I have learned as much about business and markets from Mr. Buffet's Letters to Shareholders as from any other single source. I passed on the stock at $800 (ouch). I take my collection of BRK annual reports (on dead trees) out of storage once a year, and read them, while kicking myself.
I have mixed feelings about publishing this post. When you read Mr. Buffet's letters you will see how my scribblings fail to measure up. But damn, it's just too good not to share.
Toro at Running of the Bulls Blog attended the annual meeting and took notes:
There is enough evidence to suggest global warming is occurring. General Re is taking it seriously. Charlie Munger chimed in, however, that “you’d have to be a pot-smoking journalism student to believe global warming is a threat to the existence of mankind.” What matters are the dislocations that will occur due to global warming, not global warming itself. People generally like it warmer. People aren’t moving from Southern California to North Dakota, after all.
Read the whole thing but do come back.
The Panelist had a different take on the meeting:
In responding to a shareholder question on climate change, Buffett says global warming won't affect results at General Re. But both Warren Buffett and Charlie Munger offer interesting perspectives that do not agree.
Mr. Buffet acknowledges that global warming is happening. He does think that the exposure to National Indemnitiy increases every year. Natural disasters seem to be increasing from the warming of the oceans, but he also says, "We are cautious about it. It doesn't keep me up at night with respect to our financial results, but every citizen should be concerned. Insurance rates are going up and we, the insurance underwriters, are concerned with the phenomena."
Mr. Munger says that Carbon Dioxide is what plants eat. And that he does like it a little warmer than colder. Charlie Munger goes on to say about climate change, "So what we are really talking about with global warming is dislocation. Dislocations could cause agony though. The sea level rising would be resolved with enough time and enough capital. I don't think it's an utter calamity for mankind though. You'd have to be a pot-smoking journalism student to think that."
From the 2006 Letter to Shareholders (page 3):
All that said, a confession about our 2006 gain is in order. Our most important business,
insurance, benefited from a large dose of luck: Mother Nature, bless her heart, went on vacation. After hammering us with hurricanes in 2004 and 2005 – storms that caused us to lose a bundle on super-cat insurance – she just vanished. Last year, the red ink from this activity turned black – very black. In addition, the great majority of our 73 businesses did outstandingly well in 2006.
In 2007, our results from the bread-and-butter lines of insurance will deteriorate, though I think they will remain satisfactory. The big unknown is super-cat insurance. Were the terrible hurricane seasons of 2004-05 aberrations? Or were they our planet’s first warning that the climate of the 21st Century will differ materially from what we’ve seen in the past? If the answer to the second question is yes, 2006 will soon be perceived as a misleading period of calm preceding a series of devastating storms. These could rock the insurance industry. It’s naïve to think of Katrina as anything close to a worst-case event.
Neither Ajit Jain, who manages our super-cat operation, nor I know what lies ahead. We do know that it would be a huge mistake to bet that evolving atmospheric changes are benign in their implications for insurers.
Don’t think, however, that we have lost our taste for risk. We remain prepared to lose $6 billion in a single event, if we have been paid appropriately for assuming that risk. We are not willing, though, to take on even very small exposures at prices that don’t reflect our evaluation of loss probabilities. Appropriate prices don’t guarantee profits in any given year, but inappropriate prices most certainly guarantee eventual losses. Rates have recently fallen because a flood of capital has entered the super-cat field. We have therefore sharply reduced our wind exposures. Our behavior here parallels that which we employ in financial markets: Be fearful when others are greedy, and be greedy when others are fearful.
From the 1992 Letter (if you want to track the quote use your browser search):
What constitutes an appropriate price, of course, is
difficult to determine. Catastrophe insurers can't simply
extrapolate past experience. If there is truly "global
warming," for example, the odds would shift, since tiny
changes in atmospheric conditions can produce momentous
changes in weather patterns. Furthermore, in recent years
there has been a mushrooming of population and insured values
in U.S. coastal areas that are particularly vulnerable to
hurricanes, the number one creator of super-cats. A
hurricane that caused x dollars of damage 20 years ago could
easily cost 10x now.
Occasionally, also, the unthinkable happens. Who
would have guessed, for example, that a major earthquake
could occur in Charleston, S.C.? (It struck in 1886,
registered an estimated 6.6 on the Richter scale, and caused
And who could have imagined that our country's most serious
quake would occur at New Madrid, Missouri, which suffered an
estimated 8.7 shocker in 1812. By comparison, the 1989 San
Francisco quake was a 7.1 - and remember that each one-point
Richter increase represents a ten-fold increase in strength.
Someday, a U.S. earthquake occurring far from California will
cause enormous losses for insurers.
I know I've lost you to Mr. Buffet anyway so here's the rest of the letters.
I'm just thankful he doesn't blog.
Regarding some climate take on BRK's portfolio investments, KO just got
greenwashed by the WWF, Warren's been working on the railroad (from
the Brotherhood of Locomotive Engineers and Trainmen[if my writing
fails in comparison the least I can do is give you sources you might not
normally look at]).
In the Oils BRK's got COP and PetroChina (for which they've taken some
deserved heat re: Darfur)
BRK owns 86.6% of MidAmerican Energy Holdings and 100% 0f Pacificorp,
of which more later. For now: "Pacificorp to Study Capture of Carbon
Dioxide in Coal Plants"
From The Deseret News