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By Root 3535 0

Buffett in many ways. The article showcased Buffett’s thinking; it was a lesson on economics; it was a warning of potential catastrophe; it had a margin of safety (while it might not improve the trade balance as much as he hoped, the market mechanism meant it was unlikely to make things worse); it was a blend of a market and government solution; it was a complex, ingenious, comprehensive system—and, of course, a no-risk deal in which most parties would be at least somewhat better off than the alternative of doing nothing.

Executing it would also require a wholesale change in thinking; a coalition of politicians would have to grasp the economics and care deeply enough about them to take the considerable political risk of pushing through Buffett’s idea. Moreover, the plan would attack a problem before it had turned into a crisis—always unlikely in Washington. The odds of anything remotely resembling a tariff being enacted into law with President Bush and free-marketeers controlling the White House were zero. Thus the Import Certificates were an elegant solution that was going absolutely nowhere. Buffett’s father, however, would have been extremely proud of him.

And at least Buffett would have the honor of being the first prominent figure to go on record warning—loudly—about the risk of a falling dollar. To hedge that risk for Berkshire, he had been looking at Chinese stocks because of China’s burgeoning economic power. He had found PetroChina, studied it, and gotten comfortable enough to buy it. Although he was able to purchase only $488 million, he said he wished he could have bought more. His endorsement of PetroChina sent investors over the moon. Warren Buffett had bought a foreign stock! PetroChina soared. And so did attendance at the BRK shareholders’ meeting.

That year, 15,000 people came to Omaha’s Woodstock for Capitalists. Buffett’s $36 billion fortune was once again exceeded only by Bill Gates’s. He had bounced back, almost to the top of the heap.

“What is the ideal business?” a shareholder asked when the questions began. “The ideal business is one that earns very high returns on capital and that keeps using lots of capital at those high returns. That becomes a compounding machine,” Buffett said. “So if you had your choice, if you could put a hundred million dollars into a business that earns twenty percent on that capital—twenty million—ideally, it would be able to earn twenty percent on a hundred twenty million the following year and on a hundred forty-four million the following year and so on. You could keep redeploying capital at [those] same returns over time. But there are very, very, very few businesses like that…we can move that money around from those businesses to buy more businesses.”21 This was about as clear a lesson on business and investing as he would ever give. It explained why Berkshire was structured as it was, although what it said about the stock market’s long history of disappointed investors was sobering. It explained why he was always looking for new businesses to buy, and what he was planning to do with Clayton Homes. He expected to invest part of Berkshire’s extra capital in Clayton so that it could survive to take market share away from its bankrupt competitors and to buy and service their portfolios of loans.22

The fifty-some journalists from around the globe who had flown in to cover BRKfest were more interested in PetroChina and whether that investment signaled a new interest in foreign stocks. They got their chance to ask him and Munger about it at the press conference on Sunday. Many of them wanted to ask a version of a question that they knew would resonate with their home audiences: What stocks would you buy in Australia? Taiwan? Germany? Brazil? Russia? Buffett stressed that he was still buying mainly in the United States. Most foreign stocks, he said, were not in his circle of competence. The PetroChina stock didn’t change that.

On Monday morning at the Berkshire board meeting, Buffett held a little seminar, explaining to the board the things he most wanted to teach them