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SUZANNE PRATT: Warren Buffett says he wants tough questions from shareholders at Berkshire Hathaway"s annual meeting tomorrow. Investors will certainly ask about the company"s stock. It has tumbled more than 30 percent in the past year. Also answering questions, Charlie Munger, Buffett"s business partner for half a century and Berkshire"s vice chairman. Munger keeps a low profile, but today in Omaha, he sat down for an interview with Susie Gharib. She began by asking him what he"ll say to shareholders tomorrow to restore confidence in Berkshire.
CHARLES MUNGER, VICE CHAIRMAN, BERKSHIRE HATHAWAY: I think the reality is that if you hold a stock for a long long term even though it"s screamingly successful as an investment, you will have huge declines in the value of that stock two or three times in half a century. And I don"t think that should bother long term holders all that much.
GHARIB: Mr. Munger, shareholders will certainly have questions tomorrow on why Berkshire took such large positions in derivatives especially since you and Mr. Buffett have warned for years that derivatives are dangerous investments. What are you going to tell them?
MUNGER: We think the bets we made were intelligent bets. That"s why we took the positions. It"s just that simple. We also think that the system which allowed derivative bets to be so widely available was bad public policy. There"s nothing inconsistent in those two actions.
GHARIB: We hear more and more people saying that the economy"s improving, that the worst is over. From what you"re seeing at Berkshire, what kind of shape is the economy in?
MUNGER: Well of course there are glimmers of hope and of course not all the news is bad. But averaged out it"s deadly serious and the threats and problems are far from over. We have a very unpleasant stretch to go through at best.
GHARIB: When do you see the recovery coming?
MUNGER: We don"t have any special ability to make that kind of macro economic prediction.
GHARIB: How are Berkshire"s businesses doing so far this year?
MUNGER: Mixed. But the two biggest businesses, which are insurance and utilities, are flourishing. So I would say that even with all of the bad effects we"ve had, we"re not catching our full share of the horror.
GHARIB: You delayed the release of Berkshire"s quarterly results and some people are speculating that maybe things aren"t going so well for Berkshire. What"s your response to that?
MUNGER: I guarantee you that Berkshire is not delaying reporting based on whether things are going well or ill. There are delays because there are glitches of getting the job done right as fast as they would like to have it done.
GHARIB: So what"s your business strategy for 2009? Are you running Berkshire differently to deal with this economic downturn?
MUNGER: Our fundamental way of operating we"re not changing. Are we a little more cautious based on the extreme disruptive effects that are conceivable, I think the answer is yes.
GHARIB: How are you being more cautious?
MUNGER: We"re a little less willing to borrow and a little less willing to spend. And that is happening all over America.
GHARIB: Some of Berkshire"s investments are in financial stocks like American Express and Wells Fargo. Does it make sense to continue to hold on to these stocks? What"s your outlook for the financials?
MUNGER: Well, I think the companies which we are invested have very respectable futures from this point forward. The financial world should be restructured so that these people who are too big to fail are not allowed to behave in such a gamey fashion. I"m pessimistic with the regulatory changes that come down. I"m afraid they won"t be as severe as we need.
GHARIB: As an investment, investors should stay away from financials for now?
MUNGER: I didn"t say that. We need the financials. We can"t have a modern civilization without strong financial companies. But we don"t need them as swashbuckling and as crazy and as venal as they"ve been.
GHARIB: This has certainly been an unusual time. What have you learned about Warren Buffett and how he handled this financial crisis that you didn"t know after working with him for 50 years?
MUNGER: I don"t think Warren Buffett has changed at all in terms of the way he handles this sort of thing. He handled it well 35 years ago and he"s handling it well now.
GHARIB: Now I understand there are three candidates who are being considered to take over from Warren Buffett when the time comes. I know you"re not going to tell me who they are. But what do you think is the most important characteristic for this job?
MUNGER: I don"t think there"s any one way that"s the right way to run a corporation. Different people have different styles. Different people have different strengths. I am quite confident that Berkshire will be governed very well long after Warren and I are gone.
GHARIB: Mr. Munger, it"s been a pleasure talking to you. Thank you so much for your time.
MUNGER: You bet.
PRATT: On Monday, we hear from the Oracle of Omaha. Susie brings us her interview with Warren Buffett and gets his outlook for Berkshire and the economy.
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