1994 Annual Meeting
Meeting where Buffett warned about derivatives as "ignorance and borrowed money" and discussed risks in reinsurance
1994 Annual Meeting
Date: April 25, 1994 Location: Omaha, Nebraska Attendees: Warren Buffett (63), Charlie Munger (70) Source: Full Transcript
Overview
The 1994 annual meeting was the earliest preserved in the CNBC archives. Buffett gave his famous warning about derivatives being "ignorance and borrowed money," discussed risks in the reinsurance business, and introduced the assembled Berkshire managers.
Opening
Buffett opened with characteristic humor about the growing crowds:
"We're up about 600 this year from last year, and to be on the safe side we will seek out a larger spot."
On the venue progression:
"A few years ago we were holding this meeting at the Joslyn Museum, which is a temple of culture. And we've now moved to an old vaudeville theater. The only place in town that can hold us next year is the Ak-Sar-Ben Coliseum where they have keno and racetracks. We are sliding down the cultural chain."
On the meeting format:
"We will run that until 12 o'clock, at which point we'll break, and then at 12:15, if the hardcore want to stick around, we will have another hour or so until about 1:15 of questions."
Business Results
On the year:
"Record earnings. The businesses are performing exceptionally."
On insurance:
"Float is growing. We're well positioned."
Key Topics
Derivatives Warning
Buffett gave his famous warning about derivatives when asked about their risks:
On the nature of derivatives:
"Any time you combine ignorance and borrowed money, you can get some pretty interesting consequences."
On the dangers:
"The ability to borrow enormous amounts of money combined with a chance to get either very rich or very poor very quickly has historically been a recipe for trouble at some point."
On Berkshire's approach:
"We have some people in the room that do business in derivatives from Salomon... Derivatives are not going to go away. They serve useful purposes, but I'm just saying that it has that potential."
Reinsurance Business Risks
Buffett addressed the risks inherent in the reinsurance business:
On long-tail risks:
"Excessive risks in the reinsurance business may not become evident until big problems arise years later."
He explained that reinsurance contracts could have claims that take decades to fully develop, making it difficult to assess true risk exposure in the present.
Manager Introductions
Buffett introduced the Berkshire manager team, noting their long tenure:
"Chuck has been with us, incidentally, twenty-odd years. Stan's been working with me for well over 25 years."
Managers introduced included:
- The Blumkin family (Nebraska Furniture Mart)
- Susan Jacques (Borsheims - CEO since recently)
- The Kizer family (Central States Indemnity)
- Ajit Jain (large reinsurance contracts)
- Mike Goldberg (insurance oversight)
- Chuck Huggins (See's Candies)
- Stan Lipsey (Buffalo News)
- Ralph Schey (Scott Fetzer)
- Peter Lunder (Dexter Shoe)
On Harry Bottle:
"Harry saved our bacon back in 1962 or so, when in some mad moment I went into the windmill business. And Harry got me out of it."
Long-Term Thinking
On extraordinary results without extraordinary actions:
"We don't need to do extraordinary things to get extraordinary results."
Notable Quotes
"Any time you combine ignorance and borrowed money, you can get some pretty interesting consequences."
"Excessive risks in the reinsurance business may not become evident until big problems arise years later."
"We don't need to do extraordinary things to get extraordinary results."
Key Themes
- Derivatives Warning — Famous "ignorance and borrowed money" quote
- Reinsurance Risks — Long-tail risk exposure
- Manager Loyalty — Long-tenured managers
- Growth Challenges — Outgrowing venues
- Extraordinary Results — Simple approach
Related
This summary captures the key topics from the 1994 transcript.