Here are the big stories were watching China Central bank cutting the bench mark interest point. The move giving stocks a boost in asia today. And then this one is deep. A big deal. Check this out. Nxp, andrew is buying free scale. Check out the nxp price. Its in cash and stock about 12 billion is what they said. No premium initially because it closed at 36. 11 free scale did. And theyre paying 36. 14 in cash and stock. Look what happened to the acquiring company nxp is up 14 or 15 . So the tieup between the two companies are getting more valuable by the second. But its more than 40 billion. Both make a lot of things for cars. You know, some mobile stuff but i think free scale was mostly microcontrollers and nxp has recently gotten into stuff for payments, too. Which is getting both have been in private equity hands and come out. Freescale used to be motorolas semiconductor and nxp was part of philips. You know this . I did. Did you really . Youre acting like everything im telling you yeah yeah yeah. I was almost boring you with some of that. I read the papers. I read the papers. Thats where i got it all. And twitter said it is working with Law Enforcement agencyies to investigate an alleged isis threat to cofounder jack door si. The post in question depicts a mans face in cross hairs and the message is addressed to dorsi directly and condemns twittertwit twitter for having shut down isisrelated accounts and warns we always come back. It it. Lets take a quick check on the markets. Futures at this hour take a look see what is going on with the opening bell. We have a couple of hours to go. Nasdaq up about 13 points and the s p 500 up close to three points. Among the stocks lumber liquid daters. They sold flooring with higher levels of formaldehyde. They said it complies with regulations regarding the products and argues they are driven by a small group. Lets get back to becky and warren buffet. I need to thank warren buffet for giving me a lot of reading over the weekend. Yes. A lot of us with a lot of reading over the weekend. This is a big year andrew for Berkshire Hathaway. Part of the reason the letter was longer because 50 year anniversary. There was more in the letter something about 50 or 60 more words than average. Yeah. Normally its 12 or 13,000 words. The letter itself was then another 8500 by me and another 2500 by charlie that looked back 50 years and 50 years. That is an amazing feat. Were live at the National Company lunchroom. The reason we choice this location is because when you first started Holding AnnualShareholders Meetings in omaha. This is the location you choose. How did you pick this room in particular . We wanted something grand that would impress the shareholders. It was larger than the office i was working on at that time. And we expected eight or ten people so we could get ten chairs in here and preside. We had vending machines to supplement the income. And we still have the vending machines. Eight to ten people would sit around here and it was the annual Shareholders Meeting . It was my. My uncle fred and aunt katie were regulars. There would be a couple of others and, you know, the meetings didnt last long. But just like today, we held it for questions as long as people asked questions and my aunt katie would ask if i was coming over for dinner on sunday. That was about it. We looked at video what the annual Shareholders Meeting has become i think 40,000 people showed up. I think well top it this year. No longer being able to use the lunchroom. One of the things that jumped out from the letter you talk about national indemnity. You said it was one of the best deals you made. You paid 8. 6 million for this company back in 1967 it now has a gap net worth of about 111 billion. How did you get from there to here . One day at a time. It was a business i like so i was always looking for ways to add on to it, and at various times we got pretty good sized jumps. We developed a reinsurance operation which probably added 30 to 40 billion over the net worth to indemnity over time. Its a combination of having good people in the Insurance Business and compound interest and the industrials worked out well. So one way or another the number got up to 111 billion. Its carried at a price considerably less than its worth. You could say the real net worth is substantially higher. Thats an odd construct. Why is the Burlington Northern owned by national indemnity. We bought some stock through national indemnity. We had an significant investment here. It was decided when we made the offer to do it through national indemnity. It put even more financial fire power into the insurance company. So it seems happy there. You know you brought up jane and your letter and charlies letter in addition to that kicked off a fire storm of people trying to figure out what the success of Berkshire Hathaway is. Theres a story in the money and invest headline. A jane and able story. You say clearly in your letter that the board has one person in mind. Charlie went out of his way to say that both jane and greg able would be excellent managers. In fact even better managers than you would be in some prospects. What is the story . The journal said this is creating some sort of a jockeying position between the two. No theres not jockeying position at all. Charlie and i each wrote our individual letter about the last 50 years and the next 50 years. We kept to it. Neither would change a word of their own letter based on what the other had written. When charlies letter came in it referenced greg and jane that was news he was writing that. And hes right. Theyre very very good. Each one of them. Incidentally i wanted to see what charlie had written. He had no interest in seeing what i had written. You didnt change anything the other wrote. By putting those two in even though you say theres no jockeying between the two it creates that public perception. Do the two of them know who the next successor is . No. No. The board has talked about at every meeting for i dont know how many years, and we have a precise plan in mind. Very detailed as to what happens later today if i pass out on this show or something of the sort. So its all in place. And it wouldnt take 24 hours to implement, and, you know, its knowing everything about it in place. Each would have a role in the new company. You envision both being key active players. They would be key. As key as anybody. Lets talk about the letter that both you and charlie laid out. Youve been working with charlie for how many years now . Well, weve been partners ever since we met in 1959. Charlie didnt really join berkshire until we merged in 1982. But and i talked all the time. He knew what i was doing in berkshire and he didnt own a share in berkshire until 18982 when we merged. But it didnt make any difference on me. I like having a twin brother or something that you talk to all the time. Hes doing one thing and youre doing little bit Different Things. He had a huge impact way before that and how i managed berkshire. But like said when we merged blue chip stamps. Which we had an interest in charlie had an interest in. At this point, he had a lot of berkshire stock instead of blue chip stock. He became vice chairman. We formalized a little bit what had been going on for a long time. We got the chance to talk with charlie, and i have lot of people have sent in questions, charlie included. If you dont mind. Here is one question he sent in for you. I hope youll listen to it for a moment. Guys, this is charlie monger vice chairman of Berkshire Hathaway. Here is his question. Do you have any regrets about using Berkshire Hathaway in an effort to teach a wide audience . I spoke with charlie about it. What hes talking about is using your annual letter. He pointed out you wanted to be known as a teacher. He just that was his question for you in terms of the annual shareholder letter . I like teaching. I started teaching formally when i was 21 what was then the university of omaha, and done it off and on. In fact on friday i had eight schools, one from canada and harvard was out here and we had 160 students. Ive enjoyed teaching. I regard the annual report i regard the annual meeting as a teaching venue. And i think charlie does too incidentally. I think he thinks hes teaching me. He probably is too. In the past when you disagreed its simple. He said, warren we never argued when we disagree he said warren youll end up agreeing with me because youre smart and im right. A good comeback to give to someone. A little hard think. I dont want to argue with that. On the subject of teaching we have a question that came in from twitter. This question is from a viewer. He says are you a better investor in your mid 70s to 80s than say, your 40s to 60s . Zbl no well i would say this. Ive got a different investment problem at this time than i had 30 years ago and more so 50 years ago. The universe of things i can invest in can have a significant effect on berkshires net worth is very limited. Lets assume were going to buy a 5 position in a company. If were going to give 1 of berkshires net worth in that company, that would be roughly 2 billion. That means a 40 billion cap company. Thats just to give 1 of the net worth. If that stock goes up 50 weve made a half percent pretax and about 30 some basis points after tax. So i dont have the opportunities remotely that i had particularly if you go back to when i was in my 20s and 30s when anything would change my net worth. Is part of the reason you were explicit in the letter who should be buying berkshire shares and who shouldnt. If youre not looking for a five year time verizon stay out. Dont buy the stock. Ive always felt that way. I dont know and i dont think anybody knows. I certainly dont know. Charlie doesnt know. We dont have the faintest idea what stocks will do next year or what berkshire will do next year. We know over time were doing enough things that make sense and compound first of all, takes effect. So if you pay if you dont pay some terribly excessive price over a fiveyear period that, you know, at that point value takes hold. But we dont have any idea what berkshire stock is going to do in the near term or intermedia term. We never have. It doesnt make any difference either. You have a lot of stocks youve been purchasing. Some in particular like ibm some people have huge questions about. If you dont mind were going to slip in a quick break now. When we come back we would like to talk about the investments. Some of the biggest investments that berkshire ones. Ibm has been the worst performing component for the last two years, despite that others have been running for the hills. Warren buffett has been buying additional shares. Well ask him in a bit. Ill you have enough money to live life on your terms . I sure hope so. With healthcare costs, who knows. Umm. Everyone has retirement questions. So ameriprise created the exclusive confident retirement approach. Now you and your ameripise advisor. Can get the real answers you need. Start building your confident retirement today. Hey mom, you want to live by the lake, right . Yeah. Theres here. Did you just share a listing with me . Look at this one. Its got a great view of the lake. Its really nice mom. Your dad wouldve loved this place. Youre not just looking for a house. Youre looking for a place for your life to happen. Zillow it occurred to me the music were playing this morning is the year 1965. The music is just a reminder that is this your anniversary. Were here today. You have a lot of news that people have been waiting to hear more about you. Very recently we saw the filings. The fcc filings that showed that youve been buying even more shares of ibm. There were huge questions about this. While the stock was underperforming people assumed maybe you made a mistake and backing out. Your holdings grew. Why are you buying more ibm . Im buying it because i like it. Its been doing exactly what i like. Ever since we first started buying it. There were a billion shares outstanding when we started buying. And a fair number of options out there. Maybe 40 million shares or Something Like that. That overhang has been reduced significantly and the number of shares is 990 million. I actually wrote a couple of years ago when we bought it the best thing that could happen if the stock did nothing for five years because they were going to buy in a lot of stock. And the cheaper they bought it the more share in this case bought. Youve done even better. The stock has gone down. Yeah. People have the conception misconception when we buy a stock we like it to go up. Thats the last thing we want it to do. Were going to buyieuy billions of dollars in stocks in companies we like. If it goes up im unhappy. Sometimes i kick it out. What we like and particularly the company itself is buying the stock as most companies are, you know our interest in the company is increasing day after day and the company is buying it were not laying out a dollar. If were buying it were laying out some money. Were buying it cheaper. And i like buying anything. I like buying things cheap. Look around the room. There theres a reason that the stock has been going down. Theres a reason the market doesnt like it. The revenue has been declineing substantially over time. I know jenny said because they dont like the empty calories the stuff theyre not making any money off the revenue. But if you look at the company it has declining revenue that continue to borrow money to buy back shares and there are some who say its a huge problem. How do you combat that . We expect the revenue to be going down. We expected a year like this where Foreign Exchange will take a big whack off revenues. But they also dispose 7 billion in revenue last year. There have been no surprises at ibm since we started buying it a few years ago, and the pleasant surprise is stock has gone down and that therefore, theyve been able to reduce the shares to 990 million. If it stayed at 200, you know there would be a billion or 20 million shares outstanding, and you bring the shares down far enough we own 77 million shares or Something Like that. Ill be happy. Youve said that you dont understand technology. So what makes you think you understand ibms competitive mode. I dont understand it. I dont technology as well as i understand the railroad or insurance. I dont understand every aspect 77of insurance. Same thing with the railroad. Ive made i know a lot of things about parts of the railroad that lead to an economic conclusion. But there are a lot of things i dont understand. And thats true of industry after industry. We competed i personally was chairman of the board of a company that competed with ibm for ten years in the 1960s and i didnt understand all of ibms business. We did quite well in the business i was chairman of. I think i know enough to make an investment decision. But whatever remember you said we were competing in the tab card business. This is the punch cards. Its not the cloud its not the stuff it changes. It changes and ibm changed with it. There was one time when they didnt change so well then they made enormous progress under lou. Yeah. So the business the Insurance Business has changed. I mean, we used to sell by direct mail primarily and then it went to phone then the internet and now mobile. Companies have to change. But i think theyve done a great job of fostering change at ibm. It doesnt happen overnight. Andrew has a question as well. Hey, warren. Talking about the stickiness issue and the mote. One of the theses i think you presented when we talked about this a couple of years ago on this show was that you felt it was one of those businesses that was so sticky. If it was a big Enterprise Company draft used and had a contract with ibm it would be so difficult to get out of that contract just because of the pain and cost involved. Have you you said you werent surprised. Have you been surprised over the past couple of years how easy or less sticky that business is and that relatively cheap or cheaper to jump into the cloud with competitor . Well, and ibm is helping people jump to the cloud or with a hybrid cloud. We have 70 some businesses at berkshire. We have investments in other. If you take a wells fargo or American Express and youll find theyre doing a lot of business with ibm as our direct subsidiaries are. It changes. And weve actually put in something a hybrid cloud. But theres a lot of reasons why we stick with ibm. But its not a winner take all business with the cloud. Theres some businesses that are winner take all. But i thats not true in i. T. , in my view at all. And like i said i see company after company after company with which were associated doing significant business. But its being done. Itsmy grating to different forms that these companies. I think if you check with the ten largest banks, i think youll find theyre doing a lot of business with ibm. And if you ask them whether theyll be doing a lot of business with ibm ten years from now. They will say yes. One more question on the subject it comes from facebook. Facebook question that came in from mark hall. This is again, in the same thing. He said i own ibm and it stinks. Why are you buying more and why should i hang on to my shares which ive had for decade. Give me some hope, please. The follow up question are prngsz areare you buying more shares . Imed in the business of giving hope. You should only own stock if you think you have reasons. Whether you own Berkshire Hathaway or not its an individual decision. The last thing in the world is you should own it because somebody else own it is. I said it one time in college. It was an annual meeting in jersey city. I was 20 years old. There were only four of us at the meeting. A fellow named lou green a famous figure in wall street said why do you own the stock . And i said i own it because ben graham own it iss it. He said strike one. It was not a good answer even though ben graham was the dean its not a reason. You dont own a stock because somebody else own it is. You own it because you do your own analysis and you decide where the future will be. If you dont know the answer you dont own it. Its a terrible mistake it to own it because somebody else does. Ive never bought a stock, except for that in 1950. Ive never bought a stock because somebody else owned it. That was me joe. You must know your exact cost or average cost on ibm. Do you know offhand what it is exactly . Well, i can come within a dollar or two, probably. Probably around 170 a share or Something Like that. Im happi