2016: What gave you the confidence to pay a historically high multiple for Precision Castparts?

JONATHAN BRANDT: My first question is about Precision Castparts.

Besides your confidence in its talented CEO Mark Donegan, what in particular do you like about their business that gave you the confidence to pay historically high multiple?

Are there ways Precision can be even more successful as, essentially, a private company?

For instance, are there long-term investments to support client programs or acquisitions that Precision can make now that they couldn’t realistically have done as a publicly traded entity?

WARREN BUFFETT: Yeah, we completed the acquisition of Precision Castparts at the end of January this year. We agreed — we made the deal last August.

And you covered the most important asset in your question. Mark Donegan, who runs Precision Castparts, is an extraordinary manager. I mean we’ve seen very — and Charlie and I’ve seen a lot of managers over the years — and I would almost rank Mark as one of a kind.

I mean he is doing extremely important work, in terms of making — primarily making — aircraft parts.

I would say that there’s certainly no disadvantages to him to be working as a — and for that company to be a subsidiary of Berkshire and not be a public company.

And I think he would say, and I think Charlie and I would agree with him, that over time, there could be some significant advantages.

For one thing, he can spend 100 percent of his time now on figuring out better things to do with aircraft engines. And it was always his first love to be thinking about that, and he did spend most of his time, but he also had to spend some time, you know, explaining quarterly earnings to analysts and perhaps negotiating bank lines and that sort of thing.

So his time, like all of our managers, can be spent exactly on what makes the most sense to them and their business. Mark does not have to come, ever, to Omaha to put on some show for me, in terms of justifying a billion dollar acquisition or plant investment.

He wastes — doesn’t have to waste his time on anything that isn’t productive. And running a public company, you do waste your time on quite a bit of stuff that isn’t productive.

So I would say we’ve taken the main asset of Precision Cast and made it — made him in this case — even more valuable to the company.

In terms of acquisitions, Precision’s always made a number of them. But, as being part of Berkshire, there’s really no limitations on what can be done. And so, there again, his canvas has been broadened, in large, with the acquisition by Berkshire.

I see no downside whatsoever. If he needs capital, I’ve got an 800 number.

And, you know, he wasn’t paying much of a dividend before, but he doesn’t have to pay any dividend now.

Precision Cast will do better under Berkshire than it would have independently, although it would have done very, very well independently.

Charlie?

CHARLIE MUNGER: Well, in the early days, we used to make wiseass remarks. And Warren would say we buy a business an idiot can manage, because sooner or later, an idiot will.

And we did buy some businesses like that in the early days, and they were widely available.

Of course we’d prefer to do that, but the world has gotten harder, and we had to learn new and more powerful ways of operating.

A business like Precision Castparts requires a very superior management that’s going to stay superior for a long time.

And we gradually have done more and more and more of that, and it’s simply amazing how well it works.

I think, to some extent, we’ve gotten almost as good at picking the superior managers as we were in the old days at picking the no-brainer businesses.

WARREN BUFFETT: Yeah, we would love to find — we won’t be able to find them because they’re very rare birds — but we would love to find another three or four of a similar type to Precision Castparts, where they, forever, are going to be producing something that — where quality is enormously important, where the customers depend very heavily on them, when there’s contracts that extend over many years, and where people don’t simply just take the low bid in order to get this gadget of one sort or another.

It’s very important that you have somebody there that has enormous skill running the business, and their reputation, among aircraft manufacturers, engine manufacturers, you know, is absolutely unparalleled.