1999: How does Buffett decide which countries are investable?

AUDIENCE MEMBER: My name is James Claus (PH), and I’m here from New York City.

Mr. Buffett and Mr. Munger, today we’ve already heard you talk about a few countries outside of the U.S., here.

And my question is, if you’re directly investing in equities outside the United States, what would be your requirements for the market as a whole?

And by this, I mean things like the transparency of the accounting system, the breadth and liquidity in the market, the rights of shareholders, the stability of the currency. And it’d be nice if you’d mention a few of these countries.

Kind of just a little addendum, there, is — for the companies in these countries, how relevant do you believe the reconciliation to U.S. GAAP contained in Form 20F really is?

WARREN BUFFETT: Well, the answer is most of those points you mentioned would be of interest to us.

We’d have to rule out anything where the markets aren’t big enough. I mean, we are looking to put hundreds of millions of dollars into any single investment, at a minimum. Certainly, we think in terms of 500 million as being a minimum. We make exceptions to that. And that’s going to rule out a great many companies.

Transparency of accounting and accounting rules: we care about that but we can make adjustments mentally. In some respects, we may think, in certain countries, accounting is better than here.

And so, as long as we understand the accounting system, we will be looking toward the same kind of a discount model in our mind of how much cash is this business going to generate over years and how much is going to have to be put into it.

And it’s the same sort of calculation that goes into our thinking here. And here, we don’t follow strictly GAAP accounting in our thinking. So we don’t — the accounting differences would not bother us, as long as we understood those accounting differences.

The nuances of taxes, the corporate governance that you mentioned could make a difference. If we thought corporate governance was far inferior to here, we’d have to make an adjustment for that fact.

But I would say that in most of the major countries, the countries that have stock markets that are big enough so we could take a real position, it’s a possibility that we would invest in any of them.

We don’t — we wouldn’t rule out, you know, Japan, Germany, France, England, the major markets.

Now, it’s important to recognize that in all the world’s stock markets, something like 53 percent of the value is in the U.S. market. I mean, here we have 4 1/2 percent of the world’s population. But 53 percent of the value of all publicly held companies in the world is represented in — with companies in the U.S. market. So, we are a big part of the pie.

But we’re very willing to look at almost all of the rest of the pie as long as we’re talking about markets that are big enough to let us put real money into them.

Charlie?

CHARLIE MUNGER: Well, so far, we haven’t done much, as Warren has said. But we don’t have a rule against it. What more can we say? (Laughter)