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We won't sell a business just because it's underperforming.

The competition right now is tough, so our efforts to buy businesses are likely to be futile. But there are 1-2 deals we might get done…

Berkshire doesn't do much conventional asset allocation. We just search for good opportunities and don't want to put up artificial barriers.

Our test has been whether, if we retain a dollar, will it be worth more than a dollar in present value.

I'm also careful not to communicate anything to the contrary via body language.

Insurance companies in particular can report pretty much any numbers that they want. With $44 billion of reserves, it would be easy to adjust the reserves to show whatever profit was desired.

Munger: What we don't like in modern capitalism is the expectations game. It's not the kissing cousin of evil; it's the blood brother.

Munger: What we don't like in modern capitalism is the expectations game. It's not the kissing cousin of evil; it's the blood brother. Buffett: People who predict precisely are either kidding themselves or others. We've seen people get their egos involved. And everyone in the organization knows what the CEO has promised in public. It's setting up a system that sets up financial or psychological pressure for people to do things they probably don't want to do. It's a terrible mistake.

I think about this a lot - it's my job to think about the absolute worst-case scenario. No matter what happens, we'll be OK. But everything that can happen will happen.

GEICO is a great, great business model, run by a superb person and businessman

This is a good life lesson: getting the right people into your system is the most important thing you can do.

The Chinese government owns 90% and we own 1.3%, so if we vote with them, together we control the business. (Laughter)

Use Bill Gates to Invest in Tech Stocks? Charlie and I put money in things we understand and think we'll know what it'll look like in 5, 10 or 20 years. Bill being on the board doesn't change this. I'll listen to any idea of his and, in fact, our investment ideas overlap quite a bit. I still wish I'd bought Microsoft when I'd first met him. (Laughter)

Comments on Financial Companies Financial companies are more difficult to analyze than other companies. They can report whatever earnings they want - it's an easy game to play. For banks, earnings depend on loans and the reserves set aside. It's easy to change and manipulate the reserves.

Comments on Financial Companies Financial companies are more difficult to analyze than other companies. They can report whatever earnings they want - it's an easy game to play. For banks, earnings depend on loans and the reserves set aside. It's easy to change and manipulate the reserves. With a company like WD-40 or a brick company, the financials are easy to analyze. But with financial [companies] it's tough, especially when you throw in derivatives.

I'm concerned about our political leadership, but as Peter Lynch once said, "Invest in businesses any idiot could run because someday one will." (Laughter) We've had all sorts of bad Presidents, but have still done well. Our real GDP per capital rose seven-fold in the last century, which is remarkable. Sure, the big consumer debt load and trade deficit could cause some financial market distress - there are great investment opportunities in dislocations - but the country will survive. Eventually the country will do fine, but there's a significant possibility of a chaotic situation.

I knew a guy who had $5 million and owned his house free and clear. But he wanted to make a bit more money to support his spending, so at the peak of the internet bubble he was selling puts on internet stocks. He lost all of his money and his house and now works in a restaurant. It's not a smart thing for the country to legalize gambling [in the stock market] and make it very accessible. Buffett: Is there anyone we've forgotten to offend? We don't want to miss anyone. (Laughter)

Buffett: We're like an incredibly rich family. We sit on the porch of our huge farm - so big that we can't even see the end of it - and each year, we consume 6% more than the farm produces. To pay for this, each year we sell or mortgage a little bit of the farm that we can't see, so we don't even notice. We're very, very rich and the rest of the world is happy to buy from us or lend to us, so each year they take a piece of our valuable assets - and they work very hard. But we will have to service this. If it goes on for a long time, our children will pay. We're sending $2 billion per day [overseas right now].

Invest in Yourself It's hard for individual investors to successfully pick stocks or time the market. The best investment you can make is in your own abilities. Anything you can do to develop your own abilities or business is likely to be more productive than investing in foreign currencies. If you own your own business in America [and you run it well, you'll do OK].

Avoiding Mental Mistakes The first step is to recognize the traps. Charlie, in Poor Charlie's Almanack, talks about various traps, so read that book. Our personalities are such that we're probably less prone to falling into these traps, but it still happens - just less than before. Munger: You don't have to have perfect wisdom to get very rich - just a bit better than average over a long period of time. -15- Buffett: It reminds me of the story about the two guys being chased by the bear and one guy says to the other, "I don't have to outrun the bear. I just have to outrun you!" (Laughter)

Poor Charlie's Almanack Munger: Peter Kaufman did it. He came up with the idea and Warren got excited about it. It's a ridiculous name [the title]. (Laughter) If you assimilate everything that's in that simple book, you'll be far ahead in the game. Buffett: It's a sensational book. You'll learn a whole lot about life - and making money.

Learning to be a Good Investor When I was seven years old, I first took an interest in stocks. My dad was in the business, so I'd go with him to the office and I saw interesting things. [When I was a little older,] I went to the library and read every book on markets and investing. When I was 11, I bought my first stock - three shares. I was following charts. When I was 19, I read The Intelligent Investor and it changed my whole framework. My advice is to read a lot. There are no secrets in the business that only the priesthood knows. It's all right there. It requires qualities of temperament way more than qualities of intellect. Once you have a 125 IQ, much more doesn't matter. Look for opportunities that fit your framework. Try to learn every day, but you can't act every day. It's important to enjoy the game, just as it is to enjoy bridge or baseball [if you're going to play those games seriously].

We like buying businesses with some untapped pricing power. For example, when we bought See's for $25 million, I asked myself, "If we raised prices by 10 cents per pound, would sales fall off a cliff?" The answer was obviously no. You can determine the strength of a business over time by the amount of agony they go through in raising prices.

You can learn a lot about the durable economics of a business by watching price behavior. The beer industry is able to raise prices, but it's getting tougher.

Market Views Regardless of the market, I will keep buying businesses. We like low prices. We're not good at forecasting markets. Charlie and I spend no time thinking about where the market's going. We do know when we're getting good value [when we're buying a stock or business]. There are always going to be some good and bad things happening. I've seen more people lose more money by getting focused too much on one factor. We've never not bought something due to macroeconomic concerns.

The Best Business The best businesses can maintain their earnings without continued reinvestment, whereas in the worst you have to keep pouring money into a money-losing business. The best business is being the best surgeon in town. You don't have to do any reinvestment - the investment was the education. The surgeon will retain his earnings power, regardless of inflation.

More on the Housing Bubble (and Why Foreigners Invest in the U.S.) The financing terms have become easier and easier as prices have risen, which is contrary to normal [and prudent] practices. But the financing process has become so disintermediated that the mortgage buyer doesn't care. The easier financing has led to a boom in prices. The Nebraska farm bubble was fueled by banks that historically had been conservative but went crazy. They said that a farm was an asset-appreciation investment, not an income investment - in other words, they were playing the greater fool game.

Buffett: I have less than 1% of my net worth outside Berkshire and when the Nasdaq hit its high, I had nearly all of it in REITs, which were selling at a discount to their liquidation values. REITs are quite attractive now, especially compared with 5-6 years ago when they were very unpopular. It's better to pay attention to something being scorned than championed. Munger: And REIT accounting is phony. Buffett: Other than that, we love REITs. (Laughter)

[GM CEO] Rick Waggoner and [Ford Chairman] Bill Ford have both been handed, by past managers, extremely difficult hands to play. They're not the consequences of their own doing, but they have inherited a legacy cost structure, with contracts put in place decades ago, that make it very difficult for them to be competitive in today's world.

Munger: Warren just gave a very optimistic prognosis in my view. Just because the full consequences haven't yet hit, doesn't mean there isn't a huge problem. It's as if someone jumped out of a window on the 42nd floor. As you go by the 20th floor, you're still OK, but that doesn't mean you don't have a real problem. (Laughter)

Munger: We just throw some decisions into the "too hard" file and go onto others. Buffett: We get paid not for jumping over 7-foot bars but for finding 1-foot bars that we can step over.