2000: How would Buffett invest in a deflationary environment?

AUDIENCE MEMBER: I am Diane Ryan (PH) from Prairie Village, Kansas. This is the fourth year I’ve attended the stockholder meeting. And I’d like to say, every year, I feel like I’ve learned a little bit more.

This year, my question is, do you see a deflationary trend in the global economy? And if so, what is your investment advice?

WARREN BUFFETT: Well, Diane, I’m no good on the macro questions. And I’ve proven that by being way too worried about inflation for, probably, the last 20 years. Fortunately, it hasn’t made much difference, the fact that I’ve been wrong on that.

So I don’t really think my judgment is any better than yours, at all, in terms of assessing what’s going to happen to global prices over time. My opinion would be that the world is not going in a deflationary situation.

But, you know, I’ve not earned any stars for my past economic predictions. And the good thing about my economic predictions, even if I do make them, is that I pay no attention to them myself, so. (Laughter)

I really — and the way we pick our investments is we just don’t get into the macro factors. I can’t recall a time when Charlie and I have looked at a business, either buying it in its entirety or buying pieces of it through the stock market.

I just — macro conclusions are — just never enter into the discussion. I mean, I’ll pick up the phone. We’ve had these two in recent months. And I’ll tell Charlie about it. And, you know, we talk about a few things. But we don’t talk about anything remotely macro. And that’s really the way it’ll stay.

You know, I’ve seen a lot of bank mergers recently. And one of the things they do, because they want to cut the costs and justify a merger, which they’re dying to do, I mean, that’s the reason — so they cut costs they wouldn’t have cut if they weren’t dying to do the merger in the first place and get bigger.

But frequently — I know one in particular that I’m thinking of — you know, they’ll cut out the economics department. You know, I always wondered why the hell they had it in the first place. (Laughter)

You know, because what do they do? You know, I mean —the guy comes in and says, “I think GDP will be 4.6 this year instead of 4.3.” So what?

You know, I mean, you’re still trying to make every good loan you can make. You’re still trying to take in deposits as cheap as you can. And you should be trying to cut costs wherever you can. It’s got nothing to do with running the business.

But, you know, it’s fashionable. And every bank had its economist and economics department. And when a big client would come in, they’d take him to lunch. And it just — it always has struck me as just a lot of nonsense.

So if we ever get an economics department at Berkshire, sell the stock short. (Laughter)

WARREN BUFFETT: Number 6, please. Oh, Charlie, I didn’t —

CHARLIE MUNGER: (Inaudible)

WARREN BUFFETT: Oh, OK. (Laughter) He’d rather eat peanut brittle.