2016: Is Berkshire making a statement about the long-term outlook for oil?

CLIFF GALLANT: Over the past year we’ve learned — perhaps I’ve learned — that Berkshire’s results are more influenced by oil markets than I previously appreciated. Revenues at the railway company and some of Berkshire’s manufacturing businesses were negatively impacted. And arguably, low gas prices hurt GEICO’s loss ratio.

Yet during this year, Berkshire invested in Phillips 66, Kinder Morgan, and even PCP has revenues associated with the oil and gas industries.

I know Berkshire wouldn’t make a bet on a commodity like oil, but is Berkshire making a statement about the long-term outlook for oil?

WARREN BUFFETT: Making a statement about what?

CLIFF GALLANT: Oil.

WARREN BUFFETT: The price? The price of oil?

CLIFF GALLANT: Yes.

WARREN BUFFETT: No. We haven’t the faintest idea what the long-term price of oil was and there’s always a better system available.

You can buy oil, as you know, for delivery a year from now, or two years from now, or three years from now. We actually did that once, Charlie, didn’t we? Some years back.

CHARLIE MUNGER: Cashed it in too soon, too.

WARREN BUFFETT: Yeah. We made money but we could have made a lot more money.

We don’t think we can predict commodity prices. We don’t hedge cocoa or sugar (inaudible). We do some forward buying of chocolate coatings or something of the sort.

But basically, we are not two fellows who think we can predict the price of soybeans or corn or oil or anything else.

So, anything you have seen in our investment transactions — some of those securities you mentioned there were bought by Todd or Ted, and one was bought by me — but neither they nor I bought those, or if we sell them, sell them, based on commodity price predictions.

We don’t know how to do it. And we’re thinking about other things when we make those decisions.

Charlie?

CHARLIE MUNGER: I’m even more ignorant than you are.

WARREN BUFFETT: That would be hard to beat. (Laughs)

OK. I think that’s the first time I’ve heard him say that. It has a nice ring to it. (Laughter)