” And he said, “Knowledge.” He was close.

I’m here to answer your questions. I’ll ask one of them myself. It’s “How did you get involved in the Schwarzenegger campaign?” The answer is, “I won a look-alike contest. Saddam Hussein has a double and Arnold felt he needed one too.”

The Governor mentioned something in his talk that provided me with a question I sometimes get asked by people: “How do I get into a marriage—younger people ask me—how do I make sure I get into a marriage that will last? What do I look for in a spouse?” It’s an important question. They say, should I look for humor, character, intelligence, looks? I tell them, “If you really want a marriage that will last, look for someone with low expectations.” And I’m glad the Governor’s taking that attitude to Washington with him.

Now let’s talk about what’s on your mind. Anything goes. We’re all off the record—although, actually, I see something going on back there (the video camera). I’ll try to be as candid as possible.

Mayor Riordan: Warren, we talk about the gap between the rich and the poor and for a variety of reasons, the number of middle class is dwindling in this country. The buying power of the middle class has been dwindling for the last 30 years. What is this going to lead to? What do you picture the country being like 10 years from now?

I would say that, absent a progressive income tax system, and an estate tax, that the nature of compound interest, and the nature of a more and more specialized economy, will lead to greater and greater differences between the very top and the bottom. If you go back a couple hundred years in this country when we had four million people, you could take people with an IQ of 90, and they could satisfy 80% of the jobs in the country—whether it was farming, or tradespeople or whatever. As the economy has become more specialized, more advanced, and all that, the rewards and the job profile of what pays well compared to other jobs and so on, just gets tilted more and more and more toward people who are wired in some way or have special talents that enable them to prosper in a huge way in a 10 trillion-dollar-plus economy and disparities will widen. And basically we have had a system in this country that, through the tax system in various ways, has sought to temper what a market system will produce in the way of distribution and wealth. You really have unchecked, as it was many years ago, unchecked, you will have families like mine, or whomever, people that bring a small edge over the rest of the populous. They will prosper at a rate that continuously outpaces the others.

And you can see it in entertainment. If you’re a Frank Sinatra or something now and you have some edge over the others—the ability to sing to 280 million people, or if you’re the heavyweight champion with the ability to be seen in the homes of 280 million people or whatever number—it’s worth far more relative to the general laborer pay than it was 50 or 75 years ago. All technology advances and all productivity advances and the pure market system work toward greater inequality of wealth and we have a system in this country where generally we have sought to temper that somewhat through a progressive income tax and through the estate tax in the last ten years or so—and particularly over the last five years—we’ve seen a reversal and I think it could have some very unfortunate consequences over time.

I was lucky to be born here at this time basically. I’m wired to be good at capital allocation. I get no credit for it—I came out of the womb that way. I’ve worked at it, but people work at all kinds of things in this country and all countries to work at the job they’re in. But I was wired in a way where in a huge capitalistic economy, just taking little bites off what’s available, I could amass enormous sums of money. If I’d been born two hundred years ago that would not have been available to me. If I was born in Bangladesh it would not be available to me.

Now people who think they do it all themselves, I pose to them the problem of let’s just assume they were in the womb as one of two identical twins—same DNA, same wiring, everything the same—and a genie came along and said one of you is going to be born in Bangladesh and one of you is going to be born in the United States. All the human qualities are the same. Which one will bid the higher percentage of the income they earn during their life to be the one born in the United States? The bidding would get very spirited. I mean, all these qualities of luck and pluck and all these things that are supposed to take us to the top—you know, like Horatio Alger—would not work as well in Bangladesh as here. This society delivers huge opportunities to people who happen to have the right wiring. And it delivers a pretty damn good result to people who could function here compared to the rest of the world and compared to a hundred years ago; but the disparity will widen absent the taxation system. That’s one of the things you need government for in my view.

Our market system is a wonderful system. You look at this country and it’s interesting. In 1790, we had just a little under four million people. Europe had 100 million people. China had 300 million people. So here’s this little country—and our IQs might be different from the Chinese people or the Europeans—and they have natural resources and we have natural resources, but somehow those four million people have gotten to where they have close to 35% of the GDP of the world, even though they only have 4 billion—4 _ percent of the world’s population. What has happened here? Here we’re in this race—it’s only been going on now for 210 years against 300 million people in someplace else that are just as smart as we are. But somehow our system has delivered this incredible bounty. I believe the two most important things in that and they’re far from perfect—but I think we have more equality of opportunity so that the right people get to the top. The right guy ends up being on the Olympic team of science, or business, or medicine or whatever because we have not had the artificial barriers to quality rising to the top in various areas.

And the second system is the market system and we have had an inducement for people to purchase what people want and that has all kinds of wonderful fallout, but it also results in an incredible inequality of wealth over time and absent the estate taxes—well, with just compound interest, you could take my grandsons and you’d have a significant percentage of wealth eventually. And you need something that tempers where the market system leads to but you don’t want to screw up the market system. You want to let them make it first. You want to keep the Andy Groves or whether it’s Michael Dell or whomever, you want to keep those people working, long after they’ve got all the things they need in life. You want that energy and that talent working, because it does work for the benefit of everybody, but then you need to have something that prevents huge concentrations of wealth.

QUESTION: Along the same lines, I heard a speaker from India who talked of why America’s thriving—because in India, you know your dad’s a chemical engineer and that’s what you’re gonna be—whereas Americans under Christianity and capitalism think we can take and should get whatever we want. My question is how would you solve the terrorism threat—when people hate us now because of our wealth and freedom?

It’s the ultimate problem. I felt that way after 1945 because essentially you always have people who are psychotic or megalomaniacs or just plain evil or religious fanatics or whatever it may be. There is a certain percentage of people who for one reason or another are sociopaths and thousands of years ago their ability to afflict harm on their fellow man was the ability to throw a rock at somebody and it gradually went to bows and arrows and guns and a few things. But up until 1945 the ability of misdirected people—which will be more or less proportionate to the population over time (maybe you could make an argument that prosperity may reduce it a little bit) but there’s just a lot of screwy people. I mean, I’ve been to the mental institutions in Nebraska and my father-in-law taught psychology and I used to go down with him—I mean, there are just people who are not very well fit for society and until 1945 their ability to afflict harm on their fellow man had progressed, but it had progressed at a tolerable level. At the time of Hiroshima and from that point forward, there’s been this exponential increase in the ability of deranged people who one way or the other—perhaps leading governments, perhaps acting some other way—to inflict incredible harm on their fellow man.

It takes four things. It takes intent and there will always be a certain amount of intent in the world. There will be people that are envious; there will be people that are crazy and so on.

It takes intent. It takes knowledge. It takes materials. It takes deliverability. The knowledge has spread. We had a monopoly on nuclear knowledge in 1945 and thank God we had it because if Hitler hadn’t been so anti-Semitic, basically, he might well have had it before we had it. But we got the knowledge first. Most of you aren’t old enough to remember, but Hitler was lobbing those B-1s and B-2s over into London, but the warheads were nothing. But if he’d gotten them first, it would be a different world, or maybe no world.

So the knowledge since ’45, when we had the monopoly on this incredible knowledge, has spread. You have Pakistan, you have India, you have individual groups. Materials are tougher in the nuclear arena. Now if you get into bio the materials get easier but we still have the same levels of damage. But you get suicide bombers and things like that and the materials are peanuts in terms of cost and the knowledge is there. It is a problem that we do not have a perfect answer for and all we can try to do is reduce the probabilities of somebody successfully doing something on a large scale. It will happen. It will happen with nuclear. In my view it will happen with bio. Probably a little more likely to happen with bio in the next, say, ten years than with nuclear but the truth is there are a lot of people that have the ability to do things. I’m in the insurance business, and anything that can happen will happen.

If you take the last 300 years in America, where do you think the largest earthquake was in the continental United States? It was in New Madrid, Missouri. 8.6. The Mississippi River ran backwards. Church bells rang in Boston. Another big one was in Columbia, South Carolina, and everybody’s forgotten about that. It killed 70 or 80 people, 6. something. Things happen over time. You just can’t keep drawing balls out of a barrel with ten thousand white balls and four black balls, we’ll say, without eventually drawing a black ball. We almost drew one during the Cuban missile crisis. It was touch and go. We sent the second message, then the contact with the guy from ABC. But there was a lot of luck involved. I know people who were there at the table. And they didn’t know if their kids were going to be alive some weeks later. But we got through it. And basically, we’ve been very lucky, but we’ve also done the right things over that time. It doesn’t work forever. The bio thing, I mean, it’s scary. Anthrax isn’t as easy to deliver. The deliverability of Anthrax is a problem. You can take the amounts in those few envelopes and it would kill a hundred thousand people but it’s a problem to disperse. The progress of weaponry over the years (if you want to call it progress) has been dramatic.

When I formed my foundation in the late ‘60s, I said that the number one problem was the nuclear threat and I just don’t know how to attack it with money very well. I support something called the nuclear threat initiative.

The great problems of society are the ones money won’t solve. Probably true in your families too. The problems you have where money doesn’t help—those are the real problems. The problems that money can help, this country can one way or another solve. And the ultimate one is the one you mentioned there. There are people in the world that want to do us great harm. We’re more the target than anybody else. Some of them will have the knowledge, fewer will have the materials; they won’t have the deliverability.

But North Korea—there’s a small probability in the next year that something happens with North Korea. I don’t know whether it’s .01 or .03 or .005, but it is a probability. There’s some probability of it. And there’s a probability of all kinds of other things. People would have thought it was science fiction if you’d have written about what would happen at the World Trade Center a few years ago. That 20-odd people could carry it off with box cutters and so on. It’s the problem of mankind. Our job is to reduce the probability in every way we can. The number one way is to try and do whatever you can to deter the further spread of nuclear weapons. Like India and Pakistan each have that ability and they have the hatred that’s existed over the years and the sort of incidents that developed by accident.

President Clinton was here last Saturday at my daughter’s house and we had lunch and we were talking about India and Pakistan. He worked on a solution I think it was right on the eve of the State of the Union message a few years back. And he didn’t know whether something was going to break out or not. The consequences are just huge. It’s the number one problem of mankind. I don’t have any great answers, but I think that the Commander in Chief—it’s his number one job. Whatever it may take in terms of our borders, in terms of solving the problems of stockpiles around the country, cooperating with the Russians, get rid of a lot of the material like that. It will be the problem of your lifetime and your children’s and your grandchildren’s.

With all the storm of regulation in the last couple of years on the subject of corporate governance, could you say something about your views of the essentials of good corporate governance?

Well, I’ve got a somewhat different view. I’ve been on 19 public boards and corporate business boards over 40+ years, public companies, not counting anything Berkshire controls. And I’ve seen a lot of interaction of boards. And the problem has been overwhelmingly that boards, despite the fact that they exist in a business environment, tend to be social organizations. I think it’s very difficult for these people on the board—(I was put on the board of Coca-Cola in 1988)—to go in there and start questioning Roberto Goizueta in terms of his compensation. And incidentally we didn’t even know as board members what the compensation was. I mean you read the proxy statement unless you were on the comp committee. And they never put me on the comp committee. And I’ve been on all kinds of committees. They’ll put me on the greetings committee, the gardening committee—anything really, the dance committee. They don’t put me on the comp committee—I wonder why?

But it’s a social organization to a great degree. And generally speaking, the only thing, absent a very large shareholder who’s unhappy with something going on—the only things that really cause change is when people on the board get embarrassed. Because you get a bunch of big shots on the board. I call it “elephant-bumping” when you go to board meetings. Everybody looks around and you see all these elephants, and you think “I must be an elephant too.” It’s very reassuring. You don’t want to sit there and belch in a board meeting because it just isn’t done, like questioning comps and questioning acquisitions, and other things worse than belching (we won’t get into what that is). But it’s a social operation and the question is—how do you break out of something like that? And it’s not easy. The hardest problem is dealing with mediocrity.

I mean, if Frank Solich at Nebraska has a mediocre quarterback or whatever, he’s gotta do something about it or he won’t be coaching next year. When a Fortune 500 company has a mediocre CEO—a perfectly decent guy, good family man, a friend of yours or picked you for the board, what’s your incentive to, perhaps, you know, to get rid of him? It isn’t going to happen. It just doesn’t make that much difference. And of course when you get to the comp committee, it’s ridiculous, because you have a CEO on one side to whom this whole thing is terribly important and then you have a comp committee for whom it’s play money. I mean that’s what I call it—play money—because it doesn’t mean anything to him.

So you have an inequality of marketing intensity that’s very difficult to write rules to solve, frankly. But I think the ideal quarterback (and we talk about this when we talk about the annual report), but you want somebody that’s business-savvy. There are a lot of people on boards that are very smart people but they don’t know anything about business. And if I was on a hospital board, I wouldn’t know a thing about running a hospital or medicine. And I wouldn’t after a year or two if a bunch of guys came in in white coats every meeting and explained something to me for an hour or with a power point demo—I wouldn’t know anything about it. I just wouldn’t understand it. I could be sold any bill of goods they wanted to sell me.

And the same would be true if I was at Cal Tech and they were talking physics. And it’s not that I’m not smart enough to do crossword puzzles or something. But I just don’t know the game. And there are loads of those people on corporate boards in America that have big names and they have no idea how to run a lemonade stand. And it’s nothing wrong with them—they know how to do very well what they do. So you need business savvy, you need a shareholder orientation, which is lacking in a great many directors. You need interest, they’ve gotta want to show up because they’re actually interested in the business, and not because they’re interested in the fee or something.

And then you do need something called independence. But independence has statutory defined just does not work for them. We at Berkshire have a whole bunch of people who would meet every statutory test of independence, but if we paid them a lot of money (which we don’t at Berkshire for reasons I’ll get into—it may be obvious if you know me). But if we paid them $75,000 a year and their total income’s $200,000, we’ll say, and they’re hoping to get on one more board and get another 75—they are not independent. But real independence comes from an independence of mind and partly, at Berkshire we pay our directors basically nothing. We don’t buy directors and officers insurance. They’re not taking home insurance. We’re just about the only ones on the New York Stock Exchange who don’t buy it. We want directors who have a lot of their own money in the stock. Not options. Not stock grants. Their own money. Just like I do and just like a lot of other people—and like our owners do. We want them to have no interest in the fees they’re getting so we don’t pay them anything. We want them on the hook for bad decisions. If they’ve got the wrong guy running it we want them to suffer just like the shareholders do. So we leave them with a downside. And we’ve got some very business-savvy people. They know business and in each case they’ve got at least a million dollars in stock and they get $900 a year. So their interests are aligned with the shareholders. And I could have ten people who met the stock exchange definition. They’d all have prominent names. And if the money was important to them they’re not independent. They’re not any more independent than the salaried employee of Berkshire if they’re getting a third or a fourth of their income from it.

So it’s a difficult question to tackle. There are two functions, really, that a board has to look at—you want to have the right CEO and you want to make sure he or she doesn’t overreach. And if you get that job done, that’s all you need. You need the right players at bat and then you’ve got to make sure they’re not taking advantage of the people who are on the team, basically. And the right CEO question is very tough, if you’re on the board and you’ve got a reasonably good person, but you know you could go out and get better.

And the overreaching has been very tough in recent years. Frankly people want to appraise something. They’ve brought in consultants and the consultants were basically hired by the management. And if they weren’t they still do what the management wants so they’ll get recommended to other firms. And it’s been a one-sided, dice is loaded game. And I know what our approach has been at Berkshire in order to tackle that. And it’s been quite unorthodox. But we’ll do it. We still have to follow the rules. I have to make sure we qualify in other ways too. But I don’t pay any attention except to make sure we follow the law. But that is not the way we select directors. And interestingly enough, I said in the annual report we have to get some more. And I heard from about 30 people and I said they had to have owned their stock for some time. And these people had millions of dollars, each one of them, and they were willing to take the job. And they were interested in the business. And we picked a couple and we may pick another one or two.

I think some companies are making some progress. I think Jeff Immelt, for example, at GE is leading the way to some degree in terms of trying to set up the company’s governance in a way that makes the most sense to the shareholders of General Electric. And he’s taken the lead in that. He wants to do the right thing and he’s going to be around there for 15 or 20 years and it’s interesting to me—that kind of person. And you’ll find that. But basically, most CEOs have learned how the game assists them and they’re not going to give it up willingly.

Is there anybody I’ve forgotten to offend?

QUESTION: I’m interested in your opinion of American manufacturing. I know that you’ve invested in Montgomery and mobile homes and Shaw Industries and I know that most of those companies don’t have the breadth of Chinese manufacturing coming at them. And I was wondering if that is an absolute staple of how you analyze a manufacturing company; is it childproof?

Berkshire Hathaway started the textile business; in fact it goes back into the 1800s if you go to all the predecessor companies. I got in in 1964. We had a couple thousand employees in New Bedford; it was down from 12,000 by the time I got there. Twelve thousand had cut down to two thousand. We had a couple thousand people—very decent workers, working for low wages. It was a lousy job in terms of pay. They were skilled at what they did. Mostly Portuguese. New Bedford was a whaling town and there wasn’t one thing wrong with that labor force. And we got killed, basically. If you talk about comparative advantage in this world, people are willing to work a lot cheaper someplace else. And there wasn’t any answer. And when you talk about retraining people—these were people 55 years of age. I mean, a prosperous society has to provide a safety net for people like that. Through no fault of their own, they were in a position of being a horse when the tractor came in. There’s no other way to put it. They didn’t have the ability, at 55 or 60, to find work as computer experts. The free market did them in. The free market, of course, does all kinds of good things in this country, but you have to take care of people like that. That happened in textiles; it’s still happening in textiles. It’s wiping out the Burlington industry, WestPoint companies, Tultex. Bankruptcy after bankruptcy after bankruptcy. They won’t come back.

I also got into shoes. This country literally—Americans buy 1.2 billion pairs of shoes a year. We’re a nation of Imelda Marcos’s. I buy a pair of shoes about every ten years or so. But a billion 200,000 pairs a year. Practically all of that was made in this country except the very high-price lines, 40 years ago, you know Rockford, Massachusetts. It’s down probably under 4% now. We were one of the last American manufacturers of American shoes. We did them up in Dexter, Maine. I bought the company some years ago and they had terrific styling and the whole works. We had a great labor force. Management loved the people, the people loved the management and we were making decent money and the money just went down the tubes. Because somebody else was willing to work for one-tenth of the wages of the people of Dexter, Maine. There is no domestic shoe industry as a practical matter today.

The same thing is now happening in furniture as Bill Child will tell you. Bill, twenty years ago, I don’t know what percentage of your purchases were made over there. But they went to North Carolina, they went to Drexel, to Broyhill and all these people. And now we go there and a lot of those people are buying over in China, so we go directly and buy it ourselves. We’re big enough so we can make our own direct purchases instead of somebody else buying it and stamping their name on it and marking it up 20%. The furniture industry, at least in anything but high labor content, is leaving us and it’s not the fault of the workers at all. It’s just the nature of the globalized sourcing, in effect.

Now you mention Shaw Industries. Shaw is the largest manufacturer of carpet in the world. We have sales of 14.5 billion now. Labor’s only 15% of carpet. As a practical matter, if you analyze all the cost factors and everything, it will go there. We also own Fruit of the Loom. That manufacturing, 80% of it has gone to Central America. First it went to Mexico and now it actually goes to Guatamala and places like that. As long as we believe in free trade in this country, you’re going to have all those high labor content businesses—actually even things like software, now India has become a real factor in that industry. And Bill Gates with Microsoft is working more and more with people in India. It’s a real problem in this country. I don’t know what industries are next. But you’re talking millions of people when you go from textiles, and shoes, and now furniture, and there aren’t great replacement jobs for those people. They’re not going to move into all kinds of wonderful jobs.

There’s a significant percentage of your population that is non-productive so that productive people have to turn around and be offered more. It puts more and more strains in the economy. The fact is, we’re seeing some of that.

I’ve learned the hard way. I’ve learned in the shoe business and the textile business. And I’ve learned the hard way. There are times you cannot fight. You cannot fight with labor at X here and at one-tenth, or even a fifth, or fourth X someplace else. People aren’t going to buy it from you just because it says “Made in America” on it. They’ll go to Wal-Mart and if our Fruit of the Loom underwear—forget the quality—if it has the best price on it, we’re gonna sell it. If somebody figures out how to do it for 50 cents-a-three-pack or something cheaper, then we’ve got a problem. We’re okay because we’ve got 16,000 people working for us outside the United States and about 4,000 people working for us in the United States.

QUESTION: I’ve listened to you for a long time and studied your work. It seems to have evolved as you’ve gotten into things like NetJets and recently I’ve read about your investments in China and the oil industry. And I just wanted you to give us some insight with your desire to not be capital-intensive—industries that require any capital spending—how NetJet works.

Well, we try and get, you know, flight. That’s sort of funny. Flight is a very expensive piece of equipment. The airline business, it’s been the great capital trap of all time. If you look at the history of the airline business, it’s been about a hundred years exactly. No money has been made transporting people. I mean, just imagine, you go back to Kitty Hawk in 1903 or whenever it was, and you have this picture all of a sudden of what it’s going to look like with planes carrying four hundred people, going coast to coast in five hours and all of the things that would open up. And you say, you know this is unbelievable. Everybody’s going to get rich. And yet, it’s been a loss, in spite of all the capital that’s been put in.

If there’d been a capitalist down in Kitty Hawk he should have shot down all of them. There’d be a statue of him in my office. Here’s the man that shot down Orville and saved us all a fortune. But the reason it’s a lousy business is because the equipment is so expensive and also because of the costs. And because it’s a commodity business to a big extent. I mean, in the end, if you’re running XYZ Airline and you open up USA Today in the morning and your competitor’s advertising a lower price, you’ve gotta match it that day.

That’s not true if you sell See’s candy, like we do in the West, or something of the sort. You just tell people that cheap candy’ll kill you. If you’re in the commodity business, with huge capital requirements, heavily unionized, it’s just going to be a capital trap. And that’s been the case. In our case, at NetJets, the customer owns part of the plane, but they save a lot of money as compared to owning a whole plane. You know, the more you buy, the more you save, or some crazy thing like that. But I’ve met a few customers here and nobody gives it up. I mean, my daughter here is a user of it—she’d trade her parents away for another fifty dollars of NetJets probably. Once you’ve been with NetJets going back to commercial aviation is like going back to holding hands. That’s not the direction you want to go.

PetroChina you mentioned which is a huge oil company, that’s very capital-intensive—we just own stock in that. That’s like our stock in Coca-Cola. It’s true; it’s the only stock we’ve owned in China. But there are company stocks you can own in China that are big companies. PetroChina’s a very big company. PetroChina, turns out, produces almost as much oil, 80% as much as much as Exxon-Mobile, we’re talking real numbers there. But it’s also very capital intensive. But compared to the Exxon-Mobiles of the world, Chevron and those, it’s selling at a very low price. And it should sell for a lower price. Although one of the reporters at our annual meeting, afterwards he said, how can you buy stock in a company run by a bunch of Communists? And I said after seeing some of American management I actually preferred that. It’s just a stock with us.

QUESTION: We’re all going to grow older. Who should administer, I mean, how are we going to handle our medical economy situation?

There’s a good book that just came out by the guy that runs Kaiser. I’m trying to think of the name of it. It describes the problems that we are in already and that we face. Like 13 or 14% of GDP is going to turn into higher percentages. And that is an incredible percentage. It’s almost twice what anybody in the world pays. And the answer in medicine with all the developments that go on, and with the fact that treatment basically gets more and more expensive and people live longer and longer, one way or another it has to be rationed. That’s a terrible word to use in connection with something like medicine. But it’s happened. It happens over the years, it may be rationed by waiting time, in some socialist systems. It may be rationed by money when you get to very high specificities. But in the end, it’s unlimited demand, virtually, and in terms of the costs, in terms of certain illnesses. And this country I don’t think will work very well if 20% of GDP is going to medicine. Most medicine, obviously, involves people beyond productive age.

Young people don’t support you. Old people don’t support you. It costs $11,000 per student in the New York City public school system. Per family of four, it’s $44,000 a year. Somebody’s paying for it. That’s a tax on people who produce. It’s a tax we bear, kind of an intergenerational compact we have over the years that you take care of me, then I produce in the middle, then you take care of me when I get old. Society does it, society should do it. But that equation gets tougher and tougher as you get more and more people in the young part and the older part because the people between 21 and 65 are the people who have to turn on the output to take care of everybody; and that means not only the manufacturing businesses but in services like medicine.

We’re now starting to hit that again. We had a honeymoon period for a few years, where in effect, hospital stays were reduced. It used to be in terms of maternity wards, people would be in for a baby and might be in for a number of days, and we’re cutting it down. HMOs came in and bargained down prices and all that sort of thing for awhile. But now we’re out of that phase and you’re starting to see these 10% a year increases. And you start getting 10% a year increases for companies in a world where the GDP is drawing 3-4% a year. And somewhere it starts biting and biting badly. So we will see. We will see some systems that put in more perks as they go along. There’s just no question about it.

QUESTION: I wanted to go back and ask a question. When you buy a company, is it a selection process, or a voter-type process?

It’s selection that pulls the culture. And the culture evolves more or less. But selection you start with. The first thing I look at when somebody wants to sell me a business before making a decision—do they love the money or do they love the company? If somebody loves painting, they may make a lot of money selling paintings, but they’re going to keep painting. If they love playing golf, they may make a ton of money, but they’ll keep playing golf. Jack Nicklaus will be out on the Senior Tour, whatever. If they love the money, they’re going to take the money, and they’ll promise me they’ll go to work for awhile; then after six months, they or their spouse will say, “Why are you jumping out of bed at 7 in the morning? You spent 40 years building this business and now you have all the money in the world and you’re still doing the same thing as before just so you can send a lot of money to Omaha.”

I think that decision is the most important question I’ve got to ask. I ask questions about the economic characteristics of the business and the price I’m paying, but I don’t have any management in Omaha. We’ve got 16 people in Omaha and we’ve got 165,000 employees. So we just don’t have anybody to send out. We don’t have any firemen. So I have to count on the people who sell me the business, they take hundreds of millions of dollars, like Rich Santulli at NetJets and they’re still going to want to get up at 5:30 in the morning and Thanksgiving weekend when everyone’s in such hurry because they all want planes at the same time. Solving those problems and the thunder storms in the east and whatever it may be. And when they get all through at the end of the day, wanna do it again the next day.

We’ve had a problem frankly, in finding those kinds of people, because three-quarters of our managers, at least, have more money than they or their kids or their grandchildren will ever need. They’ve monetized a lifetime of work or maybe their parents’ work or their grandparents’ work. But they’ve monetized that when they handed the business to us. And now they’ve got an option. And if they love the business, they can’t stop. Why do I work? I can’t tell you how much I love what I do. I would pay a lot of money (of course we don’t want the shareholders to know)—but I would pay a lot of money to have this job. I mean, I would do it under any circumstances. But the truth is I could anything in the world that I want, but this is what I like doing. It has nothing to do with how much I get paid. It just has to do with two things. It has to do with me getting to do what I like to do the way I want to do it. If somebody was telling me what I had to do every day I’d be gone tomorrow. Why in the world would I want to do that with the kind of money I have if I was being told what I had to do and how I had to do it, and whether to part my hair on the right or the left, or what to wear to the office or anything like that. I’d just say goodbye.

And secondly, I like appreciation. I like the fact that by and large our shareholders are appreciative. I’ve got an audience that I like and that’s what causes me to work when I don’t need the money. It’s probably what will cause other people to work in the businesses that we buy, assuming they love the business to start with. So we let them run their own business to an extraordinary degree. And we applaud. And if they get applause from me they’re getting it from a knowledgeable audience. I mean, I know business and I know enough about business to know when applause is due and when it isn’t. So they’re getting it from a good critic, as far as they’re concerned. And they’re getting it from our shareholders in turn, because I pass along the reasons for applause. And that’s what causes people to love it. They’ve got to love what they do. There’s just no way around it. And if they don’t, money isn’t going to keep them.

And we’ve never had, well, since 1965 I don’t know how many businesses we’ve acquired, but dozens and dozens. And we have never had a CEO leave us for another job voluntarily. We’ve had to make a couple of changes in 35 years, except this year in one company where the founder brought in a CEO to work jointly with her and the two of them, it just didn’t work. And that was over in a couple of months. But both of them feel good about Berkshire and it just doesn’t work to have two people try to run that kind of business. And it usually doesn’t work, but sometimes it works very well. We’ve had cases where it does work very well. So there’s no magic to it, but you’d better be sure that they love the business in the first place and that you let them paint their own painting. I mean, I feel like I’m on my back, and there’s the Sistine Chapel, and I’m painting away; it’s my painting, and somebody says, “Why don’t you use more red instead of blue?” Goodbye. It’s my painting. And I don’t care what they sell it for. That’s not part of it. The painting itself will never be finished. That’s one of the great things about it.

And I like it when people say, “Gee, that’s a pretty good-looking painting.” To me, that’s what management is about. Management is getting things done through other people that you want to get done. The way you get it done through other people—is to get talented people and let them work in a way that causes them to be more excited about it than they’ve ever been before. And we get that. Flight Safety. Al Ueltschi started that in 1951 with $10,000. Here’s a guy that flew Lindbergh. He’s 85 years old now. He built his own business and he got a billion dollars worth of Berkshire stock as a matter of record. Here’s what else he does—he works seven days a week and he solved his problem when he sold the business to Berkshire some years ago. Because here he built this thing—it was his painting—and he worried about what’s going to happen when I die? I have a very simple rule. I say, look, you can sell this painting today and we’ll hang it in the Metropolitan Museum or you can sell it to some LPO operator and it will hang in a board room.

Now if you want this painting you’ve spent your whole life on hanging in a board room, that’s fair enough. And maybe a few bucks is worth it. But we’ll put it in the Metropolitan Museum and we’ll name a special wing after it; and not only that, you go on and keep painting. And that’s what Al wants. And when he sold it to me, his life is better afterwards, because that’s the one thing he worries about. You worry about your children. It was too important, when he’d built this thing for 40 or 50 years. A line I used with him—I told him, look, don’t worry about it. If you die tomorrow, some 26-year-old trust officer is likely to auction the place off. And that drives him crazy. But you do want to know what happens to your family. You do want to know what happens to your business. And that filters out all kinds of other things. I mean, in the end we’ve never bought a business at an auction. It won’t happen. We’re not interested in that. They dress up the figures and do all these other things. It’s not going to happen. But we’ve got a filter so I don’t have to review a thousand to buy two or something like that. I’m probably looking at three to buy two or something of the sort because we have filters they pass through before we even think about it. And we make deals over the phone. We bought the McLain Company from Wal-Mart—22 billion in sales—but to complete the deal was 29 days. The CFO from Wal-Mart came up to Omaha. We talked for a couple of hours and we shook hands on a price. He called down there, came back and said okay. And he said, what due diligence do I realize? And I said, “I’ve just done my due diligence. I’ve asked you a few questions.” We closed it 29 days later. We’ve never had a deal that closed that fast before the one with Wal-Mart. They loved it and we loved it. We’ve got a great guy running it.

That’s what I want to do in life. I mean, I don’t want to go through buying things at auction and trying to find the MBAs that are coming out from other places. I’d rather just find four hundred diggers that want to keep playing the game.

QUESTION: What’s the best business you’ve ever invested in and is there a favorite deal you’ve ever done?

My favorite deal’s going to be the next deal. It’s tomorrow morning—it’s going to be more fun than any day I’ve had a job as far as I’m concerned. And that’s the way it is in what I do. We were talking about it at dinner, I mean the best kind of business to be in is something where you sell something that costs a penny and sells for a dollar and is habit forming. We haven’t found that yet but we sell things a little like that. We sell candy in the West, See’s Candy. Now unfortunately boxed chocolates are not big in this country, there’s about 1 pound per capita. Everybody loves to eat them and get them as gifts but they don’t buy them to eat themselves, it’s a very interesting phenomenon. I mean there’s nobody here that wouldn’t like to get a box of chocolates for Christmas or when they are in the hospital or a birthday. But you don’t go to a shop and buy it whereas in other parts of the world people do that, so it’s a small business but it’s still an important business. It’s a great gift and very seasonal. I mean, we made 55 million dollars last year. We made 50 million in the three weeks before Christmas.

Our company saw what is apparently a come to Jesus moment. Can you imagine going home on Valentine’s Day, you know and saying, there’s my sweetheart and unwrap this box saying Happy Valentine’s, Dear, I took the low bid. Price is not a determining factor. If you are selling something for five dollars a pound, you don’t have to worry about somebody selling for $4.95 a pound and taking away the market like you do in a lot of things. It’s what’s in the mind that counts. And if you gave a box of chocolates on your first date to some girl and she kissed you, we all knew. As long as they are our chocolates. If she slapped your face, we’re never going to get you back, that’s not going to work. It’s got to be very good chocolate obviously, but everybody in California has something in their mind about See’s Chocolates. Just like everybody in the world virtually has something in their mind about Coca-Cola. They have something that I call “share of mind” and “share of market.” They’ve got something in their mind. Now they aren’t going to have 28 things in their mind. All we want with Coca-Cola are those that are associated with happiness. So we want it at Disney World, we want it at Disneyland, we want it at a baseball game. We want it everyplace people are happy. We want Coca-Cola because we want that association. Tastes terrific to drink too.

But it’s going to be something in the mind about it that makes people feel good about the product. So someone else is selling something in a can for one penny less—they don’t shift. And if you say RC Cola to people, it’s been around for 75 years, but there’s something in your mind about RC Cola. Other than that, it doesn’t bring anything to mind and if you are selling a consumer product you want it to be in as many minds as possible with as favorable connotations as possible. And the truth is you can go in, this is one of the ways I look at business, I can give you a billion dollars and tell you to go to California and try and beat us in the boxed chocolate business and you’d say to yourself, how am I going to do it? Am I going to sell them for cheaper prices? Am I going to get new outputs? You can’t displace it because you can’t change what’s in peoples’ minds with a billion dollar advertising campaign or anything of the sort.

You could build a shoe factory in China that will put us out of business because in the end you may care a little bit. Remember Florhseim shoes or Big Men shoes 20 years ago, they’re gone. You don’t really care what shoe, you care what it looks like and if it’s a name you recognize, fine. You don’t pay something extra for it and you sure as hell don’t look at the bottom of the sole and see if it says “Made in the USA” or not. You really need to be in something where cost is not the controlling factor. Hershey bars—you know, you go into a drug store and say, “I want a Hershey bar,” and the guy says, “I’ve got this private label I make myself, same size as a Hershey bar and it’s a nickel cheaper.” You walk across the street and buy a Hershey bar some place else. That’s when you have a business. It’s when you walk across the street if the guy tries to sell you something, even if it is a little cheaper.

But if you sell wheat, my son lost a farm and it’s a terrible business, and I told him the day someone walks into a place like this and says, “I’d like some of [name-brand] corn, please,” you know you are in a good business. But when they just say “Bring me some corn,” it’s a lousy business. In fact, such a lousy business, they had a fella that I read about that he won the lottery and he was a farmer here in Nebraska that won 20 million dollars and the TV crew went out to him and asked him, “What are you going to do with the 20 million dollars?” He says, “I think I’ll just keep farming ‘til it’s all gone.” That’s what happens when you are in the commodity business. You don’t want to go near it.

QUESTION: What do you think about the prospect of the current economy and how would you change economic policy?

I pay no attention to economic forecasting. Your children are, absent of the terrorism thing, but in terms of material wealth per capita, your kids are going to live better than you and your grandchildren will live better. And again in the 20th century, real GDP per capita, real GDP, one of seven for one in this country, just think of that, seven times. You can cash that out to fewer hours of work or more product or all kinds of things. But it’s a wonderful, wonderful economy and it’ll get better over time. Now to make any given 20 or 30, assuming I have 20 years left, there will be a few lousy years and there will be a few so-so years and most will be pretty good years and a couple fabulous years and I don’t know in what order they are going to come. But if I’m a good golfer and I haven’t played a course here before and I knew there would be some par 5s and some par 3s, I’m going to take some more strokes on the par 5s than on the par 3s on average. The importance is that I play, that I play each hole well. In the end I will end up with a good score. I can’t just go around and play the par 3s. I can’t do that in business. I worry about being in good businesses with good people. That’s all I focus on. Never base a decision in business, I’ve never based a decision on expansion of a business or anything like that based on an economic forecast because A) it’s not reliable and B) it’s not important. What is important is where we are going to be in 5 or 10 or 20 years in the country and will we be better off for this. So we don’t have any clear-cut economic forecasters. My partner Charlie and I never talk about it. We just talk about how can we put the money out in businesses that we have owned forever, with the kind of people we can trust.

QUESTION: Could you talk a little about your foray into telecom and maybe about the MCI convergence?

There hasn’t been much of a foray in telecom to start with that. Telecom is not a business I understand very well. I have no insights into that business. It’s always struck me as a very competitive commodity-type business, capital intensive. It’s just not a game where I have any kind of any interest at all. I’d rather sell candy or something of the sort, where you can understand the competitive advantage. But I don’t like businesses that are going to change a lot. I like Gillette, you know a hundred years ago almost, they were the dumb regular blade. Like value, they sell over 70 percent of the blades to the rest of the world, in the world—70 percent. Everybody knows how to make them; they don’t have to steal the technology; they don’t have to distribute them. But here’s a company that has 70 percent overtime. So it’s a great, great business. It will dominate 10 years from now. Dominate 20 years from now. Berkley will dominate surely 10 years from now or 20 years from now. Coca-Cola will dominate, but who’s going to do what in telecom? I don’t even know what’s happened in the past very well and I have no idea in a fast-folding industry what’s going to happen. So I view the change as beneficial to society but potentially very harmful to investors. Absence of change is how you get rich in investing. If you buy something that’s very good and you don’t worry about it changing on you and there’s certain mysteries that run themselves with that, there’s certain industries that don’t. Anything with a lot of technology is something to be very wrong on in a short period of time. Now people say you can be very right on it too but I don’t know enough to know the difference. I haven’t run into very many people that do, occasionally people think they do but it’s very hard to predict.

Look at the television industry. Television changes the lives of all of us in this room. I don’t think there’s a television set being manufactured in the United States that there aren’t 20 million of them being sold that were manufactured elsewhere. Radio came along and nobody made money after a little while making radio sets. There’s just all kinds of things that are beneficial for society that involve change. Just take the computer business. If you look at the people that got into computers 30 years ago, you had people like, well I can go down the list, it was a lousy business. Wonderful for society, grew up on it. But it was like, we might use the example of the auto business. 2,000 auto companies in the United States were formed ­ 2,000. There was an Omaha Motor Company. There was a Nebraska Motor Company. There was Maytag, there was Dupont. What you’ve got left, you’ve got two companies struggling and the third sold out to the Germans. They are running the company basically for the pensioners now. It’s been a terrible business model for this country. But it’s thoroughly fascinating. It’s little niche businesses like WD-40, or something like that, that do very well. Just a little something to stick together. Auto manufacturers turn out millions of cars and hundreds of thousands of people work there and they are lousy businesses. Capitalism has had growth in that sense. You can develop a good restaurant and somebody can come along and copy it the next day and figure out something new to add to the menu or add a little more parking. People are always looking at successful models and going after them. That’s terrific for the consumer. It can be very brutal to be in those kinds of businesses. Like McDonalds sort of owned the world 20 years ago, but not now. Wendy’s is doing better. Burger King is kind of struggling. It’s tough. I don’t like tough.

QUESTION: Tell us a little bit about why you’re involved in California.

California: A) I’ve spent more time in California than any other state, except for Nebraska. I’ve had a home up there for 30 years. The big reason is California is too big to ignore. California is the size of France in terms of GDP. I mean it is twelve or thirteen percent, or whatever of the United States’ economy and it’s important to Nebraska that California do well. We will not do wonderfully in Nebraska if California is a mess. And California is a fiscal mess. I mean, in May of this year we were approached by investment bankers presenting the state of California because California needed to sell 11 billion warrants. These were warrants that were going to be issued in June, due next June to tide over the deficit. California couldn’t sell those. The only way California could sell 11 billion was to get someone like Berkshire Hathaway or somebody else to guarantee, if worse came to worse, we would buy those bonds at junk bond prices. In other words, if they couldn’t find any buyer in the world to buy them we would stand by it. We offered to do it for a price.

A group of seven banks led by Merrill Lynch, and Citicorp, got paid 84 million dollars. They got paid three quarters of 1 percent for doing nothing but guaranteeing that if California could not find any buyer in the world between now and next June they would step up and buy this 11 billion. That got them past the June crisis. Their credit card wasn’t any good without a guarantor. What happens in the state of California affects the state of the country, and that was the situation. Now they face 3 billion revenue anticipation notes. They are talking about paying 1 percent to get a letter of credit backing those, these are due next June. From now to next June on the market and they are going to need to pay 100 basis points for just the guarantee that somehow somebody will buy these damn things, cause if they don’t they’ve got a couple other things in the works.

California, in my view, has until next June when this batch with come due plus they will be facing further deficits. They have until next June to be credible in the world on their own in terms of the financial markets. Because the financial markets don’t have to buy California paper, I mean there’s nothing to force them to buy. Now California, I hasten to add, is too big to fail. I mean you can predict dire things, they can run out of cash, but somebody will come to the rescue and the only party to come to the rescue if they don’t get their own house in order will be the federal government.

There will be a solution, but I think it’s way better if the solutions arrive early rather than late. I mean Benjamin Franklin said a lot of wise things but when he said, “An ounce of prevention is worth a pound of cure, I mean that is the guiding light at Berkshire and should be the guiding light for everybody with fiscal problems of any kind. California’s an enormously rich state. It’s not going to float off into the ocean or anything like that. It’s a terrific economy actually, it’s got an added business problem but all that’s solvable. But if it is not solved soon, it’s a few minutes before midnight on that and then it will get solved by somebody else for them and I just think that’s a terrible mistake.

You need leadership that has got the guts to come up with the kind of program that is required and has the ability to communicate it both to the people of California and in turn to the credit markets. The burden of proof has now shifted in the credit markets to “show me” on behalf of California. That burden of proof is, California will have to make sense, they won’t be able to do it with smoke and mirrors next year because they’ve got markets that will look very carefully at where the cash is going to come from and how it’s going to go out. You’ve got a lot of stuff out there that’s mandated, that leaves you less room to maneuver both for taxes and expenditure than you might have in many other states. They will have a situation where to some extent the general electorate has set rules for both income and expenditures that ties the hands of people and having set those rules, the people who set them really didn’t have a responsibility for making things. They just hit the bulldog for this or that. It’s an interesting problem; it will get solved.

The good news is, it’s like this country. Peter Lynch says when you buy stock, buy into a business that’s so good that even a dope can run it, because sooner or later one will. There’s a lot of merit to that. If you just buy businesses that your idiot nephew can run, you’re going to do all right. You don’t want a business that a genius has to run. That’s the worst kind of business in the world really. And the truth is, our country is so good that we can take a fair amount of mismanagement. We test that occasionally, but we come through too.

On that bullish note, it’s nine o’clock. Thank you.

Governor Leavitt: Thank you, Warren; I don’t think there’s anything we could say that would express adequately the appreciation people feel. Two things left, one is a pitch and the second is a picture. If you would like to have your picture taken as a memento tonight with Warren Buffet, he’s prepared to come stand, take some pictures with you if you would like. Now for the pitch: I want to make sure you understand what we are doing here in terms of the Oquirrh Institute. Most of you will know that the Oquirrh Institute is essentially a bunch of people who believe in entrepreneurship and apply the principles of entrepreneurship so you can solve some innovative public policy problems. The Oquirrh Club is what we are celebrating tonight—a group of people who come together twice a year and do what we are doing tonight. We’ll have a unique day of recreation, a chance to learn some things, and third we get to meet some great people—a wonderful network. Some of you have been invited as guests tonight to get acquainted with the Oquirrh Club. You can count on the fact that somebody will call you asking if you want to join; we hope that you do. We anticipate getting our numbers up to 50. We have been building up this year, with 34 thus far. When we get to 50 we are going to cap this program. It’s a great institution and I think you’ll see over the course of the next few years that Oquirrh Institute will probably become one of the country’s most prominent public policy organizations because of the unique model that we are using. Thank you all very much.

You should know that Dell Loy, through his generosity—his bounteous generosity—has helped get the momentum started for the Oquirrh Institute with a very generous 1 million dollar gift to get this started. A picture of Early Light. Most of you know the meaning of Oquirrh is early light. It’s a Goshute Indian word. The Oquirrh Mountains—the Indians saw the mountains and said they liked the way they looked when the sun hit. Dell Loy, this picture won’t do it. You know what’s inside my heart and inside the hearts of your friends. Thank you very, very much.

Dell Loy Hansen: I can speak for myself and almost everybody else in the room that I’ve met that the reason we’re here is quite simple. We all have one and the same answer—it’s Mike Leavitt. Now once we got here we all found a lot of very, very interesting things to get together with and go forward and do. But we all know the catalyst for this organization was Mike Leavitt—there’s no doubt about that in my mind. And so we have a token of gratitude to him. But there’s another thing we can do for him and I think it’s even more important than this token that we will give him. And that’s to remind ourselves that the best gift we can give to Mike Leavitt is to make the Oquirrh Institute prosper and grow and make it better than it is so that when he comes back there’s a bigger and better institute for him to come back to and to lead in the future. So with that, let me present to you: To Governor Michael O. Leavitt, founder of the Oquirrh Institute, shining early light on public policy.

Thank you all very much for your friendship. As Warren was talking tonight about loving what you do, I must tell you, I love what I do. I’ll hang this at the EPA but I’d be afraid somebody would come in and ask if that that was CO2. It’s a reflection. Thank you all very, very much for your friendship and what you are doing to make this work. This is going to be, I believe, an organization that will make great contributions to the world. Thanks.

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거짓말이라도 좋아…

"Meeting with Warren Buffett 28Jan05 * synthesized notes by topic

On investing…

How Warren spends his day:
- Wakes up at 6:45, reads paper at home, often doesn’t make it into the office until after the
market opens
- No set schedule, WB hates having a full calendar
- Always takes reading material home
- Spends 80% of the day reading, 20% talking on the phone (he then said it might be more
like 90/10)
- Phone conversations are generally short

Investment process:
- In the past some things were cheap enough WB could decide in a day (this was somewhat a
function of a time period where companies would sell at 2-3x earnings)
- Decisions should be obvious to onlookers. You should be able to explain why you bought
something in a paragraph.
- “I don’t do DCF”(WB says he does a rough approximation in his mind)
- Finding ideas is a function of cumulative knowledge over time. Something just comes along
? usually an event takes place, like a good management team screwing up ? that creates the
opportunity (WB seems to imply here that his reading isn’t specifically targeted at finding
ideas, but rather that ideas jump out at him as a natural consequence of vociferous reading)
- You must be patient…good ideas tend to be clustered together, and may not come at even
time intervals…when you don’t find anything for a while it can be irritating
- WB isn’t bothered by missing something outside his circle of competence
- Missing things inside the circle is nerve racking…examples include WMT, FNM

Advice for new investors:
- Don’t worry too much about your mistakes
- Don’t learn too much from your mistakes
o Don’t become Mark Twain’s frog that never sat again on a stove after being burned
o BUT…never be willing to play a “fatal” game
- Don’t confuse social progress with the chance to make money ? look at airlines and autos
for examples
- Law degree is not essential, but good if you think it will help in your specific career
- Learning to think like a lawyer is a valuable trait
- Allocate even more of your day to reading than he does
- Read lots of K’s and Q’s ? there are no good substitutes for these
- Read every page
- Ask business managers the following question: “If you could buy the stock of one of your
competitors, which one would you buy? If you could short, which one would you short?”
- Always read source (primary) data rather than secondary data
- If you are interested in one company, get reports for competitors. “You must act like you
are actually going into that business, and if you were, you’d want to know what your
competitors were doing.”

Why more people don’t follow his advice:
- The advice doesn’t promise enough…it’s not a “get rich quick” scheme, which is what a lot
of other philosophies promise
- WB mentioned that when he was really young he started investing using technical analysis,
but found that he never could make any money with it
- “I realized that technical analysis didn’t work when I turned the chart upside down and
didn’t get a different answer.”
- After seeing that charting didn’t work for him, he switched to Graham…it made sense and it worked

What Warren reads:
- Most of reading includes K’s, Q’s and 5 newspapers daily
- Hasn’t found much worthwhile book reading outside of Graham and Fisher

Advice to non-professional investors:
- If you like spending 6-8 hours per week working on investments, do it
- If you don’t, then dollar cost average into index funds. This accomplishes diversification
across assets and time, two very important things.
- “There is nothing wrong with a ‘know nothing’ investor who realizes it. The problem is
when you are a ‘know nothing’ investor but you think you know something.”
o NOTE: this is analogous to the concept of ‘metaknowledge’ that Mauboussin talked
about…there’s also a Confucius quote on this

Avoiding human misjudgment:
- WB said repeatedly that it doesn’t take above a 125 IQ to do this…in fact, IQ over this
amount is pretty much wasted. It’s not really about IQ.
- Staying within circle of competence is paramount
- When you are within the circle, keep these things in mind:
o Don’t get in a hurry
o You are better off not talking to others
o Just keep looking until you find something (don’t give up)
o Good ideas come in clumps ? by time, by sector, by asset class
Discount rates used for valuation:
- Use a long term normalized interest rate for Treasuries…e.g. 6%
- Don’t use different discount rates for different businesses…it doesn’t really matter what rate
you use as long as you are being intellectually honest and conservative about future cash
flows.
- Only want one variable to compare in order to assess the viability of an investment ? price
versus value. If we allowed discount rates to change it would lead to more than one variable.
- WB’s assessment of the risk of a company is baked into the probabilities for future cash flow
scenarios of the company
- “I don’t know what the true cost of capital is for a business unless we own it”

Starting a fund from scratch today:
- Probably would do the same thing he did before

On Berkshire…
Managing Berkshire:
- Focused hard on creating a company over time that he would like today…built the company
around the way he likes to work
- Hates meetings, managing people, and company rituals
- BRK has no general counsel or IR
- Directors meet in person only once per year
- 17 people employed at HQ
- “I don’t call managers of my businesses, they call me”

Buying businesses:
- The first question I ask is: “Does the owner love the business or does he/she love the
money?” It’s very easy to tell the difference.
- I am proud to be able to provide a good home for many businesses. It is like finding a home
for a painting. Business owners who are looking to sell can either sell their businesses to
Berkshire (like putting painting in the Metropolitan Museum of Art) or sell to an LBO and
let them tear it up, dress up the accounting, and resell it (like selling a painting to a porn
shop).

Why he has a large cash position:
- Can’t find things to buy
- In the past there were times it was like shooting fish in a barrel…sometimes even like
shooting idle fish in a barrel…it’s not like that now, but there will be times in the future
when it will be like that again
- Berkshire is currently putting a few billion to work buying a stock, but it wouldn’t trouble
him deeply if they were not able to take the position

On specific industries or companies…
Subprime mortgage industry:
- There are similarities between subprime and manufactured housing financing
- The most important factor for the subprime industry is the health of the economy
- Securitization moves the ultimate lender farther away from borrower, which is what causes
problems
- A shock will probably not occur unless we see materially higher long interest rates…200-
300bps
- As long as participants in that industry are charging a high enough interest rate to account
for the inherent credit risk, it should be okay.
- As far as housing prices go, there won’t be a problem until the collateral value falls below the
value of the loan
- “We haven’t played in that [the subprime industry] yet, but we do own H&R Block, which
does some of those loans, although they don’t keep the paper.”
- REIT structures in the subprime industry aren’t necessarily a bad thing
- The economy is going to be far more important than the structure used

Competitive advantage and business model in banking:
- Banking is a good business - many banks earn high returns on tangible equity
- “Charlie and I have been surprised at how much profitability banks have, given that it seems
like a commodity business.”
- Underestimated how sticky customers are and how unaware they are of fees banks charge
them
- WFC - $4.00 per share after full taxes on $15 of tangible equity
- If you have a well run bank, you don’t need to be the #1 bank in an area
- Bank ROA is not highly correlated to size
- You may have to pay 3x tangible equity to buy a bank
- Only problem with banks is that sometimes they get crazy and do dumb things…’91 was a
good example
- If a bank doesn’t do dumb things on the asset side, it will make good money
Auto industry outlook (especially GM):
- GM bonds are currently selling at B spreads
- Auto industry is a very tough business
- In the ‘60’s GM had over 50% of the US car market…people thought they were
impenetrable
- GM did dumb labor deals when the accounting didn’t require accruals for costs
- GM is now a terrible life/health benefits company with an auto business attached
o Auto business is well managed, but labor issues are just killer
- 2000 auto companies were started after Henry Ford ? there are now 3 left in the US ? no
money has been really made over time

Musings on Coke:
- The chance that Coke is not the leader in the carbonated beverage business in the future is
very small
- Candy bars become very entrenched in their markets and are hard to unseat…they don’t
travel well into new markets
- Coke travels well into new markets
- One of the most important thing about Coke as a consumer product is that Coke does not
have a “taste memory.” In other words, the taste of Coke doesn’t accumulate in your
mouth. This is what makes it easy for some people to have 3,4,5+ Cokes each day. They
never tire of it because there is no taste residue. Orange or grape soda accumulates and you
get sick of it. Same thing with chocolate. There is no diminishing marginal utility of taste
for Coke. WB doesn’t believe there has ever been a word written about this phenomenon.

On currencies…
Bet against the dollar / currency hedging:
- Currently owns over $20B in foreign currency
- No strong feeling on which currencies will do best against the dollar
- Increasing interest rates will also add to debt service burden to foreigners
- Every day US consumes 5% more than we produce…US is like a wealthy family with a very large farm, and we keep mortgaging larger and larger pieces of it to foreigners
- Foreigners own net $3T of US securities…goes up $2B per day
- Formulated thesis after reading Bureau of Economic Analysis data
- In November trade imbalance with China was $16B ($190B annualized)
- This is not a short term bet…don’t know where the dollar is going over the next year…this
is a five year bet
- Typical investor should not make the same bet unless one found a foreign stock that was
attractive…could buy the stock and leave the currency risk unhedged
- WB never hedges currency risk when he buys a foreign security because he likes the extra
diversification it provides

Impacts of the potential revaluation of the Yuan:
- If it revalues 10-20% it probably won’t have a material impact because the discrepancy
between labor costs in China and US is so large
- It is unlikely that China will remove the peg
- Wal-Mart is opening up big in China

The future of the Euro:
- There will be strains, but it should be fine over the long term
- WB believes it has been a good thing for Europe and the world

On inflation…
Inflation and the CPI:
- CPI is flawed as a measure of inflation
- Average person’s CPI has a very different composition than the weighted CPI used to
calculate inflation
- CPI understates human consumption
- Businesses often have contracts that range from 90 to 360 days, therefore inflation lags
substantially
- Eventually higher raw material costs will get passed through to the consumer
- Health care is 6% of CPI, but 14% of GDP
- Home ownership was taken out of the CPI 20 years ago and replaced by an imputed rent
amount
o Rental rates have not risen since then but home prices have…the increased burden
of higher home prices has been fortunately offset for a while by lower interest rates

On commodities…
Oil and natural gas:
- Everyone thinks oil has moved a lot…you have to consider the weakening of the dollar…if
you look at oil priced in Euros it has not moved a lot…same situation with gold
- We have seen a real increase in many raw materials…coal is a good example; very scarce
right now
- WB doesn’t play the game of betting on the price of oil or commodities often
- Natty ? MidAmerican is looking at an Alaskan pipeline
- Alaska has 80T-90T cubic feet of natural gas (a lot)
- Trouble with Alaska opportunity:
o $2/mcf transport costs
o Takes 6-7 years to build pipeline ? hard to make 6-7 year commitment with uncertain
future price outlook
o Same issue with LNG terminal build-out
- Most commodity companies don’t trust current prices because they’ve been burned too
many times on price
- Oil exploration in the US is tough
- Today our onshore production is 6MM barrels/day
- We used to be self-sufficient in oil production, to the point where we had to periodically
shut down because we were producing too much
- US is the most explored oil province in the world ? haven’t found a real elephant in the
lower 48 states in 30-40 years
- BRK is not tempted to bet in the oil exploration business in any material way

Aluminum:
- No real opinion on it
- The problem with raw materials businesses is that there’s no brand identity…no one ever
says, “I want a Coke only if it comes in an Alcoa aluminum can”
- Aluminum, to a large degree, is just stored up electricity, because power is such a huge
component of its production cost

On public policy…
Privatizing social security:
- We must remember that social security is not for you or me
- 10-20 million people will not be able to support themselves when they are old
- A rich society like the US should provide that support for its citizens (before one is
productive a society should provide good schools, and after one is productive, a society
should provide financial support).
- Don’t think it’s good to let less competent investors do it on their own…they need help,
they are not “wired” to be good investors, and it’s our responsibility to help provide them
with the highest SS base possible
- Privatization plan would lower the base and require you to invest to make up the difference

Miscellaneous…
Impact of emerging economies on US:
- Don’t think it will be anything dramatic
Social activities:
- Spends 1-2 hours 4-5 times per week playing bridge

Charity:
- Doing charity work is the opposite of investing ? with charity, we look for the most difficult
problem to solve and the ones that have the lowest probability of success
- WB is giving guidelines to trustees (see above), but he’s not dictating exactly where he wants
to give. WB realizes that he will have no idea what the big problems will be in the distant
future after he’s gone

Warren’s success:
- “I was born wired to allocate capital well.” If I was born in Bangladesh and I walked down
the street explaining that “I allocate capital well”, the townspeople would say “get a job”.
- Bill Gates says that if I was born 1000 years ago, I wouldn’t survive because I am not fast or
strong. I would find myself running from a lion screaming “I allocate capital well!!”

닥터 지바고를 보다. 1965년 작품. 40년된 작품인데 전혀 퀴퀴한 냄새가 나질 않는다. 따져보면 다소 어처구니 없는 불륜 얘기인데, 이만한 감동을 주는 이유는, 보리스 파스테르나크의 위대함이 아닐까 싶다.

오마 샤리프(Omar Sharif)… '오막살이' 란 애칭(?)으로 불리던 담배 이름도 있었던 것 같다. 여튼 멋있는 이름. (이집트 태생!) 그리고 줄리 크리스티(Julie Christie)… (인도 태생!) 이 둘의 노년의 모습이 궁금해서 인터넷을 뒤져 보았다.


이런 젠장… 괜히 찾아봤다.



줄리 크리스티는 그래도 곱게 늙었는데… 오막살이는…

참, 오막살이는 브릿지 게임의 세계적인 플레이어란다. 더욱이 6개 국어인가를 구사한다고 한다. 그런데 얼마전에 카지노에서 종업원 얼굴에 대고 헤딩을 했다는 소문이 있다.

한가위를 맞아 지난 이틀간 10시간씩 잔듯 하다.

웹서핑을 하다가 테터툴즈를 발견! 제로보드 바로 폐쇄하고 이곳 저곳에 흩어져 있던 자료를 모두 옮기는데 너무 힘들다. 거의 10시간 이상 작업. 그럼에도 환율과 유가 자료는 가져오질 못했다. 문득, 당최 뭐하는 짓인지… 어찌 됐건 일단 여기까지.

읽다 말았던 라마누잔의 전기를 모두 읽었다.

" 과로, 지나친 놀이, 지나친 걱정, 영양부족, 햇빛과 신선한 공기 부족 또는 여러 형태의 만성적인 무절제 … 스트레스, 즉 과로라든지 근심 또는 외로움은 면역체계를 약화시키고 질병에 걸리기 쉬운 상태로 만들 수 있다. "

" Vitamin D 를 함유하는 식품은 달걀 노른자와 육류, 그리고 살찐 생선이다. 태양은 가시 광선뿐만 아니라 눈에 보이지 않는 자외선을 발산하는데, 이 자외선은 피부의 콜레스테롤을 활성화시켜 Vitamin D 의 생성을 활발하게 만든다. "

KBS 1TV 닥터 지바고를 보았다. 소설을 다시 한 번 읽어봐야겠다는 생각.

매일 매일 눈이 나빠짐을 절실히 느낀다.

음, 매우 졸립다. 그래, 피곤하다. 음, 매우 졸립다. 그래, 피곤하다. 음, 매우 졸립다. 그래, 피곤하다. 음, 매우 졸립다. 그래, 피곤하다.



아하하하하 너무 졸립다. 24시간째 뜬 눈이다. 졸려서 쓰러지려는데 맥주를 먹고 잠이 달아나다. 역시 맥주엔 무시 못할 열량이 들어있다. 그래서 아랫배가 나오는가 보다.



요즘 걱정은 아랫배가 나온다는 것. 살 찌는 건 너무 싫어.

행여 실수라도 있을까, 사랑에 빠질까 두려워 아둥바둥대는 모습이 참으로 공허하고 쓸쓸하다.

금요일 동아리 개강파티 때 먹은 술이 안 깨서 토, 일요일을 완전히 반납했다. 도서관에서 빌려온 전공 관련 책들을 다 읽어줄 참이었는데 대부분을 잠만 잔 듯 하다. 그 와중에도 경마에 참가해서 6만원 가량을 땄다. (주식과 달리 경마는 '땄다'라는 표현이 정확하다.) 지난 한달 반 동안 10만원으로 시작한 구좌가 현재 약 27만원이 됐다. 적은 수의 게임 참가와 확실하고 낮은 배당에 큰 액수의 베팅. 올해 말까지 60만원을 채우는 게 목표(컴퓨터 살려고)인데 과연 가능할 지?



주식과 경마 모두에서 성과를 보고 있다는 점이 흡족하다. 다들 투기니 도박이니 말하는 곳에서 원칙과 철학(이라고 말하면 꽤 거창해 보이지만)을 갖고 이룬 성과라 더욱 값지다. 남의 의견에 휘둘리지 말고 자신의 논리를 확립할 것!



일감도 꾸준히 들어와 준다. 7월 달까지 참 지랄 같았는데 8월 달부터 순풍이 불어 온다. 언제 또 꺾일지 모르는 세상살이, 묵묵히 나아가는 일 밖엔 내가 할 수 있는 게 없다.



천둥이 치더니 새벽비가 내린다.



비 냄새가 난다.

Sunday Silence
1986-2002

On August 19, 2002, Sunday Silence died at his home in Hokkaido, Japan, where he stood stud at Shadai Stallion Station. He passed away due to heart failure, after a lengthy, but courageous battle with a leg infection, as well as laminitis. This web page is my tribute to this great champion, who on and off the track, proved his worth time and time again. I hope this page can serve to properly honor this horse, who was one of the reasons I became involved in the sport of thoroughbred racing.

Undoubtedly one of the top American thoroughbreds of the last twenty years, Sunday Silence was, and remains, a favorite of mine. The late 1980's marked the period in which I began my interest/love for the sport of throughbred racing. Though I had been witness to great horses before 1989 (Personal Ensign, Risen Star, and Alysheba among others), Sunday Silence was the first horse who truly captured my young attention. My first witness to his abilities came in April, 1989, when he crushed the field in the Santa Anita Derby by 11 lengths. His fluid form, and nearly black coat stood out to me, despite that I had seen Easy Goer demolish the Gotham Stakes field by the same margin, on the same day.
When May rolled around, only weeks later, it was only the second time I had seen him run. But this was the Kentucky Derby, and Sunday Silence was much the best that day. The black colt zig-zagged through the lane as he came off the far turn, seemingly distracted by the roar of 100,000-plus people at Churchill Downs. Despite this, he ran on, finishing 2 1/2 lengths in front of the much-hyped Easy Goer. This would set the stage for the most fantastic races I have had the pleasure to witness.

The Preakness came two weeks later, and yet people were not convinced by Sunday Silence's Derby win. The bettors kept Easy Goer as favorite once again, leaving the Kentucky Derby winner as second choice. This race unfolded in the early going much as it had two weeks before. The Lukas-trained Houston ran on the lead, as he had in the Derby, with Sunday Silence tracking him not far behind. As the field neared the far turn, though, there suddenly came the massive strides of Easy Goer with Pat Day, obviously wanting to get the jump on the Derby winner. Easy Goer ran by Sunday Silence, and roared onward to the lead in a sensational burst. Pat Valenzuela, aboard Sunday Silence, quickly asked his colt to move. Move he did. The Derby winner quickly gained ground, and by the time the field hit the top of the stretch, Sunday Silence had moved to even terms with Easy Goer. For the next quarter of a mile, the two were inseparable.

Sunday Silence thrust his nose out as the they came upon the wire, and captured the Preakness. Sunday Silence suddenly stood on the verge of winning racing's coveted Triple Crown, but to do so, he would have to win the Belmont Stakes, upon Easy Goer's own "home" track.
The task of beating Easy Goer at Belmont proved insurmountable even for Sunday Silence. Sunday Silence tracked Le Voyageur into the sweeping far turn at Belmont, sticking a nose in front, and raising the hopes of many for a Triple Crown. But the long-striding Easy Goer came with a rush, sweeping by both runners. This time, Sunday Silence was no match, as the son of Alydar roared to an eight length win.
Following the Triple Crown campaign, Sunday Silence and Easy Goer went seperate ways. Easy Goer stayed in New York, while SS went west. Their respective campaigns could not have been more different. Sunday Silence was raced only twice, in lower caliber races, between the Belmont Stakes and Breeders Cup. Easy Goer ran one of the more impressive fall campaigns I can ever remember seeing, winning the Whitney, Travers, Woodward, and Jockey Club Gold Cup. The question of which horse was best had surfaced yet again. The two would meet for the final time in the Breeders Cup Classic, to settle the question.
The Classic would live up to its hype, indeed. Slew City Slew went out and set the pace, with top older horse Blushing John second, and Sunday Silence just in behind those two. Pat Day kept Easy Goer well off the pace, hoping to come with his usual late run. As the field neared the far turn, Slew City Slew began to give way quickly, and Angel Cordero Jr. send Blushing John to the front. Chris McCarron (riding in place of the suspended Pat Valenzuela) sent Sunday Silence after him. Before the horses hit the final quarter mile, Sunday Silence was matching strides with him, and ran on by as they straightened out for the stretch drive. Easy Goer was still lagging behind, but Pat Day put him to a strong drive. With a furlong to go, Sunday Silence had assumed a clear lead, with Blushing John hoping for second. But Easy Goer was flying on the outside, and as they neared the wire, was closing strongly with every stride.

Sunday Silence held on by what track announcer Tom Durkin deemed "a desperate neck". He had won the Clasic in a then stakes-record for the mile-and-a-quarter Classic, 2:00.20. Having won three of four races against Easy Goer, Sunday Silence was named the 1989 Horse of the Year, as well as the Champion 3-year-old Title for the same year.The two horses would not renew their rivalry at four. Sunday Silence raced only twice in 1990, before being purchased by Japanese interests.

After his retirement, Sunday Silence stood at Shadai Stallion Station in Hayakita, Japan. From 1995 onward, he was Japan's leading sire, and proved to be a prolific and popular one. In 2001, alone, he covered 221 mares. In June, 2002, Sunday Silence began to suffer from a bacterial infection in a leg. Through three surgeries the stallion showed his champion's heart. Yet the infection proved to be too much, as laminitis would ultimately set in due to shifting his weight off the injured leg. On August 19, 2002 Sunday Silence passed away, at the age of 16.



Lineage:
Born March 25, 1986
Sire: Halo
Dam: Wishing Well

Race Record:
Lifetime- 14 Starts, 9 Wins, 5 Second, Earnings $4,968,554
Age 2: 3 Starts, 1 Win, 2 Seconds, Earnings $21,700
Age 3: 9 Starts, 7 Wins, 2 Seconds, Earnings $4,578,454
Age 4: 2 Starts, 1 Win, 1 Second, Earnings $368,400

At Two:
Maiden Race: 2nd
Maiden Race: Won (by 10 lengths)
$24,000 Allowance Race: 2nd

At Three:
$32,000 Allowance Race: Won (by 4 1/2 lengths)
San Felipe Handicap (G2): Won (by 1 3/4 lengths)
Santa Anita Derby (G1): Won (by 11 lengths)
Kentucky Derby (G1): Won (by 2 1/2 lengths)
Preakness Stakes (G1): Won (by nose)
Belmont Stakes (G1): 2nd
Swaps Stakes (G2): 2nd
Super Derby (G1): Won (by 6 lengths)
Breeders Cup Classic (G1): Won (by neck)

At Four:
Californian Stakes (G1): Won (by 1 length)
Hollywood Gold Cup (G1): 2nd

Man o' War came close to perfection

By Larry Schwartz
Special to ESPN.com

-------------------------------------------------------------------------------
When thoroughbred racing needed a boost, Man o' War unleashed his blazing speed and came to the rescue. Though he competed for only two years, he energized a reeling sport.

There was a thickness to Man o' War that probably came from his voracious appetite.
Let's look at the world of racing that Man o' War entered in 1919: Racing in New York had been eliminated in 1911 and 1912 because of antigambling legislation led by Gov. Charles Hughes. Other states had taken up Hughes' crusade. Many stables had folded and some of the bigger ones had moved to Europe.

While racing was legalized again in 1913, World War I soon dominated the public's attention. Attendance and purses were at record lows when Man o' War made his debut on June 6, 1919.

By the time he retired 16 months later, he was a national hero, joining Babe Ruth as the first shining stars of the Roaring Twenties. The charismatic horse's popularity had brought fans back to the track.

Man o' War went to the post 21 times and won 20 races. He won one race by an incredible 100 lengths and triumphed in another carrying 138 pounds. He whipped a Triple Crown champion by seven lengths in a match race.

He brought international recognition to Kentucky breeders and made the United States the racing center of the world. When he retired, he held five American records at different distances and had earned more money than any thoroughbred.

In a mid-century Associated Press poll, he was overwhelmingly voted the greatest thoroughbred of the first half of the 20th century.

Not only did Man o' War perform like a superstar on the track, the chestnut-colored horse (though he was nicknamed "Big Red") looked like one. At 3, he was a strapping 16.2 hands (about 5-foot-6) and weighed about 1,125 pounds with a 72-inch girth. His appetite also was huge, as he ate 12 quarts of oats every day, or about three quarts more than the average racehorse. He ran in big bounds as well, with his stride measuring an incredible 25 to 28 feet.

Bred by August Belmont II, son of the founder of Belmont Park and for whom the Belmont Stakes was named, the future champion was foaled on March 29, 1917 at Nursery Stud near Lexington, Ky. His sire was Fair Play and his dam was Mahubah, the daughter of Rock Sand, the 1903 winner of Britain's version of the Triple Crown (the 2,000 Guineas, the Epsom Derby and the St. Leger). He was 15 generations removed from the Godolphin Arabia, one of three Arab and Barb stallions considered to be the founders of the thoroughbred line.

Originally, Belmont's wife named the horse My Man o' War, after her soldiering husband, who was stationed in France during World War I, but the "My" was later dropped.

Belmont's military involvement prompted him to sell his entire 1917 yearling crop. Sportsman Samuel Riddle, owner of the Glen Riddle Farm, was the beneficiary of this decision. Accepting the judgment of trainer Louis Feustel, Riddle purchased the rangy colt, who seemed too large for a yearling, for $5,000 at the Saratoga yearlings' sales. "As soon as I saw him, he simply bowled me over," Riddle said.

At the beginning, Man o' War's aversion to the bridle and saddle caused problems. "He's nice and he's smart, but don't ever try to force him or you'll come out second best every time," a stable boy said. "Ask him and he'll do what you want. Push him and it's all off."

Under Feustel's training, patience paid off, and the energy of Man o' War was harnessed. His debut, in a five-furlough maiden race against six other 2-year-olds at Belmont, was no contest. The fans reportedly screamed and pounded the rail as jockey Johnny Loftus tightened the reins at the stretch, slowing Man o' War to a virtual canter. But the horse still won by six lengths.

"He made half-a-dozen high-class youngsters look like $200 horses," wrote the turf editor of the New York Morning Telegraph.

Following his smashing debut, Man o' War won three stakes races, at three different New York tracks, in the next 17 days.

His winning streak was at six when Man o' War raced in the Sanford Stakes at Saratoga on Aug. 13. It is Man O' War's most remembered race -- because it is the only one he would lose.

Starting gates were not yet used, and horses were led up a tape barrier. A fill-in starter had difficulty getting the horses ready and they milled around. While Man o' War apparently was backing up, the tape was sprung. Man o' War "was almost left at the post," the Louisville Courier-Journal reported.

After a slow start, Man o' War was third as the field headed for home in the six-furlough race. Blocked by close quarters, he had to go to the outside in the final eighth. Though he gamely made up ground, he missed by a half-length of overtaking the winner, who at 115 pounds carried 15 fewer pounds than the 11-20 favorite. The winner was named, rather appropriately, Upset.

Big Red, who beat Upset in their six other meetings, finished the year with easy victories in the Hopeful and Futurity, giving him nine victories in 10 races.

In 1920, Man o' War won all 11 of his races, with Clarence Kummer aboard nine times. Big Red didn't race in the Kentucky Derby because Riddle believed that a soft-boned 3-year-old should not have to run 1¼ miles in early May. Instead, he set his sights on the Preakness (Man o' War held off an Upset charge to win) and Belmont (a 20-length victory in a two-horse field).

After winning the Travers against two horses at Saratoga, only one colt challenged Man o' War in his next race. Well, it wasn't exactly a challenge as Big Red, the 1-100 favorite, defeated Hoodwink by 100 lengths in the 1 5/8th-mile Lawrence Realization at Belmont Park.

He was 1-100 again in winning the Jockey Cup at Belmont Park, and then he was saddled with the excessively high weight of 138 pounds for the Potomac Handicap. After being a bit fractious at the post, he assumed command and won easily.

Man o' War's last race was against Sir Barton, who in 1919 had become the first to win the Kentucky Derby, Preakness and Belmont. Like most match races, it was hardly competitive. At Kenilworth Park, in Windsor, Ontario, Man o' War won the $75,000 purse and $5,000 Gold Cup by defeating the older Canadian-owned horse by seven lengths.

When Riddle was informed that Man o' War would have to carry even more than 138 pounds as a 4-year-old, he retired his horse to stud. Man o' War held American records for the fastest mile, 1 1/8 miles, 1 3/8 miles, 1½ miles and 1 5/8 miles. His total earnings were $249,465, a record at the time.

Don't feel sorry for Man o' War because he stopped racing so young. He proved to be quite a stud. In 1926, his issue won $408,137, breaking a 60-year-old record. Among his 386 registered foals were 64 stakes winners, including 1937 Triple Crown winner War Admiral, 1929 Kentucky Derby winner Clyde Van Dusen and Battleship, the winner of the 1938 Grand National Steeplechase in England.

In 1921, a Texas oil millionaire, William Waggoner, offered $500,000 for Man o' War. Riddle turned him down, as he did when Waggoner increased his offer again, first to $1 million and then a blank check. "The colt is not for sale," he said.

Although Man o' War spent most of his life in Kentucky, he never raced there. He died there, though, at the age of 30 of a heart attack on Nov. 1, 1947 in Lexington.

Seabiscuit: An American Legend

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Seabiscuit became one of thoroughbred racings greatest legends at a time when the sport needed it the most. At age 2 he had raced a record 35 times with only 5 wins to his name. He went on to race 23 more times at the age of 3, capturing 9 of these outings, before he was claimed by Charles and Marcella Howard after winning a claiming race at Saratoga. Then Seabiscuit was in the hands of his new trainer, Tom Smith, an old western cowboy who knew how to communicate with horses like no other.

Smith remembered having seen the colt race a month earlier at Suffolk Downs. He was not surprised that Seabiscuit was tired and sore after all he had done in just 2 years at the track. The horse was 200 pounds underweight with a weary temperament. He raised hell at the starting gate, intimidated the grooms, nervously paced his stall, and refused to eat. Seabiscuit was in serious need of some rest and relaxation, and a chance to form a bond with people. Tom Smith babied his new colt in hopes of Seabiscuit one day living up to his potential as the grandson of the mighty Man O?War. He put leg braces and bandages on Biscuit뭩 legs, and equipped him with blinkers for training and racing to keep his mind on business. He also gave his colt a double sized stall complete with roommates. Seabiscuit's new companions were a stray dog named Pocatell, a spider monkey known as Jo Jo, and his lifelong traveling mate, a calm horse name Pumpkin. Once Seabiscuit뭩 nerves had been calmed and his ailments had been treated, Smith decided it was time to return him to the races.

He chose Johnny Pollard to be Seabiscuit뭩 new jockey. Pollard was an ex-boxer that was blind in one eye, and at five feet, seven inches, towered over most other jocks. His career had been on the decline when he walked into Smith뭩 barn that summer of ?6. He and Seabiscuit took to each other immediately, with Pollard affectionately nicknaming him 밣ops? Between the care he received from both Smith and Pollard, Seabiscuit flourished. The once neurotic, skittish animal became easygoing and sociable. For the remainder of the year the trainer and the jockey worked with Seabiscuit by running him in small allowance races and putting him through intensive schooling. Towards the end of ?6, Seabiscuit won the Scarsdale Handicap in track record time, and then went on to win the west over by claiming victories in two major races in California, just missing two world records in the process.

1937 began Seabiscuit뭩 4 year old season at Santa Anita, where he won his first race of the year. He then went on to run in the prestigious Santa Anita Handicap against 17 other competitors. With one furlong to go in the race there was no one ahead of him. It looked like he was going to win, but neither horse nor jockey noticed the closer Rosemont, whom Seabiscuit had defeated just one month earlier, gaining on them with every stride. And then, it was too late. 멊iscuit lunged at the last second to induce a photo finish, but he had lost by a nose. Even so, the horse had started to become a celebrity. Howard began promoting his colt, and raced him on 18 tracks in 7 states and Mexico that year. He raced on both coasts, winning ten major races and tying five track records while becoming the leading money winner for 1937, and only finishing off the board once. However, he was not named Horse of the Year. That honor went to a 3 year old, the near-black, east coast based Triple Crown winner War Admiral.

Seabiscuit뭩 5 year old season started off with a bang, as just weeks before he was to run in the Santa Anita Derby for the second time, he was jockey less. Pollard had been injured in a spill and was told it would be at least a year before he could ride again. He recommended his good friend George Woolf to take over the riding duties of his beloved Seabiscuit. Woolf was the son of a bronc buster, fearless, diabetic, and one of the greatest riders thoroughbred racing has ever seen. Nicknamed 밫he Iceman? he was known to time his horses?closing stretch drives so precisely that he won on a regular basis. He made it a point to know his mounts well, as long as every one else뭩 with the same attentiveness. The 1938 Santa Anita 멌ap imposted 130 pounds upon the mighty Seabiscuit, with him giving as much as 30 pounds to his competitors. At the break, he was knocked nearly to the ground. Woolf sent him in a drive to make up the distance, and thinking he had his main rival Stagehand beat, let Seabiscuit settle. Sadly, this was not the case, as Stagehand began to close upon the bay colt. He drew even, and Woolf asked 멊iscuit for everything he had. Miraculously, his colt came back, resulting in a head-bobbing duel all the way to the wire. But this was not to be his Santa Anita 멌ap either; Stagehand had gotten in front at the finish. That same afternoon in Florida, War Admiral had gone on to win his 10th consecutive race. The public clamored for a match race between the two colts, and Belmont Park offered $100,000 for battle between the two thoroughbreds in May. Both owners accepted but a flare-up in 멊iscuit뭩 bad leg forced a cancellation, and was instead entered in the Mass 멌ap for June along with the Admiral. Minutes before the race, with the Suffolk Downs grandstand overflowing, Smith discovered his colt had again injured his leg and scratched him from the race. Once Seabiscuit healed he went on to win the Hollywood Gold Cup in California and smash the race뭩 record along the way. Afterwards, Howard brought him back east, eager to see his horse meet up with War Admiral.

By summer of ?8, Pollard began riding again. One morning, he decided to ride a horse for another trainer in a morning workout. The colt rammed Pollard through the track rail and into the side of a barn, almost severing the jockey뭩 leg. After seeing a team of doctors, the jock was told he might never walk again.

In the fall of 1938, it seemed the big match race would finally happen. Alfred Vanderbilt, the president of Pimlico Racecourse, wanted nothing more than the race to be run there. He couldn뭪 offer a large purse, but appeased to Riddle뭩 and Howard뭩 sportsmanship attitude by explaining to them how good it would be for racing. The mile and three-sixteenths Pimlico Special would be held November 1, 1938, with a winner take all purse of $15,000. Each horse would carry 120 pounds, and would break from a walk-up start instead of a gate. They were both favorites in their own way. Seabiscuit had captured the hearts of the fans, while War Admiral captured their betting money. Many predicted that the Admiral would run away with the race right off the starting line, as 멊iscuit was not known for his fast breaks. But that was about to change.

Smith trained his colt to break off in a hurry, first by fashioning a starting bell to accustom him with the noise, and then by running him with top sprinters. Seabiscuit learned to give everything he had into speeding away at the start of the race. By midday on November first, a record 40,000 spectators squeezed themselves into Pimlico뭩 tiny racetrack, pouring over into the infield. At 4 pm, War Admiral and Seabiscuit stepped out onto the track. They stepped up to the line together, and at the sound of the bell, 멊iscuit took off like a bolt of lightning. He opened up to a two length lead until the half mile pole, when the Admiral was in full stride at his shoulder. But Seabiscuit wouldn뭪 let him pass, he refused to give up his lead. He even cocked his ear towards his rival, but then, War Admiral pushed his head in front. The colt, however, was struggling, and Woolf knew the race was theirs. He pushed his little bay for just a little more, and 멊iscuit sailed to a four length lead over the younger near black horse, finishing in near world record time. This year, Seabiscuit claimed Horse of the Year honors.

In January, at the start of his 6 year old season, Howard pointed him yet again towards the elusive Santa Anita Derby. It would be Seabiscuits third try for the one race his owners so badly wanted him to win. But it would be another year before 멊iscuit could even attempt it again. As he made his closing move in a prep race, the colts longtime ailing left front tendon finally ruptured. He managed to hang on for second but all though his career would be over. He was sent to Howard뭩 ranch and for nine months wandered a paddock, became fat, and tried to race deer along the fences. Meanwhile, Pollard had endured several leg operations and was beginning to hobble on crutches. He stayed at Ridgewood Ranch with his dear racehorse Pops. Once the colt was no longer lame, Pollard began riding him to build his own strength and to ready 멊iscuit for a return to racing. By the end of ?9, he was once again a sound horse, and Howard decided to try for a comeback in 1940.

At 7 years of age, Seabiscuit was more than twice the age of some of his rivals. But his team of Howard, Smith, and Pollard believed him to be capable, even though no horse had ever returned to top form after such an injury and long layoff. Pollard was determined to ride him, and win on him, again, even though he now required a steel brace on his leg to ride. They set out to chase the Santa Anita Handicap. 밢ld Pops and I have got four good legs between us,?said Pollard. 밠aybe that뭩 enough.? Seabiscuit and Pollard received a standing ovation as they stepped onto the track for their dream chased handicap. A crowd of 70,000 had gathered to witness the 1940 Santa Anita 멌ap, and this time they would not be disappointed. 멊iscuit broke well and and settled into striking position. He was shouldered into a pocket and Pollard momentarily panicked, thinking that once again the race would be lost. But then space opened up and Seabiscuit shot through. The closer and defending champion Kayak II came up to challenge then, and 멊iscuit looked him in the eye, teased him a bit, and then swept ahead to win the handicap while running the second fastest mile and a quarter in American racing history.

Seabiscuit was finished. In six years of racing, he had competed 89 times, winning 33 of these matches, finishing on the board 61 times, (more so in his later years), set 16 track records, and equaled another. Having won $437,730 in purse money, he was worth his weight in gold to the Howards, who had purchased him for a mere $7,500. it was time to retire. Seabisciut was going home to Ridgewood Ranch. On May 17th, 1947, the great and mighty champion suffered a heart attack at only 14 years of age. He was buried on a secret site on the ranch, with only an oak sapling to mark its location.

Above biography by Raelyn Mezger

커피를 줄였고, 잠을 줄였는데 식사가 늘고 담배가 늘었다. 학교를 다니면 어쩔 수 없이 정해진 시간에 정해진 이들과 정해진 식사를 해야되고 무료한 강의와 무료한 독서와 무료한 학교생활 때문에 담배를 펴야 한다. 다만, 이번 학기 강의들은 저번 학기보다는 훨씬 낫다.



휘둘리지 말자. 결국 모두는 그들의 길을 가야 한다. 무소의 뿔처럼 홀로 가야 한다.

오늘은 참 바람이 많이 불었다. 자칫 정말 날라갈 뻔 했다.



피곤하다. 이런 페이스라면 한 숨도 못 자고 이틀을 새야할 판이다. 수업 시간에 졸지 않으면 정말 다행이고!



오십견이 걸렸나 목덜미부터 어깨까지 쑤셔 죽겠다. 눈도 침침.

내가 해줄 수 있는 거라곤 그저 같이 술을 먹어 주는 것. 얼근하니 취하면 "아주 더 마셔 버릴까?" 라고 말해 보는 것. (우리가 결코 더 이상 마시지 않을 것을 알면서도…) 중간에 끊어진 네 말을 붙잡고 이어주는 것. 마침표 없는 네 문장에 마침표를 찍고는 알았다는 듯 연신 고개를 끄덕여주는 것.



그리고 다음날이면 모두 잊어주는 것.

한 때는 가장 가까운 이였으나 이제는 가장 먼 이보다 더 먼 이의 가장 최근 사진. (대체 얼마만인가!) 아무런 변화가 없는 모습. 어쩌면 기억 속에서 자라고 있었을, 미워하고 싶어도 미워할 수 없는 이. 잘 지내고 있는 것 같아, 참 뿌듯해.



눈이 조금 아프다.

잠이 쏟아진다.

자고 싶다.



그저 자고 싶다.



다싶 고자 저그.



다싶 고자.



절도를 잃은 다리는 흔들거리고



힘을 잃은 척추는 구부러지고



초점을 잃은 불쌍한 충혈안



이미 두뇌는 판단 감각을 상실 했다. (가끔 대가리, 대갈통이라 불리는 이유는 이래서다.)



자야 하는데 자야 하는데 자야 하는데 자야 하는데 자야 하는데 자야 하는데 자야 하는데 자야 하는데 자야 하는데 자야 하는데 자야 하는데 자야 하는데 자야 하는데 자야 하는데 자야 하는데 자야 하는데 자야 하는데 자야 하는데 자야 하는데 자야 하는데 자야 하는데 자아는 자야한다고 울부 짖는다.





랭보가 베를렌에게,



당신은 시를 어떻게 써야 하는지 알지만-- 나는 시를 왜 써야 하는지를 압니다.





나는 잠을 어떻게 해야 잘 수 있는지 모르지만-- 나는 잠을 왜 자야 하는지를 아주 잘 압니다.

기술 습득의 제1단계를 드리퍼스 형제는 '초보자(novice)' 단계라고 했다. 초보자는 아무런 의심 없이, 환경도 생각하지 않은 채, 규칙을 따라 행동한다. 예를 들어 수동 변속 장치가 있는 자동차 운전을 배우는 경우에 초보자는 '어떤 속도에서 기어를 변속한다' 또는 '얼마큼의 거리를 두고 앞차를 따라간다' 등의 규칙을 따른다. 초보자의 동작은 일반적으로 그렇게 쉽게 인식할 수 있는 것들이다. 초보 운전자의 움직임은 갑작스러우며 예측할 수가 없다. 그들은 엔진의 소리, 경사의 각도, 그 외에 다른 도로 사정과 같은 환경적 요소들을 전혀 고려하지 않고 기어 변속의 규칙을 철저하게 지킨다. 그들은 또한 교통이 아무리 혼잡해도 권장된 차간 거리를 유지한다.

제2단계는 '중급자(advanced beginner)' 단계이다. 중급자가 초보자와 구별되는 특징은 두 사람 모두 규칙을 따라 행동하지만 중급자는 그러한 규칙들을 환경에 따라 변경할 수 있다는것이다. 예를 들어 중급자 운전자는 언제 기어를 변속할지를 결정할 때 엔진 소리를 고려할 것이다. 그리고 교통 상황에 맞게 앞차와의 간격을 조절할 것이다. 상황 이론적 관점에서 본다면 중급자는 특정한 유형을 인식하고 그러한 유형에 맞게 규칙을 변경하기 시작한 것이다.

제3단계는 '상급자(competence)' 단계이다. 상급자도 여전히 규칙을 따르지만 상당한 융통성을 지니고 있다. 단 상황이 정상적일 때에 한한다. 단순히 하나의 규칙에서 다음 규칙으로 넘어가는 것 -- 초보자와 중급자의 행동 특성 -- 이 아니라 각 단계마다 다음 단계를 의식적으로 결정한다. 상급자의 경우에는 모든 규칙에 대해서 좀더 종합적으로 이해하고 있다. 그는 종합적인 행동 감각을 가지고 있으며 여러 규칙들 중에서 적절한 것을 선택한다. 예를 들어 상급자 운전자는 마음속에 특정한 목표를 가지고 운전을 하며 기어를 변속하거나 차간 거리를 조절할 때 엔진소리, 교통 상황 등을 고려한다. 그러나 운전자는 여전히 운전하는 데에만 주의를 집중하기 때문에 보행자의 안전, 운전자 예절, 안전 규칙, 심지어는 교통 법규조차도 거의 신경 쓰지 못한다. 게다가 그는 돌발 상황에 아직은 제대로 대처할 수 없을 것이다.

제4단계는 '숙련자(proficient)'이다. 많은 경우 숙련가들은 규칙을 선택하거나 따르지 않는다. 이들은 풍부한 경험으로 현재의 상황을 이전에 여러 번 부딪혔던 상황과 매우 유사한 것으로서 인식하고 훈련을 통해 형성된 반사작용으로 적절히 반응한다. 예를 들어 숙련가 운전자는 무의식적으로 자신이 비가 오는 날씨에 굴곡 심한 모퉁이를 향해 너무 빠른 속도로 달려가고 있음을 깨닫고 가속 페달을 늦추거나 브레이크를 밟는다. 속도를 늦추거나 브레이크를 밟는 것이다 의식적인 판단과 규칙을 준수하는 행동을 포함한다고 해도 운전자는 무의식적인 본능을 사용해서 과거의 비슷한 상황에 대한 경험을 바탕으로 그러한 판단을 내리는 것이다.

제5단계는 '전문가(expert)'이다. 전문가는 규칙을 따르지 않으며 실제로 행동을 지배하는 어떠한 규칙도 의식적으로 인식하지 않는다. 오히려 이들은 힘들이지 않고 자연스럽고 무의식적으로 행동한다. 전문가 운전자는 자신이 운전하고 있는 차를 인식하지 못하며 심지어 자신이 운전을 하고 있다는 사실조차 의식하지 못한다. 정상적인 상황에서 전문가는 판단하거나, 규칙을 따르거나, 문제를 해결하거나 하지 않는다. 오히려 정상적 상황이 아닐 경우에 그렇게 한다.

위의 설명에 따르면 진정한 전문가는 단순히 효과적이고 빠르게 규칙을 따르는 사람을 뜻하지 않는다. 전문가는 오히려 규칙을 전혀 따르지 않는다. 무의식적으로도 규칙을 따르는 것이 아니다. 우리가 어떤 일을 배우는 것을 돕기 위해 규칙이 있지만 일단 그 일에 전문가가 되면 더 이상 규칙을 따르지 않는다. 이러한 점에서 볼 때 규칙은 어린아이들이 자전거를 배울 때 사용하는 보조 바퀴 같은 것이다. 처음에는 보조 바퀴를 땅에 닿도록 부착하여 자전거가 중심을 잃지 않도록 계속해서 받쳐주도록 한다. 얼마 후 아이가 연습을 좀 하고 나면 보조 바퀴를 약간 높게 달아서 아이에게 보조 바퀴의 도움 없이 자전거를 타는 느낌을 가르친다. 하지만 넘어질 경우를 대비해서 여전히 보조 바퀴를 떼지는 않는다. 마지막으로 아이가 자전거 타는 법을 익히게 되면 보조 바퀴를 모두 떼어낸다. 이 단계에서 아이의 기술은 보조 바퀴의 필요성을 완전히 제거한다.

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모든 경영자가 알고 있는 것처럼 진정한 전문 지식은 경험을 통해서만 얻을 수 있다. '전문가(expert)'와 '경험(experience)' 두 단어가 공통 어근을 포함하고 있는 것으로도 그것을 확인할 수 있다. 책을 읽고 교육 세미나에 참석하는 것도 중요하다. 그렇지만 이런 것들은 너무 추상적이다. 당신은 진료 경험은 하나도 없고 모든 것을 책과 강의로만 배운 '내과의사'에게 내과 진료를 맡기고 싶은가? 이것이 전문의들이 의대를 갓 졸업한 의사들에게 모두 인턴 과정을 통해 철저한 감독 하에 진짜 환자들을 치료해보아야 한다고 주장하는 이유이다.

항공기 조종사가 되기 위한 훈련은 강의를 듣고 책을 통해 지식을 습득하는 이론적 가르침과 많은 시간동안 비행 시뮬레이터에서 실습과 철저한 감독 하에 실제 비행을 하는 시간으로 구성된다.

유사한 많은 전문직의 경우에도 일정 기간 동안의 현장 실습을 마친 후에나 자격증을 수여한다.

처음 자전거 타는 법을 배우거나 수영을 배울 때, 우리는 규칙을 기반으로 하는 가르침만으로는 부족하다는 것을 알게 된다. 방법을 말로 듣긴 했지만 이들이 배우는 유일한 방법을 계속해서 연습하는 것뿐이다. 자전거를 타고 끊임없이 넘어지고 물 속으로 가라앉는 끔찍한 시간이 지나면 우리는 마치 마술처럼 갑자기 그것을 '할 수 있게' 된다. 그리고 우리 모두 알다시피 일단 그러한 기술을 익히고 나면 우리는 그것을 거의 잊어버리지 않느다.

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많은 일에서 가장 중요한 능력은 예기치 못했던 상황에 대처하는 능력이다.


키스 데블린, 『인포센스』