OtherFrom our studios in New York City, this is Charlie Rose.
Charlie RoseWarren Buffett and Carol Loomis are here.Here's one of the world's most successful investors and a longtime friend of this program.She is the legendary Fortune magazine writer who has followed his career since he was a35-year-old hedge fund manager from Omaha.Back in 1966, she couldn't even get his name right.When Carol Loomis made the first mention of Warren Buffett in Fortune, she spelled hisname with only one T. It was an unlikely start to a beautiful friendship and to Fortune'scoverage of the man who we have come to know as the chairman of Berkshire Hathaway.Tapdancing to Work is Carol Loomis' new book.It is a collection of articles telling the remarkable story of Warren Buffett.It is also a story about friendship.I am pleased to have them together at this table.Welcome.
OtherThank you.
Charlie RoseIt's so good to have you both.Good to be here.But to have you together.Terrific.I want to talk about the book and about the career and about Fortune magazine and therelationship.But first, this morning, we all got up to read an op-ed by you called A Minimum Taxfor the Wealthy.And you start off by saying that most investors you know, if it's a good deal, they're notgoing to be upset about the fact that they're going to have to pay some tax.
WarrenEvery investor I know.I've never.I'm 82 years old and I'm looking like Diogenes.I'm out there looking for that investor who says, I think I'll pass on this chance tomake a lot of money.Even if it's a certain deal, I'm going to pass because of the tax.Charlie, I'm going to call you tonight at midnight.I'm going to be panning and I'm going to say, this is the best idea I've ever had.And are you going to say, how much will the tax I have to pay?I don't think so.Here's how you end the article.You say, in the meantime, maybe I'll run into someone with a terrific investment idea whowon't go forward with it because of the tax he would owe when it succeeds.Send him my way.Let me unburden him.That offer goes to all viewers.You start that, but you have a serious purpose here.What is the minimum tax that you think ought to be done today by Congress and not waitfor all the time it might take and all the deals it might take to reform the tax code?I think on incomes of over one million, that the excess over one million should have aminimum tax of 30 percent.As you know, they're talking about bringing the top tax rate up to 39.6 and right now
Warrenthe tax rate is 30, 36.So if you make from one million dollars to 10 million dollars, a minimum tax of 30 percent.On the million to 10 million.Right.Right.And then over 10 million, 35 percent.And the reason I'm suggesting that is because the 400 highest taxpayers in the most recentyear we have figures for 2009 who had average incomes of 202 million, half of those peoplepaid at a rate below 20 percent.A quarter paid at a rate below 15 percent.And believe it or not, six average income of 202 million paid nothing.I mean, they were members of Romney's 47 percent.And I suspect he got their vote, but just a bunch of moochers.Just a bunch of moochers.
QuestionerYou think that they voted for him, did they?
WarrenYeah.But, you know, they're.Well, we've conducted a survey three times in my office in three different years.And the office has between 16 and probably 21 employees during that period.And each time my tax rate was considerably lower.I'm talking about payroll taxes plus income taxes considerably lower than anybody elsein the office.And these these people made various incomes and and the tax law in many cases is not progressive.I think the tax law should be progressive.I think that when people make 15 or 20 million or 200 million and pay a 10 percent rate,I think I think somebody should say that people step forward, say, well, that's becausemost of the income comes from dividends, which is taxed at a lower rate.Well, they would probably say most of it comes from capital gains and that's taxed at a lowerrate.I mean, capital gains.Yeah.This is this just makes sure that people that have really high incomes pay at a rate that'ssort of like the people next door to them are, you know, who are making one hundredthousand dollars a year or something of the sort.
QuestionerIf you had automatic powers to establish what the tax rate should be, both for for capitalgains and for ordinary income, what would you set it at?
WarrenWell, I would I would probably have I would probably feel that capital gains should beat least at the 25 percent level.And I would and and and and dividends should be as ordinary income.And I would have a more progressive tax system that we have.But since since the lobbyists and the lawyers for the rich are so good at getting aroundthese things, I would have a minimum tax so that no matter who your lobbyist or lawyerwas, if you if you had 10 million or 20 million of income, you paid at a rate comparable to
Questionerwhat most of the people who are watching this program pay.
QuestionerYou write about and, you know, enormously successful businessmen and women.Do you think that if you sat down in a one on one conversation, they would agree withhim or not?
OtherWell, I don't think I don't think it would be unanimous.Well, I majority represent a voice in the wilderness for very wealthy people in theideas he has about what's necessary and fair to do.I think there are a lot of people who agree with them, but I'm not sure that it wouldbe over 50 percent by any means.I think he's right.I do think he's right.And I must say, my husband worked on Wall Street during a time when there was a lotof income associated with working on Wall Street.And so I'm not talking as someone who wouldn't be subject to quite a lot of tax.And I think the problem is no one's ever talking about the payroll tax.That just doesn't ever come into the discussion.But when you add it in, as Warren has pointed out, that you should do, it makes a huge difference.And so I do think he's right.You hope that the president will be responsive to this.You think it's what ought to happen today?I think I hope the president and the Congress is responsive to it.I think that I don't think we should wait around.There are all kinds of things wrong with the tax code and reform is called for.Expenditure cuts are called for.But I don't want to wait around till all of that stuff is done to do some things thatare obvious now.So the people who talk reform, some of them, many of them really are seeking reform.But some of them are saying reform because it just means pushing things down the roadanother year or two.And I do not want to have something that obviously should be done be held hostage to gettingeverything done.So Depp would do the minimum tax now?I'd like to say starting January 1st.What happens if the fiscal cliff comes and happens?What will it do to our economy?I don't think it will do that much because I think people will assume that a solutionwill be found quite promptly.It's a little like the debt ceiling question.I mean, people, the rest of the world may think that we're idiotic at times, but theydon't think we're going to commit suicide.So I think if I hope something gets worked out before January 1st, but if it goes a littlebit beyond that, I do not.So January 10th.I will not be.If you guaranteed me that the fiscal cliff, we would go past that.
WarrenI wouldn't sell a share of stock today that you have that confidence that in the end theywill fix it.
QuestionerYeah.And that this economy works.Is it getting better?
WarrenIt's getting better.It's been getting better since really the summer of 2009.You know, we've had four years straight now where the stock market's given a positivereturn.I mean, the economy is getting better.We had a tremendous bubble and when it burst, it had ramifications for all aspects of societyand it was magnified by the abuses that had taken place in Wall Street and all kinds ofplaces.So the dominoes were lined up.We had plenty of problems, but we've been on the mend now for three years and it's takena long time because it was a big problem, but we are getting better all the time.
QuestionerThis book is about tap dancing to work.Why did you choose that title?
WarrenLet me tell you, I've learned a lot about the publishing world and in the last few monthsand I learned that the title is a process of negotiation between the publisher and you.And I came up with this after we'd considered two or three others and the publisher justdisplaying great judgment said, I think that's a wonderful title.Let's go with it.And that's what happened because he is a man who tap dances to work, has forever.And has talked about it.I mean, interviews with you, you have talked about tap dancing.It is someone, you explain to me what tap dancing is.Well, it just means that I can hardly wait to get to work in the morning.And I mean, it's the most exciting part of the day is getting there and I, there's neverbeen a day I haven't looked forward to.
QuestionerDo you like Monday through Friday better than Saturday and Sunday?
WarrenDepends whether Nebraska's playing football on Saturday, but yeah, normally they're playingNotre Dame.Yeah.Well, yeah.I don't want us to play Notre Dame this year, but the, what makes you think he doesn't goto the office on Saturday and Sunday?I go to the office on Saturday and, but what you do at the office or what you do at homeis the same thing.You're reading it on the phone.I'm reading it.I'm reading and thinking and on the phone and talking to friends and, uh, no, there's verylittle difference in my, in, in, in Saturday and Sunday from the weekdays, a little moreaction during the week though.
QuestionerThis reminds me of what surprised you most about him, uh, in terms of advice.You ask him what was the worst advice?I asked him what the best advice.
QuestionerWell, we were, we were doing a big act and he was going to be on the cover.And uh, so I, without truly knowing the answer to the question, I said, all right, now tellme what is the best advice you've ever gotten in your life from anyone.And he proceeded to talk for a long time about the worst advice that he had ever gotten.And so I went back and told my managing editor this with probably a kind of, uh, with myhead down and, um, and thinking, well, I hadn't come back with quite the right thing.And we put him on the cover anyway.So, but what's interesting is what you, the way you answered the question, which is smartpeople told you don't go into securities business.Right.
WarrenUh, and what did you read from that?Because you went into the security business and not only smart people, but people thatlove me and that I love them.So, I mean, they were giving me their best advice.Because they thought you weren't ready for it or the security business was a bad businessat that time.They thought stocks were selling too high because the Dow Jones was above 200.And I always feel on almost anything that if you're going to do it, get started.And I mean, the idea of sitting around and waiting for a different time did not, didnot register with me.Uh, now it's also possible that I was 20 years old then.And, and, you know, I was behaving like I was about 14 and looked like I was about 16or something.So they, that may have been their nice way of telling me, grow up a little bit beforeyou do it.But beyond that though, they really, they really did feel this.I mean, here were the two guys I admire the most in the world and they told me they thoughtthe stock market was too high.Was this your father?My father and Ben Graham.And I, I, I just said, listen, I want to get going.You know, I, I didn't want to go to college, but the point is you'd already been goingbecause you'd already been investing since you were 11 years old.That's true.But now I can do it full time.
QuestionerSo the first time you met this guy, you were actually doing a piece before you met him,you were doing a piece, uh, on the hedge fund guy.What's his name?Alfred Winslow Jones.Alfred Winslow Jones.Right.Sort of the.Very famous.Very famous guy.And the name.Buffett.Buffett came up.Sam Stammen, a bridge player, uh, was an investor in this strange thing called Buffett PartnershipLimited.Yeah.And I just blithely went ahead and spelled it with only one T. So I, the first time that
Carol Loomishe was ever in fortune, uh, we misspelled his name.And I say that's the editorial we, because it was I who did it.And since she's never been wrong, I've been spending it with one T ever since.
QuestionerYour husband, John Loomis.
Carol LoomisYes.Met him first.
QuestionerYes, he did.And he came back and said what?
Carol LoomisHe said, I think I've just met the smartest investor in the country.And of course, I'm sure like wives do, I rolled my eyes and thought, oh yeah, yeah, yeah.And then I met him with his wife, first wife Susie, and I, I realized how terribly impressivehe was.And, uh, from that day forward, I thought that, uh, too, I never had it before BerkshireHathaway.Uh, well, he had taken over Berkshire Hathaway, but it was, nobody even knew the name.It was totally insignificant.Um, and, um, so the, we, then we worked up from that one sentence with the word misspelledto two paragraphs in 1970.But by 1977, we had a 7,000 word, uh, piece by Warren himself.We recognized that he was a very good writer and we, we went forward with that too.And so there, this book has a dozen pieces by him and that the one I've just mentionedis only one.
QuestionerWhat was that piece?The first piece?
Carol LoomisWell, that was how inflation swindles the equity investor and people still talk aboutthat piece.I'm not sure what they say about that.
QuestionerNo, I read that, that there's still people.They write, they write him about it.They, they write us about it.It's a, it's a famous piece.It really is.
QuestionerWell, if you were writing today the same kind of piece and perhaps you are other than theletter to stockholders, what would you be saying about where we are?
WarrenI would say that, uh, I would do a lot of historical things and all that, but, but basicallyI would say that for most overwhelmingly for people that, uh, can invest over timethat, uh, that equities are the best place to put their money.I should also talk about the letter to the stockholders.
QuestionerUh, you came in to do, you, you knew her, you admired her, you thought she's the bestbusiness writer you'd ever met.
WarrenAbsolutely.And still do.
QuestionerYep.Tell me about the letter to stockholders and what you want to do with that and who you'readdressing in your own mind's eye.
WarrenI'm addressing partners.They're my, they're, they're 600,000 of them.But in my mind, I usually have my two sisters, Bertie and Doris, and they're, they're verybright.Uh, they don't work in the financial world.They've been gone for a year metaphorically, and they've got a lot of their money in Berkshire
Warrenand I want to tell them what I think is important to them, what I would want them to tell meif our positions were reversed.So I try to do that.And then I occasionally branch into an essay on something that I think may be importantto the investment world generally.Or even the country.
QuestionerYeah.Okay.And, and you got involved in the beginning.
Carol LoomisWell, I got involved with the letter in 1977 and, uh, Warren said, uh, take a look at this.
WarrenWell, Warren, uh, sent it to me and said, um, uh, I'm trying something new with theannual report.Would you just look it over and tell me what you think?
Carol LoomisAnd, um, I was very timid and what I came back with.I said, I think I suggested changing a V to an A and then, uh, that seemed to workall right.And, uh, uh, so the next year he sent it again and then it became a routine where he wouldwrite it in longhand, uh, his assistant would type it and it would come to me and then wewould have drafts flying back and forth with suggestions from me.
QuestionerWell, I think there's a story in here too, that when the first thing you wrote, uh, theeditors wanted to change some things.Was it the first thing?And, and basically they almost killed the article because you, you didn't want thatmuch editing.
Carol LoomisWell, and, and, and I think that was the 1977 article.
QuestionerYeah.Right.Exactly.Yeah.
WarrenMeg Greenfield, who was a famous, uh, uh, writer and, uh, for Newsweek and I showedher the, uh, the article I'd written and Meg very gently said to me, Warren, you don'thave to tell everything, you know, in one article.
QuestionerI was like, well, you get wounded, but there's a story in there that the, that the, one ofthe editors went into the big editor and said, the one who was assigned to the piece andwent out to Omaha to get him to change certain things, called up and said, I'm not havingtoo much luck getting him to change anything.Maybe we should think about not running this.
OtherAnd the managing editor said, no, I think it's worthwhile.
QuestionerAnd so we did 7,000 words without many pictures on really not about not any pictures.
OtherAnd so what does she do now?
Carol LoomisJust dotting eyes and crying?I, I, I, I rewrite it about 10 times before I sent it to her and then, and then I sentit to her and, and she never tries to change the content or anything like that, but, butshe points out when the flow is wrong, where the lots of grammatical errors, all kindsof things.And, and sometimes she'll write, this is my least favorite part of the report, which
Questioneris, and usually it is.So how many years has it been?This friendship?
OtherWell, what is that?
Questioner35, 35 years.Oh, no, no.The friendship's been longer than that.Friendship goes back to 1967.So that's four.
OtherShe has a charm bracelet.
QuestionerShe has what?
OtherFour charm bracelets.Oh yeah.With a replica of every, every, uh, cover of every report.
QuestionerSo what's the secret to the friendship?
WarrenWell, I, it's certainly on my part, all kinds of things.I mean, she's a wonderful friend, but she, she also is one of the smartest people I'veever seen.And, and she's objective and, and, and in a very, very nice way.She tells me when I'm full of bologna and a few things.
QuestionerIs that how you see it?
OtherWell, I, I, I do think that I'm one of the few people.The people who argue with him.I do think that.Uh, and I do sometimes at the end of the report.
QuestionerDo you ever have people argue with you?
WarrenUh, Charlie, my partner, Charlie, Charlie, when we've never had an argument, we havea lot of disagreements and whenever we have a disagreement, his clincher always says,Warren, when, when, when we get through talking about this, you'll agree with me because you'resmart and I'm right.And I would include Charlie in the few people who argue with him.I just, I do think it's only a handful that will argue with him.
QuestionerHere is what interests me.Um, why is he, does he have the record?
OtherHe does.And you have said in a conversation with me, he understands how to look at accounting statementsand find the telling point and maybe in a footnote.
WarrenThat's true.So that he'll see opportunity and see the future.He will.And he has a, an ability to do that, that I think is matched by very few other investors.And he has this broad, extensive knowledge of business.And I think maybe I said this to you.So when something new comes up, he has a frame of reference in which to place it.And then he adds this rationality that I really think, uh, just a handful of investors, well,he doesn't let emotion take over when he's considering whether to buy.He goes at the decision in a very rational way.Um, and, um, then the price goes down and he buys more.Whereas most people panic and sell when the price goes down.And he just is, he's extremely disciplined in the way he thinks about investments.
QuestionerThis will take a long time to explain, but how is it that you know value so well?If it goes down, you know, the value hasn't changed.So you buy more and so that you know the value.So you're not going to pay a nickel more than the value you see.
WarrenI only get into situations where I do know the value. There's thousands of companies whose value I don't know. Uh, but I know, I know the ones that I know and, and, uh, and instantly it isn't, it isn't, you don't pinpoint things. I mean, if somebody walks in this door now and they weigh between 300 and 350 pounds, I don't need to say they weigh 327 to say that they're fat. So if, if, if, if, if they're in that zone, you know, I'm fine with it. And, uh, but I'm also know that there's all kinds of companies that I can't figure out. So I, I don't, uh, uh, so I do know, I usually know, uh, when I'm dealing with companies that I understand. And then, uh, I do accounting as a language and it's a language that I like. And then as language, you not only understand, but like, I like it.
WarrenYeah. It really speaks to me. And, and, and, and when it speaks in a false voice, I can use, I can detect that sometimes too. So, uh, you know, I mean, it's, you know, it, it is almost like playing music. You know, when you're, when you look at an accounting statement and it's not true of all companies. They're not true of all companies at all, but, but you don't have to be right about, I don't have to be right about the ones I ignore. I mean,
QuestionerSo when you see a footnote that says something to you, you just feel a kind of emotional. It's in the footnotes.
WarrenYou're right. The footnotes, the footnotes are good or bad. There's a story. There's a tip off there.
QuestionerYeah. And, and Carol is very, very good at those incidentally herself.
WarrenWell, uh, it's so far down the ladder on this compared to where he is. Let's look at some of the investments in Berkshire and then some of this comes in. You still have a lot of Coca-Cola, a lot.
QuestionerYeah. You saw the value of that early on.
WarrenWell, not early enough. I mean, I, I probably had my first soft drink in 1935 and I didn't buy the stock. So 1988. No, I would, I would put me in the slow class on that one.
QuestionerYou still have a lot of Wells Fargo and buying more.
WarrenWe've got a lot of Wells Fargo. Yeah. Value there. You saw the term and the qualities you look for. Management is one.
QuestionerSure. And some kind of an enduring competitive advantage and during being the emphasis.
WarrenI mean, and I mean, hula hoops were great for a while or bedrocks and all that sort of thing. But, but I like, I like something where I think I can look out five or 10 years and still see the same sort of advantage that, uh, maintaining.
QuestionerSo you just invested in John Deere.
OtherThat wasn't me.
QuestionerNo, we have two other, but you know what they're doing.Do you not?
WarrenI know.
QuestionerI don't know what they're doing.I don't want to know what they're doing.You've hired to be sort of your, they manage, they're managing each other on $4 billionor something like that.And you don't want to know what they're doing.
WarrenWell, I don't, I, they have, they have the responsibility for managing that money.They've got to have full authority.They can't look at me and see whether I'm smiling or frowning over it.And they get paid based on how those securities do.
QuestionerYou have said you're hunting for a big elephant.You bet.Yeah.The bigger, the better.What qualifies as a big elephant?
WarrenWell, in terms of our present resources, probably something from 20 billion, maybe up a littlebit.
QuestionerHow high?
WarrenWell, it would depend on how attractive that elephant was.
QuestionerYeah.Some elephants, not all elephants look alike.Going to you Carol, just in just a moment.So you're looking around, how will you go about this process of looking for a big elephant?Because you've said that, you know, the trigger is you got your hand on the trigger.
WarrenAbsolutely.You're ready to fire.
QuestionerYou bet.You got the money.You got 45 billion or whatever it is.
WarrenRight.Enough.Enough.So you've got the money right there.
QuestionerYeah.You're prepared to do it.How are you going to find the candidate?
WarrenWell, if you're talking about buying an entire business, which we're talking about in thiscase, I'm familiar with all the companies when you get to that size, I've been to theelephant.I've seen them all.And you know, so it's really a question of when they, somebody at the company, the CEOof the board is actually thinking about doing something.And then I can, I can tell very quickly whether, you know, whether they are open to, oh yeah,whether the initiative really has to come from, from them because, uh, you know, Coca-Colaisn't for sale.Wells Fargo isn't for sale.99% of the companies are not for sale.And so, and I know the universe of, of companies of this size we're talking about.And if I pick up the phone one day and somebody says, you know, we've really been thinkingabout things and we, we feel that we do better as a part of Berkshire.I'm ready to, you know, hop on the boat.
QuestionerThis is what's amazing, don't you think Carol, is that a lot of the companies that have cometo Berkshire Hathaway, they wanted to be there.
Carol LoomisThat's right.
QuestionerYou know, they make a phone call.I'm thinking about the Israeli company.
QuestionerSomebody says, Mr. Buffett, could I come to Omaha and talk to you?
WarrenRight.
QuestionerAnd you're pretty quick on the draw to figure out whether you want to go forward. Five or 10 seconds. Talk about that.
OtherWell, he, he, he does make up his mind in, in literally minutes, if not seconds as to whether this is something he wants to consider further. And he will, within that much time, say to the guy on the other end of the phone, well, I'm interested or, well, I don't think this is for us. And, and he knows, he's seen this great universe of companies, and this is what I was talking about. He brings this frame of reference to it and knows that this company has nothing of a kind of eternal nature to offer, like Coca-Cola has something eternal to offer.
QuestionerYou also get in this book about biggest mistakes, right?
OtherI do.
QuestionerWhat's the biggest mistake this guy's made?
OtherWell, Warren himself would say that there, that there are acts of omission, where he has known that he should buy a stock and hasn't bought it. One of that he cited there is Fannie Mae. This is before Fannie Mae got into trouble.
QuestionerThat's right.
OtherBut he would have gotten out, I think, because, but he did get out of Freddie Mac, which was a case where he bought a lot and did get out at the right time. And so the biggest mistakes, well, a couple of times he's been hurt by people who erred in the way that they acted. There's just no question about that.
WarrenWell, but, but they were, but these, the person I'm thinking about had done a remarkable amount.
OtherDavid Sokol had done a remarkable amount for Berkshire Hathaway. And so I don't think it was something that Warren could have known that presented with a certain set of facts that David Sokol acted in a way that didn't work.
QuestionerI bet you asked yourself that question, didn't you?
WarrenYeah.
QuestionerYou did.
WarrenYeah. How could I have not seen it?
OtherI don't know the answer.
WarrenYou don't, you could never, you don't know.
OtherNo, no. Review in your mind, you don't know. And he did a lot of good things for Berkshire.
WarrenOf course. Yeah.
QuestionerBut you've said the hardest thing to do, and it doesn't happen that often, is to fire somebody.
WarrenYeah. Yeah. It's absolutely miserable. And, you know, I don't have to do it very often, but I'd pay a lot of money to have a designated fire. But the trouble is, the trouble is I can't do it because these are people who are friends of mine.
OtherOne of these cover stories, and you have to remind me which one it was, Signal, I think it was the one you wrote, the big profile, of the transition from investor to CEO and
Othermanager.Yes.Showing that, that Warren Buffett had those skills as well.Right.And there are several articles in the book that really pertain to that, but I think theone that you have in mind is the inside story of Warren Buffett.Right.That was the first big profile.That big profile.And it was the first big article I ever wrote about Warren.I'd only written two paragraphs, that kind of thing.And it was 1988, and he was making the transition then.At the time, he had six companies that he called the Sainted Six or Seven?I think it was Sainted Seven.Seven.That's right.And names like Fetchheimer that you are, you know, they don't ring wildly even now.But he was clearly headed in that direction.And Charlie was helping him, because Charlie was pointing out to him the virtues of thingslike See's Candy.And they were really, at that moment, transitioning to a company that had been distinguished byits investments to a company distinguished by the companies that it owned entirely.And even today, I think that Berkshire Hathaway is underestimated.Warren is not underestimated.But Berkshire Hathaway and its power and might, I do think, is a little bit underestimated.But you have a reputation for delegation.Yeah, abdication, actually, is what you call it.
WarrenI like other people to do the work, Charlie.I mean, you're not out on the boat somewhere.You're not out, you know, you don't delegate because you want to go do something else.What you want to do is the same thing you've been doing every day for a long time.Yeah, I like knowing what's going on, but I don't like, I don't want to direct the orchestraif I don't want to listen to it.I once asked Matt, what was allocation of capital?How would he define it?He said, well, they send the money to Omaha and I invest it.That's right.That's what allocation of capital is.Yeah, if they're wise, they do that.And the CEOs of the subsidiaries say they don't even have to worry about it.They just ship it off to Omaha and that's it.We'll make it.You spend it.Is that your idea of what makes Berkshire Hathaway great?Well, it gives us $12 or $13 billion a year to work with.All right.These are some pearls of wisdom.Rules of investing.Rule number one, never lose money.Rule number two, never forget rule number one.And career advice.I think this is very important.I told college students to take the job that you would take if you were independently wealthy.
OtherYou're going to do well at it.
OtherYou and I.
OtherTrue.
OtherThat's absolutely true.
OtherAnd you know that in most companies, merit is recognized.
OtherAnd so what you need to do is to get into a company and show how good you are and youwill get pushed up.
WarrenThat's exactly what I say.
WarrenCharlie, I moved to New York when I was 23.
WarrenWe had a child.
WarrenWe had another one on the way.
WarrenAnd I took a job with Ben Graham, who was my hero.
WarrenAnd I did not know my paycheck until I got – my pay until I got my first paycheck.
WarrenI never asked what the salary was.
WarrenI just knew I would love the job.
QuestionerHe and your dad still remain the people who had the most influence on you in terms of–
WarrenWell, they were huge, but I've had others too.
WarrenI mean, yeah, Joe Rosenfield, Tom Murphy, and certainly my wives.
WarrenCarol's had a lot of influence on me.
WarrenShe plays bridge with you.
QuestionerWell, leave aside bridge.
QuestionerShe says a lot of influence on me.
WarrenNo, no, no, no, no, no.
QuestionerWell, what would you – you call her up every day.
WarrenJust about every day.
QuestionerOr she calls you every day.
WarrenNo, I call her.
QuestionerYou call her.
WarrenJust about every day.
QuestionerSo what's the conversation about?
WarrenDid you see this?
WarrenIt's the kind of thing you'd like –
QuestionerJust depends what's going on.
QuestionerDo you read the story?
WarrenThat kind of thing.
WarrenYeah.
WarrenThere's plenty to talk about.
QuestionerRight.
QuestionerBig business events, you know.
QuestionerWe hadn't been so busy with the book.
QuestionerYou were sure last night.
QuestionerI mean –
QuestionerRight.
QuestionerWhich you've seen the next morning when you're working out.
WarrenThis is another thing.
WarrenThe Internet won't change chewing gum.
WarrenWhen I look at the Internet, I try to figure out how an industry or a company can be hurtor changed by it.
WarrenAnd then I avoid it.
WarrenTake Wrigley's.
WarrenI don't think the Internet is going to change the way people chew gum.
QuestionerRight.
QuestionerWell, you know, the innovations are enormously important for society.
QuestionerBut they disrupt a lot of things.
QuestionerAnd, you know, I used in one of the articles in the book, the auto industry.
QuestionerThere are a couple thousand auto companies and a few succeeded barely.
QuestionerAnd so auto was enormously important.
QuestionerI love the fact it was invented.
QuestionerThe airplane was enormously important.
QuestionerBut if you take all of what's happened in the airline industry since Orville was downthere at Kitty Hawk, some capitalists should have shot him down because he's cost usmoney.
QuestionerI mean –
QuestionerWhat's wrong with the airline industry?
QuestionerWhy are there –
QuestionerThey're supposed to be selling something that's regarded as very much a commodityproduct.
QuestionerThe incremental seat cost for the airline is nothing.
QuestionerSo they've got this temptation to try to fill the last seat at any price.And if you get four or five guys that are trying to fill the last seat at any price,you do not get very good prices.And it just got – it's structurally set up so that it's very, very difficult tohave a sustained competitive advantage.And you get this enormous fixed investment in planes.Now you've got the plane.It's going to cost you a couple hundred million dollars.And you're trying to fill a seat.And you're reading the newspaper today about your competitors charging, and you've gotto charge the same price.It's got terrible structural aspects to it.And I bought into it.
WarrenYeah.Yeah.
QuestionerNow, you've also bought into the railroad industry.
WarrenYeah.
QuestionerThe freight carrying railroad industry.
WarrenYeah.
QuestionerBurlington – was it Burlington?
WarrenBNS.
QuestionerBNS.Burlington –
WarrenNorth of Santa Fe.
QuestionerSanta Fe, right.Why'd you do that?
WarrenThe railroad industry carries 42 percent of all the tonnage intercity.It carries 500 – carrying a ton of cargo 500 miles on a gallon of diesel.I mean, it's an enormously efficient way of moving things.And now you have four huge railroads in the United States.They're not going to build any more of them.And it'll be the backbone of the movement of goods 50 years from now or 100 years fromnow.
QuestionerWhat's his history with derivatives?
OtherWell, he has a checkered history with derivatives, I'd say.First of all, one of the best stories in the book is when – is from 1987, right afterthe crash of 87.And it's a letter that he wrote Congressman Dingell in which he warned –
QuestionerJohn Dingell from Michigan.
OtherRight.Absolutely.He warned about what could happen with index trading – futures – index trading, futurestrading of index, which was just then being – about to be approved by Congress and wasapproved by it.And Warren warned about that.And if he had been listened to, I think we would be far better off today.And he has always – so that's an early thing about derivatives.So you saw – go ahead.
WarrenI think I actually wrote the letter in 82.But –
OtherOh, you wrote the letter in 82, but we printed it in 87 after the crash.
WarrenAfter the troubles came.Right.So you wrote the letter, but it wasn't printed, and it was printed in 87.It wasn't printed.And then Fortune printed it and ran it.
OtherBut then on derivatives, what I say about Warren is that he really cannot ignore securitiesthat have – are mispriced.I think that he has –
QuestionerYou noticed that.
OtherI – you know, he doesn't go out and buy raw cotton or anything like that, or not very
Questioneroften.But derivatives, in his eyes, have often been mispriced.So on the one hand –And that's opportunity for him.On the one hand, he'll be writing in the annual report warning about derivatives.And over on the other hand, he'll be buying those that are clearly mispriced.Mr. Buffett, I plead you.
WarrenYeah, well, I – we have 200 – I know every single derivative we own.And they're all the product of my purchase.Now, we bought a company called General Re, which had 23,000, and it cost us $400 millionbefore we got out of those.And we tried to liquidate every one.There's still a few left outstanding.You liquidated as fast as you could.Absolutely.But the 200 and some that I picked, you know, I think we'll make money on.But I'm familiar with every one of those.I think when you have an – well, Lehman had probably a million.I mean, and you get huge counterparty risk.But General Re, when we went in, we had over 900 counterparties.I didn't even know who 300 or 400 of them were.I couldn't pronounce their names.I mean, that is not my idea of prudent finance.
QuestionerBut doesn't Dodd-Frank speak to derivatives?
CharlieIt does to some extent.But unlike Warren, I haven't read the whole thing either.And I have not written about it, in which case I really would have an opinion.But I could not express a strong – the Volcker rule appeals to me.
QuestionerDoes it appeal to you?
WarrenYeah, it appeals to me.It's the right thing?
CharlieIn general, yeah.No, but I think the more banks stick with just pure banking, the better I like it.I mean, they have a franchise from the United States government in that people look at theirdeposits as guaranteed by the U.S. government.It's not totally correct, but that's what they – and when you have the ability totake in money from people who feel that they have the U.S. government behind it, they'regoing to give you money whether you're creditworthy or not.And therefore, you need some real regulation to make sure that people don't go wild withthat franchise.And banks, with those funds and with that trust, can do some pretty extreme things,particularly when they've got – the upside belongs to the management.I don't worry about moral hazard with stockholders.Stockholders get killed in all these banks.But the managements, they made lots of money, and they didn't go away broke.
QuestionerHow do you assess – I mean, this is part of that, I think – what happened in 2008and the subprime?
WarrenWell, it wasn't just subprime, but it was – we had a housing bubble like the world
WarrenWell, the housing was $22 trillion at the peak out of maybe total assets in the United States of $60 trillion or something. So it was an enormous asset. 50 million people, families, had borrowed against that, and they borrowed $11 or $12 trillion. So it was an asset that had a huge bubble that was owned on margin, basically. And people thought it could do nothing but go up, just like sometimes in the 20s they thought stocks could do nothing but go up. So when that bubble burst, it not only hit housing, it just started rippling through the economy. And we found out that almost every company in the United States was a big domino, and they were lined up very close to each other, and they started toppling.
QuestionerDo you believe the executives there knew what they were doing?
WarrenWell, they did not see the consequences of the dominoes starting to topple. I mean, people – when the dominoes topple, eventually they get to everybody. And people did not realize how big they were, how close to each other they were. I mean, people looked at Freddie and Fannie, which were the first ones to get in trouble in September, more or less, and then Wham-O, and then Lehman, and Merrill was going – and all of a sudden people realized that if they had bank lines that they thought they could recall, it wasn't going to happen. So it was as close to the wildest panic I ever saw.
QuestionerThe wildest you ever saw?
WarrenOh, by far.
QuestionerYou got out of the hedge fund business in –1968, end of 1969.
WarrenYeah.
QuestionerYou got out because?
WarrenI got out because I didn't – I had a good record up until then. I had all these people counting on me, and I thought things were getting very speculative, and I didn't know how to make money in that period. And I was competitive enough to feel that I didn't want to do lousy compared to other people, and yet I didn't want to do the things they were doing. And so the only thing to do was give the money back, and I gave the money back.
QuestionerWhat do you think of hedge funds today?
WarrenWell, I think that – you know, I made a bet, a famous bet that Carol's been keeping track of where I'm betting the hedge – a large group of hedge funds – I mean, funds of funds will underperform the S&P over time. I mean –
QuestionerHow many people have taken that bet?
WarrenWell, we've got a million-dollar bet for charity, actually, out in – something called long bets. But calling yourself a hedge fund does not make – it gives you no special way to make money, and the fees associated with it are very, very high.
WarrenAnd I do not think the results of hedge funds in aggregate will be better than the S&P,which you can – which you can buy for – you know, throw an index for –
QuestionerThere were a couple of years that you didn't do as well as the S&P.
WarrenOh, yeah, there's been – there's been a number of years, yeah.
QuestionerWell, how does that make you feel?
WarrenIt makes me feel like I better do better next year. I mean, that's my job.
QuestionerHave you noticed he's competitive?
WarrenYeah, I don't know. I wouldn't be in his business if I – over time, I'd do okay.
QuestionerThere's also the question, which always is asked of you, is succession. You have said, the board of directors knows who my successor is as of this moment. They know tomorrow – if I die tonight, tomorrow morning they will appoint somebody they know. And the person they appoint does not know he is the one to be appointed.
WarrenThat's correct.
QuestionerYeah. And will the role be the same role that you have?
WarrenNo, it'll be half my role. It will be running the businesses, and there will be – Todd and Ted, these fellows –
QuestionerThe two guys you were just talking about.
WarrenThey will run investments. They will run investments. My job will be split.
QuestionerIs running the businesses as important to you as the investment aspect of it, which you grew up on?
WarrenOh, running the businesses will be more important over time, sure. It is right now.
QuestionerDoes it have the same psychic influence to you?
WarrenYeah, running the business has more psychic satisfaction.
QuestionerThis friendship with Bill Gates – you and I have talked about this many times, with you and with Bill –but for this audience at this moment, from the moment that you two had dinner together at Bill's mother's houseand they started – Bill's father started asking questions about what was a quality they most admired, and I think Bill said focus.
WarrenYeah, we both answered focus on that.
QuestionerAnd then you make the decision that when it came time after Suzy's deaththat you wanted to do what she would have done to make a huge philanthropic contribution. You chose Bill because you thought that the Gates Foundation did it right.
WarrenI chose five foundations, but the Gates was the largest one.
QuestionerBig one. But the friendship itself is born out of what?
WarrenWell, you know, it's like with Charlie Munger anyway. I mean, you find the other person very interesting. You find them trustworthy. I mean, you have a good time with them. But it's important to point out that there are five foundations, and I've just doubled what I give to each one of my children's foundations.
QuestionerSo they have over two billion each there.But they couldn't scale up the same way as Bill.He was already operating on a scale.And the amount for Bill's foundation was some more than 30 billion.Yeah, it would be – and it's probably still about the same.It's 5% of a declining balance.So if the stock goes up more than 5% a year, the amount actually keeps increasing.What is it, knowing this man as long as you have,shared as many conversations you have,what are you curious about with respect to him?
WarrenWell, I don't see how he has as much energy as he constantly has.I think he draws energy from being out, like, talking to you.He's amazing about that.I worry about my getting tired while he's just out there,just running around all the time.What am I curious about?Well, I wonder what he thinks in his innermost thoughts sometimesabout some of his maybe not perfect investments.But I'm not curious about a lot because I know an awful lot.
QuestionerShe knows every chapter of the book. Believe me.She knows it all.I know a lot of it.I know you do.And, you know, doing the book, as a matter of fact,kind of refreshed everything that I knew.There is this item, too.Berkshire Hathaway has overcome General Electric.It is now the sixth largest company in terms of market value, market cap.I mean, look, that doesn't surprise me that it's in that area.Does that mean anything to you?
WarrenWell, it means...I bet it does.No, what it means...I bet it does.What it means something is having it outperform the general market over time.I mean, my job is to do better for my investorsthan they would do if they were doing it themselves.And since we retain all the earnings, we've gotten very large,but we'll get a lot larger.
QuestionerWhen you first met him, I think Berkshire Hathaway is $22 a share,something like that?
WarrenThat's right.
QuestionerIt is now $130.$33.I don't know what it is today, but $130,000 a share.And that's the same stock, $22 to $130.Class A stock.
WarrenClass A stock.It's remarkable.
QuestionerLet me just come back to the nation's health and the global economy.Europe?
WarrenEurope is still drifting downward to some degree.I mean, we have businesses that operate worldwide,and actually age is coming off the best rate of growth,but they're coming down somewhat.They're no longer in double digits.Europe has been sliding for some time,and the U.S. actually is, I would say,as strong as relative to where it was six months ago or nine months ago.The housing is coming back big time.
QuestionerAnd the emerging nations?
QuestionerI mean, even Brazil, they're all going to have to hire.
WarrenYeah.
QuestionerBut five years from now, ten years from now,the world everywhere will be doing better, in my view.
QuestionerBecause?
WarrenJust because capitalism and market systems work.I mean, it's been working since 1776 here,and it wasn't because we had stimulus programs in 1794 or something of the sort.It's because our system unleashes people's potential,and we've got 312 million people that want to do better tomorrow than today.And over time, that works.Human potential is still untapped to a big degree,and our system does unleash it over time.We do it in fits and starts,but this country goes forward, and it'll continue to go forward.The luckiest person in history on a probability basis, in my view,is the baby being born in the United States today.More so than China, more so than any places where the base is lower,and they'll have a greater opportunity to.
QuestionerWhat has created the most number of billionaires in the last three years?
WarrenWell, I don't know about the last three years,but finance has created a lot of them.And I would say that relative to their contribution to society,a disproportionate number.
QuestionerWell, that's a point that's made.Some people argue that the financial sector is too large a percentage of our economy.
WarrenWhen you get a huge capitalistic system,just the crumbs that fall off the table can make people very rich,particularly if they're very good at getting other people to hand them their moneyand if they get favored tax treatment and a bunch of things.I said a long time ago that if you want to get rich,per point of IQ and per erg of energy,just hold your nose and go to Wall Street.There's a certain truth there.That doesn't mean they're terrible people or anything like that.It just means the payoff there is so much greaterrelative to what you bring to the partythan it is in most aspects of society.
QuestionerTake journalism, you know.You're buying newspapers, community newspapers.
WarrenYeah.
QuestionerIs that simply because you had an opportunity to buy from that particular company,a number of them, or you believe in something,or simply this like Rupert Murdoch is in your blood?
WarrenWell, it's in my blood,but I won't pay a price that reflects the fact that it's in my blood.
QuestionerHave you ever paid...I believe you could argue that Rupert, for example,would buy something because he had to have it and pay more.
WarrenThat's right.Believing that he could make some kind of efficiencies and he'd still have it.
QuestionerYeah.
QuestionerHave you ever done that?
QuestionerEver paid more than you...
WarrenNo, I wouldn't do it in Berkshire Hathaway.
QuestionerThat's what you owe to your stockholders?
WarrenYeah, I mean, it's their money.
WarrenThat's why we don't...We don't take an editorial...I don't dictate an editorial position to the newspapers.
WarrenWe had...I voted for Obama.
WarrenWe have 12 newspapers that endorsed.
WarrenTen of them endorsed Romney.
WarrenAnd, you know, I'm the CEO,but two papers endorsed Obama,which I voted...who I voted for,and ten endorsed Romney.
QuestionerSpeaking of Obama, the president,do you think he'll be different in the second term?
WarrenSomewhat.
WarrenHe won't...But you think that in how?
WarrenWell, I think the second terms are different than the first terms.
WarrenI mean, first terms...They can be full of landmines, too.
QuestionerSure, they can be,but in the first term, to some extent,you and your party have to be thinking about your re-election.
WarrenI mean, and a second term certainly frees up that aspect of it.
WarrenAnd then the question is how effective you can bein getting Congress to work with you.
QuestionerI mean, you have access to him?
QuestionerYou know, he calls you and...
WarrenI've never called him.
QuestionerNo.
WarrenI've never called the president.
QuestionerBut say he calls and you go and you talk to him on the phoneor you go meet him and other CEOs.
QuestionerDo you think he has a new attitude about businessthat's come about because of the first four years?
WarrenI think that in the first term,he felt that business misunderstood himand I think that business felt that he misunderstood...
QuestionerYeah, they were misunderstood.
WarrenI just think...I think they...
QuestionerDo you think he believes and understandsthat business is the place where jobs are created?
WarrenOh, there's no question about that.
WarrenHe knows he's dependent on capitalism workingand that business is part of that.
WarrenI think that to some extent,when people do feel misunderstood by the other party,it can develop its own dynamics.
WarrenAnd that's what happened here.
WarrenAnd I think that...But I think both sides should just say,forget it, you know, wipe the slate clean.
WarrenAnd sometimes it's a good idea in human relationships.
WarrenGenerally, I think it's a particularly good ideawhen the country's well-being is at stake.
WarrenI would recommend both sides just say,maybe I was misunderstood by you, but forget it.
WarrenWe work together going forward.
QuestionerDo you think he wants to do that?
WarrenOh, I think he wants to succeed big time.
WarrenAnd I think he will.
WarrenAnd I think the economy will be a help to him.
WarrenBut I think it's...I mean, that doesn't mean...Neither side can roll over
Warrenin terms of the things they feel strongly about. But I feel the rhetoric certainly should be very civil all the time. And I think that you look for ways to work with each other.
QuestionerWould it send a big signal to the country if he would appoint as Secretary of the Treasury someone like Jamie Dimon or Jamie Dimon?
WarrenWell, I think that might be a big signal. Appointing Jamie Dimon as Secretary of the Treasury. Well, I think Jamie Dimon actually would be... I think he'd be terrific because I think he... I think he... If we did run into problems in markets, I think he would actually be the best person you could have. He knows as much about markets as most people. And I think the world leaders would have confidence in him.
QuestionerAnd so when you see a problem that's like Jamie's had with London and the whale and all that, what do you mark that up to?
WarrenIf we run a $2 trillion institution, if I run Berkshire for decades, some things are going to go wrong. I mean, if you run an army, if you run a church, if you run a government, any large institution, people will go off the reservation sometimes. And sometimes they'll get away with it for a long period. And, of course, when you work in a financial institution, you can add a lot of zeros very quickly. So, you know, obviously, you know, there was a failure of control. But there have been failures of control at Berkshire. I mean, I am going to make more mistakes. Yeah, I hope I minimize them. I hope I catch them fast. But there can be mistakes, and there can be big mistakes.
QuestionerShould Bull Simpson be the operating model from the menu that they operate on? And do you believe that's the direction to go?
WarrenWell, I think the menu should be to come up with something that raises 18.5% of GDP in revenues and embodies with no loopholes, basically, the idea of a progressive tax system. And I think that expenditures should be reduced to the 21% of GDP level. And I think that will be very sustainable, those ratios. It will not eliminate the deficit of the debt. It doesn't. It eliminates. It does not eliminate the annual deficit. It keeps the debt as a percentage of GDP constant. And that's what we can live with?
QuestionerWe can live with it.
WarrenI mean, the net debt is in the 70s. It's around 73% or something like that. And that's what we always talked about until everybody got excited. That was 120% coming out of World War II. And it will stay in the 70s. It might even come down into the 60s. The 18.5% and 21% will not increase
Otherthe ratio of debt to GDP.And it very well may bring it down slightly.
QuestionerWhat has this meant to you,this friendship with Warren Buffett?
Carol LoomisOh, well, it's been a wonderful friendship.Can you imagine the chance to talk to Warren Buffettabout almost anything?To ask his opinion about every storythat you've ever had on your mind?It's priceless.And it's been priceless in a way to go at this bookand to see it all put down again,to add my introductions,and to see how good fortune wasat staying with this man.As I say, we were standing bywhile Warren Buffett was becoming Warren Buffett.And it was a remarkable thingthat we were allowed to do.And I loved it.
WarrenI'm smart enough to give her the last word.
QuestionerYou are smart.
OtherThis book is called Tapdancing to Work, Warren Buffett,on practically everything from 1966 to 2012,collected and expanded by Carol J. Loomis.
OtherThank you.
OtherThank you, Charlie.
OtherThank you, Charlie.
OtherThank you for joining us.
OtherSee you next time.