2006: What would need to change in Russia for Berkshire to invest there?

AUDIENCE MEMBER: My name is Elliott Samuels (PH). I’m from New York City.

Thanks to high energy prices and other factors, Russia has been one of the best performing markets recently. The country’s financial condition has stabilized since the 1990s.

A fledging middle class is taking shape as personal incomes grow. And there are also risks — political, legal — risks to minority investors.

But there are also potentially great values among second tier companies there.

I was wondering, what needs to happen in Russia for you to invest there, whether for Berkshire or for yourself, and what kind of companies would interest you there?

WARREN BUFFETT: Sounds like you may own a few Russian stocks yourself. The — I would — as you know, in 1998, Walter Wriston said sovereign governments don’t default.

In 1998, in Russia, at least, he was proven wrong. And Charlie and I were — inherited a business at Salomon that was in the oil business big time-out in the — in Siberia.

And there came a time when — we got to dig the holes. We sent the money in. And as long as we were drilling, we were welcome. And then when we wanted to start taking the oil out, after our money had been used to drill the holes, they weren’t quite as friendly. In fact, it was really kind of extreme what took place with us.

So, having had a few experiences like that, it might take us quite a while before we wanted to sink a lot of money into Russia. It may be different now, but I don’t think it’s any certainty.

I had breakfast in Sun Valley three years ago this July, I believe it was, with [Mikhail] Khodorkovsky, and we had a translator there. And he talked to me about whether — he was thinking about listing Yukos on the New York Stock Exchange, but he said, you know, it would require registering with the SEC or something, and he wasn’t sure whether that would be too dangerous.

Well, I don’t think he listed it there, but he went back to Russia, and he’s been in jail now for — well, just about ever since.

And Yukos was put into bankruptcy with tax claims, and, you know, it — I don’t — I just think it’s a little hard to develop a lot of confidence that the world has changed permanently there in terms of its attitude toward capital, and particularly toward outside capital.

Charlie, what are your thoughts?

CHARLIE MUNGER: Yeah. The situation reminds me a little of POLY Petroleum, which, years ago, was much traded in Los Angeles.

The saying always was, “If they ever do find any oil, that old man will steal it.” And I’m afraid we have some of that problem in many of the countries in which we’re seeking for oil.

WARREN BUFFETT: Didn’t we really have the livelihood of our guys threatened over there, Charlie?

I think we sent in some people to get out the equipment, and they said if we sent in the people to get out the equipment, not only would the equipment not get out, but the people wouldn’t get out.

So we understood the situation. That was not that long ago.

CHARLIE MUNGER: No.