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This is the second part of this report on the Berkshire Hathaway annual meeting. To return to the beginning of this column, click here.

While not taking the opportunity to say "I told you so" when asked about the dot-com implosion over the last year, Buffett did suggest he could see the carnage coming. "The idea that you can take almost any business idea and turn it into wealth on the Internet

wasn't realistic," he said. "Many were turned into wealth by promoting them to the public but very few have really created wealth."

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Buffett says the Internet craze simply moved wealth around. "There was a lot of money transferred from the gullible to the promoters," claimed Buffett. "But, there has been very little money created as a result of the Internet. It has been a huge trap for the public."

That's not to say that Buffett doesn't see significant benefits from the Internet at Berkshire. "We think the Internet is a huge opportunity for several of our businesses," he said. "GEICO continues to grow enormously on the 'Net and


Candy Internet business is up 40% this year."

In response to one particular Internet endeavor -- online grocers -- Buffett and Munger were especially pessimistic. Buffett, whose family once ran a credit delivery grocery business, said that experience showed him the folly of the



model. "We ran into the same costs that Webvan is running into now."

Added Munger, apparently referring to Webvan: "That can only be described as a mania."

Insuring "Floating" Return

Buffett provided significant details about the insurance business and the cost of the company's float -- the cash provided for investment from insurance premiums before being paid out in claims.

"We're pleased by the growth in our float during 2000 but not with its costs," Buffett wrote in this year's annual report. "In 2000 we had an underwriting loss of $1.6 billion, which gave us a cost of float of 6%."

While fairly inexpensive capital, it is much more expensive than Buffett would like. In many years the cost of Berkshire's float has been almost nothing, providing very cheap capital and substantial returns.

While disappointed with last year's results, Buffett reported that capital costs are coming down quickly. He indicated that the cost of float declined to around 3% in the first quarter and will "decline significantly" in the coming months.

Low cost float is a critical advantage to Berkshire. "We think insurance float has been a huge asset to Berkshire and look for every way to increase that float," said Buffett. "It is a big asset that Berkshire has that virtually no other company has that invests in other businesses."

Portfolio Decisions

Buffett also discussed a couple of recent decisions in Berkshire's equity portfolio.

He disclosed in the annual report that Berkshire sold nearly all of its positions in

Fannie Mae



Freddie Mac


. While Buffett has hinted that the possibility of more restrictions on these quasi-government institutions concerned him, he said the decision to sell his stake in both was not a result of those concerns.

"There were certain aspects of

Freddie Mac's business we felt less comfortable with as they unfolded," said Buffett, declining to elaborate. "And Fannie Mae too. The consequences of what we saw may not hurt their operations but they made us less comfortable. I would stress that we did not sell it because we were more worried about the possibility of more government regulation. We felt the risk profile may have changed somewhat."

Added Munger, likely recalling Berkshire's involvement in other financial corporations in the past: "We are especially prone to get uncomfortable around financial institutions."

And, in response to a question about the recent disclosure that Berkshire has taken a stake in clothing retailer, the



, Buffett warned shareholders not to read too much into every disclosure the company makes. "That was a 100% Lou Simpson decision," he said, referring to the portfolio manager for about $2 billion of Berkshire's insurance assets. "I haven't even read the Gap annual report. Lou does things I don't know about and I do things he doesn't know about."

Coming Next

On Monday, a complete wrap of the weekend's event, including shareholder reaction to the annual meeting, baseball with Mr. Cub, Ernie Banks and Sunday brunch at Borsheim's. And, of course, our traditional look back at the wit and wisdom of Berkshire's dynamic duo.

And, for

subscribers, watch for any breaking news Sunday on the Columnist Conversation.

Christopher S. Edmonds is president of Resource Dynamics, a private financial consulting firm based in Atlanta. At time of publication, neither Edmonds nor his firm held positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While Edmonds cannot provide investment advice or recommendations, he welcomes your feedback and invites you to send it to

Chris Edmonds.