8:31 am The lights have gone down in the arena.

Buffett, on video tape, is int roducing this year's movie. We asks that no one do any video recording, and all cameras are banned from the arena. 8:39 am: The film is a humorous cartoon that has Charlie Munger running for Pres ident. How will you fight global warming, he's asked. Everyone gets Dairy Quee n ice cream! 8:41am: The cartoon is mentioning just about every Berkshire Hathaway property. Munger campaigns on NetJets, of course. 8:44 am: As the credits roll, every name is Charlie Munger. Produced by, direct ed by .. the entire technical crew .. 8:47am: The film continues with clips of people waiting on line for a (Jimmy) Bu ffett concert. 8:48 am: Now showing a comedy routine with John Cleese, interviewing a "financi al expert" about the mortgage mess. (CORRECTION: The comedy sketch shown actua lly featured John Bird and John Fortune.) 8:52 am: On tape, Jimmy Buffett is singing "Wasting Away in Berkshire Hathawayvi lle" 8:57 am: Now showing commercials for various Berkshire properties. The arena i s almost totally full. Even seats behind the stage have people in them. 8:58 am: On tape, Warren has just called Charlie about this new thing he discov ered that no one knows about yet: the Internet. Warren wants to start buying In ternet stocks. Charlie asks if he's out of his mind. 9:00 am: Warren calls Jamie Lee Curtis, lying in bed, who greets him with "If it isn't all-you-can-eat Buffet?" He asks her to convince Charlie the internet wi ll be big. 9:05 am: On the tape, Jamie Lee Curtis sweet talks Charlie "Hunger" into getting on board with Internet stocks. 9:08am: On the tape, clips of Buffett fans, one of whom says Buffett shows how you can make a lot of money but not flaunt it. 9:09 am: On tape, CNBC's Becky Quick delivers a fake "Breaking News" report: Bu ffett is leaving Berkshire Hathaway! Looks like a set-up for a joke to come lat er in the tape. 9:10 am: Now showing Buffett's recently taped appearance for All My Children, w hich airs later this month. He's asked to help get Erica Kane out of prison, wh ere she's being held for insider trading. 9:14 am: Shareholders are now being shown a clip of Buffett appearing before Con gress in the early 90s, just after he took control of Salomon. He tells the law makers we'll be tolerant if Salomon employees lose money, but he'll be ruthless if they lose a shred of credibility for the firm. 9:18 am: A parody of the real-people/celebrity Geico commercials is being shown, featuring Charlie Munger and Little Richard. 9:20 am: More fake "Breaking News" from Becky. Buffett's departure may be some sort of "CEO Swap" involving ABC. Plus he now has a publicist! Unprecedented.

9:21 am: Now seeing more from Buffett's All My Children appearance. As he's vis iting Kane in prison, his cell phone rings. It's Bill Gates calling. 9:23 am: Buffett's advice to Kane involves the "engrossing" world of contract br idge. Warren will ask the warden to give her three smart roommates so she can p lay bridge while serving her time. Echoes Buffett's own comment that he wouldn' t mind being in jail if he had good bridge partners. 9:27 am: The tape is now showing a string of photos of Berkshire managers. 9:30 am: The tape has ended. The arena lights come up a bit, there's anticipat ory applause scattered through the crowd. 9:32 am: Becky is back with more fake "Breaking News." Warren has switched jobs with All My Children's Susan Lucci. Becky says Lucci heading to Omaha to be t he new Berkshire CEO. 9:33 am: Charlie Munger walks out onto stage and takes a seat, followed by Lucc i, who wants to make some "changes around here" .. including changing the "cheap " dividend policy. The crowd applauds. Lucci also wants Berkshire to give guid ance on earnings every single week. Plus, directors should be paid more than $9 00 a year. The directors, seating just in front of the stage, rise up and cheer . 9:35 am: Warren Buffett walks out on stage and "takes back" his job. The deal i s off. His "role" is to run Berkshire Hathaway. But he tells Lucci to go to Bo rsheims and pick up anything she likes, and "charge it to Charlie." 9:36 am: "Let's get this show on the road." Buffett says he and Charlie will t ake questions until 3:30 with a break for lunch. Best estimate, says Buffett, s omething like 31,000 people in attendance. 9:38 am: Buffett introduces "the best directors in America" to strong applause. He asks that shareholders limit themselves to one question. 9:39 am: First questioner is from Bombay, India. He asks about how Buffett beg an investing. Buffett talks about the Benjamin Graham book, "The Intelligent In vestor." You can't go wrong following his advice, says Buffett. 9:45 am: Once Berkshire owns all of Cologne Re, Buffett will take full responsi bility for its investment portfolio. 9:46 am: "Charlie and I have no idea" where the stock market is going in the fut ure. "We're not in that business .. It's just not our game." They see thousand s and thousands of businesses, and every once in a while one of those businesses looks attractively priced. Charlie says he has nothing to add. Buffett says h e's been practicing his speech for weeks. 9:50 am: Buffett says our job is not to choose great managers, our job is to re tain them. Many of the managers come with the companies Berkshire buys. "Our j ob is to make sure they have the same enthusiasm for the job" after they get the big Berkshire stock certificate. More important to love the job than to love t he money. "We have to see the passion in their eyes." Don't use contracts, "th at doesn't work." Our managers feel appreciated and they are appreciated. Shar eholders applaud. 9:54 am: How do you use stock options to buy into or exit from a publicly trade d company? Buffett says usually you should just buy the stock outright. Using a call option to get a slightly better price may work four out of five times, bu t "we have virtually never used options to enter or exit a position." Buffett sa

ys, "If we want to buy something, we'll buy it." 9:56 am: Munger: "The idea of turning financial markets into casinos so that t he croupiers can make more money has never made a lot of sense to us." Buffett says the idea that business school students are learning options pricing techniq ues is ridiculous. Just need to know how to value a company and stock market. "There's a great desire among the priesthood in financials to teach what they kn ow and it has nothing to do with investing." Can't be influenced by the market. Requires a mindset, described in Chapter 8 of The Intelligent Investor. 10:00 am: Buffett says any money he's given to charity hasn't really affected h is life. He admires those with much less who still give money and time to other s. 10:02 am: Buffett says "we're proud of the way our businesses operate." He say s we don't give those businesses a lot of guidelines. "We'll never trade away r eputation for money." There's no pressure from Berkshire HQ on the businesses t o report specific numbers. 10:06 am: Factories outside the U.S., such as those in China, do not have the s ame practices as in the U.S. Buffett says we're not going to tell the rest of t he world how to do business, other than some fundamental standards. 10:08 am: Raw materials costs generally get passed through, although having a to ugh time right now passing through cost increases in Berkshire's carpet business , which is feeling effects of housing slowdown. 10:09 am: Acquisition of Israeli company Iscar has been a "dream" .. successful in every way. 10:10 am: We would be very happy if we could buy common stocks with long-term re turns of 10 percent. Absolutely certain that Berkshire's stock performance will not be as good in the future as it has been in the past. The company is simply much larger. Even doubling a $500 million investment in a company will have on ly a small percentage impact on Berkshire's performance. 10:13 am: Anyone who thinks we're even going to come close to matching our past performance should sell their stock. He'll make decent money, but it won't be anywhere near what it's been before. "You may have something much better to do with your money than buy Berkshire." It's an attractive investment compared to other big companies, but it's not the most attractive opportunity in the world i f you're willing to do the work to go through all the thousands of possibilities out there. 10:15 am: "Indigenous American" questioner says he has fasted on the long trip to Omaha "with a heavy heart" due to problems at the Klamath Dams. He asks that he and Buffett sit down to talk about getting dams removed. Buffett says he's barred from making any decisions about the dams. Buffett says he didn't mean to be disrespectful last year. This is connected with Berkshire's 2006 acquisitio n of a utility with control of the dams. An executive for the utility says it i s working with the local tribes and hopes to come to an acceptable solution to t he "complex" problem. 10:21 am: Asked how he maintains his good physical and mental health, Buffett e ats a See's Candy, and says, "it starts with a balanced diet." Laughter. He th en says how can you be sour on life when you're doing what you love. Charlie sa ys he wishes "we were poster boys" for physical fitness but pretty much ignore a ll health rules. "It's worked out pretty well so far." Buffett: "Associating with wonderful people is about as good as it gets."

10:24 am: What would you do if you had to choose a different profession? He sa ys he would do what he's doing. He was lucky to have "found his passion early." Most important thing is to do what you love. Plus: "no heavy lifting." Can't say its the right job for everyone, but anyone just going through the motions i n life should find something else they really love. Also, "be sure you get the right spouse." Charlie: Best to be passionate about something you have aptitud e for. Warren wouldn't have done well in the ballet. 10:31 am: Buffett says he was very shy about public speaking when he was younge r. He got over it by forcing himself to speak in public. Communicating well is a very important skill. Helps to get together with other people who are shy ab out appearing in public. Best to do this when you're young. Very worthwhile to help introverted people get outside of themselves. 10:34 am: Woman identifying herself as a Klamath River keeper asks Buffett if h e is familiar with the financial aspects of the dams. She says it would be less expensive to remove the dams and would ultimately benefit the utility's shareho lders. Buffett replies that those kinds of decisions will be weighed by the uti lity and Oregon utility regulators. He says there are "enormous trade-offs" in deciding how to produce energy. 10:41 am: Buffett says Ben Graham really originated the idea of hedge fund trad ing, including "pair" trading, when one stock is bought long, and another, often in the same industry, is sold short. 10:46 am: Buffett describes "huge dislocations" in markets for muni bonds. The same issue would sometimes draw different bids at the same time. This kind of t hing happens in times of great upheaval, such as the 1998 Long Term Capital cris is, and they're times when you can make a lot of money, especially if you have t he time to soft through everything. By working very, very hard on smaller issue s, you might be able to find some "great opportunities out there." Munger says generally these opportunities from dislocations are very brief. Like standing b y a stream trying spear a fish that only comes by once a week. A "tough" busine ss. 10:51 am: How do you grow a small business? Buffett says it just takes time. Can't build a company all at once. "There's nothing magic." In a general ways, he says, we've been doing the same thing for years and will continue to do the same thing for years. "We're not unhappy if we're not galloping. We're unhappy if we're not moving forward at all." 10:52 am: The usual pattern is for Warren to answer a question first, then toss it to Charlie, who will sometimes also respond, and sometimes just make a brief sardonic comment. As might be expected, they feel very comfortable with each o ther. 10:57 am: Buffett discusses his new bond insurance company, saying it's remarkab le that it was built in a small office in Connecticut over a matter of months. 11:01 am: Easier to evaluate a company that pays you cash. Financial statement s alone don't tell the whole story. Have to know something about the industry a business is in. 11:02 am: Another questioner makes a statement on the Klamath River Dam situati on and asks how Buffett would handle a pollution problem. The crowd feels a lit tle restless. Buffett says essentially its the government's job at state and na tional levels to make policy on energy. A utility executive, "not meaning to be disrespectful," notes that the company is not "adding anything" to the water bu t understands the various concerns.

11:05 am: Seventh-grader from Philadelphia asks what he should be reading becau se there are "a lot of things they don't teach you in school." Buffett advises he start with a daily newspaper. "Sop up" what's going on in the world. At som e point you'll find what really interests you. The more you learn, the more you want to learn. Charlie says the "young person who just spoke has already figur ed out how to succeed in life." 11:09 am: German questioner asking lengthy question about how a German chocolat e maker compares to See's. Warren asks that he get to the question, please. It 's a question about the trade-off of profits and expansion. Buffett repeats his standard criteria: durable competitive advantage, good management, good price. 11:10 am: Buffett says we never urge people to sell their business, we urge the m to keep them. The time we may buy a company is when a family business is forc ed to sell by outside factors. In those cases, Berkshire can help keep the busi ness operating the way it had been when owned by the family. Going to Europe to talk to family businesses and let them know the Berkshire alternative may be th ere if they need it. 11:12 am: "The stock market will give you bargain prices. Individual owners wo n't." Buffett looks for a good price when buying a private company, not a barga in. Charlie says it's insane to sell a family business to someone you don't kno w just to get a higher price. 11:14 am: Buffett says "we are happy" to invest in companies that make money in foreign currencies, because he doesn't think those currencies will significantly depreciate against the U.S. dollar. He repeats his feeling that the dollar wil l continue to weaken over the next ten years. He doesn't specifically hedge aga inst the U.S. dollar. If he came from Mars with "Mars currency" and had to exch ange it, he probably wouldn't put all the money into dollars. He's happy to inv est in companies that have significant earnings outside the U.S., such as Coca-C ola. "We're not in the business of hedging currencies." 11:18 am: What would Buffett do if he was investing with small sums of money? He replies it would open up "thousands of opportunities" for him in bonds, stock s, including stocks overseas. For example, found great opportunities in Korea a few years ago, but he couldn't put a lot of money into them. Most of the oppor tunities would be in small stocks. Charlie? "Sure." 11:22 am: Buffett says, "I think we have three pretty good candidates this time. " Pandering is, unfortunately, part of the political process. This time the ca ndidates are "pretty smart" about economics, especially two of the three. Polit ical process doesn't lend itself to Lincoln-Douglas debates on the fine points o f policy. It's built in. Country works pretty well no matter who is in office. "You want to buy stock in a company that's so good it can be run by an idiot, because sooner or latter it probably will." Same thing with the country. 11:29 am: On question of succession, Buffett says on CEO front have three ready who could step in a do a better job than I do, and the board knows which one it would pick if it had to do so right away. In the long-run, wants someone who i s relatively young. On investment officer, as he said before, there are four ca ndidates who have "good jobs now" and are happy where they are but "would be her e tomorrow if I died." None of the four is concerned about compensation. None of them would want to come now because he's still making the decisions. "When I 'm not around to make the decisions, the board will decide whether to have one, two, three or all four making the investment decisions." There will be no gap a fter his death, he says, and they'll probably be more energetic. This is he fir st time I've heard Buffett raise the possibility that his investment duties at B erkshire might not go to just one person after he stops doing the job.

11:34 am: Buffett says there have been a number of times over the years when he 's been confident enough to put 75 percent of his net worth into an idea. Munge r jokes there have been times when he's put in more than 100 percent of his net worth. Buffett says it doesn't happen often, but there are times when you'll se e extraordinary opportunities and you should put 75 percent of your net worth in to them. Just don't put in 500 percent of your net worth! 11:36 am: Charlie adds that many people say the secret of investment is diversi fication. They have it, he says, "bass ackwards." Diversification is for knownothing investors, not professionals. Buffett adds that there's nothing wrong w ith being a know-nothing investor, and that they should diversify. 11:41 am: Woman asks if married couple's assets should be separated or managed in total? Buffett says its best to look at overall financial situation, not whe re individual assets are located. "Don't treat them as being in separate pots." When it comes to Berkshire, Buffett says he doesn't even think about which sub sidiary might hold a particular investment. It's all for Berkshire." he then b ack-pedaled a bit, saying there's always the chance of divorce, and he's feeling uncomfortable giving marriage advice. 11:45 am: What happens on the day oil runs out? World War Three? Buffett says it doesn't work that way. Production will gradually be depleted over time. At some point, the world will hit peak production, then it will gradually taper dow n. We'll still be producing oil well into the century, just a question of how m uch. Nothing like an on or off switch for the world. There may be big politica l considerations surrounding access to the available oil, but there's nothing we can do in the short run to wean the world off of oil. 11:49 am: Munger says ultimately the world will have to use the sun as its ener gy source. "Crazy" to use up carbon-based fuels, for which there is no alternat ive. He says government policy on energy is not especially rational. Eventuall y to have a prosperous economy, we'll have to rely on the sun for energy. Munge r seems more idealistic on the question, Buffett more pragmatic. 11:52 am: Questioner suggests Buffett and Munger each serve one term as Preside nt, starting with Buffett. Buffett replies that Charlie should serve first. Bu ffett then says if President, he would do something about the tax system, so tha t the super-rich pay more. 11:53 am: On ethanol, Charlie says the idea of turning food into fuel is one of the stupidest ever. he says he thinks its on the way out. 11:54 am: How would you invest your first million if you were just starting out and were not a full-time investor? Buffett's answer: a low-cost stock index fu nd with a company like Vanguard. Charlie says if you don't have any prospects of being a very skilled investor, you should go with an index fund. he and Buff ett warn against listening to people who make money by telling you what to do wi th your money, although Charlie notes that some stockbrokers are perfectly honor able people. 11:58 am: What advice would you give to children on finances? Buffett says gen erally children will follow example of their parents, and will be sensible if th e parents are sensible and live within their means with an eye to the future. H e says it may sometimes be best to spend money on some things when you're young, such as a trip to Disney World that can create memories for your family. "I do not advocate extreme frugality." 12:02 pm: Someone in the crowd is yelling words I can't make out. Buffett igno res the commotion and breaks for lunch. He promises to continue answering quest ions a bit later. The lights come up, and after 3-1/2 hours the crowd starts to

move around. Time for me to get lunch, too. The live blog will continue in ab out an hour.

1:12 pm: Warren Buffett and Charlie Munger are back on stage taking more questi ons from shareholders. There are a few more empty seats than in the morning ses sion, but the arena is still mostly full. 1:14 pm: Buffett says he's made a lot of mistakes over the years, but none of t hem could have been prevented by "conventional due diligence." 1:15 pm: Buffett says that when Berkshire says financing is going to be availab le, it's available no matter what, "even if Ben Bernanke runs away to South Amer ica with Paris Hilton." Big laugh line. 1:16 pm: In response to a question on his religious beliefs, Buffett says he's an agnostic. He just doesn't know if there is a God and he doesn't know if he'l l ever find out. 1:20 pm: Asked about Kraft, Buffett says that he thinks most of the big food com panies have good assets. He uses Coca-Cola as a good example. Hard to take it on because of the power of its brand built over decades. "We feel good about br anded products when they're runaway leaders in their field." 1:30 pm: Buffett says we run Berkshire in a way that is not dependant on anybod y else. We want the company to keep working even if the rest of the world stops working the way it did the day before. 1:33 pm: Buffett says we can usually make a decision in five minutes and are ab le to move quickly when appropriate. "If we can't make a decision in five minut es, we can't make a decision in five months." They know quickly if something lo oks good. "We waste a lot of time, but only on the things we want to waste time on." 1:37 pm: Buffett says he met Carlos Slim (world's second richest man on Forbes 4 00 list) many years ago, but doesn't know him well at all. 1:38 pm: When asked if he would encourage Coca-Cola to boycott the Beijing Olym pics over Tibet, Buffett says he thinks every country should participate in the Olympics. Olympics are a "wonderful event" and contribute to a better world ove r time. Munger adds that he thinks China, while imperfect, is moving in the rig ht direction. Buffett says the U.S. is also moving in the right direction, beca use at one time it denied the vote to blacks and women. 1:40 pm: Buffett - "We will figure out better ways" to use coal while protecting the environment. He notes Mid-American has put in a lot of wind power, but rem ains very dependant on coal, and will be dependant on it for some time to come. "Will require leadership and cooperation" on a worldwide scale, and the U.S. is not in a great leadership position due to its extensive energy use in the past. Munger says there's an environmental reason for being pro-coal compared to bio fossil fuels. "Most people don't think that way, but I do." 1:47 pm: Question on how to stop nuclear proliferation. Buffett: "The genie is out of the bottle" when it comes to nukes. There is more knowledge and there wi ll always be some people who want to do harm, so the chokepoint will be the nucl ear materials. "It is the primary problem facing mankind." The larger the worl

d's population, the more people will want to harm their neighbor. Nuclear techn ology potentially gives those people a powerful weapon, much stronger than someo ne throwing a rock at the next cave. "We live in a very, very dangerous world t hat is getting more dangerous.. We've been very lucky since 1945." He recalls the Cuban Missile Crisis in 1962 as a time when the world avoided a nuclear conf lict. 1:52 pm: A lengthy statement from a woman who describes how she's teaching young people about financial responsibility is interrupted by applause. It doesn't s top the woman who continues until there's more applause and Warren asks her to a sk her question. It is, what else should I be doing to help them learn. Buffet t says he's ready to hire the entire class right now. "The most important inves tment you can make is in yourself." Pick up good habits when you're young, he a dvises. 1:56 pm: A nine-year-old from Chicago asks if Buffett would like to buy the Chic ago Cubs, his favorite team, from Sam Zell and is baseball a good investment? B ig laughter from audience. Buffett says baseball teams have been a good investm ent, in part because television has "expanded the stadium." Buffett says at the questioner's age, he thought he would eventually buy a baseball team, but no lo nger thinks he will. 2:04 pm: Q - Why don't Americans save more? A - "This country may not save ver y much because it doesn't need to save as much as a less wealthy country." 2:09 pm: Says he can't remember a similar crisis in his lifetime in which resid ential real estate sent "out the shock waves." But he's seen many variations on the theme. "There are these primal urges in trying to get rich and wanting to believe in the tooth fairy." Munger: "It was a particularly foolish mess." Eve n Internet-based delivery of groceries, which was really stupid, was smarter tha n what happened in the mortgage mess, says Munger. 2:14 pm: Buffett and Munger, sitting side-by-side at a simple table with a spot light at one end of the arena floor, seem to still be going strong. Here in the press box, there are signs of fatigue among the hundred or so reporters typing away. 2:19 pm: Buffett asks a man making a statement on property rights if he has a q uestion. The response: no. Buffett jokes, "I kind of suspected that." 2:20 pm: The popularity of the car in the U.S. makes expansion of mass transit in the country very unlikely. "It seems to be human nature." 2:22 pm: In response to a question on whether credit default swap market will f ollow sub-prime as the next financial disaster. Buffett notes that Berkshire ha s been in that market, writing what is in effect insurance against a company goi ng bankrupt. He says he doubts there will be a problem, in part due to the exam ple the Federal Reserve set when it stepped in to prevent the collapse of Bear S tearns. Credit defaults have been very volatile, but it hasn't created a proble m yet. As long as the Fed is ready to step in, he doesn't see a systemic risk. Some institutions may lose a lot of money, but someone else will make a lot of money. Munger says there is some stupidity in the credit default swap market, b ut not as much as there was in the mortgage market when "bums were swept off ski d row and given mortgages." (Charlie seems to talk a lot about stupidity.) 2:32 pm: Twelve-year-old asks why Buffett didn't follow Ben Graham's lead and em brace dividends. He jokes that he had to do some things on his own. He goes on to say that some Berkshire Hathaway subsidiaries do generate excess cash, like See's Candies, but it's spread around the company rather than paid to shareholde rs as dividends because he thinks the company will make better use of the money,

benefiting shareholders in the long run who would also be taxed on dividends. 2:38 pm: Q - Would Berkshire consider a major purchase of a business in China o r India? A - Buffett replies that the odds of doing a major purchase in any one country except for the U.S. are fairly low. Will probably buy some smaller com panies, and doesn't rule out a large acquisition in any given foreign country. 2:40 pm: Q - Who has influenced you the most in investing and life? A - Buffett says his greatest influence was his father, followed by Ben Graham, Dave Dodd . . and Charlie has learned a lot from Ben Franklin. He notes that parents are ve ry important teachers who instruct more by what they do than by what they say. Munger says people learn in different ways. He learned a lot from reading. 2:46 pm: On excessive executive compensation, Buffett notes that "big wigs" don 't like to be embarrassed, so shareholders should speak up when they see excesse s and the press will do the rest. He notes that it's been tough for shareholder s to do that. 2:49 pm: Munger says high-ranking executives have a "moral duty" not to take too much money. 2:51 pm: Q - How do you know that a company's competitive advantage is enduring, especially with drug companies that have products "in the pipeline" that are ha rd to evaluate. Buffett says it's hard to tell if individual drug companies wil l do well, but that the group should do well over time. "We do not pick one-byone" when it comes to drug companies. 2:54 pm: "The Chinese people are starting to realize their potential." 2:58 pm: Buffett says his hope for Berkshire Hathaway 20 years from now is that its culture will be maintained, that it will be seen as a place where good mana gers want to work for the rest of their lives. That and to have the world's "ol dest living managers." The audeince rises for a standing ovation. That conclud es the Q&A session. 3:10 pm: After taking a break, Buffett is now conducting the formal business ses sion of the annual meeting. It is totally routine. 3:15: Buffett, Munger and the other directors have been re-elected to the Board and the meeting has been adjourned.