1. The Fundamental Difference Between Two Modes of Cognition

【1. Charlie Munger – The Architect of Berkshire Hathaway】

For one thing, I was only interested in whether things worked. Charlie wanted to know how things worked. I would turn on a switch and if the tv or light bulb went on, I could not care less about what had caused that miracle. Charlie, however, would want to understand every aspect of how a generator worked, how electricity traveled to his home, the merits of AC vs DC, whatever. You could say that Charlie understood electricity better than Thomas Edison ever did.

Like his hero, Ben Franklin, Charlie wanted to understand everything, and he pretty well succeeded. 

【Annotation】Being interested in "whether things work" comes from a desire to solve real-world problems, and from believing that "a correct answer exists" — it ultimately points toward focus. "Understanding everything" has a different starting point and destination. The former believes knowledge is convergent; the latter does not believe knowledge is convergent — even when told, guided, proven, or having personally agreed that it should converge.

Some people come into this world to solve problems. In one interview, Jobs said Apple's success came from focusing on "what truly matters." Others have different purposes. Those who focus on solving problems quickly discover where their strengths lie — Jobs found that Samsung's and other phone designers didn't know they had fingers; Buffett in Las Vegas saw many people who liked throwing hard-earned "good money" into a pile of "bad money."

After discovering their strengths, they find that their time and energy are limited — only by focusing and concentrating can they fulfill the original purpose they came into this world for.

2. Fatal Mistakes

【4. First quarter results and $182B in cash】

And sometimes sometimes, we’ve done things that were big mistakes. But never we never get close to fatal mistakes. And every now and then we do something that really works.

【Annotation】Fatal mistakes include: (1) systemic risks that lead directly to a total wipeout; (2) options that expire worthless; (3) excessive leverage — including people who double down in the wrong direction.

3. Berkshire Is Better Positioned Than Banks to Absorb New Capital

【4. First quarter results and $182B in cash】

And we have accumulated 571 billion, and I couldn’t help but look at who’s second. And JPMorgan had 327 billion at year end, and they’re up to 338, I believe, at the end of the quarter. But they pay significant dividends. They repurchase shares. They’ve got a business that earns better returns on equity. But they don’t plow it and they shouldn’t they don’t plow it back exactly like we have.

【Annotation】Banks have some limitations in their ability to absorb new capital. BRK can retain every dollar and wait for opportunities — banks cannot do this yet. Banks expand their business within a narrower space and face more constraints. However, banks are also capable of sustained expansion, deploying new capital at a high ROE (above 15%). JPM is an example.

4. Apple's Three Risks of Value Impairment

【5. Selling some Apple shares now with higher tax rates expected later】

But investments, you don’t really have to do that. You really have to have your mind set properly. So, we will end up — unless something dramatically happens that really changes capital allocation and strategy — with Apple as our largest investment. But I don’t mind at all, under current conditions, building the cash position. When I look at the alternatives available in the equity markets, and I look at the composition of what’s going on in the world, we find it quite attractive.

And I would say with the present fiscal policies, I think that something has to give. And I think that higher taxes are quite likely. And if the government wants to take a greater share of your income, or mine, or Berkshire’s, they can do it. And they may decide that someday they don’t want the fiscal deficit to be this large because that has some important consequences, and they may not want to decrease spending a lot. And they may decide they’ll take a larger percentage of what we earn. 

【Annotation】

(1)Equity markets at elevated levels + a world that is increasingly fragmented. If something dramatically happens in the market, the plan is to use Apple as deployable cash to buy more attractive businesses.

(2)The current fiscal deficit is unsustainable. Apple has already lost its growth potential, yet trades at a P/E above 30. Over the next 10 years, there are three risks of value impairment:

1. Higher capex, lower free cash flow;
2. P/E multiple compression;
3. Higher taxes.

Assume a starting valuation of $100 billion: a 30% drop in the P/E multiple wipes out $30 billion; a tax rate increase from 20% to 30% costs another $5 billion. Apple may also significantly increase capex. After stripping out these factors, can it still grow over the next 10 years?

Buffett believes there is still a possibility, because businesses of this quality are rare. The primary reason for trimming the position now is point 1 — holding cash may offer better returns.

6. BHE Carries More Risk Than BNSF

【7. Our utilities won't throw good money after bad if states impose excessive climate change costs】

And so whether you earn X or X plus a half a percent or X minus a half a percent, that differs by state. And some states are more attractive than others. But whether you earn X or go broke is not an equation that works. And we won’t put our shareholders’ money — they didn’t give it to us to lose it all. 

【Annotation】Both are regulated, capital-intensive businesses, but BHE carries more risk than BNSF — this business could lose all its capital to wildfire claims. Catastrophe insurance is a business BRK is very skilled at, and the logic of unlimited wildfire liability is extremely difficult to accept.

7. AI Has Both Good Ideas and Bad Ideas — Nobody Knows Which Comes First

【8. Artificial intelligence (AI) could make fraud "the growth industry of all time"】

I mean, scamming has always been part of the American scene. But this would make me — if I was interested in investing in scamming — it’s going to be the growth industry of all time. And it’s enabled in a way — you know, obviously AI has potential for good things, too — but I don’t know how, based on the one I saw recently, I practically would send money to myself over in some crazy country.

it has enormous potential for good and enormous potential for harm, and I just don't know how that plays out.

【Annotation】A thinking framework: Buffett has applied this same framework to Wall Street investment managers — they have good ideas and bad ideas, and nobody knows which comes first.

8. Competitive Advantages Can Mask Problems — GEICO Is a Case in Point

【9. GEICO is catching up with competitors on using data technology to set rates】

But our fundamental advantage at GEICO, of course, is that we have lower costs than virtually anybody. And that cost advantage has been dramatic. We’ve driven our underwriting expense ratio below 10 percent, and there’s — well, there’s just very, very, very few companies that can compete with that. So it isn’t — it’s not in the least a survival question, and it isn’t even exactly a profitability thing. But, you know, we would rather have X percent of the market than a half of X percent.

But our low costs have masked the fact that, for a while, that we could do without progressing as much as we should’ve in the matching of rate to risk.

【Annotation】Buffett believes GEICO's cost advantage remains very significant. I have some different views.

(1)Loss ratio (the degree to which rates are matched to risk): because of technological lag, GEICO lost ground to Progressive for a long time. Whether this becomes a structural disadvantage is uncertain — previously it was not given enough weight as a key variable, and that was an acknowledged mistake.

(2)Is direct sales a structural advantage? One possibility is that AI helps Progressive eliminate the insurance agent as an intermediary, and Progressive along with other auto insurers all shift to a primarily direct model.

(3)GEICO's float can be invested in equities — most other insurers have not been able to do this for a long time. This is the more certain structural advantage.

The point Buffett makes at the end is important: advantages can mask the facts. Too few people can extract the key information and identify the true problem boundaries from a large amount of data. He understood that float investment returns needed to be separated from GEICO's underwriting, yet still allowed direct sales to mask the loss ratio disadvantage for a long time.

9. Why Do People Who Cannot Be Trusted Exist?

【10. Surround yourself with people you trust, like Charlie Munger】

But if I didn't think I could do it myself, I wouldn't have done it. To some extent I talk to myself on investments.

If you don't live a life where you surround yourself, and limit yourself, to people you trust, it won't be much fun. I mean, I literally have been in the position ever since I was in my twenties, of being able to have people I trusted around me.

【Annotation】Think about why some people cannot be trusted. Why does this happen? Why do people compromise? Is it because one is not deserving of it?

10. Insurance Can Bear Discrete Risks — Aggregation Violates Its Essence

【15. Cyber insurance is hot but too risky for now】

I have told them, no matter how much you charge, you should tell yourself that each time you write a cyber insurance policy, you’re losing money. We can argue about how much money you’re losing, but the mindset should be, you’re not making money on it, you’re losing money. And then, we should go from there.

And you’ve got to have somebody in charge of things that understands that you may get an aggregation of risks that you never dreamt of and maybe worse than some earthquake happening some place just because you have a whole bunch of policies with a million-dollar limit.

【Annotation】Insurance can bear discrete risks. Aggregation violates the fundamental nature of insurance.

11. Life Advice: Find Your Goal and Stay True to Yourself Along the Way

【18. Life advice: set goals and take the paths that achieve them】

I mean, find the job that you would like to have if you didn’t need a job. And sometimes you can find that very early. And sometimes you go through various experiences. But don’t forget what you’re actually trying to do.

【Annotation】"But don't forget what you're actually trying to do" —  the ability to remain undeformed along the journey of searching.

12. Greg Abel's Succession: A Little Less Genius, A Little More Elbow Grease

【19. Greg Abel is now working directly with Berkshire's managers】

Because Greg, in a year, accomplishes I mean, he sees more of them, understands more about their problems, can give them suggestions. He's got incredible amounts of energy. 

Greg will do something about it. And Charlie and I wouldn't have. Not because we didn't know it should be done, but because we were doing so well ourselves. (Laughs) It just wasn't something we'd make the effort for. We didn't want to change our lives that way. 

【Annotation】Buffett is remarkably candid here: not bothering with the things Greg Abel handles was because "we were doing so well ourselves." The same hour spent on his own work creates far more value. Greg Abel clearly does not have that ability — he cannot pick up gold in large chunks. But picking it up grain by grain is still picking it up: a little less genius, a little more elbow grease.

(1)Finding a 30-year-old Buffett or Jobs — this assumption is flawed from the start. Why would someone who is "doing so well themselves" go and manage other people's businesses? A very large organization has a structural contradiction here.

(2)Ajit Jain has a slight edge in character traits; Greg Abel has an advantage in age. Buffett chose the latter, which suggests there is no sufficiently significant difference between the two in the most important character traits.

16. Political Bias: It Starts with Looking After the Vulnerable

【24. Settlement may change commission structure, but real estate agents still have important role】

Ninety percent of the people need help, you know, in buying a home or selling one. And I’ve watched it operate all my life and been involved with lots of people who have been in the business and bought — there was a decision in court, and I told Greg to handle it whatever way that seemed best to him. And I’m quite — I’m perfectly happy with the way we’ve handled it, I think.

I’m surprised at the decision, but we get surprised in decisions in the insurance business lots of times. I mean, you know, just think of the various things we’ve faced. And, you know, when 9/11 came along, you know, we never thought something like that could happen, but it happened. And then we didn’t know what was one event or more events.

【Annotation】Political bias starts with looking after the vulnerable, then extends outward layer by layer until the position becomes that everything about the vulnerable is correct. Lee Kuan Yew said mediocrity is a luxury of the wealthy. Buffett is focused on the trend here, but ultimately remains optimistic — "we will continue to do things that are reasonable and rational."

17. What Is "Mass Adoption"?

【27. Berkshire isn't trying to predict winners in controlling climate change】

we will — I hope you’re right. And massive adoption has been sort of a moving target so far. But I hope we get there. 

in effect, the United States, particularly, has been the one that caused the problem the most, and then we’re asking poorer societies to say, well, you’ve got to change the way you live because we lived the way we did. 

【Annotation】By vehicle ownership statistics: EVs in China number 36.89 million, representing 10% penetration; in the US, 5.7 million, representing 2%. Television once achieved "mass adoption," but television's "mass adoption" meant 70–80%+ penetration. EV "mass adoption" refers to 2–10%.

When this audience member said "the world we live in is already changing and becoming different," Buffett knew what to say. This answer would be of little practical help to the questioner — that was always going to be the case. But he still offered two examples that help with reverse calibration of thinking, out of goodwill and as an exercise for his own mind.

18. Charitable Giving: The Simpler, the Better

【29. Shareholder Ruth Gottesman donates $1 billion to make Bronx medical school tuition-free】

You know, there’s no ego involved, you know, nothing. She just decided that she’d rather have a hundred-plus — closer to 150, eventually — students be able to start out debt-free and proceed in life.

【Annotation】No desire for self-promotion; the goal is to help others become free from debt. The simpler, the better.

20. The Financial Risks Buffett Worries About

【31. Buffett would make Abel, when he is CEO, responsible for deciding both which businesses and which stocks to buy】

And we do not want to try and have, you know, 200 people around that are managing a billion each. It just doesn’t work. And I think that when you’re handling the sums that we will have, you’ve got to think very strategically about how to do very big things.

but as the world gets more sophisticated, complicated, and intertwined, more can go wrong.

That is for sure. And the more intertwined and sophisticated the world financial situation gets, the more vulnerable it gets, in a certain sense. It solves a lot of small problems, but it leaves it more vulnerable to large problems.

【Annotation】

(1)"200 people, each managing $1 billion"

Ideas that are oriented in the right direction are all convergent. Having "200 people, each managing $1 billion" is wrong in its direction.

(2)"The world is becoming more sophisticated, more complex, and more interconnected"

This judgment is somewhat questionable.

1. The share of large tech companies is growing, creating a polarization between large and small enterprises. The underlying business world is not becoming more complex — it is becoming simpler. Buffett's point was originally about financial derivatives. But the underlying businesses are simpler now, so who would buy complex financial structures?
2.  Finance no longer commands the center of attention the way it once did — the focus has clearly shifted toward technology. With less attention, complex financial structures will also decline.
3. The greatest risk may not be multi-level, multi-layered, cascading financial risk. The risk concentrated in a handful of large tech companies is greater: for example, cloud services from Amazon, Google, Microsoft; phones controlled by Apple and Google; chips from Nvidia — all concentrated in a small number of companies, all assuming no problems will arise.

21. Dropping Out of the Top 20 Every Decade: The Root Cause Is Cognitive Failure

【31. Buffett would make Abel, when he is CEO, responsible for deciding both which businesses and which stocks to buy】

And if you look back, as we did a few meetings ago, as to the top 20 companies in the world at 10-year intervals, you realize the game isn’t quite as easy as it looks. But getting a decent result actually is — reasonably — should be reasonably easy, if you just don’t get talked out of doing what (laughs) has — works in the past. And don’t get carried away with fads and don’t listen to people who have different interests in mind than the interest of our shareholders.

【Annotation】This remark sounds like a reminder to Greg Abel. Getting an average result is simple — buying the S&P 500 delivers a respectable outcome. But if expectations become too high, or noise in some other form erodes rationality, things become very difficult. Companies drop off the list every decade for exactly this reason. This is easy to understand.

First, as a thought experiment: imagine 500 runners starting together, numbered 1 to 500, each advancing at an overall rate of 10%. Runner #1 compounds steadily at exactly 10%; the other 499 also advance at 10% in aggregate, but this 10% is distributed randomly among them. Running this simulation, the probability of Runner #1 falling out of the top 10 is only about 0.04%–0.07% in year 1, about 0.03% in year 2, and approaches zero from year 3 onward. This at least shows: as long as the leader continues to compound steadily, random disturbances from behind are very hard to dislodge them.

Second, from another angle: for any of the other 499 to overtake #1, they need not just one fast year, but a sustained compounding rate higher than 10% over a long enough period — which is very difficult. Random distribution cannot achieve this. The assumption of randomness is somewhat exaggerated, but over a sufficiently long time, is most business success not largely contingent? The longer the time frame, the harder it gets. Periodic pressures and excessive expectations erode rationality. If there is one major decision per year, that is 10 decisions over 10 years and 30 over 30 years — is the probability of getting all 10 or all 30 right not approaching random chance?

Conclusion: the root cause of dropping off the list is not competition, but cognitive failure. If one digs deeper, most of the failure comes from localized overgeneralization. Overgeneralization encounters change more easily, producing illusions — for example, overly high expectations. All expectations are part fact and part illusion; expectations that are excessive, above average, tend to inflate the illusion component. Compared to facts, illusions are easier to inflate.

22. The Weaker the Business, the More Important the People

【32. Distribution companies don't have a 'wonderful' business, but Berkshire will look at them】

 if we do it, we’ll do it well. We’ll do it right. They’ll have made the right decision. If they don’t, you know, we will find something else to do with the money in the end. And we can always buy a little more of TTI for you, the shareholders, by just buying in our stock, too.

【Annotation】(1) The weaker the business, the more important the people. (2) If you're going to do it, do it well. (3) We already have very good things in hand; if all else fails, we can buy back our own stock. Frantically chasing deals is foolish — but why is it that only Buffett can articulate this logic clearly?

23. Truly Understanding a Business Means You Don't Need to Track the Macro

【33. We haven't seen anything that makes sense】

So, I wouldn’t — I don’t really think of whether it’s similar to 1999, because I’m not that good on chronology anyway unless something really dramatic happened at the time. I mean, I remember things from 2008 and ’09 much better than I remember whether something happened in 2015 or 1987 or — well, 1987 I remember because of October 19th. But I just don’t think — I don’t think that way. I just look at what I can do every day.

【Annotation】If you truly understand a business, you genuinely do not need to pay attention to these things.

24. Apple: Consumer Behavior and the Quantification of "Fuzzy Correctness"

【34. 'Seeing something that turns on the lightbulb'】

And in that case, I watched what was happening at Nebraska Furniture Mart. People would leave the store if we didn’t carry Apple, even though we were selling Apple at a price where we weren’t even making any money. It was just so popular that if we didn’t have it, people would leave and go to Best Buy or someplace。And if you know the Blumkins, they can’t stand anybody leaving the store. So they behaved accordingly.

【Annotation】Buffett is very skilled at quantifying "fuzzy correctness." The following is my own reasoning.

(1)Beverages and smartphones are both near-essential products (something everyone needs). This type of demand more easily produces commoditized goods, competing on cost advantage.

(2)Coca-Cola and the iPhone have both established brands in the near-essential space.

(3)Apple goes further — it is a luxury brand with a 20% market share. Think about Coca-Cola/Pepsi, these all have powerful brands, but their pricing power is far weaker than Apple's.

25. Cheap Cannot Eliminate a Structural Disadvantage: The Lessons of Paramount

【35. Buffett: I was '100% responsible' for buying Paramount stock and 'we lost quite a bit of money'】

And that happens in this business, too. But, actually, owning Paramount made me think even further. I like to think deeper, but I certainly have — not harder even — about the whole question of what people do with their leisure time.

And, you know, what the governing principles are of running an entertainment business of any sort, whether it’s sports or movies or whatever it might be. And I think I’m smarter now than I was a couple years ago. But I also think I’m poorer because I acquired the knowledge in the manner I did. 

【Annotation】Stock purchased in Q1 2022. Cost basis of $2.6 billion; the stock had already fallen 14% from its peak at the time of purchase; P/E was around 10x. Part of the position was sold in 2023; the rest was fully exited in Q1 2024. Estimated loss: $1.5 billion.

Being cheap reduces risk, but cheap cannot eliminate a structural disadvantage. Being cheap can also erode rationality. Content companies have always been a difficult business.

(1) Stars make money; the company doesn't — hence Disney.

(2) The search engine emerged, and advertising efficiency supported content production. YouTube needed massive bandwidth from the start — without Google, it would have been impossible. From hardware infrastructure to content production, it all runs on Google's advertising business.

(3) The recommendation engine emerged, making advertising more efficient — that is ByteDance.

(4) Large-scale AI models emerged: Google Veo, Seedance, and Sora have lowered the barrier to content creation to its absolute minimum. The high-cost link of using stars is under enormous pressure. Who still needs stars? Generating one with AI costs far less.

Google and ByteDance have both advertising and content creation advantages in competition. Paramount has neither, and faces a structural disadvantage. Surviving is extremely difficult — even Netflix and Disney face a hard road when measured against Google and ByteDance.

26. The Valuation Logic of BNSF: Downside Protection + Upside Return

【36. BNSF is trying to reduce costs to better compete with rival railroads】

we want everybody to have the idea that there’s a lot to be done with every business. You know? So, I mean — it is — you know — we — you know — a fellow named Pete Kiewit built a remarkable company [Kiewit Corporation] in Omaha — building company. Really remarkable. And it is — the question after everything they did, that when something was done particularly well, they’ll — digging a tunnel under the East River or something when they said it couldn’t be done — he would say it would be — he was pleased but not satisfied. And that is exactly the way we want the attitude to be at Berkshire forever.

So it has a net benefit to us from making the same amount of money owning one of the other railroads by owning all of the railroads. And we got 35 billion out during a recessionary period. I think that was the worst quarter, the third quarter of 2009, maybe that the rails had had for a long time. So it’s worked out. 

 if you shut down the railroads in the country, it would be incredible, the effects. But — and it would be impossible to construct now.

【Annotation】This covers the basic logic of business valuation.

The first question is downside protection.

The sequence is: (1) no fatal risk; (2) no loss of capital; (3) a reasonable profit margin that meets an average benchmark. BNSF has no fatal risk — the entire economic system cannot do without railroads. The cost of reconstruction is too high to be profitable. Buffett's reasonable cost basis gave BNSF a reasonable profit margin.

BNSF's purchase price was $35 billion. In 2010, pre-tax profit was $3.988 billion; capex was $2.274 billion; depreciation was $1.532 billion; capex above depreciation was $0.74 billion. Buffett's starting requirement was a P/E no greater than 15x, roughly 7% — BNSF may have been slightly above this. By 2024, BNSF's operating cash flow was $7.625 billion; investing cash outflow was $3.839 billion; the remainder was $3.839 billion. The company distributed $4 billion to the parent that year — essentially all of it returned.

The second question is upside return.

Buffett used the Kiewit Corporation example for this section: do well what can be done well; keep improving what can be improved.

27. The Existence of Deeply Undervalued Stocks Is Itself the Most Important Fact

【37. You can find deeply undervalued securities, but you have to love the game, not the money】

So all I know is the human brain is complicated. But it does — it’s best when you find out what your brain is really suited for, and then you just pound the hell out of it from that point.

【Annotation】There is a point that went unsaid: why do some deeply undervalued stocks exist at all? Obviously because no one sees what could in principle be understood. This is an important fact — it indirectly proves that people who can truly see clearly are extremely rare. Between "rare" and "how to get there" lies an enormous space. Buffett pulls the remark back at the end, because regardless of anything else, pursuing it with passion is the only viable path.

28. Three Ways to Defend Against Noise

【38. 'You have to be alert to what human nature does to both other people and to you'】

A, you want to be regarded as an asset to the country, because you’ll find more solutions if you are an asset. You owe it to the country anyway. But beyond that, you’ll find more solutions than if you’re regarded as evil or something, and worse yet if you deserve it. 

Which — you know — in a sense, you don’t want to become cynical about life. But almost everybody that approaches you, if you have tons of resources, has got some interest in figuring out how to use your resources to their advantage.

But you have to be alert to how — what human nature does to both other people and to you. 

【Annotation】This can be understood as: how does one defend against noise?

(1)Make yourself valuable — become an asset to the country. If you are an asset, you will find more solutions.

(2)If you are valuable, you will inevitably attract noise. There is no need to become "cynical" — this is simply part of reality.

(3)As you encounter noise, do not let the negative side of human nature drag you down. Stay vigilant at all times.

29. Choose the Right Role Models: The Scarcity of Basic Trust

【39. How Buffett's parents reacted when he ran away from home】

And I walked in the door in Washington and my mother said, “How come you came back so soon?” And my father said — (laughs) — he said, “I know you can do better.” (Laughter) And I just paid more attention to my father than my mother. So you want to have the right heroes. And you don’t have to have them — it’s not the heroes based on what they’ve accomplished. It’s — you know — it’s — It’s the people that you want to be yourself. And if you copy the right people, you’re off to a great start.

【Annotation】Basic trust/Basic mistrust. The real world is full of Basic mistrust; Basic trust is relatively rare. One cannot choose Basic mistrust simply because Basic mistrust is everywhere. But it is equally true that most people have never genuinely experienced Basic trust. To have never experienced it, yet believe you should move in that direction — and do so with firm resolve against strong resistance — is extremely difficult.

30. The Pilot Deal: Deeply Familiar With Where Human Nature Can Be Moved

【41. Pilot and new CEO Adam Wright are 'only in America' stories】

Well, I'll make two comments on that. A couple of the directors had their doubts about going in. And in any event, Pilot is working out well for us. And as my friend Sam Butler one time said to me — and he was talking in general about certain kinds of situations — but he said, "Well, Warren, all's well that ends." And that's where we are.

So we’ll go to station five. (Laughter) Well, while we’re getting to station five, I’ll tell you a little bit more about the fellow [Adam Wright] that is now running Pilot, and who you may have met here, that Greg had known for a long, long time. And he grew up in Omaha. And came from a poor family and was raised by his mother.

And came away from this football team. And you’d think, well, another football player, you know. He goes out — and there may be some intermediate parts in the story a little bit — but he buys a gas station and he turns it into something that is huge. So it’s — we’re really delighted with it. And, you know — that’s another kind of “only in America” story. And, you know, how many of us can become an All-American, a number one-ranked team, let alone start a business that (laughter) goes on to these sort of heights? So we feel very good about it.

【Annotation】Deeply familiar with where human nature can be moved.

(1) When the lawsuit with the Haslam family was raised, the conclusion was: "All's well that ends."

(2) He redirected the question and added information about the Pilot deal — pointing out that he had found a very capable person for this: Adam Wright.

(3) He praised Jim Haslam. Things always have a good side and a bad side — choose to look at the world from the good side.

31. The Secret to Staying Sharp: A Well-Aligned Mind

【42. 'Anybody that says I did it all myself is just - delusional'】

we’ve got all the heroes from American history and all the wonderful things they did, but how could they say, “All men are created equal,” and then write a Constitution (laughs) that women, you know, women not to be able to own property, and depending on the state, I mean, just terrible conditions.

But anyway, that’s how you learn about what the humans can do. (Applause) And if you — and you’ve got to feel better about the future for your kids than you would’ve felt a hundred years ago, no matter, you know, what the situation is.

【Annotation】Question: What is the secret to staying mentally sharp, having outstanding judgment, and maintaining good physical condition?

The answer unfolds in several steps: 1. It requires luck. 2. Why does it require luck? — Because this is a world full of misalignment everywhere. 3. Things are much better now than they were in the past.

Alignment of thinking is difficult for everyone. All of human history demonstrates this. The AI approach to alignment is: "Given the same set of compressed principles, can two sentences that are structurally identical but differently worded produce the same answer?"

The following are examples Buffett often uses:

(1) If you plan to eat hamburgers your whole life and are not a cattle rancher, do you want beef prices to be high or low?

(2) If you will be a net buyer of stocks for many years to come, should you hope for the market to be higher or lower?

Two sentences that are structurally identical but differently worded — what answer do they produce? If they produce the same answer, this person's mind will most likely stay sharp and their physical condition remain good over the long run. If not — misaligned everywhere — they will have the outcome that comes with it.

32. The Core Problem for Losers Is Psychological Defense

【43. 'You really get some strange things revealed in a will'】

he actually liked to use codicils, because I think he had, like, 25 of them. And it was kind of his way of writing, well, I’m taking you out of the will because, you know? And so he sort of delighted in explaining through his will what — how he felt about (laughs) all these people.

His opening line, in effect, said, I’m writing this will while I am riding in the economy section of Eastern Airlines number such and such. I mean he believed in getting right to the point of what — (laughs) — what the people who were recipients, how they should live. (Laughs) And he was going to be judging them.

【Annotation】The core problem for losers is psychological defensiveness. Lecturing only increases the other person's defenses.

33. Business Valuation: Present Certainties + Future Variables

【43. 'You really get some strange things revealed in a will'】

I mean, I had a few goals when I was 30 or 40, and may have written them into wills then, in terms of what the world needed done, and how the money could be used. And unfortunately, I decided that it just — they just weren’t feasible to accomplish.

But human beings are human beings. And we all have weaknesses and peculiarities and everything else. And don’t be too hard on yourself because you have some of those. But don’t be totally forgiving either. (Laughs) You can change the future. You can’t change the past, but you can change the future.

【Annotation】The fundamental idea of business valuation: present certainties + future variables. Even when the "present certainties" are well captured, the future remains full of variables.

34. AI: Several Questions Worth Further Exploration

【44. Too early to predict how AI will affect Berkshire and the world】

obviously, you know, anything that’s labor intensive and that — it can create an enormous amount of leisure time. Now, what the world does with leisure time is another question. Whether more leisure time — I know an awful lot of people think when they go to work at first that what they want is leisure time. And what I like is actually having more problems to solve.

But AI is profound. I mean, that’s what makes it — makes it a genie. You know, is what can happen. I’ll — I could tell a few genie jokes, but I better not.

【Annotation】More leisure time: what fills that leisure time could be socializing and entertainment — or it could be mutually manufactured conflict and contradiction. The resolution of the entire world will be dramatically raised by AI, making visible a large number of problems and needs that were previously invisible.

(1)Are these newly emerging problems still human problems?

(2)AI is currently not good at "fuzzy correctness," and is equally troubled by fragmentation — encountering resistance from fragmentation in the convergence of knowledge.

These two questions are worth further exploration.

1. Basic trust/Basic mistrust. Regardless of how evolution has unfolded, the reality is that Basic trust is present in only a small proportion of people. The surroundings are crowded with Basic mistrust — people whose first half of a sentence doesn't follow from the second half, where "because" and "therefore" are disconnected. For Basic trust, this is a measure of resistance to be overcome. It requires extracting a clean, effective knowledge structure from a large amount of noise. Viewed through the lens of evolution, the kind of ability Buffett has is clearly related to this level of resistance.
2. The stronger the noise, the stronger the capacity to resist noise. If one day the environment of competing with large amounts of noise is lost, will the level of intelligence decline with it?
3. What is the original driving force behind resisting noise? AI is still searching for various reward functions. But observed from the human angle, Basic trust/Basic mistrust is very simple. Basic mistrust fundamentally does not believe that "a correct answer exists." Basic trust has a basic confidence in the world and never doubts that "a correct answer exists." From the very beginning, it has a physiological sensitivity to information pointing in the wrong direction — a psychological skepticism and resistance.
4. Can AI, like Basic trust among humans, focus from the very beginning on resisting mistrust and noise? Ilya Sutskever's idea is to create a super-intelligent 15-year-old. If truly realized, this would be equivalent to a population full of 15-year-old Buffetts and Jobses. As large amounts of noise disappear, can these 15-year-old Buffetts and Jobses still develop normally?
5. If it is ultimately discovered that true wisdom comes from the resistance against noise, will there come a time when noise needs to be deliberately reintroduced into the system? In the end, AI may not be more efficient than human evolution — or the two may be roughly equivalent.

35. Fiscal Deficits and Psychological Anchors

【45. Buffett more worried about fiscal deficits than quantity of U.S. debt】

And then — It won’t be the quantity. It’ll be whether, in any way, inflation would get let loose in a way that really threatened the whole world economic situation.

But it is — I don’t worry about the quantity. I worry about the fiscal deficit. 

【Annotation】(1) Earn $100, spend $100 — the most conservative, most unproblematic approach. (2) Earn $100, spend $103, expecting to earn $103 next year — the state of a stable and growing enterprise. (3) Earn $100, spend $107, expecting to earn more (more than 3% more) but failing to achieve this for a long time — eventually, the illusion becomes mistaken for reality.

Inflation is also somewhat related to psychological anchors. Look at the period before and after Paul Volcker took office.

America before 1965:

(1)After WWII, defense spending fell sharply from 37% of GDP in 1945 to under 5% by 1950. This large reduction, combined with strong economic growth, brought the debt-to-GDP ratio down quickly to manageable levels.

(2)The postwar baby boom created a demographic dividend — large numbers of young workers entered the labor force, the tax base expanded rapidly, government revenues grew naturally, and debt was not needed to sustain spending.

(3)In 1960, social security spending accounted for less than 13% of total federal spending, and Medicare and Medicaid did not yet exist. The welfare burden was extremely light and the spending structure simple.

Two events in 1965 became turning points: (1) The Great Society — a permanent, self-expanding welfare commitment. Once Medicare, Medicaid, and various social programs were established, they took on a political life of their own, were extremely difficult to cut, and grew automatically as the population aged. (2) The Vietnam War.

What is interesting is that the fiscal deficit of that era, by today's standards, was not large — yet it ultimately pushed interest rates above 10%. This may be related to psychological anchors: for example, the rapid economic development after WWII; the dollar had previously been pegged to gold. These anchors created a stark contrast with the situation after 1965. In China before 1980, who had ever seen a woman in a miniskirt? People were overwhelmed with excitement. Today, seeing one without is what seems unusual.

Finally, it was also from this year (1965) that Buffett began considering the dissolution of his partnership.

36. Kindness Is Right, but Labels Have Limited Power

【46. 'Be kind - and the world's better off'】

I feel — I don’t think there’s any room in beating up yourself over what’s happened in the past. You know, it’s happened, and you get to live the rest of the life. 

And then I think the one thing that you can aspire to be — because this can be done by anybody and it’s amazing — doesn’t have anything to do with money — but you can be kind. 

And in the end, aspire to be more — or I’m sure many of you are yourself — but just aspire to be more so.

【Annotation】"Attention Is All." The past is past — direct your limited attention toward a future that can still be shaped. This is exactly the same logic as business valuation: knowing what matters and what doesn't, what is important and knowable, and what is important but unknowable. Basic mistrust has a mechanism that is very hard to overcome — it interferes with the direction of attention. The fact is that it is precisely because the direction of attention becomes corrupted that Basic mistrust arises in the first place. Correction is extremely difficult; almost every thought has its direction of attention pointed the wrong way.

Buffett's call to "be a kind person" is a psychological anchor. Basic mistrust needs this kind of anchor even more. But it can also become extreme: starting from looking after the vulnerable, extending outward layer by layer, until the position becomes that everything about the vulnerable is right. Lee Kuan Yew said mediocrity is a luxury of the wealthy — this is what is happening in California and New York today.

"Be a kind person" is undoubtedly right. What is interesting is: why do boundaries that should naturally exist become blurred? So the real problem lies in the ability to sense boundaries — not in the label. Labels have limited power.

37. If You Are Lucky, Make Sure Others Are Lucky Too

【47. 'If you're lucky in life, make sure a bunch of other people are lucky, too'】

And I would say if you’re lucky in life, make sure a bunch of other people are lucky, too.

【Annotation】Through behavior — behavior that can serve as an example — give others confidence in the better side of human nature.