2007 Berkshire Hathaway Annual Shareholders Meeting Attendance: 27,000 (Estimated) New Record (23,000 last year)

HOUSING AND SUB-PRIME LENDERS Continued weakness for quite a while. Certain markets will have more challenges. Weakness will be not uniform. Certain sectors of the country will be hit hard. Should not become a bigger issue unless economy weakens, unemployment increases or if interest rates rise. PRIVATE EQUITY Boom a function of the massive liquidity in the financial system. Funds available to private equity will be significant until credit spreads begin to widen. Expects this condition to be around for a while and will make people complacent to risk. Munger: You cannot have this much excess without payback. GLOBAL INVESTING Berkshire has not been big in this area because it is difficult to establish any significant positions in foreign equities. Reporting thresholds are lower at 3% vs. 5% in the US. Another reason has been because Berkshire is not well known abroad. Buffett expects to promote Berkshire in the future and hopes more deals will come their way like ISCAR. MANAGEMENT AND COMPENSATION Management Compensation levels are high but more importantly you need to focus on the individual(s) running the business. If you get the right person it should overcome the compensation issue. Compensation Committees just end up ratchet up comp levels across the country. FEDERAL RESERVE Buffetts opinion is that the fed is unlikely to tighten from here.

CORPORATE PROFITABILITY Corporate Profits have been amazing high over the years. Today it is close to 8 percent of GDP. (Historical range has been 4-6 percent of GDP.) The labor component decreasing has been a big driver to profitability. This condition of high profitability is expected to come down in the future.

GAMBLING The human propensity to gamble is huge which makes the industry attractive. However gambling amounts to a tax on ignorance. (Ignorant defined as people who continue to put their money on the line when the odds are against them.) Munger: It is a dirty business and you wont find a casino in Berkshire. INVESTING AND INVESTMENTS People can become a better investor if they can answer this question, What do you own and why do you own it? (Your answer should come from a business perspective for owning the investment.) Investing is getting paid to see the future 5, 10, 15 years out. It is the present value of the amount of cash generated to the investor from now to judgment day. (Hence the importance to understand what you invest in.) Investment decisions should be based on opportunity costs against alternative costs of other options. (Assumes one is highly competent to analyze the alternatives.) Acknowledged reading as an activity to broaden your knowledge base to make you a better investor. DERIVATIVES The derivative risks keep growing as the amount of derivatives being written increases. This is being fueled by accounting profits where contracts generate profits when they are marked-tomarket. Often times both parties are recording profits on a contracts mark-to-market valuation. It should be a zero sum game. This should continue because the overall market for derivatives continues to grow and older contracts recording losses are netted against the larger volume of new contracts booking profits. Losses will be significant when the process unwinds sometime in the future. GLOBAL WARMING Buffett acknowledges the risk of Global Warming. Rising temperature increases the risks increases exponentially. Berkshire is now underwriting policies with higher risk premiums. (Prudent underwriting firms will see a decline in revenue and profits in the near term.) Munger does not see it as a significant threat commenting that those most upset about the problem are potsmoking journalists. INSURANCE INDUSTRY OUTLOOK Premiums written by prudent players will come down because the State of Florida recently stepped in to fill the market needs for insurance. This is freeing up capacity for insurers and making pricing more competitive. Also the prudent underwriters are choosing to sacrifice volume instead of taking on unwarranted risks. Berkshire has reduced its exposure to hurricanes in 2007 to about 50% of 2006 levels.

STOCK MARKET OUTLOOK Buffett does not view stocks in general to be highly attractive at these levels. However still has modest expectations and believes it is a better alternative to the long bond at 4.75% over the long term. (Stocks should return >5% over the next 20 years) (Historical perspective: 50 year market Average PE is 16. Current PE on 2007 estimated earnings on the market is 16.1) Berkshire has invested $5 billion in equities in the first quarter, primarily in railroad stocks. A shareholder questioned if they are lowering their investment parameters. Buffett commented that he does not believe he lowered his criteria. Railroad dynamics have changed and they have become more competitive to trucking companies to move goods because of the high cost of fuel and labor. Railroads are decent investments not great investments. They require significant amounts of capital as an ongoing business. SMALL VS LARGE INVESTOR The small investor has a competitive advantage over someone as large as Berkshire to generate returns. Berkshire is too big, which limits the amount of investments they can buy into. It is impossible to compound large sums of money at 20%. The small investor has the bigger universe of investment choices and options. (Buffett has stated that 50% per year with small sums can be done.) VOLATILITY Volatility is not risk. Past volatility is not a measure of risk. EVALUATING MANAGEMENT CHARACTER Try to get a feel for the manager. How does his letter to shareholder come across? Did he write it himself and is he honestly trying to communicate to the shareholders? Is the information being disclosed clearly disclosed? Is all the pertinent information being disclosed? People give themselves away! Listen and watch what they say and how they say it. Watch for any suspect behavior? ETHANOL Munger, It is a dumb idea. It cost more to produce ethanol than the benefits generated from it. The cost of the hydrocarbons used to produce the product and topsoil loss exceeds the value generated from ethanol. INFLATIN PROTECTION The best protection of inflation is earning power. The best investment against inflation is a business with high rates of return on capital and also requires minimal capital investment to sustain these rates of return. Ability to pass through cost increases. Conversely a business with high capital investment requirements will not return high rates of returns in the long run. BUSINESS SUCCESS High correlation to running a successful business to when the person first started his first business. Like sports the earlier you start in life the better you tend to be.

Munger: Successful people are also very reliable people. US DOLLAR Expects the dollar to continue to decline. Would rather buy companies earning profits in foreign currency vs. buying the currencies as direct investments. Berkshire currently has only one foreign currency investment position. BOARD OF DIRECTORS 3 major responsibilities of the Board of Directors 1. 2. 3. Get the right CEO. Keep the CEO in check and from over reaching Be an independent opinion of any major projects or acquisitions. Too often the deck is stacked against the Board if the CEO wants to do a deal. Evaluate what you are giving up in stock for what you are buying or receiving.

NEWSPAPER INDUSTRY The position of the newspaper business in the market place still reflects its past profit record. (In response to all the recent deals in the sector.) If newspapers were not invented, no one today would cut trees down, haul news print across the country, build large and expensive printing shops and a distribution network to get the newspaper out to its readers. The Internet has or will make the newspaper business obsolete. PETRO CHINA Does not believe divesting Petro China will influence the Chinese Government who ultimately owns Petro China through Chinese Natural Petroleum Company. Will sell Petro China when the investment is not attractive for Berkshire to own. (Still undervalued)

2007 Wesco Annual Meeting Notes May 9th, 2007 Opening Comments: Charlie: I did not set out to become an assistant to a cult leader. (In response to the largest crowd to attend a WESCO Meeting approx 700) Stared the meeting Q & A with his observations on Why is Berkshire Hathaway so successful (Munger was lucky to witness the transformation of BRK from a $10 million company to one that has a market cap of over $170 billion and one of the few remaining companies in corporate America with an AAA credit rating.) Here is his view of Berkshires success factors: 1. 2. 3. 4. Berkshire is operated by a person with tremendous mental aptitude. Warren is extremely intelligent. Warren is extremely passionate in what he does. An early start. Warren started early. Berkshire has had the benefit of time. Warren is a great learner. He is a learning machine that continues to get better as he learns more and more, even to this day. His investment skills keep growing. He is still learning. (Commented that investment management is the one field in which you can improve your game at a very late age in life.) The driving force is heavily concentrated in one mind. It is hard to think that a committee would have done a better job over this time period. Munger used John Woodens coaching philosophy as an example. Although the team consisted of 12 or so players he concentrated the playing to 7 of the best players. The remaining players were just practice players. The talent was concentrated to the players who did the execution on the court. Berkshire has concentrated decision making. Warren has been able to avoid big mistakes and was provided with positive reinforcement along the way. There was no nutty behavior and Warren was able to maximize his objectivity through reinforcement. Investing provides great reinforcement of ones decisions over time. (The markets will reward or punish you over time for your decisions.)

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ON LEARNING It is hard to learn ideas from one mind to another. A horrible experience is a good teacher. Understand the Method of Learning. It is a powerful tool. One of the methods to learning is to invert the question or the problem. What dont I like and then try to avoid it. Spend no time with feelings that do not reward. It is a waste of time. (Examples: The world is unfair, Plotting Revenge and Envy) You can be a wiser person than a person by picking up the main ideas of a various subjects vs. being a narrowly focused expert or person with a higher IQ. Tune out the major follies in life. ON WHAT FEELSGOOD Two things that make a person feel good. Operating in a logical world and being trusted. Berkshire operates in a seamless web of trust.

MODELING BERKSHIRE Why there arent a lot of companies copying Berkshires operating strategy? It is not the way Corporate America is set up organizationally. Most leaders in Corporate America rose through the ranks of traditional corporate organizational structures. Another reason is partly because it is too simple.

PRIVATE EQUITY There is a lot of inaccurate information in this area. Most reported performance is over exaggerated. Not to say that there are organizations that is performing well. Yale is doing well. Berkshire is different from Private Equity when it buys a company. Berkshire will not sell or resell the business in the future. We do not sell our friends down the road. We feel this has given us an advantage over the long term. There were many deals we would not have gotten if we were that type of buyer and we would also not have been able to buy our acquisitions at the prices we paid. ON USG DILUTING THEIR SHAREHOLDERS RECENTLY WITH A SHARE OFFERING That was a foolish thing to do. They must have learned that from their business school. (Munger is known to be a critic of many higher learning establishments about teaching the right things.) KANSAS BANKERS SURETY It is a wonderful business that stays in its circle of competence. ON LEARNING AND BEING NATURALLY TALENTED Nurture vs. Nature. Nature is the dominant factor. That said, it doesnt mean a person cannot learn a lot in their lifetime. ON GLOBAL WARMING Generally agrees with the fact that the earth is warming. He does not view this as a big problem to mankind as the media makes it out to be. Believes man will and has the skills to adapt to the changes in the climate. ON RETURNING EXCESS CAPITAL Does not view they have excess capital because they still feel they can deploy it in the future and create more value to the shareholders. May decide otherwise if they get disenchanted in the future. WESCO WESCO is and is selling at a price that is higher than its intrinsic value. Otherwise, Berkshire would have bought it in. Shareholders like you have always kept the price up. THE STOCK MARKET Munger does not view the market it to be over priced. WESCO is also buying stocks and is likely to be buying more.

Acknowledged that they are settling for a lower hurdle rate on deploying capital because of its size. Berkshire has large sums of money and it takes a long time to establish positions. BOOKS Martians of Science Einsteins new biography. ON AGE I will not complain about age. Without it I would be dead. What have I learned about being old? It is like jumping off a building and now that I am passing the 5th floor saying its been a good ride so far. BERKSHIRE STOCK It is a sound investment. One shareholder expressed the concern of management being old. Munger replied that his family will be very comfortable holding over $2 billion in stock after both Warren and he pass along. Munger added, What is so bad about having Warren Buffett for 40 years and then having the bastard die on you? I dont think you would be that bad off. Berkshires insurance business will do better than the industry. Believes they have the best collection of companies in the world. In the long run the Berkshire Way of selecting investments continues to grow and will become less successful. CAREER ADVICE Work at a place where you can work for people you admire. HOW DO YOU BECOME SUCCESSFUL? Sit on your ass and read! There is hardly any substitute for reading and learning. ON INTEGRITY Quoted Warren: The nice thing about taking the high road is that it isnt crowded! MOTIVATION What motivated a young Munger? Charlie was motivated to become independent so he could live his life and express his beliefs to others without concern. He also was motivated to sell the best hour in the day to himself. (Give yourself the best hour of the day)

HUMAN MISJUDGMENT The 2 most common ones that causes many a down fall are: 1. Self Serving Bias (Little me wants it. Greed!) 2. Envy OPPORTUNITY COST The right way of looking at life choices is by using opportunity cost in your evaluation of your options and or investments. ISCAR Iscar was very attractive because of the people (culture) of the company.