eah. Don’t wear out all your clapping on Charlie. I mean, we got, in addition, well, we have, first of all, Greg Abel, a director, and Ajit Jain. Then to this back of this first section.
If each of the directors there would remain standing until we finish. We’ll go alphabetically down the line. And we’ve got Howard Buffet, we have Susan Buffett, Steve Burke, Ken Chenault, Chris Davis, Sue Decker, Charlotte Guyman, Tom Murphy junior, Ron Olson, Wally Weitz, and Merrill Whitmer. Okay, there are two people I would like to thank, and then we’ll get on to the brief description of the results of the first quarter.
First of all, I’d like to thank Melissa Shapiro, who put this whole event together. You can’t imagine the work that goes into it.
She just reported to me that we set a new record for seas candy. I think they brought along six tons and they will sell out. And one thing I do want to mention, we have only one book at the bookstore of the bookworm this year. Normally we have about 25, but we have poor Charlie’s Almanac, fourth edition, and I think we sold about 2400 of them yesterday. And that will be the only book next year.
We’ll go back to having our usual selection, but we thought we would just turn it over to Charlie this year. And then I would like to introduce one further person, and that’s the person who put that movie together. And you can’t imagine the amount of work it is because, for example, on those scenes that we’ve used from the past, if they involve Hollywood stars or various people, we needed to get permission all over again to show it because we told them originally we would only show it within the confines of our auditorium here. And of course, it went out on CNBC. And you just can’t imagine how much effort.
But also the great cooperation we got from all those desperate housewives and Jamie Lee. And with the desperate housewives, we had to get Disney’s okay, and that was easy to get. But running down five desperate housewives, that one came in toward the end. But the job of putting this together has been handled by the same fellow that handles us. Been doing these for years and years and years and years.
And I just would appreciate it if you could just put the spotlight on Brad Underwood for just a minute.
Okay. We, we put out some results for the first quarter this morning at 07:00 our time. And some few sharp eyed analysts and press people already picked up one or two items from it, which I’m sure we’ll get some questions on later. But if we could start out with slide number one, which should be showing now, you’ll see that in the first quarter. The way, and we talk about operating earnings at Berkshire, we’ve explained that many times, is why we think these figures that we give you are the most descriptive of what’s really going on in the business and take out the wild swings in the market that otherwise just, you know, and that was reporting big earnings one quarter and big losses another quarter.
We pay no attention to those at Berkshire, but you will see that we had a better than average quarter. And Ajit, Jane wants me to point out to everyone that you cannot take the insurance earnings of the first quarter and multiply by four. It just doesn’t work that way in insurance. And while we insure storms around the world, the major storms, for example, that would affect our earnings would be probably number one, would be something that went along the. That came in at the wrong place from our standpoint, and that just kept going up the east coast.
And that’s our. That’s our number one risk as we evaluate things. But we’re in all kinds of risks. There can be an earthquake tomorrow, there can be an earthquake ten years from now, and we’re in that sort of business. But the first quarter does hit the.
Should be our best quarter, certainly shouldn’t be our worst quarter. The most likely quarter to be the worst quarter’s the third quarter. But anything can happen. Insurance. But fortunately, nothing much happened in insurance during the first quarter, so we had much improved earnings in insurance underwriting, and then our investment income was almost bound to.
Well, it was almost certain to increase. And I said that in the annual report, because yields are so much higher than they were last year. And we have a lot of fixed short term investments that are very responsive to the changes in interest rates. So that figure is up substantially, and I can predict that that one will be up for the year. But we’ve got more money to invest as we’ll get to in a minute, and that’s fairly predictable.
So that number will be up when you get into the railroad. The railroad earnings. We’re down modestly, but we should. Not immediately, but we should be earning somewhat more money than we are earning under present traffic conditions. And then traffic conditions can also hit the earnings, hit the potential earnings of the railroad.
And if you want, every Wednesday, you can get car loadings from the previous week. And I’ll regard goes a little deranged if you do get them. But I get them every week. They’re available. And you’ll see that car loanings have been running for the industry, have been running down modestly, and these earnings were as is expected.
But we should earn somewhat more money than that on the equivalent amount of car loadings. And in the energy company, we had better earnings, but our earnings were distorted. Well, they were affected by conditions that I wrote about in the annual report, and we’ll undoubtedly discuss more this morning. But off a low base of last year, they were up somewhat. And so you get down to the final figure, and 11.2 billion is quite an improvement from last year.
But we would expect our earnings should go up modestly from year to year, because, after all, we’re retaining, like, 37 billion last year of earnings. So if we put 37 billion more, you left it with us, we should do something that’s satisfactory. And the goal of Berkshire economic goal is to increase the operating earnings and decrease the shares outstanding. It’s that simple to describe. It’s not quite so simple pull off, necessarily.
But that’s what we’re attempting to do. And if we’ll turn to slide two, please. I’ve got the history, and I just picked the pre pandemic year of when we hit 24 billion, and then we fell off in the first year of the pandemic. And then, as you see, we’ve moved up from 27 to 30 to 37 billion. And interesting thing about these earnings is they’re after depreciation and amortization and taxes and all that sort of thing.
So you can figure that, essentially, Berkshire has a little over $100 million per day, including weekends and holidays, coming in to deploy. And we’ve set out many times when we’re attempting to. We’re attempting to deploy that money, but we have that responsibility. And sometimes, if you’ll turn to the next page, well, you’ll see how that’s built up the shareholders equity so that Berkshire had March 31, 574 billion, and through retaining earnings. And we’ve been retaining earnings ever since we took control of Berkshire Hathaway, except one day, as I remember, I think it was maybe 1968, or the directors declared a ten cent a share dividend, and I think I must have been in the restroom or something at the time.
So if you leave out that period of madness, we’ve been retaining. We’ve been saving your money, putting it to work, and sometimes we’ve done things that were big mistakes, but we never get close to fatal mistakes, and every now and then, we do something that really works. And as Charlie pointed out in the past, you know, it’s really, there’s probably been a half a dozen to a dozen over 57 or 58 or whatever. It would be really important, big decisions, and there’s been nothing close to fatal. So that continues to be the guideline.
And we have accumulated 571 billion. And I couldn’t help but look at who’s second. And JP Morgan had 327 billion at year end, and they’re up to 338, I believe, at the end of the quarter. But they pay significant dividends. They repurchase shares.
They’ve got a business that earns better returns on equity, but they don’t pull it, and they shouldn’t. They don’t pull it back exactly like we have. And this does show what can be done, really, without any miracles, if you save money over time. And we have a group of shareholders, we had a group of partners, originally, Charlie and I did, that wanted to save money and left their money with, like in that film you just saw. You saw Eddie and Dorothy Davis and the Davis family and the children and the grandchildren, periodically did some other things with the money, but they also basically left it with us.
And we were a savings vehicle and they were able to do live very well, but they weren’t trying to live like the kings and queens of earlier capitalism and used to build the houses in New England and have a servant standing behind everybody eating and all that sort of thing. So we’ve had very few, what I would call, look at me type people that are attracted. There’s nothing wrong with it, but they just go someplace else. And they are spending sort of unbelievable sums after a while, by the standards of the past. And our people, nobody.
We have nobody that’s a miser or a hoarder or anything like that in our group, they live very well. But the math of compounding and a long Runway have done wonders. And we will talk a little later, right before lunch. We’ll give an illustration of that, of what can be done with that sort of philosophy. So our cash and treasury bills were 182 billion at the quarter end.
And I think it’s a fair assumption that they brought probably about 200 billion at the end of this quarter.
We’d love to spend it, but we won’t spend it unless we think we’re doing something that has very little risk and can make us a lot of money.
And our stock is at a level where it adds slightly to the value when we buy in shares. But we would. We would really buy it in a big way, except you can’t buy it in a big way because people don’t want to sell it in a big way, but under certain market conditions, we could deploy quite a bit of money in repurchases. And as you’ll see on the final slide, we have bought it in the last five years. We can’t buy them like a great many other companies because it just doesn’t trade that way.
The volume isn’t the same because we have investors, and the investors, the people in this room, really, they don’t think about selling. They probably would hope. Many of you don’t even check the price daily or weekly.
The people who check the price daily have not made the money that the people who have forgotten about it basically have over the years.
And that’s sort of the story of Berkshire. We’ll try to increase operating earnings, and we will try to reduce shares when it makes sense to do so. And we will hope for an occasional big opportunity. And we’re quite satisfied with the position we’re in. So with that background, I think we’ll turn it over to Becky quick, and we will alternate questions between Becky and those of you in the audience.
Becky, you want to start with the first question? Sure. Thanks, Warren. Let’s start. Just given what you mentioned, there was some news that came out in the ten Q this morning.
It shows that Berkshire sold another 115 million shares of Apple in this last quarter. That’s Berkshire’s largest holding. And I think in that vein, we’ll start with a question from Sherman Lamb. He is a 27 year old Berkshire Hathaway class b shareholder from Malaysia. And he asks, last year you mentioned Coca Cola and American Express being Berkshire’s two long duration partial ownership positions, and you spent some time talking about the virtues of both these wonderful businesses.
And your recent shareholder letter, I noticed that you have excluded Apple from this group of businesses. Have you or your investment manager’s views of the economics of Apple’s business or its attractiveness as an investment changed since Berkshire first invested in 2016? No, I would. But we have sold shares, and I would say that at the end of the year, I would think it extremely likely that Apple is the largest common stock holding we have now. One interesting thing is that Charlie and I looked at common stocks or marketable equities or the things that people love to look at as being businesses.
And so when we own a dairy queen or we own whatever it may be, we look at that as a business. And when we own Coca Cola or American Express, we look at that as a business. Now we can buy really wonderful companies in the market as businesses. We can’t buy all of them. I mean, all of their shares.
We can’t buy 90% or 80% or anything like that. But when we look at Coca Cola and American Express and Apple, we look at them as businesses. Now, there’s differences in taxes, factors, there’s difference in manageable responsibility, a whole bunch of things. But in terms of deploying your money, we always look at every stock as a business, and we don’t. We have no way, no attempt made to predict markets.
We have no attempt made to pick stocks. I went through many, many years doing the wrong thing. I got interested in stocks very early, and I was fascinated by them.
I wasn’t wasting my time, because I was reading every book possible and everything else. But finally, I picked up a copy of the intelligent investor in Lincoln, and there was a few sentences in there that said, much more eloquently than I can say it. If you look at stocks as a business and treat the market as something that doesn’t tell you, isn’t there to instruct you, but it’s there to serve you, you’ll do a lot better over time than if you try to take charts and listen to people talk about moving averages and look at the pronouncements and all of that sort of thing. And so that made a lot of sense to me then, the way I’ve been allowed to deploy it. Charlie and I talked about this, of course, constantly.
It’s changed over the years, is the amount of capital we have and has changed and all that. But the basic principle was laid out by Ben Graham in that book, which I picked up for a couple of dollars, and which basically said to me, you’ve been wasting your time now, but maybe you can use what you’ve learned or been reading about and put it to better use. And then Charlie came along and told me how to put it to even better use. And that’s sort of the story of why we own American Express, which is a wonderful business. We own Coca Cola, which is a wonderful business, and we own apple, which is an even better business.
And we will own, unless something really extraordinary happens, we will own Apple and American Express in Coca Cola when Greg takes over this place. And it’s such a simple approach that it’s almost deceptive. Most things, if you keep working harder and harder at it, you learn a little more math or you learn a little more physics, but investments, you don’t really have to do that. You really have to have your mindset properly. So we will end up something dramatically happens that really changes capital allocation strategy.
We will have Apple as our largest investment, but I don’t mind at all, under current conditions, building the cash position. I think when I look at the alternative of what’s available, the equity markets, and I look at the composition of what’s going on in the world, we find it quite attractive. And one thing that may surprise you, but we.
Almost everybody I know pays a lot more attention to not paying taxes, and I think they should.
We don’t mind paying taxes at Berkshire, and we are paying a 21% federal rate on the gains we’re taking in apple. And that rate was 35% not that long ago, and it’s been 52% in the past when I’ve been operating. And the government owns. The federal government owns a part of the earnings of the business we make. They don’t own the assets, but they own a percentage of the earnings, and they can change that percentage any year.
And the percentage that they’ve decreed currently is 21%. And I would say with the present fiscal policies, I think that something has to give, and I think that higher taxes are quite likely, and the government wants to take a greater share of your income, or mine or Berkshire’s, they can do it. And they may decide that someday they don’t want the fiscal deficit to be this large, because that has some important consequences, and they may not want to decrease spending a lot, and they may decide they’ll take a larger percentage of what we earn and we’ll pay it. We always hope, at Berkshire to pay substantial federal income taxes. We think it’s appropriate that a company, a country that’s been as been as generous to our owners, it’s been the place.
I was lucky. Berkshire was lucky, was here. And if we. If we send in a check like we did last year, we sent in over $5 billion to the US federal government. And if 800 other companies had done the same thing, no other person in the United States would have had to pay a dime of federal taxes, whether income taxes, no Social Security taxes, no.
Estate taxes. It’s open down the line now. That’s.
I would like to. I hope things develop well enough with Berkshire that we say we’re in the 800 club and maybe even move up a few notches. It doesn’t bother me in the least to write that check. I would really hope, with all America has done for all of you, it shouldn’t bother you that we do it. And if I’m doing it at 21% this year and we’re doing it at a higher percentage later on, I don’t think you’ll actually mind the fact that we sold a little apple this year.
Okay, let’s go to section one.
Hi, Mister Buffet, this is Matthew Lai from China Hong Kong. I’m running my listed listing company called FW, and we are so grateful that you learned from you and you really inspire us. My question is, besides the electrical car company, BRD, under what circumstances you will reinvest and reconsider to invest? Hong Kong and China company. Thank you.
Well, our primary investments will always be in the United States. We do think it.
The companies we invest in the United States, American express does business around the world. And no company hardly does business around the world like cola. I mean, they are the preferred soft drink. You know, something maybe like 170 or 180 out of 200 countries. Those are rough approximations from a few years back, probably, but that degree of acceptance worldwide is, I think it’s almost unmatched.
I can’t really think of any company that has it. American Express has a position in the credit card deal, which I think is extremely strong. And part of that was one of the direct part of the reason for that is one of the directors that introduced a few minutes ago, Ken Chenault. But it has strengthened dramatically over the last 20 years for a lot of reasons. So we will.
The BYD investment was a.
And, well, we made the commitment in Japan, which I did five years ago, and that was just overwhelmingly, it was compelling. It was extraordinarily compelling. And we bought it as fast as we could, and we spent a year and we got a few percent of our assets in five very big companies. But that’s the problem of being our size. But you won’t find us making a lot of investments outside the United States, although we’re participating through these other companies in the world economy.
But I understand the United States rules, weaknesses, strengths, whatever it may be.
I don’t have the same feeling for economies generally around the world. I don’t pick up on other cultures extremely well. And the lucky thing is, I don’t have to, because I don’t live in some tiny little country that just doesn’t have a big economy. I’m in an economy already, that is, after starting out with half a percent of the world’s population, has ended up with well over 20% of the world’s output in an amazingly short period of time. So we will be american oriented.
I mean, if we do something really big, it’s extremely likely to be in the United States. Charlie, in all those years, there’s only two times he’s told me that this one is really.
He would always go along with me and say, well, when I was suggesting something, he’d say, well, this is really not that great, but it’s probably the best you’ll come up with. So I’ll go along with the idea. But Charlie twice pounded the table with me and just said, you know, buy, buy, buy. And Byd was one of them and Costco was the other. And we bought a certain amount of Costco and we bought quite a bit of Byd.
But looking back, he already was aggressive. But I should have been more aggressive in Costco. It wasn’t fatal that we weren’t. But he was right big time in both companies. And I will.
I’m aware of what goes on in most markets, but I think it’s unlikely that we make any large commitments in almost any country you can name, although we don’t rule it out entirely. And I feel extremely good about our japanese position, and we’ll have that.
I don’t know how many years. Greg will be sitting with that at some point, and we couldn’t be happier with that. But you really have to. We really have a different outlook in looking at. Well, we look at your money, which we couldn’t bear to lose, and we feel that we’re very less likely to make any truly major mistakes in the United States than in many other countries.
Okay, Becky, this next question comes from Stanley Holmes, who is a Berkshire shareholder from Salt Lake City. He asks. In his 2024 annual letter to shareholders, Chairman Buffett noted the severe earnings disappointment experienced at Berkshire Hathaway Energy last year and expressed concern about earnings and asset values in the utility industry. Recognizing that investors are worried about climate change related expenses and that new uncertainties cloud the regulatory environment, the chairman suggested that some jurisdictions may adopt the public power model. There are now signs that policymakers in Utah, citing state sovereignty, may already be poised to move in that direction.
The Utah legislature recently mandated the state’s right to serve as sole purchaser of energy from an in state power plant and under some circumstances, purchase the power plant before it can be retired. The state utility regulator will be legally bound to prioritize public purchases of power and facilities that could include assets owned by Berkshire Hathaway Energy specific Cork utility Rocky mountain power. Will Berkshire, through BHE, continue to invest resources in jurisdictions where corporate assets may be subject to confiscatory state policies and actions? And how is Berkshire energy working with officials in Utah to minimize potential potential corporate losses if and when state control is asserted over its electrical utility sector. I will let Greg join with me, and the answer on this, but I would say our feeling is that Utah is actually very likely to treat us fairly.
Whether the action is in granting appropriate rates that give us the return, we expect that generally expected in terms of our own properties or if they decide for some reason to go to public power, I think they would compensate us fairly in the 1930s. George Norris, a senator from Nebraska, just turned Nebraska into a public power state. And our experience in Iowa would indicate that free enterprise has its role and that we can run a privately owned utility company that will be more efficient for society than, at least in most states, people can do with public power. But what has happened is that there’s going to be enormous amounts of money, enormous amounts of money spent on power. And if you’re going to do it with private owners, there’s nobody better situated than Berkshire to satisfy the portion, but a large portion of the needs of the country.
And we will do it at a rate of return that is not, you know, it’s not designed to make us rich or anything like that. It’s a sensible rate of return, but we won’t do it if we think we’re not going to get any return. It would be kind of crazy. And we’ve seen actions in a few states where some of the costs associated with climate change, they’re not being regarded as cost of the utility shouldn’t incur. Well, believe me, if it was publicly owned, they would have incurred it too.
But we’ll do what society tells us and we have got the money and we’ve got the knowledge to participate big in something that is enormously important for the country. But we’re not going to do it. We’re not going to, we’re not going to throw good money after bad in the field. I don’t worry about, my understanding is, and Greg can elaborate on this now immediately, but I don’t regard Utah as being unfriendly to the idea of utilities being treated fairly. Charlie.
Charlie, I’m so used to that.
I had actually checked myself a couple times already, but I’ll slip again. That’s a great honor. Yeah. When we touched on it initially in your letter relative to the challenges in the industry, and then you’ve just alluded to the significant investment that has to go into the energy industry, the utility sector, for many years to come. And I think if we start there, if I think of our different utilities, it will definitely come to Utah and Pacific Corp.
But if you look at the underlying demand that is building in each of those utilities and the amount of dollars that are going to have to go in to meet that demand, it’s absolutely incredible. So when you raised it in your letter, it’s a really important issue. We have to have a regulatory compact that works between, if it’s a public utility, it has to work in concert with the state, Utah being an example, or it ultimately becomes potentially a public power. So just to set the frame a little bit, if I think of Iowa, which you mentioned, and the underlying, we’ve made substantial investments there, it’s been very consistent with both the public policy that the state and legislator wanted, and they enacted very specific laws to encourage that. But that utility is more than 100 years old right now.
And if we look at the demand that’s in place for mid american Iowa utility over the next, say, into the mid 2030s associated with AI and the data centers, that demand doubles in that short period of time, and it took 100 years plus to get where we are today, and now it’s going to double. And that will require substantial amounts of capital from mid american and its shareholders. And how that will function is if we have a proper regulatory compact in place, which you’ve highlighted, if we then go to, say, Nevada, where we own two utilities there and cover the lion’s share in Nevada, if you go over a similar timeframe and you look at the underlying demand in that utility and say, go into the later 2030s, it triples the underlying demand and billions and billions of dollars have to be put in. Our rate base will literally go from, it’s not a modest level now, but you’re talking probably an incremental six to 10 billion at least of rate base going into that type of entity, which requires, again, alignment with the state and their policies and a proper recovery of our underlying both capital and a return on capital. So when we come to the wildfires, that’s been a substantial challenge because it’s the first time there’s been a lot of discussion around one of our utilities.
One experienced significant losses associated with the wildfires. What portion of those costs will be recovered? And that’s really the dialogue we’re in. And does that properly work? When I think of the wildfires, there’s been many claims in a recent additional claim last week for $30 billion, and we don’t take that lightly, but it is an incremental claim to an already existing lawsuit that’s in place.
And when I think of PacifiCorp, we’re in a place where first and foremost, all the litigation will be challenged because the basis for it, at least we believe there’s places where it’s unfounded and will continue to challenge it. And it will take many years to be resolved, as Warren highlighted in the letter. But if you think of Pacificorp and the litigation there, number one, how we think and operate those assets have to change. Change because we’ve had a regulate, we have worked with the states, across all our states for many years with the fundamental goal to be to keep the power on. And our teams and our employees worked incredibly hard to keep the power on, day in, day out, through storms.
Unfortunately, through the 2020 fires, the instincts were not to turn off the power. The instinct was to keep the power on, to keep hospitals, fire stations responding. It’s not in their mind, or at least culturally, it wasn’t in our minds to de energize. So the first thing we had to do was step back and say, we’ve got to fundamentally change the culture, not just at Pacific Corp. But across all our utilities.
The first thing we have to recognize is that there’s now going to be situations where we prioritize de energizing the assets, and that’s completely different than we’ve operated those assets, as I’ve highlighted, for 100 plus years. So we start with the culture. We had to change that. The second thing is we’ve now changed our operating systems so that we can turn off the power very quickly. If there’s a fire that’s increasing, approaching, we will turn off our systems now and we’ll go, the minute the conditions are safe again, we’ll reenergize it.
But we’ve had to do that. And then the third thing is continuing to invest in a way that allows us to try to minimize the risk of the fire. But when you get back to Utah and Pacific Corp. The challenge we do have is within Pacific Corp. As we go through both litigation and through continuing to operate that entity, it generates a certain amount of capital and profits that will remain in that entity and being reinvested back into that business.
But fundamentally, as we go forward, we need both legislative and regulatory reform across the Pacific Corp. States if we’re going to deploy incremental capital, make incremental contributions into that business. As Warren said, we don’t want to throw good capital after bad capital, so we’ll be very disciplined there. But the reality is there are opportunities to both solve the legislative and regulatory solutions. And the best example we actually have, and I think it’s the gold standard across the country, is Utah.
So as Warren touched on. It’s a state we’re happy we’re investing in. It is part of Pacific Corp. So there’s a certain amount of balance there as to how we do it. But in the last legislative session that existed, Utah actually passed the bill that does a couple very important things.
One, it caps non economic damages on wildfire claims. So if you go back to the wildfires we have in Oregon and the claims you’re hearing filed for, there’s economic damages associated with them, and those harms should receive the economic damage damages associated with that. But unfortunately, and even though there’s legislature and case law in Oregon that says wildfire non economic damages should not be awarded, there’s very substantial non economic damages being awarded there. Utah took a very proactive position to say, we will cap those non economic damages and it creates an environment. Again, it’s back to that.
Is there an environment where you want to invest in? Yes, and then incrementally they’ve created a very substantial fund. It’s literally called the wildfire Fund for fires in Utah that will help facilitate both liquidity and the ability to resolve the situation. So Utah, we believe, including the legislation, that a lot of other things came out of it is the actual gold standard as we go forward. So very important issue for Berkshire Hathaway Energy, but at the same time, it is a Pacific Corp.
Issue. The risk of regulatory compacts not being respected is a much broader one that will always evaluate and be careful how we deploy our capital. But both Pacific Corp. Will manage through it. And I see other very good and significant opportunities in Pacific Corp.
I mean, in Berkshire Hathaway Energy, the. Return on equity investment that’s been been promulgated and been achieved over the years has been, particularly in recent years, well below the return on equity that has been achieved by american industry generally. And so whether you earn x or x plus a half a percent or x minus a half a percent, that differs by state, and some states are more attractive than others. But whether you earn x or go broke is not an equation that works. And, you know, we won’t put our shareholders money.
They didn’t give it to us to lose it all, and they might like it if it’s better when it’s plus a half a percent, the next minus a half a percent. But the electric utility industry will never be as good as, I mean, just remotely as good as, you know, the kind of businesses we own in other arenas. I mean, you look at the return on tangible equity at Coca Cola or American Express or to really top it off, Apple. It’s just, it’s, you know, it’s just a whole different game. But in utilities, the trade has been, the compact has been that you get a modest return and climate change comes along and it causes way more fires.
That’s just the cost of doing business. And it doesn’t mean that we can’t do things to mitigate fires in the future. And you can make different policies on when you turn off the lights, but somebody’s going to do, somebody’s going to put up many, many hundreds of billions, maybe in the trillions, and climate change enters into that, and it can be done through public power or it can be done through private enterprise to quite a degree. And we would be certainly good for 100 billion or more, but we’re not going to throw good money after bad.
Okay, let’s do station four.
Hi, I’m Joe, visiting from San Francisco. How do you think about the role of technological advances, especially generative AI, on more traditional industries? Thank you. Yeah, I made a mistake in calling on four, but I’ll get back to two later on.
I don’t know anything about AI, but I do have, that doesn’t mean I deny its existence or importance or anything of the sort. And last year I said that we let a genie out of the bottle when we, when we developed nuclear weapons, and that Genie has been doing some terrible things lately. And the power of that genie is what, you know, scares the hell out of me. And then I don’t know any way to get the genie back in the bottle. And AI is somewhat similar.
It’s part way out of the bottle, and it’s enormously important, and it’s going to be done by somebody. We may wish we’d never seen that genie or may do wonderful things, and I’m certainly not the person that can evaluate that, and I probably wouldn’t have been the person that could have evaluated it during World War Two, whether we tested a 20,000 ton bomb that we felt was absolutely necessary for them United States, and would actually save lives in the long run. But where we also had Edmund Teller, I think it was, it was on a parallel with Einstein in terms of saying, you may, with this test, ignite the atmosphere in such a way that civilization doesn’t continue. And we decided to let the genie out of the bottle and it accomplished the immediate objective. But whether, whether it’s going to change the future of society, we will find out later.
Now, AI, I had one experience that does make me a little nervous, and I’ll just explain it that very, very recently, fairly recently, I saw a. An image in front of my eyes on the screen, and it was me and it was my voice. And wearing the kind of clothes I wear, and my wife or my daughter wouldn’t have been able to detect any difference. And it was delivering a message that no way came from me. So it.
When you think of the potential for scamming people, if you can reproduce images that I can’t even tell that, say, I need money, you know, it’s your daughter, I’ve just had a car crash. I need $50,000 wired. I mean, scamming has always been part of the american scene, but this would make me, if I was interested in investing in scamming. It’s going to be the growth industry of all time, and it’s enabled in a way. Obviously, AI has potential for good things, too, but I don’t know how you.
Based on the one I saw recently, I practically would send money to myself over some crazy country. So I don’t have any advice on how the world handles it because I don’t think we know how to handle what we did with the nuclear genie. But I do think, as someone who doesn’t understand a damn thing about it, that it has enormous potential for good, an enormous potential for harm. And I just don’t know how that plays out. I’d like to mention to Becky that Ajit will not be participating in the afternoon session, so if you could focus on any, if there are insurance questions you want to ask, that be a good one?
Yeah. This next question is for both Warren and Ajit. It’s from Ben Noll, who’s a Minneapolis shareholder who’s been a shareholder since 1995. And he says in an interview this past year, Todd Combs said that in first meeting you in 2010, he told you Geico is better at marketing and branding, progressive is a data company, and data is going to win in the long run. But it appears you did not prioritize data analytics at Geico until a decade later, when you made Todd CEO.
As business units like Geico Age and need new strategic direction, I wonder if Berkshire’s hands off management approach is a source of vulnerability. Will you please review your thinking on changes made at Geico and explain how Berkshire is structured to react? If the Berkshire CEO sees that a business unit is strategically off track and Ajit, I hope you will continue to update us on yours and Todd’s progress at remedying the data analytics shortcomings at Geico. Ajay, would you like to. Yeah.
As Warren has pointed out in the past one of the drawbacks that Geico is faced with, it hasn’t been doing as good a job as matching rate with risk and segmenting and pricing product based on the risk characteristics. This has been a disadvantage at Geico for a few years now. We are trying to still play catch up. Technology is something that is unfortunately a bottleneck. But there again, we are making progress.
And equally importantly, we have hired people who are much better than what they inherited in terms of data analytics and pricing and slicing data. So, yes, I recognize we are still behind. We’re taking steps to bridge the gap, and hopefully by the, certainly by the end of 25, we should be able to be along with the best of players when it comes to data analytics, whether it’s pricing, whether it’s claims or any other factor that drives the economics of the insurance business. I would add, equating rate with risk obviously is important in every line of insurance business. I mean, that’s what you’re involved with, is deciding whether a given rate offers us the chance or the probability that we will make a little of money on it, and that sometimes we’re only risking losing a little and sometimes we’re risking losing huge amounts.
But Geico and progressive has done a better job in that recently. But our fundamental advantage at Geico, of course, is that we have lower costs than virtually anybody. And that cost advantage has been dramatic. We’ve driven our underwriting expense ratio below 10%, and there’s just very, very, very few companies that can compete with us. So it isn’t, it’s not in the least a survival question, and it isn’t even exactly a profitability thing.
But, you know, we would rather have x percent of the market than a half of x percent. But we roughly, I think in the month of March, we, we were just, we didn’t lose policyholders and we got 16 million or whatever it is, of them, and we’ve got the lowest cost operations. So it’s not a threat. It’s not remotely a threat to survival, it’s not a throat, it’s not a threat to even profitability. But on the other hand, we would like to be growing with something that is the best model around in the insurance business of delivering at a low cost.
And we now have a recognition that we didn’t have back when Leo Goodwin started in 1936. But the same principle that worked then is that if you can offer somebody a good product, cheaper than the other guy, and everybody has to buy it, and it’s a big business you know, it’s very attractive to be in, and GEiCO is a very attractive business and has got its lowest cost thing, and it does have to do a better job of matching rate to risk. But our low costs have amassed the fact that for a while that we could do without progressing as much as we should have in the matching of right to risk. And now Todd has been working intensively at that, and he’s made a lot of progress, but there’s still work to be done. But in the meantime, we’re not going to shrink, and we should make better underwriting profits than most companies in the auto insurance business.
Okay, I’m going to back up and go to. I think I left station two out of it earlier. So do we have somebody there? Yeah. Good morning.
My name is Sebastian Sartre. I’m from Munich, Germany. Berkshire is a very respective company in Germany. And my question is, who are your most trusted advisors today? Is it Ted and Todd?
Is it Greg and Ajit? Is it your wife, your children? And what do you value about them? Thank you. Well, it depends whether they’re advising me on money or on other things.
I trust my children and my wife totally, but that doesn’t mean I ask them what stocks to buy.
But the.
In terms of managing money, there wasn’t anybody better in the world to talk to for many, many decades than Charlie. And that doesn’t mean I didn’t talk to other people. But if I didn’t think I could do it myself, I wouldn’t have done it. So to some extent, I talked to myself on investments, and I think my children have gotten a whole lot wiser over the years. And so I listened on a lot of things.
I’ll listen to my daughter on who to vote for locally, because she knows a lot more about that than I do. And I’ll listen to my wife on a lot of things and I won’t get into details. So it is important.
If you don’t live a life where you surround yourself and limit yourself to people you trust, it won’t be much fun. I mean, I literally have been in the position ever since I was in my twenties of being able to have people I trusted around me. And I’ve made mistakes occasionally, but they filled her out over time. You learn. And when I found Charlay, for example, in all kinds of matters, not just investment, I knew I’d have somebody that.
Well, I’ll put it this way. You can think about this, Charlie. In all the years we worked together, not only never once lied to me, ever but he didn’t even shape things so that he told half lies or quarter lies to sort of stack the deck in the direction he wanted to go. He was, he absolutely considered total of utmost importance that he never lied. Now, that occasionally got him in trouble at dinner parties or something.
If he said to the woman, I really prefer the way you used to do your hair, the way that somebody over across the room does. I mean, he was. But in terms of having a partner, I simply cannot think of a conversation I ever had with Charlie that in the least he misled me or shaped it his way or anything of the sort. So when you get that in your life, you know, you cherish those people and you sort of forget about the rest. Okay.
Again, this question is for Ajit comes from Meher Barucha. Climate change seems to be impacting the insurance industry heavily, with major players pulling out of markets like California because of wildfire and flooding risks combined with payouts increasing. How does Mister Jain see this risk expanding to other regions, and how has the thesis on insurance investments changed because of it?
Climate change. Climate risk is certainly a factor that has come into focus in a very, very big way more recently. Now, the one thing that mitigates the problem for us, especially in some of the reinsurance operations we are in, is our contractual liabilities are limited to a year in most cases. So as a result of which, at the end of a year, we get the opportunity to reprice, including the decision to get out of the business altogether if we don’t like the pricing in the business. But the fact that we are making bets that tie us down to one year at a time certainly makes it possible for us to stay in the business longer term than we might have otherwise because of climate change.
Clearly, prices need to go up. It is difficult to be very scientific about how much the prices need to go up. They need to go up a lot. And we keep increasing prices and hope we stay ahead of the curve. But that doesn’t happen in all cases.
The regulators don’t make it any easier by tying our feet to the ground and making it difficult for us to withdraw from certain territories or to make dramatic changes in the pricing of certain products, as a result of which a number of insurance carriers, including ourselves, have decided to, to not write business in certain states. I think the regulators are getting a little more realistic about the. And they are waking up to the fact that the insurance carriers need to make some kind of a return, a decent return for us to keep deploying our capital. It’s a constant battle back and forth it’s been against the capital providers these last few years, but I think we are coming back into balance. If you look at the results that have been recently announced by the insurance carriers, everyone’s now making record profits.
Obviously that will not last, but certainly for the next several months. I think the insurance industry, in spite of climate change, in spite of increased risk of fires and flooding, it’s going to be an okay place to be in. Climate change increases risks and in the end it makes our business bigger over time. But not if we, if we misprice them, we’ll also go broke. But we do it one year at a time, overwhelmingly.
And I would say this, I would rather have a jeep assessing us than any thousand under riders or insurance managers in the world. I mean, the factors aren’t, you know, we’ll take Atlantic hurricanes, which would be probably our biggest risk.
There’s no question that you can measure the temperature of the water in the Atlantic and you know, what warm water does, hurricanes. But you don’t know whether necessarily whether that’s good or bad because it may cause them to turn faster, you know, and it may, it may change the path as well as the intensity and frequency of losses. But we’ll write it one year at a time and we’ll have vegeta underwriting it and, you know, we don’t have to tell you what’s going to happen fast five years from now or ten years from now. And people who don’t have sort of analytical insurance minds that comment on this subject really don’t expand our knowledge.
We get a lot of letters from people that I’m sure have good iqs, but they, they don’t really know, they don’t understand the insurance business and they’re not wrong. I don’t think in my mind about climate change, but if there was no risk, there’d be no insurance business. And we’re in the business of evaluating it and we do it one year at a time. And there’s some exceptions where you can’t do it, where your decisions extend for a long time in the future.
We try to avoid those. But again, you don’t need a thousand people analyzing water currents. I think you need one very, very, very smart guy. And we’ve got him. Okay?
Yeah. The only thing I’d add is that climate change, much like inflation done right, can be a friend of the risk bearer.
And it has been for us. If you look at GeiCo, it had 175,000 policies roughly in 1950, and it was getting roughly $40 a car. So that was 7 million of volume.
You know, now we have. We’re getting over $2,000. Well, all the advances in technology and everything like that, if we had been wedded this formula, what we did with $40, we’d have had a terrible business. But in effect, by making the cars much safer, they’ve also made it much more expensive to repair. And a whole bunch of things have happened, including inflation.
So now we have a $40 billion business from something that was 7 million back when I called on it. So if we’d operated in a non inflationary world, Geico would not be a $40 billion company.
Okay, we’re now finally coordinated towards station three. Believe.