Here are some good quotes from the Berkshire meeting in Omaha that took place last weekend. Most of these were not reported in the mainstream media as they seemed to focus on his “think small” comment regarding returns. I did not attend the meeting, but culled these quotes from the notes taken by Shai Dardashti, and posted on Seeking Alpha. They are not exact quotes since no recording equipment is allowed during the question and reply period.

1) Question - How to pick great managers?

I can’t be of help whether you are looking at group of MBAs. They know at that point in life how to idiot you, what answers to give you.

My Commentary - Damn right, when I was in grad school, we spent a lot of day learning how to lie during interviews.

2) Question - A University of Chicago Graduate student asked me once, what are we being taught that is wrong?

In business school the amount of duration spent teaching option pricing is total nonsense. You only need 2 courses, how to value a business and how to think about stock market fluctuations.

My Commentary - One could form the same claim about the CFA program as well.

3) Question - Big positions. How do you get confident decent?

Students learn corporate finance at business schools. They are taught that the whole secret is diversification. But the exact rule is the opposite. The ‘know-nothing’ investor should practice diversification. Diversify– but it is crazy whether you are an expert. whether you only put 20% in the opportunity of a lifetime – you are a not being rational. Very seldom do we get to buy as much of any good concept as we would like to.

4) Question - Are investment banks too complicated? Risks unknown?

I think Fed did right thing with Bear. They would have folded on Sunday night, and walked

to a bankruptcy judge. They had 14.5tril of derivative contracts – not as poor as it sounds, but the parties that had those contracts would have been needed to undo the contracts to set up the liability from the estate.

My Commentary - Surprising reply given his reputation for being unforgiving to humans who take too much risk.

5) Question - Do you believe in Jesus Christ?

Buffett - I am an agnostic.
Munger - I don’t want to talk about my relationships.
Buffett - Being an agnostic I don’t have to have an opinion.

My Commentary - Certainly the most surprising question of the day.

6) Question - How do we better measure leverage and accounting of assets, integrity?

Munger - A lot goes on in bowels of American industry which is not pretty. A lot of humans got overdosed on Ayn Rand. They would hold that even whether an axe assassin in a free market is a wise development. I think Alan Greenspan did a good job on average, but he overdosed on Ayn Rand that whatever happens in free market is going to be alright. We should prohibit some things. whether we had banned the phrase, “this is a financial innovation which will diversify risk”, we would have been far better off.

Buffett - When you get into CDO squared, the documentation is huge. whether you read a standard residential protection – it consists of thousands of mortgages, next different tranches. thereupon take CDO and take junior tranches on a whole bunch of juniors – put them together and diversified in theory – a big error to start with. That was nuttiness squared. You had to read 15,000 pages to get a CDO, next 750k pages to evaluate one defense in a CDO squared. To let society use 100cents they paid vs. the 10cents it trades at in market is an abomination.

Original post by Eric J. Fox