2000: Will Berkshire invest in renewable energy?

AUDIENCE MEMBER: My name’s Jared Placeler (PH). I’m 15 from St. Louis.

Are you considering investing in energy and transportation companies, such as ones that deal with fuel cell and environmentally friendly energy resources?

And if you are, will you thus be replacing any other energy-based investments you may currently hold, such as your newly acquired holdings in MidAmerican Energy?

WARREN BUFFETT: Yeah. I would say that energy and transportation, in the very broad sense, are both things that we’ve at least got a chance of understanding. So those are the kind of areas in which, we would think about making investments.

We would probably think about it less in connection with new technology. We might expect the people who run MidAmerican Energy to be thinking about that all the time.

But Charlie would be better at it than I am, because he has a different background and thinks better about that, anyway, in terms of evaluating newer technologies. I wouldn’t be very good at it at all.

But those fields are, they’re big, in terms of capital investment, for one thing. So they’re very big fields.

And then secondly, we would probably think we were capable of evaluating the potential, some years down the road, of many companies in energy and transportation.

So those would be fields we would consider. And of course, as you mentioned, we made an investment in MidAmerican Energy.

I doubt if the technology changes dramatically in any near term as to the product that they’re delivering.

But if there were changes on the horizon, I think we’ve got the management there that would be very good at spotting that ahead of time and capitalizing on it in a proper way.

I wouldn’t take that function on myself.

Charlie?

CHARLIE MUNGER: Well, historically, we’ve done very little in either field. And mostly, the past is a pretty good guide to the future.

WARREN BUFFETT: Historically, the transportation field, I mean, it’s been a terrible place to have money, and, whether it’s been in airlines or in the rails. If you — we’ve mentioned Value Line from here — from time to time.

If you go to the rail transportation section and just run your eye across on the revenues and look at the capital investment, the amount of capital required to produce incremental revenues is just — is horrible.

And on the other hand, there’s not much alternative here in the game to doing that. So there — many railroads will spend hundreds and hundreds and hundreds of millions of dollars. And it will not move the top line hardly at all. The ones where the top line has changed is where there’s been acquisitions or mergers.

Airlines, you’ll see just the opposite. You’ll see this great movement in the top line, but again, a disastrous amount of capital investment and very little in the way of returns. So, it hasn’t been a great field.

Most fields that require heavy capital investment, most of the time, they don’t turn out very well over time. There are plenty of exceptions to that.

But if you find a business that has to keep adding up huge sums of money every year, there always will be a reason why they’re doing it. But the net result, after five or 10 or 20 years usually isn’t very good.