2000: Why did book value only rise 0.5% last year?

AUDIENCE MEMBER: Warren and Charlie, good morning. This is Mo Spence, Waterloo, Nebraska.

In 1999, Berkshire Hathaway managed to produce a positive gain in net worth of one-half of one percent.

That means that since present management took over 35 years ago, Berkshire Hathaway has realized a positive gain each and every year, and produced an average annual gain of 24 percent.

Including the years you ran the Buffett Limited Partnership, you have had a run of 48 consecutive years of positive gains and net worth without one single down year, producing a compounded rate of return of almost 26 percent annually.

On behalf of the long-term shareholders of Berkshire Hathaway, we want to thank you from the bottom of our pocketbooks. (Applause)

WARREN BUFFETT: Well, thank you. I hope your question isn’t going to be whether we can continue that, but go — you have a question?

AUDIENCE MEMBER: My question is, don’t you think you could have ended the millennium with a bigger bang than one-half of one percent? (Laughter)

WARREN BUFFETT: Well, I certainly wish we could have. But the interesting thing about those figures — and, actually, the figures go back before that, because the very best period was pre-the partnership days, because the amount I was working with was so small.

But the — there’s nothing magic about a one-year period. I mean, it’s the way the measurements come out. We’ve — if you took all the half-year periods, for example, I’m sure — well, I know that there were a number that were down, you know —

There’re going to be lots of years in the future — assuming I live long enough, that — we will have plenty of down years. It’s been a fluke, to some degree, that we have not had any down years in terms of underlying value.

The stock has gone up and down in ways that are not related to intrinsic value a few times, but that is totally a fluke. I mean, we’re not going to be up every day. We’re not going to be up every week. We’re not going to be up every month, or even every year.

And it’s — the fact that, you know, the Earth revolves around the sun really is not totally connected to most business activities, or the fruition of most investment ideas, or anything of the sort.

So we have to report every year, and, you know, I care about the yearly figures in that sense. I don’t really care about them, totally, as a measure of what we’re doing.

And, like I say, if we could’ve — we were — the capital allocation job that I did in 1999 was very, very poor. And it was partly because some of our main businesses did poorly.

I mean, Coca-Cola and Gillette had bad years last year. They’ll have good years over time.

I wrote a few years ago — it’s interesting, I called their soft drink business and their razor and blade business as “Inevitables.”

And the truth is they’ve got a higher market share now than they’ve ever had in history. They’re selling more units than any year in history. But certain other factors hurt their business and therefore hurt their stock performance.

But I would still call the soft drink — Coca-Cola’s position in the soft drink business, and Gillette’s position in the razor and blade business — I would characterize them as “inevitable,” that they will gain share over time.

Gillette has over 70 percent of the blade and razor business in the world, which is — measured by value. And that’s an extraordinary share.

Coke has 50 percent of the soft drink business in the world. That’s well over a billion eight-ounce servings per day. A billion per day.

Eight percent of those are for the account of Berkshire, so over 80 million eight-ounce servings of soft drinks per day are being consumed by people for — where the economic benefit comes to Berkshire Hathaway.

In effect, we have over six percent of the — for Berkshire Hathaway’s account — of the blade and razor business in the world. And it’ll go up.

So I don’t worry about the businesses in the least, long term. They will have bad years from time to time. And when they do, our performance will not look good in those years.

Charlie?

CHARLIE MUNGER: Well, it’s been a very interesting stretch. One of the most interesting things about the stretch is that, during pretty much the whole period, the company has owned marketable securities in excess of its net worth.

And so you have this extraordinary liquidity in a company that has performed very well, to boot. That advantage has not gone away and, in fact, it’s been augmented.

Give us reasonable opportunities and we are prepared.

WARREN BUFFETT: Well you’ve heard what you’re supposed to do, now we’ll do the rest. Just give us the opportunities.